vrl

Working Capital Management And Ratio Analysis.

EXECUTIVE SUMMERY

VRL logistics limited a company registered under the provisions of the company’s act 1956,

with its symbol of services as VRL. Has built and maintained good will in the minds of public at

large in the country in general and in Karnataka in particular with more than 800 branches all

over the country. The company has 2800 vehicles consisting cargo and passenger buses and

claiming as largest single fleet owner in the world entitled for an entry in the gunnies book of

record has already accepted the entry. One of the major issues affecting the performance of the

company is ensuring that the cash held by the company is neither excessive or in adequate but is

sufficient for meeting its current requirement. Cash storage will affect the company’s liquidity

position while excessive cash will remain idle without contributing anything towards

profitability.

The study on capital management takes into amount the cash position. The liquidity

position of the company is good to meet its short term obligations and when they become due.

The company is using its cash efficiently. The major portion of its cash flow is used for acquiring

fixed asset working capital management is concerned with the management of current assets. It

is an important and integral part of financial management as short-term survival is perquisites for

long-term success. Working capital that is it does not invest sufficient funds in current assets. It

may become illiquid and consequently may not have the ability to meet current obligation.

The study reveals that barrowing constitutes the major portion of its cash inflow. The

financial charges are becoming drain on the company earnings the company has to takes steps to

bring the size of barrowings. VRL can manage its cash better if it adopts budgetary.

Kousali Institute Of Management Studies, Dharwad


INTRODUCTION TO THE COMPANY

The chairman and managing director Mr. Vijay Sankeshwar started as an individual

transporter in January 1976 without any background and experience, initially for the first 2 years

he suffered heavy losses. At end of 1977 and started as local transport between Hubli and Gadag.

Gradually business picked up similarly and sometimes hiring out to Vijayanand Road lines

which was property concern.

Later the above proprietorship firms were converted into a private limited company

and sold their Lorries to the company came into existence and effective from 31st march 1983.

In India roadways plays a very important role in connecting the different parts of the

country. The globalization, privatization makes the customer to demand a specialized and quality

service, to fulfill the demands one should maintain a very good in his. And kindly upgrade his

service with new technologies. This will help in fulfilling this demand.

In olden days the price plays an important variable of competition. But in today

market the quality and additional service as a variable for competition. The customer in today’s

market is ready to pay high charges but they are not ready to consume the services which are low

quality. They want a certain standards in the service which they want to consume. No doubt the

majority share in the passenger transport is owned by government Transport Company. Because

of this reason the private companies can land their private companies by putting these private

companies by putting some restriction to them for lending the services.



OBJECTIVES OF THE STUDY

1. To know the liquidity position of the VRL Logistics towards its short term obligations.

2. To find out various ratios with respect of 6 years Balance Sheet.

3. To know the working capital pattern and working capital components of the VRL

Logistics.

4. To understand the management system and working process of the VRL Logistics Ltd.

5. To find out the how best the company utilizing its total assets.

6. To estimate the working capital requirements of VRL Logistics Ltd.



INDUSTRY PROFILE

Transportation is a large and varied sector of the company. Modes of the conveyance for goods

range from peoples head (on which loads are balanced) and bicycles rickshaws to trucks and

railroad cars. The road transport grew rapidly after 1947. Both rail and road transport remains

important.

The share of transportation investment in total public investment declared during the period

from the early 1950’s to the early 1980’s real public transportation investment also declined

during much of that period because of the need for funds in the rest of the economy. As a

consequence, by the early 1980’s the transportation system was barely meeting the needs of the

nation or preparing for future economy growth and for many any roads for easy. They were

braking up because of overuse and lock up maintenance railroads required new track and rolling

stock. Ports ended equipments and facility, particularly for bulk and container cargo. And at

many airports the national civil airlines needed supporting equipments, including provision for

instrument landings the government planned to devote 19% of the 8 th 5 year plan (1992-1996)

budget to transportation and communication up from the 16% devote to the sector during 7 th

plan.

Although there is a large private sector involvement in transportation, government places

a large regulatory and development rule. The central government has ministries to handle civil

aviation, railroad and surface transportation counterpart agencies are found at the state and union

territory level critical to improving the entry transportation sector in the late 1990’s is the ability

of the sector to adjust to the central government’s national reform initiatives including

privatization deregulation and reduced subsidies the sector must also adjust to foreign trade

explanation, demographic.

Pressures and incasing urbanization, technological and obsolescence, energy availability

environment and public safety concerns.



COMPANY PROFILE

VRL Logistics Limited (VRL) was funded in 1976 by Vijay Sankeshwar; chairman in Hubli a

small town in north Karnataka, the southern state in India, with a single truck and a vision that

way ahead of its time. Starting its operations in the general cargo transportation VRL has grown

into a renowned, pan- India Logistics and passenger transport company, which is currently the

largest private sector fleet owner in India, with a fleet strength of over 2800 vehicles, which in

the limca book of records.

3PL and warehousing solutions offered by VRL is tailor made cater to unique

needs of various customer of the industry. With the largest network in India, the VRL parcel

service is indispensable for large number of corporate houses. This network spans the length and

breadth of the country and is supported by large number of transshipment hubs, braches, and

franchises and over valuable customers. VRL is now expending its services to rich even the

remote locations of the country.

Mr. Vijay Sankeshwar, the promoter commenced of the business of transportation

in the state of Karnataka, as a proprietary concern in year 1976. The proprietary concern

subsequently converted into a partnership firm by the name measures Vijayanand road lines in

year 1978. This partnership firm was then converted into a private limited company under part ix

of company’s act, 1956 under the name of Vijayanand road lines private limited and a sati fact of

incorporation, Bangalore dated march 31st 1983 was issued by the register of the company

Bangalore and Karnataka. The company become a deemed public limited company in the year

1994 and an endorsement to this effect was made by the register of company, Bangalore,

Karnataka on July 1st 1999, on the original certificate of incorporation dated march 31st 1983

pursuant to a special resolution passed by the share holders in extraordinary general meeting held



on February 14th 1997 the status of our company was subsequently changed from a deemed

public limited company to public limited company. The name of our company was changed into

VRL Logistics Ltd and the ROC Karnataka granted a press certificate of incorporation,

consequent on change of name to our company on august 25th, 2006.

The company was initially in the business of transportation of goods and parcels,

subsequent it commenced the business of courier service in the year 1992. In the year 1996 the

acquired passenger buses and entered into an agreement with Vijayanand travels a proprietary

concern on the business of passenger service. Initially Vijayanand travels a proprietary concern

started by Mrs. Lalita Sankeshwar in November 1996 for giving the said vehicles on hire, to

carry on the business of passenger service. Initially Vijayanand travels were operating within the

state of Karnataka only. Over a period of time with the growth of it business, it began operating

business between destination in Karnataka. The company acquired the business of Vijayanand

travels on June 30th, 2004 for a total consideration Rs 50, 00,000. The company continued with

the same business as separate divisions. Mrs. Vani Sankeshwar in august 2001, started Maruti

parcel carries which operate as division of the company. The Shiva road lines were started in the

year 2003 as separate division of the company. The Shiva road lines provide service only in the

state of Karnataka covering 6 cities. A Shiva road lines has 7 dedicated branches. It provides

door- to- door services without more than two tones. The company has recently diversified in the

wind power business in 2006 and air charter business in 2007. Recently company has purchased

premier 1a air from Hawker beech incorporation, USA 1A is 2 pilots and 6 passenger seats

aircraft ( with club configuration seats) it has entered into MOU dated November 1st, 2007 with

IN damer company private Limited for maintenance of the aircraft.

Over the VRL has evolved itself as providers of safe, reliable and timely delivery

network, in the field of parcel services. It has now expanded its operation into EXPRESS cargo

to meet the growing demand for quicker and speedier deliveries of parcels. Currently VRL

handles over 6000 MT of parcels every day adding up to a staggering 216,000,000 MT of cargo

per annum, apart from its core business of cargo transportation the company has diversified into



passenger transportation. Today VRL is one of the leading companies in the Indian transport

industry.

In 2007, VRL Logistics Ltd. provides its way into the Indian aviation industry.

It is a gradual progression for the company. From surface transport to air transport. The Indian

aviation industry has experienced a tremendous growth in the last 2 years, more so in the private

aviation sector. Keeping in mind the market demand VRL decide to enter the air-charter industry

and serve the VVIP, VIP & corporate India.

In the first phase VRL has acquired a brand new, premier jet one a year craft it

is manufactured by Hawker beech corporation, USA. The company has future expansions plans

to add more aircraft and helicopters, based on the market feedback and demand. Initially we wise

to offer the jet aircraft on charter basis to the corporate sector, leisure and tourism sector, medical

evacuation, a special mission charter, event management, advertisement agencies and VIP

flights.

BOARD OF DIRECTORS

Mr. Vijay.B.Sankeshwar, Chairman and Managing Director

Mr. Anand Sankeshwar Managing Director

Mr. Karunakr Shetty. Director.

Mr. Sudhir Ghate Director

Mr. J.S.Korlahalli Director

Mr. Prabhakar Kore Director



VRL LOGISTICS LTD., VARUR, HUBLI

Name of the organization : VRL Logistics Ltd., Varur, Hubli.

Phone No. : 0836-2237613

Fax : 0836-2297614

E-mail : [email protected]

Proprietor : Vijay Sankeshwar

Location : NH4, Pune-Bangalore Road, Near Varur,

Hubli.

Company type : Limited Company

Head Office : VRL Logistics Limited,

Regd. & Administrative Office: NH4, Pune-

Bangalore Road,

Varur, Hubli-581 207 Karnataka State

Corporate Office : VRL Logistics Limited,

Giriraj Annex, Circuit House Road,

Hubli-580 029, Karnataka State

Employees : 7000 employees

Area : 43 acres

Brand Name : VRL


mailto:[email protected]


PERFORMANCE:

Years Turnover (Rs in Corers)

2001-02 149

2002-03 170

2003-04 204

2004-05 277

2005-06 361

2006-07 443

2007-08 547

2008-09 650

2009-10 710



Various Departments of VRL

1. ADMINISTRATION DEPARTMENT:

This department manages day today activities. In VRL travels the administration

department include;

Day today administration:

Accounts queries and commission letter to agent

Bus breakdown report

Inspection report

Instruction and other

Collection of reports

Seats occupancy report

Bus arrival report

Customer feedback follow up:

Customer suggestions

Customer’s complaints

Other reports:

Bus fare

Route fixation

Opening of branches

Agency inspection



2. LEGAL DEPARTMENT:

Legal department is one which plays most prominent part in the company. It focuses

on all the legal aspects concerned to the company. It functions positively towards the

success VRL logistics Ltd.,

Functions of legal department:

Settlement of industrial disputes:

Industrial disputes includes strikes, lockouts are settled under Industrial Disputes Act.

Thus, settlement of these disputes is one of the activities concerned with trade unions.

Settlement of workmen compensation:

This compensation, under Workmen Compensation Act includes accidents, matters

related to gratuity, pension etc., are settled provided accidents to employees on job.

Settlement of accident claims:

In case of accidents or losses to the vehicles of VRL Logistics Ltd occurs, and then

compensation can be claimed by this department.

To avoid illegal activities in the firm: Illegal activities such as theft, robbery within

premise are avoided.

Advice the departments in the firm:

This legal department acts as an advisor for the different department of the firm

concerning with ethics, social obligation towards the public.



Suit against debtors:

Customers are given maximum period to clear the debt. If the positive response is not

given first notice is sent. After 30 days second notice will be issued within 90 days and

third notice within 20 days and thereafter are not sent, but personnel approach is given and

then legal action is imposed, these notices are issued in order to avoid legal litigation,

enmity.

Suit against bounced cheque:

Customers paying by the cheque if return by bank when there is no enough money in

an a/c for it to be paid then the company has right to the customers for such as act.

Settle legal charges: It is the responsibility of this department to pay all legal charges

charged by the court/ govt.

2. HUMAN RESOURCE DEPARTMENT:

This department manages the most skilled resources in the organization i.e. human

resources. The personnel department looks after the following area;

Recruitments of staff

Training the staff

Motivation of employees.

Allocation of work.

Facilities of ESI

Matters relating to leave, salary, bonus etc.,

Improving employer and employee relation.



4. STATIONERY DEPARTMENT:

The stationery department generates a list of stationery items required by different

branches as per their requisition, this includes;

Collecting requisition from branches for items.

Generate a copy of stationery

Sending report to account department for verification.

5. MARKETING DEPARTMENT:

This department is heart of the organization, which plans and decides about new

marketing strategy to be introduced, it also involves some activities such as;

It takes customer feedback.

Follow-up the customer feedback.

Forms the tariff rates.

Offers discounts in non peak times.

Formulates the promotional tools.

Identify the necessity of expansion of business geographically.

Generates the report an opening of new branches.

Plan for introducing new coaches.

6. FINANCE / ACCOUNTS DEPARTMENT:

One of the major departments in company is accounts department. In this department

financial activities will take place. It is fully computerized. Internet is being used for daily

recording calculation. There are two sections;

Manual Section.

Computer section

The accounts department has got specialization because the company is in its growth phase.



Books maintained in accounts department:-

Cash book

Passing the journal entries and transferring the entries into ledger.

Bank reconciliation statement

Account of agencies and branches.

Preparation of financial account.

Other accounts maintained by accounts department:-

Drivers account:

This account includes the amount given to the drivers for their expenses. This

maintains in accordance with trip sheet submitted by the different department and it is

also includes the Basic pay, HRA, DA, PF to drivers.

Vehicles account:

Here the expenditure accrued on each vehicle is calculated, the cost of benefit

analysis is done to project the future potential of the vehicle.

All branches have to send daily report to head officer in daily delivery stock summery.

Head office will record all cash payments and cash receipts in daily cash statement book.

7. OPERATION AND MAINTENANCE DEPARTMENT:

This department deals with technical and mechanical part of the company in VRL.

This department takes part in vehicle planning and maintenance of vehicle.

Vehicle Planning:-

Maintaining the time sheet and vehicle.

Maintains the diesel entry card of bus from different branches.

In case of bus breakdown alternative arrangements

Maintaining the report of breakdown buses.



Repairing the buses at workshop

Sending the repaired bus report to the vehicle planning to move on again for trip.

8. INSPECTION DEPARTMENT:

This department looks into official examination of different department to check

whether the flow is continuous or not. It involves work processes.

o Visiting and inspecting the branch

o Creating the inspection report on branches.

o Sending the report to administration department for correction measures.

9. BOOKING DEPARTMENT:

This department helps to interact with the customers. Some features which comes

under this department are;-

Collecting customer information.

Booking contracts and tickets.

Maintain passenger list provide boarding for passenger.



VRL LOGISTICS LIMITED

MISSION

To provide the highest quality service to our customer by continuously

increasing cost efficiency and maintaining delivery dealings. To encourage our employees/

workforce to serve for quality and excellence them everything they do. The promote team work

and create a work environment that takes care of talent and brings out the best in our employees.

VISION

To become a premier company that cuts across various segment and emerges as

the torchbearer of each segment that the group ventures into.

VALUES

Punctuality

Integrity

Honest

Loyalty

Credibility



QUALITY POLICY

Our commitment is to provide the quality logistic service consistency at

reasonable price and continually improve the same to achieve customer delight on the

sustainable task.

VRL enjoys the distinction of being the single largest fleet owner in the private

section India with more than 2800 vehicles.

PHILOSOPHY

They immensely follow the philosophy of “TIME IS GOLD”

ISO 9001-2000 CERTIFICATION

Vijayanand Travels is committed to quality and safety reorganization of these

efforts to confirm its services to the highest standards regarding time management of passengers

convince management system in June 2005.



PRODUCT/ SERVICE PROFILE

VRL offer following services which are summarized below:

1) Goods transportation

A. Full truck load

B. Less than full load (parcel)

I. General parcel

II. Express cargo

C. Courier

D. Passenger travels

2) Wind power generation

3) Air charter business

4) News paper (English & kannada)

5) Packaged drinking water



THEROTICAL FRAME WORK OF WORKING CAPITAL

The most profitable function of an organization is to make the working capital. It’s current

assets and current liabilities, which bring most of the earning for an organization and valuable

ties which the community. An effective current assets and current liabilities policy provides

funds to the vital sectors of the economy in appropriate amounts and appropriate time, by

promoter economic development.

Meaning of working capital.

Concept of working capital.

Types of working capital.

Needs, objectives, principal, of working capital.

Determinants of working capital.

Estimation of working capital requirements, operating cycle.

Formula

CURRENT ASSET

Inventories

Sundry debtors

Cash and bank balances

CURRENT LIABILITIES

Sundry creditors

Other liabilities



WORKING CAPITAL MANAGEMENT

The aim of the present study is to examine the small scale industry practices in working capital

management is determined by the efficient administration of its various components such as

cash, accounts receivables and inventory, the study attempts to determine the management of

each component.

Working capital in a business enterprise may be compared to the blood in a human body.

Blood gives life and strength to the human body. Similarly working capital injects life and

strength – profits and solvency- to the business organization. Working Capital refers to short

term funds required for the purpose of business operations. The funds used for meeting day to

day expenses, stock of goods, granting of credit to customers and maintenance of the minimum

balance. It is not necessary that the funds should be in the form of cash only. It can be in the

form of near cash items like marketable securities, inventories and account receivable.



CONCEPT OF WORKING CAPITAL

Like most of financial concepts, the concept of “working capital is used in different connotations

by different writers. Obviously, it is understood either as the total current assets or as the excess

of current assets over current liabilities. The former is referred to the gross working capital and

the latter the net working capital.

So there are two concepts in working capital:

1. Gross working capital.

2. Net working capital.

Gross working capital is the total of all current assets, viz. cash, marketable securities account

receivable and inventory net working capital refers to excess of current assets over current

liabilities. Both of these concepts have their own importance. “The gross concept is a going

concern concept in which management is particularly interested because for the productive

utilization of fixed assets all the currents are necessary. The net concept is useful to gauge the

financial soundness of a form and is of special.

No special distinction is made between the terms ‘ total current assets’ and ‘working capital’

by some authors “ working capital is nothing but total of current assets. It is a substitute for

working capital, though not a perfect one “working capital is the capital circulating into cash

over an operating cycle. Working capital is equated with all the current assets”.

Working capital and current assets are interchangeable.



The precise meaning of current assets and current liabilities:

CURRENT ASSETS

Current assets are those assets which are used in the current operation of a business such as

inventories, receivables, cash and bank balances and easily convertible securities. These assets

generally change their form within an accounting period. “current receivable may have a life

span of 30 to 60 day, and inventories may be held for 30 to 100 day”.

CURRENT LIABILITIES

Current liabilities are those claims of outsiders which are expected to mature for

payment within an accounting year and include creditors, bill payable, bank-overdraft,

outstanding expenses, outstanding tax and income received in advance. “current liabilities are

those where liquidation is reasonably expected to require the use of existing resources properly

classifiable as current assets, or the creation of other current assets, or the creation of other

assets, or the creation of other current liabilities”.



TYPES OF WORKING CAPITAL

The operating cycle creates the need for current asset (working capital) however the need does

not come to an end after the cycle is completed to explain this continuing need of current assets a

destination should be drawn between and temporary capital.

Permanent working capital

The need for current assets arises as already observed because of the cash cycle. To

carryon business certain minimum level of working capital is necessary on continues and

uninterrupted basis.

Temporary working capital

Any amount over and above the permanent level of working capital is temporary, fluctuating

or variable, working capital.



NEED FOR WORKING CAPITAL

To fulfill its endeavor to maximize the share holder’s wealth. Firm has to earn sufficient return

from its operation which needs a successful sales activity. The firm has to invest sufficient funds

in current assets to succeed in sales of goods and actual receipt in cash. Hence there is need for

working capital in the form of current assets to sustain sales activity during that period. Since

cash inflows and cash outflows don’t match. Firms have to necessarily keep cash or investment

in short-term liquid securities to fulfill its obligations as and when they become due. The

adequate stock of inventory provides a cushion against being out of stock and helps as guard to

meet demand for its products. To be competitive, the firm must sell its products to their

customers on credit which necessitates the holding of accounts receivables. Therefore an

adequate level of working capital is absolutely necessary for the smooth sales activities, which in

term enhances the owner’s wealth.

Working capital need arises for the following purposes:

1. For purchasing raw material, components and spare parts.

2. For paying wages and salaries.

3. To incur day - to - day expenses and overhead costs like fuel, power and offices expenses etc.

4. To meet selling costs of packing advertising etc.

5. To provide credit facilities to customers.

6. To maintain inventories of raw materials, work- in – progress, spare parts and finished goods.



OBJECTIVES OF WORKING CAPITAL OF VRL

To ensure adequate of a firm.

To minimize the risk.

It contributes to the maximization of firm’s value.

To estimate to working capital requirement of VRL Logistics Ltd.

To study the working capital component such as receivables accounts, cash management,

inventory position.

To study the optimum level of current assets and current liabilities of the company.



DETERMINANTS OF WORKING CAPITAL

1. Nature of business:-

The working capital requirement of a enterprise are basically related to the conduct of

business enterprises fall into some broad categories depending on the nature of their business.

Public utilities have two futures which have a bearing on working capital need are:

The cash nature of business that is cash sale and

Sale of services rather than commodities

2. Production cycle :-

This is another factor, which has bearing on the quantum of working capital. The term

production or manufacturing cycle refers to the time involved in the manufacturing of goods. It

covers the time span between procurement of raw materials and the completion of the

manufacturing process leading to the finished goods.

3 Business cycle:-

The working capital requirement is also determine by the nature of the business cycle. Business

need to cyclical and seasonal changes, which in term causes a shift in the working capital

position. The variation in the business conditions may be in two directions:

Upward phase when boom condition prevail, and

Downswing phase when economic activity is marked by a decline



4 Production policy:-

The quantum of working capital is also determined by production policy. The

demand for products is seasonal that is they are purchased during certain months of the year

there are two opinions for production policy to enterprises either they confine their production

only to periods when goods are purchased or they follow a steady production during the slack

season the firm have to maintain their working force and physical facilities without production

and sale.

5 Credit policy:

The credit policy relating to sales and purchases also affects the working capital. The credit

policy influences the requirement of working capital in two ways.

1. The credit terms granted by the firm to its customer / buyers of goods.

2. Credit terms available to the firm its credits.

The credit policy terms granted to customer have a bearing on the supplies of goods (trade

creditors) the need for working capital is less. The working capital requirement of the business is

affected by the terms of purchase and sale and the role given to credit by a company in it’s with

credit and debtors.

ESTIMATION OF WORKING CAPITALKousali Institute Of Management Studies, Dharwad


Expenses on raw materials, labor and overhead.

Length of time, the raw materials to be held in sock.

Length of time the raw materials in manufacturing process in semi finished goods.

Length of time, finished goods are held in ware house waiting sales.

Credit period granted by the sundry creditors.

Time gap in the payment of wages, salaries and other operating expenses.

COMPONENTS OF WORKING CAPITAL

The components of working capital are:

Cash management

Receivables management

Inventory management



CASH MANAGEMENT

Cash is the liquid form of an asset. It is the ready money available in the form or with the

business, essential for its operations. A firm needs the cash for the following three purposes:

Transaction motive: The firm must and should keep the funds for transactions like purchase,

sales etc. these activities which are not known in advance, are not considered while preparing a

cash budget.

Precautionary motive: The firm also funds for the safeguard against uncertainties, which

are an integral part of business operations.

Speculative motive: To tap profits from opportunities arising from fluctuations in

commodity prices, interest rates etc. the company with surplus cash is in a better position to

exploit such situations.

Cash flows : The flow of cash into and out of the business over a period refers to cash flow.

Cash inflow can be in the form of cash received from customers, lenders and investors. Cash

outflow can arises because of payments made to employees (salaries) supplies and creditors.

Positive cash flows : when cash flow exceeds outflow it results in positive cash flows.

Positive cash flow is beneficial to the business, the only thing to be cautious about is the

opportunity cost, incurred as result of idle money.



Negative cash flows: negative cash flows arise when cash outflows exceed inflows. This can

be due to various reasons.

A good cash management has a major impact on the overall working capital

management. It is required to meet the business obligations in the firm. The benefits of good

cash management are:

Control of financial risk

Opportunity for risk

Increased customer, supplier, and shareholder confidence

The cash management is commonly deals with the following aspects.

Cash planning or identifying of cash flows

Managing the cash flows

Optimum cash level



STATEMENT OF THE PROBLEM

To find out how working capital is involved and to make an in – depth study, this researcher

undertook the task of defining the problem in this study.

The researcher problem undertakes involves the financing and efficient management of current

assets that is inventories, receivables, and cash. Working capital management involves the

management of current assets and current liabilities. The manner of administration of current

assets and current liabilities determine to a very large extent the success or failure of the

business.



FORMULA OF WORKING CAPITAL

Net working capital = current assets – current liabilities

Current assets and current liabilities include three accounts which are of special importance.

The accounts represent the areas of the business where managers have the most direct impact.

Account receivables (current asset)

Inventory (current assets)

Accounts payable (current liabilities)

The current portion of debt (payable within 12 months) is critical, because often secured by long

term assets. Common types of short- term debt are bank loans of credit.

An increase in working capital that the business has either increase current assets (that is

received cash or other current asset) or has decreased current liabilities. For example has paid off

some short – term creditors.



WORKING CAPITAL MANAGEMENT

Decisions relating to working capital and short- term financing are referred to as working capital

management. These involve managing the relationship between a firm’s short term asset and

short- term liabilities. The goals of working capital management is to ensure that the firm is able

to continue its operations and that it has sufficient cash flow to satisfy short – term debt and

upcoming operation expenses.

Management of working capital

Management will use a combination of policies and techniques for the management of

working capital. These policies aim at managing the current assets (generally cash and

inventories and debtors) and the short – term financing such that cash flows and returns are

acceptable.

Cash management

Identify the cash balances which allows for the business to meet day to day expense, but reduce

cash holding cost.

Inventories management

Identify the level of inventory which allows for uninterrupted production but reduces

the investment in raw materials and minimize recording costs and hence increases the investment

in raw materials and minimize recording costs and hence increases cash flow.

Debtors management

Identify the appropriate credit policy that is credit terms which will attract customers, such

that any impact on cash flows and the cash conversion cycle will be offset by increased revenue

and hence return on capital or vice versa.



Short – term financing

Identify the appropriate source of financing, given the cash conversion cycle, the

inventory is ideally financed by credit granted by the supplier, however it may be necessary to

utilize a bank loan (or overdraft) or “convert debtors to cash” through “factoring”



CASH MANAGEMENT BASIC PROBLEM

Cash management technique – one of the basic objectives of cash management is to minimize

level of cash balance with the firm.

The objectives is sought to be achieved by means of the following

Preparing cash budget

Providing for unpredictable description

Controlling inflow of cash – care should be taken to ensure that there is no significant

direction between the projected cash inflows and projected cash outflows, appropriated technique

has to be devised for spread collection of cash and there technique are;

Concentration banking

Lock box system

Control over cash outflows – centralize disbursement should be followed as compared to

decentralized system in cash of collection. Payment should be made on date. The firm should

pay within the term offered by suppliers.



MANAGEMENT OF INVENTORIES

INTRODUCTION

The tired major asset in working capital is inventory. The term inventories refer to the

stock of the product. A firm is offering for sale and the components that make up the products.

Inventory as a current asset, differed from other current asset because only financial

managers are not involved return all the function areas, finance, marketing and purchasing are

involved.

Management of inventories involves two basic problems

I. Maintaining a sufficient large size of inventories for efficient and smooth production and sale

production.

II. Maintaining minimum investment inventories to minimize the direct and indirect cost associated

with holding inventories to minimize profitability. Inventories should neither excessive nor

inadequate if inventories kept at high level of inventories may result in frequent interruption in

the production scheduling therefore company should maintain optimum inventory to achieve its

objectives.



Objectives of inventory management:-

I. Ensuring contains supply of inventories for facilitating interrupted production.

II. Maintaining sufficient stock of supply.

III. Minimizing carrying cost.

IV. Optimum investment in inventory.

Techniques of inventory management:

A. Determination of the types of control required.

B. The basic economic order quality.

C. The record point.

D. Safety stock.



RECEIVABLES MANAGEMENT

INTRODUCTION

The sale of goods on credit is on essential fact of the model competitive economics

systems, the terms receivables is defined as debtor owned to the customer arising from sale of

goods services in the ordinary course of business.

Objectives of receivables management

Objectives of receivables management is to promote sales and projects until and

point is reached where the return on investment in further funding receivables is less than the

cost of raised to finance that additional credits.

Policies for managing requires:-

Receivables management is not merely collect receivables quickly but attention

should also be benefit cost trade off involved in the various areas of allocates receivables

management.



RATIOS

Financial ratios are used to evaluate profitability, liquidity, solvency and capital

market strength. It involves establishing a relevant financial relationship between components of

financial statements. Two companies may have earned same amount of profit in a year, but

unless the profit is related to sales or total assets, it is not possible to conclude which of them is

more profitable. Ratio analysis helps in identifying significant relationship between financial

statement items for further investigation. If used with understanding of industry factors and

general economic conditions, it can be a powerful tool for recognizing strength as well as its

potential trouble spots. This ratio measures the degree of operating success of a company.

The only reason why investors are interested in a company is that they think they will earn a

reasonable return in the form of capital gain and to learn about the ability of the company to earn

revenues in excess of its expenses. They will not be interested in sales. Failure to earn an

adequate rate of profit over a period will also drain the company cash and impair its liquidity.

The commonly used ratios

The commonly used financial ratios to evaluate profitability are

Profit margin ratio

Asset turnover ratio

Return on asset

Return on equity.

Earnings per share



1. Profit margin ratio:-

This ratio, also known as return on sales (ROS), measures the amount of net profit earned by each rupee revenue.

Profit margin ratio= profit after tax

sales∗100

2. Asset turnover ratio:-

This is a measure of a firm’s efficiency in utilizing its assets. It indicates how many times the assets were turned over in a period and thereby generated sales. If asset turnover is high, the company is managing is assets efficiently. If it is low, it means the company has more than it really needs for its operations. Averages rather than year- end amounts of assets are a better measure of the level of assets held during the year. The difference between average and year- end amounts will be more pronounced for companies that are engaged in expanding capacity.

Asset turnover ratio=sales

average totala ssets*100



3. Return of assets ratio:-

This is a measure of profitability from a given level of investment. It is an excellent indicator of

overall performance of a company.

Return on assets=profit after tax

average totalassets∗100

4. Return on equity:-

This is a measure of profitability from the standpoint of the company’s shareholders. It

measures the efficiency with which shareholders funds are employed. In order to moderate the

influence of shareholder transaction such as share issue, buy- bank and retained earnings,

analysts generally use the average of beginning and ending amounts for the year.

Return on equity= profit after tax

average s haer holders equity∗100



5. Earnings per share:-

Financial analysts regard the earnings per share (EPS) as an important measure of

profitability. EPS is useful in comparing performance over time. But it is not of much help in

making comparisons across firms because the number of equity shares can differ even if all of

them have identical amount of shareholder’s equity.

Earnings per share= profit after tax

weigh ted averagenumber of equity s hares

LIQUIDITY RATIOS

Liquidity is the ability of a business to meet its short- term obligations when they fall due. An

enterprise should have enough cash and other current assets which can be converted into cash so

that it can pay its suppliers and lenders on time.

The following four ratios

Current ratio

Quick ratio

Debtors’ turnover ratio



Inventory turnover ratio

1. Current ratio:-

This is the ratio of current assets to current liabilities. It is widely used indicator of a

company’s ability to pay its debt in the short-term. It shows the amount of current assets a

company has per rupee of current liabilities. Here’s current asset’s include loans and advances

and ‘current liabilities’ include provision.

Current ratio= current assetscurrent liabilities

1. Quick ratio:-

All current assets are not equally liquid. While cash is readily available to make

payments to suppliers and debtors can be quickly converted into cash, inventories are two steps

away from conversion into cash (sale and collection). Thus a large current ratio by itself is not a

satisfactory measure of liquidity when inventories constitute a major part of the current assets.

Therefore, the quick ratio or acid test ratio is computed as supplement to the current ratio. This

ratio relates relatively more liquid current assets, usefully current assets less inventories, to

current liabilities.

Quick ratio= quick assets

current liabilities



2. Debtors turnover ratio:-

We need to measure the liquidity of specific current assets in order to understand

the quality of current assets. The ability of a company to collect credit from its customers in a

prompt manner enhances its liquidity. The debtor turnover ratio measures the efficiency of a

firm’s credit and collection policy and shows the number of times each year the debtors and

collection efforts. High debtor turnover indicates that debtors are being converted rapidly into

cash and the company’s portfolio of debtors is good.

Debtor turnover ratio= sales

average debtors

3. Average debt collection period:-

We can also compute the average debt collection period by dividing the

number of days in a year by the debtor turnover ratio.

Average debt collection period= 360

debtor turnover

4. Inventories turnover ratio:-

This ratio shows the number of times a company’s inventory is turned into

sales. Investment in inventory represents idle cash. The lesser the inventory, the grater the cash

available for meeting operating needs. Besides, lean, fast- moving inventory runs a lower risk if

obsolescence and reduces interest and storage charges. High inventory turnover is a sign of

efficient inventory management. In recent years, many companies have started following just-in-



time inventory practices whereby they make purchases at the time they are required for

production or sales.

Inventory turnover ratio= cost of goods soldaverage inventories

SOLVENCY RATIO

The long term solvency of a business is affected by the extent of debt used to finance

the assets of the company. The presence of heavy debt in a company’s capital structure is

thought to reduce the company’s solvency because debt is more likely than equity. The debt-to-

equity ratio and the interest coverage ratio are important indicators of solvency.

5. Debt – to- equity ratio:-

A wise mix of debt and equity can increase the return on equity for two reasons.

Debt is generally cheaper than equity.

Interest payments are tax- deductible expenses, whereas dividends are paid from taxed profits. In

addition, dividend payments attract dividend distribution tax.

But excessive use of debt financing is risky. A company has a legal obligation to

make interest payments and to repay the principal at the due dates. If a company takes on so

much debt that it becomes unable to make the required interest and principal disbursement on

time, the creditors may force liquidation of the company. The debt- to- equity ratio measures the



relationship of the capital provided by creditors to the amount provided by shareholder. Debt

includes both short- term and long term debts but not operating liabilities.

Debt to equity ratio= secured loans+unsecured loanssh areholder s equity¿

6. Interest cover ratio:-

This is a measure of the protection available to creditors for payment of interest

charges by the company. The ratio shows whether the company has sufficient income to cover its

interest requirements by a wide margin. The interest coverage ratio is computed by dividing

profit before interest and tax by the interest expense. A high ratio implies adequate safety for

payment of interest even if there were to be a drop in the company’s earnings.

Interest coverage ratio= profit before interst∧taxinterest expenses

CAPITAL MARKET RATIOS

Capital market ratios relate the market price of a company’s share to the company’s

earnings and dividends. Price earnings (PE) ratio, dividend yield,

And price-to- book ratio are the most commonly used ratios that aid investors and analysts in

understanding the strength of a company in the capital market.

Price earnings ratio=market price per share

expected eps



Dividend yield:-

It represents the current cash return to shareholders. It is the ratio of dividend per share

to current market price per share.

Dividend yield= dividend per s hareaverage stock price

Information relating to various current assets and liabilities include in the Year 2005-06

Particulars Amount Percent

Current assets:

Inventories 869.5 26.36%

Sundry debtors 1721.25 52.17%

Cash and Bank balance 708.15 21.47%

Total 3298.9 100.00%

Current liabilities:

Sundry creditors 2732.87 89.89%

Other provisions 307.13 10.10%

Total 3040 100.00%



Sundry Credi-torsOther Liabilities

It may be inferred that in the overall composite on of sundry creditors are the highest

(89.06%), followed by sundry debtors (52.17%), inventories (26.36%), cash and bank balances

(21.47%), other liabilities (10.94%).

Information relating to various current assets and liabilities include in the year 2006-07


Current assets:


Sundry Debtors 2371.32 48.92%

Cash and Bank Balance 1515.85 31.27%

Total 4847.46 100.00%

Current Liabilities:

Sundry Creditors 2794.28 90.88%

Other Provisions 280.43 9.12%

Total 3074.71 100.00%


InventoriesSundry DebtorsCash and Bank Balances


Sundry CreditorsOther Provisions

It may be revealed that in the overall composition of sundry creditors are the highest





Current assets:




Total 5497.93 100%




Total 3461.08 100%


InventoriesSundry CreditorsCash and Bank Balances


Sundry Credi-tors Other Pro-visions

it may be revealed that in the overall composition of sundry creditors are the highest





Current Assets:




Total 7536.81 100.00%




Total 3054.73 100.00%




Sundry Creditorsother Provisions

It may be revealed that in the overall composition of sundry creditors are the highest

(96.96%), followed by sundry creditors (59.17%), inventories (9.11%), cash and bank balance



Particulars Amount Percentage

Current Assets:




Total 7472.25 100.00%




Total 4899.59 100.00%




Sundry CreditorsOtherbPro-visions

It may be revealed that in the overall composition of sundry creditors are the highest (98.18%),

sundry debtors (65.76%), cash and bank balances (24.92%), inventories (9.30%), other

provisions (1.17%).


Particulars Amount Percentage

Current Assets:




Total 9066.93 100.00%




Total 5637.13 100.00%




Sundry Credi-torsOther Provisions

It may be revealed that in the overall composition of sundry creditors are the highest (94.65%),

sundry debtors (75.81%), cash and bank balances (17.48%), inventories (6.69%), other

provisions (5.34%).

Estimation of Net working Capital Requirement

Year Current Assets Current

Liabilities

Gross Working

Capital

Net Working

Capital

2005-06 3298.9 3040 3298.9 258.9

2006-07 4847.46 3074.71 4847.46 1772.25

2007-08 5497.43 3461.08 5497.08 2036.35

2008-09 7536.81 3054.73 7536.81 3054.73

2009-10 7472.25 4899.59 7472.25 2572.66

2010-11 9066.93 5637.13 9066.93 3429.80

Net Working Capital from 2005-06 to 2010-11:




2006 2007 2008 2009 2010 20110

500

1000

1500

2000

2500

3000

3500

4000

Net Working Capital

Net Working Capital

By using this graph we can easily identified that the net working capital of the firm is

continuously increasing up to 2019-10 but in 2010-11 it is decreased.

Ratios from 2005-06 to 2010-11

year 2006 2007 2008 2009 2010 2011

Current ratio 1.50 2.83 2.89 4.00 2.60 2.93

Quick ratio 1.21 2.51 2.69 3.77 2.46 2.82

Cash ratio 0.233 0.49 0.56 0.78 0.38 0.28

Debt ratio 0.638 0.55 0.63 0.66 0.74 1.056

Debt equity

ratio

0.638 0.55 0.63 0.66 0.74 1.05

Interest

coverage

ratio

11.40 7.74 5.83 6.95 5.98 6.53

Stock 5.41 7.53 15.17 18.57 22.98 28.40



turnover ratio

Stock

velocity

67days 48days 24days 19days 15days 13days

Debtors

turnover ratio

20.64 21.64 20.64 17.62 15.28 15.14

Debt velocity 17days 16days 17days 20days 23days 24days

Fixed asset

turnover ratio

2.13 0.91 1.03 1.31 1.48 1.58

Total asset

turnover ratio

1.67 0.77 0.86 1.05 1.16 1.22

Working

capital

turnover ratio

23.25 7.86 8.34 7.09 9.10 8.19

Gross profit

ratio

86.79% 84.42% 77.89% 81.16% 77.82% 79.27%

Net profit

ratio

0.974% 19.05% 1.35% 0.073% 4.06% 5.70%

Operating

ratio

34.22% 39.60% 53.54% 49.79% 50.68% 45.18%

Operating

profit ratio

98.17% 97.76% 97.70% 99.17% 93.79% 92.03%

Return on

investment

ratio

22.82 7.69 8.15 7.03 8.53 7.53

Earnings per 0.61 11.78 1.27 0.11 4.77 7.38



share

Current ratio interpretation: in the 2005-06 the capability of meeting the short term

obligation is low, in 2006-07 the capability ratio has doubled, in 2007-08 the ratio has slightly

increased, 2008-09 there is a drastic change in the current ratio but in the year 2009-10 the

capability of meeting the short term obligations decreased half of the previous year in 2010-11

again there is a slight increase in the current ratio.

Quick ratio: in the year 2005-06 the liquidity position to meet current obligations is 1.21, in

the year2006-07 the liquidity position has increased to 2.51 compared to previous year in the

year 2007-08 the liquidity position has slightly increased, in the year 2008-09 the liquidity

position has doubled to meet the current obligations, but in the year 2009-10 the liquidity

position has decreased, in the year 2010-11 again there is a slight increase in liquidity position.

Cash ratio: in the year 2005-06 the ready cash available with VRL to meet the current

obligations for every one rupee of current liabilities there was rupee 0.23, in the year 2006-07 the

cash ratio position doubled that is 0.49, in the year 2007-08 slight increase in cash ratio i.e 0.56,

in the year 2008-09 cash ratio increased, in the year 2009-10 cash ratio decreased slightly, in the

year 2010-11 cash ratio slightly decreased.

Debt ratio: in the year 2005-06 debt was 0.63, and in the year 2006-07 debt decreased, in the

year 2006-07 debt was slightly decreased but in the year 2007-08 slightly increased, again in the

year 2007-08 slightly increased, in the year 2008-09 it is increased, in the year 2009-10 it is

again increased but in 2010-11 it reached maximum.



Interest coverage ratio: in the year 2005-06 the VRL interest paid on is debt 11.40, in the

year 2006-07 interest paid is decreased, in the year 2007-08 it is slightly decreased, in the year

2008-09 it is again decreased, but in the year 2009-10 it is again decreased but in the year 2010-

11 it is slightly increased.

Stock turnover ratio: in the year 2005-06 the 2005-06 the stock turnover ratio is 5.41 times

increased, in the year 2006-07 stock turnover ratio is 7.53 times again in the year 2007-08 stock

ratio was 15.17, again in the year 2008-09 it is increased to 18.57 times, in the year 2009-10 it

increases to 22.98 times, in the year 2010-11 it increases to 28.40.

Stock velocity: in the year 2005-06 the stock velocity 67 days it not good, in the year 2006-07

it is 48 days it is better, in the year 2007-08 it is 24 days it is better, in the year 2008-09 it is 19

days it is still better, in the year 2009-10 it is 15 days it good, in the year 2010-11 it is 13 days it

is still better.

Debtor turnover ratio: in the year 2005-06 it is high i.e.20.64 it is good, in the year 2006-

07 it is high i.e. 21.64, in the year 2007-08 it is 20.64 it is decreased in the year 2008-09 it is

again decreased to 17.62, in the year 2009-10 it is decreases, in the year 2010-11 it is decreasing

15.14.

Debt velocity: in the year 2005-06 it is 17 days it is good, but in the year 2006-07 it is 16 days

it is better, in the year 2007-08 it is again 17 days, in the year 2008-09 it is 20 days it is not good,

in the year 2009-10 it is 23 days it again bad, in the year 2010-11 it is 24 days it is bad for the

company.

Fixed asset turnover ratio: in the year 2005-06 it is 2.13 it shows better utilization of fixed

assets, in the year 2006-07 it is 0.91 that not good, in the year 2007-08 it is 1.03 they improve in

using the fixed assets, in the year 2008-09 it is 1.31 they are utilizing the fixed assets, in the year



2009-10 it is 1.48 they are improve in utilizing the fixed assets, in the year 2010-11 it is 1.58

improve in utilizing the fixed assets.

Total assets turnover ratio: in the year 2005-06 the ratio is 1.67 it is utilization of the

assets, in the year 2006-07 it is 0.77 it is not good for the company, in the year 2007-08 it is 0.86

improve in utilizing the fixed assets, in the year 2008-09 it is 1.05 better for the company, in the

year 2009-10 it is 1.16 better for the company, in the year 2010-11 it is 1.22 it shows the better

utilization of total assets by the company.

Working capital turnover ratio: in the year 2005-06 it is 23.25 shows better utilization of

working capital, in the year 2006-07 it is 7.86 it is not good for the company which means they

are not utilizing working capital properly, in the year 2007-08 it is 8.34 they are improve in

utilization of working capital, in the year 2008-09 it is 7.09 they are still improved, in the year

2009-10 it is 9.10 it is improved, in the 2010-11 it is decreased in the 8.19.

Gross profit: in the year 2005-06 it is 86.79% it shows relationship between sales, gross profit

margin and cost of goods sold it is good for the company, in the year 2006-07 it is 84.42% it is

better, in the year 2007-08 it is 77.89% it is decreased compared to previous year, in the year

2008-09 it is 81.16% they are improved, in the year 2009-10 it is 77. 82% it is slightly decreased

it is not affect that much, in the year 2010-11 it is 79. 27% again it is increased but slightly.

Net profit: in the year 2005-06 it is 0.974% it not good, in the year 2006-07 it is

1.005%sllightly increase in the profit, in the year 2007-08 it is 1.35% slightly increased it is

better for the company, in the year 2008-09 it is 0.073% it is slightly decreased, in the year 2009-

10 it is 4.06% increased in the net profit, in the year 2010-11 it is 5.70% improve in the net

profit.



Operating ratio: in the year 2005-06 it is 34.22% it is good for the company, in the year

2006-07 it is 39.06% it is slightly increased, in the year 2007-08 it is 53.54% it is increased more

it is not good for the company, in the year 2008-09 it is 49.78% it slightly decreased, in the year

2009-10 it is 50.68% slightly increased as compared with the previous year, in the year 2010-11

it is 45.18% decreased. It is good if the company maintaining lower operating ratio.

Operating profit ratio: in the year 2005-06 it having 98.17% it is good if company

maintains high operating profit ratio, in the year 2006-07 it is having 97.76% slightly decreased

but not that much, in the year 2007-08 it is 97.70% very minute change not affect much, in the

year 2008-09 it is 99.17% increased slightly, in the year 2009-10 it is 93.79% decreased, in the

year 2010-11 it is 92.03% again decreased .it is better if they maintain higher operating profit

ratio.

Return on investment: in the year 2005-06 it is having 22.82 they maintain effective in

utilizing the investments, in the year 2006-07 it is 7.69 decreased drastically in the year 2007-

08 it is 8.15 slightly increased, in the year 8.15 it is decreased slightly it is not good for the

company, in the year 2008-09 it is 7.03 again decreased, in the year 2009-10 it is 8.53 increased

slightly, in the year 2010-11 it is 7.53 it is decreased slightly. Maintaining higher return on

investment is good for the company.

Earnings per shareholders’: in the year 2005-06 it is 0.61 it is not good for the company,

in the year 2006-07 it is 11.78 it is increased drastically it is profit for the company as well as for

the shareholders, in the year 2007-08 it is 1.27 it is decreased drastically it is bad for the

company as well as for the share holders, in the year 2008-09 it is 0.11 it is decreased, in the year



2009-10 it is 4.77 it is increased, beneficial for the company, in the year 2010-11 it is 7.38

increased. Earnings per share increased beneficial for both company as well as share holders.

FINDINGS

The VRL has the good capacity of paying the current obligations and short term obligations

because the company has sound cash balance and bank balances.

The VRL has been using more debt and the debt ratio is increasing year by year because they are

using more debt to generate more earnings per share.

The company has been paying its interest on debt regularly and promptly to the sundry creditors

that is the reason they are getting debt from the lenders.

The company’s turnover is increasing year by year and holding period of the stock is also

decreasing it is good for the company, it shows that the management is effective.

The company is utilizing its total assets very effectively to achieve the objectives of the

organization.



The company does not have any problems regarding working capital because the company has

sound amount of cash balances and bank balances.

The operating expenses is fluctuating it is affecting the net profit margin.

SUGGESTION

The company should not finance in working capital requirement through long term borrowings.

Instead of having financed from banking source it is better to relating the quantum of capital

clause by increasing the authorized share capital and there by issuing the shares and the company

should also mobilized some of funds through accepting public deposits on the interest rates will

be law compare to the financial charges paid for bank.

From the analysis part as we found that operating expense is not constant over the years so the

company need to emphasis on this point.



CONCLUSION

The main intention of the study is project work has to understand the short term and long- term

liquidity of the firm. The other objectives of this report were to know the working capital

financing pattern and its impact on the profitability. Keeping these objectives in mind necessary

calculation have been made and presented in the charts. From the data analysis we can concluded

that company has sound financial represent the current requirement of the firm has deals with

current assets and current liabilities. The working capital requirement have progress by 3429.8%

between the years 2010-11 this indicates the company has better financial condition.

By using all these information we can conclude that the financial position of

VRL Logistic Ltd quite satisfactory.



BIBILOGRAPHY

1. Financial Management : By I.M. Pandey

2. Financial Management : By Khan and Jain

3. Financial Accounting :By R. Narayanaswamy

4. Annual Report of VRL from 2006-2007 To 2010-2011


vrl

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