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PROJECT REPORT
ON
TAJ GROUP OF HOTELS
WORKING CAPITAL MANAGEMENT
Submitted in Partial fulfillment of the requirements for the award of

the degree of MASTERS OF BUSINESS ADMINISTRATION

MBA[FM-3]
(2022-2024)

SUBMITTED TO: SUBMITTED BY:

DR. DIVYA MAHAJAN HIMANSHU
Roll no: 27732206910

MBA-(FM) 3rd

UNIVERSITY OF BUSINESS SCHOOL

GURU NANAK DEV UNIVERSITY
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ACKNOWLEDGEMENT

I wish to express my gratitude to TAJ SWARNA, AMRITSAR for giving me an opportunity

to be a part of their esteemed hotel and enhance my knowledge by granting permission to do
summer training internship under their guidance.

I am deeply indebted to MANISH CHIRANEWAL (DIRECTOR OF FINANCE), and the

whole finance team for their valuable and enlightened guidance. They provided me with the
opportunity to learn and grow.

I also acknowledge the entire helping hand that have me in every possible way for the
formation of this report.
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PREFACE

As a part of course curriculum of Masters of Business Administration we were asked to

undergo 6 weeks of training, so as to give us exposure to practical management and get us
familiar with various activities taking place in the organization. I have put my sincere efforts
to accomplish my objectives within the stipulated time. Despite all limitations, obstructs,
hurdles and hindrances. I have worked to my optimum potential to achieve desired goals.
Being new in highly competitive world of business, I came across some difficulties to make
my objective a reality. Anyhow with the kind of help and genuine interest and the guidance
of my supervisor I am presenting this hand carved effort. I tried my level best to conduct
research to gain a thorough knowledge about the project on topic, “ .”
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TABLE OF CONTENT

CHAPTER TITLE
1. INTRODUCTION
• Industry overview
• Company’s Profile

2. WORKING CAPITAL MANAGEMENT

3. REASEARCH METHODOLOGY
• Objectives & Scope

4. DATA ANALYSIS AND INTERPRETATION

5. FINDINGS AND RECOMMANDATIONS

6. CONCLUSION

7. REFERENCES
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INDUSTRY OVERVIEW- HOSPITALITY INDUSTRY

Hospitality is the act of kindness in welcoming and looking after the basic needs of
customers. The hospitality industry is a broad group of businesses that provide services to
customers. Hospitality is actually one facet of the service industry.
The hospitality industry refers to various businesses and services linked to leisure and
customer satisfaction. A defining aspect of the hospitality industry is that it focuses on ideas
of luxury, pleasure, enjoyment, and experiences instead of catering to necessities and
essentials.

20th century is turning point for hotel industry in India and many business owners entered
into the field. Hotel industry is a service-oriented sector which offers many facilities/services.
Hotel industry is one of the growing industries in service sector.

Due to the growth in tourism and travel with rising domestic and foreign tourist, hotel sector
is continuously growing. The Indian hotel market worth estimated around US$ 17 billion.
Hotel industry contributes greatly to tourism and around 7.5% of national GDP.

The hospitality industry is known for its customer-centric approach, where the satisfaction of
guests is paramount. It often operates in a highly competitive environment, requiring
businesses to continuously innovate, adapt to changing trends, and deliver exceptional service
to stand out. Factors such as location, quality of service, marketing strategies, and the ability
to anticipate and meet customer expectations are critical for success.

In recent years, the hospitality industry has also been influenced by technological
advancements and online platforms that have transformed the way customers book and
review services. It remains a significant contributor to the global economy, fostering tourism,
job creation, and economic growth in many regions around the world.

Section 2 deals with introduction of hotel industry. A commercial establishment providing

lodging meals and other guest services in general, hospitality minimum of six letting
bedrooms, at least three of must have attached private bathroom facilities. Although hotels are
classified into „star‟ categories (1 star to 5 stars), there is no method of assigning these
ratings and compliance with customary requirements is voluntary.
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Hotel industry plays a vital role in the development of services sector. Hospitality plays a
major role in this sector. Tourism and Hotel paves the way for development of exchange
currency in India. Star hotels in various places connected with tourism places. People from
various countries traveling throughout the world want to stay and enjoy the whole day

Services provided by hotel industry:

• Serving of food and liquor
• Room accommodation services
• Rent a cab
• Catering
• Laundry services
• Renting space for events, conference etc.
• Business support service.
• Club and gymnasium services, etc.
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Indian Hotels Company Limited (IHCL)

IHCL, or the Indian Hotels Company Limited, is a prominent hospitality company based in
India. It is part of the Tata Group, one of India's largest and most respected conglomerates.
IHCL is known for its extensive portfolio of hotels, resorts, and other hospitality-related
businesses.

IHCL was founded in 1903 and is headquartered in Mumbai, India. It is one of the oldest and
most well-established hospitality companies in India.

IHCL operates a range of hotel brands, including the iconic Taj Hotels for the most
discerning travellers and ranked as the World’s Strongest Hotel Brand and India’s Strongest
Brand across sectors as per Brand Finance Hotels 50 Report 2022 and India 100 Report 2022.
The company also manages other brands like Vivanta and SeleQtions, offering a variety of
accommodations, from luxury hotels to upscale and boutique properties. IHCL has a presence
in major cities, tourist destinations, and business hubs across India and around the world.

MISSION: IHCL is an integral part and represents the hospitality arm of the Tata Group -
India's foremost value-based corporation — a visionary, a pioneer, a leader, since its
inception 1868. The Tata group today operates in more than 100 countries across six
continents, with a mission 'To improve the quality of life of the communities we serve
globally, through long-term stakeholder value creation based on Leadership with Trust’.
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VISION: Our Strategy - AHVAAN 2025

IHCL unveiled its three-pronged strategy to grow profitably in the coming years with Ahvaan
2025, the propeller of all of IHCL’s determined actions towards expanding its brandscape,
delivering unmatched experiences and accelerating progress. It is priming the organisation to
realise its futuristic vision through an evolving operating ecosystem.

Under this strategy, IHCL will re-engineer its margins, re-imagine its brandscape and re-
structure its portfolio. The goal of Ahvaan 2025 is to have a total of 300+ hotels, clock 33%
EBITDA margin and have 35% EBITDA contribution from new businesses and management
fees by FY 2025-26. IHCLs iconic and strongest brand Taj, its industry-leading ESG+
framework Paathya and a strong focus on digital will be the key enablers on this journey.

IHCL CORE VALUES

Every action at IHCL is guided by our core values of Trust, Awareness and Joy, with
Community at the heart of all we do. A combination of unparalleled craftsmanship, best-in-
class service, and undeniable business acumen is what makes IHCL iconic in every way.
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IHCL BRANDS

By strategically re-imagining and enhancing its portfolio, IHCL has successfully transitioned
from a branded house to a future-ready house of admired brands. Built with legendary
professionalism, unmatched expertise and genuine affection, each of our brands exist to serve
and enchant our guests.
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COMPANY PROFILE
TAJ SWARNA

Taj Swarna, was inaugurated on August 30, 2017 at Opp. Basant Avenue, Amritsar. This
luxury hotel is part of the Taj Hotels Resorts and Palaces portfolio and has been serving
guests with its upscale amenities and services since its opening.

The hotel features a range of luxurious accommodations, including rooms and suites,
designed to cater to the needs and preferences of discerning travellers. The rooms are
elegantly decorated and equipped with modern amenities to ensure a comfortable stay. At
present, the hotel is operating with 157 rooms

Dining Options: Taj Swarna offers a variety of dining options, including:

➢ Grand Trunk: An all-day dining restaurant serving a blend of local and

international cuisine.
➢ The Chinese Room: A specialty restaurant offering authentic Chinese cuisine.
➢ The Peg Lounge: A stylish lounge where guests can enjoy a selection of
beverages and snacks.
➢ Swarna Spice: A North Indian specialty restaurant known for its delectable
Punjabi dishes.
➢ The Cake Shop: A patisserie offering a range of desserts, pastries, and baked
goods.

Meeting and Event Facilities: The hotel has well-equipped meeting and event
spaces, making it an excellent choice for conferences, weddings, and other special
occasions.

Recreation and Wellness: Guests can unwind and relax at the hotel's pool, fitness
center, and Jiva Spa, which offers a range of rejuvenating treatments and therapies.

Taj Club: Taj Swarna offers the Taj Club, a special level of luxury and personalized
service for discerning travelers, including access to the Taj Club Lounge.

Cultural Experiences: The hotel also offers cultural experiences that allow guests to
immerse themselves in the local culture and traditions of Amritsar.

Commitment to Sustainability: Taj Swarna, like other Taj properties, is

committed to sustainability and responsible tourism practices.
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Warm Hospitality: Taj Swarna is known for its warm and gracious hospitality, which
is a hallmark of the Taj brand.

HISTORY

Jamsetji Nusserwanji Tata, founder of the Tata group opened the Taj Mahal Palace, a hotel in
Mumbai (formerly called Bombay) overlooking the Arabian Sea, on 16 December 1903. It
was the first Taj property and the first Taj hotel. There are several anecdotal stories about
why Tata opened the Taj hotel. According to a story, he decided to open the hotel after an
incident involving racial discrimination at the Watson's Hotel in Mumbai, where he was
refused entry as the hotel permitted only Europeans. Hotels that accepted only European
guests were very common across British India then. According to another story, he opened
the hotel when one of his friends expressed disgust over the hotels that were present in
Bombay then. But a more plausible reason was advanced by Lovat Fraser, a close friend of
the Tata and one of the early directors of the IHCL group, that the idea had long been in his
mind and that he had made a study on the subject. He did not have any desire to own a hotel
but he wanted to attract people to India and to improve Bombay. It is said that Jamsetji Tata
had travelled to places like London, Paris, Berlin, and Düsseldorf to arrange for materials and
pieces of art, furniture and other interior decor for his hotel.

In 1974, the group opened India's first international five-star deluxe beach resort, the Fort
Aguada Beach Resort in Goa

In 1980, the Taj Group opened its first hotel outside India, the Taj Sheba Hotel in Sana'a, in
Yemen and in the late 1980s.

Concurrently with the expansion of its luxury hotel chain in the major metropolitan cities, the
Taj Group also expanded its business hotels division in the major metropolitan and large
secondary cities in India. During the 1990s, the Taj Group continued to expand its geographic
and market coverage in India.
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Working Capital

What is 'Working Capital Management?'

Working capital management refers to a company's managerial accounting strategy designed

to monitor and utilize the two components of working capital, current assets and current
liabilities, to ensure the most financially efficient operation of the company. The primary
purpose of working capital management is to make sure the company always maintains
sufficient cash flow to meet its short-term operating costs and short-term debt obligations.

Working capital management commonly involves monitoring cash flow, assets and liabilities
through ratio analysis of key elements of operating expenses, including the working capital
ratio, collection ratio and the inventory turnover ratio. Efficient working capital management
helps with a company's smooth financial operation, and can also help to improve the
company's earnings and profitability. Management of working capital includes inventory
management and management of accounts receivables and accounts payables.

Elements of Working Capital Management

The working capital ratio, calculated as current assets divided by current liabilities, is
considered a key indicator of a company's fundamental financial health since it indicates the
company's ability to successfully meet all of its short-term financial obligations. Although
numbers vary by industry, a working capital ratio below 1.0 is generally indicative of a
company having trouble meeting short-term obligations, usually due to insufficient cash flow.
Working capital ratios of 1.2 to 2.0 are considered desirable, but a ratio higher than 2.0 may
indicate a company is not making the most effective use of its assets to increase revenues.

The collection ratio, also known as the average collection period ratio, is a principal measure
of how efficiently a company manages its accounts receivables. The collection ratio is
calculated as the number of days in an accounting period, such as one month, multiplied by
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the average amount of outstanding accounts receivables, with that total then divided by the
total amount of net credit sales during the accounting period. The collection ratio calculation
provides the average number of days it takes a company to receive payment, in other words,
to convert sales into cash. The lower a company's collection ratio, the more efficient its cash
flow.

The final element of working capital management is inventory management. To operate with
maximum efficiency and maintain a comfortably high level of working capital, a company
has to carefully balance sufficient inventory on hand to meet customers' needs while avoiding
unnecessary inventory that ties up working capital for a long period of time before it is
converted into cash. Companies typically measure how efficiently that balance is maintained
by monitoring the inventory turnover ratio. The inventory turnover ratio, calculated as
revenues divided by inventory cost, reveals how rapidly a company's inventory is being sold
and replenished. A relatively low ratio compared to industry peers indicates inventory levels
are excessively high, while a relatively high ratio indicates the efficiency of inventory
ordering can be improved.

Working capital is a measure of both a company's efficiency and its short-term financial
health. Working capital is calculated as:

Working Capital = Current Assets - Current Liabilities

The working capital ratio (Current Assets/Current Liabilities) indicates whether a company
has enough short term assets to cover its short term debt. Anything below 1 indicates negative
W/C (working capital). While anything over 2 means that the company is not investing
excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient. Also known as "net
working capital".

If a company's current assets do not exceed its current liabilities, then it may run into trouble
paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining
working capital ratio over a longer time period could also be a red flag that warrants further
analysis. For example, it could be that the company's sales volumes are decreasing and, as a
result, its accounts receivables number continues to get smaller and smaller. Working capital
also gives investors an idea of the company's underlying operational efficiency. Money that is
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tied up in inventory or money that customers still owe to the company cannot be used to pay
off any of the company's obligations. So, if a company is not operating in the most efficient
manner (slow collection), it will show up as an increase in the working capital. This can be
seen by comparing the working capital from one period to another; slow collection may
signal an underlying problem in the company's operations.

If the ratio is less than one then they have negative working capital.

A high working capital ratio isn't always a good thing, it could indicate that they have too
much inventory or they are not investing their excess cash.

Working Capital Turnover Ratio

Working capital turnover is a measurement comparing the depletion of working capital used
to fund operations and purchase inventory, which is then converted into sales revenue for the
company. The working capital turnover ratio is used to analyse the relationship between the
money that funds operations and the sales generated from these operations. For example, a
company with current assets of $10 million and current liabilities of $9 million has $1 million
in working capital, which may be used in fundamental analysis.

The working capital turnover ratio measures how well a company is utilizing its working
capital for supporting a given level of sales. Because working capital is current assets minus
current liabilities, a high turnover ratio shows that management is being very efficient in
using a company’s short-term assets and liabilities for supporting sales. In contrast, a low
ratio shows a business is investing in too many accounts receivable (AR) and inventory assets
for supporting its sales. This may lead to an excessive amount of bad debts and obsolete
inventory.

Calculating Working Capital Turnover

When calculating a company’s working capital turnover ratio, the amount of net sales is
divided by the amount of working capital. The calculation is typically made on an annual or
trailing 12-month basis and uses the average working capital during that time period. For
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example, Company A has $12 million of net sales over the past 12 months. The average
working capital during that time was $2 million. The calculation of its working capital
turnover ratio is $12,000,000/$2,000,000 = 6.

Pros and Cons of High Working Capital Turnover

A high working capital turnover ratio shows a company is running smoothly and has limited
need for additional funding. Money is coming in and flowing out on a regular basis, giving
the business flexibility to spend capital on expansion or inventory. A high ratio may also give
the business a competitive edge over similar companies.

However, an extremely high ratio, typically over 80%, may indicate a business does not have
enough capital supporting its sales growth. Therefore, the company may become insolvent in
the near future. The indicator is especially strong when the accounts payable (AP) component
is very high, indicating that management cannot pay its bills as they come due. For example,
gold mining and silver mining have average working capital turnover ratios of approximately
82%. Gold and silver mining requires ongoing capital investment for replacing, modernizing
and expanding equipment and facilities, as well as finding new reserves. An excessively high
turnover ratio may be discovered by comparing the ratio for a specific business to ratios
reported by other companies in the industry.

Efficiency Ratio
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The efficiency ratio is typically used to analyze how well a company uses its assets and
liabilities internally. An efficiency ratio can calculate the turnover of receivables, the
repayment of liabilities, the quantity and usage of equity, and the general use of inventory
and machinery. This ratio can also be used to track and analyze the performance of hotels

Analysts use efficiency ratios, also known as activity ratios, to measure the performance of a
company's short-term or current performance. All of these ratios use numbers in a company's
current assets or current liabilities, quantifying the operations of the business.

An efficiency ratio measures a company's ability to use its assets to generate income. For
example, an efficiency ratio often looks at aspects of the company, such as the time it takes to
collect cash from customers or the amount of time it takes to convert inventory to cash. This
makes efficiency ratios important, because an improvement in the efficiency ratios usually
translates to improved profitability.

These ratios can be compared to peers in the same industry and can identify businesses that
are better managed relative to the others. Some common efficiency ratios are accounts
receivable turnover, fixed asset turnover, sales to inventory, sales to net working capital,
accounts payable to sales and stock turnover ratio.

Efficiency Ratios for hotels

The efficiency ratio also applies to banks. For example, small hotels operate at the average
efficiency level of 85%, while medium sized hotels have average an efficiency level of 70%.
Furthermore, research results demonstrate that there is no statistically significant relationship
between hotel’s quality and efficiency. Like the efficiency ratios above, this allows analysts
to assess the performance of the hotels.

• Activity Ratios
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Activity ratios measure a firm's ability to convert different accounts within its balance sheets
into cash or sales. Activity ratios measure the relative efficiency of a firm based on its use of
its assets, leverage or other such balance sheet items and are important in determining
whether a company's management is doing a good enough job of generating revenues and
cash from its resources.

Companies typically try to turn their production into cash or sales as fast as possible because
this will generally lead to higher revenues, so analysts perform fundamental analysis by using
common ratios such as the total assets turnover ratio and inventory turnover.

Activity ratios measure the amount of resources invested in a company's collection and
inventory management. Because businesses typically operate using materials, inventory and
debtors, activity ratios determine how well an organization manages these areas. Activity
ratios are one major category in which a ratio may be classified; other ratios may be classified
as measurements of liquidity, profitability or leverage.

Activity ratios gauge an organization's operational efficiency and profitability. Activity ratios
are most useful when compared to competitor or industry to establish whether an entity's
processes are favourable or unfavourable. Activity ratios can form a basis of comparison
across multiple reporting periods to determine changes over time.

The following activity ratios may be analysed as some of an organization's key performance
indicators.

• Accounts Receivable Turnover Ratio

The accounts receivable turnover ratio determines an entity's ability to collect money from its
customers. Total credit sales are divided by the average accounts receivable balance for a
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specific period. This activity ratio calculates management's ability to receive cash. A low
ratio suggests a deficiency in the collection process.

• Merchandise Inventory Turnover Ratio

The merchandise inventory turnover ratio measures how often the inventory balance is sold
during an accounting period. The cost of goods sold is divided by the average inventory for a
specific period. Higher calculations indicate inventory is quickly converted into sales and
cash. A useful way to use this activity ratio is to compare it to previous periods.

• Total Assets Turnover Ratio

The total assets turnover ratio takes a look at how efficiently an entity uses its assets to make
a sale. Total sales are divided by total assets to see how proficient a business is at using its
assets. Smaller ratios may indicate that the company is holding higher levels of inventory
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instead of selling.

Days Working Capital

Days working capital is an accounting and finance term used to describe how many days it
takes for a company to convert its working capital into revenue. It can be used in ratio and
fundamental analysis. When utilizing any ratio, it is important to consider how the company
compares to similar companies in the same industry.

Working capital is a measure of liquidity, and days working capital is a measure that helps to
quantify this liquidity. The more days a company has of working capital, the more time it
takes to convert that working capital into sales. In other words, a high number is indicative of
an inefficient company and vice versa.
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Working capital is calculated by subtracting current liabilities from current assets. Current
assets include cash, marketable securities, inventory, accounts receivable and other short-
term assets to be used within the year. Current liabilities include accounts payable and the
current portion of long-term debt. These are debts that are due within the year. The difference
between the two represents the company's short-term need for, or surplus of, cash. A positive
working capital balance means current assets cover current liabilities. A negative working
capital balance means current liabilities are more than current assets.

While negative and positive working capital measures provide a general overview of working
capital, days working capital provides analysts with a numeric measure for comparison. The
ratio provides analysts with an average for the number of days it takes a company to convert
working capital into sales.

Interpreting Days Working Capital

The formula for days working capital is the product of average working capital and 365
divided by annual sales. For example, if a company makes $10 million in sales and has
working capital of $100,000, the days working capital is calculated by multiplying $100,000
by 365 and then dividing the answer by $10 million. The answer is 3.65 days. However, if the
company makes $100 million in sales the answer is 0.365 days.

An increased level of sales, all other things equal, produces a lower number of days working
capital because more sales means the company is converting working capital to sales at a
faster rate. A company with a days working capital ratio of 3.65 takes 10 times more time to
turn working capital, such as inventory, into sales than a company with a days working
capital ratio of 0.365. Another way to interpret this is the company with a days working
capital ratio of 0.365 is 10 times more efficient than the company with a days working capital
ratio of 3.65. While the company with the higher ratio is generally the most inefficient, it is
important to compare against other companies in the same industry as different industries
have different working capital standards.
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• Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and
long-term obligations. To gauge this ability, the current ratio considers the current total assets
of a company (both liquid and illiquid) relative to that company’s current total liabilities.

The formula for calculating a company’s current ratio, then, is:

Current Ratio = Current Assets / Current Liabilities

The current ratio is called “current” because, unlike some other liquidity ratios, it
incorporates all current assets and liabilities.

The current ratio is also known as the working capital ratio.

The current ratio is mainly used to give an idea of the company's ability to pay back its
liabilities (debt and accounts payable) with its assets (cash, marketable securities, inventory,
accounts receivable). As such, current ratio can be used to take a rough measurement of a
company’s financial health. The higher the current ratio, the more capable the company is of
paying its obligations, as it has a larger proportion of asset value relative to the value of its
liabilities.

A ratio under 1 indicates that a company’s liabilities are greater than its assets and suggests
that the company in question would be unable to pay off its obligations if they came due at
that point. While a current ratio below 1 shows that the company is not in good financial
health, it does not necessarily mean that it will go bankrupt. There are many ways for a
company to access financing, and this is particularly so if a company has realistic
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expectations of future earnings against which it might borrow. For example, if a company has
a reasonable amount of short-term debt but is expecting substantial returns from a project or
other investment not too long after its debts are due, it will likely be able to stave off its debt.
All the same, a current ratio below 1 is usually not a good sign.

On the other hand, a high ratio (over 3) does not necessarily indicate that a company is in a
state of financial well-being either. Depending on how the company’s assets are allocated, a
high current ratio may suggest that that company is not using its current assets efficiently, is
not securing financing well or is not managing its working capital well. To better assess
whether or not these issues are present, a liquidity ratio more specific than the current ratio is
needed.

An example: assume that Big-Sale Stores has $2 billion in cash, $1 billion in securities, $4
billion in inventory, $2 billion in accounts receivable and $6 billion in liabilities. To calculate
Big-Sale’s current ratio, you would take the sum of its various assets and divide them by its
liabilities, for a current ratio of 1.5 (($2B + $1B + $4B + $2B) / $6B = $9B / $6B = 1.5). Big-
Sale Stores, then, appears to have healthy financials.

The current ratio can give a sense of the efficiency of a company's operating cycle or its
ability to turn its product into cash. Companies that have trouble getting paid on their
receivables or have long inventory turnover can run into liquidity problems because they are
unable to alleviate their obligations.

Limitations of 'Current Ratio'

No one ratio is a perfect gauge of a company’s financial health or of whether or not investing
in a company is a wise decision. As such, when using them it is important to understand their
limitations, and the same holds true for the current ratio.

One limitation of using the current ratio emerges when using the ratio to compare different
companies with one another. Because business operations can differ substantially between
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industries, comparing the current ratios of companies in different industries with one another
will not necessarily lead to any productive insight. For example, while in one industry it may
be common practice to take on a large amount of debt through leverage, another industry may
strive to keep debts to a minimum and pay them off as soon as possible. Companies within
these two industries, then, could potentially have very different current ratios, though this
would not necessarily indicate that one is healthier than the other because of their differing
business practices. As such, it is always more useful to compare companies within the same
industry.

Another drawback of using current ratios, briefly mentioned above, involves its lack of
specificity. Of all of the different liquidity ratios that exist, the current ratio is one of the least
stringent. Unlike many other liquidity ratios, it incorporates all of a company’s current assets,
even those that cannot be easily liquidated. As such, a high current ratio cannot be used to
effectively determine if a company is inefficiently deploying its assets, whereas certain other
liquidity ratios can.

'Current Ratio' and Other Liquidity Ratios

Generally, liquidity ratios can be used to gauge a company’s ability to pay off its debts.
However, there are a variety of different liquidity ratios that exist and that measure this in
different ways. When considering the current ratio, it is important to understand its
relationship to other popular liquidity ratios.

One popular ratio is the working capital ratio, which is the same as the current ratio.

Another class of liquidity ratios works in a similar way to the current ratio, but are more
specific as to the kinds of assets they incorporate. The cash asset ratio (or cash ratio), for
example, compares only a company’s marketable securities and cash to its current liabilities.
The acid-test ratio (or quick ratio) compares a company’s easily liquidated assets (including
cash, accounts receivable and short-term investments, excluding inventory and prepaids) to
its current liabilities. The operating cash flow ratio compares a companies active cash flow
from operations to its current liabilities. These liquidity ratios have a more specific purpose
than the current ratio, that is, to gauge a company’s ability to pay off short term debts.
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Another similar liquidity ratio is the debt ratio, which is the opposite of the current ratio. Debt
ratio calculations take current liabilities as the numerator and current assets as the
denominator in an attempt to measure a company’s leverage.

Short Term

Short term is a concept that refers to holding an asset for a year or less, and accountants use
the term “current” to refer to an asset expected to be converted into cash in the next year or a
liability coming due in the next year. The accounting profession uses current assets and
current liabilities to perform analysis, and in the investing industry, a security with a holding
period of one year or less is a short-term security.

Accountants define short term as current, so a current asset equals cash or an asset that will
be converted into cash within a year. Inventory, for example, is converted into cash when
items are sold to customers, and accounts receivable balances are converted into cash when a
client pays an invoice. Both accounts receivable and inventory balances are current assets.

Factoring in Liquidity

Liquidity is a company’s ability to collect enough short-term assets to pay short-term

liabilities as they come due. A business must be able to sell a product or service and collect
cash fast enough to finance company operations. Managers must focus on liquidity as well as
solvency, which is the process of generating sufficient cash flow to purchase assets over the
long term.

Examples of Short-Term Financial Ratios

Managers make decisions with financial ratios, and there are several keys ratios used to make
decisions about liquidity. The current ratio, for example, is stated as current assets divided by
current liabilities, and the ratio measures the ability of a firm to pay its liabilities in the short
term. Companies also use turnover ratios to calculate how quickly current assets can be
converted into cash in the short term. As an example, the inventory turnover ratio compares
the cost of sales with inventory to measure how often the business sells its entire inventory in
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a year. Businesses also use the accounts receivable turnover ratio to analyze the number of
days it takes to collect the average accounts receivable balance. If managers can effectively
monitor short-term cash flow, the firm needs less cash to operate each month.

How Short-Term Periods Impact Taxes

Investors need to be clear about whether a capital gain is short term or long term, because
taxation of the gain or loss is treated differently. For tax purposes, a long-term gain or loss
means the security is held for a year or more, and long-term trading activity is separated from
short-term transactions.

• Cash Asset Ratio

The cash asset ratio is the current value of marketable securities and cash, divided by the
company's current liabilities. Also known as the cash ratio, the cash asset ratio compares the
dollar amount of highly liquid assets (such as cash and marketable securities) for every one
dollar of short-term liabilities. This figure is used to measure a firm's liquidity or its ability to
pay its short-term obligations. Ideal ratios will be different for different industries and for
different sizes of corporations, and for many other reasons.

The cash asset ratio is similar to the current ratio, except that the current ratio includes
current assets such as inventories in the numerator. Some analysts believe that including
current assets makes it difficult to convert them into usable funds for debt obligations. The
cash asset ratio is a much more accurate measure of a firm's liquidity.

For example, if a firm had $130,000 in marketable securities, $110,000 in cash and $200,000
in current liabilities, the cash asset ratio would be (130,000+110,000)/200,000 = 1.20. Ratios
greater than 1 demonstrate a firm's ability to cover its current debt, but ratios that are too high
might indicate that a company is not allocating enough resources to grow its business.
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Factors Determining the Working Capital Requirements

Nature of Business
The requirements of working is very limited in public utility undertakings such as
electricity, water supply and railways because they offer cash sale only and supply
services not products, and no funds are tied up in inventories and receivables. On the
other hand, the trading and financial firms requires less investment in fixed assets but
have to invest large amount of working capital along with fixed investments.

Size of the business

Greater the size of the business, greater is the requirement of working capital.

Production Policy

If the policy is to keep production steady by accumulating inventories it will require

higher working capital.

Length of Production Cycle

The longer the manufacturing time the raw material and other supplies have to be
carried for a longer in the process with progressive increment of labor and service
costs before the final product is obtained. So, working capital is directly proportional
to the length of the manufacturing process.

Sources of Working Capital

The company can choose to finance its current assets by

1. Long term sources

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2. Short term sources

3. A combination of them

Long term sources of permanent working capital include equity and preference shares,
retained earnings, debentures and other long-term debts from public deposits and financial
institutions. The long-term working capital needs should meet through long term means of
financing. Financing through long term means provides stability, reduces risk or payment and
capital and summarized as follow:

Issue of shares

It is the primary and most important source of regular or permanent working capital. Issuing
equity share as it does not create and burden on the income of the concern. Nor the concern is
obliged to refund capital should preferably raise permanent working capital.

Retained earnings

Retained earnings are accumulated profits that are permanent source of regular working
capital. It is regular and cheapest. It creates no charge on future profits of the enterprises.

Issue of debentures

It creates a fixed charge on future earnings of the company. Company is obliged to pay
interest. Management should make wise choice in procuring funds by issue of debentures.

Short term sources of temporary working capitals required to meet the day-to-day business
expenditures. The variable working capital would finance from short term sources of funds
and only the period needed. It has the benefits of low cost and establishes closer relationship
with banker.

Sources of temporary working capital are given below

Reserves and other funds

Various funds of the company like depreciation fund, provision for tax kept with the
company can be used as temporary working capital.
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CHAPTER-3
RESEARCH METHODOLOGY

Scope of the Study:

The scope of the study is identified after and during the study is conducted. The main scope
of the study was to put into practical the theoretical aspect of the study into real life work
experience. The study of working capital is based on tools like ratio analysis, statement of
changes in Working Capital. Further the study is based on last 5 years annual reports of
IHCL (THE INDIAN HOTEL COMPANY LIMITED)

Objectives of the Study:

• To study the sources and uses of the working capital.

• To study the liquidity position through various working capital related ratios.

• To study working capital components such as receivables accounts, cash management

etc.
• To make suggestion based on the findings of the study.
• To know how the company maintains its credit policy

Research Methodology:

Introduction

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying the problem. In that various step, those are generally
adopted by a researcher in studying his problem along with the logic behind them.
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“The procedure by which researcher go about their work of describing, explain and
predicting phenomenon are called methodology”.

Type of Research:

• This project of study of Working Capital Management of TAJ Group of Hotels. is

considered as analytical research.
• Analytical research is defined as the research in which, researcher has to use facts or
information already available, and analyze these to make a critical evolution of the
facts, figures, data or material.

SOURCE OF SECONDARY DATA

There are mainly two sources through which the data required for the research is
collected.

PRIMARY DATA:
The primary data is that data which is collected fresh or first hand, and for first time
which is originally in nature.

In this study the primary data has been collected from Personal Interaction with the staff
members.

SECEONDARY DATA:

The secondary data are those which have already collected and stored. Secondary data
can be easily accessed from records, annual reports, financial statements of the company
etc. it helps in time saving, economical in nature and also involves less efforts on the part
of data collector.

The major part of data for this project was collected through annual reports, profit and
loss account of 5-year period from 2018-19 to 2022-23 & some more information
collected through interne and txt resources.
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SAMPLING DESIGN:

Sampling Unit: Financial Statements.

Sampling Size: Last five years Financial Statements.
Tools used for Calculation: MS Excel.

Tools used for Analysis of Data:

The data were analysed using the following financial tools. They are
• Ratio Analysis
• Statement of changes in Working Capital.

LIMITATIONS OF THE STUDY:

• The study duration was Short.

• The analysis is limited to just five years of data study for financial analysis.
• Non-monetary aspects are not considered making the results unreliable.
• In spite of precautions taken there are certain procedural and technical limitations.
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DATA ANALYSIS AND INTERPRETATION

CURRENT RATIO

Year 2023 2022 2021 2020 2019

Current ratio 1.04 0.60 0.44 0.59 0.46

1.2
Current Ratio
1

0.8

0.6

Current Ratio
0.4

0.2

0
2023 2022 2021 2020 2019

Interpretation: As we know ideal current ratio is 2:1. Here in this company’s current ratio
is increasing over the period of time. The higher the current ratio, the better a company
appears to be at paying its annual debts. This is because a high ratio implies that a company
has a higher proportion of short-term assets than short-term liabilities during the same time
period. which is a matter for care for the concern but the company is doing good and can
recover it in the nearly future.
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QUICK RATIO

Year 2023 2022 2021 2020 2019

Quick ratio 0.97 0.54 0.37 0.49 0.38

Quick Ratio
1.2

0.8

0.6
Quick Ratio

0.4

0.2

0
2023 2022 2021 2020 2019

Interpretation: if a business's quick ratio is less than 1, it means it doesn't have enough
quick assets to meet all its short-term obligations. If it suffers an interruption, it may find it
difficult to raise the cash to pay its creditors.

Creditors prefer a high cash ratio, as it indicates that a company can easily pay off its debt.
Although there is no ideal figure, a ratio of not lower than 0.5 to 1 is usually preferred.
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INVENTORY TURNOVER RATIO

Year 2023 2022 2021 2020 2019

Inventory 4.96 0.00 13.25 38.32 42.18

turnover ratio

Inventory turnover ratio

45

40

35

30

25

20 Inventory turnover ratio

15

10

0
2023 2022 2021 2020 2019

Interpretation: the inventory turnover ratio of the company falling down as shown in the
above figure. A low inventory turnover ratio might be a sign of weak sales or excessive
inventory, also known as overstocking. It could indicate a problem with a retail chain's
merchandising strategy, or inadequate marketing. A high inventory turnover ratio, on the
other hand, suggests strong sales.
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Working Capital

Year 2023 2022 2021 2020 2019

Working 4.82 -48.29 -57.44 -34.2 -50.58

capital

(Rs. in crores)

Working Capital
10

0
2023 2022 2021 2020 2019
-10

-20

-30 Working Capital

-40

-50

-60

-70

Interpretation: above chart shows that the working capital of the company is negative
from the year 2019 to 2022. After year 2022 working capital of the company starts increasing
positively. A negative figure often indicates financial distress and may be a sign of
impending insolvency. However, very large companies with significant brand recognition and
public support sometimes operate with consistently negative working capital because they
can easily raise funds on short notice if the need arises.
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CURRENT ASSETS

Year 2023 2022 2021 2020 2019

Current 124.50 71.75 45.21 48.96 42.62

Assets

(Rs. in crores)

Current Assets
140

120

100

80

Current Assets
60

40

20

0
2023 2022 2021 2020 2019

Interpretation
The Current assets of the company are rising from last five years. It is lowest in 2019 and is
on its peak in 2023 as clear from the above figure. It is really a good sign for the company as
it would be easier for the company to meet its current liabilities obligations.
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CURRENT LAIBILITIES

Year 2023 2022 2021 2020 2019

Current 119.68 120.04 102.65 83.16 93.20

liabilities

(Rs. in crores)

Current Liabilities
140

120

100

80

Current Liabilities
60

40

20

0
2023 2022 2021 2020 2019

Interpretation
The current liabilities of the company are also rising as shown in the above figure. They were
approx.90 crores in 2019 and now has gone up to approx. 120 crores. They are increasing
more than the current assets so it is sign of tension for the company. When current liabilities
are greater than the current assets the business is facing a liquidity crisis.

An increase in current liabilities can also indicate a temporary cash flow issue, or an
expansion of business activities
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CASH
Year 2023 2022 2021 2020 2019
Cash 38.20 34.00 10.91 7.77 1.86
(Rs. in crores)

Cash
45.00

40.00

35.00

30.00

25.00

20.00 Cash

15.00

10.00

5.00

0.00
2023 2022 2021 2020 2019

INTERPRETATION:
Cash and cash equivalents refer to the line item on the balance sheet that reports
the value of a company's assets that are cash or can be converted into cash
immediately. cash and cash equivalents also offer liquidity that can allow them
to move quickly to take advantage of investment opportunities, particularly
when there is disruption or fluctuation in the market.
 P a g e | 39

Findings-

• Working Capital of Taj group of hotels is negative from the year 2019 to 2022 but in
the year 2023 it starts increasing positively.
• The Taj groups of hotels have efficient current and quick ratios.
• Company has more current liabilities as comparison to current assets
• the inventory turnover ratio of the company is very poor
• company is not effectively using its current assets or short-term liability.

Suggestions-

• Working capital of the company has starts increasing in the year 2023 after huge
decline from the year 2019 to 2022. Profit also starts increasing which is good sign for
the company. It has to maintain it further, to run the business long term.

• The current and quick ratios are almost up to the standard requirement. So, the
Working Capital Management is satisfactory and it has to maintain it further.

• The company should decrease their current liabilities and increase current assets to get
better liquidity position. By efficient utilizing short-term capital, it can maintain its
Working Capital.

• Company should increase their inventory turnover ratio by trying new marketing
strategies.

• The company has sufficient working capital and has better liquidity position. By
efficient utilizing this short-term capital, then it should increase the turnover.

• The company has sufficient current assets which is good for the company. It has to
maintain it further.
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Conclusion-

The study on working capital management conducted in Taj hotels to analyse the financial
position of the company. The company’s financial position is analysed by using the tool
IHCL annual reports from 2019 to 2023.

The financial status of Taj Groups of hotels is good. In the last year current and quick ratio
has increased, this is good sign for the company. The company’s liquidity position is very
good. With regard to the investments in current assets there are adequate funds invested in it.
Care should be taken by the company not to make further investments in current assets, as it
would block the funds, which could otherwise be effectively utilized for some productive
purpose. On the whole, the company is moving forward with excellent management.
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REFRENCES

https://www.moneycontrol.com/financials/tajgvkhotelsresorts/balance-sheetVI/TGV

https://www.moneycontrol.com/financials/tajgvkhotels&resorts/consolidated-ratiosVI/tgv#tgv

https://scripbox.com/mf/current-ratio/

https://www.ihcltata.com/

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A%2F%2Finvestor.ihcltata.com%2Ffiles%2FIHCL_Integrated_Annual_Report_2022-
23.pdf&usg=AOvVaw1l8EuOSFQo8pngc3a7P_md&opi=89978449