MBA FM Bhatkulkar Workingcap30

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Chapter 1 Introduction

WORKING CAPITAL MANAGEMENT

The success of business, among other things depends upon the manner in which itscapital 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.

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Chapter 2 Research Methodology

Rationale for selecting the topic:

Study is important from the following point of view-

1. The project 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.

Need & Importance Of the study

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







fund.



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Objectives of the Study:

The objective of the study is

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







fund.



Hypothesis

1) The company has a good liquidity position and does not delay its commitment in case

of both its creditors and debtors.

2) 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.

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Research Methodology:

Secondary Data :

The study of the project is purely depends on secondary data.

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.

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.

Limitation Of The Study:

The scope is limited to the Praga tools Ltd, Hyderabad company .

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 problemsrelated to financial performance.

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Chapter 3 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 in2004-05. 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 Indians 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 isUnited 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 Indias leading

Industrial Magazine on machine tools and Ancillary industries. Published in affectation

with the countrys apex Body for the machine tools industry. Indian machine tool

Manufactures 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.

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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 Indias manufacturing industry. And

is even more crucial for development of the countrys 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 countrys

engineering sector, output of which is estimated to be worth over Rs. 1,50,000 crore.

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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

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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.

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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 industrys output.

2.6 User Industries Services

The industrys 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.

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CHAPTER 4 ORGANISATION PROFILE

3.1 INTRODUCTION

Praga is once of the leading machine tool manufacturing units in India established in theyear 1943, Pragas 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.

Pragas 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 Georgefinisher 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).

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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 25 th 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 personnels 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.

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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.

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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

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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.

WEEKNESS:

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.

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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)

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.

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Chapter 5 Conceptual & Methodological

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.

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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.

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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.

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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 ill

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.

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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.

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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.

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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.

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NEED FOR WORKING CAPITALS

Business firms aim at maximizing the wealth of shareholders. In its endeavor to

maximize shareholders 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 dont 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.

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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.

Permanent

Temporary or

Fluctuating

TIME

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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.

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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.

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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.

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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 firms 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.

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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 companys 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.

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Chapter 6 Data Analysis & Interpretation

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

balance1,213.00 1,252.00 39.00

Loan &

Advance31,317.00 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 Capital(a-b)

-

1,74,8,741.00

-

2,49,361.00Net increase in

W.C74,520.00 74,520.00

Total of N.W.C-7,74,841.00

-

1,74,841.00

74,559.00 74,559.00

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

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(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

balance1,252.00 7,041.00 5,789.00

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)4,53,466.00

03,81,185.00

Working

Capital

(a-b) -2,49,361.00-

2,60,231.00Net

decreased in

W.C

10,870.00

Total of

N.W.C-2,49,361.00

-

2,49,361.0088,940.00 88,940.00

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.

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Table-2


31-03-2003 & 31-03-2004.

Rs. in Lakhs


(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 currentAssets

--- 4,932.00 4,932.00

Cash & Bank

balance7,041.00 1,56,398.00

1,49,357.0

0

Loan & Advance 13,205.00 11,368.00 1,837.00

Total (a) 1,02,954.00 2,57,505.00

(b)

Current

LiabilitiesCurrent 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

Capital(a-b) -2,60,231.00

-

1,92,057.00Net decreased

in W.C68,174.00 68,174.00

Total ofN.W.C

1,59,853.00 1,59,853.00

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


31-03-2004 & 31-03-2005.

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Rs. in Lakhs


(a)

Current

Assets

Inventories 50,765.00 43,429.00 7,336.00

Other current

Assets4,932.00 5,313.00 381.00

Sundry debtors 34,042.00 36,681.00 2,639.00

Cash & Bank

balance1,56,398.00 51,469.00 1,04,929.00

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 4,47,780.00Working

Capital(a-b) -1,92,057.00

-

3,00,422.00Net

decreased in

W.C

1,08,365.001,08,365.0

0

Total of

N.W.C-1,92,057.00

-

1,92,057.00

1,25,886.0

01,25,886.00

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

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

(a) Current

Assets

Inventories 43,429.00 40,255.00 -------- 3,174.00

SundryDebtors 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

3,90,548.0

0 2,71,304.00 1,19,244.00 -------

Provisions 57,232.00 69,406.00 12,174.00

Total

4,47,780.0

0 3,40,710.00

Working capital

(a-b)-

3,00,422.00

-

1,06,436.00Net 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

2,09,334.0

0 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

Loans2,39,919.00

Purchased of Fixed

Assets108.00

Increased in Un-secured

Loans 14,062.00

Net increased in working

capital 85,948.00

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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 throughthese areas and in this year the purchasing power of the company is also decreased.

FUNDS FLOW STATEMENT AS ON 31ST MARCH, 2002.



Loans2,64,416.00

Purchased of Fixed

Assets33.00

Increased in Un-secured

Loans8,237.00

Net increased in working

capital85,948.00

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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 thats need to be ratifiedby the management of the PRAGA TOOLS Limited.




Loans

4,07,033.00Purchased of Fixed

Assets

652.00

Increased in Un-secured 13,764.00 Net increased in 10,870.00

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Loans working capital

Funds Lost in operation 4,09,284.00

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

ANALYSIS:



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.

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Increased in un-secured

Loans13,747.00

Decreased in

secured loans1,05,789.00

Sales of fixed assets 9,211.00

Net decreased in working

capital68,174.00

Funds lost in operations 14,657.00 10,870.00

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

ANALYSIS:


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 throughthese areas and in this year the purchasing power of the company is also decreased.

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Increased in Share Capital

funds.1,700.00

Net increased in

working capital1,08,365.00

Increased secured loans 2,12,657.00Funds lost in

operations1,35,004.00

Increased un-secured

loans13,746.00

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 thats need tobe

ratified by the management of the PRAGA TOOLS Limited.

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Funds Flow statement as on 31st March 2006


Sales of fixed assets2,043.00

Decreased Securityloans 18,45,247.00

Net decreased

working capital 1,93,986.00

Decreased

unsecurity loans 24,806.00Funds 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


the secured and unsecured loans. The company has adjusting their losses through


Funds Flow statement as on 31st March 2006

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Sales of fixed assets

2,043.00

Decreased Security

loans 18,45,247.00Net decreased

working capital 1,93,986.00

Decreased

unsecurity loans 24,806.00Funds 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


the secured and unsecured loans. The company has adjusting their losses through


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CHART 1

TRENDS IN NET WORKING CAPITAL

0

20

40

60

80

100

120

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

Series1

INTERPRETATION:-

Net working capital had shown an increasing trend since, 2002, which in taken as abase 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.

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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.

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4.2 WORKING CAPITAL RATIOS:-

Current Assets

Current Ratio = ----------------------

Current Liabilities

TABLE 2

CURRENT RATIO

(In Lakhs)

Year Current Assets Current Liabilities Current Ratios

2002-03 17846.14 4652.24 4.102003-04 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

0.00

1.00

2.00

3.00

4.00

5.00

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

Year

Ratios

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.

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Quick Assets

Quick or Acid Test Ratio = ------------------------

Current Liabilities

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

0

0.5

1

1.5

2

2.5

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

Year

Ratio

Series1

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.

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ABSOLUTE LIQUIDITY RATIO:-

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

S.No Year Absolute Liquid

Assets

Current

Liabilities

Current

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

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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 owners 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

S.No Year Long Term

Liabilities

Share Holders

funds

Debit equity

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 SalesWORKING CAPITAL TURNOVER RATIO = -----------------------

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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 CapitalWorking 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

revious year hence the working that capital turnover ratio is at 2.82 in the year 2005-06.

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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

0

1

2

3

4

5

6

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

Year

Ratio Debtors

Turnover

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.

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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)

Year No of DaysDebtors Turnover

Ratio

Debtors Collection

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 73CHART-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 late payments.

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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.

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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.

TABLE-8

INVENTORY HOLDING PERIOD (IN DAYS) (In Lakhs)

Year No. of DaysInventory Turnover

RatioCollection 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

0

50

100

150

200

250

300

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

Year

Days Collection

Period in

Days

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.

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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

year

Debtors

Turnover Ratio

Average

Collection period

1. 2001-

2002

12.00 1.26 9.52

2. 2002-

2003

12.00 0.81 14.81

3. 2003-

2004

12.00 2.31 4.76

4. 2004-

2005

12.00 2.52 4.76

5. 2005-

2006

12.00 3.17 3.79

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.

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Chapter 7 Findings & Suggestions

FINDINGS

1. The company is not having sufficient working capital2. 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 debtors turnover ration is high and it shows the better trade credit

management.

12. Debtors collection period is very less which shows the better trade credit

management.

13.Debtors 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.

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17. It is to be observed that the companys 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 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,

retirements 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.

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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

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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.

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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

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MBA FM Bhatkulkar Workingcap30

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