A STUDY ON ANALYSIS OF WORKING CAPITAL

MANAGEMENT IN TEXAN STONE INDIA PVT LTD

Submitted in partial fulfillment of the requirement for the award of

Master of Business Administration

by

SHALINI.L

REG NO: 41410286

DEPARTMENT OF BUSINESS ADMINISTRATION

SCHOOL OF MANAGEMENT STUDIES
SATHYABAMA INSTITUTE OF SCIENCE AND TECHNOLOGY
(DEEMED TO BE UNIVERSITY)
Accredited with Grade “A” by NAAC | 12B Status by UGC | Approved by AICTE
JEPPIAAR NAGAR, RAJIV GANDHI SALAI,
CHENNAI - 600119

MAY - 2023
 SCHOOL OF MANAGEMENT STUDIES

BONAFIDE CERTIFICATE

This is to certify that this Project Report is the bonafide work of SHALINI L (41410286)
who carried out the project entitled “A study on Analysis of Working capital
Management in Texan stone India Pvt Ltd‖ under our supervision from January 2023
to April 2023.

Dr. BLESSIE PATHMU

B.COM, MBA, Ph.D.
(Internal Guide) (External Guide)

Dr. Bhuvaneswari M.B.A., Ph.D.,

Dean – School of Management Studies

Submitted for Viva voce Examination held on

Submitted for Viva voice Examination held on06.05.2023_____________________

Internal Examiner External Examiner

COMPLETION CERTIFICATE
 DECLARATION

I SHALINI L (41410286) hereby declare that the Project Report entitled ―A Study on
Analysis of Working capital Management in Texan Stone Pvt Ltd” done by me
under the guidance of DR. BLESSIE PATHMU is submitted in partial fulfillment of the
requirements for the award of Master of Business Administration degree.

DATE: 06.05.2023

PLACE:CHENNAI SHALINI L
 ACKNOWLEDGEMENT

I am pleased to acknowledge my sincere thanks to Board of Management of

SATHYABAMA for their kind encouragement in doing this project and for
completing it successfully. I am grateful to them.

I convey my sincere thanks to Dr. G. Bhuvaneswari, Dean - School of

Management Studies and Dr. A. Palani, Head - School of Management
Studies for providing me necessary support and details at the right time during the
progressive reviews.

I would like to express my sincere and deep sense of gratitude to my Project Guide
DR.BLESSIE PATHMU for her valuable guidance, suggestions and constant
encouragement paved way for the successful completion of my project work.

I wish to express my thanks to all Teaching and Non-teaching staff members of the
School of Management Studies who were helpful in many ways for the
completion of the project.

SHALINI L
 TABLE OF CONTENTS
CHAPTER
CHAPTERS PAGE NO
NO
ABSTRACT I
LIST OF TABLES II
LIST OF CHARTS III
I INTRODUCTION 1
1.1 Introduction 1
1.2 Industry Profile 3
1.3 Company Profile 5
1.4 Objectives Of The Study 6
1.5 Need For The Study 6
1.6 Scope Of The Study 7
1.7 Limitation Of the Study 7
II 2.1 REVIEW OF LITERATURE 8
2.1 Review Of Literature 8
III 3.1 RESEARCH METHODOLOGY 15
3.1 Research Design 15
3.2 Data Source 15
3.3 Tools Used For Analysis 16
IV 4.1 ANALYSIS AND INTERPRETATION 22
4.1 Ratio Analysis 22
4.2 Trend Analysis 44
V 5.1 FINDINGS, SUGGESTION, CONCLUSION 47
5.1 Findings 47
5.2 Suggestions 48
5.3 Conclusion 49
VI BIBLIOGRAPHY 50
VII REFERENCES 50
VIII ANNEXURE 52
 ABSTRACT

The review is on working capital administration in Texan Stone India Pvt

Ltd. The review outfits the administration of thought regarding the presentation
of working capital of the organization. The issues that come up while trying to
manage current assets, current liabilities, and their relationships are addressed
by working capital management. The assets that can be turned into cash in the
normal course of business within a year without losing value are considered
current assets. Cash on hand, cash in the bank, various debtors, bills receivable,
shares, pre-paid costs, etc. are examples of current assets. The term "current
liabilities" refers to debt obligations that must be settled in the normal course of
business within a year using the company's current assets or earnings. Every
business requires money for two things: to get started and to run its daily
operations. The management of the company's short-term assets and liabilities
is crucial for this goal. For every firm to function, working cash is absolutely
necessary. Before starting to sell the products, a decent manufacturing business
needs some basic money to produce the items. It must take care of the costs
associated with manufacturing, administration, and selling. This project intends
tostudy the working capital position of the Public enterprises. This study aids in
locating potential improvement areas. Further recommendations were given,
which the business may include into a future programme to improve the efficient
use of all resources.

The key components of the theory of working capital management are the
optimal level of current assets, the trade-off between profitability and risk that
depends on the ratio of current assets to current liabilities, and financing mix
methods.

I
 LIST OF TABLES
SL.NO PARTICULARS PAGE NO

1 Size of working capital 22

2 Working capital ratio 23

3 Cash to working capital 24

4 Current ratio 25

5 Quick ratio (or) liquid ratio 26

6 Absolute liquid ratio 27

7 Debtors turnover ratio 28

8 Average collection period 29

9 Inventory turnover ratio 30

10 Working capital turnover ratio 31

11 Fixed assets turnover ratio 32

12 Current assets turnover ratio 33

12 Gross profit ratio 34

13 Net profit ratio 35

14 Operating profit ratio 36

15 Return on equity 37

16 Return on asset 38

17 Debt equity ratio 39

18 Current liabilities to inventory ratio 40

19 Changes in working capital 2017 – 2018 41

20 Changes in working capital 2018 – 2019 42

21 Changes in working capital 2019 – 2020 43

22 Changes in working capital 2020 – 2021 44

23 Table showing trend analysis for the year 2017- 2021 45

II
 LIST OF CHARTS
SL.NO PARTICULARS PAGE NO

1 Size of working capital 22

2 Working capital ratio 23

3 Cash to working capital 24

4 Current ratio 25

5 Quick ratio (or) liquid ratio 26

6 Absolute liquid ratio 27

7 Debtors turnover ratio 28

8 Average collection period 29

9 Inventory turnover ratio 30

10 Working capital turnover ratio 31

11 Fixed assets turnover ratio 32

12 Current assets turnover ratio 33

12 Gross profit ratio 34

13 Net profit ratio 35

14 Operating profit ratio 36

15 Return on equity 37

16 Return on asset 38

17 Debt equity ratio 39

18 Current liabilities to inventory ratio 40

19 Trend on percentage of current asset 46

III
 CHAPTER - I
INTRODUCTION

Any company occasionally uses its short-term assets and short-term

financing sources to conduct its regular business. Working capital management
is the term used to describe the management of such assets and liabilities. A
fundamental component of the study of financial management is working capital
management. Given that both fields deal with the examination of risk and
profitability, it may also be likened to the process of making long-term decisions.

A company uses a portion of its permanent capital to purchase fixed assets and
keeps the remainder for working, or meeting daily needs. We will hardly find a
firm which does not require any amount of working capital for its normal
operations. The requirements of working capital vary from firm to firm depending
upon the nature of Business, Production Policy, Market conditions. Seasonality
of operations, conditions of supply etc. Working capital is simply theterm for the
portion of a company's capital that is needed to finance short-term or current
assets, such as cash marketable securities, debtors, and inventories.

Working capital types

Working capital, as mentioned above, can take different forms. For example, it
can take the form of cash and then change to inventories and/or receivables and
back to cash.

 Net Working Capital: The difference between current assets and current
liabilities is referred to as "net working capital." It refers to the difference between
current assets and current liabilities the net working capital is qualitative term
which demonstrates the liquidity position of a firm and the extent to which
working capital needs may be financed by permanent source of fund. The
difference between current assets and current liabilities is known as the "positive
net working." The networking capitals turn to be negative when current liabilities
are exceeding the current asset. The negative ‗working capital‗

1
position will adversely affect the operation of the firm and its profitability. Working
capital is also to of permanent and temporary working capital.

Gross Working Capital: The Gross working capital is the amount of funds
invested in various components of current assets. Current assets are assets that
can be easily and quickly converted into cash over a short period of time, such
as an accounting year. Current assets include Cash in hand and cash at bank,
Inventories, Bills receivables, Sundry debtors, short term loans and advances.

THE WORKING CAPITAL CYCLE

The working capital cycle refers to the minimum amount of time which is required
to convert net current assets and net current liabilities into cash. From a more
simplistic viewpoint, working capital cycle is the amount of time between the
payment for goods supplied and the final receipt of cash accumulated from the
sale of the same goods. There are mainly the following elements of which the
working capital cycle is comprised of:

Cash

The cash refers to the funds available for the purchase of goods. Maintaining a
healthy level of liquidity with some buffer is always a best practice. It is extremely
important to maintain a reserve fund which can be utilized when:

 There is a shortage of cash inflow for some reason. In the absence of

reserve cash, the day to day business will get hampered.

 Some new opportunity springs up. In such a case, the absence of

reserve cash will pose a hindrance.

 In case of any contingency, absence of a reserve fund can cripple the

company and poses a threat to the solvency of the firm.

2
Creditors and Debtors

 The creditors refer to the accounts payable. It refers to the amount that has to
be paid to suppliers for the purchase of goods and /or services.

 Debtors refer to the accounts receivables. It refers to the amount that is

collected for providing goods and/or services.

Inventory

Inventory refers to the stock in hand. Inventories are an integral component of

working capital and careful planning, and proper investment is necessary to
maintain the inventory in a healthy state of affairs. Management of inventory has
two aspects and involves a trade-off between cost and risk factors. Maintaining
a sizable inventory has its accompanying costs that include locking of funds,
increased maintenance and documentation cost and increased cost of storage.
Apart from these things, there is also a chance of damage to the stored goods.
On the other hand, maintaining a small inventory can disrupt the business
lifecycle and can have serious impacts on the delivery schedule. As a result, it
is extremely important to maintain the inventory at optimum levels which can be
arrived at after careful analysis and a bit of experimentation.

1.2 INDUSTRY PROFILE

Introduction

The expansion of the industry and the export of Indian chemicals are the goals
of numerous private sector groups. The Indian Pesticides Manufacturers and
Formulators Association, the Chemicals and Petrochemicals Manufacturers
Association, and the Indian Chemical Manufacturers Association are a few of
these.

3
Since the country’s independence in 1947, the chemical industry-one of the
India’s oldest domestic sectors—has significantly aided the country's industrial
and economic growth. Currently, the chemical industry produces close to 70,000
commercial products, falling into a variety of categories such as inorganic and
organic chemicals, drugs and pharmaceuticals, plastics and petrochemicals,
dyes and pigments, fine and specialty chemicals, pesticides, agrochemicals, and
fertilizers.

The Indian government aggressively encourages the growth of the local

chemical sector because of its strong emphasis on modernization. Since 1991,
the Department of Chemicals and Petro- chemical, which is a division of the
Ministry of Chemicals and Fertilizers, has coordinated the policy, planning,
development, and regulation of the industry.

The Indian economy heavily depends on the chemical industry. It is projected

to be worth approximately US$ 35 billion, which is comparable to 3% of India's
GDP. Over US$ 60 billion worth of investment has been made in India’s chemical
industry, and 1 million jobs have been created as a result. 13–14% of the nation's
total exports and 8–9% of its total imports are accounted for by the chemical
industry in India. It is the third largest in Asia and the twelfth largest in the world
in terms of volume.

India currently consumes around 1/10th the global average of chemical industry
products per person. The Indian chemical industry has developed over the past
ten years, going from being a producer of basic chemicals to a cutting-edge one.
Because of investments in R&D, the industry is experiencing significant
expansion in the knowledge sector, which includes medicines, fine chemicals,
and specialty chemicals.

4
1.3 COMPANY PROFILE

Texas Mineralsand Chemicals LLC (Texan Stone India Pvt Ltd),

A Houston-based business focuses on the global wholesale supply chain of importing

and exporting industrial goods. It is the fastest-growing garnet and staurolite distributor
in the country at Texas Minerals and Chemicals LLC because it imports more
abrasive minerals every year. Texan Stone India Pvt Ltd was established in 2006
with the aim of supplying wholesale businesses in the oil and gas and industrial
sectors with the best products, such as guar gum, friction reducers, xanthan gum,
polymers, shale chemicals, abrasive minerals, granite, citric acid etc.,

Processing:

The best materials are used at Texas Minerals & Chemicals from all around the
world, including China and Europe. Together with the depth and breadth of
network, professional personnel frequently connect with farming communities,
chemical companies, miners and processors, refineries, and other businesses.
Texan gets items directly from reputable producers that uphold high standards
for their products.

Quality:

The best components, including those from Asia and Europe, are used at Texas
Minerals & Chemicals. Together with the depth and breadth of our network, trained
workers also constantly connect with farming communities, chemical
manufacturers, miners and processors, refineries, and other businesses. The items are
sourced directly from reputable
Warehouse Handling:

All products are handled, packed, and kept in a suitable manufacturer that
adheres to high quality requirements. Facility at the appropriate temperature.
Because certain products are hygroscopic and will be impacted by humidity, this is
extremely important. So take great care to assure the best possible quality and
adequate security of priceless goods.

5
Load out to make sure the right lots are transported on schedule. In order to
send stone, Texas Stone can assist with finding a reliable trucking vendor.

PRODUCTS:
1. Staurolite
2. Garnet
3. Guar gum
4. Shale chemicals
5. Citric Acid

6. Calcium chloride
7. Logistics
8. Sillimanite
9. Friction Reducers
10. Ilmenite

1.4 OBJECTIVES OF THE STUDY

 To understand the management of working capital at Texan stone India Pvt ltd
 To investigate and forecast the movements of an element based on current and
historical data
 To know about the liquidity and solvency position of Texan stone India Pvt ltd
 To know about the profitability position of Texan stone India Pvt ltd

1.5 NEED OF THE STUDY

 The management of working capital at Texas Stone Pvt Ltd is the subject of
the research. The study provides a managerial understanding of the working
capital performance of the organization.

Monitoring current assets, current liabilities, and their interactions are part of
working capital management.

6
 A successful working capital policy guarantees a company's increased
profitability and enough liquidity.

 Every company needs money for two things: starting up and maintaining
everyday operations. For this to happen, it is essential that the company's short-
term assets and liabilities are managed.

1.6 SCOPE OF THE STUDY

 The study's primary objective is to evaluate past and current performance

 The main scope of the study was to put into practice the theoretical aspect of the
study into practical implementation.
 The study of working capital is based on tools like Ratio Analysis, Statement of
changes in working capital.

 Further, the study is based on the 5 years Annual Reports (2016-2021)

 To improve business using trend data in decision-making.

1.7 LIMITATIONS OF THE STUDY

 Due to the company's strategic and competitive position, it was unable to divulge
any sensitive information

 The estimations are based on assumptions about the current workplace.

 Due to their hectic schedules, had little engagement with the relevant heads.

7
 CHAPTER-2

REVIEW OF LITERATURE

Research work in working capital management gives us an outstanding

view about the exploration of the topic in different dimensions by different
authors. The authors has emphasized that working capital management has to
be effectively utilized for generating fund from sales. They have examined the
effectively of working capital management in different aspects.

Mo Saswata Chatterjee (2017) the importance of fixed and current assets in

the successful operation of any organization was highlighted. He has a direct
impact on profitability and liquidity. In the business world, it has been observed
that most companies increase their profit and loss margins because doing so
reduces the size of working capital relative to sales. However, if a company
wants to increase or improve its liquidity, it must increase its working capital. As
a result of this policy, the organization's sales will be reduced, and thus its
profitability will suffer as a result. For this purpose, 30 UK- based companies that
are listed on the London Stock Exchange were chosen. The data ranged from
2007 to 2015. He investigated the effect of working capital on profit. This study
includes quick ratios, current ratios, C.C.C, average days of payment, inventory
turnover, and A.C.P (average collection period) on the net operating profitability
of UK companies.

Huynh Phuong Dong, et al (2017) in this analysis, reported that working capital
management affects firm profitability and liquidity. Pooled data are chosen for
carrying out research for the period 2007- 2015 in order to assess the
companies listed on the Vietnamese stock exchange. He concentrated on the
variables such as profitability, conversion cycle, and its related elements, as
well as the relationship that exists between them. According to his findings,

8
The relationships between these variables are strongly negative. This indicates
that a decrease in profitability occurs as the cash conversion cycle lengthens. It
has also been discovered that reducing the number of days of accounts
receivable and inventories reduces profitability while increasing the number of
days of accounts receivable and inventories.

Jason Kasozi (2017) This investigated the impact of working capital

management on profitability in 69 South African listed manufacturing firms from
2007 to 2016. His research discovered that ACP and APP have a negative but
significant effect on profitability as measured by return on assets. Furthermore,
Kasozi (2017) discovered that the number of days in inventory, as a proxy for
working capital management, has a significant positive effect on profitability.

Shrivastava et al. (2017), studied the impact of working capital on profitability in

Indian corporate entities from 2003 to 2012. Data was analyzed using traditional
panel data and Bayesian techniques. According to their findings, a longer CCC
has a negative impact on profitability. They contend that financial accuracy
indicators are important in determining profitability. According to the Bayesian
approach, larger companies appear to be more profitable and significant.

Shivakumar et al. (2016), Working capital management its impact on liquidity

and profitability a study of coal India ltd is a paper that attempts to provide a
conceptual understanding of working capital management and assess its impact
on the liquidity and profitability of coal India ltd. The liquidity and profitability
trade has become an important aspect for all organizations, and an attempt has
also been made to test the liquidity and profitability position using correlation and
the spearman's rank method According to the correlation Spear man ranking
method, there is a low correlation and a negative relationship between liquidity
and profitability. The total test has also been used to evaluate liquidity
performance.

9
Nufazil Altaf and Farooq Ahmed Shah (2018), the aim of this paper is to
investigate the link between how does working capital management affect the
profitability of Indian enterprises. Working capital management (WCM) and
company profitability for 437 nonfinancial Indian enterprises were studied. The
study used a two- step generalized methods of moments (GMM) strategy to
arrive at conclusions based on secondary financial data acquired from a Capital
database during a ten-year period. The study's findings support the inverted U-
shape association between WCM and corporate profitability. Furthermore, it
completes its CCC in an average of 63 days.

Mukti R Barot (2016), in this study, the researcher attempted to conduct a

comparative analysis on working capital management of reymond and vardhman
textile limited. The goal of this study is to determine which company's
performance is superior to that of other companies. For this analysis, the
researcher used only secondary data from 2006 to 2015.

Apurba Kumar Sharma (2015), the efficiency of working capital management of

some select proprietary tea estates registered with the Tea Board of India and
operating in the Jordan district of assume from 2008-09 to 2012-13 was
investigated. instead of calculating common method of analyzing different
working capital management ratio three index value performance index,
utilization index and efficiency index have been to working capital requirement
of a firm where as operating cash flows and sales growth are positively related
to working capital to recruitment.

Hina Agha (2014), examined the profitability impact of working capital

management The main goal of the study is to empirically test the impact of
working capital management on profitability; with this goal in mind, he studied
the GlaxoSmithKline pharmaceutical company listed on the Karachi stock
exchange from 1996 to 2011. The interpretation of the results is that by
increasing the debtor's turnover, inventory turnover, and decreasing the

10
creditor's turnover ratios, the company can increase its profitability; however,
there is no significant effect of increasing or decreasing the current ratio on
profitability; thus, the research results indicate that the company can increase its
profitability through proper working capital management.

Adina Elena Danuletiu (2010), the goal of this study is to examine how well
industries, businesses, or countries in Alba manage their working capital. The
researcher also looked into the link between profitability and how well working
capital is managed. Working capital management and profitability havea bad
relationship, according to the study’s result.

Ashok Sharma and Kumar (2011), this article's primary goal is to investigate
how working capital affects the profitability of Indian businesses. The
researcher's findings demonstrate a major departure from the numerous global
marketplaces. The findings indicate a strong correlation between working capital
management and profitability in Indian enterprises. The inventory of the number
of days and the number of days accounts, according to research. Payment has
a negative correlation with company profitability, although the number of days
receivable and the cash conversion period have favorable correlations.

Islam Uddin khan (2011), the best liquidity management may be accomplished
by a corporation that handles the trade-off between profitability and liquidity
management. Liquidity management is of utmost significance in financial
management decisions. A descriptive statistic reveals that the liquidity and
solvency positions are quite good and that the liquidity management is generally
effective. Working Capital is always disregarded in financial decision- making
since it involves investments and money over a short period of time, according to
several regression tests that have been conducted.

Jaiswal Vikas Kumar and Pandey, shishir (2011), the research also attempts
to examine the relationship between NALCO's liquidity and profitability. It is

11
entirely secondary data-based, and the 1995– 2008 study period is covered. It is
crucial to manage working capital since it directly affects revenue and liquidity. In
this essay, an effort has been made to examine the elements of working capital
and the effect that working capital management has on profitability.

Akinwande (2010), the author of the paper talked about working capital
management and how it affects profitability, portfolio diversification, and liquidity.
The success or failure of a firm depends on the three factors described above.
Hence, efficient working capital management benefits small- scale businesses
by positively affecting these crucial factors and promotes the growth, success,
and expansion of the business. His study mainly focuses on the notion that a
firm has to manage its working capital effectively in order to thrive. Research has
examined several working capital management techniques and how well small
to medium-sized businesses apply them. If you pay too much attention to
working capital management, these will also not provide favorable results.

Mohamad Alipur (2011), the researcher's primary goal is to investigate the

connection between working capital management and profitability. One crucial
instrument for determining working capital Management efficiency is the cash
conversion cycle. There is a significant relationship between Working Capital
Management and the profitability of the firms throughout the study period of 2001–
2006.

Sari Vishan Milla Prittila and Timo karri (2011), and key component of short-
term finance and financial flows is working capital management. The effect of
working capital management on a company's relative profitability is also
demonstrated by earlier studies. The purpose of the current paper is to examine
how the management of working capital assets, such as inventories, accounts
receivables, and accounts payable, affects a company's profitability along the
value chain. The findings indicate a positive relationship between working capital
assets and firm profitability.

12
Sanjiv Mittal, Mohinder Kumar and Bhavet (2011) in earlier studies, it was
discovered that working capital and profitability had a strong and substantial link.
The most effective working capital management practices improved operational
effectiveness, profitability, and liquidity in small-scale industries. It shows that the
small businessman places a premium on working capital management.

Anusha Agrawal (2011), The Working Capital Management approach to

liquidity management has long been the dominant method to plan and regulate
liquidity. Planning and controlling current assets and current liabilities in such a
way as to eliminate the risk of not being able to meet due short-term obligations
on the one hand, and avoiding an excessive investment in these assets on the
other, is the foundation of effective liquidity profitability management. The things
listed on a company's balance sheet as short-term or current assets are all
included in the working capital, but current liabilities are not included in net
working capital. This study examines how the car industry's profitability,
liquidity, and Risk trade-offs.

Sayeda Talmina Quayyum (2011), this study aims to determine whether there
is any connection between manufacturing companies' profitability and working
capital management. The goal of this study is to determine whether there is
a statistically significant relationship between profitability and working capital
management. Additionally, the researcher explained how management actively
participates in maximizing their liquidity, profitability, and working capital
components. This essay also demonstrates how the degree of relevance of a
link varies from sector to industry.

Jayshri kadam (2011), Small-scale industries cover a wide range of activities,

such as manufacturing, banking, and the construction of infrastructure. The
economic growth of every nation is dependent on small- scale industries. In a
developing country like India, it is more significant. Its contribution to domestic

13
production, employment, and export is increasing. Raw material, financial,
marketing, capacity underutilization, and lack of working capital management
knowledge are other problems that Small Scale Companies face. Also, a lack of
funds has resulted in the dissolution of some minor firm divisions.

David Mathuva (2010), the influence of working capital management factors on

business profitability is the study's main topic. Second, there is a highly
substantial positive link between the time it takes for businesses to turn their
inventory into sales. These two relationships are highly significant in both
directions. Lastly, there is an extremely significant positive link between the
amount of profit and the length of time it takes to pay a creditor.

14
 CHAPTER-3

RESEARCH METHODOLOGY

The methodical process of obtaining and analyzing data in order to

better understand the topic that fascinates or worries us is known as "research."
It is the diligent pursuit of knowledge. It is a comprehensive investigation or
inquiry, especially one that seeks for fresh data in any area of study. The study
includes both descriptive and analytical components. It is analytical and
descriptive in terms of the theoretical idea since it assesses and analyses
supporting data to get the correct conclusion. Ratios and percentages are used
to interpret data.

3.1 RESEARCH DESIGN

The research design is the road map that will be used to carry out the
study's methodology. The master plan is the collection of decisions that specify
the methods and procedures for data collection, measurement, and analysis.
Research has made use of descriptive research. Descriptive studies are fact-
finding investigations with proper interpretation. It concentrates on particular
elements of the research. It is aimed to gather descriptive information and offer
details for developing more involved study.

3.2 DATA SOURCE

Types of data collection:

 Secondary Data Collection Technique

SECONDARY DATA

Secondary data came from published papers such the firm's annual
reports, balance sheets, profit and loss statements, booklets, and documents
like files and reports kept by the company. The annual report is divided mostly
into two parts:

15
1) Profit and Loss Account

2) The Balance Sheet Profit and loss account shows the company’s revenue
and expenses. The organization's financial situation is shown on the balance
sheet. These two assertions were created by highly trained specialists with
the use of knowledge or data that was readily available.

3.3 TOOLS USED FOR ANALYSIS:

 Working capital finance

 Liquidity Ratios

 Turnover Ratios

 Profitability Ratios

 Solvency Ratios

 Trend Analysis

1) LIQUIDITY RATIOS

The importance of having enough liquidity for a corporation to meet short-

term and current obligations as they become due cannot be overstated. In
actuality, a company's capacity to retain liquidity is essential to its existence.
The short-term liquidity or solvency of the company is a worry to its creditors.
The short-term liquidity or solvency of the company is a worry to its creditor.
Yet, liquidity means that the company's funds are either underutilized or earning
very little from their utilization.

16
CURRENT RATIO
The current ratio is the ratio of total current assets to total current
liabilities. By deducting current liabilities from current assets, one can calculate:

CURRENT ASSETS
CURRENT RATIO =
CURRENT LIABILITIES

The assets that can be quickly converted into cash in the normal course
of business—typically within a year—are referred to as current assets. These
assets include cash and bank balances, marketable securities, inventory of raw
materials, semi-finished goods, and finished goods, debtors net of provisions for
bad and doubtful debts, bills receivable, and prepaid expenses.

QUICK RATIO

The quick assets divided by the current liabilities yields the acid-test ratio,
which is the ratio of quick assets to current liabilities.

QUICK ASSETS
QUICK RATIO =
CURRENT LIABILITIES

Quick assets are current assets that can be quickly and easily converted
into cash without suffering a loss in value. Current assets fall into three
categories: debtors/receivables, short-term marketable securities, and cash in
the bank.

17
ABSOLUTE LIQUID RATIO:
The overdue liability ratio and cash position ratio are other names for the
absolute liquid ratio. With respect to absolute liquid assets, which include cash
on hand, cash in the bank, and marketable securities or short-term investments,
this ratio established the relationship between them and current absolute liquid
assets. The absolute liquid ratio indicates that there are sufficient funds in cash
to cover short-term obligations if the ratio is significantly higher than one.

2) TURNOVER RATIOS

A measurement of how frequently a corporation replaces its inventory

over a specific time period. Cost of goods sold divided by average inventory
throughout the time period is how turnover ratio is computed. A high turnover
rate indicates a business that produces and sells its products or services quickly

ABOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITIES

AVERAGE COLLECTION PERIOD:

The average collection period is added to the debtor’s turnover ratio in
order to determine the rate at which cash is earned by turnover of receivables.
The average collection period clearly specifies how many days on average a
credit sale is related to the buyer's debt. The ratio shows how well the debts have
been paid off in a timely manner. It provides the typical collection period, to put
it another way. Quick payment of book debts will free up those cash, which can
then be used for other purposes. The ratio may be calculate by

360 DAYS
AVERAGE COLLECTION PERIOD = DEBTOR’S TURNOVER RATIO

18
INVENTORY TURNOVER RATIO

This ratio shows how frequently inventory is changed over the course
of a year. It gauges the correlation between inventory levels and cost of goods
sold. You can calculate the ratio in

COST OF GOODS SOLD

INVENTORY TURNOVER RATIO =
AVERAGE INVENTORY

There are two possible types of the average inventory figure. First off, it
can be the average monthly inventory. If the accounting year is a calendar year,
the opening inventory for each month from January through January is added,
and the sum is divided by thirteen to get the monthly average. When a company's
accounting year, such as a financial year (April and March), differs from a
calendar year, the average

The opening inventory for each month from April through April can be
added, and the level of inventory can be calculated by dividing the result by
thirteen. As it evens out the swings in inventory level overtime, this method has
the benefit of being bias-free.

WORKING CAPITAL TURNOVER RATIO

This percentage should reflect how frequently working capital generates

revenue. In other words, this ratio shows how effectively or ineffectively short-
term money is used to make sales. The amount of current assets above current
liabilities is referred to as working capital. In actuality, the current liabilities are
what have the biggest impact in the short term. A careful managing of the short-
term assets and money will result in less capital being used, which will increase
turnover.. The formula used to measure is:

19
 WORKING CAPITAL TURNOVER RATIO = SALES
NET WORKING CAPITAL

FIXED ASSETS TURNOVER RATIO

It is important to gauge the level of performance in this area since the

company uses capital on fixed assets to outfit it with the appropriate production
facilities to produce goods and services that can be sold to customers to
generate income. The link between sales and fixed assets is expressed by this
ratio. The ratio is calculated using the following.

FIXED ASSETS TURNOVER = SALES

NET FIXED ASSETS

Fixed assets are often taken into account at their written-down value at the end
of the year when calculating the fixed assets turnover ratio.

3) SOLVENCY RATIO:

Solvency ratio gauges a company's financial stability and ability to meet

both short- and long-term obligations. D&B measures an organization's solvency
using six important financial business ratios.

A. DEBT TO EQUITY RATIO

A well-liked indicator of a company's long-term financial health is the link

between borrowed money and owner capital. The debt-to- equity ratios
illustrates the link. This ratio illustrates the proportionate claims of shareholders
and creditors against the firm's assets. There are numerous methods to depict
the relationship between owner capital and outsider claims, which leads to a
wide variety of debt- equity ratios.

20
 DEBT TO EQUITY RATIO = TOTAL DEBT

TOTAL EQUITY

B. CURRENT LIABILITIES TO INVENTORY RATIO:

This ratio illustrates, in percentage form, the dependence on available

inventory for loan repayment this ratio is calculated using the following formula

CURRENT LIABILITIES TO INVENTORY RATIO =

CURRENT LIABILITIES /INVENTORY

21
 CHAPTER-4

ANALYSIS AND INTERPRETATION

The ratio analysis is one of the best techniques for working capital
analysis. It entails the creation and analysis of various ratios. A simple
mathematical expression of the connection between two numbers is a ratio.

A. SIZE OF WORKING CAPITAL

4.1.1 TABLE SHOWING SIZE OF WORKING CAPITAL
Year Amount
2016 - 2017 1.40
2017 - 2018 1.30
2018 – 2019 1.36
2019 – 2020 1.24
2020 - 2021 1.12

(Source: Secondary data)

Sizeof Working
1.6
1.40 1.30
1.4 1.3
1.24
1.2 1.12
1
0.8

0.6
0.4

0.2
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021

4.1.1. CHART SHOWING SIZE OF WORKING CAPITAL

INTERPRETATION
From the above chart shows working capital of the company has considerably
increased (2016-2017) 1.40

22
A. WORKING CAPITAL RATIO

Working capital Ratio = Current assets – Current liabilities

4.1.2 TABLE SHOWING PERCENTAGE OF WORKINGCAPITAL

Percentage of working capital
Rs. Lakhs
Year Current Assets Current Liabilities Net working capital
2016 - 2017 155 110 1.40
2017 - 2018 141.10 108 1.30
2018 – 2019 131.02 96.15 1.36
2019 – 2020 109.70 87.78 1.24
2020 - 2021 102.21 90.85 1.12

(Source: Secondary data)

Size of Working
1. 1.40
6 1.3 1.24
1.4
1.12
1.2
1

0.6
0.4

0.2
2016- 2017- 2018- 2019- 2020-

4.1.1. CHART SHOWING SIZE OF WORKING CAPITAL

INTERPRETATION

From the above chart shows working capital of the company has considerably
decreased from (2016-2017) 1.408450704,and in 2020-2021 it is further decreased
to 1.12

23
PERCENTAGE OF CASH TO WORKING CAPITAL
It is an indicator of the current assets to current liabilities ratio also known
as working capital ratio. The short-term solvency of the company is gauged by
the current ratio.

4.1.2 TABLE SHOWING PERCENTAGE OF CASH TO WORKING CAPITAL

Percentage of working capital

Rs. Lakhs
Year Current Assets Current Liabilities Net working capital
2016 - 2017 19 1.40 13.57
2017 - 2018 18 1.37 13.13
2018 – 2019 1.12 1.40 0.8
2019 – 2020 8.2 1.25 6.56
2020 - 2021 7.24 1.15 6.29

(Source: Secondary data)

% of cash to working
14 13.5 13.1
12
10

6.5
6.29
6
4
0.8

0
2016- 2017- 2018- 2019- 2020-

4.1.2 CHART SHOWING PERCENTAGE OF CASH TO WORKING CAPITAL

INTERPRETATION

From the above chart it can be seen that the percentage of cash and bank
balance to working capital was 13.57% in the year 2016- 2017, in the year 2017-
2018 it is decreased to 13.1,later it is further decreased to 0.8% during 2018-
2019. Then it is settled around 6.29% this is because of more fluctuation in cash
and bank balance.

24
LIQUIDITY RATIOS
A. CURRENT RATIOS:

The ratio of all current assets to all current liabilities is known as the current
ratio. It demonstrates the company's capacity to meet its short-term obligations
with its short-term resources. This is how it is put into words.

Current ratio = Current assets / Current liabilities

4.1.3 TABLE SHOWING CURRENT RATIO

CURRENT RATIO
Rs. Lakhs
Year Current Assets Current Liabilities Current Assets
2016 - 2017 155 110 1.40
2017 - 2018 141.10 108 1.30
2018 – 2019 131.02 96.15 1.36
2019 – 2020 109.70 87.78 1.24
2020 - 2021 102.21 90.85 1.12

(Source: Secondary data)

Current Ratio
1.6 1.40 1.30 1.3
1.4 1.24
1.2
1
0.8
0.6
0.4
0.2
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021

4.1.3 CHART SHOWING CURRENT RATIO

INTERPRETATION

From the above chart showing Current Ratio is increasing third year over the
period of study, in (2016-2017) its current ratio was 1.40% and but from the
period of2020 and 2021 it started decreasing. But the company is over the
standard norms. It would affect the profitability of the company.

25
QUICK RATIO (OR) LIQUID RATIO
The link between liquid assets and liabilities is known as the quick ratio.
The reason why it is called the "quick ratio" is because it measures how quickly
a company can use its current assets to pay its current liabilities. It is said in the
following way:

Liquid Ratio = Liquid assets / liquid liabilities

4.1.3 TABLE SHOWING LIQUID RATIO
QUICK RATIO
Rs. Lakhs
Year Quick Assets Current Liabilities Quick Assets
2016 - 2017 79 110 1.40
2017 - 2018 77 108 1.30
2018 – 2019 63.10 96.15 1.36
2019 – 2020 75.58 87.78 1.24
2020 - 2021 67.36 90.85 1.12
(Source : Secondary data)

Quick Ratio
1
0.8

0.8 0.71 0.74

0.71 0.65
0.7
0.6

0.5
0.4
0.3

00.2.1 201 2017-2018 2018-2019 2019-2020 2020-2021

6-2017
4.1.4 CHART SHOWING LIQUID RATIO

INTERPRETATION:
As a quick ratio of 1:1 is considered satisfactory as a firm can easily meet all
current claims. It is a more rigorous and penetrating test of the liquidity position
of a firm. From the above chart, it is clear that the liquidity position of the
company is satisfactory.

26
ABSOLUTE LIQUID RATIO
The term "absolute liquid ratio" can also refer to the "cash position ratio"
or the "overdue liability ratio." The absolute liquid assets, which comprise cash
on hand, cash in the bank, and marketable securities or short- term
investments, were compared to the present absolute liquid assets using this
ratio.
ABSOLUTE LIQUID RATIO= ABSOLUTELIQUID
ASSETS /CURRENTLIABILITIES
4.1.4 TABLE SHOWING ABSOLUTE LIQUID RATIO
ABSOLUTE LIQUID RATIO
Rs. Lakhs
Year Absolute Assets Current Liabilities Absolute Liquid Assets
2016 - 2017 79 110 1.40
2017 - 2018 77 108 1.30
2018 – 2019 63.10 96.15 1.36
2019 – 2020 75.58 87.78 1.24
2020 - 2021 67.36 90.85 1.12

(Source: Secondary data)

AbsoluteLiquid
0.1
0.1
0.1 0.1
0.1
4
0.12
0.1

0.08

0.06
2016- 2017- 2018- 2019- 2020-

4.1.5 CHARTSHOWING ABSOLUTE LIQUID RATIO

INTERPRETATION

From the above chart shows standard ratio 0.5:1. So compared to this
absolute liquid ratio are exceptionally good till 2016- 2017.but later in 2018-
2019 it is decreased into 0.01%. Absolute liquid asset are considered adequate
to pay with current liabilities in time as all creditors are not expected to demand
cash at same time and then cash may realized from debtor sand inventories.

27
TURNOVER RATIOS
A. Debtors Turnover ratio

A business may sell products both on credit and in cash. One of the key
components of sales marketing is credit. Using a lenient credit policy will
improve sales volume. This ratio displays the amount of given trade credit as
well as the effectiveness of debt collection. It shows how frequently the typical
debtor is switched out on a yearly basis.
DEBTORS TURNOVER RATIO =TOTALSALES / DEBTORS

4.1.6 TABLE SHOWING DEBTORS TURN OVERRATIO

DEBTORSTURNOVER RATIO
Rs. Lakhs
Year Total sales Debtors Debtors Turnover Ratio
2016 - 2017 590 50 11.8
2017 - 2018 515 49.1 10.48
2018 – 2019 460.19 61.98 7.42
2019 – 2020 369.71 67.3 5.49
2020 - 2021 334.69 60.12 5.56
(Source: Secondary data)

Debtors Turnover Ratio

14
11.8 10.48
12
10
8 7.42
5.49 5.56
6
4
2

2016-2017 2017-2018 2018-2019 2019-2020 2020-2021

DebtorsTurnoverRatio

4.1.6 CHART SHOWING DEBTOR TURNOVER RATIO

INTERPRETATION
From the above chart shows in the year 2016-2017 the ratio is 11.8%. Also
the ratio was increasing gradually debtor turnover ratio is higher in the end of
the study period. And it is higher than Standard ‗6‗ it reflects the efficient debt
management.

28
AVERAGE COLLECTION PERIOD
Significance
The average collection period reflects the caliber of debtors by
evaluating how fast or slowly the debt collection procedure proceeds. The
better the debtors are, the shorter the average collection period is since it
indicates prompt payment from the debtors. The ability of a company to meet
its short-term obligations out of its present liabilities is negatively impacted by
prolonged collection duration, which is similar to an inadequate collection
performance. Also, the average collection period's duration is inversely
correlated with the frequency of bad debts.
AVERAGE COLLECTION PERIOD = 360DAYS / DEBTORSTURNOVER
RATIO
4.1.7 TABLE SHOWING AVERAGE COLLECTION PERIOD
AVERAGECOLLECTION PERIOD
Rs. Lakhs
Year Days in a year Debtors Turnover Ratio Average Collection Period
2016 - 2017 590 50 11.8
2017 - 2018 515 49.1 10.48
2018 – 2019 460.19 61.98 7.42
2019 – 2020 369.71 67.3 5.49
2020 - 2021 334.69 60.12 5.56
(Source: secondary data)

Average Collection
Period 64.7
60
50 48.51
40 34.3
30.
30

20

2016- 2017- 2018- 2019- 2020-

4.1.7 CHART SHOWING AVERAGE COLLECTION PERIOD

INTERPRETATION
From the above chart shows that above ratio is decreasing continuously and
reached to 64.74. It implies the different debt management.

29
INVENTORY TURNOVER RATIO:
By comparing the stock to the turnover, this ratio determines the frequency
of stock turnover in a firm. It displays how well the business sells its products.
It is calculated by subtracting the cost of goods sold from the average
inventory.

INVENTORY TURNOVER RATIO = NET SALES / AVERAGE

INVENTORY
4.1.8 TABLE SHOWING INVENTORY TURNOVER RATIO
INVENTORY TURNOVER RATIO
Rs. Lakhs
Year Net Sales Average Inventory Inventory Turnover Ratio
2016 - 2017 590 76 7.76
2017 - 2018 515 64.1 8.03
2018 – 2019 460.19 67.92 6.77
2019 – 2020 369.71 34.12 10.83
2020 - 2021 334.69 34.85 9.60
(Source: Secondary data)

InventoryTurnover
14
12 10 9.60
.83
7.76 8.03 6.77
10

8
6

2016- 2017- 2018- 2019- 2020-

4.1.8 CHARTSHOWING INVENTORY TURNOVER RATIO

INTERPRETATION

From the above chart shows a higher turnover ratio brisk sale. The above
chart shows that are an inventory trend in the ratio. In the year 2019-2020,
inventory ratio Is high 10.83 when compared to other years. In the year
2020 – 2021 Inventory turnover ratio is 9.60.

30
WORKING CAPITAL TURNOVER RATIO
This ratio displays the frequency with which working capital contributes to
sales. In other words, this ratio shows how effectively or ineffectively short- term
money is used to make sales. The difference between current assets and
current liabilities is known as working capital. In actuality, current assets and
current liabilities play a significant influence in the short run.
WORKING CAPITAL TURNOVER RATIO = SALES / NETWORKING
CAPITAL
4.1.9 TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
WORKING CAPITAL TURNOVER RATIO
Rs. Lakhs
Year Net Sales Net Working Capital Working Capital Turnover Ratio
2016 - 2017 590 45 13.11111111
2017 - 2018 515 33.1 15.55
2018 – 2019 460.19 34.87 13.19
2019 – 2020 369.71 21.92 16.86
2020 - 2021 334.69 11.36 29.46
(Source: Secondary data)

30
29.4
25

15 13.11111111
13.1

10

2016- 2017- 2018- 2019- 2020-

Working CapitalTurnover
4.1.9 CHART SHOWING WORKING CAPITAL TURNOVER RATIO

INTERPRETATION
From the above chart shows working capital turnover ratio has considerably
increased from 2016-2017. But from the period of 2017- 2018 start decreasing.
The higher ratio indicates efficient utilization of the working capital. In the year
of 2020-2021 the ratio was 31.231, so the utilization of working capital is
Satisfactory than the years. And in the year of 2018-2019 the ratio is 13.773
and there is more working capital seen in the year.

31
FIXED ASSETS TURNOVER RATIO:
The fixed assets turnover ratio gauges how effectively the company has
been generating sales by employing its fixed assets. It is determined by dividing
the company's sales by its net fixed assets in the manner shown below:
FIXED ASSETS TURNOVER = SALES / NET FIXEDASSETS

4.1.9 TABLE SHOWING FIXED ASSETS TURNOVER RATIO

FIXED ASSET TURNOVER RATIO
Rs. Lakhs
Year Net Sales Net Fixed Capital Fixed Asset Turnover Ratio
2016 - 2017 590 48 12.29
2017 - 2018 515 50 10.33
2018 – 2019 460.19 39.96 11.51
2019 – 2020 369.71 45.89 8.05
2020 - 2021 334.69 48.48 6.90

(Source: Secondary data)

Fixed Asset Turnover

14 12.
12 11.5

10 8.0

8
6

2016- 2017- 2018- 2019- 2020-

4.1.10 CHART SHOWING FIXED ASSET TURNOVER RATIO

INTERPRETATION:

From the above chart shows fixed asset turnover ratio has considerably
increased from2016-2017. But from the period of 2019- 2020 start decreasing.
Thus the fixed assets turnover ratio for the Five years is satisfactory as such
There is 2020 and 2021underutilization of the fixed assets

32
CURRENT ASSET TURNOVER RATIO:

A greater asset turnover ratio demonstrates an organization's capacity

to maximize sales while requiring the least amount of current asset investment.
It shows that existing assets changed hands more frequently in the form of
sales. Better conditions will result from a higher current asset turnover ratio.
4.1.10 TABLE SHOWING CURRENT ASSET TURNOVER RATIO
CURRENT ASSET TURNOVER RATIO
Rs. Lakhs
Year Net Sales Current Asset Current Asset Turnover Ratio
2016 - 2017 590 155 3.8
2017 - 2018 515 141.10 3.6
2018 – 2019 460.19 131.02 3.5
2019 – 2020 369.71 109.70 3.3
2020 - 2021 334.69 102.21 3.2

(Source: Secondary data)

Current AssetTurnover
3
2
5

1 3. 0 3.6 3.5 3.2

3.3
1
0

5
2016- 2017- 2018- 2019- 2020-

4.1.12 CHART SHOWING CURRENT ASSET TURNOVER RATIO

INTERPRETATION

From the above chart shows working capital turnover ratio has considerably
increased from 2016-2017. But from the period of 2017- 2018 start
Decreasing. In the year of 2020- 2021 the ratio was 3.2. Higher current
asset in turnover ratio better will be the situation. The company should
maintain and proper utilization of the current assets.

33
 PROFITABILITY RATIOS

A. GROSS PROFIT MARGIN

In most cases, the gross profit must increase proportionately with sales.
Although there are frequently valid reasons for any discrepancies, it might be
instructive to compare the gross profit margins of comparable businesses.

GROSS PROFIT RATIO = GROSS PROFIT/NET SALES * 100

4.1.12 TABLE SHOWING GROSS PROFIT RATIO
GROSS PROFIT RATIO
Rs. Lakhs
Year Gross Profit Total Sales Gross Profit Ratio
2016 - 2017 31 590 5.25
2017 - 2018 23.04 515 4.47
2018 – 2019 15.89 460.19 3.45
2019 – 2020 23.35 369.71 6.31
2020 - 2021 33.96 334.69 10.14

(Source: Secondary data)

12 GROSS PROFIT
10.1
10

8
6 5.25 6.3
4.47
4 3.4
2

0
2016- 2018- 2019- 2020-

4.1.13 CHART SHOWING GROSS PROFIT RATIO

INTERPRETATION

From the above chart shows the gross profit ratio of the firm. However the
company is being able to maintain a gross profit of 5% and above. It also
increases over the years. But first three years lightly decreased in the year of
2017, 2018, 2019. This indicates that the management is talking measures to
reducing cost of production and improves the profit.

34
NET PROFIT MARGIN
This performance metric is often used and comparable across
businesses in related industries. There are several industries that operate on
a premise of large turnover and low margins, such as supermarkets and auto
dealers, thus the fact that a business operates on a relatively low margin need
not be concerning. In every trend, the margin and how it stacks up against
other enterprises are more crucial.

NET PROFIT MARGIN = EARNINGS AFTER INTEREST AND TAXES/

NET SALES * 100

4.1.13 TABLE SHOWING NET PROFIT RATIO
NET PROFIT RATIO
Rs. Lakhs
Year Net Profit Net Sales Net Profit Ratio
2016 - 2017 16 590 2.71
2017 - 2018 8.53 515 1.65
2018 – 2019 7.7 460.19 1.67
2019 – 2020 10.9 369.71 2.9
2020 - 2021 7.2 334.69 2.12

(Source: Secondary data)

Net Profit
3
2.71 2.9
2
2.12
1.5 1.65 1.6
1

2016- 2017- 2018- 2019- 2020-

4.1.14 CHART SHOWING NET PROFIT RATIO

INTERPRETATION
From the above chart shows that there is a consistent growth in net profit ratio
from the year 2016-2017 the ratio is 2.71 and 2019-2020theratios is 2.9. But
in the year 2018- 2019net profit has fallen 1.6 this is mainly because of the
increase in the production which has brought down the net profit.

35
OPERATING PROFIT MARGIN

Earnings before interest and taxes, or EBIT, or operational income for

a business are contrasted with sales to determine the operating profit margin
(operating margin). It shows how effective management has been at making
money from running the company. The calculation is as follows:

OPERATING PROFIT MARGIN = [SALES – COST OF GOODS SOLD –

SELLING, GENERAL & ADMINISTRATIVE (SG&A) COSTS] ÷ SALES
4.1.15 TABLE SHOWING OPERATING PROFIT RATIO

OPERATING PROFIT RATIO

Rs. Lakhs
Year Operating Profit Net Sales Operating Profit Ratio
2016 - 2017 18 590 3.05
2017 - 2018 10.02 515 1.94
2018 – 2019 4.09 460.19 0.88
2019 – 2020 7.86 369.71 2.12
2020 - 2021 16.82 334.69 5.02

(Source: Secondary data)

Operating Profit
4.5 5.0
4

3.5 3.0
2.5

1.9 2.1
1.5
1 0.8
0
2016- 2017- 2018- 2019- 2020-

4.1.15 CHART SHOWING OPERATING PROFIT RATIO

INTERPRETATION
From the above chart shows that there is an operating profit trend in the ratio.
In the year 2020-2021, the gross profit ratio is high 5.02; this indicates that the
company has reduced its expenses or its sales.

36
RETURN ON EQUITY (ROE)

This ratio displays the profit that can be attributed to the capital the
company's owners invested. It also demonstrates to potential investors in the
company what kind of return they could anticipate. Share capital, share
premium, distributable and non- distributable reserves are all part of the
stockholders' equity. Here is how the ratio is calculated:
RETURN ON EQUITY =NET INCOME/ SHAREHOLDER’S EQUITY
4.1.15 TABLE SHOWING RETURN ON EQUITY
RETURN ON EQUITY
Rs. Lakhs
Year Net profit after Equity Return on
interest and tax Capital Equity
2016 - 2017 18 590 3.05
2017 - 2018 10.02 515 1.94
2018 – 2019 4.09 460.19 0.88
2019 – 2020 7.86 369.71 2.12
2020 - 2021 16.82 334.69 5.02

(Source: Secondary data)

2 21.0
1
8 17.96
1
1 12.0
0 11.
9.9

8
2
2016- 2017- 2018- 2019- 2020-

4.1.16 CHARTSHOWING RETURN ON EQUITY RATIO

INTERPRETATION
From the above chart shows Return on equity ratio shows an increasing trend
except in the year 2016-2017. Therefore the return on equity ratio for the five
years reveals a satisfactory condition of the business.

37
RETURN ON TOTAL ASSETS

This ratio is also known as the profit-to-assets ratio. This ratio

establishes the relationship between net profits and assets. As these two
terms have conceptual differences, the ratio may be calculated taking the
meaning of the terms according to the purpose and intent of analysis. Usually,
the following formula is used to determine the return on total assets ratio.

RETURN ON TOTAL ASSETS =PROFIT AFTER TAXES ANDINTEREST /

NET TOTAL ASSETS*100
4.16 TABLE SHOWING RETURN ON TOTAL ASSETS RATIO
RETURN ON TOTAL ASSETS
Rs. Lakhs
Year Net Profit after Total Return on
Interest and Tax Assets TotalAssets
2016 - 2017 16 201.90 7.02
2017 - 2018 8.53 190.20 4.48
2018 – 2019 7.7 177.93 4.32
2019 – 2020 10.9 152.39 7.15
2020 - 2021 7.2 151.6 4.74

(Source: Secondary data)

Returnon Asset
8
7.9
7.9
7 7.15
6
5 4.74
4.48 4.32
3
2
1
0
2016- 2017- 2018- 2019- 2020-
4.1.16 CHART SHOWING RETURN ON EQUITY RATIO

INTERPRETATION
From the above charts interprets that the return on total assets was
fluctuating in the years (2017 to 2018) and (2020 to 2021), in 2016-2017 it
was 7.9 and in 2019- 2020 it was 7.15.This due to more fluctuation in net
profit.

38
SOLVENCY RATIOS
A. Debt to Equity ratio
This ratio shows how much of the debt is paid down with funds
from shareholders. It displays the relative positions of equity owners and
lenders and reveals the company's policy regarding the distribution of capital
funds.

DEBT TO EQUITY RATIO = TOTAL DEBT/ TOTAL EQUITY

4.1.17 TABLE SHOWING DEBT EQUITY RATIO

DEBT EQUITY RATIO

Rs. Lakhs
Year Total Debt Total Equity Debt Equity ratio

2016 - 2017 16 201.90 7.02

2017 - 2018 8.53 190.20 4.48
2018 – 2019 7.7 177.93 4.32
2019 – 2020 10.9 152.39 7.15
2020 - 2021 7.2 151.6 4.74
(Source: Secondary data)

Debt equity
2 1.7
1. 1.6
1.4 1.4
8
1.1
1.
6
0.
6
0.

2016- 2017- 2018- 2019- 2020-

4.1.18 CHART SHOWING DEBT EQUITY RATIO

INTERPRETATION

From the above chart shows debt equity ratio was relatively satisfactory in
the year 2016-2017 and 2017-2018.compared to standard ratio 1:1 during
2018-2019 is satisfactory. It shows firms are solvent.

39
CURRENTLIABILITIES TO INVENTORY RATIO:
This ratio illustrates, in percentage form, the dependence on available
inventory for loan repayment (how much a company relies on funds from
disposal of unsold inventories to meet its current debt.)
This ratio is calculated using the following formula
CURRENT LIABILITIES TO INVENTORY RATIO = CURRENT
LIABILITIES /INVENTORY
4.1.18 TABLE SHOWING CURRENT LIABILITIES TO INVENTORY
RATIO
CURRENT LIABILITIES TOINVENTORY RATIO
Rs. Lakhs
Year Current Liabilities Inventory Current Liabilities to
Inventory ratio
2016 - 2017 110 76 1.44
2017 - 2018 108 64.1 1.68
2018 – 2019 96.15 67.92 1.41
2019 – 2020 87.78 34.12 2.57
2020 - 2021 90.85 34.85 2.60
(Source: Secondary data)

3 2.57
2.5 2.60

2
1.44 1.68
1.41
1.5
1
0.5

2016-2017 2017-2018 2018-2019 2019-2020 2020-2021

4.1.19 CHART SHOWING CURRENT LIABILITIES TO INVENTORY

RATIO

INTERPRETATION
From the above chart shows the current liability turnover ratio, it is observed
from the table that a highest ratio of 2.60 percent was recorded during the
2020-2021.

40
TABLE: 4.1.20. STATEMENT SHOWING CHANGES IN WORKING
CAPITAL 2017–2018

RS.LAKHS

PARTICULARS 31st MARCH 31st MARCH INCREASE DECREASE

2017 2018
CURRENT ASSETS

INVENTORIES 64.1 76 11.9

SUNDRY 49.1 50 0.9 0

DEBTORS
CASH AND 18 19 1
BANK
BALANCES
OTHER 10 10 0 0
CURRENT
ASSETS
TOTAL 141.10 155 12.8
CURRENT
ASSETS
CURRENT LIABILITY

SHORT TERM 94 95 1
BORROWINGS
FROM BANK
SUNDRY 14 15 1
CREDITORS
TOTAL 108 110 12.8 2
CURRENT
LIABILITY
12.8 2

INCREASING 10.8
IN WORKING
CAPITAL

41
TABLE: 4.1.21. STATEMENT SHOWING CHANGES IN WORKING
CAPITAL 2018–2019
RS.LAKHS

PARTICULARS 31st MARCH 31st MARCH INCREASE DECREASE

2018 2019
CURRENT ASSETS

INVENTORIES 67.92 64.1 3.82

SUNDRY 61.98 49.1 12.88

DEBTORS
CASH AND 1.12 18 16.88
BANK
BALANCES
OTHER 0 10 10
CURRENT
ASSETS
TOTAL 131.02 141.10 10.08
CURRENT
ASSETS
CURRENT LIABILITY

SHORT TERM 82.55 94 10.45

BORROWINGS
FROM BANK
SUNDRY 12.6 14 1.4
CREDITORS
TOTAL 96.15 108 11.85
CURRENT
LIABILITY
10.08 11.85

DECREASING -1.77
IN WORKING
CAPITAL

42
TABLE: 4.1.22. STATEMENT SHOWING CHANGES IN WORKING
CAPITAL 2019–2020
RS.LAKHS

PARTICULARS 31st MARCH 31st MARCH INCREASE DECREASE

2019 2020
CURRENT ASSETS

INVENTORIES 34.12 67.92 33.8

SUNDRY 67.38 61.98 5.4

DEBTORS
CASH AND 8.2 1.12 7.08
BANK
BALANCES
TOTAL 109.70 131.02 21.32
CURRENT
ASSETS
CURRENT LIABILITY

SHORT TERM 82.08 83.56 1.48

BORROWINGS
FROM BANK
SUNDRY 5.7 12.6 6.9
CREDITORS
TOTAL 87.78 96.16 8.38
CURRENT
LIABILITY
21.32 8.38

INCREASING 12.94
IN WORKING
CAPITAL

43
TABLE: 4.1.23. STATEMENT SHOWING CHANGES IN WORKING
CAPITAL 2020 –2021
RS.LAKHS

PARTICULARS 31st MARCH 31st MARCH INCREASE DECREASE

2020 2021
CURRENT ASSETS

INVENTORIES 34.85 34.12 0.73

SUNDRY 60.12 67.38 7.26

DEBTORS
CASH AND 7.24 8.2 0.96
BANK
BALANCES
TOTAL 102.21 109.70 7.49
CURRENT
ASSETS
CURRENT LIABILITY

SHORT TERM 84.89 82.08 2.81

BORROWINGS
FROM BANK
SUNDRY 5.96 5.7 0.26
CREDITORS
TOTAL 90.85 87.78 3.07
CURRENT
LIABILITY
10.56

INCREASING 10.56
IN WORKING
CAPITAL

4.2 TREND ANALYSIS

The goal of trend analysis is to foresee a trend, such as a bull market run,
and ride it until data point to a trend reversal, such as a bull-to- bear market.
Trend analysis is useful because an investor will make money if they follow
trends rather than bucking them. Its foundation is the belief that by looking
at the past, traders can predict what will happen in the future.
CURRENT YEAR X 100
TREND ANALYSIS = BASE YEAR

44
TABLE: 4.2.1 TABLE SHOWING TREND ANALYSIS FOR THE
YEAR2017-2022
Liabilities 2017 2018 2019 2020 2021

Short term borrowings 100 98.94 87.95 86.4 89.35

Sundry Creditors 100 93.33 84 38 39.7

Total Current Liabilities 100 98.18 87.4 79.8 82.59

Total Term Liabilities 100 51.28 26.26 24.64 5.19

Total Outside Liabilities 100 92.22 79.64 72.79 72.76
Net worth 100 97.36 102.07 79.82 78.86

Total 100 94.16 88.08 75.44 75.06

Assets 2017 2018 2019 2020 2021

Cash deposits bank balances 100 94.73 5.89 43.15 38.1

Sundry Debtors 100 98.2 123.9 134.76 120.2
4
Inventory 100 84.32 89.36 44.89 45.85
Other current assets 100 0 0 0 0
Total Current asset 100 91.09 84.52 70.77 65.94

Fixed Asset

Gross Block (Land &

Building, Machinery, Work 100 104.9 100 93.5 106.9
in process)

Net Block 100 109.81 101.49 114.3 120.4

6

Other Non-current Assets 100 104.27 99.82 90.84 105.1

7

Total Assets 100 94.16 88.08 75.44 75.06

45
4.2.2: TABLE SHOWING TREND PERCENTAGE OF CURRENT ASSET

CURRENT ASSET
Year TREND %

2017 155 100.00

2018 141.2 91.09
2019 131.02 84.52
2020 109.7 70.77
2021 102.21 65.94

TREND %
120
100
91.09
80 84.52
60 70.77 65.94
40

20
2017 2018 2019 2020 2021
TREND % Linear (TREND %)

4.2.1 CHART SHOWING TREND ON PERCENTAGE OF CURRENT ASSET

INTERPRETATION

From the above trend analysis showing, it is inferred as base year 2017.
Current asset has been decreased during the year 2021, 2020 and 2019.
The current year 2021 trend percentage for current asset is 65.94.

46
 CHAPTER 5

FINDINGS AND SUGGESTIONS

5.1 FINDINGS:
The study conducted at Texan stone pvt Ltd, the following were
made.

 The current ratio of Texan stone pvt Ltd is showing increasing third year
over the period of study, in (2018-2019) its current ratio was
1.40 % and but from the period of 2020 and 2021 it started decreasing.
But the company is over the standard norms. It would affect the
profitability of the company.
 The current quick ratio position of Texan stone pvt Ltd favorable in
the year 2016-2021quick ratio is above 1:1.
 Absolute liquid asset are considered adequate to pay with current
liabilities in time as all creditors are not expected to demand cash at same
time and then cash may realized from debtors and inventories.
 The debt equity ratio is increased to 1.70 in 2017-2018, so the companyis
having long term solvency position.
 The working capital turnover ratio increased continuously from 2016-
2021. Hence the company‗s utilization of working capital is more.
 In the year 2016-2017 the valve of inventory turnover ratio is higher. But
in the 2018-2019 the value has decreased. Then in 2019-2020 it
increased 10.83.
 Debtor turnover ratio is continuously decreased from 2016-2017 to 2019-
2020. In the year 2020-2021 it has increased to higher value of
5.56 this indicates cash sales is more in the period 2020-2021 compared
to previous year.
 The net profit ratio of 2.71 in the year 2016-2017 and then decreasedto
1.65 in 2017-2018 and further increased to 1.67 in 2018-2019, again
increased to 2.9 in 2019-2020 we can see that every year net profit ratio
of the company is goes increasing

47
 The current liability turnover ratio is increased to 1.52 in 2017-2018. But In
2018- 2019 it has decreased to 1.36, and again increased in 2019 – 2020
it has higher value of 2.68, and again decreasing in 2020 – 2021.

 The fixed asset turnover ratio has considerably increased from 2016-
2017. But from the period of 2019-2020 start decreasing. The higher ratio
indicates efficient utilization of the fixed asset. The fixed assets turnover
ratio for the Five years are satisfactory as such there is 2020 and 2021
underutilization of the fixed assets.
 The return on total asset ratio was fluctuating in the years 2017-2018 and
2020-2021, in 2016-2017 it was 7.9 and in 2019-2020it was 7.15. This
due to more fluctuation in net profit.
 Making better business and decision by using trend analysis to analyzed
and forecast movements.

5.2 SUGGESTIONS

 The management can take effective measures to recover the outstanding

of Texan stone pvt Ltd as the major portion of currents is in the form of
debtors.
 The management can take effective measures to reducing operating
expenses to increasing the net profit and gross profit.
 Texan stone pvt Ltd higher working capital turnover ratio in the year2020-
2021and it has over stock and low liquidity position. So the company
reduces the inventory or overstocking.
 The inventory turnover ratio is above 4 times so the company increase
the sales and reduce the over stock of materials.
 The company can increase their absolute liquid assets in order to
maintain the standard.
 The company can decrease their credit sales as much as possible.

48
5.3 CONCLUSION

In order to maintain a company's financial stability throughout typical

business operations, working capital management is crucial. To maximize
the return on investment in fixed assets, the company should maintain a
level of working capital that is sufficient to produce up to a specified capacity.
Research carried out by Texas Stone Pvt Ltd allowed for a practical
perspective on the subject of the company's working capital management.
Low working capital availability results in decreased capacity utilization
A sufficient amount of money must be on hand to cover the costs
of material, labor, selling, administrative, and other business- related
expenses in order to keep the company solvent and keep on producing
goods. An ongoing supply of raw materials and established credit for the
future or for normal operations are ensured by quick payment of bills to
material suppliers.

49
 BIBILOGRAPHY

 Pandey, I M (2010) Financial Management. Noida, Vikas Publishing house

Pvt Ltd, 10thEdition.
 Tata Mc-Graw Hill Publications,
 39. Adesh Sharma, ―Investment and Financing in Pesticides Industry in
India‖,Indian Journal of Finance and Research, Vol. No.2, July 1994, pp.67-
83.

REFERENCES

 Nufazil Altaf And Farooq Ahmed Shah , "How does working capital
management affect the profitability of Indian companies?‖,2018 How
doesworking capital management affect the profitability of Indian
companies? | Request PDF (researchgate.net)

 Shivakumar, et al,‖ Working capital management - it's impact on liquidity and

profitability - a study of coal india ltd‖,2016 WORKING

CAPITAL MANAGEMENT - IT'S IMPACT ON LIQUIDITY AND

PROFITABILITY - A STUDY OF COAL INDIA LTD | Zenodo

 Shrivastava, et al,‖ Bayesian analysis of working capital management on

corporate profitability: evidence from India‖,2017 (PDF) Bayesian analysis of
working capital management on corporate profitability: evidence from India
(researchgate.net)
 Mukti R Barot,‖ A comparative study of working capital management of
Raymond and vardhman textiles‖,2016 Issue-16_MuktiBarot.pdf

(kcgjournal.org)

 Jason Kasozi,‖ The effect of working capital management on profitability:

Acase of listed manufacturing firms in South Africa‖,2017 (PDF) The effect of
working capital management on profitability: A case of listed manufacturing
firms in South Africa (researchgate.net)

 Apurba Kumar Sharma,‖ Working Capital Management Efficiency: A study

on some selected Proprietary Tea Estates in Jorhat District of
50
 Assam‖,2015https://www.internationalconference.in/XVI_AIC/TS
5a_pdf/7Apurba%20Kumar%20Sharma.pdf

 Hina Agha,‖ Impact of working capital management on profitability‖,2014

https://core.ac.uk/download/pdf/236407984.pdf
 Islam Uddin Khan, ― Liquidity management efficiency of Indian Steel
Companies‖,2011https://www.researchgate.net/publication/21586
9210_Liquidity_management_efficiency_of_Indian_Steel_Compa
nies_a_Case_Study
 Ashok Sharma and Kumar, ―How does working capital management affect
the profitability of Indian companies ?‖
2011https://www.researchgate.net/publication/254093175_Effect
_of_Working_Capital_Management_on_Firm_ProfitabilityEmpiric
al_Evidence_from_India

 Adina Elena Danuletiu,‖ The effect of working capital management on

profitability: Acase of listed manufacturing firms in South Africa‖,2010
https://www.researchgate.net/publication/227367768_Working_C
apital_Management_And_Profitability_A_Case_Of_Alba_County
_Companies

51
 ANNEXURE-1
CONSOLIDATED BALANCE SHEET
2017 2018 2019 2020 2021
LIABILITIES
Audited Audited Audite Audite Audite
CURRENT I. II. III. IV. V.
LIABILITIES
1 Short-term
barrowings from
Banks (including bills
purchased,
Discounted &
barrowing
Placed on repayment 95,00,000 94,00,000 83,56,00 82,08,00 84,89,00
basis) 0 0 0
2 (1) From applicant
banks
3 (2) From other banks
4 (3)Of which BP & BD
5 SUB
6 TOTAL
7 Short term borrowing 15,00,000 14,00,000
from others 12,60,00 57,00,00 59,60,00
8 Sundry creditors 0

52
9 (Trade)
Advance payments
from
customers/deposite
from dealers
Provision for taxes
Dividend payable
Other statutory
liabilities(due within
one year)
Deposits/installments
o term loans
/DPGs/debentures,et
c. (due within one
year)
Other current
liabilities &
provisions (due
within one yr)
(specify major
items)
SUB TOTAL
(B)
TOTAL CURRENT 1,10,00,000 1,08,00,000 96,15,000 87,78,000 90,85,000
LIABILITIES

TERM As on 31st March

LIABILITIES
11 Debentures(not
maturing within
12 one year)
Preference
shares
13 (redeemable
after one year) 15,99,000 8,20,000 4,20,000 3,94,000 83,999
Tem loans
(excluding
14 installment )
Payable within
15 one year)
Sales tax
16 deferred
credits(excluding
17 installment due
within one year)
Hire purchase

53
 loans
Creditors for
capital goods
Other term
liabilities(loans
From
directors/relatives
/sister concern)
TOTAL TERM
LIABILITIES
18 TOTAL 1,25,99,000 1,16,20,000 10,035,000 91,72,000 91,68,999
OUTSIDE
LIABILITIES

NET WORTH
Ordinary share 76,00,000 74,00,000 77,58,000 60,67,000 59,94,001
1 capital
2 Share application
2 money
General reserve
2
Revaluation
2 reserve
2 Surplus (+) or
deficit (-) in P&L
2
account Deferred
2 tax liability (DTL)
NET WOTH

TOTAL
LIABILITIES 201,99,000 190,20,000 177,93,000 152,39,000 151,63,000

SI. ASSETS 2017 2018 2019 2020 2021

NO

Audited Audited Audited Audited Audited

I. II. III. IV. V.

2 Cash deposits bank 19,00,000 18,00,000 1,12,000 8,20,000 7,24,000

balances
2 Fixed deposits with 50,00,000 49,10,000 61,98,000 67,38,000 60,12,000

54
 banks
2 (1)receivables other
than deferred&
3 exports(include bills
purchased &
discounted by
banks
Installments o
deferred
3 receivables (due 76,00,000 64,10,000 67,92,000 34,12,000 34,85,000
within one year)
3 Inventory (1)Raw
3 materials
(including stores &
other items used in
the process of 10,00,000 10,00,000
manufacture )
(a) imported
3 (b) indigenous
Advance to
suppliers of raw
materials & stores
and spares
Advance payment
& taxes
Other current
assets Income
tax orearlier
years
Interest accrued on
fixed deposits Other
current assets
(Specify major
items)

TOTAL CURRENT 155,00,000 141,20,000 131,02,000 109,70,000 102,21,000

ASSETS

FIXED
ASSETS
35 Gross Block 53,00,000 55,60,000 53,01,000 49,56,000 56,66,000
(land &building,

machinery

55
 ,wok-in-
process)
Depreciation
to date
3 NET BLOCK 6,01,000 6,60,000 6,10,000 6,87,000 7,24,000
OTHER NON- 46,99,000 49,00,000 46,91,000 42,69,000
CURRENT
37 ASSETS 49,42,000
Investment/book

debts/advance
s/deposits
which
38 are not current
assets
(1)a)
investment in
subsidiary
Co./affiliates
b) other
investments
(2) Advancesto
suppliers o
capital goods&
contractors
(3) Deferred
receivables
(maturity exceeding
one
year)
(40 Others
(a)debtors> 6
months
(b) Security
deposits
(c) project
surplus
Non-
consumablesstores
&
spares
39
Other non-
current assets
including duesfrom
directors
40
Intangible

56
 assets(patents
,
goodwill, elim
expenses,
bad/doubtful
exp, not
provided
41 for etc)

TOTAL 201,99,000 190,20,000 177,93,000 152,39,000 151,63,000

ASSETS

57
 A STUDY ON ANALYSIS OF WORKING CAPITAL MANAGEMENT IN
TRADING COMPANY
1
L. Shalini, 2Dr. R. Blessie Pathmu
1
MBA student, School of Management Studies, Sathyabama Institute of Science and Technology, Chennai,
Tamilnadu,India
2
Assistant Professor, School of Management Studies, Sathyabama Institute of Science and Technology, Chennai,
Tamilnadu, India

Abstract
The evaluation provides the administration with food for thought regarding the presentation of the
organization's operating capital. The problem of managing current assets, current liabilities, and
their interactions is dealt with through working capital management. Current assets can be
converted into cash without depreciating in value within a year. Current assets include things like
cash on hand, cash in the bank, various debtors, bills receivable, shares, pre-paid charges, etc. The
phrase "current liabilities" refers to debt commitments that must be paid off within a year in the
usual course of business using the company's current assets or earnings.
Every company needs money for two things: starting up and maintaining everyday operations. For
this to happen, it is essential that the company's short-term assets and obligations are managed.
Any firm must have working capital. A respectable manufacturing company needs some basic
funding to make the goods before beginning to sell them. It is responsible for covering the costs
of production, management, and sales. The purpose of this study is to look into how public
companies manage their working capital. This study helps identify areas that might want
improvement. Additional suggestions were made, which the company may include into a future
plan to increase the effectiveness of all resources.
The ideal level of current assets, the trade-off between profitability and risk that depends on the
ratio of current assets to current liabilities, and financing mix techniques are the main tenets of the
theory of working capital management.
Keywords: Profitability, Working Capital, Current Ratio, Current liabilities, liquidity

Introduction
Any firm will periodically require short-term assets and short-term finance sources to carry out its
daily operations. Controlling such assets and liabilities is what is meant by working capital
management. The management of working capital is a key aspect of the study of financial
management. It could also be relevant to the process of making long-term decisions given that
both fields examine risk and profitability.
A business preserves the remaining permanent capital for functioning, or fulfilling daily demands,
and spends a portion of it to buy fixed assets. There aren't many businesses that don't need
somesort of working cash to run their daily operations. Working capital requirements differ from
company to company based on the nature of the business, the production policy, and the state of
the market. Seasonality of business, supply situation, etc. Working capital is the phrase for the
percentage of a company's capital that is required to finance certain assets, such as cash marketable
securities, debtors, and inventory. Working capital is sometimes referred to as short-term or
current assets.

Objectives of the study

 To understand the management of working capital in the company.
 To investigate and forecast the movements of an element based on current and historical data
 To know about the liquidity and solvency position of the company
 To comprehend the state of the business's profitability
58
Research methodology
The methodical process of gathering and examining data to get a deeper understanding of the
subject that interests or concerns us is referred to as "research." It is the devoted search for
knowledge. It is a thorough examination or inquiry, particularly one that looks for new facts across
all fields of study. Both descriptive and analytical elements are present in the study. Given that it
evaluates and examines supporting evidence to get the proper conclusion, it is analytical and
descriptive in terms of the theoretical notion. Data is interpreted using ratios and percentages.

Method of Data Collection

The company's annual reports, balance sheets, profit and loss statements, booklets, and other
published papers as well as internally maintained files and reports served as the primary sources of
secondary data. The annual report is primarily divided into two sections:
 Profit and loss account
 The company's revenue and expenses are displayed in the profit and loss account on the
balance sheet. The balance sheet displays the financial health of the company. These two
claims were developed by highly skilled professionals using information or knowledge that
was easily accessible.

Tools used
Tools used are Working capital finance, Ratio Analysis, Trend Analysis

Scope of the study

 The study's primary objective is to evaluate past and current performance
 The main scope of the study was to put into practice the theoretical aspect of the study
intopractical implementation.
 Techniques like ratio analysis and a description of changes in working capital are the foundation
of working capital analysis. Further, the study is based on the 5 years Annual Reports (2016-
2021)
 To improve business using trend data in decision-making.

Need for the study

 The management of working capital is the subject of the research. The study provides a managerial
understanding of the working capital performance of the organization. Monitoring current assets,
current liabilities, and their interactions are part of working capital management.
 A successful working capital policy guarantees a company's increased profitability andenough
liquidity.
 Every company needs money for two things: starting up and maintaining everyday operations.
For this to happen, it is essential that the company's short-term assets and liabilities are
managed.

Review of literature
Shrivastava, et al (2017) studied working capital's effect on profitability in Indian corporate
entities between 2003 and 2012. Traditional panel data and Bayesian methods were used for the
data analysis. Their research indicates that profitability is negatively impacted by a longer CCC.
They argue that indicators of financial accuracy play a significant role in estimating profitability.
Larger businesses seem to be more profitable and significant, according to the Bayesian approach.
Shivakumar, et.al. (2016) The effect of working capital management on profitability and
liquidity A study of coal India ltd is a piece of writing that aims to explain working capital
management conceptually and evaluate how it affects the company's liquidity and profitability.
All organisationsnow consider the liquidity and profitability trade to be crucial, and efforts have
been made to test
59
the liquidity and profitability position using correlation and the spearman's rank method. Liquidity
and profitability have a low correlation and a bad relationship, according to the correlation
Spearman ranking method. The total test has also been applied to gauge the effectiveness of
liquidity.
Jason Kasozi (2017), this study examined the effect of working capital management on
profitability in 69 listed manufacturing companies in South Africa between 2007 and 2016.
According to his research, ACP and APP have a significant negative impact on profitability as
determined by return on assets. Additionally, Kasozi found that profitability is significantly
positively impacted by the number of days in inventory, which serves as a proxy for working
capital management.

Analysis and interpretation

Change in Working Capital

Increase in Working
Year Decrease in Working Capital
capital

2017-2018 10.8
2018-2019 1.77
2019-2020 12.94
2020-2021 10.56

Ratio Analysis

CURRENT
RATIO
Rs. Lakhs
Year Current Assets Current Liabilities Current
Assets
2016 - 2017 155 110 1.40
2017 - 2018 141.10 108 1.30
2018 – 2019 131.02 96.15 1.36
2019 – 2020 109.70 87.78 1.24
2020 - 2021 102.21 90.85 1.12

Current Ratio
1. 1.40 1.30 1.36
6 1.24
1. 1.1
4
1.
2
1

2016-2017 2017-2018 2018-2019 2019-2020 2020-2021

60
Interpretation
From the above chart showing Current Ratio is increasing third year over the period of study, in
(2016-2017) its current ratio was 1.40% and but from the period of2020 and 2021 it started
decreasing. But the company is over the standard norms. It would affect the profitability of the
company.

Trend Analysis:

CURRENT ASSET
Year TREND %

2017 155 100.00

2018 141.2 91.09
2019 131.02 84.52
2020 109.7 70.77
2021 102.21 65.94

TREND %
120
100
91.09
80 84.52
60 70.77 65.94
40

20
2017 2018 2019 2020 2021
TREND % Linear (TREND %)

Interpretation
From the above trend analysis showing, it is inferred as base year 2017. Current asset has been
decreased during the year 2021, 2020 and 2019. The current year 2021 trend percentage for current
asset is 65.94.

Findings
1. The current ratio of company is increasing third year over the period of study, in (2018-2019)
its current ratio was % and but from the period of 2020 and 2021 it started decreasing. But the
company is over the standard norms. It would affect theprofitability of the company.
2. The current quick ratio position of company is favorable in the year 2016- 2021quick ratio is
above 1:1.
3. Absolute liquid asset are considered adequate to pay with current liabilities in time as all
creditors are not expected to demand cash at same time and then cash may realized from
debtors and inventories.

61
4. The debt equity ratio is increased to 1.70 in 2017-2018, so the company is having long term
solvency position.
5. The working capital turnover ratio increased continuously from 2016- 2021. Hence the
company’s utilization of working capital is more. In the year 2016-2017 the valve of
inventory turnover ratio is higher. But in the 2018-2019 the value has decreased. Then in
2019-2020 it increased 10.83. Debtor turnover ratio is continuously decreased from 2016-
2017 to 2019- 2020. In the year 2020-2021 it has increased to the higher value of 5.56 this
indicates cash sales is more in the period 2020-2021 comparedto the previous year.
6. The net profit ratio of 2.71 in the year 2016-2017 and then decreased to 1.65 in 2017-2018
and further increased to 1.67 in 2018-2019, again increased to 2.9 in 2019-2020 we can see
that every year net profit ratio of the company is goes increasing
7. The current liability turnover ratio is increased to 1.52 in 2017-2018. But In 2018-2019 it has
decreased to 1.36, and again increased in 2019 2020 it has higher value of 2.68, and again
decreasing in 2020 – 2021.
8. The fixed asset turnover ratio has considerably increased from 2016- 2017. But from the
period of 2019-2020 start decreasing. The higher ratioindicates efficientutilization of the fixed
asset. The fixed assets turnover ratio for the Five years aresatisfactory as such there is 2020
and 2021 underutilization of the fixed assets.
9. The return on total asset ratio was fluctuating in the years 2017-2018 and 2020- 2021, in
2016-2017 it was 7.9 and in 2019-2020it was 7.15. This due to more fluctuation in net profit.
10. Making better business and decision by using trend analysis to analyzed and forecast
movements.
Suggestions
1. The management can take effective measures to recover the outstanding of company as the
major portion of currents is in the form of debtors.
2. The management can take effective measures to reducing operating expenses to increasing
the net profit and gross profit.
3. The company has higher working capital turnover ratio in the year2020- 2021and it has over
stock and low liquidity position. So the company reduces the inventory or overstocking.
4. The inventory turnover ratio is above 4 times so the company increase the sales and reduce
the over stock of materials.
5. The company can increase their absolute liquid assets in order to maintain the standard.
6. The company can decrease their credit sales as much as possible.

Conclusion
Working capital management is essential for preserving a company's financial stability throughout
routine business operations. The business should maintain a level of working capital sufficient to
produce up to a certain capacity in order to maximise the return on investment in fixed assets.
Reduced capacity utilisation is a result of low working capital availability.
In order to maintain the company's financial stability and continue producing goods, there must be
enough cash on hand to cover the costs of material, labour, selling, administrative, and other
business-related expenses. Quick payment of bills to material suppliers ensures an ongoing supply
of raw materials and established credit for the future or for normal operations.

62
Reference
1. Ashish Nufazil Altaf And Farooq Ahmed Shah , "How does working capital management
affect the profitability of Indian companies?”,2018 How doesworking capital management
affect the profitability of Indian companies? | Request PDF (researchgate.net)
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