working cap management
Post on 14-Apr-2015
16 Views
Preview:
DESCRIPTION
TRANSCRIPT
A STUDY
On
The project is submitted IN PARTIAL FULFILLMENT AT THE DEGREE OF Master in Business Administration BPUT, Rourkela.
Submitted by
Debayoti MohantyRegd. No. 0606277049
Under the Guidance of
Centre for Management Studies
Company GuideMr. H. Suresh
A.G.M (Finance)Tube Products of India
Faculty GuideMr. B. P. Chhatoi
Faculty (CMS)
OEC, BHUBANESWAR
1
ACKNOWLEDGEMENT
I here by tender my hearty acknowledgement
to the following esteemed persons for rendering
their helping band, co-operation and guidance to
great extend for preparation of this report.
I am very grateful to Mr. H. Suresh (A.G.M.,
Finance) for their wise consent and inspiration to
under the project report, at Tube Products of India,
Chennai.
Finally I acknowledge every one of TI and my
friends for the co-operation and help to complete
this project successfully.
Debayoti MohantyCMS, (OEC),
Bhubaneswar
2
DECLARATION
I do hereby declare that this project entitled
“Working capital Management in TI” is the result of
my training at “Tube Products of India, Chennai”
which has been carefully prepared and submitted
by me as a partial fulfillment of Master of Business
Administration under the guidance of Mr. H. Suresh
(A.G.M., Finance) and Mr. B.P. Chhatoi (Faculty
Finance).
All the data and analytic statement being
stated in the project that is submitted by may be
accepted as fully authentic genuine.
Debayoti MohantyCMS, (OEC),
Bhubaneswar
3
PREFACE
Management of current assets and current
liabilities and the relationship chat exists between
them is turned as working capital management.
Technically working capital management is an
integral part of the overall financial management.
This project work is based on the study
undertaken by me at TI a division of Tube Product
of India, Chennai.
This project work is dividend into various
sections and each section deals with different
aspects of financial management.
Debayoti MohantyCMS, (OEC),
Bhubaneswar
4
CONTENTS
CHAPTER – 1
Introduction
CHAPTER – 2
Scope of Study
Object of Study
Methodology
Tools & Technique used for Study
CHAPTER – 3
Company profile
CHAPTER – 4
Subject presentation & Analysis of Data
CHAPTER – 5
Finding, Suggestion & Conclusions
Bibliography
5
INTRODUCTION
6
INTRODUCTION
“Working Capital Management” means managing the current
assets of a business firm. Current assets are those assets, which can
be converted within a short period of time i.e. one year. It is the
outcome of a need for proper management of funds in a business.
Funds can be involved for permanent purpose such as
acquisition of fixed asset, expansion and diversification of business,
modernization of plant machinery, research and development etc.
funds are also required for temporary purpose such as day – to –
day activities of a business like purchase of row materials, payment
of salaries & wages, other short-term expenses etc. which is known
as working capital. It refers to the excess of current assets over
current liabilities and the inter. Relation that exists between them.
Working Capital = Current Assets – Current liabilities
There is hardly a business enterprise that does not require
working capital. As a company’s primary objective is to increase the
wealth of its shareholders, which depends on the efficient
management of funds, hence, proper analysis and efficient
management of funds (both short-term and long term) is very
important.
Working capital management is to a very sensitive area in the
field of financial management. It deals with the management of
current assets i.e. deciding on the amount and composition of
current assets and various means of financing these assets. It is
very often noticed that profitable companies have succumbed due
to inefficient management of working capital or inadequate liquidity.
Over emphasis on profitability forces them to ignored cash outflow
areas like wages, dividends, trade debtors that ultimately creates a
7
cash run-out situation. Hence, management of working capital not
only means efficient utilization of funds but also includes
identification of important areas of cash inflow and cash outflow.
Therefore working capital management has become as one of
the vital activities in a business organization.
8
SCOPE OF STUDYOBJECT OF STUDYMETHODOLOGY
TOOLS & TECHNIQUE USED FOR STUDY
9
SCOPE OF STUDY
This is study of working capital management with particular
reference to Tube Products of India is a large public sector company
engaged in production of various grades of Tube products. Being a
capital intensive manufacturing concern, this particular company is
selected for this project study.
A two year period is covered in the study, which extends form
financial year 2005-06 & 2006-07. The study was restricted to
different components of working capital like case management,
inventory management, management of receivables and financing
of current assets.
2.1 OBJECTIVE OF THE STUDY
The following are the main objectives of this project study.
(a) To study the challenges of working capital management
(b) To study the present system of working capital in the
organization.
(c) To determine the working capital tube product of India and
work out the various ratios to working capital.
(d) To make an item-wise study of the various components of
working capital with the help of trend analysis and graph.
(e) To suggest steps that should be taken to increase the
efficiency in management of working capital.
10
2.2 METHODOLOGY
Data were collected from both primary and secondary
sources. These data have been analyzed with a view to arrive at
conclusions regarding the practice of different methods by the
management for effective control of working capital.
The financial data were collected from various sources like:
(i) Annual financial report of the company for two year
period form 2005-06 & 2006-07.
(ii) Internal reports.
(iii) Manual report regarding management decisions on
different aspects of working capital.
(iv) Printed material carrying the policies of the
organization.
2.3 LIMITATION OF THE STUDY
The study at hand is an empirical one and hence we faced
some difficulties mostly in the area of data collection for analysis.
However, with patience the difficulties were overcome to some
extent and the stuffy is presented as in the present shape or in the
form.
2.4 TOOLS & TECHNIQUES USED FOR THE STUDY
The following tools and technique of financial analysis were
used to measure the degree of efficiency in management of working
capital.
Ratio analysis
11
Trend analysis
Percentage
Cash management
Inventory management
Management of receivables
12
COMPANY PROFILE
13
COMPANY PROFILE
MURUGAPPA COMPANIES
The USD 2 billion Murugappa Group has 29 companies — it is one of the biggest Indian conglomerates, operating in diverse areas like engineering, abrasives, sanitaryware, fertilisers, finance, bio-products and plantations.
Well known for its
dedication to constantly
improving and sustaining
the quality of the
products and services it provides, the Murugappa Group is the next
emerging name in the global arena of business.
The major companies of the Group are:
Carborundum Universal LimitedCholamandalam DBS Finance Limited
Cholamandalam MS General Insurance
Coromandel Fertilisers Limited
EID Parry India Limited Godavari Fertilisers Limited
Parry Agro Industries Limited Parryware ROCA Private Limited
Tube Investments of India Limited
14
The other companies are:
Ambadi Enterprises Ltd Cholamandalam Distribution Services Ltd
Cholamandalam Mutual Cholamandalam MS Risk Services Ltd (CMSRSL)
Cholamandalam Securities Ltd Coromandel Engineering Company Ltd
Kadamane Estates Company Laserwords Pvt Ltd
Murugappa Morgan Thermal Ceramics Ltd
Net Access India Pvt Ltd
New Ambadi Estates Pvt Ltd Parry Enterprises India Ltd
Parry Murray and Co Ltd Placon (India) Pvt Ltd
Polutech Ltd Prodorite Anticorrosives Ltd
Southern Energy Development Corporation
Sterling Abrasives Ltd
Wendt India Ltd
International alliances
15
Worldwide presence
Our international associates
Coromandel Fertilisers Limited (CFL) and Gujarat State Fertiliser
Corporation (GSFC) signed a joint venture agreement with Groupe
Chimique Tunisien of Tunisia for the manufacture of phosphoric
acid, a critical raw material in the manufacture of phosphatic
fertilisers and DAP.
In February 2005, Coromandel Fertilisers acquired a 2.5 per cent
stake for Rs.27 crore in Foskor Limited, a South African fertiliser
company. The Indian company will also advise Foskor on operational
issues to enable it to improve its financial performance.
EID Parry (India) Ltd and Cargill International S.A., Geneva have
announced their plans to enter into a joint venture to set up a port-
based stand-alone sugar refinery in Kakinada, Andhra Pradesh
16
Parryware ROCA Private Limited, India's No. 1 bathroom solutions
provider and Spain's ROCA, the world's leading bathroom ceramics
company, will join hands to charter a new growth in the Indian
sanitaryware segment.
This is a joint venture between EID Parry India Limited and ROCA of
Spain, the world's leading bathroom Ceramics Company.
Murugappa Group and DBS Bank, Singapore became equal partners
in the joint venture Cholamandalam Investment and Finance
Company Ltd. (CIFCL). CIFCL has been renamed Cholamandalam
DBS Finance Ltd.
Group company Wendt India Limited is a joint venture with Wendt,
West Germany, a niche player in the abrasives industry. It makes
diamond and CBN grinding wheels and tools.
17
Murugappa Morgan Thermal Ceramics Ltd is a joint venture
between Carborundum Universal (CUMI) and Morgan Crucible Co plc
of the UK. It produces ceramic fibres.
Cholamandalam MS General Insurance Co Ltd is a joint venture with
Japanese insurance giant Mitsui Sumitomo. Cholamandalam MS
General Insurance Co Ltd is a joint venture with Japanese insurance
giant Mitsui Sumitomo.
The Group has a joint venture with Borg Warner Morse Tec of the
US, a global leader in the design and manufacture of automotive
chain systems and components for engine timing, to manufacture
silent chains and associated systems.
TUBE PRODUCTS OF INDIA
Market Position
18
Tube Products of India is an undisputed leader in the Indian
market for precision Welded ERW and CDW steel Tubes with the
widest variety and also manufactures wide range of CRCA (Cold
Rolled Closed Annealed) Strips catering to international
standards
Products
Precision Tubes
Market leader in Telescopic Front Fork Inner tubes and Cylinder bore
tubes for shock absorber and gas spring applications.
Propeller shaft tubes for Automotive segment.
Other Speciality products include Rear Axle Tubes, Side Impact
Beams, Tie Rods, Drag links. Heavy thick steering shafts and
Hydraulic Cylinder tubes
CRCA Strips
A wide range of CRCA strips including special extra deep drawing,
high tensile, medium carbon, high carbon finding application in
industries such as Bearings, Automobile, Auto Ancillaries and
General Engineering.
Certifications
ISO-TS 16949 : EOU plant has already been certified, Shirwal plant has been recommended
ISO 9001 - 2000 : All plants
ISO 14001 : Avadi Plant & EOU Plant
Self-certification for boiler tubes by the central boiler board
Winner of the Sword of honour for outstanding safety performance
from the British Safety council
19
Locations
Plants : Chennai (South India), Shirwal (Western India) & Mohali
(Northern India)
Business Partners / Customers
Maruti Udyog Ltd
Hyundai Motor Ltd
Toyoto Kirloskar Automobiles Limited
Mahindra & Mahindra
Ashok Leyland
Tata Motors
Hero Honda
TVS Motor Company
Bajaj Auto Limited
Yamaha Motor
Thermax
Kayaba, Malaysia
Dana Australia
Delphi - India
CORPORATE PROFILE
A Reputed Engineering Company
in India, driving excellence in work
and part of the US $ 2 billion
Indian conglomerate,
The Murugappa Group
20
Tube Investments of India Limited is the flagship Company of Rs.
8500 crore Murugappa Group. It manufactures precision steel tubes
and strips, car doorframes, automotive and industrial chains and
bicycles.
The Company has 13 manufacturing/assembly units spread across
the country. These units are ably supported by marketing offices
that act as interface between customer requirements and
production team. The Company’s shares are listed on the National,
Mumbai and Chennai stock exchanges within India and GDRs on the
Luxembourg Stock Exchange. The Company’s product segments are
- Engineering, Metal Formed Products and Cycles.
TI is the market leader in precision tubes with 61 percent
market share by virtue of its quality and application
engineering capabilities.
TI is the market leader in roll formed car doorframes with 57
percent market share by virtue of its cost efficiency,
association with key auto majors and roll forming capabilities.
TI is a leading player in automotive chain with 35 percent
market share by virtue of its quality, cost and delivery and
association with two wheeler majors.
TI is a leading player in bicycle segment with 30 percent
market share by virtue of its brand equity, product
development capability and proximity to the markets.
21
The Company also has an interest in the services sector through its
investments in Cholamandalam Investment and Finance Company
Ltd. and Cholamandalam MS General Insurance Co. Ltd.
BOARD OF DIR ECTORS
Mr. M M Murugappan,ChairmanProfile
Mr. Amal Ganguli,Non-Executive DirectorProfile
22
Dr. D Jayavarthanavelu,Non-Executive DirectorProfile
Mr. Pradeep Mallick,Non-Executive DirectorProfile
Mr. Ram V Tyagarajan,Non-Executive DirectorProfile
Mr. S Sandilya,Non-Executive DirectorProfile
Mr. R Srinivasan,Non-Executive DirectorProfile
Mr. N Srinivasan,DirectorProfile
Mr. Tapan Mitra,Non-Executive DirectorProfile
CORPORATE GOVERNANCE
Good corporate governance has consistently been TI’s cornerstone
for sustained superior financial performance, and quality service to
all its stakeholders. At TI, we firmly believe that the fundamental
objective of corporate governance is enhancement of long-term
shareholder value, while keeping the interests of all stakeholders in
view.
23
Dedicated to the highest standards of corporate governance in all its
activities and processes, the Company is committed to discipline,
willingness, transparency and fairness. Key elements in TI’s
corporate governance include :
Transparency
Disclosure
Supervision and internal controls
Risk management
Internal and external communications
High standards of safety, health, accounting fidelity, product
and service quality [
Besides drawing on the various legal provisions, group practices are
continuously benchmarked in terms of the Confederation of Indian
Industry Code and international studies. The entire process begins
with the functioning of the Board of Directors, with leading
professionals and experts serving as independent directors and
represented in the various board committees. The Board has
empowered an efficient team of experts to implement its policies
and guidelines and has set up adequate review processes to ensure
continual value generation.
WHISTLEBLOWER POLICY
Policy Title Whistleblower Policy
Version Number MHRPOL2/1/2006
Effective Date 1/4/2006
Initiated By Group Director HR
24
Authorised By Company Statutory Board
Number of Revisions (since 1/1/2006)
Nil
Last Revised Date N.A.
Next Revision Date 1/4/2008
Policy Whistleblower Policy
Objective To provide employees, customers and vendors an
avenue to raise concerns, in line with Tube
Investments of India Limited’s commitment to
the highest possible standards of ethical, moral
and legal business conduct and its commitment to
open communication. To provide necessary
safeguards for protection of employees from
reprisals or victimization, for whistleblowing in
good faith.
Scope All permanent employees, customers and vendors
of Tube Investments of India Limited
Coverage Tube Investments of India Limited including
Associate Companies and Joint Ventures.
Main Features Improper Practice
The whistleblowing policy is intended to cover
serious concerns that could have a large impact
on Tube Investments of India Limited such as
actions (actual or suspected) that :
May lead to incorrect financial reporting ;
Are not in line with applicable company
25
policy ;
Are unlawful or,
Otherwise amount to serious improper conduct.
Complainant
(Whistleblower)
An employee/customer/vendor making a
disclosure under this policy is commonly
referred to as a complainant (whistleblower).
The complainant’s role is as a reporting party,
he/she is not an investigator.. Although the
complainant is not expected to prove the truth
of an allegation, the complainant needs to
demonstrate to the Ombudsperson, that there
are sufficient grounds for concern.
Safeguards Harassment or Victimisation
Harassment or victimistion of the complainant
will not be tolerated and could constitute
sufficient grounds for dismissal of the concerned
employee.
Confidentiality
Every effort will be made to protect the
complainant’s identity, subject to legal
constraints.
Anonymous Allegations Complainants must
put their names to allegations as follow-up
questions and investigation may not be possible
unless the source of the information is identified.
Concerns expressed anonymously WILL NOT BE
usually investigated BUT subject to the
seriousness of the issue raised the
Ombudsperson can initiate an investigation
26
independently.
Malicious Allegations Malicious allegations by
employees may result in disciplinary action.
Ombudsperson The Ombudsperson will be a person, including a
full-time senior employee, well respected for
his/her integrity, independence and fairness.
S/he would be authorized by the Statutory Board
of the company for the purpose of receiving all
complaints under this policy and ensuring
appropriate action.
Reporting The whistleblowing procedure is intended to be
used for serious and sensitive issues. Serious
concerns relating to financial reporting,
unethical or illegal conduct should be reported
to the Ombudsperson. Annexure I provides the
necessary contact details.
Investigation All complaints received will be recorded and
looked into. If initial enquiries by the
Ombudsperson indicate that the concern has no
basis, or it is not a matter to be pursued under
this policy, it may be dismissed at this stage and
the decision documented Where initial enquiries
indicate that further investigation is necessary,
this will be carried through either by the
Ombudsperson alone, or by a Committee
nominated by the Ombudsperson for this
purpose. The investigation would be conducted
in a fair manner, as a neutral fact-finding
27
process and without presumption of guilt. A
written report of the findings would be made.
Investigation
Result
Based on a thorough examination of the findings,
the committee (or Ombudsperson) would
recommend an appropriate course of action to
the CEO / MD of Tube Investments of India
Limited. Where an improper practice is proved,
this would cover suggested disciplinary action,
including dismissal, if applicable, as well as
preventive measures for the future. All
discussions would be minuted and the final report
prepared.
Investigation
Subject
The investigation subject is the person / group of
persons who are the focus of the enquiry /
investigation. Their identity would be kept
confidential to the extent possible
Reporting by
Ombudsperson
The Ombudsperson will provide quarterly reports
to the Chairman of the Statutory Board with a
copy to the Group Director HR.
Communication with Complainant
The complainant will receive acknowledgement
on receipt of the concern.
The amount of contact between the complainant
and the body investigating the concern will
depend on the nature of the issue and the clarity
of information provided. Further information may
be sought from him/her.
28
Subject to legal constraints, s/he will receive
information about the outcome of any
investigations.
Changes to
Policy
This policy can be changed, modified, rescinded
or abrogated at any time by Tube Investments
of India Limited.
ACCOUNTABILITIES Employees / Customers / Vendors
1. Bring to early attention of the
company any improper practice they
become aware of. Although they are
not required to provide proof, they
must have sufficient cause for
concern.
2. Avoid anonymity when raising a
concern.
3. Co-operate with investigating
authorities, maintaining full
confidentiality.
4. The intent of the policy is to bring
genuine and serious issues to the fore
and it is not intended for petty
complaints. Malicious allegations by
employees may attract disciplinary
action.
5. A complainant has the right to
protection from retaliation. But this
does not extend to immunity for
complicity in the matters that are the
subject of the allegations and
investigation.
6. In exceptional cases, where the
29
complainant is not satisfied with the
outcome of the investigation carried
out by the Ombudsperson, s/he can
make a direct appeal to the Chairman
of the Audit Committee of Tube
Investments of India Limited.
Ombudsperson1. Ensure that the policy is being
implemented.
2. Ascertain prima facie the credibility of
the charge. If initial enquiry indicates
further investigation is not required,
close the issue.
3. Document the initial enquiry.
4. Where further investigation is
indicated carry this through,
appointing a Committee if necessary.
5. Provide quarterly reports to the CEO
of Tube Investments of India
Limited with a copy to the Group
Director HR.
6. Acknowledge receipt of concern to the
complainant, thanking him/her for
initiative taken in upholding the
company’s business conduct
standards.
7. Ensure that necessary safeguards are
provided to the complainant.
Ombudsperson/
Committee
1. Conduct the enquiry in a fair,
unbiased manner
2. Ensure complete fact-finding.
3. Maintain strict confidentiality.
30
4. Decide on the outcome of the
investigation, whether an improper
practice has been committed and if so
by whom.
5. Recommend an appropriate course of
action suggested disciplinary action,
including dismissal, and preventive
measures.
6. Minute Committee deliberations and
document the final report.
CEO 1. Table the quarterly reports from the
Ombudsperson with the Statutory
Board.
2. Ensure necessary actioning of
recommendations of the
Ombudsperson / Committee.
Investigation
Subject
1. Provide full co-operation to the
Investigation team.
2. Be informed of the outcome of the
investigation.
3. Accept the decision of the
Ombudsperson.
4. Maintain strict confidentiality.
31
IMPROPER PRACTICES
Serious concerns that would have impact on Tube Investments of
India Limited, such as actions (suspected or actual) that:
May lead to incorrect financial reporting ;
Are not in line with applicable company policy ;
32
Are unlawful or, Otherwise amount to serious improper
conduct.
SAFEGUARDS
Harassment or Victimisation : Harassment or victimisation
of the complainant will not be tolerated and could constitute
sufficient grounds for dismissal of the concerned employee.
Confidentiality : Every effort will be made to protect the
complainant’s identity, subject to legal constraints.
Anonymous Allegations : Complainants must put their
names to allegations as follow-up questions and investigation may
not be possible unless the source of the information is identified.
Concerns expressed anonymously WILL NOT BE usually investigated
BUT subject to the seriousness of the issue raised the
Ombudsperson can initiate an investigation.
Malicious Allegations : Malicious allegations by employees may
result in disciplinary action.
AWARDS AND CERTIFICATES
Prestigious national and international awards and certificates adorn
the Murugappa portfolio and reinforce its execellence in its
businesses. A quick glance at some of them:
33
The Murugappa Group has won the IMD Distinguished Family
Business Award 2001
Company awards
CUMI was ranked third in ICWAI award for Excellence in Cost
Management in the 2004
The bonded abrasives business has been conferred the CII-Exim
Award 2005 for Business Excellence for strong commitment
to excel
Frost & Sullivan award for manufacturing excellence -
managing change
Forbes names CUMI as one of Asia's best 200 companies under
a billion
Almost all CUMI plants are ISO 9002 certified
For the ninth time the FAI Best
Production Performance Award for
2006, to the phosphoric acid plant in
Vizag
Award for Best Energy
Conservation in the Fertiliser sector
for 2005-06, received by Vizag Plant
on 14 December 2006, National
Energy Conservation Day
'National Energy Conservation
Award for 2006' from the Ministry of
Power, New Delhi, in appreciation of
34
efforts in energy conservation in the
fertiliser sector — won for the third
time
The FAI Best Video Film Award for 2006, to the film on
'Gromor Sulphur' for the fifth time
National award (1st prize) for the house journal, 2006, from
the Public Relations Society of India, New Delhi, received for The
Voice (house journal) for the second consecutive year
National Award (2nd prize) for video film, 2006, from the
Public Relations Society of India, New Delhi, to the Marketing
Department (Fertilisers) for the film Cheyutha (helping hand)
British Council 'Five Star' rating for safety management
systems in 1998
First prize for safety, among 162 fertiliser companies in the
International Fertiliser Industries Sectional Contest
Andhra Pradesh Pollution Control Board's award for 'Waste
Minimisation at Source and Adopting Cleaner
Technologies' for 2001-02
FAI award for 'Environmental Protection in NP / NPK Fertiliser
Plant Category' for 1995-96
Adjudged one of the 'Ten Greenest Companies in India' by a
joint survey of Tata Energy Research Institute (TERI) and
Business Today magazine
Several other awards from the central and state governments,
as well as other institutions like the Jawaharlal Nehru Award for
Pollution Control and Energy Conservation
Received a commendation certificate for a 'Strong
Commitment to HR Excellence' from the Confederation of
35
Indian Industries (CII)
CFO Deal of the Year Award, 2005, for the Business
Assistance Agreement with Foskor Limited, South Africa
The Visakhapatnam Plant was awarded ISO 14001:1996 first in
2002 and again in 2004. The company is also the recipient of
OHSAS 18001:1999 certificate.
SUBJECT PRESENTATION & ANALYSIS OF DATA
36
37
WORKING CAPITAL
The part of long term finance locked in and used for
supporting current activities i.e, to maintain the productivity of fixed
assets i.e, without the for current activities for fixed asset are
valuables. The amount blocked for or locked for the current
activities is really working capital.
Those assets which can concentrated into cash or cash
equivalent within a short period i.e., the assets which are ultimately
converted into cash i.e., which are required to meet the day to day
operation is current asset.
MEANING OF WORKING CAPITAL
Capital required for a business can be classified under two
main categories.
Fixed Working
Capital Capital
Fixed capital : The capital which is blocked on a permanent or
fixed basis is called fixed capital.
Example – Long term funds
Working capital : Funds which are needed for short term purpose
for the purpose of raw materials, payment of wages & other day to
day exp. Are knows as working capital.
Working capital is defined as the excess of current assets over
current liabilities.
Current assets are those assets which will be converted into
cash which is the current a/c period. They are cash or near cash
resources these include.
38
Current Assets – Current Liabilities
Cash & bank balance
Receivables.
Inventory
o Raw materials, stores & spares.
o Work-in-progress
o Finished good
Prepaid exp
Short term advances
Temporary investments
Current liabilities are the debts of the firms that have to be
paid during the current a/c period or within a year.
Creditors for goods purchased.
O/S Expenses i.e. exp doe but not paid.
Short term borrowings
Advances receive against sales.
Working capital is also know as circulating capitals fluctuating
capital and revolving capital.
Circulation of current assets
Cash
Inventories
Receivables
OBJECTIVE OF WORKING CAPITAL
The basic objective of working capitals are as follows:
39
By optimizing the investment in current assets & by reducing
the level of current liabilities.
The second imp objective of working capital management is
that the company should always be in a position to meets its
current obligations.
The firm should manage its current assets in such a way that
the marginal return on investment in these assets is not less
than the cost of capital employed to finance the current
assets.
CONCEPTS OF WORKING CAPITAL
There are two concepts of working capital gross concept & net
concept.
Gross Working Capital refers to the firm’s total investment
on current assets.
Net Working Capital: is the difference be in current asset &
current liabilities.
The gross working capital is a financial or going concern
concept where as net working capital is an a/c concept of working
capital.
CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified into two categories
40
Working Capital
On the basic of concept
On the basic of time
Gross working capital
Net working capital
Fixed working capital
Temporary or variable working
capital
Regular working capital
Reserve working capital
Seasonal working capital
Special working capital
PERMANENT WORKING CAPITAL
Fixed or permanent working capital is the amount of funds
required for production of goods & services to satisfy the demand.
41
For example every firm has to maintain a minimum level of
raw materials, work-in-progress, finished goods & cash balance.
The minimum level of current assets is called permanent or
fixed working capital as this part of capital is permanently blocked
in current assets.
TEMPORARY WORKING CAPITAL
Temporary or variable working capital is the amount of
working needed over & above the minimum level of working capital
to meet the special demands & some special agencies.
IMPORTANCE OF WORKING CAPITAL
Working capital is very essential to maintain the smooth
running of a business. No business can run success fully without an
adequate amount of working capital.
Solvency of the business: Adequate working capital helps
in maintaining solvency of the business by providing
uninterrupted flow of productions.
Good will
Easy loans
Cash discount
Regular supply or raw materials
Regular payment of salaries & wages.
Ability to face crisis
Quick & regular return on investment
High moral
DISADVANTAGE INSUFFICIENT WORKING CAPITAL
42
Trade discounts are lost
Cash discount are lost
The advantages of being able to offer a credit line to customer
are forgone
Financial reputations are lost.
NEED OF WORKING CAPITAL
The need for working capital due to the time gap bet
production & realization of cash.
For the purchase of raw materials, components & spares.
To pay wages salaries
To insure day-to-day expenses.
To meet the selling cots.
To provide credit facilities.
To maintain the inventories of raw materials, work in progress.
FACTOR DETERMINING THE WORKING CAPITAL
REQUIREMENTS
Nature of business
Manufacturing cycle
Business cycle fluctuation
Sales of operation
Credit policy
Growth & diversification of business
Supply situation
Operating efficiency of performance
SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT
43
Principles of risk variation
Principles of cost of capital
Principles of equity potion
Principles of maturity of payment
Operating Cycle
Concept :
Operating cycle: The blockage of
resources in the product cycle due to the time factor, which
consists of there activities.
44
Purchasing resources: i.e., procumbent of
raw materials and other.
Producing the product: i.e., the working
progress and finished product which consists material, labour and
other expenses.
Distributing the product: i.e., sale of
finished product either in cash or credit and converting the credit
sale into cash.
To maintain liquidity and factoring properly the firm has to invest
various certain assets like cash balance to pay the bill, investing
stocks for production and sale and invest in sale to allow credit.
Operating cycle: the conversion periods of
current asset to absolute liquid asset. i.e, cash or cash
equivalent.
Mathematically expressed: It is the sum
of inventory conversion period and receivable conversion period,
i.e, inventory conversion period + receivable conversion period.
(It is the represent of gross working capital)
Operating cycle
Operating cycle consists of time duration starting from
procurement of raw material, ended at sales realization i.e, the time
gap between the first event and the last event i.e, the cash
conversion period i.e, converting cash to other current asset and
other current asset to cash.
45
Cash
Raw material
Labour & factory over head work-in-progress
Bill receivable
(Credit) Sale
Finished goods
Figure in operating cycle
PROCESS OF OPERATING CYCLE
Initial cash requirements
Procurement of raw material
Payment of labour and factory over head
i.e, conversion of raw material to working progress.
Convert working progress to finished goods.
i.e., charge or pay administrative expenses
Convert finished good to sale
If credit sale convert bills receivable
(debtion) to cash.
Operating cycle period is the length or time duration of
operating cycle. i.e, it is the sum of inventory conversion period
(ICP) and receivable conversion period (RCP) i.e. the gross operating
46
cycle. i.e, the gross operating cycle. i.e. ICP + RCP = gross
operating cycle inventory conversion period (ICP) = Raw material
conversion period (RMCP) + Work in progress conversion period
(WPCP) + finished good conversion period (FGCP),
i.e.
Receivable conversion period (RCP)
The time period required to convert credit sale into cash.
Cash Management
Introduction
Cash is the important current assets and is the basic input
needed to keep the business running on a continuous basis. Thus
47
the company should keep sufficient cash, neither less nor more. The
cash includes cash in hand and cash at bank. The entire
businessman wants cash but he is not ready 0 hold it as cash-in-
hand which is a non-earning asset.
Effective cash management involves an effort to minimize
investment in cash without affecting the liquidity of the
organization. It is a proper balancing between liquidity and
profitability.
CASH MANAGEMENT CYCLE
Motives for Holing Cash
a. Transaction Motive
The transactions motive requires a company to hold cash to
conduct its business in the ordinary course. The firm needs cash
48
Business Operation
Cash Collection
Deficit Surplus
Borrow Invest
Information and Control
Cash Payment
primarily to make payments for purchases, wages and salaries,
other operating expenses, taxes, dividends etc.
b. Precautionary Motives
The precautionary motive is the need to hold cash to meet
contingencies in future or un predictable situation. The cash
maintained for contingency needs is not productive or remain ideal.
However, such cash may be invested in short period or low-risk
marketable securities, which may provide cash as and when
necessary.
c. Speculative Motive
The speculative motive relates to the holding of cash for
investing in profit making opportunities as and when they arise. The
firm may speculate on securities, which depends on interest rates.
The firm may also speculate on material's prices.
Thus the primary motive to hold cash and marketable
securities are the transaction and precautionary motive.
c. Compensative Motive
The motive for holding, near cash to compensate bank
for providing certain services or loans.
For the services like cheke, clearance transfer funds the
banks charges some direct fee or commission. But for the
loan & other services the bank needs minimum balance of
cash at bank, which is called compensating balance.
Compensating balance = Absolute minimum balance
and average minimum balance.
CASH MANAGEMENT
49
Management of cash involves three things:
A. Managing cash flows into and out of the firm.
B. Managing the cash flow with the firm.
C. Financing deficit or investing surplus cash and thus
coordinating cash balance at a point of time.
In case of well managed profitable companies like NALCO, the
total amount of cash inflow for the year is usually higher than the
total amount of cash outflows.
CASH PLANNING
It is a technique to plan and control the use of cash. Cash
planning may be doe daily, weekly or monthly basis. The period and
frequency of cash planning generally depends upon the size and
policy of management of the firm. Larger firm often prepare cash
forecasts on daily or weekly basis. As a firm grows and business
operations became complex, cash planning becomes inevitable for
its continuing success.
CASH FORECASTING AND BUDGETING
A cash budget is a summary statement of the firm's expected
cash inflows and outflows over a projected time period. It is the
most significant device to plan and control cash receipts and
payments. It gives information on the timing and magnitude of
expected cash flows and cash balances over the projected period.
50
Cash forecasts are needed to prepare cash budgets. Cash
forecasting may be done one year or less are considered as short-
term.
Both Short-term and lon8-term forecasts can be made with the help
of the two most commonly used methods i.e.
1. The receipt and disbursement method.
2. Adjusted net income method.
Though, these cash forecasts do not reflect the exact figures
yet they enable the planners to make necessary arrangement for
requirement.
CASH REPORTS: TOOLS OF CONTROL
Cash report is an important tool of cash management, which
provides a comparison of actual development with forecast figures.
It is very much helpful in reviewing cash forecasts on continuous
basis and thus exercising effective control in cash flows. The cash
reports include daily cash report.
MANAGEMENT OF CASH FLOWS
After ascertaining the probable cash flows, efforts should be
made to procure or arrange the cash required for the smooth
running of the organization.
Cash management will be successful only if the cash
collections are accelerated and cash disbursements are delayed. As
far as possible, some popular methods adopted by different
51
organizations for cash inflows and retardation of cash out flows are
listed below;
Methods of accelerating of cash inflows
1) Prompt collections of cash from customers by
prompt billing and mailing.
2) Quick conversion of payments into cash by prompt
presentation of cheques or drafts to bank.
3) Decentralizing collections by opening collection
centers at different places.
4) Adopting a .lock box system under which a bank is
authorized to collect cheques etc. directly from the post
box of the company, set up for the purpose.
Methods for slowing down of cash out flows
i) Making payments on due date/ last date
ii) Paying through drafts instead of cheques
iii) Centralization of payments.
iv) Inter bank transfers, when the company has accounts in
more than one bank.
v) Making use of flow amount.
vi) Adjusting pay roll fund according to the needs of the
organization. .
INVENTORY MANAGEMENT
52
Inventory constitutes the most significant par t of current
assets of a large majority of companies in India. On an average
inventories are approximately 60% of current assets in public
limited companies and any effort in stock control will bring major
benefits for the enterprise. An efficient management of inventory is
an essential requirement for the success of the enterprises.
Classification of inventories:
Raw materials: it includes direct material used in
the manufacture of a product and it also includes the
components, fuels etc. used in the manufacture.
Work - in- progress: it includes partly finished
goods and materials sub-assemblies etc held between
manufacturing stages. Stocks of work in -progress are in the
process of production.
Finished goods: The goods ready for sale or
distribution will come under this category.
Need to hold inventories
Transaction motive emphasizes the need to
maintain inventories to facilitate smooth production and sales
operation.
Precautionary motive necessitates holding
inventories to guard against the risk of unpredictable changes
in demand and supply forces and other factors.
53
Speculative motive influences the decisions to
increase or reduce inventory levels to make advantage of
price fluctuation.
Objective of inventories management
To minimize the delay in production through
regular supply of raw materials, storages, spares, tools and
other equipments as and when required.
To avoid unnecessary capital being locked of in
inventory.
To exercise economies in ordering and obtaining
supplied and storage material.
Inventories determinants
In Tube Products of India the inventory determinants are:
1) Load Period: it is the period between need and
its fulfillment. During this period, no inflow of material is done
and the production is supplied by existing inventory. Increase in
lead time requires more inventory and decrease in lead time
decreases the inventory level. So lead period is the some of
time taken for identifying the needs & placing order to supplier,
procuring from supplier, transport, receipt and inspection of
material.
2) Cost of holding inventory: In order to avoid
risk, the inventory management should balance the various
costs so that the total cost is minimized. The different cost are
material cost, cost of ordering cost of holding & carrying the
inventory, under stocking and over stocking.
54
3) Re-order Point: It is the time when the order
should be placed. It depends on assumption rate and the
duration of lead period. So this point is fixed basing on
consumption of lead period plus safety stock.
4) Kind of stock: It is of different kind i.e. safety
stock, reserve stock buffer stock etc. buffer stock provides for
normal consumption during an average lead time. The reserve
stock provides for an increase consumption rate, stock is for an
increasing lead time. As lead period is not constant, always
safety stock is required.
Inventory Management Techniques
Company having large inventories have the problem that the
management can not give attention to all items. In Nalco to avoid
these, they follow mainly these type of methods
i. ABC (Always Better Control) - For raw materials.
ii. VED (Vital, Essential, Desirable) - For Spare parts.
iii. FNSD (Fast moving, Non moving, Slow moving, Dead)
iv. EOQ (Economic Ordering Quantity)
v. JIT (Just In Time)
ABC ANALYSIS
Here the important of items depends on its value. The high
valued items are classified as 'A'; less valued as 'C' and in between
them is 'B'. This is done in the following steps
a) Classification of the items of inventories, determining
expected use in units and price per unit for each items.
b) Determination of total value of each item.
55
c) Ranking the items according to their values.
d) Computation of percentage of number of units in each items
to the total units of all items and percentage of total value of
each item to total value of all items.
e) Combination of items on the basic of their relative value to
form three categories i.e. A,B,C.
VED ANALYSIS
The demand for spare parts depends on the performance of
equipments. The vital spare parts stored adequately for adverse
situation. Essential parts are stocked rather sparingly and the
desirable items are stored on basing on lead time. This is mainly
followed in CPP, production Department.
FNSD ANALYSIS
The, items are classified basing on their consumption rate &
helps the management to take decisions about storing of different
inventories.
ECONIMIC ORDETRING QUANTITY
Economic ordering quantity is an optimum quantity of
materials to be ordered after consideration of the following three
categories of costs.
Ordering cost are the costs which are associated
with the purchasing or ordering of materials.
56
Carrying cost are the costs for holding the
inventories. These costs will be incurred if the inventories are
not carried.
Stock-out cost are the costs associated with
running out of costs. The EOQ is the optimum size of order for
a particular item of inventory calculated at a point where the
total inventory costs are at a minimum for that particular
stock item.
It is an optimum size of either a normal outside
purchase order or an internal production order that minimizes
total annual holding and ordering costs of inventory.
JUST IN TIME INVENTORY MANAGEMENT
JIT focus upon the idea of producing in response to need
rather than as a consequence of plans and forecast. Instead of
pushing inventory into the system in order to make products, they
turned the process round and used the pull from the market place
or the next operation as a way of making the system more directly
responsive and eliminating unnecessary wastes due to over
production and so on. It attempts to minimize inventories through
small incremental reductions rather than prescribe particular
technology or methodology.
Inventory proportion ratio =
MANAGEMENT OF RECEIVABLES
To achieve growth in sales and to meet competition in the
industry .A firm may resort to credit sales. Receivables arise from
the sale of goods and services on credit basis. Sales on credit
depend upon the nature of business. To increase the sales volume,
57
generally the credit facility will be offered to the customer which
result in investment in receivables to maximize return on capital
employed. The balance in receivable account is determined by the
number of customers, length of credit, amount of credit allowed to
each customer etc.
Objective:
To maintain the optimum volume of sales.
To control the cost of credit and keep it at
minimum.
To maintain the optimum level of investment in
receivables.
Keep down the average collection period.
Cost of extending credit :
Capital cost includes the interest on capital
blocked in the receivables balances.
Administration cost associated with the credit
decision making and controlling of debtor balances, cost
of keeping the records of credit sales, cost of collection
of payment from customers, opportunity cost of capital
that can be employed else where than in receivables
management.
Default cost are associated with the risk of default
i.e. a certain portion of receivables will never pay, and
will become 'bad debt's which has to be written off the
profits of the firm.
CREDIT POLICY OF TI
58
In TI the credit and col1ection policy changes from time to
time. The responsibility to administer credit and collection policy is
assigned to the financial executive and marketing executives. The
effective control of receivable management has divided credit
control into different steps.
Allocation of authority for granting credit and
collection
Selection of proper credit term
Credit investigation before granting credit.
Sound collection policies and procedures.
Credit policy can be divided into three variables:
1) Credit standard
2) Credit term
3) Collection policy
Credit standard:
It is the criteria which a firm follows in selecting customers for
the purpose of credit extension. It may be loose or strict. In TI they
prefer strict credit standard i.e to extend credit to reliable and
financially strong customers. This helps in minimizing the bad dents
and cost of credit administration. Through the credit standard is
strict, but management never allow it to be a negative strategy for
sales growth. The following points are taken into consideration by TI
to grant credit to any customer
59
A. Capacity to pay
B. Company's repu ta tion
C. Past experience
D. Economic condition
E. Bank reference
Credit term:
The stipulation under which the firm sells on credit to
customer is called credit. These includes credit period cash discount
and credit limit’s
Credit period is the length of time for which credit
is extended to customer. In TI the credit period varies
from 30 to 75 days. The period is different for different
customers basing on the faith on the customer.
Cash discount is the reduction in payment offered
to customer to induce them to repay entire obligation
within a specified period of time which is less than the
normal credit period. It is usually as a percentage of
sales.
Credit limit is the maximum amount of credit
which can be extended to particular customers.
Management always fixed the limit basing on the
quantity purchased by the customer and financial
condition of the customer. For frequent buyer customer
permanent credit limit is maintained.
Collection Policy:
The purpose of this is to speed up the collection of dues. The
company has laid down collection procedure for the individual
60
accounts i.e. customer wise book maintaining system. The collection
procedure for past due or delinquent accounts should also be
established in very clear terms.
Accounts receivables reports are prepared for maintaining the
debt. Company has also not allowing any sales through dealer
special consideration.
Working capital management in TI
Here the study is as the management of working capital in TI
which induce analysis of investment in different components of
current assets like inventories, debtors cash & bank etc. Analysis or
financial control measures taken by the company.
The total analysis was conducted on the following heads.
1) Analysis or over all efficiency in mgt of no cap in TI. 2) Cash mgt. 3) Inventory mgt.4) Mgt of receivable 5) Financing of no cap.
Trend analysis of working capital of TI. Gross working capital (Rupees in Crores)
Year Current asset or working capital
2004-05 516.90
2005-06 525.90
2006-07 596.62
61
It shows that company is maintaining its level C.A. properly
according to its changing business activity.
Table: net working capital
Year C.A C. Lia Net working cap
2004-05 516.91 302.49 214.42
2005-06 525.90 325.92 199.98
2006-07 596.62 352.82 243.80
Net working capital = Current Assets – Current Liabilities
If we analyze the net working capital trend form the three
years, it is having a going motion that is here is a decrease in 2005-
06 in comparison to 2004-05 and suddenly increases in 2006-07.
Gross working capital Vs Net working capital
62
516.91 525.9
596.62
214.42 199.98243.8
0
100
200
300
400
500
600
700
2004-05 2005-06 2006-07
C.A Net working cap
Working capital ratios
Working capital ratio indicate the ability of a business concern
in meeting it current obligations as well as its efficiency in managing
the current asset for generation of sales. These ratios are applied to
evaluate the efficiency with which the company manage & utilize its
C.A. The following three categories of ratios are used for efficient
mgt of working capital.
1) Efficiency ratio
2) Liquidity ratio
3) Structural he3alth ratio
1. Efficiency ratio
Working capital to sales
63
Year G. Sales Working Capital Ratio
2004-05 1562.58 214.42 7.28
2005-06 1584.18 199.98 7.92
2006-07 1761.84 248.80 7.08
The ratio helps to measure the efficiency of the utilization of
net working capital. It signifies that for an amount of sales, a
relative amount working capital in needed. This ratio helps the mgt
to maintain the adequate level of working capital. The mgt has
maintain adequate level of working capital with the increase in
sales.
0
200
400
600
800
1000
1200
1400
1600
1800
2000
G. Sales WorkingCapital
Ratio
2004-05
2005-06
2006-07
2.
Year Sales Inventory Ratio
64
2004-05 1562.58 149.79 10.43
2005-06 1584.18 165.72 9.55
2006-07 1761.84 205.80 8.56
This ratio indicates the effectiveness & efficiency of the
inventory mgt. the ratio shows how speedily the inventory is turned
into a/c receivable through sales. The higher the ratio, the more
efficiency the inventory is said to be managed.
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Sales Inventory Ratio
2004-05 2005-06 2006-07
3. current assets turnover ratio – sales/current assets
Year Sales Current assets Ratio
65
2004-05 1562.58 516.91 3.02
2005-06 1584.18 525.90 3.01
2006-07 1761.84 596.62 2.95
This ratio indicates the efficiency with which C.A turn into
sales. A higher ratio implies by & large a more efficient use of funds.
Thus a higher turn over rate indicates reduced loch-up of funds in
C.A turn over ratio.
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Sales Current assets Ratio
2004-05 2005-06 2006-07
II. Liquidity ratio of TI
1.
66
Year C. Assets & Loans &
Advanced
Currents Lia. & Provision
Ratio
2004-05 516.91 302.49 1.70
2005-06 525.90 325.92 1.61
2006-07 596.62 352.82 1.69
This ratio indicates the extent of the soundness of the current
financial position at an undertaking & the degree of safety provided
to the creditors. A.C.A ratio of 2: indicates a highly solvent position
A.C Ratio of V – 33.1 is considered by banks as minimum acceptable
for providing W. Capital Finance. In TI should take necessary steps
to improve it.
0
100
200
300
400
500
600
700
C. Assets &Loans &
Advanced
Currents Lia. &Provision
Ratio
2004-05 2005-06 2006-07
2)
Year Current Assets Inventory C. Lia Ratio
67
2001-02 516.91 149.79 302.49 1.21
2002-03 525.90 165.72 325.92 1.1
2003-04 596.62 205.82 352.62 1.1
This ratio shows the extent of cushion of protection provided from
the quick asset to the current creditors. A quick ratio of 1:1 is
usually considered satisfactory though it is agin a rule of thumb
only.
0
100
200
300
400
500
600
700
Current Assets Inventory C. Lia Ratio
2001-02 2002-03 2003-04
Balance SheetRs. in CroresAs at 31st March, Schedule 2007 2006SOURCES OF FUNDSShareholders’ Funds(a) Share Capital 1 36.95 36.95(b) Reserves and Surplus 2 618.90 495.15655.85 532.10Loan Funds(a) Secured Loans 3 138.81 171.85(b) Unsecured Loans 4 67.64 72.45
68
206.45 244.30Deferred Tax Liability (Net) 41.83 41.50(Refer Note 9 of Schedule 18)904.13 817.90APPLICATION OF FUNDSFixed AssetsGross Block 5 734.06 626.01Less : Depreciation 369.82 324.44Net Block 364.24 301.57Capital Work-in-Progress at Cost (including Capital Advances) 105.54 80.49(Refer Note 4 of Schedule 18)469.78 382.06Investments 6 190.55 235.86Current Assets, Loans and Advances(a) Inventories 7 205.80 165.72(b) Sundry Debtors 8 277.23 206.35(c) Cash and Bank Balances 9 17.25 91.91(d) Loans and Advances 10 96.34 75.64596.62 539.62Less : Current Liabilities and Provisions 11(a) Current Liabilities 296.82 300.35(b) Provisions 56.00 39.29352.82 339.64Net Current Assets 243.80 199.98904.13 817.90Significant Accounting Policies 17Notes on Accounts 18The Schedules referred to above form an integral part of the Accounts.As per our report of even date attachedFor Deloitte Haskins & SellsChartered Accountants On behalf of the BoardK Sai Ram M M MurugappanPartner ChairmanM. No. 022360Chennai S Suresh K Balasubramanian N Srinivasan27th April 2007 Company Secretary Chief Financial Officer Director35
Profit and Loss AccountRs. in CroresFor the year ended 31st March, Schedule 2007 2006IncomeSales and Processing Charges 1761.84 1584.18Less : Excise Duty on Sales 146.80 123.24Net Sales and Processing Charges 1615.04 1460.94Other Income 12 92.74 134.041707.78 1594.98ExpenditureRaw Materials Consumed (Net) 13 976.72 888.92
69
Accretion to Stock 14 (13.82) (21.87)Employee Cost 15 115.07 97.31Operating and Other Costs 16 372.82 323.53Depreciation 50.39 48.56Interest - Debentures and Fixed Loans 7.13 7.44- Others 4.16 5.4611.29 12.901512.47 1349.35Profit Before Taxes 195.31 245.63Provision for TaxationIncome Tax- Current Year 35.00 47.50- Prior Years - 3.62Deferred Tax (Net) (Refer Note 9 of Schedule 18) 2.59 8.79Fringe Benefit Tax 1.94 2.79Profit After Taxes 155.78 182.93Add : Balance Brought Forward from Previous Year 143.66 119.75Add : Dividend on Own Shares held through Trust 4.77 -(Refer Note 5 of Schedule 18)Profit Available for Appropriation 304.21 302.68Appropriations:Transfer to General Reserve 15.58 60.00Special Interim Dividend @ Nil (Previous year 175%) - 64.67Tax on Special Interim Dividend - 9.07Dividend Proposed - Final @ 75% (Previous year 60%) 27.71 22.17Tax on Final Dividend 4.71 3.1148.00 159.02Balance Carried Over to Balance Sheet 256.21 143.66Earnings per Share of Rs. 2/- each (Basic / Diluted) - (in Rs.) 8.43 9.90(Refer Note 20 of Schedule 18)Significant Accounting Policies 17Notes on Accounts 18The Schedules referred to above form an integral part of the Accounts.As per our report of even date attachedFor Deloitte Haskins & SellsChartered Accountants On behalf of the BoardK Sai Ram M M MurugappanPartner ChairmanM. No. 022360Chennai S Suresh K Balasubramanian N Srinivasan27th April 2007 Company Secretary Chief Financial Officer Director36
Rupees in Crores
Particulars 1996-97
1997-98
1998-99
1999-00
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
70
Operating Results
Sales (Including Excise Duty)
600.05 607.93 677.35 979.93 1,090.02 1,074.47 1,197.13 1,257.34 1,562.58 1,584.18
Profit before Depreciation,Interest & Tax
64.53 60.21 65.69 92.80 104.09 98.53 105.82 147.39 178.50 307.37
Profit before Interest & Tax
48.37 40.52 43.46 63.22 70.50 70.72 77.65 117.79 140.69 258.81
Profit before tax (PBT)
24.11 17.44 21.50 41.34 50.91 55.34 62.45 105.30 126.18 245.63
Profit after Tax (PAT)
21.45 16.01 21.08 32.84 36.16 36.27 45.89 82.49 98.55 182.93
Dividends 6.16 4.92 6.16 9.85 12.31 13.54 16.63 18.47 25.87 86.84
Dividend Tax 0.62 0.49 0.65 1.08 1.26 - 2.13 2.37 3.63 12.18
Retained Profits
14.67 10.60 14.27 21.91 22.59 22.73 27.13 61.65 69.05 83.91
Sources and Application of Funds
Sources of funds:
Share Capital 24.62 24.62 24.62 24.62 24.62 24.62 18.47 18.47 36.95 36.95
Reserves & Surplus
308.54 318.96 318.59 340.33 362.75 347.01 315.18 376.83 411.24 495.15
Net Worth 333.16 343.58 343.21 364.95 387.37 371.63 333.65 395.30 448.19 532.10
Debt 150.98 145.09 137.73 181.16 174.27 174.25 262.20 215.64 228.12 244.30
Deferred Tax Liability (Net)
- - - - - 35.82 31.98 31.79 32.71 41.50
Funds Employed
484.14 488.67 480.94 546.11 561.64 581.70 627.83 642.73 709.02 817.90
Application of funds:
Gross Fixed Assets
259.12 310.55 368.30 391.68 419.06 418.72 406.08 432.30 566.43 626.01
Depreciation 85.88 102.64 124.06 139.02 164.41 175.46 180.75 206.65 282.96 324.44
Net Fixed Assets
173.24 207.91 244.24 252.66 254.65 243.26 225.33 225.65 283.47 301.57
Capital Work-In-Progress
60.34 35.38 5.01 6.68 9.85 2.14 2.93 13.66 21.42 80.49
Investments 91.11 83.16 52.68 66.21 58.58 97.13 174.55 204.17 189.71 235.86
Gross Current Assets
278.00 283.83 288.18 393.48 392.41 412.17 449.78 440.77 516.91 525.90
Current liabilities & Provisions
118.55 122.97 118.20 178.76 165.67 205.96 256.46 262.95 302.49 325.92
Net Current Assets
159.45 160.86 169.98 214.72 226.74 206.21 193.32 177.82 214.42 199.98
Deferred Revenue Expenditure
- 1.36 9.03 5.85 11.82 32.96 31.70 21.43 - -
Net Assets 484.14 488.67 480.94 546.11 561.64 581.70 627.83 642.73 709.02 817.90
71
Employed
Ratios :
ROCE (%) # 9.99 8.29 9.04 11.58 12.55 12.16 12.37 18.33 19.84 31.64
PBT TO SALES (%)
4.02 2.87 3.17 4.22 4.67 5.15 5.22 8.37 8.08 15.51
Return on Networth (%) (+)
6.55 4.75 6.41 9.27 9.75 10.71 15.20 22.06 21.99 34.38
Earnings Per Share (Rs.)
8.71 6.50 8.56 13.34 14.69 14.73 19.46 22.32 26.67 49.50
Dividend Per Share (Rs.)
2.50 2.00 2.50 4.00 5.00 5.50 9.00 10.00 7.00 23.50
Book Value Per Share (Rs.)
133.05 136.80 133.64 143.83 150.58 137.55 163.46 202.39 121.28 143.98
Debt Equity Ratio (%) @ (+)
46.08 43.07 41.85 51.15 47.00 51.45 86.83 57.68 50.90 45.91
Fixed Assets Turnover (times)
3.46 2.92 2.77 3.88 4.28 4.42 5.31 5.57 5.51 5.25
Net working capital turnover (times)
3.76 3.78 3.98 4.56 4.81 5.21 6.19 7.07 7.29 7.92
72
FINDINGS, SUGGESTION & CONCLUSIONSBIBLIOGRAPHY
FINDING & SUGGESTIONS
73
After studying the components of the working capital
management system of TI it is found that the company has an
effective policy. How ever the following suggestions are made with
the hope that implementation of these can add to the performance
& efficiency of the systems followed at present.
As the company is moving into the seller market,
it should initiate process to do away with the credit
facility extended to some customers.
Collection procedure should be developed to do
away with or reduce the bad debts.
The collection procedure may some one tight or as
per the expert opinion.
More important should be given regarding the
quality checking or raw materials and \finished goods.
MIS – is better from other organization.
There is no difficulties regarding the raw
materials.
CONCLUSION
74
After a detailed and intensive study on the working capital
management of TI. I came with the conclusion that TI had adopted
to use more and more improves techniques for managing its
working capital with an expectation of continue.
BIBLIOGRAPHY
75
This project report has been prepared with the help of
following materials.
Annual financial report of TI for the year –
2004-05,2005-06
Internal reports of TI
Management accounting - Sharma and Gupta
Financial Management – I.M. Pandey
Financial Management – R.P. Rustagi
Web Site:
www.murugappa.com
www.tiindia.com
www.tubeproductsindia.com
76
top related