Certificate

This is to certify that the project titled “WORKING CAPITAL

MANAGEMENT” by P.RamakrishnaRao bearing the roll number
07J41E0026 of Dept. of MBA is a bonafide work done under the
guidance of _______________ and submitted to Jawaharlal Nehru
Technological University Hyderabad.

Place:

Date:

Head of the Dept. Internal guide External

examiner
 DECLARATION

I here by declare that this project work titled “ A PROJECT REPORT ON

WORKING CAPITAL MANAGEMENT” with special reference to PRAGA TOOLS

LIMITED, Secundrabad, is original in has been carried out by me as a student of

DEPART MENT OF MANAGEMENT STUDIES, K.G.R.L. INSTITUTE OF

MANAGEMENT BHIMAVARAM, W.G.Dt. During 1st may to 30 June 2007. And

has not been submitted elsewhere for the Award of any degree of diploma either in

part time or in full time to other university.

Date:
Place: V. BALA BALAJI

ACKNOWLEDGEMENT
 I am highly thankful to Principal and Faculty of K.G.R.L.Institute of
Management Studies for giving me this opportunity to under take my project
work in the Praga tools Limited. Balanagar, Secundrabad.

I am grateful to Mr. Uma Maheswara Reddy for giving me permission

to
do the project in PRAGA TOOLS LIMITED. I would express my sincere
thanks to Mrs. Padmini for helping me a lot in gathering information for my
project.

I also express my gratitude to my Father, Mother and my friends who

had been a constant source of encouragement and provided me the necessary
help during the period of my project.

Last but not least, I express my sincere thanks to the God Almighty for
showering his blessings upon me and also all those who helped me directly or
indirectly throughout my project work.

(BALA BALAJI.V)
Place
Date:

CHAPTERS CONTENTS PAGE NO:

ACKNOWLEDGEMENT I

LIST OF TABLES II

LIST OF GRAPHS III

CHAPTER-I INTRODUCTION TO THE STUDY 2

• Need for the study 3

• Scope of the study 4

• Objectives of the study 5

• Methodology of the study 6

• Limitations of the study 7

CHAPTER-II INDUSTRY PROFILE 8-14

CHAPTER-III COMPANY PROFILE 15-23

CHAPTER-IV THEORETICAL FRAME WORK 24-40

CHAPTER-V DATA ANALYSIS & INTERPRETAION 41-72

CHAPTER-VI FINDINGS 73-78

SUGGESTIONS

BIBILIOGRAPHY 79
 CHAPTER 1
INTRODUCTION
INTRODUCTION
1. WORKING CAPITAL MANAGEMENT

The success of business, among other things depends upon the manner
in which its capital is managed in the dynamic business setting, the
composition of working capital mismanaged, in the dynamic business setting,
the difference between the current assets and current liabilities. Constantly
changes in relation to the level of activity of the business concern and rates at
which the current assets of current liabilities keep changing in relation to each
other and other things are significant factors also continuous review and
direction of the financial manager.

It is the task of the financial maintain an appropriate level of working

capital that is enough current assets to pay off current liabilities neither excess
nor less because excessive working capital leads to interruption in the smooth
functioning of the business concern.

There are numerous instances in the history of business world where

inadequacy of working capital has led to business failures when a firm finds it
difficult to meetings day to day.

Operating expenses essential out lays may have to be postponed for

want of funds, operating plans will go out of gear & enterprise objectives on
investment slumps the suppliers & creditors of the firm may have to wait
longer to raise their dues & will hesitate to extend further credit to the firm.

Thus efficient management of working capital in an important

prerequisite for successful working of a business concern it reduces the chances
of business failure generates a felling of security and confidence in the minds
of personnel in the organization it assurance solvency of steady of the
organization.
1.1 NEED AND IMPORTANCE OF THE STUDY:

1.Their projects is helpful in knowing the companies position of funds

maintenance and setting the standards for working capital inventory levels,
current ratio level, quick ratio, current amount turnover level & web torn
turnover levels.

2. This project is helpful to the managements for expanding the dualism & the
project viability & present availability of funds.

3. This project is also useful as it companies the present year data with the
previous year data and there by it show the trend analysis, i.e. increasing fund
or decreasing fund.

4. The project is done entirely as a whole entirely. It will give overall view of
the organization and it is useful in further expansion decision to be taken by
management.
 1.2 OBJECTIVE OF THE STUDY:

1. To examine the effectiveness of working capita management polices

with the help of accounting ratio.
2. To study liquidity position of the company by taking various
measurements.
3. To evaluation the financial performance of the company.
4. To make suggestions for policy makers for effective management of
working capital.
 1.3 METHODOLOGY

Primary Data
DEF: The first handed information/Fresh data collected through various
methods is known as primary data.

In respect of primary data which the researchers is directly collects data

that have not been previously collected.

The primary data was gathered through personal interaction with various
functional heads and other technical personnel. Some information was also
collected by observation.

Secondary Data :
DEF: The data which have been already collected & comprised for another
purpose.
Secondary data was collected various reports / annual reports, documents
charts, management information systems, etc in PRAGA. And also collected
various magazines, books, newspapers and internet.

The analysis of the information gathered has been made on the basis of
the clarifications sought during the personal discussions with the concerned
people and perception during the personal visits to the important areas o
services.

In marking observations identifying problems and suggesting certain

remedies such emphasis was given on the basis of opinions gathered during the
personal discussions and with the personal experience gained during the
academic study of M.B.A course.
 1.4 SCOPE OF THE STUDY

1. The scope is limited to operations of Praga tools Ltd, Hyderabad.

2. The period consider 2 months

The scope of the study is limited to collecting the financial data published
in the annual reports of the company with reference to the objectives stated
above and an analysis of the data with a view to suggest favorable solution
to various problems related to financial performance.
 1.5 LIMITATION OF THE STUDY:

1. The following are the various aspects involved in the analysis of the study.

2. The study in limited 4 years (2004-2005) to (2005-2006) performance of the

company.

3. The data used in this study have been taken from published annual report
only.

4. This study in conducted within a short period. During the limited period the
study may not be retailed, full fledged and utilization in all aspects.

5. Financial accounting does not take into account the price level changes.
 CHAPTER – II
MACHINE TOOLS INDUSTRY
– AN OVERVIEW
 MACHINE TOOLS INDUSTRY – AN OVERVIEW

India ranks nineteenth in production and sixteenth in consumption of

machine tools in the world. The Indian machine tool industry averaged more
than 35 percent growth in 2004-05. Imports exceeded production in the year
2004 with us$356 million worth machine tools being imported while the
production was only us$225 million. Machine tools from I percent of Indies
engineering industry and contributes 0.3 Percent of total machinery exports.

The Indian machine tool industry currently consists about 450

manufacturing units of which approximately 33 percent (150 units) Fall under
the organized category. Further ten Major Indian companies constitute also
most 70 percent of the total production. The government Owned Hindustan
Machine tools Limited (HMT) alone accounts for Nearly 32% of Machine tools
Manufactured in India Approximately 75% of the Indian Machine tool
producers have received the coveted. 150 certification while the large
organized players cater to Indian’s Heavy and Medium industries, the small
scale sectors meets the demand of ancillary and other units

World wide the total modify locations are 3,336. First highest modify
location country is United States in 1333 lowest Modify location countries are
Belarus, Bosnia and Merzegovina, Bulgaria, Croatia, Malta, Russian
Federation in only one Modify Location. 51 modify location are located in
India. Modern Machine Tool in India’s leading Industrial Magazine on
machine tools and Ancillary industries. Published in affectation with the
country’s apex Body for the machine tools industry. Indian machine tool
Manufacture’s association (IMMA)
 With a healthy readership base of over 2 lakhs, this Premium quarterly
magazine is regularly referred to by the key decision makers in the machine
tool, cutting and other manufacturing Industries that include CEOs. Directors,
senior managers, as well as engineers and shop. Floor technical personal apart
from students. It serves as the bench mark and with word it this ever growing
sector of Indian industry.

In addition to manufactures, this publication also reaches out to

exporters, dealers, distributors, R&D personnel Educational institution,
consultants, industry associations and trade commissions almost every entry in
the industry.

Modern machine tools provide an intelligent balanced and cohesive

insight into the machine tools and ancillary industries in India in terms of the
death editorial content. It includes the latest trends and technologies highly
useful technical articles and case studies. Business strategies views and vision
of industry leaders and one of the largest ranges of machines tools/cuttings
tools. This apart, there is exhaustive coverage of the current national and
international news, upcoming projects, tenders, events and much more that help
the readers to effectively manage their business in a facilitator and guide for
this burgeoning industry.

Modern machine tools strives to facilitate effective interaction among

several fatuities of the machine tool, cutting and user industries by enabling
them in reaching out to their prospects buyers and sellers through better trade
contacts and more business opportunities.

Machine tool industry has undergone a radical shift in its paradigm

thinking, the Indian machine tool industry is now recognized as a provider of
low-cost high quality learn manufacturing solutions. The industry resiliently
supports all its users to enhance productivity as well as improve
competitiveness, for the betterment of the final customer.

Being an integral sector, growth of the machine tool industry has an

immense bearing on the entire economy, especially India’s manufacturing
industry. And is even more crucial for development of the country’s strategic
segments such as Defense, railways, space and atomic energy.

World over too, industrialized-advanced countries have created market

inches on the back of a well- developed and supportive machine tool sector.

In India as well, indigenous machine tools have the highest impact on

capital output ratios. Machine tool consumption of Rs. 1,000 Crore truly
supports the advancement of the country’s engineering sector, output of which
is estimated to be worth over Rs. 1,50,000 crore.

2.2 Manufacturing range:

The Indian machine tool industry manufactures almost the complete
range of metal cutting and metal forming machine tools complete range of
metal-cutting and metal-forming machine tools.

Customized in nature, the products from the Indian basket comprise and
conventional machine tools as well as computer numerically controlled (CNC)
machines. There are other variants offered by Indian manufactures too,
including special purpose machines, robotcsrobotics, handling systems and
TPM friendly machines.

Efforts within the industry, are now on to better the features of CNC
machines, and provide further value additions at lower costs, to meet specific
requirements of users. Based on the perception of the current trends, and
emerging demands, CNC segment could be the driver of growth for the
machine tool industry in India.
2.3 Current trends :
A slowdown in the Indian economy since mid-1999 had its fallout on
prospects of Indian machine tool manufactures. The Indian machine tool
industry is besieged by lack of adequate business opportunities that has
stemmed from sluggish demand in the home market of all user industries.

Output by domestic metal working machine tool manufacturers in 2001

calendar year declined by 14 pr cent to Rs.5, 137 million marking the fourth
yeast of decline, since 1997, for the Indian machine tool industry. Much of this
fall was due to subdued investment by all the major users segments of machine
tools, except the Defense industry, primarily because of a higher capital
expenditure outlay.

While decrease in domestic production was dormant in case of

conventional metalworking machine tools computer numerically conventional
metalworking machine tools, computer numerically controlled (CNC) machine
tool manufacturers too suffered, although marginally. Lathes, machining
centers, special purpose machines, and grinding machines were among the
machine tools that sustained much of the order inflow during 2001.even though
these segments registered decline, in comparison with the previous
corresponding year.

2.4 Export Performance:

In view of an imminent slowdown in the Indian economy, most Indian
machine tool manufactures focused on potential overseas markets for business
opportunities. Sustenance on Indian market alone did not look feasible enough.

Further, there has off late been a perceptible change in the image of the
made in India brand in overseas markets particularly true for Indian-built
machine tools. Enhanced features, competitive pricing, and marketing focus
has increased demand for Indian –made machine tools in overseas markets,
particularly in Europe, United states, and East-Asian regions.
 And this is what Indian machine tool manufactures are hoping to
leverage so as to post an optimistic export turnover in the next few years.

Indian-made machine tools are currently exported to over 50 countries:

major ones being United states, Italy, Brazil. Germany and the middle East.
Lathes and automats, presses, electro-discharge machines, and machining
centers formed the bulk of export orders for Indian manufactures. These
machines from the Indian basket are generally favored in overseas markets
primarily due to their cost-competitiveness, as compared to that available
elsewhere compared to those available elsewhere.

This vision of the Indian machine tool industry is now to step out and
establish a relative presence in, other potential markets. World-over, market
leaders have been those who have looked to increase their market presence
beyond their national frontiers.

2.5 Industry Structure

Machine tool industry in India comprises about 450 manufactures with
150 units in the organized sector. Almost 70 percent of production in India is
contributed by ten major companies of this industry. And over three-quarters of
total machine tool production in the country comes out of ISO certified
companies. Many machine tool manufacturers have also obtained CE marking
certification, in keeping with requirements of the European markets. The
industry has an installed capacity of over Rs. 10,000 million and employs a
workforce totaling 65,000 skilled and unskilled personnel.

Machine tool industry in India is scatted all over the country. The hub of
manufacturing activities, however, is concentrated in places like Mumbai and
Pune in Maharashtra; Batala, Jullunder and Ludhiana in Panjab; Ahmedabad,
Baoada, Jamnagar, Rajkot and Surendranagar in Gujarat, Combatore and
Chennai (Madras) in Tamilandu: some parts in East India; and Bangalore in
Karnataka.
 Bangalore is considered as the hub for the Indian machine tool industry.
The city, for instance, house HMT machines Tools limited, a company that
manufactures nearly 32 percent of the total machine tool industry’s output.

2.6 User Industries Services

The industry’s prospects mainly depend on growth of engineering
industries. The user sectors of machine tools are the automotive, automobile
and ancillaries, Railways, Defense, Agriculture, steel, Fertilizers, Electrical,
Electronics, Telecommunication, textile machinery, ball & roller bearings,
industrial values, power-driven pumps, multi-product engineering companies,
earth moving machinery, compressors and consumer durable like washing
machines, refrigerators, television sets, watches, dish-washers, vacuum
cleaners, air conditioners, etc.
 CHAPTER – III
PROFILE OF PRAGA TOOLS
LIMITED
 ORGANISATION PROFILE

3.1 INTRODUCTION

Praga is once of the leading machine tool manufacturing units in India

established in the year 1943, Praga’s production are well known in the field of
machine tools the company in organized in four divisions via the machine tools
forge foundry and CNC division which pulsated with the activities of 697
employees turning out a wide range of production the four divisions equipped
with the modern facilities for design development of manufacture of machine
tools, are manned by qualified personnel with proven record of technical
knowledge and exquisite craft smashup acquitted over a period of year.

Praga is proud of its diverse of machine tools the cutler& tools venders
milling machines copy lathes thread rolling machines & Praga CNC machines
which keep pace with the ever changing technology in addition the company
also manufactures a wide of industrial forgings for railway automotive &
ordnance applications.

Praga’s wriest investment has been in its excellent collaboration with

world famous names like Jones & shipman of UK for surface grinding and
cutter of tool vendors gamin of France for milling machines scoffers of grace
for thread rolling machines George finisher of Switzerland for coping lather
Mitsubishi Heavy industries of Japan for machining centers of Kayo spiky of
Japan for CNC lather the collaboration have culminated in Praga producing
machine tools of the highest quality conforming to international standards by
virtue of their dependability prevision engineering & proven.
 PROFILE OF PRAGA

The Praga Tools is one of the oldest, machine Tools industries in India
and has entire its golden jubilee year in 1993-94. The company has
incorporated has the joint stock company is 1943 has a private company with
objective of manufacturing, instruments with the Technical assistance of a few
Czechoslovakia Engineers. The company was incorporated in Many 1943 as a
public limited company in private sector. The name PRAGA symbolizes the
technical co-operation extended in the initial phase by some Czechoslovakian
engineers who suggested the naming of the company as PRAGA after their
capital city PRAGUE (PRAGA).

In March 1995, the Government of India acquired the controlling

interest in the company by acquiring majority shares and placed the
administrative control under the ministry of commerce and industry from May
1995 to December 1963. The managing agents M/S united industrial
corporation limited initially managed the company. Administrative control of
the company has been transferred from the defense minister to the department
of public enterprise under ministry of industry on the 25th of April 1986.
Presently the company enjoys the status of being a subsidiary of HMT LTD.
Bangalore when a paid up capital of the company was transferred in its name
from the government.

The company has four manufacturing nits located with in the twin cities
of Hyderabad at Kavadiguda at Secunderabad it manufactures a wide range of
machine Tools, accessories and defiance items. A unit of forge and foundry
divisions is located at Kukatpally Hyderabad where manufactures castings and
forgings are.
 A CNC project was established with advance technology like numerical
control machines like automobiles CNC lathes, VNC mailing machines etc are
manufactures with the qualified personnel’s in the fields of engineering of
technology.

The company has manpower of 2000 employees turning out wide range
of products.

The company has organized into four divisions viz., the machine Tools
division (MT-I), machine Tools II (MT-II), forge and foundry division, and the
CNC division.

Performance Praga machine tools ate penetrating large segments of

foreign markets including UK CIC Canada, Bulgaria, Indonesia, Germany,
Japan.

PRAGA is even mote proud of the fact that it has contributed to the
development of thee machine tools industry in the development of the machine
tools industry in the country and the creation of a vast band of skilled
technicians thus Praga to day in name of techno, within the machine tool
industry.
3.2 CORPORATE VISION OF PRAGA TOOL

VISION STATEMENT:

Praga tools to be the provider of choice for total machine tools solution
to customers and a significant provider of service in Indian industry of oversees
too the strong market position in to be sustained by the provision of integrated
products and services and the aggressive marketing of machine tool knowledge
expensive and support services.

COMPANY STATRATEGY:

1. To maintain good customer relation

2. Providing after seller service
3. Increasing the book order position
4. To maintain good quality and loyalty of the customers on their products
5. Maintain better research and development activities
6. Relation to company and other customer services through conducting
the product exhibition within the company preview

QUALITY VALUE:

• Commitment of the management of the quality at all stager.

• To create quality culture among all employees to maintain quality
leadership in all products.
• To maintain quality leadership in all products and services.
• Total customer satisfaction through quality goods and services.
• Total quality through performance leadership.
3.3 MANUFACTURING FACILITIES

The company has two manufacturing units the order manufacturing unit
is located at Kavadiguda in Secunderabad, the heart of the city these unit
houses the machine toils division and the corporate head office and
accompanies and area of slightly over 1 acres the company.

Has its second manufacturing has is at balanagar in Hyderabad, about 5 to 6

kilometers from Hyderabad, airport the CNC division forge shop of foundry
division are located in the balanagar unit the total and available with the
currently utilized by the CNC division forge shop and foundry division leaving
a surplus of nearly 100 acres.

3.4 PRODUCT RANGE:

The company has three manufacturing division viz., can pavilion forge
shop and foundry division.

MACHINE TOOLS DIVISION:

The major products manufactured by the company in its machine toll

division are cutler of fool grinders, milling machines, thread rotting machine,
lather chuckn etc. There products were developed with the technical assistance
of the world-renowned machine tool manufacture by entering into
collaboration agreements with M/s. Escofier, SA, France, M/s. F. Pratt and Co.
and U.K. There machines enjoy good reputation in the market.

FORCE DIVISION:

Railway Duplication
Auto dialer pants
Tractors links
Other carting
BOUNDARY DIVISION:

Carting for companies machine tools:

The sophisticated machines like CNC machining center sideway,
grinding machines, universal grinding machines, jigs boring machine with
coordinated system been added at a cost of Rs. 1,107.05 lacks.

PRAGAS VALUES:

Underlying our minion in a set of core corporate valued which deliver praga
priorities. This set of values creates an overall framework for determining our
derived future and developing plans to achieve it.

We take advantage of existing synergies and foreseeing higher level of

competitiveness. Safety in the priority value for all aspects of our business.
SWOT Analysis:

STRENGTHS:

• Proven products and brand image.

• High brand loyalty of customer.
• High market shares in few of the products categories.
• Skilled work force.
• ISO 9001 accredited company.

WEEKNESSES:

• Limited product gage.

• Low volume production.
• Out dead technology.
• Inadequacy of working capital.
• Aberrance of MIS.
• Board needs to be board bared and must include.
• Financial expensive.
• Obralete machinery.
• High man power cost.
• Poor marketing plants.

OPPORTUNITIES:

• Prospects of improved in auto and automotive sector.

• Export potential for exports of machines.
• Foreign and components(with up gradation)
Opportunity to from joint venture update technology. And use technical
manicuring experience for globalization through venture partnership.
Diversification into related areas where ever synergy exists.

Threats:
• Dwindling market for some of the products server.
• Competition from imports of latest technology machines.
• A threat from second hand machine imparts.
• Shrinking resources of traditional customers, defense and railways.

The above analysis indicates ample scope and prospects for the company
subject to corrective steps being taken early.
 CHAPTER – IV
CONCEPTUAL & METHODOLOGLCAL
FRAME WORK
4.1 NATURE OF WORKING CAPITAL

Working capital management in concerned with the problem that arises

in attempting to manage the current assets current liabilities and the inter
relationship the exist between them the term current assets refers to those assets
which in ordinary course of business can be or will be turned into cash within
one year without undergoing diminution in value and without undergoing in
value and without disrupting the operations of the firm.

The major current assets are cash marketable securities accounts

receivable and inventory, current liabilities those liabilities, which are intended
at their inception to be paid in the ordinary course of business with in a year
current liabilities are amount payable, bills payable bank overdraft and
outstanding expenses.
4.2 DEFINITION OF WORKING CAPTIAL:

According to MY Khan and P.K Jain “Working capital refers to manage

the firm current assets and current liabilities in such a way that a satisfactory
level of working capital is maintained.

According to the Shubin “working capital is an amount of fun is

necessary to cover the cost of operating the enterprise”.

Working capital management is concerned with the problems is that

arise in attempting to manage the current assets and the current liabilities and
their inter relationship they arise between them.

Current assets refer to those assets which to ordinary course of business

can be or will be turned into cash within one year without undergoing a
diminution in value and without disrupting the operations of the firm.

The major current assets are cash marketable securities accounts

receivable and their inception to be paid in the ordinary course of business
within a year out of Current Assets or earnings of the concern. The basic
Current Liabilities are Bill payables, Bank Overdrafts and Outstanding
expenses.

The goal of working capital managements is to manage the firms

Current Assets. And Current Liabilities in such a way that a satisfactory level of
working capital is maintained.
 Thus the current assets should be large enough to cover its current
Liabilities in order to ensure a reasonable margin of safety. Each of the current
assts must be efficiently in order to maintain the liquidity of the short term be
managed efficiently in order to maintain the liquidity of the short term sources
of financing must be continuously managed to ensure that they are obtained
and used in a best possible way.
Therefore interaction between current assets and current liabilities in the
main theme of working capital Management.

The current assets should be large enough to cover is current liabilities

in order to ensure a reasonable margin of safety. The interaction between
current assets and current liabilities in therefore the main theme of the threat of
working capital management.

The two concepts of working capital are:

4.3 Methodological Framework

The data for the period 2001-2005 used in this study have been taken
from primary and secondary sources. The necessary primary data have been
collected from corporate office of the organization; secondary data have been
collected from the financial statements published in the report of the PRAGA
TOOLS LTD.

Data was analyzed through various established techniques of working

capital and personal observation. Editing the data, clarification and tabulation
of the financial data collection from the above mentioned source have been
done as per the requirements of the study. Data has been analyzed using various
comparative statements and working capital ratios.

The data is analyzed in the chapter-4 ‘Analysis of Working Capital

PRAGA TOOLS LTD’ under the following head.
 1. Trends in Net Working Capital
2. Working Capital Ratios
a) Current Ratios
b) Quick or Acid test Ratio
c) Current Assert Turnover Ratio
d) Current Asserts to Total Asserts Turnover Ratio
e) Working Capital Turnover Ratio

3. Cash Management
a) Percentage of Cash to Current Asserts
4. Receivables Management
a) Debtors Turnover Ratio
b) Debtors Collection Period
5. Inventory Management
a) Inventory to Total Current Asserts
b) Inventory Turnover Ratio
c) Inventory Holding Period in Days

4.4 NEED FOR WORKING CAPITAL:

Working capital is the amount of funds necessary to cover the cost of

operating the enterprise. Working capital in a going concern is revolving
funds; it consists of cash receipts from sales which are used to cover the
cost of current operations.

The need of working capital arises because of time gaps in

manufacturing and marketing cycle of business operations. This time gap is
due to time gaps between Cash and purchase of Raw-Materials.

a) Purchase and production

b) Production and sales
c) Sales and Realization of cash.

During these intervals, the company should have ready working or

operating funds to keep their business going. Thus every business concern
should have sufficient liquidity funds as its disposal to buy Raw-Materials,
stores etc to pay wages to personnel and to meet incidental expenses with the
installed plant equipment, tools and other fixed assets, the concerned would be
able to produce finished goods by spending cash or Raw Materials,
intermediate goods Labor remuneration etc. The goods so produced will swell
into inventories or stock soon, the stock will take the form of debtors or Bill
Receivable on maturity.
There is therefore, a need for working capital, because the production
Sales and cash payment and realization of cash are not instantaneous, the
company needs cash to purchase Raw material and to meet expenses as there
may not be helps to meet future agencies.

The stocks or Raw materials are kept in order to assure smooth

production and protect against the risk of Non availability of raw material.
Similarly, stocks of finished goods have to be carried to meet the demands of
the customers on continuous basis and sudden demand. Thus, an adequate
amount of funds has to be invested in current assets for smooth and
uninterrupted. Production and sales process, which is refers to as operating
cycle or cash cycle. The operating cycle determines the need for working
capital.

The operating cycle represents the period during which investment of

one unit of remain blocked till recovery out of revenue, in other words, the
operating cycle refers to the time necessary to complete.

a) Conversion of cash into Raw Material.

b) Conversion of Raw Material into finished goods.
c) Conversion of finished goods into cash sales or credit sales.
d) Conversion to credit sales or receivable into cash.

Thus, it is said Management must know the length of time required to convert
cash into resource used by the firm, the resource into the resource used the firm
the resource into final product. The final product into receivable bank into cash.
This is the operating cycle of an enterprise.

Thus, it is said Management must know the length of time required to

convert cash into resource used by the firm, the resource into the firm the
resource into final product. The final product into receivable bank into cash.
This is the operating cycle of an enterprise.
The pattern of operating cycle depends upon the nature of the enterprise.
The financial institution may have a shorter cycle while trading concern has
and extended one. The usual operating cycle of manufacturing concern is
shown. In real business situation, the operating or cash flow cycle in not as
simple and smooth going as the depicted above. A going concern by nature
undergoes the process of liquidity the besides, a circular flow among working
capital itself, all process of liquidity valued added to the product of the firm.

Therefore, we can say that, working capital in needed not only for
financing current assets but also to meet various other requirements like
payment of dividends, interest etc. Therefore, it is recovery for a product
financial manager to provide correct amount of working capital at the time to
provide for operating reach.

5.5 SCOPE OF WORKING CAPITAL MANAGEMENT

Since a firm has to maintain a sound working position and there should
be optimum investment in working capital, effective management involves
manages of current assets and current liability. Current asserts management
involves management of current assets like Cash.

Marketable Securities, Account Receivable, inventories etc. effective in

order to maintain liquidity of the firm. The process of current asserts
management can be as follow management of cash and Marketable Securities.
a) Management of cash and Marketable Securities.
 b) Management of Cash.

Current liability management is concerned with the management of

curr3ent liabilities like, trade Credit or Account Payable, Accruals etc.
which represents short term financial source and must be cautiously
management to ensure that they are obtained and used in the best way
possible.
4.6 OBJECTIVES OF WORKING CAPITAL

The main if working capital management in to attain trade off between

profitability and risk. Here risk refers to the profitability that a firm will
become technically involvement that is unable to pay obligation promptly. Risk
is commonly measured by using either the amount of net working capital of the
current ratio. Thus more the net working capital the more liquidity is associated
with increasing levels of risks.

To have higher profit the firm may have to sacrifice solvency that is take
the risk of technical insolvency and maintain relatively low level of current
assets. When the firm does so, its profitability would improve but greater risk
of technical insolvency.

Thus, if a firm wants to increase profitability it must also increases its

risk and if it want to decrease risk, it must decrease profitability. Thus, working
capital management involves trade off between risk and profitability.
4.7 COMPONENTS OF WORKING CAPITAL

The main components of working capital are currents assets & currents
liabilities.

A. CURRENT ASSETS:

Current assets comprised items that would get converted in to cash in

short term, within a year, through the business operations current asserts
include.

Inventories including stock of raw material, work in progress, finished

goods & factory supplies. Packing, shipment material, office supplies etc

Loan & advances, other balances; include sundry debtors, bills receivables and
others including loans and advances, prepaid expenses etc.

Marketable securities including government securities and semi government

securities, cash and bank balances.

B. CURRENT LIABILITIES:

Current liabilities are those which are expected to fall due of mature for
payment in short period of one year and they represent short term source of
funds. They include:

C. SHORT TERM BORROWINGS:

 Include bank borrowings other than those against own debentures and
other mortgages, trade creditors and other labializes sundry creditors,
outstanding expenses and advances received etc.
Provision for taxation, dividends and other current provisions.

4.8 GROSS WORKING CAPITAL:

Gross working capital in represented by the sum total of all current

assets of the enter price adequate funds have to be provided to sustain the
movement of the row material through the work in process to the finished
goods stage and then to receivables and up to realization of cash.

NET WORKING CAPITAL:

Net working capital in excess of current assets over current liabilities the
concept of net working capital highlights the character of serves from which
the funds have been obtained to support that position of current liabilities.

PRORIETORS
FUNDS

CREDITORS

NEED FOR WORKING CAPITALS

 Business firms aim at maximizing the wealth of shareholders. In its
endeavor to maximize shareholder’s wealth a firm should earn sufficient return
from its operation earning a steady amount of profits required successfully
sales activity. The firm has to invest enough funds in current assets for the
success of sales activity current assets are needed because sales don’t convert
into cash instantaneously there is always an operating cycle involved in the
conversion of sales into cash.
PERMANENT AND TEMPORARY WORKING CAPITAL:

The above figure shows permanent level is fairly constant, while

temporary working capital is fluctuating some times increasing and some time
decreasing in accordance with seasonal demands, in the case an expanding firm
the permanent working capital may not be horizontal. This is because the
demand for permanents current asserts might be increasing or decreasing
support a rising level of activity. In that the line should be a rising one.

Temporary or
Fluctuating

Permanent

TIME

PERMANENT AND TEMPORARY WORKING CAPITAL.

 Both kinds of working capital are necessary to facilitate the sale process
through the operation cycle. Temporary working capital is created is created to
meet liquidity requirements that are purely transient nature.

4.9 THE DANGERS OF EXCESSIVE WORKING CAPITAL

1. It results in unnecessary accumulation of inventories thus chances of

inventory mishandling waste theft and losses increases.

2. It is an indication of defective credit policy and slack collection period.

Consequently higher incidence of bad debts results, which adversely
effect degenerated into management co placement, which degenerated
into managerial inefficient.

3. Excessive working capital makes management complacent, which

degenerates into managerial efficiency.

4. Tendencies of accumulating inventories to make speculation profits

grow this may tend to make dividend policy liberal and difficult to cope
with in future when the firm is unable to make speculative profits.

INADEQUATE WORKING CAPTIAL

1. It stages growth and become difficult for the firm to undertaken

profitable projects for non-availability of working capital funds.

2. It becomes difficult to implement operating plans and achieve the firms

profit target.

3. Operating inefficiencies creep in when it becomes difficult even to meet

day-to-day commitments.
 4. Fixed assets are not efficiently utilized for the lack of working capital
funds thus the firms profitability would deteriorate.

5. Paucity of working capital funds renders the firm unable to avail

attractive credit opportunities etc.

6. The firm losses its reputation when it is not in position to honor its short
term obligation as result the firm faces tight credit terms.
Thus, enlightened management should therefore maintains a right
amount of working capital on a continuous basis which helps to develop the
organization effectively and efficiently.

4.10 ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL

MANAGEMENT:

1. Working capital management requires must of the finance manger time

as it represent a large position of investment is assets.

2. Working capital management requires much of the finance management

time as it represent larger position of investment in assets.

3. Action should be taken to curtail unnecessary investment in current

assets.

4. All precautions should be taken for the effective and efficient

management of working capital.

5. Larger firms have to manage their current assets and current liabilities
very carefully and should see that the work should be done properly in
order to achieve predetermined organization goals.

6. The financial manger should pay special attention to the managements

of current assets on continuing basis.
FUNDS FLOW STATEMNET

Funds flow analysis design effective management toll to study how

funds have been procured for the business and how they have been employed.
The statement of variation in working capital is based fundamentally on the
same approach used for the preparation of funds flow statement. This technique
helps to analyses changes in working capital between dated or two balance
sheets. The comparison of current assets and current liabilities as shown in the
balance sheet at the beginning and the ending of a specific period.

The statement of changes in working capital reveals to manage to way in

which working capital was obtained and use with this insight management to
can prepare the estimates of the working capital flows. A project statement of
changes in working capital is very much useful in the firm long planning.

CONCEPT OF FUND

The working capital flow or fund arises when the net affect of a
transaction is to increase or decrease the amount of working capital a firm will
have same transactions that will change net working capital and same that will
cause no change in net working capital transaction which change net working
capital include most of items of the profit & loss account and those business
events which simultaneously effect both current and not current balance sheet
items. On the other based transaction, which do not increase or decrease
working capital include those which effect only current accounts or only non
current accounts.

USES AND SIGNIFICANCE OF THE FUND FLOW STATEMENT

1. A Funds Flow statement show how the resource has been obtained and
the uses to which are put it helps in analyzing the financial operations.

2. It helps in determining the financial consequences of business

operations.

3. It is useful in judging whether the fund has expanded at too faster rate
and whether financing is trained.

4. It points out the effectiveness with which the management has handled
working capital during the period under review.

5. The statement can assist the financial management in planning

intermediate and long-term finance to obtaining resources in the further
and determining how they are used.

6. It gives an insight into the evaluation of the present situation it provides

certain useful information about the firm financial policies to out side
world.

The funds flow statement is becoming popular with the

management because it helps to explain why in spite of earn sizeable
amount of profits the company is experiencing difficulty in making
payment to creditors the rate of dividend on equi9ty shares cannot be
increased and bank balance is getting thinner.

OBJECTION OF FUND FLOW ANLAYSIS:

1. To indicate the result of current financial position.

2. To lay emphasis on the most significant change that has taken place
during specified period.

3. To show how general expansion in business has been financed or to

describe the sources from which additional funds were derived.

4. To know the relationship between profits from operating distribution of

dividing and rating a new capital or contracting of loans.

5. To give reorganization to the fact that a business exists on flow of funds

and is not a static management.
MANAGEMENT OF CASH

CASH MANAGEMENT:-

Cash is the important assets for the operations of the business cash is
the basis input to keep the business running on continuous basis. Cash
shortage will disrupt the firms manufacturing operations while excessive
cash will simply remain ideas without contribution any thing towards the
firm’s profitable way.

Cash management is concerned with the managing of cash flow into

and out of the firm cash flow with in the firm and cash balances held by the
firm at appoint of time by financing depict investing surplus cash. Cash
management is to obtain adequate control over cash position to keep the
firm sufficiently liquidate and to use excess cash in some profitable way.

CASH PLANNING:-

Cash planning is technique to plan and control of the use of funds. It

protect the financial condition of them firm by developing a projected cash
statement from a forecast of plans are very crucial and developing the
overall operating plans of the firm.

USES OF CASH MANAGEMENT:-

1. It indicates company’s future financial need especially for its working

capital requirement.
2. To help to evaluate proposed capital projects.

3. It pinpoints the cash required to finance these projects as well as the

cash to be generated by the company to support them.

4. It helps to improve corporate planning.

5. Cash forecasting helps to future and to formulate projects carefully.

CHAPTER –V
DATA ANALYSIS &
INTERPRETATION
 Table-1
STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN
31-03-2001 & 31-03-2002
Rs. in Lakhs

S.No. Particulars 31-03-2001 31-03-2002 Increase Decrease

(a)
Current
Assets
Inventories 1,44,120.00 1,19,395.00 24,725.00
Sundry debtors 71,970.00 61,278.00 10,692.00
Cash & Bank
1,213.00 1,252.00 39.00
balance
Loan & Advance 31,317.00 22,180.00 9,137.00
Total (a) 2,48,620.00 2,04,105.00
(b)
Current
Liabilities
Current Liabilities 3,41,037.00 3,70,306.00 29,269.00
Provisions 82,424.00 83,160.00 736.00
Total (b) 4,23,461.00 4,53,466.00
Working -1,74,8,741.0
(a-b) -2,49,361.00
Capital 0
Net increase
74,520.00 74,520.00
in W.C
Total of
-7,74,841.00 -1,74,841.00 74,559.00 74,559.00
N.W.C

ANALYSIS:
 Above table explaining that working capital shows the continuous increase in
the net working capital through in the year 31-03-2000 to the year of comparing the
balance sheet is the year 31-03-2001 to 31-03-2002. So, this is due to the sale of
inventory and reducing the debtors and increasing the current liabilities and
provisions.

Rs. in Lakhs

S.No. Particulars 31-03-2002 31-03-2003 Increase Decrease

(a)
Current Assets

Inventories 1,19,395.00 72,230.00 47,165.00

Sundry debtors 611,278.00 28,478.00 32,800.00
Cash & Bank
1,252.00 7,041.00 5,789.00
balance
Loan & Advance 22,180.00 13,205.00 8,975.00
Total (a) 2,04,105.00 1,20,954.00
(b)
Current
Liabilities
Current Liabilities 3,70,306.00 3,10,123.00 60,183.00
Provisions 83,120.00 71,062.00 12,099.00
Total (b) 4,53,466.000 3,81,185.00
Working
(a-b) -2,49,361.00 -2,60,231.00
Capital
Net decreased
10,870.00
in W.C
Total of
-2,49,361.00 -2,49,361.00 88,940.00 88,940.00
N.W.C

ANALYSIS:
 Above table discloses that working capital shows the continuous increase in
the net working capital through in the year 31-03-2002 to the year of comparing the
balance sheet is the year 31st March. So, this is due to the sale of inventory and
reducing the debtors and decreasing the current liabilities and provisions.

Table-2
STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN
31-03-2003 & 31-03-2004.
Rs. in Lakhs

S.No. Particulars 31-03-2003 31-03-2004 Increase Decrease

(a)
Current Assets

Inventories 72,230.00 50,765.00 21,465.00

Sundry debtors 28,478.00 34,042.00 5,564.00
Other current
--- 4,932.00 4,932.00
Assets
Cash & Bank
7,041.00 1,56,398.00 1,49,357.00
balance
Loan & Advance 13,205.00 11,368.00 1,837.00
Total (a) 1,02,954.00 2,57,505.00
(b)
Current
Liabilities
Current Liabilities 3,10,123.00 3,77,829.00 67,706.00
Provisions 71,062.00 71,793.00 671.00
Total (b) 3,81,185.00 4,49,562.00
Working
(a-b) -2,60,231.00 -1,92,057.00
Capital
Net decreased
68,174.00 68,174.00
in W.C
Total of 1,59,853.0
1,59,853.00
N.W.C 0
ANALYSIS:
The above table discloses in this working capital as that was the Net decrease
in working capital in this year 31-03-2003 to 31-03-2004 is Rs.68,174.00 due to
major reasons of adjusting current assets as increase and the current liabilities
decrease but the provision decreased.

Table-3
STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN
31-03-2004 & 31-03-2005.
Rs. in Lakhs

S.No. Particulars 31-03-2004 31-03-2005 Increase Decrease

(a)
Current Assets

Inventories 50,765.00 43,429.00 7,336.00

Other current
4,932.00 5,313.00 381.00
Assets
Sundry debtors 34,042.00 36,681.00 2,639.00
Cash & Bank
1,56,398.00 51,469.00 1,04,929.00
balance
Loan & Advance 11,368.00 10,466.00 902.00
Total (a) 2,57,505.00 1,47,358.00
(b)
Current
Liabilities
Current Liabilities 3,77,829.00 3,90,548.00 12,719.00
Provisions 71,733.00 57,232.00 14,501.00
Total (b) 4,49,562.00 4,47,780.00
Working
(a-b) -1,92,057.00 -3,00,422.00
Capital
Net decreased
1,08,365.00 1,08,365.00
in W.C
Total of
-1,92,057.00 -1,92,057.00 1,25,886.00 1,25,886.00
N.W.C

ANALYSIS:
 In this above table of working capital discloses that as the net increase in
working capital in this 31-03-2004 to 31-03-2005 is Rs.1,08,365.00 due to major
reasons of adjusting current assets as increase and the current liabilities decreases but
the provision decreased.

THE STATEMENT SHOWING CHANGES IN WORKING CAPITAL

BETWEEN 31-3-2005 TO 31-3-2006

S.No Particulars 31-03-2005 31-03-2006 Increase Decreased

(a) Current Assets
Inventories 43,429.00 40,255.00 -------- 3,174.00
Sundry
Debtors 5,313.00 5,837.00 524.00 --------
Cash & bank
balances 36,681.00 37,282 601.00 -------
Loans &
advances 51,469.00 1,34,653.00 83,184.00 -------
Total (a) 1,47,358.00 2,34,274.00

(b) Current
Liabilities
Current
liabilities 3,90,548.00 2,71,304.00 1,19,244.00 -------
Provisions 57,232.00 69,406.00 12,174.00
Total 4,47,780.00 3,40,710.00

Working capital (a-b) -3,00,422.00 -1,06,436.00

Net decrease in W.C 1,93,986.00 1,93,986.00

Total of N.W.C 1,06,436.00 1,06,436.00 2,09,334.00 2,09,334.00

ANALYSIS :-

Lastly in this year the statement of working capital shows the continued
decreased in the net working capital through in the year 31st March 2005 to the year of
comparing the balance sheet is the year 31st March 2006. So, this is due to funds flow
statement.
FUND,S FLOW STATEMENT AS ON 31ST MARCH, 2001.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in secured Purchased of Fixed
2,39,919.00 108.00
Loans Assets
Increased in Un-secured Net increased in working
14,062.00 85,948.00
Loans capital
Funds Lost in operation 1,67,925.00

Total 2,53,981.00 Total 2,53,981.00

ANALYSIS:
During this year 2000-2001 the funds flow statement the losses of the
PRAGA TOOLS LIMITED is still continuing. The company has mobilized his
funds increased figures of the secured and unsecured loans. The company has
adjusting their losses through these areas and in this year the purchasing power
of the company is also decreased.
FUND’S FLOW STATEMENT AS ON 31ST MARCH, 2002.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in secured Purchased of Fixed
2,64,416.00 33.00
Loans Assets
Increased in Un-secured Net increased in working
8,237.00 85,948.00
Loans capital
Work in Progress 746.00 Funds Lost in operation 1,87,418.00

Total 2,73,399.00 Total 2,73,399.00

ANALYSIS:
In this last year of comparing there is the funds flow statement is still
including the losses from the operation. The company has procured huge
amount from borrowing loans in the from of secured and unsecured loans. The
company has Wright off their losses in operations which is the major thread of
the company that’s need to be ratified by the management of the PRAGA
TOOLS Limited.
FUND’S FLOW STATEMENT AS ON 31ST MARCH, 2003.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in secured Purchased of Fixed
4,07,033.00 652.00
Loans Assets
Increased in Un-secured Net increased in
13,764.00 10,870.00
Loans working capital
Funds Lost in operation 4,09,284.00

Total 4,20,779.00 Total 4,20,779.00

ANALYSIS:
During this year 2002-2003 the funds flow statement the losses of the
PRAGA TOOLS LIMITED is still continuing. The company has mobilized his
funds increased figures of the secured and un-secured loans. The company has
adjusting their losses through these areas and in this year the purchasing power
of the company is also decreased.
FUND’S FLOW STATEMENT AS ON 31ST MARCH, 2004.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in un-secured Decreased in
13,747.00 1,05,789.00
Loans secured loans
Sales of fixed assets 9,211.00
Net decreased in working
68,174.00
capital
Funds lost in operations 14,657.00 10,870.00

Total 1,05,789.00 Total 1,05,789.00

ANALYSIS:
During this year 2003-2004 the funds flow statement the losses of the
PRAGA TOOLS LIMITED is still continuing. The company has mobilized his
funds from increased figures of the secured and un-secured loans. The
company has adjusting their losses through these areas and in this year the
purchasing power of the company is also decreased.
FUND’S FLOW STATEMENT AS ON 31ST MARCH, 2005.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in Share Capital Net increased in
1,700.00 1,08,365.00
funds. working capital
Funds lost in
Increased secured loans 2,12,657.00 1,35,004.00
operations
Increased un-secured
13,746.00
loans
Sales of fixed assets 15,266.00

Total 2,43,369.00 Total 2,43,369.00

ANALYSIS:
During this year of comparing there is the funds flow statement is still
including in losses from the operations. The company has procured huge
amount from borrowing loans in the form of secured and unsecured loans. The
company has Wright off their losses in operations in operations which is the
major thread of the company that’s need tobe ratified by the management of the
PRAGA TOOLS Limited.
Funds Flow statement as on 31st March 2006

SOURCES AMOUNT APPLICATIONS AMOUNT

Decreased Security
Sales of fixed assets
loans
2,043.00 18,45,247.00

Net decreased working Decreased unsecurity

capital loans
1,93,986.00 24,806.00
Funds lost in
operations 16,74,024.00

Total 18,70,053.00 Total 18,70,053.00

ANALYSIS:-

In this year 2005-2006 the funds flow statement the losses of the PRAGA
TOOLS LIMITED is still continuing. The company has mobilized his funds increased
figures of the secured and unsecured loans. The company has adjusting their losses
through these areas and in this year the purchasing power of the company is also
decreased.
Funds Flow statement as on 31st March 2006

SOURCES AMOUNT APPLICATIONS AMOUNT

Decreased Security
Sales of fixed assets
2,043.00 loans 18,45,247.00
Net decreased working Decreased unsecurity
capital loans
1,93,986.00 24,806.00
Funds lost in
operations 16,74,024.00

Total 18,70,053.00 Total 18,70,053.00

ANALYSIS:-

In this year 2005-2006 the funds flow statement the losses of the PRAGA
TOOLS LIMITED is still continuing. The company has mobilized his funds increased
figures of the secured and unsecured loans. The company has adjusting their losses
through these areas and in this year the purchasing power of the company is also
decreased.
 CHART – 1

TRENDS IN NET WORKING CAPITAL

Series1

120
100
80
60
40
20
0
2002-03 2003-04 2004-05 2005-06

INTERPRETATION:-

Net working capital had shown an increasing trend since, 2002, which in taken
as a base year from 100% to 98.40% in 2006. Which appears to be a normal trend. A
careful analysis into the components of the working capital would reveal the changes
in NWC the current assets decreased in the next years that is 2003-04 and at the next
consecutive assets increased in the next consecutive year to a good extent, but there is
a decreasing trend in the year 2005-06 as the current liabilities are covered their in a
increase in the next two year, 2003-04 & 2004-05 but there is gradual decrease in the
year 2005-06 which is good sign to the company.

This is calculated on the basis of the prevision year i.e. the net working capital
shown a decreasing trend compare to the year 2002-03 then the net working capital
increaser gradually from 2003-04 & 2005-06.
 TYPES OF RATIOS

Several ratios calculated from the accounting data, can be

grouped into various classes according to financial activity or function to be
evaluated the parties interested in financial analysis are short and long term
creditors owners and managements short term creditors main interested is in
the liquidity position or short term solvency of the form long term creditors
on the other hand. Are more interested in the long-term solvency and
profitability of the form. Similarly owners are more interested on the form
profitability and conditions. Management is interested in evaluating every
aspect of the forms performance. They have protect interested of all the
parties.

The ratios are classified into three types.

(a). Liquidity Ratios
(b). Leverage Ratios
(c). Profitability Ratios

LIQUIDITY RATIOS:-

Liquidity Ratios measure the ability of the firm to meet its current
obligations. The analysis of liquidity needs the preparation of cash budget
and cash fund flow statement but liquidity ratios by establishing relationship
between cash and other current asset of current obligation, provide a quick
measures of liquidity. A firm should ensure that it does not suffer form.
 LIQUIDITY OR SHORT TERM SOLVENCY RATIOS:-

Liquidity ratio measures the short-term solvency of the firm. The

following are the important liquidity ratios.

4.2 WORKING CAPITAL RATIOS:-

Current Assets
Current Ratio = ----------------------
Current Liabilities

The current Ratio is calculated by dividing current assets by current liability.

The current ratio is a measure of the firm’s short term solvency a current ratio of 2 or
more in considered satisfactory.

TABLE – 2

CURRENT RATIO
(In Lakhs)

Year Current Assets Current Liabilities Current Ratios

2002-03 17846.14 4652.24 4.10

2003-04 15800.00 5117.81 3.09

2004-05 20272.00 11485.00 1.76

2005-06 1377.11 5130.73 2.69

 CHART – 2

CURRENT RATIO

Current Ratios
5.00

4.00

3.00
Ratios

2.00

1.00

0.00
2002-03 2003-04 2004-05 2005-06
Year

INTERPRETATION:-

Generally 2:1 in considered ideal for a concern from the ratios we can observe
that the ratios are above the standard in the year 2002-03 & 2003-04 but in the year
2004-05 the firm in not able to maintain a standard level of liquidity so the current
assets ratio has been directed below standard level that is by 1.76 but in the year
2005-06 the company is able to regain its standard level and can obtain its current
assets ratio by 2.69 compared to its current liabilities.
 Quick Assets
Quick or Acid Test Ratio = ------------------------
Current Liabilities

The quick Ratio is more penetrating test of Liquidity than Current Ratio, this Ratio
measures the firms liability to meet short term liabilities from its liquid assets that is
current assets inventories.

TABLE – 3

QUICK RATIO

Year Quick Assets Current Liabilities Quick Ratios

2002-03 10141.00 4352.00 2.33

2003-04 8697.00 5118.00 1.64

2004-05 15335.00 11486.00 1.34

2005-06 9722.00 5130.00 1.89

 CHART-3

QUICK RATIO

Quick Ratio
2.5

1.5
Ratio

Series1
1

0.5

0
2002-03 2003-04 2004-05 2005-06
Year

INTERPRETATION:

Quick ratio is ascertained by comparing the liquid assets this ratio shows the
immediately available assets which can be easily converted in to cash to meet the
short term solvency of the company the normal value which shows the non
availability of assets for immediate conversion into liquid cash in the later year the
figures were a little.
ABSOLUTE LIQUIDITY RATIO:-

It is the ratio of absolute liquidity assets to quick liabilities. However, for

calculation purpose it is taken as ratio of absolute assets includes cash in hand at bank
and short term or temporary inventory investments.

Absolute Liquidity Assets

Absolute Liquidity Ratio = --------------------------------
Current Liabilities

Absolute Liquidity Assets = Cash in hand + Cash at bank + Short term investments

The ideal Absolute Liquidity Ratio is taken as 1:2 or 0.5

Absolute Liquid Current Current

S.No Year
Assets Liabilities Ratio

1 2001-2002 23,432,000.00 453,466,000.00 0.05:1

2 2002-2003 20,246,000.00 381,185,000.00 0.05:1

3 2003-2004 167,776,000.00 449,562,000.00 0.37:1

4 2004-2005 61,935,000.00 447,780,000.00 1.14:1

5 2005-2006 150,900,000.00 340,710,000.00 0.44:1

ANALYSIS:-

The above tables shows the Absolute Liquidity Ratio during the study period
the ratio was 0.08:1 in 2002 and gradually decreases to 0.05 in 2003, which in 2003,
which to too below from the standard 0.05:1 so the company, should try to improve
and also maintain this ratio
LEVERAGE OR CAPITAL STRUCTURES RATIOS:-
Leverage ratios indicate, the relative interest of owner and creditors in a
business. The significant Leverage ratios are

1.DEBIT EQUITY RATIO:-

The ratio examines the relationship between funds and owner’s funds of a
firm. In other words it measures the relative claims of creditors and shareholders
against the assets of a business. Debit, usually refers to the long-term liabilities.
Equity and performance share capitals and reserves.

Long Term Liabilities

Debit Equity Ratio = ------------------------------------------
Share Holders Funds

Long Term Share Holders Debit equity

S.No Year
Liabilities funds ratio

1 2001-2002 1,978,031,000.00 361,731,000.00 5.47

2 2002-2003 2,398,602,000.00 361,731,000.00 6.63

3 2003-2004 2,306,560,000.00 361,731,000.00 6.38

4 2004-2005 2,532,963,000.00 363,431,000.00 6.97

5 2005-2006 662,910,000.00 1,237,367,000.00 0.54

ANALYSIS:-

A high debt equity ratio means a high claim of outsider on the assets of
business and very highly debt financed from will be under great pressure to pay the
interest charges and it is unfavorable to the firm. A firm with a debt equity ratio of
two or less exposes its creditors to relatively less risk a firm a high debt equity ratio
exposes its creditors to grater risk so this firm should minimize this ratio.
 Net Sales
WORKING CAPITAL TURNOVER RATIO = -----------------------
Working Capital

This ratio in computed by dividing net sales by working capital this ratio helps
to measure the efficiency of the utilization of net working capital is needed if any
increase in sales is contemplated working capital should be a adequate and thus this
ratio helps management to maintain the adequate level of working.

CHART-4

WORKING CAPITAL TURNOVER RATIO

Year Net Sales Working Capital Working Capital Turnover Ratio

2002-03 15192.02 13493.9 1.1

2003-04 16283.04 10682.82 1.49

2004-05 23993.07 8786.15 2.56

2005-06 24610.98 8646.38 2.85

 CHART -5

INTERPRETATION:

This ratio maker a comparison between net sales and net working capital in
order to find the working capital turnover ratio the working capital turnover ratio for
the year 2002-03 in 1.10 hence there is increase in working capital turnover ratio for
the next 3 year has increased in a gradual way in the last year the net sales has been
increased and the working capital in being similarly that of previous year hence the
working that of previous year hence the working that capital turnover ratio is at 2.82
in the year 2005-06.
4.4 RECEIVABLES MANAGEMENT

1. DEBTORS TURNOVER RATIO:

Debtor constitute an important constitute of current assets & their fore the
quality of debtor to great extent determines a firm liquidity of a firm use two ratio.
They are debtors turnover ratio & debt collection period ratio. This ratio indication the
speed with which debtors receivable are being collected there it is indicative of the
efficiency of trade credit management. The higher the turnover ratio the better the
trade credit management & the better the liquidity of debtors.

TABLE-5

DEBTORS TURNOVER RATIO

(In Lakhs)

Year Total Sales Account Receivables Debtors Turnover Ratio

2002-03 15191.02 3803.54 3.99

2003-04 16283.04 4513.34 3.66

2004-05 24948.18 10325.48 2.42

2005-06 25884.26 5143.55 5.03

 CHART-5

DEBTORS TURNOVER RATIO

Debtors Turnover Ratio

6

4
Ratio

Debtors
3
Turnover
Ratio
2

0
2002-03 2003-04 2004-05 2005-06
Year

INTERPRETATION:

From the date of interpretation it in observed that both the rates & account
revisable are going up, we see that in the year 2002-2003 the division was in a very
good portion regarding the collection but in the year 2004-2005 due to increase in the
amount of average payables the ratio has come down drastically.

In the year 2005-06 the decrease in the previous year has been reduced by the
increased in the ratio of current year 2005-06.
2.DEBITORS COLLECTION PERIOD:

Their ratio indication the extent to which the debts have been collected in time
it gives the average debt collection period the ratio is very helpful to the lenders
because it explain them whether borrowers are collating money in a reasonable time
an increase in the period reflects grater blockage of funds in debtors a very long
collection period would imply either power credit selection or and inadequate
collection effort.
TABLE-6

DEBTORS COLLECTION PERIOD

(In Lakhs)
Debtors Collection
Year No of Days Debtors Turnover Ratio
Period in Days

2002-03 364 3.99 91

2003-04 365 3.66 100

2004-05 365 2.42 151

2005-06 365 5.03 73

 CHART-6
DEBTORS COLLECTION PERIOD

INTERPRETATION

During the year 2005-2006 average collection period is very low which indicates the
better quality of debtors as the quick payments by them with in a shot period

During the year 2004-2005 average collection period is very high as 151 days which
indicate ting the inefficient performance of the debtor as by laet payments.
2. INVENTORY TURNOVER RATIO

This ratio indicates whether inventory has been efficiently used or not. This
ratio checks whether only the required minimum has been looked up in inventory.

Cost of good Sold

I.T.R = -----------------------
Average Inventory

Cost of goods of Sold = Opening Stock + Purchase + Direct expenses - Closing

Opening Stock + Closing Stock

Average stock = -----------------------------------------
2

TABLE-7

INVENTORY TURNOVER RATIO

(In Lakhs)

Year Cost of Goods sold Avg. Inventory Inventory Turnover Ratio

2002-03 10711.19 7704.71 1.39

2003-04 11850.37 7554.4 1.57

2004-05 18665.5 6170.48 3.02

2005-06 16358.92 4495.96 3.46

 CHART-7

INVENTORY TURNOVER RATIO

Inventory Turnover Ratio

4
3.5
3
2.5
Ratio

2 Inventory
1.5 Turnover
Ratio
1
0.5
0
2002-03 2003-04 2004-05 2005-06
Year

INTERPRETATION:-

From the above figure given in the table we can interpret that the inventory
to the cost of goods sold for the year 2002-03 in 1-39 their ratio has been increasing
continuously in an exponential manner in all the year which in a good sign to the
company. This shows the effective utilization of the inventory by the company.

In the year 2002-03 the percentage of inventory in current assets 42.17% which is not
beneficial sign to the company. In the next year has increased by nearly 3% more than
the previous year at that time the company retained not to block the current assets
with inventory, in the year 2004-05 it has decreased drastically to 24%. In the
following year this has increased by 5% but this is not sufficient on the increase in the
recent past was much more than that.
3. INVENTORY HOLDING PERIOD (IN DAYS):

Days in Year
Inventory Holding Period (in days) = ----------------------------------
Inventory Turnover Ratio

The ratio represents the length of time required for conversion of

investments in inventoried for conversion of investments in invests airier to cash of a
firm as a result, the firm will be able to forecast its working capital requirements.
Lower ratio suggested better inventory management their ratio is calculated by
dividing the number of days of year by inventory turnover ratio.

TABLE-8

INVENTORY HOLDING PERIOD (IN DAYS)

(In Lakhs)

Year No. of Days Inventory Turnover Ratio Collection Period

2002-03 365 1.93 189 Days

2003-04 365 1.39 263 Days

2004-05 365 2.27 161 Days

2005-06 365 3.29 111 Days

 CHART-8

INVENTORY HOLDING PERIOD

Collection Period in Days

300
250
200
Days

Collection
150 Period in
100 Days

50
0
2002-03 2003-04 2004-05 2005-06
Year

INTERPRETATION:

In general the inventory ratio of any company should be as low as foible.

The reason being the occurrence of the blockage of money due to holding of the
inventory. The figure shows in the year 2004-05 and 2005-06 also would have been
for the company if they were similar to the velour in the year 2002-03 & 2003-04.
7. AVERAGE COLLECTION PERIOD:-

The ratio is another device to measure the quality of debtors. It shows the
nature of the firm credit policy to the shorter period. The better the quality of debtors
since the short term collecting period implies prompt payment by debtors and
excessively long period implies a too long and liberal and inefficient credit and
collection performance where as too low period indicates a very strict credit and
collection period.

Months in a Year
Average Collection Period = ----------------------
Debtors Turnover

S.No. Year No. of Months in a Debtors Average Collection

year Turnover Ratio period
1. 2001- 12.00 1.26 9.52
2002
2. 2002- 12.00 0.81 14.81
2003
3. 2003- 12.00 2.31 4.76
2004
4. 2004- 12.00 2.52 4.76
2005
5. 2005- 12.00 3.17 3.79
2006

ANALYSIS:-

The table shows that the average collection period of the company the
average collection period was 9.52 month in 2002, which is decreased to 4.76 in the
month of 2005 it shows the company is unable to collect the money in proper time or
company is extending more credit period to the customer. The company should try to
reduce this credit period.
CHAPTER – VI

FINDINGS
&
SUGGESTIONS
 FINDINGS
1. The company is not having sufficient working capital
2. Inventories are decreased by year by year
3. Loans & advances are decreases by year by year
4. current liabilities are more than current assets.
5. The working capital is negative working capital
6. Current liabilities are decreased by ever year but in 2003-04 to 14.12%
and again in 2004-2005 decreased from 14-42% to 13.39%
7. long – term liabilities are increased by every year but in 2003.04 year
long term liabilities are decreased from 76.356 to 73.989 and again
increased from 74.98% to 7-8-76%
8. The Quick Ratio > 1 which shows the sound short-term solvency.
9. The suggested current ratio is 2:1. But it is not fixed as it various from;
industry. Here in this case the current ration is more than 1 and it is enough to
meet the current liability.
10. When comparing Working capital is compared with net sales it is in increasing
trend indicating the effective utilization of the net working capital.
11. The debtor’s turnover ration is high and it shows the better trade credit
management.
12. Debtor’s collection period is very less which shows the better trade credit
management.
13. Debtor’s collection is very less it shows the better collection of funds from
debtors.
14. Inventory holding period is less; it shows the better management of inventory.
15. Through the preparation of funds flows statement analysis it is cleared
that the Company is losing its funds through its operating. But the
positive Elements is the losses through its operations and its decreasing
year by year. That is when the losses where in the year 2000-01.
16. It is understand that from the year 2000-01 to the year 2004-05 there
was decreased in working capital position in the major circumstances
this cleared that company is trying to procure the funds all the times in
order to compensate on wipe on the losses.
17. It is to be observed that the company’s new worth is decreases
considerably. Through this increase in procurement of secured loans.
18. The decrease in figures of sources and applications from the year 20001-
01 to the year 20002-03 makes at clear that the company is no activity
increasing or standardizing of its operations.
CONCLUSION

The company is performing exceptionally well due to the up wising in

the global market followed by the domestic market. It is an up coming one with

good and innovative ideas and believed in improving all the areas of its

operations. The company has a good liquidity position and does not delay its

commitment in case of both its creditors and debtors. The company being

mostly dependent on the working capital facilities, it is maintaining very good

relationship with their banks and their working capital management is well

balanced.
SUGGESTIONS:-

1. The manpower needs to be assessed in relation to production and sales.

The excess of employees should be removed through various measures
like VRS, retirement’s and destructing the requirement of new
employees.

2. There are various global challenges that are faced by every company n
the present competitive environment and PRAGA TOOLS is not any
exemption. To face the present global challenges the human resources
department should be develop to improve various skills among the
employees specially the motivational skills and having the regular
training for the employees about various developments in the market.

3. The marketing department should be restructured on profit center and

product line basis. The new marketing strategy should also make efforts
to regain the agents in Germany and UK. They should also make efforts
to regain the defiance and railways and find new markets for expansion.

4. There are various development taking in the industry to change it the

company should develop a full fledged research and development
department for bringing technological change and improvement in
design and process.

5. The policy of development new market with the accreditation of ISO

9001 and C.E. making for certain products should be continuous as it
will help in development the confidence of foreign buyers.

6. The sundry debtors should be efficiently managed so that the

outstanding are to be cleared at short intervals. The company should
appoint on different areas on a success fees basis to collect the debtors.
7. The cost of holding inventory is too high so the inventory holding period
is to be reduced and to build up inventory in anticipation of export
orders from Russia and Germany.

8. The company has to make new joint venture with other companies in
order to reduce the losses.

9. The current assets should be managed more effectively so as to avoid

unnecessary blocking of capital that could be used for other purposes.

10. The Working Capital requirement is to be assessed based on the norms

circulated by RBI for the machine tools industry.

11. The inventory turnover ratio has decreased considerably from the year
2001-02 to 2004-05. This was due to the huge average stock holding
even when there was a decrease in sales figure this clears that inventory
should be managed appropriately moreover it was improved in the year
2003-04.

12. The company has maintained proper records showing full particulars,
quantitative details and solutions of fixed assets are indicated for major
items in the register, the managements during the year has conducted a
random verification in respect of fixed assets, which in our opinion is
reasonable, having regard to the size of the company and the nature of
tits assets.

13. The management has physically verified the stock of finished goods and
work in progress at the end of the year.

14. In respect of service activities there is a reasonable system for recording

receipts issues and consumption of materials and stores and collection of
materials consumed to the relative jobs, commensurate with the size and
nature of its business.
 BIBILOGRAPHY
BOOKS

Financial management Khan and Jain, Tata Mcgrw Hill

Financial management Prasanna Chandra, Tata Mcgrw Hill
Management accounting R.K. Sharma and K. Gupta
Financial Management and polices V.K. Bhalla, ANMOL Publication
Pvt., Ltd.,
Financial Management K. Rajeswari, Sultan chand & sons

Catalogues & Boucher PRAGA Tools Ltd.,

Web sites
www. Pragatools.org
www.machinetoolsindustry.com