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BONAFIDE CERTIFICATE

Certified that the project report titled A STUDY ON WORKING CAPITAL

MANAGEMENT AND PERFORMANCE EVALUATION is the bonafide work

of H.ASLAM AHAMED who carried out the research under our supervision.

Certified further, that to the best of my knowledge the work reported herein does

not form part of any other project report or dissertation on the basis of which a

degree or award was conferred on earlier occasion on this or any other candidate,

Name Name Dr. Mirza S. Saiyadain

Designation Designation Dean, CBS

Company Crescent Business School

Sri krishna industries, mr.v.charlie thomas.

Pithalipatti post,

Dindugul


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ACKNOWLEDGEMENT

I express my profound thanks to our respected Vice-Chancellor Dr. P.KANNIAPPAN, M.Sc. Ph.D., and our Registrar Dr. V.M. PERIASAMY, B.E.,

M.E., Ph.D., for their enthusiastic support and help in providing all resources

behind the scenes.

I wish to regard my sincere thanks to Dr. MIRZA S. SAIYADAIN, M.A.,

Ph.D., Professor and Dean, Crescent Business School, B.S. Abdur Rahman

University, Vandalur, Chennai 600048.

I would like to thank to my guide mr.v.charlie thomas, Assistant Professor,

Crescent Business School, for his full involvement in every part of my project.

My sincere thanks toK.Srinivasan, Assistant General Manager, Accounts

Division, sri krishna industries for permitting me to pursue my summer project at

sri krishna industries. I would like to thank my external guide

M.RamakrishnammalManager, Accounts Division, sri krishna industries. for his

morale support and encouragement, which helped me in carrying out the project

successfully.

I sincerely thank all the staff members of the Crescent Business School for their

valuable advice and kind cooperation, without which the project would not have

emerged as a successful one.

It is once again a pleasure to acknowledge to my parents, friends and family

members for their constructive and valuable suggestions towards improvement ofthis project.

H.ASLAM AHAMED


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ABSTRACT

Name of the organization: sri krishna industries in dindugul

Objective of the study: To study the working capital management insri krishna

industries LTD. By analyzing the ratios of the company.

.Research Methodology: Research Methodology is a way to solve the problem

systematically it may me understood as a science of studying descriptive research

is done.

Research Design: Research design is purely and simply the framework or plan for

a study that guides the collection and analysis of data the functions of researcher is

to ensure that requires the data collected or accurate.

Conclusion: Researcher conclude that by achieving higher production, enhanced

operating efficiencies, better working capital management, aggressive marketing

policies backed by a highly motivated sales team and overall cost reduction

measures, the company will be able to maintain its excellent performance.


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TABLE OF CONTENT

S.NO CONTENTPage. No

1 INTRODUCTION 09

2 STUDY CONCEPTS & REVIEW OF LITERATURE 14

3 RESEARCH METHODOLOGY 23

4 ANALYSIS & INTERPRETATION 30

5 SUMMARY OF FINDINGS & SUGGESTIONS 61

6CONCLUSION 65

7 BIBILIOGRAPHY 67

8 APPENDICES 67


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TABLE OF CONTENT

CHAPTER

TITLE PAGE NO

I INTRODUCTION 09

1.1 INTRODUCTION 10

1.2 STATEMENT OF THE PROBLEM 11

1.3 SCOPE OF THE STUDY 12

1.4 OBJECTIVES OF THE STUDY 13

1.5 LIMITATION OF THE STUDY 13

II STUDY CONCEPTS & REVIEW OF LITERATURE 14

III RESEARCH METHODOLOGY 23

3.1 RESEARCH DESIGN 24

3.2 DATA COLLECTION METHODOLOGY 24

3.3 TOOLS OF ANALYSIS 24

IV ANALYSIS AND INTERPRETATION 30

4.1 RATIO ANALYSIS 30

4.2 SCHEDULE OF CHANGES IN WORKING CAPITAL 46

4.3 CO - EFFICIENT OF CORRELATION 56

V SUMMARY OF FINDINGS AND SUGGESTIONS 61


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VI CONCLUSION 65

BIBLIOGRAPHY 67

APPENDICES 67

LIST OF TABLES

TABLE NO TABLE NAME PAGE NO

4.1.1 CURRENT RATIO OF SKI LTD 31

4.1.2 LIQUID RATIO OF SKI LTD 34

4.1.3 WORKING CAPITAL TURNOVER RATIO OF

SKI LTD

36

4.1.4 DEBTORS TURNOVER RATIO OF SKI LTD 38

4.1.5 DEBT COLLECTION PERIOD OF SKI LTD 40

4.1.6 INVENTORY TURNOVER RATIO OF SKI LTD 42

4.1.7 FIXED ASSET TURNOVER RATIO OF SKI LTD 44

4.2.1 SCHEDULE OF CHANGES IN WORKING

CAPITAL 2006-2007 46


CAPITAL 2007-2008 484.2.3 SCHEDULE OF CHANGES IN WORKING

CAPITAL 2008-2009 50


CAPITAL 2009-2010 52


CAPITAL 2010-2011 54

4.3.1 CO EFFICIENT OF CORRELATION OF SKI

LTD 57


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LIST OF FIGURES

TABLE NO FIGURE NAME PAGE NO

4.1.1 CURRENT RATIO OF SKI LTD 32

4.1.2 LIQUID RATIO OF SKI LTD 35

4.1.3 WORKING CAPITAL TURNOVER RATIO OF

SKI LTD

36

4.1.4 DEBTORS TURNOVER RATIO OF SKI LTD 39

4.1.5 DEBT COLLECTION PERIOD OF SKI LTD 41

4.1.6 INVENTORY TURNOVER RATIO OF SKI LTD 43

4.1.7 FIXED ASSET TURNOVER RATIO OF SKI

LTD

45

4.3.1 CO EFFICIENT OF CORRELATION OF SKI

LTD

57


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Ch

apter-1

INTRODUCTION


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1. INTRODUCTION

1.1. INTRODUCTION:

Working capital is the life blood and nerve centre of a business. Just as

circulation of blood is essential in the human body for maintaining life, working

capital is very essential to maintain the smooth running of a business. No business

can run successfully with out an adequate amount of working capital.

Working capital refers to that part of firms capital which is required for

financing short term or current assets such as cash, marketable securities, debtors,

and inventories. In other words working capital is the amount of funds necessary to

cover the cost of operating the enterprise.

Working capital means the funds (i.e.; capital) available and used for day

to day operations (i.e.; working) of an enterprise. It consists broadly of that portion

of assets of a business which are used in or related to its current operations. It

refers to funds which are used during an accounting period to generate a current

income of a type which is consistent with major purpose of a firm existence.


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In economic, capital is often used to refer to capital good consisting of a

great variety of things, namely machines of various kinds, plans, house, tools, raw

materials and goods-in- process.

A finance managers of a firm looks for these things of the assets side of

the balance sheet. For capital, he turn his attention to the other side of the balance

sheet and never commits the mistake as warned by the economists of adding

the two together while taking the census of total capital of the business.

1.2. STATEMENT OF THE PROBLEM:

The important of working capital management stems from two reasons

(i) A substantial portion of the investment is invested in current assets, and

(ii) Level of current assets will change quickly with the variation in sales.

Hence, in this study, an attempt has been made to analyse the size and composition

of working capital and whether such an investment has increased or declined over

a period. After determining the requirement of current assets, one of the important

tasks of the financial manager is to select a group of appropriate source of finance

for the current assets.


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1.3. OBJECTIVES OF THE STUDY:

I. PRIMARY OBJECTIVES:

To study the working capital management practices with special

Attention to sri krishna industries limited.

II. SECONDARY OBJECTIVES:

To assess the actual working capital position in SRI KRISHNA

INDUSTRIES LTD, for the Five years from 2006-07 to 2010-2011.

To analyze the reasons for the variation in the working capital.

To study the efficiency and effective utilization of working capital in

CRESCENT BUSINESS SCHOOL by using working capital

management ratios.

To analyze the day- to -day financial activities.

To know the liquidity and solvency as well as the profitability

of the firm.


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1.4 SCOPE OF THE STUDY:

The study covers all the components of current assets and current

Liabilities and has been undertaken for a period of 5 years beginning from

2006 - 2011.

The study also deals with the working capital management.

The study has been conducted with special reference to performance rating

of the company.

Performance rating is done by using ratio analysis.

1.5 LIMITATIONS OF THE STUDY:

The study is based on secondary data.

Time is one of the major constraint

The study covers a period of five years from 2006-2007 to 2010-2011 and

hence the results are not generalized.

Analysis of financial performance of sri krishna industries limited is based

on the information given in the financial statements, hence this analysis

suffer from all such limitations from which the financial statements suffer.

Analyzing the working capital of a company will provide you only data

what has happened till date. It does not reflect the future


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Chapter-2

STUDY CONCEPTS & REVIEW OF LITERATURE


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2. STUDY CONCEPTS & REVIEW OF LITERATURE

Introduction:

Capital required for a business can be classified under two main categories

1. Fixed Capital

2. Working Capital

Every business needs funds for two purposes for its establishment and to

carry out its day to day operation. Long term funds are required to create

production facilities through purchase of fixed assets such as Plant Machinery,

Land, Handling facilities etc. Investments in these assets represents that part of

fixed capital which is blocked on a permanent or fixed basis and is called fixed

capital; Funds are also needed for short term purpose for purchases of raw

materials, payment of wages and other day to day expenses etc. These funds are

known as working capital.

In simple words Working capital refer to that part of the firms required for

financing short term or current assets in the form of cash, marketable securities,

debtors and inventories.

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

operating the organization.


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Significance of Working Capital

Working capital may be regarded as the lifeblood of a business enterprise. It

is closely related to the day-to-day operations of the business. Working Capital is

the scarce productive resource and it must be effectively used to accelerate the

rate of growth. At present the capital needs are most out from their internal

generation of revenues, capital may be classified as fixed capital and working

capital.

The fixed capital is capital which is employed in acquiring capital assets such as

land, capital dredging, building sheds and other structures, wharves & roads and

bounders, floating crafts, railway and rolling stock, docks and sea walls, cranes

and vehicles, plant and machinery etc.

Concepts of Working Capital

Working capital management is concerned is with the problems that arise in

attending to manage the current assets the current liabilities irrelationships that

exist between them the effective management of working capital required both

medium terms planning all immediate reactions to change in forecast and

conditions.


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The study of working capital is important and daily transaction is conducted

with the help of working capital.

There are two concepts of working capital

1. Gross working Capital

2. Net working capital

Gross Working Capital

Gross working capital refers to the firms investment in total current assets

of the enterprise. Current assets are those, which can be converted into cash,

within an accounting year. The entire amount of current assets to helps the

management to have smooth running of the organization.

Examples of current Assets

1. Cash in hand and bank balances

2. Bills receivables

3. Sundry debtors

4. Short term loans and advances

5. Inventories of stocks


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a) Raw materials

b) Work in progress

c) Stores and spares

d) Finished goods

6. Temporary investment of surplus funds

7. Prepaid expenses

8. Accrued income

Net Working Capital

Net working capital means the excess of current assets over the current

liabilities. The gross working capital helps to find out whether the total current

assets are able to meet the requirement. Net Working Capital helps to find out the

financial position of the firm.


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Components of Current liabilities

1. Sundry creditors

2. Liabilities towards expenses

3. Deposits from merchants and contractors

4. Bills payable

Net working capital can be positive or negative. A positive net working

capital will arise

When current assets exceeds current liabilities. A negative net working capital

occurs when current Liabilities exceed current assets.

The gross working capital concept is financial or going concern concept

where as net Working capital is an accounting concept of working capital. These

two concepts of working capital are not exclusive rather both have their own

merits. The gross concept is sometimes preferred to the concept of working capital

for the following reasons.

1. It enables the enterprises to provide correct amount of working capital

at the right time.

2. The gross concept takes into consideration the facts that every

increase in the Funds of the enterprise would increase its working capital.


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The net working capital concept however is also important for the following

reasons.

It is a quantitative concept which indicates the firms ability to meet its

operating expenses and short term liabilities.

It is an indicator of the financial soundness of an enterprise.

Current Asset and Current liability as shown in Chennai Petroleum Corporation

Limited

Current Asset

a) Inventories

b) Sundry debtors

c) Cash and Bank balances

d) Other current assets-Internet accrued on Investment /Bank Deposits

e) Loans and advances.

Current Liabilities

a) Current liabilities

b) Provisions.


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SOURCES OF WORKING CAPITAL

Sources of working capital for large scale Organization. After determining

the level of working capital on the basis of various determinants (discussed in the

previous question), the next step is to consider how it will be financed. A large

scale manufacturing concern may procure fund from various sources to meet its

working capital requirement from to time. For the convenience of the study, the

sources of working capital may be classified under the two heads:-

a) Sources of long term or regular working capital.

b) Sources of short term or seasonal working capital.

Sources of Long-term Working Capital

The long term working capital requirements include the initial working

capital and the regular working capital. The investments in the regular working

capitals are almost of the permanent nature and require long term funds. Various

Sources for providing long term working capital requirements are summarized as

follows:-


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(1) Issue of shares: It is the most important sources of long term regular

working capital. As for as possible, effort should be made to procure the maximum

amount of regular working capital out of the proceeds of issue of shares. It creates

no burden or the fixed charge on the earning assets of the company. Moreover, the

company is not under obligation to return the capital.

(2) Issue of debentures: Regular working capital can also be procured by

issue of debenture of bonds. The cost of capital is lower in this case. By issuing

debentures, company may trade on equity in favorable circumstances but in must

be cautions in raising funds by issuing debentures if there is no stability in the

earnings of the firm because they create charge on the earnings assets of the

company. Management should make a choice in procuring funds either by issue of

shares of by issue of debentures depending upon the various other factors fully

discussed in the previous chapter on debentures.

(3) Retained Profits: Accumulated large profits are also considered to be

good source of financing long term working capital requirements. It is the best and

the cheapest source of finance. It creates no charge on future profits. A part of the

earned profits are ploughed back by the firms in meeting the working capital

requirements. Retained profits may be represented by various uncommitted

reserves and surpluses of specific reserves created out of profits.


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(4) Sale of fixed Assets: If there is any idle fixed asset in the firm, it can

be sold out and the proceeds may be utilized for financing the working capital

requirements.

(5) Securities from Employees and from Customers: Certain

companies require a security deposit from their employees before giving them

employment under the terms of service contracts. Similarly public utility concerns

e.g. electricity distributing companies or cooking gas supply companies require

security deposits from their registered customers. Such security deposits are not

refundable during the period, the employee is in services of the firm or customer

is registered with in. The amount of advance, thus, can be utilized by the company

in meeting its long working capital needs.

(6) Term loans: Mid-term and long-term loans for a period above 3 years

provide important sources of working capital. Such term loans can be borrowed

from the special financial institutions such as the Industrial Development Bank of

India, the industrial Finance Corporation, the Life Insurance Corporation and

Commercial banks etc.


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Chapter-3

RESEARCH METHODOLOGY

3. RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN:

Research design may be defined as the art where the condition for collection

and analysis of information should be in such a manner that it should aim to

portray and combine relevance of the research purpose with maximum economy

and pre-defined procedures.


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The study was conducted in the Head Office of sri krishna industries Ltd in

pithalipatti post at dindugul. On the basis of information collected by interviewing

the financial manager of the company and published financial reports. Both

Primary and Secondary Data are used for the completion of the study.

Title of the Project:

A study on Working Capital Management in sri krishna industries Ltd in

dindugul.

3.2 METHOD OF DATA COLLECTION:

The researcher collected both primary and secondary data.

I. PRIMARY DATA:

Personal interview and discussions held with the finance Department

and employees in the respective department.

II. SECONDARY DATA:

Since the study mainly focused on working capital management for 5 years,

the researchers had given immense importance to collect secondary data from the


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company annual reports for the year 2006-2011. Internal records and the company

website is used as a secondary data. From these sources the information can be

gathered by the researcher and the Research can be conducted successfully.

3.3 TOOLS USED TO ANALYSE WORKING CAPITAL

I. RATIO ANALYSIS:

Ratio analysis is a effective tool used to develop meaningful

relationship between individual items or items usually shown in a periodical

financial statement published by the concern. The commonly used ratios to assess

working capital are as follows,

Current Ratio

Liquidity Ratio

Fixed Asset Turnover Ratio

Working Capital Turnover Ratio

Debtors Turnover Ratio

Average Collection Period

Inventory Turnover Ratio

II.SCHEDULE OF CHANGES IN WORKING CAPITAL

III. CO-EFFICIENT OF CORRELATION

FINANCIAL RATIO ANALYSIS


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Financial ratio analysis calculates and compares various ratios of amounts

and balances taken from the financial statements. The main purposes of working

capital ratio analysis are:

* To indicate working capital management performance and

* To assist in identifying areas requiring closer management.

Liquidity Vs Profitability:

Liquidity means short-term solvency of the company to meet its financial

obligation as and when they arise. To measure liquidity of the company current

ratio has been used. It is a relationship between current assets and current

liabilities.

Current Ratio:

Current Ratio is the most common ratio to measure liquidity. Being

related to working capital analysis, it is also called as working capital ratio. Current

ratio expresses the relationship between current assets and current liabilities. The

current ratio is the ratio of current assets and current liabilities. It is calculated by

dividing current assets by current liabilities.

Current Ratio = current assets / current Liabilities


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Working Capital Turnover Ratio:

Working Capital Turnover Ratio is a function of sales, working capital

cycle, credit policy pursuing by the firm as well as inventory management

practices followed. The ratio measures the efficiency with which the working

capital is utilized in an organization. If the ratio is high, it indicates the efficient

utilization of working capital in making the actual level of sales. The low ratio

denotes the less efficient utilization of working capital in making the actual level of

sales.

Cost of sales

Working Capital Turnover Ratio = __________________

Net working Capital

Debtors Turnover Ratio:

Debtors Turnover Ratio relates debtors to sales and indicates the

velocity of debt collection of an enterprise. It gives an idea as to the number of

times the debtors are turned over during a year. The greater the ratio, the higher the


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velocity and more is the efficiency. On the other hand, low debtors turn over

denotes less efficient management of debtors and sales. Though high ratio

indicates better management, precaution is needed while interpreting a very high

ratio as it may imply a firms inability due to lack of resources to sale on credit

thereby losing sales and consequent profit.

Credit sales

Debtors Turnover Ratio = ________________

Average debtors

Average Collection Period Ratio:

A slight variation of debtors turnover ratio is Average Collection

Period Ratio which is calculated by dividing 365 (total number of days in a year)

by the Debtors Turnover Ratio. This ratio indicates the average number of days a

firm has to wait to realize its dues from the debtors and its ultimate conversion into

cash.

365

Average collection period = _____________________

Debtors turnover

Inventory Turnover Ratio:

Inventory Turnover Ratio relates sales to average stock held and

measures the velocity of conversion of stock into sales. A higher the ratio indicates


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efficient management of inventory as more frequently stocks are being sold and

lesser blocking up of funds in inventory. Lower Inventory Turnover Ratio leads to

inefficient management.

Inventory

Inventory Turnover Ratio =

Debtors


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CHAPTER-4

ANALYSIS & INTERPRETION

4. ANALYSIS & INTERPRETION

4.1. RATIO ANALYSIS:

Ratio analysis refers to the analysis and interpretation of financial statements

through ratios. Now a day it is used by all business and industrial concerns in their

financial analysis. The ratios are divided under different heads.

1. Liquidity Ratio

2. Turnover Ratio

4.1.1 CURRENT RATIO:


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This ratio measures the solvency of the company in the short-term. Current

assets are those assets which can be converted into cash within a year. Current

liabilities and provisions are those liabilities that are payable within a year. A

standard current ratio is that indicates a highly solvent position of the firm or

company.

CURRENT ASSETS

CURRENT RATIO =

CURRENT LIABILITES

4.1.1 CURRENT RATIO OF SKI LTD:

YEAR CURRENT

ASSETS

CURRENT

LIABILITIES

RATIO

2006-2007 3930.047 1607.228 2.445

2007-2008 6801.621 3574.761 1.902

2008-2009 7114.980 2837.098 2.507

2009-2010 8656.885 2712.61 3.191


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2010-2011 10787.21 3320.30 10.045

Source: Annual Reports of the company

4.1.1 CURRENT RATIO OF SKI LTD:

ANALYSIS AND INTERPRETATION

Generally 2:1 is considered ideal for a concern. If the current assets are two

times of the current liabilities, there will be no adverse effect on business operation

when the payment current liability is made. If the ratio is higher than the 2, it is

very comfortable for the creditors, but, for a concern, it is indication idle fund

blocked up in the business.

CURRENT RATIO

2.4451.902

2.507

3.191

10.045

0

2

4

6

8

10

12

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

YEAR

RATIO

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


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Here the companys current ration shows an increasing trend. It shows that

the companys liquidity position is sound, but there is idle funds blocked up in

business. This fund should be used for some other productive purposes.

4.1.2 LIQUID RATIO:

Liquid ratio is worked out to test the short-term liquidity of the firm

in its correct form. Liquid assets are those, which are either in the form of cash or

cash equivalents or can be converted or can be converted in the cash within a very

short time. Liquid assets put against the current liabilities give the liquid ratio.

LIQUID ASSETS

LIQUID RATIO = ___________________________

CURRENT LIABILITIES

5.1.2 LIQUID RATIO OF SKI LTD:

YEAR LIQUID

ASSETS

CURRENT

LIABILITIES

RATIO

2006-2007 3379.01 1607.23 2.10


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2007-2008 6120.89 3574.76 1.71

2008-2009 5400.33 2837.10 1.90

2009-2010 6585.99 2712.61 2.43

2010-2011 8400.79 3320.3 2.53


4. 1.2 LIQUID RATIO OF SKI LTD:


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LIQUID RATIO

2.10

1.71

1.90

2.532.43

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

YEAR

RATI

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

ANALYSIS AND INTERPRETATION:

The liquid ratio measures the firms ability to meet current liabilities with its

liquid assets. A liquid ratio of 1:1 is considered satisfactory as a firm can meet all

its current liabilities. A higher liquid ratio shows the sound financial position and

vice-versa.

From the analysis of liquid ratio, we can understand that the SKI Ltd has

significant liquidity to cover its short term liabilities as it holds enough liquid

assets to cover its current liabilities.

4.1.3 WORKING CAPITAL TURNOVER RATIO:


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Working capital turnover ratio indicates the velocity of the utilization of net

working capital. This ratio indicates the number of times the working capital is

turned over in the course of a year. It is a good measure over-trading and under-

trading.

Net Sales

Working capital turnover ratio =

Working capital

4. 1.3 WORKING CAPITAL TURNOVER RATIO OF SKI LTD

YEAR SALES

WORKING

CAPITAL

Sales/Working

Capital

2006-2007 4521.41 2322.82 1.95

2007-2008 6823.71 3226.86 2.11

2008-2009 10062.49 4277.88 2.35

2009-2010 8960.85 5944.27 1.51

2010-2011 11460.59 7466.91 1.53


4.1.3 WORKING CAPITAL TURNOVER RATIO OF SKI LTD:


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WORKING CAPITAL RATIO

1.95

2.11

2.35

1.51 1.53

0.00

0.50

1.00

1.50

2.00

2.50

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

YEAR

RATI

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


This ratio indicates whether or not working capital has been effectively

utilized in making sales. Higher the ratio, lower the amount of the working capital

and greater the profit. However a very high turnover of working capital is a sign of

over-trading and may put the concern into the financial difficulties.

On the other hand a low working capital turnover ratio indicates that

working capital is not effectively utilized. Here working capital turnover ratio is in

a fluctuating order. This means that the company should find some effective ways

to utilize the working capital in a proper way.

4.1.4 DEBTORS TURNOVER RATIO:


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Debtors constitute an important constituent of current assets and therefore

the quality of debtors to a grant extent determines a firms liquidity. Two ratios are

used by financial analysts to judge the liquidity of a firm. There are

(i) Debtors Turnover ratio, and

(ii) Debt collection Period ratio.

Sales

Debtors Turnover Ratio=

Average Account Receivables

4.1.4 DEBTORS TURNOVER RATIO OF SKI LTD:

YEAR SALES Debtors Sales/ Debtors

2006-2007 4521.41 1665.05 2.72

2007-2008 6823.71 2476.07 2.76

2008-2009 10062.49 3053.70 3.30

2009-2010 8960.85 3828.38 2.34

2010-2011 11460.59 3436.34 3.34


4.1.4 DEBTORS TURNOVER RATIO OF SKI LTD:


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SALES/DEBTORS RATI

2.72 2.76

3.30

2.34

3.34

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

YEAR

RATIO

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


The debtors turnover ratio of the company during those periods under study

was satisfactory. There is big hike in debtors turnover ratio in the year 2009-10.

This may be due to active recovery management.

If the company keep up this kind of recovery mechanism, it will be

beneficial to the company in the long-run As the corrective policy of credit, the

company is giving more attention to recovery management for dues collection.

4.1.5 DEBT COLLECTION PERIOD:


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The ratio indicates the extent to which the debts have been collected in time.

It gives the average debt collection period. The ratio is very helpful to lenders

because it explains to them whether their borrowers are collecting money within a

reasonable time. An increase in the period will result in greater blockage of funds

in debtors. The ratio may be calculated by any of the,

a. Months (or days) in a year/ Debtors turnover

b. Average account receivable * Months (or days) in a year

Credit sales for the year

c. Account Receivable/ Average monthly or daily credit sales

4.1.5 DEBT COLLECTION PERIOD OF SKI LTD:

YEAR SALES DEBTORS SALES/ DEBTORS

2006-2007 365 2.72 134.19

2007-2008 365 2.76 132.25

2008-2009 365 3.30 110.61

2009-2010 365 2.34 155.98

2010-2011 365 3.34 109.28


4.1.5 DEBT COLLECTION PERIOD OF SKI LTD:


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DEBT COLLECTION PERIOD RATIO

134.19 132.25

110.61

155.98

109.28

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

YEAR

RATIO

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


Debt collection is an important activity in working capital management.

Lower the debt collection period, higher the quality of Debtors. Here the trend of

debt collection period is fluctuating trend.

The average debt collection period is 102 days. In the year 2010-11 it was

the highest, only 109 days. So the company should take necessary steps to collect

the debts.


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4.1.6 INVENTORY TURNOVER RATIO:

Inventory turnover ratio relates sales to average stock held and measure the

velocity of conversion of stock into sales. A higher ratio indicates efficient

management of inventory as more frequently stock are being sold and lesser

blocking up of funds in inventory. On the contrary, a low inventory turnover ratio

gives an impression of inefficient management of inventories indicating sluggish

business, more investment in inventory leading to idle blocking of funds and lower

return due to reduced level of sales.

NET SALES

Inventory turnover ratio =

AVERAGE INVENTORY COST

4.1.6 INVENTORY TURNOVER RATIO OF SKI LTD:

YEAR SALES INVENTORY

SALES/

INVENTORY

2006-2007 4521.41 551.04 8.21

2007-2008 6823.71 680.73 10.02

2008-2009 10062.49 1714.65 5.87

2009-2010 8960.85 2070.89 4.33

2010-2011 11460.59 2386.42 4.80


4.1.6 INVENTORY TURNOVER RATIO OF SKI LTD:


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INVENTORY TURNOVER RATIO

8.21

10.02

5.87

4.334.80

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

YEAR

RATI

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


Inventory Turnover Ratio establishes relationship between the sales during

the given period and average amount of inventory held during that period. Higher

the ratio, better it is because it shows that finished stock is rapidly turned over.

On the other hand a low stock turnover ratio is not desirable because it

reveals the accumulation of obsolete stock. The ratio is very high in the FY 2006-

2007 but shows a decreasing trend during the succeeding years. Then also it is

showing a favorable position as the ratio is high during these periods.

4.1.7 FIXED ASSET TURNOVER RATIO:


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This ratio is an indicator of how the resources of the organization utilized for

increasing the turnover. It shows the ratio between the total assets and the net sales

of the company. From this ratio one can understand how the assets are performing

and being utilized in achieving the objectives of the company.

Sales

Fixed Asset Turnover Ratio =

Net Fixed Asset

4.1.7 FIXED ASSET TURNOVER RATIO OF SKI LTD

YEAR SALES

FIXED

ASSET

SALES/FIXED

ASSET

2006-2007 4521.41 249.02 18.16

2007-2008 6823.71 713.49 9.56

2008-2009 10062.49 1354.24 7.43

2009-2010 8960.85 1383.68 6.48

2010-2011 11460.59 1822.54 6.29Source: Annual Reports of the company

4.1.7 FIXED ASSET TURNOVER RATIO OF SKI LTD


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FIXED ASSET TURNOVER RATIO

18.16

9.56

7.436.48 6.29

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

YEAR

RATI

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011


Fixed asset turnover ratio measures the efficiency of the use of assets. This

ratio shows how well the fixed assets are being used to generate sales in the

business. Inefficient use of asset will result in low sales volume coupled with

higher overhead charges and under utilization of the available capacity. Here the

ratio shows a decreasing trend. This shows the ineffective utilization of fixed

assets.

4.2 II. SCHEDULE OF CHANGES IN WORKING CAPITAL

4.2.1 Schedule of changes in working capital 2006-07


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Particulars 2006 2007 Increase Decrease

Current Asset

Interest accrued 8.439 5.147 3.291

Inventories 127.988 551.038 4.230

Debtors 676.640 1665.055 988.414

Cash & Bank balance 105.694 137.263 31.570

Loans & Advances 835.342 1571.544 736.202

Total Current Assets (A) 1754.103 3930.047

Current Liability

Current Liability 781.955 1468.316 686.361

Provisions 65.688 138.913 73.225

Total current Liability

(B)

847.643 1607.229

Net Working Capital

(A-B)

906.460 2322.819

Net increase Working

Capital

1416.359 1416.359

Total 2322.819 2322.819 2179.236 2179.236


In the current year inventories, debtors, cash and bank balances,

loans and advances are increased by 4.230, 988.414, 31.570, 736.202 and interest

accrual has been decreased by 3.291.The same year current liability and provisions

increased by 686.361, 73.225 respectively. As a result there is a net increasing

working capital position by 1416.359.


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Note: Figures are in Lakhs

4. 2.2. Schedule of changes in working capital 2007-08

Particulars 2007 2008 Increase DecreaseCurrent Assets


Inventories 551.038 680.733 129.695

Debtors 1665.055 2476.073 811.018


Loans & Advances 1571.544 3502.528 1930.984



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Current Liability


Provisions 138.913 250.748 111.835

Total current Liability (B) 1607.229 3574.762

Net Working Capital (A-

B)

2322.819 3226.859


Capital

904.041

904.041

Total 3226.859 3226.859 2871.900 2871.900


In the current year interest accrual inventories, debtors, loans and

advances are increased by 0.203, 129.695, 811.018, 1930.984 and cash and bank

balances has been decreased by 0.326. The same year current liability and

provisions increased by 1855.698, 111.835 respectively. As a result there is a net

increasing working capital position by 904.041.

Note: Figures are in lakhs


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Current Asset


Inventories 680.733 1714.650 1033.917

Debtors 2476.073 3053.700 577.627


Loans & Advances 3502.528 2175.356 1327.172


Current Liability


Provisions 250.748 490.676 239.928

Total current Liability (B) 3574.762 2837.098


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Net Working Capital (A-B) 3226.859 4277.882


Capital

1051.023 1051.023

Total 4277.882 4277.882 2618.123 2618.123


In the current year interest accrual, inventories, debtors, cash and bank

balances are increased by 1.372, 1033.917, 577.627, 27.615 and loans and

advances has been decreased by 1327.172. The same year current liability has been

decreased by 977.592 and provisions increased by 239.928 respectively. As a

result there is a net increasing working capital position by 1051.023.



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4.2. 4 Schedule of changes in working capital 2009-10


Current Asset


Inventories 1714.65 2070.89 356.24

Debtors 3053.69 3828.38 774.69


Loans & Advances 2175.35 2494.66 319.31

Total Current Assets

(A)

7114.96 8656.88

Current Liability


Provisions 490.67 531.67 41


(B)

2837.09 2712.61

Net Working Capital

(A-B)

4277.87 5944.27


Capital

1666.40 1666.40

Total 5944.27 5944.27 1707.44 1707.40



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In the current year interest accrual, inventories, debtors, cash and bank

balances, loans and advances are increased by 2.47, 356.24, 774.69, 89.21, 319.31

respectively. The same year current liability has been decreased by 165.52 and

provisions increased by 41 respectively. As a result there is a net increasing

working capital position by1666.40.




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Current Asset


Inventories 2070.89 2386.42 315.53

Debtors 3828.38 3436.34 392.04


Loans & Advances 2494.66 4596.4 2101.74

Total Current Assets

(A)

8656.88 10787.21

Current Liability


Provisions 531.67 631.33 99.66


(B)

2712.61 3320.3

Net Working Capital

(A-B)

5944.27 7466.91


Capital

1522.64

1522.64

Total 7466.91 7466.91 2522.37 2522.37


In the current year interest accrued, inventories, cash and bank, loans

and advances are increased by 2.41, 315.53, 102.69, 2101.74 and Debtors balances

has been decreased by 392.04. The same year current liability and provisions

decreased by 508.03, 99.66 respectively. As a result there is a net increasing

working capital position by 1522.64.

Note: Figures are in lakhs


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4.3. III. CO-EFFICIENT OF CORRELATION:

Correlation analysis is a statistical techniques used to indicate the degree of

relationship existing between one variable and the other. The linear relationship of

correlation between two variables has been suggested by Karl Pearson(1867-1936)

a British biometrician and statistician and it is the most widely used method of

correlation being practiced.

It is denoted by rxy or r or r(x,y) denoting the measure of correlation

between two variable x and y. it is the ratio of co-variance between x and y written

as cov (x,y) to the product of the standard deviation of x and y.


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It can be written as:

X

X =

n

Y

Y =

n

(X- X)* (Y- Y)

r =

(( X- X ) (Y- Y )

4.3.1 CO-EFFICIENT OF CORRELATION OF SKI LTD

YEAR 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

CURRENT

ASSETS

39.30 68.02 71.15 86.57 107.87

CURRENT

LIABILITIES

16.07 35.75 28.37 27.13 33.20

Note: Figures are in crore

4.3.1 CO-EFFICIENT OF CORRELATION OF SKI LTD


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CO-EFFICIENT OF CORRELATION

39.3

68.02 71.15

86.57

107.87

16.07

35.7528.37 27.13

33.2

0

20

40

60

80

100

120

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

YEAR

AMOUNTINC

RO

Current assets Current Liabilities

ANALYSIS & INTERPRETATION

The above table and diagram shows current assets and current liability is

increased gradually during the study period2006-2011. Management maintains their

company's assets liability.

SOLUTION:

Let the export of Export denoted by X and that Import by Y.

---

X= 39.30+68.02+71.15+86.57+107.87

----------------------------------------------


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5

= 372.91

5

= 74.582.

---

Y= 16.07+35.75+28.37+27.13+32.30

5

= 139.62

5

= 27. 924

Let as prepare the following table:

X Y X - X Y Y (X - X)2 (Y - Y)2 (X- X)*(Y Y )

39.30 16.07 -35.28 -11.85 1244.68 140.4225 418.06

68.02 35.75 -6.56 7.83 43.03 61.3089 51.364

71.145 28.37 -3.43 0.45 11.76 0.2025 1.54

86.57 27.13 11.99 -0.79 143.76 0.6241 9.4721

107.87 32.3 33.29 4.38 1108.22 19.1844 145.8102


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( X-X)

=2551.46

(YY)2

= 221.74

(X- X )(Y-Y )

= 626.25

( X- X )* ( Y- Y )

Now r =

(( X- X ) (Y- Y )

626.25

= -----------------------

752.17

r = 0.83crores


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CHAPTER-5

SUMMARY OF FINDINGS & SUGGESTIONS

5. SUMMARY OF FINDINGS & SUGGESTIONS

FINDINGS

The company is running in profit and has adequate funds for the day-to-day

business operations.

The profit of the Organization has constantly increased throughout the study

period 2006-2011, this shows the company is well managed and has good

financial position.


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It is found that SKI Ltd has enough investment in Current assets. It is

maintained acceptable standard norm of 2:1. This shows that the company

has strong investment in current asset.

From the analysis of quick ratio, we can understand that the SKI Ltd has

sufficient liquidity to cover its short-term liabilities

The average working capital turnover ratio is 2:1. This shown that for a sale

of Rs 1, it requires Rs.0.47 is current asset. This gap can be financed through

bank borrowings and long-term sources of funds.

Debtors turnover Ratio shows a decreasing trend throughout the study

period. This shows that the debts are not collected promptly.

Debt collection period is very high. The average is 109 days. This shows that

there is no prompt payment made by debtors.

Inventory turnover ratio of SKI Ltd is in decreasing trend. This implies

excessive inventory levels than warranted by production and sales activities.

Fixed asset turnover ratio shows a decreasing trend. This shows fixed assets

are not used properly.


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The evaluation of schedule of changes in working capital reveals that the

working capital position of the company is showing an increased trend.]

SUGGESTIONS

The company should take approximate measure to reduce the debt

collection period

It should improve the utilization of fixed assets, became it is new

under-utilized.


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It should reduce the inventory levels. For that they can adopt some

innovative process like JIT and EOQ technique.

In order to become a cash rich organization, it should find ways to reduce

the cost of operation

The credit policy given can also be reviewed so that considerable amount of

funds may not lock up in debtors. This will result in increase of cash

balances of the company

Effective costing techniques may be implemented to control the operating

expenses incurred by the company.


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CHAPTER-6

CONCLUSIONS


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6. Conclusion

Sri krishna industries is an excellent player in construction and property

development Industry. The main reasons behind the success of ski Limited is its

state of the art technology, goal oriented people and clear vision of the top

management.

The robust growth in the operations of the company is supported by a

motivated management team, aggressive marketing initiatives, better working

capital management and overall cost reduction measures adopted by the

company. The cost management and production efficiencies helped in

maintaining a good profitable track record despite increase in input costs.

To end with I conclude that by achieving higher production, enhanced

operating efficiencies, better working capital management, aggressive

marketing policies backed by a highly motivated sales team and overall cost

reduction measures, the company will be able to maintain its excellent

performance.


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BIBLIOGRAPHY

Bibliography

T.S. Reddy and Y.Hari Prasad Reddy, Financial and Management

Accounting, Margham Publications, 2002.

C.R. Kothari, Research methodology, Warsaw Publications, 2002.

Dr. S. N. Matheswari, Principles of Management Accounting, 11

th

edition,

Sultan Chand & Sons, New Delhi, 1996.

IM .Pandey, Financial Management 8th Edition, Vikas Publishing house Pvt

Ltd, 6th Reprint -2006- New Delhi.

R.K. Sharma & S.K. Gupta, Financial Management

R.P. Rustagi, Financial Management

APPENDICES

BALANCE SHEET AS AT 31ST MARCH 2007


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SHARE HOLDERS FUNDS Lakhs Lakhs

Share Capital164.74

Reserves & Surplus463.15 627.89

LOAN FUNDS

Secured Loan 1293.47

Unsecured Loan 651.98 1945.45Total 2573.33

Gross Block 343.56

Less: Depreciation & Impairment94.54 249.02

Net Block 1.12

Investments

Deferred tax asset 0.37

Current assets, loans and advances

Current assets

Interest accrued 5.15

Inventories 551.04

Debtors1665.05

Cash and Bank Balances 137.26

Loans and advances1571.54

3930.05

Less: current liabilities and provisions

Current Liabilities 1468.32

Provisions138.91

1607.23

Net current assets

2322.82


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SHARE HOLDERS FUNDS lakhs lakhs

Share Capital 164.74

Reserves & Surplus 766.54 931.28

LOAN FUNDS


Unsecured Loan 700.00 2997.71

DEFERRED TAX LIABILITY 12.56

Total 3941.55

Gross Block 829.32

Less: Depreciation & Impairment 135.55

Net Block 693.77

Capital and bank balance 19.72 713.49

Investments 1.20


Current assets


Inventories 680.73

Debtors 2476.07


Loans and advances 3502.53

6801.62Less: current liabilities and provisions


Provisions 250.75

3574.76

Net current assets 3226.86

Total 39441.55


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LOAN FUNDS


Unsecured Loan 400.00 4005.87


Total 5633.38

Gross Block 1520.89



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Net Block 1300.86

Capital and bank balance 53.38 1354.24

Investments 1.25


Current assets


Inventories 1714.65

Debtors 3053.70



7114.98Less: current liabilities and

provisions


Provisions 490.68

2837.10


Total 5633.38


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Less: current liabilities and

provisions


Provisions 531.67

2712.61


Total 7334.20





LOAN FUNDSSecured Loan 7264.90


Total 9294.65

Gross Block 2262.59


Net Block 1822.54

Investments 5.20Current assets, loans and

advances

Current assets


Inventories 2386.42

Debtors 3436.34



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10787.21

Less: current liabilities and

provisions


Provisions 631.33

3320.3


Total 9294.65


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study on working capital[1]

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