SUMMER TRAINING REPORT

On

(WORKING CAPITAL MANAGEMENT)

Conducted at:

Omaxe Limited

Submitted to: KURUKSHETRA UNIVERSITY, KURUKSHETRA in partial fulfillment for the Degree of Master in Business Administration (Session 2006-08) M.B.A. 3rd Semester Under Supervision of : Ms.Deepika Kohli Faculty, TIMT Yamunanagar Submitted by: Piyush Bansal S/o Sh.Satish Bansal Univ.Reg.No.03IT270 Univ. Roll No. .

TILAK RAJ CHADHA INSTITUTE OF MANAGEMENT & TECHNOLOGY (TIMT) (Affiliated to Kurukshetra University, Kurukshetra & Approved By AICTE) M.L.N.College Educational Complex, Yamunanagar-135001 (HARYANA) Ph.01732-220103, 234110. FAX: +91-1732-220103 E-mail:info@timt.ac.in Website:www.timt.ac.in

PREFACE
Theoretical knowledge without the practical exposure is of little value. Theoretical studies in classroom are not sufficient to understand the functioning and nature of research. Therefore it becomes necessary to undergo any research project work. Practical project supplements the theoretical studies i.e. it covers what is left uncovered in the classroom. It exposes a student to invaluable pleasure of experiences. I complete my research project on the topic working capital management study of all aspects of administration of current assets and current liabilities. During the research project I got an opportunity to learn valuable things, which I could have been able to learn from theory classes. In nutshell, whole of my project was invaluable experience in the pursuit of knowledge .In the forthcoming pages attempt has been made to present a comprehensive report concerning different aspects of my research. The overall gain to me will be reflected in the report itself.

ACKNOWLEDGEMENT

The present report is an amalgamation of hard work and contribution of experience of eminent personality. First of all I would like to thank the supreme power, the Almighty GOD who is obviously the one who has always directed me to work on the right path of my life. With his grace this project could become a reality. I am grateful and thankful to Mr. Rakesh Goyal (AGM) whose rich experience in the field of finance provided me his valuable guidance to go through this project and helped me in completing the project successfully. Than I am thankful to Mr. S.K.Bansal under whose guidance also, I have been able to complete this project very efficient and effectively. I express my sincere gratitude to Dr. R.K. Garg (Director) and Dr. Vikas Daryal ( HODMBA Deptt., TIMT) for their inspiration and helpful attitude. I am also deeply thankful to Ms. Deepika Kohli (Faculty, TIMT YNR.) for her guidance, regular counseling, keen interest and constant encouragement. Without her guidance, this project would not have a successful end.

PIYUSH BANSAL

EXECUTIVE SUMMARY
The organizational experience in the field of real estate has enabled me to gain knowledge in the field of construction and real estate business. As the Indian economy is growing ,So there is large prospects of growth in the field of investment in real estate sector. As we gain theoretical knowledge in our daily life of various fields and in even classrooms we are provided with theoretical knowledge. So it is of immense pleasure to gain practical knowledge in an organization related with real estate sector. I work for Six weeks in an organization named OMAXE LIMITED and undergoing practical training on the topic WORKING CAPITAL MANAGEMENT. This practical training has provided me the real scenario of working capital and how they manage different aspects of working capital. I analyse different aspects of working capital of the organization and came to conclusion that working capital position of the organization is not strong and it needed to finance its working capital from different sources to raise the working capital of the organization .No doubt that working capital from the last few years is increasing but it needed to increase more as there are not sufficient amount of current assets to paid out the current liabilities. Solvency position of the firm should be strong which can be possible by adequate working capital in the organization.

CONTENTS
Certificate from the Organisation

Certificate from the institute supervisor Executive Summary Contents Introduction Profile of the study Justification of study Organizational Structure

Objectives of study Literature Review Research Methodology and Analytical Tools Sampling &Sampling Design Analytical Tools Statistical Tools Data Collection Hypothesis Testing Limitations of Study

Results & Discussions/Findings Recommendations Policy Implications Bibliography Annexures

COMPANY PROFILE
OMAXE LIMITED

Name of Company Registered Office Address Telephone Fax Head of the Company Designation Commencement of Operations in India Main area of Operation No. Of Permanent Employees of Organisation

Omaxe Limited Omaxe House 7, Local Shopping Centre Kalkaji, New Delhi-110019 91-11 41896680 91-11 41896798 Mr. Rohtas Goel Chairman & Managing Director 08-03-1989

Real Estate development and Construction Company 1100

Organization profile

Omaxe Ltd. Is involved in residential and commercial real estate development projects ranging from integrated townships,group housing and retail and other commercial properties hotels, information technology and Bio-tech parks to special economic Zones with operations in 30 cities & 9 states in India. The organization operations span across all aspects of real estate development from the identification and acquisition of land to planning execution and marketing of their projects.

MAJOR EVENTS OF COMPANY`

OMAXE LIMITED

Year March 1989 March 1997 August 1999 2003

Event Omaxe Builders private Limited was incorporated Changed their name to Omaxe construction Private Limited Converted to a public company with the name of Omaxe construction limited. First integrated Township NRI City in Greater Noida

2004 March 2006

First theme mall in India Launch of The Forest luxury apartments Received ISO 9001:2000 rating from Det Norske Veritas in relation to Real estate development & construction of Housing complexes, Shopping Malls,Utilities & other infrastructure Projects. Changed their name to Omaxe Limited

June 2006

July 2006 August 2006

Received 5A2 rating from D&B Rating for financial strength and the composit appraisal of the company. Received PR1 rating from Credit analysis and Research Limited for strong capacity for timely payment of short term debt obligations and carrying the lowest credit risk. Received rating of A (ind) from fitch rating India Private limited in Relation to the Rs. 3,000 million long term debt program of Omaxe limited.

September 2006

THE INDIAN ECONOMY

Over the last three years, India has experienced economic growth with the GDP growth being 8.5 %, 7.5% and 8.4%, respectively,for the Fiscals ended 31 March, 2004, 31 March, 2005 and 31 March, 2006 (Source: Reserve Bank of India https://reservebank.org.in/cdbmsi/servlet/login/). Further, the Reserve Bank of India has projected a 7.5-8.0 % GDP growth for theFiscal ending 31 March, 2007. Positive indicators include a stable annual growth rate of above 7.5% in the past three years and rising foreign exchange reserves of approximately US$179.1 billion as of January 26, 2007 (Source: https://reservebank.org.in).According to Indias Central Statistical Organisation estimation as at March 31 2005, India has a population of 1,091 million people and is the worlds largest democracy in terms of population. According to the World Bank, India was the twelfth largest economy in the world in the year ended March 31, 2005, with a GDP in nominal terms estimated to be US$ 731 billion.(Source: www.worldbank.org(World Bank, 2006)The service sector has grown at a rapid pace in recent times. An important factor in the growth of the services sector has strong growth of the IT and ITES sectors. These sectors benefited from the growing international trend toward offshoring and the resultant demand for skilled, low cost, English speaking workers. Indian competitiveness in this area has been aided by substantial investment in telecommunications infrastructure and the phased liberalisation of the communications sector. Real Estate sector covers residential housing, commercial offices, trading spaces such as theatres, hotels and restaurants,retail outlets and industrial buildings such as factories and government buildings. Real estate involves the purchase, sale and development of land, residential and non-residential buildings. The activities of the real estate sector encompass the housing and construction sector also.The real estate sector in India has assumed growing importance with the liberalization of the economy. The consequent increase in business opportunities and migration of the labour force to towns and cities has, in turn, increased the demand for commercial and housing space, especially rental housing.

Developments in the real estate sector in India is expected to grow at a rate of 25% to 30% over the next five Fiscals. The growth of organised retail is expected to be driven by demographic factors, increasing disposable incomes, changes in shopping habits, the entry of international retailers into the market and the growing number of retail malls (CRIS INFAC Relating Annual Review being influenced by the developments in the retail, hospitality and entertainment (e.g. hotels, resorts, cinema theatres) industries, community services(e.g. hospitals, schools) and IT and ITES (e.g. call centers) etc. and vice versa as well as owing to the fact that quality real estate development prompts raising of standards of retail, hospitality etc. Real estate is one of the major employment drivers in India. This is because of the chain of backward and forward linkages that the sector has with other sectors of the economy. About 250 ancillary industries such as cement, steel, brick, timber, building material etc. are dependent on the real estate industry. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. Contribution of housing and real estate to Indias GDP is market 1% against 3-6% of developing countries. If the economy grows at the rate of 10%, the housing sector has the capacity to grow at14% and generate 3.2 million new jobs over the next 10 years. (Source: Integrated Databases India Limited http:// www.directoriestoday.com/estate.html) In the last 3 years, the construction activity in the real estate sector has been buoyant, after returning to normalcy in 2001 (Between 1995 and 1999, there was a severe recession). Rising demand from technology sectors, demographic shift (increasing disposable incomes and urbanisation), suburban developmental models and favourable government policies have changed the face of the real estate construction sector.

INDUSTRY CHARACTERISTICS
The real estate industry has the following characteristics: Capital Structure: Construction activities are often funded by the client who may make cash advances at different stages of construction, especially in residential projects.

Higher margin in commercial properties : Generally, a commercial project yields

higher operating profit margins than a residential project. Leasing is an option for commercial properties: Unlike most residential properties (which are sold outright),

commercial space is either leased or sold outright. Under the leasing option, the lease rentals received from tenants form a source of recurring cash flow for the developer. This apart, the property rights remains with the developer, enabling the property to be disposed of subsequently, if required.

Contingent Liabilities: Due to project based work, real estate companies often carry
substantial contingent liabilities in the form of guarantees in order to comply with specific client requirements. Development Risks: Profitability of each project is subject to risks of mis-pricing, adverse conditions, geological conditions, management of specification changes and the outcome of claims on competitions. As per AS-7 of the Indian accounting standards, construction companies are required to recognize all losses incurred and foreseeable in the respective accounting period.

Credit Risk: Real estate developers usually secure project advances from clients to keep
them committed to the projects. Approvals required for real estate projects: A number of approvals are required for real estate projects from regulatory/statutory authorities..

Key Segments in the Real Estate Industry:

Residential real estate development

The house construction activity has been on the upswing for the past 5 years, aided by population growth and urbanisation. Moreover, it has been observed that the boom is localised to the organised urban housing segment, extending to the relatively prosperous rural belts. This growth is being driven by the following factors: Faster growth in urban households as a result of nuclearisation and reduction of average size of household. Easy availability of housing finance and a favourable tax regime. Conversion from slum, kutcha or semi-pucca in urban areas to pucca non-slums (driven by income). According to CRIS INFAC Construction Annual Review (Feb 2006), housing (particularly urban housing) will continue to demonstrate robust growth over the next 5 years, helped by rising penetration of housing finance and favourable tax incentives. Based on the analysis of the above mentioned drivers, CRIS INFAC has estimated the number of housing stock in 2003-04 at 197 million. Close to 4.7 million new houses were added to this stock in 2004-05. This number is expected to grow at a CAGR of 2.4 per cent over the next 5 years to reach 5.27 million new houses in 2009-10. The total Floor Space Area (FSA) is estimated at 96 billion sq. ft. in 2003-04, with an estimated 2.5 billion sq. ft. added in 200405. The new FSA added is expected to grow at a CAGR of 4 per cent over the next 5 years to reach 3 billion sq. ft. by 2009-10. This would roughly translate into 14 billion sq. ft. to be added over a period of 5 years. During the same period, the total housing construction investment is estimated at Rs 9,176 billion.

Trend towards high-rise in urban locales

A large proportion of the above demand for houses, especially in urban centres such as Mumbai, Bangalore, Delhi (Gurgaon, Noida) and Pune, is likely to come from high-rise residential buildings. Since this is a fairly new segment, the growth of the high-rise segment will be faster as compared to the growth of the urban housing segment. The reasons for the construction of high-rise apartment buildings are the lack of space in cities such as Mumbai and proximity to offices and IT parks in places such as Gurgaon, Bangalore and Pune. The high-rise culture is gradually seeping into other cities such as

Kolkata, Hyderabad and Chennai due to increasing affordability, nearness to IT/BPO parks and the township concept being embraced within closeproximity to such IT/BPO parks.

Commercial real estate development

Commercial construction comprises construction of office space, hotels, hospitals, schools, stadiums etc. In India, most of the investment in this segment is driven by office space construction. Within office space construction activity, almost 70-75 percent of the demand comes from IT/BPO/call centres. The other key demand drivers include banking and financial services, FMCG and telecom. This dependency on IT/ITES is expected to continue due to Indias emergence as a preferred outsourcing destination, despite China and Russia also emerging as strong contenders. According to CRIS INFAC Construction Annual Review (Feb. 2006), in the last 4 years, while the IT sector continued to grow at a healthy rate, the ITES sector stole the show with a phenomenal 48 per cent growth. Going forward, revenue from ITES is expected to grow at a CAGR of 30 per cent to reach $19.7 billion in 2009-10; and the IT service industry will clock export revenues of $28.5 billion by 2008-09, growing at a CAGR of 26 per cent. Consequently, the growth in the sector will translate into substantially higher demand for commercial space, adding to the overall investment in construction activities. CRIS INFAC believes the growth in IT/ITES is likely to translate into construction investments of Rs. 148 billion (118 million sq ft) by 2007-08 as compared with investments of Rs 74 billion (61 million sq. ft.) in the last 3 years. The investments are based on the manpower/workspace requirement in the sector. Knight Frank, an international property agency, estimates that the growth in the IT and ITES sectors is likely to require over 118 million square feet of additional commercial space between Fiscal 2006 and 2008 (Commercial Property Review, (3rd Quarter, 2004) Knight Frank).

Retail real estate development

Retail boom to result in construction investments of Rs. 112 billion over the next 5 years (Source: CRIS INFAC Construction Review, Feb 2006) CRIS INFAC estimates that retail spending in India in Fiscal 2005 was Rs. 9.9 trillion, of which organised retail accounted for Rs. 349 billion, or approximately 3.5%. The organised retail segment in, (September 2005) CRIS INFAC). CRIS INFAC believes the current spark in mall construction activity across India will result in around 105 million sq ft of mall space by 2010. This would translate into construction investment of Rs. 112 billion over the next 5 years. (Source: CRIS INFAC Construction Review, Feb 2006) The increase in disposable incomes, demographic changes (such as the increasing number of working women, who spend more, the rising number of nuclear families and higher income levels within the urban population), the change in the perception of branded products, the growth in retail malls, the entry of international players and the availability of cheap finance will drive the growth in organised retail.

HISTORY OF THE COMPANY

The company was incorporated on March 8,1989 as Omaxe Builders private limited under the companies act,1956. They changed their name to Omaxe construction Private limited, which was approved by the Registrar of companies, National capital territory of delhi and Haryana through their approval letter dated March 4,1997. They converted to a public

company with the name of Omaxe Construction Limited by passing a special resolution in terms of section 31/21 read with Section 44 of the companies act,1956, which was approved by the Registrar of companies, National Capital territory of delhi and Haryana through their approval letter dated august 10,1999. They changed their name to Omaxe Limited with effect from June 6,2006.

OBJECTIVES:
To carry on the Business of erecting and constructing structure, houses, sheds, flats and other fixtures on land and buildings and to purchase taken on lease or otherwise acquire or exchange or transfer any land and buildings of any tenure. To act as civil contractors for any person or governmental authorities for the construction of buildings of all description roads, bridges, earthwork, sewers, tanks, cranes, channels and sewage.

To carry on the business of taking over building, developing, maintaining, operating, promoting, modifying, repairing, making, remaking, demolishing for reconstruction or otherwise designing, redesigning, selling, license or easement,

renting, assigning, mortgaging, creating any other right, title or interest or disposing or dealing in any manner. To act and carry on the businesses as brokers, estate agents, subcontractors, construction and building agents, purchasers, sellers and dealers in all kinds of movable and immovable properties including land and building and real estate.

To acquire, exchange, sell, transfer, and otherwise deal in all kinds of land, building, plots, real estate and all kinds of immovable properties of all texture and descriptions.

To carry on the business of architects, designs, draughtsmen, surveyor, values, consultants, advisers, experts in consultancy services, engineers and constructional engineers of every type of builders and contractors.

OMAXE LIMITED

VISION:

To Create a progressive organization matching international standards maintaining integrity, High ethical standards and Transparency. Provide an environment of professionalism, competence, teamwork, and service excellence.

MISSION:
The mission is to bring quality residential & Commercial real estate of international standards, comparable with global developers within the reach of all. We are commited to achieve excellence in Real Estate Development, for the benefit of the nation and our beloved countrymen.

BUSINESS OVERVIEW

They have been in the construction and contracting business for 18 years and have a high level of technical expertise in executing their projects They are a real estate development and construction company with operations in 30 cities and 9 states in India. They are involved in residential and commercial real estate development projects ranging from integrated townships, group housing and retail and other commercial properties, hotels, information technology and bio-tech parks to special economic zones. Their operations span across all aspects of real estate development, from the identification and acquisition of land, to the planning, execution and marketing of their projects. The company commenced business in 1989 as a construction and contracting company, and as of March 31, 2007, They have completed more than 120 construction projects in such capacity. In 2001, they diversified into the real estate development business with a focus on residential and commercial properties. As of March 31, 2007 they have completed eight residential projects, consisting of seven group housing and one integrated township project, and two commercial projects, including retail and office space, covering approximately 5.13 million sq. ft. of built-up / developed area. They have diversified their project portfolio by undertaking projects for the development of hotels, information technology and bio-tech parks. As of March 31, 2007, they had access to land reserves of approximately 3,255 acres (including approximately 571 acres of land belonging to joint ventures and collaborations in respect of which our Economic Interest is approximately 74% calculated on a weighted average basis in relation to such land), of which approximately 3,096 acres (including approximately 451 acres of land belonging to their joint ventures and collaborations) relate to projects that are currently under development or under various stages of approval for development, representing approximately 150 million sq. ft. of saleable area, and approximately 159 acres (including approximately 120 acres belonging to their joint ventures and collaborations) relate to their future projects and projects that are currently in various phases of planning. As of March 31, 2007, they had 52 current residential and commercial projects consisting of 21 group housing projects, 16 integrated townships, 14 shopping malls and commercial complexes and 1 hotel. Their current projects include 38 projects which are under development and 14 which are under various stages of approvals for development.

They expect to commence development on these 14 projects within Fiscal 2008. The 16 integrated townships are essentially mixed use townships consisting of residential and commercial projects and are expected to include 10 group housing projects, 16 commercial projects, one bio-tech park and one information technology park. They are also developing projects in the hospitality sector. Their hotels at Amritsar, Greater Noida and Patiala are part of commercial malls, which are under construction.

With the development of the Indian economy and the resulting increase in corporate and consumer incomes, as well as foreign investment, They see significant opportunities for growth in the real estate business. Their Total Income have grown from Rs. 1,455.56 million in Fiscal 2003 to Rs. 14,396.79 million in Fiscal 2007, at a CAGR of 77.34% and their profit after tax and minority interest increased from Rs. 47.67 million in Fiscal 2003 to Rs. 2,572.61 million in Fiscal 2007, at a CAGR of 171.04%. The year over year change in their total income over its immediately preceding year has been Rs. 6,198.17 million (75.60%), Rs. 4,232.63 million (106.72%), Rs. 1,128.74 million (39.78%) and Rs. 1,381.69 million (94.92)% for Fiscal 2007, 2006, 2005 and 2004, respectively. The year over year change in their net profit after tax and minority interest over its immediately preceding year has been Rs. 1,384.46 million (116.52%), Rs. 1,137.79 million (2259.31%), Rs. (33.12 million) (-39.67%) and Rs. 35.81 million (75.12%) for Fiscal 2007, 2006, 2005 and 2004, respectively. They were one of the first construction companies in northern India to receive an ISO 9001:2000 certification. Their promoter and founder, Mr. Rohtas Goel, has more than 20 years of experience in the construction and real estate business. After the

completion of this Issue, their Promoters and Promoter group is expected to continue to own 89.70% of our Equity Shares (assuming the Green Shoe Option is not exercised) or 88.80% of our Equity Shares (assuming the Green Shoe Option is exercised in full). The saleable area presented for their projects are management estimates based on their current plans that have either been approved or are under various phases of approval.

JUSTIFICATION OF STUDY
The problem of managing working capital has a separate entity as against different decision making issues concerning current assets individually. Working capital has to be regarded as one of the conditioning factors in the long run operations of firm which is often treated as an issue of short run analysis and decision making. The skills for working capital are somewhat unique, though the goals are the same as in managing current assets individually to make an efficient use of funds for minimizing the risk of loss and to attain profit objectives. Working capital management involves deciding on the amount and composition of current assets and how to finance these assets. These decisions involve trade off between risk and profitability. The greater the relative proportion of liquid assets, the less is the risk of running out of cash. However profitability will be less. Resolution of trade off between risk and profitability with respect to these decisions depends upon the risk preferences of management. The lower the proportion of liquid assets to current assets, the greater are the firms return on total investment. Working capital management is concerned with the problems that arise in attempting to manage current assets and current liabilities and the interrelationships that exist between them. The goal of working capital management is to manage the firms current assets and current liabilities in such a way that satisfactory level of working capital is maintained. Because if the firm cannot maintain satisfactory level, it is likely to become insolvent and may even be forced into bankruptcy. Each of short term sources of financing must be continuously managed to ensure that they are obtained and utilized in the best possible way.

OBJECTIVES OF STUDY:-

To study organizations working capital financial mix. 1. To study the growth & performance of OMAXE LTD. 2. To study the objectives of the financial management. 3. To study about the working requirement of company. 4. To study inflows & outflows of the funds. 5. To analyze & interpret the financial management. 6. To locate weakness & suggest various suggestions. 7. To study the functioning of the organization. 8. To study the financial health of the organization. 9. To analyze and gain in-depth understanding of the strategic capabilities, strengths and weaknesses of the company.

LITERATURE REVIEW
Books:
1. N.K.Aggarwal1(125): This book explains the management of working capital in an organization. Excess and Inadequate working capital both are not good for the firm. 2. Kothari C.R(168-174): This book explains various research methods applied and research methodology used to do research. It tells us about various Research design and data collection methods. 3. Pandey, I.M.(246-250): It tells the method of preparing of comparative P/L a/c and how can we evaluate it. 4. Mittal.R.K (51-70):- It explains the preparing of comparison of working capital and way of interpreting it. 5. Chandra Prasanna: (291): This book explains the role of management in the financial management of an organization. 6. Lev. Baruch(11): In this how analysis of financial statements of organization is done and on the basis of that comment upon the financial position of the organization. 7. .Murthy V.S.(208-214): This book explains the various techniques of analyzing financial statements of organization. 8. R.K. Misra(341-342): In this it is explained that what are the problems faced by organization in management of working capital regarding various components of working capital. 9. Sangan John(148-150): This book explains the general theory related to working capital concept. 10. Gupta S.P.(378-418): The information regarding the statistical tool and their limitations in different fields of research. working capital

Articles: 1. Aggarwal Jaidev(82-84): An article on the study conducted to manage working capital helps the firm to increase earnings or not.

2. Heath Lloyd C(55-62).: An Article on the study that analysis of working capital in a firm has effect mainly on inventories, cash earnings and receivables of the organization.

Websites:
1. www.omaxe.com/Background/Residential/commercial properties.htm: This web site i.e the official site of the organization gives the information related to background, commercial & Residential properties, Vision & Mission and aspects of real estate industry in India. 2. www.investopedia.com/terms/w//workingcapital.asp: This wbsite eplains the need for working capital and various factors affecting the working capital of firm. www.iif.edu/the_institute/iif_pubwcm.htm: This site explains various financing approaches to working capital and how analysis of working capital has effect over the other components of the organization

WORKING CAPITAL MANAGEMENT

MEANING OF WORKING CAPITAL

Working Capital is commonly defined as the difference between current assets and current liabilities. Efficient working capital management requires that firms should operate with some amount of working capital, the exact amount varying from firm to firm and depending, among other things on the nature of industry. Capital required for a business can be classified in two main categories viz. 1) Fixed capital, and 2) Working capital. Every business needs funds for two purposes-for establishment and to carry out its day-today operations. Long-term funds are required to create production facilities. Through purchase of fixed assets such as plants and machinery, land, building, furniture, etc. Investments in these assets represents that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw material, payment of wages and other day-to-day expenses, etc. These funds are known working Capital. In simple words, working capital refers to that part of the firms capital, which is required for financing short-term or current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in current assets keep revolving fast and are being constantly converted into cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short-term capital.

CLASSIFICATION OF WORKING CAPITAL

Working Capital may be classified on two basis: a) On the basis of Concept: On the basis of concept, working capital can be classified as, Gross Working Capital Net Working Capital

b) On the basis of Time: On the basis of time, working capital can be classified as, Permanent or Fixed Working Capital Temporary or Variable Working Capital

Gross Working Capital:

The Gross Working Capital is the Capital invested in the total current assets of the enterprises. Current assets are those assets, which can be converted into cash within a short period, normally an accounting year. Gross Working Capital = Total Current Assets

Net Working Capital: The term Net Working Capital refers to the excess of current assets over current liabilities, or say,

Net Working Capital = Current Assets Current Liabilities Net Working Capital can be positive or negative. When the current assets exceeds the current liabilities, the working capital is positive and the negative working capital results when the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets of the income of the business. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits.

The gross concept is sometime preferred to the concept of working capital for the following reasons: -

1. It is a qualitative concept, which indicates It enables the enterprise to provide correct amount of working capital at correct time. 2. Every management is more interested in total current assets with which it has to operate then the sources from where it is made available. 3. It takes into consideration of the fact every increase in the funds of the enterprise would increase its working capital. 4. The concept is also useful in determining the rate of return on investments in working capital. 5. The net working capital the firms ability to meet its operating expenses the short-term liabilities. 6. It indicates the margin of protection available to short term creditors. 7. It is an indicator of financial soundness of enterprise. 8. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds.

Permanent or Fixed Working Capital: Permanent or fixed capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of current assets is called permanent or fixed working capital as this part of working capital is permanently blocked in current assets. As the business, grow the requirement of working capital also increases due to increase in current assets.

Temporary or Variable Working Capital: Temporary or variable working capital is the amount of working capital, which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called the seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing campaign for conducting research etc. Temporary working capital differ from permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in business

Estimating working capital needs 1.Liquidity Vs. Profitability: Risk Return Trade Off.
The firm would make just enough investment in current assets if it were possible to estimate working capital needs exactly. Under perfect certainty, current assets holdings would be at the minimum level. A larger investment in current assets under certainty would mean a low rate of return of investment for the firm, as excess investment in current assets will not earn enough return. A small invest in current assets, on the other hand, would mean interrupted production and sales, because of frequent stock-cuts and inability to pay to creditors in time due to restrictive policy. As it is not possible to estimate working capital needs accurately, the firm must decide about levels of current assets to be carried.

2.The Cost Trade Off:

A different way of looking into the risk return trade off is in terms of the cost of maintaining a particular level of current assets. There are two types of cost involved:I. Cost of liquidity II. cost of illiquidity --If the firms level of current assets is very high , it has excessive liquidity. Its return on assets will be low, as funds tied up in idle cash and stocks earn nothing

and high level of debtors reduce profitability. Thus, the cost of liquidity increases with the level of current assets. --the cost of illiquidity is the cost of holding insufficient current assets. The firm will not be in a position to honour its obligations if it carries too little cash. This may force the firm to borrow at high rates of interests. This will also adversely affect the credit-worthiness of the firm and it will face difficulties in obtaining funds in the future. All this may force the firm into insolvency. Similarly, the low levels of stock will result in loss of sales and customers may shift to competitors. Also, low level of debtors may be due to right credit policy which would impair sales further. Thus the low level of current assets involves cost that increase as this level falls.

Policies for financing current assets

The following policies for financing current assets in OMAXE LTD.are as follows:

LONG TERM FINANCING:

The sources of long term financing include ordinary shares capital, preference share capital debentures, long term borrowings from financial institutions and reserves and surplus. The OMAXE LTD. manages its long term financing from capital reserve, share premium A/C , foreign project reserve, bonds redemption reserve and general reserve.

SHORT TERM FINANCING :

The short term financing is obtained for a period less than one year. It is arranged in advance from banks and other suppliers of short term finance include working capital funds from banks, public deposits, commercial paper, factoring of receivables etc. The OMAXE LTD. manages secured loans as:1) Loans and advances from banks 2) Other loans and advances: a)Debebtures/bonds b)Loans from State Govt. c)Loans from financial institutions(secured by pledge of PSU bonds and bills accepted guaranteed by banks) 3) Interest accrued and due on loans a) from State Govt. b)from financial institutions bonds and other

The OMAXE LTD. manages unsecured loans as:1) Public deposits 2) Short term loans and advances: a)From banks b)Commercial papers c)From companies d)From financial institutions 3)Other loans and advances a)From banks b)From others -from govt. of India -from state govt. -from financial institutions -from foreign financial institution -post shipment credit exim bank -credit for assets taken on lease -Post shipment credit -Govt. credit -State Govt. loans -Credits for assets taken on lease -Financial institutions and others -Foreign financial institutions -Public deposits SPONTANEOUS FINANCING:Spontaneous financing refers to the automatic sources of short term funds arising in the normal course of a business. Trade Credit and outstanding expenses are examples of spontaneous financing. A firm is expected to utilise these sources of finances to the fullest extent. The real choice of financing current assets, once the spontaneous sources of financing have been fully utilized, is between the long term and short term sources of finances.

What should be the mix of short and long term sources in financing current assets ?

Depending on the mix of short and long term financing, the approach followed by a company may be referred to as : 1. matching approach 2. conservative approach 3. aggressive approach

Matching approach
The firm can adopt a financial plan which matches the expected life of assets with the expected life of the source of funds raised to finance assets. Thus, a ten year loan may be raised to finance a plant with an expected life of ten year; stock of goods to be sold in thirty days may be financed with a thirty day commercial paper or a bank loan. The justification for the exact matching is that, since the purpose of financing is to pay for assets, the source of financing and the asset should be relinquished simultaneously. Using long term financing for short term assets is expensive as funds will not be utilized for the full period. Similarly, financing long term assets with short term financing is costly as well as inconvenient as arrangement for the new short term financing will have to be made on a continuing basis. When the firm follows matching approach (also known as hedging approach) long term financing will be used to finance fixed assets and permanent current assets and short term financing to finance temporary or variable current assets. How ever, it should be realized that exact matching is not possible because of the uncertainty about the expected lives of assets. The firm fixed assets and permanent current assets are financed with long term funds and as the level of these assets in increases, the long term financing level also increases. The temporary or variable current assets are financed with short term funds and as their level increases, the level of short term financing also increases. Under matching plan, no short term financing will be used if the firm has a fixed current assets need only.

Conservative approach A firm in practice may adopt a conservative approach in financing its current and fixed assets. The financing policy of the firm is said to be conservative when it depends more on long term funds for financing needs. Under a conservative plan, the firm finances its permanent assets and also a part of temporary current assets with long term financing. In the period when the firm has no need for temporary current assets, the idle long term funds can be invested in the tradable securities to conserve liquidity. The conservative plan relies heavily on long term financing and, therefore, the firm has less risk of facing the problem of shortage of funds. The conservative financing policy is shown below. Note that when the firm has no temporary current assets, the long term funds released can be invested in marketable securities to build up the liquidity position of the firm.

Aggressive Approach
A firm may be aggressive in financing its assets. An aggressive policy is said to be followed by the firm when it uses more short term financing than warranted by the matching plan. Under an aggressive policy, the firm finances a part of its permanent current

assets with short term financing. Some extremely aggressive firms may even finance a part of their fixed assets with short term financing. The relatively more use of short term financing makes the firm more risky. The aggressive financing is Illustrated in fig below.

NEEDS AND OBJECTIVES FOR WORKING CAPITAL

Every business needs some amount of working capital. The needs for working capital, arises due to time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in purchase of raw material and production, production and sales, and realization of cash. Thus, working capital is needed for the following purposes: For the purchase of raw material, component and spares. To pay wages and salaries. To incur day- to- day expenses and overhead costs such as fuel, power and office expenses etc. To meet the selling costs such as packing, advertising etc. To provide credit facilities to the customers. To maintain the inventories of raw material, work in progress, store, spares, and finished stock .For studying the need of working capital in a business, one has to study the business under varying circumstances such as new concern, as a growing and one, which has attained maturity. A new concern requires a lot of funds to meets its initial requirement such as promotion and formation etc. These expenses are called preliminary expenses and are capitalized. The amount needed for working capital depends upon the size of the company and the ambition of its promoters. Greater the size of the business unit, generally will be the requirement of the working capital. The requirement of the working capital goes on increasing with the growth and expansion of the business until its gains maturity. At maturity, the amount of working capital required is called normal working capital.

IMPORTANCE OF WORKING CAPITAL

1.Time devoted to working capital management:The largest portion of financial manager 's time is devoted to day to day internal operation the firm. This may be appropriately sum up under the heading "WORKING CAPITAL MANAGEMENT".

2.Investment in current assets :- Current assets represent more than half of the total
assets of a business firm. Because they represent largest investment and because this investment tends to relatively volatile, current assets are worthy for the financial manager's careful attention.

3.Importance for small firm:Current assets are similarly important for the financial manager's of small firm. Further small firm are relatively limited access to the long term markets, it must necessarily rely on the trade credit and short term bank loan , both of net effect on net working capital by increased current liabilities

ADVANTAGES OF ADEQUATE WORKING CAPITAL:The adequate working capital in business has the following advantages: Firm can get cash discount by making cash payment for the goods purchased by it. The firm makes payment to its creditors for raw material in time; it can have availability of raw material regularly. Availability of adequate working capital increases the debt paying capacity of business. Adequacy of working capital in business facilities distribution of dividends without any difficulty. There is possibility of increase in the price of raw material; business can purchase more raw materials if it has adequate working capital.

The dangers of excessive working capital are as follows:

1. It results in unnecessary accumulation of inventories .thus chances of inventory mishandling , waste, theft and losses increase. 2. It is an indication of defective credit policy and slack collection period. Consequently, higher incidence of bad debts result, which adversely affects profits. 3. Excessive working capital makes management complacent which degenerates into managerial inefficiency. 4. Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.

Inadequate working capital is also bad and has the following dangers:
1. It stagnates growth. It becomes difficult for the firm to undertake profitable projets for non-availability of working capital funds. 2. It becomes difficult to implement operating plans and achieve the firms profit target. 3. Operating inefficiencies creep in when it becomes difficult even to meet day to day commitments. 4. Fixed are not efficiently utilized for the lack of working capital funds. Thus the firms profitability would deteriorate. 5. Paucity of working capital funds render the firm unable to avail attractive credit opportunities etc, An enlightened management should, therefore, maintain the right amount of working capital on the continuous basis. Only then a proper functioning of business operations will be ensured. Sound financial and statistical techniques, supported by judgement, should be used to predict the quantum of working capital needed at different time periods. A firms net working capital position is not only important as an index of liquidity but it is also used as a measure of the firms risk. in this regard means chances of the firm being unable to meet its obligations on due date. The lender considers a positive networking as a measure of safety. All other things being equal, the more the networking capital a firm has, the less likely that it will default in meeting its current financial obligations. Lenders such as commercial banks insist that the firm should maintain a minimum net working capital position.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS 1. NATURE OF BUSINESS

:-

The requirement of working capital is very limited in public utility undertaking such as Electricity, Water Supply and Railways because they offer cash sales only and supply services not products and no funds are tied up in inventories and receivables. On the other hand, the trading and financial firm requires less investment in fixed assets but have to invest large amounts in current assets. The manufacturing undertaking requires sizable amount of working capital along with fixed investments.

2..

PRODUCTION POLICY

:-

The determination of working capital needs depends upon the production policy of the business. The demand for certain products is seasonal i.e.; such products are purchased in certain months of a year. For such industries, two types of production policy can be followed. Firstly they can produce the goods in the months of demand or secondly, they produce for the whole year. If the second alternative were followed, it would mean that until the time of demand finishes, product would have to be kept in stock. It would require additional working capital.

3.

LENGTH OF PRODUCTION CYCLE :-

The longer the manufacturing time, the raw material and other supplies have to be carried for a longer time in the process with progressive increment of labor and service costs before the final product is obtained. Therefore, working capital is directly proportional to the length of the manufacturing process.

4.

RATE OF STOCK TURNOVER :-

There is an inverse co-relationship between the quantum of working capital and the velocity or speed with which the sales are effected. A firm having a higher rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover.

CREDIT POLICY :Credit policy affects the working capital requirements in two ways: (a) Terms of credit allowed by customer to the firm,

(b)

Terms of credit available to the firm.

A concern that purchases its requirements on credit and sells its product/services on cash requires lesser amount of working capital and vice-versa.

6.

WORKING CAPITAL CYCLE

:-

The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital.

Each component of working capital (namely inventory, receivables and payables) has two dimensions ........ TIME ......... and MONEY. When it comes to managing working capital TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly. if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales

If you ....... Collect receivables (debtors) faster Collect receivables

Then ...... You release cash from the cycle Your receivables

(debtors) slower soak up cash Get better credit (in terms You increase your of duration or amount) cash resources

from suppliers

7. RATE OF GROWTH AND EXPANSION OF BUSINESS:

The larger size businesses require more permanent and variable working capital in comparison to small business. If a company is growing, its working capital requirements will also go on increasing. Thus, the growing concerns require more working capital as compared to the stable industries.

8. SEASONAL VARIATION: Generally, during the busy season, a firm requires larger working capital than in the slack season.

9. BUSINESS FLUCTUATION:

In period of boom, when the business is prosperous, there is a need for larger amount of working capital due to rise in sales, rise in prices, optimistic expansion of business etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtors and the firm may have a large amount of working capital idle.

10.

EARNING CAPACITY AND DIVIND POLICY :-

Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also effects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profit needs more working capital than the firm that retain larger part of its profits and does not pay so high rate of cash dividend.

11. PRICE LEVEL CHANGES : Price level changes also affect working capital needs. If the prices of different goods increase, to maintain same level of production, more working capital is needed.

12 . AVAILABILITY OF RAW MATERIAL: Availability of raw material on the continuos basis affects the requirement of working capital. There are certain types of raw materials, which are not available regularly. In such a situation firm requires greater working capital to meet the requirements of production.

Some raw materials are available in particular season only for example wool, cotton, oil seeds, etc. They have to keep greater working capital.

13.

MAGNITUDE OF PROFIT :-

Magnitude of profit is different for different businesses. Nature of product, control on the market and ability of managers etc. determine the quantum of profit. If the profit margin is high, it will help to arrange funds internally, which will also increase the working capital. 14. OTHER FACTORS: a) Operating efficiency b)Management ability c)Irregularities of supply d)Import policy e)Asset structure

MANAGEMENT OF WORKING CAPITAL

Management of working capital means management of all aspects of current assets and current liabilities. The main objective of working capital management is to manage current assets and current liabilities in a manner so that working capital can be kept at a satisfactory level. It is also takes into account that the working capital should neither be excessive nor inadequate. The amount of current assets should be adequate enough to pay the current liabilities in time and adequate security margin can be maintained. Management of working capital affects probability, risk and liquidity if the business significantly. Management should therefore, maintain proper balance among these factors while managing working capital. It working capital relatively declines; it will decrease liquidity but cause an increase in profitability and risk.

Following are the main aspects of working capital management :1 2 3 To determine policy regarding profitability, liquidity and risk by considering firm objectives. Determine the quantum and structure of current assets. Determine means of finance for current asset.

FORMAT OF WORKING CAPITAL

Schedule of change in working capital

Particulars
Current Assets:Stock Debtors Cash Total C.A. (A)

Current Year

Previous Year

Increase

Decrease

Current Liabilities:Creditors Bills payable Total C.L. (B) Working capital (A-B) Increase or Decrease in Working capital

CONTROL OF WORKING CAPITAL

Inventory control
It relate to the set of policies and procedures by which an organization determines which materials it will hold in stock and the quantity of each that it will carry. The objective of inventory management is to have the appropriate amount of materials in the right place, at the right time and at lower cost. Inventory control is important for the financial health of corporation. Excessive level of inventory however results in large inventory carrying costs including the cost of capital tied up in inventory warehouse fees, insurance etc.

Techniques of inventory control 1. Fixation of inventory level 2. ABC analysis 3. Vital Essential Desirable Classification (VED) 4. Economic order Quantity (EOQ) 5. Perpetual inventory control 6. Just In Time (JIT) inventory system Receivables Control
Receivables are a part of current assets and are created out of sales of goods and services. The period of credit and extent of Receivables depends upon the credit policy followed by the firm. The decision regarding the period of credit and cash discount are governed by various factors such as the buyers stock, turnover rate, the approach of competitors, the nature of commodity, the margin of profit and the availability of funds. The credit period and cash discount vary from firm to firm.

Techniques of receivables control 1. Receivable turnover 2. Report of aging of Accounts 3. Credit and collection policies
4. Accounts Receivable Report

5. forecasting Expenses Cash control

A proper cash management necessitates the development and application of some practical administrative procedures to accelerate the inflow of cash and to improve the utilization of excess funds. Cash management will be successful only if the cash collections are accelerated and disbursements as far as possible are delayed.

Techniques of cash Control 1. Concentration banking 2. Lock Box system 3. Collection float 4. Disbursement float

RESEARCH METHODOLOGY
Research is a systematic and continues method of defining a problem, collecting the facts and analyzing them, reaching conclusion forming generalizations. Research methodology is a way to systematically solve the problem. It may be understood has a science of studying how research is done scientifically. In it we study the various steps that all generally adopted by a researcher in studying his research problem along with the logic behind them. The scope of research methodology is wider than that of research method. Thus when we talk of research methodology we not only talk of research methods but also consider the logic behind the method we use in the context of our research study and explain why we are using a particular method. So we should consider the following steps in research methodology: Meaning of research Problem statement Research design Sample design Data collection Analysis and Interpretation of data

Meaning of Research
Research is defined as a scientific & systematic search for pertinent information on a specific topic. Research is an art of scientific investigation. Research is a systemized effort to gain new knowledge. It is a careful inquiry especially through search for new facts in any branch of knowledge. The search for knowledge through objective and systematic method of finding solution to a problem is a research.

PROBLEM STATEMENT The research problems, in general refers to sum difficulty with a researcher experience in the contest of either a particular a theoretical situation and want to obtain a salutation for same. The present project has been undertaken to do the Working capital requirement of Omaxe Limited.. RESEARCH DESIGN A research is the arrangement of the conditions for the collections and analysis of the data in a manner that aims to combine relevance to the research purpose with economy in procedure. In fact, the research design is the conceptual structure within which research is conducted; it constitutes the blue print of the collection, measurement and analysis of the data. As search the design includes an outline of what the researcher will do from writing the hypothesis and its operational implication to the final analysis of data. The design in such studies must be rigid and not flexible and most focus attention on the following; o What is the study about? o Why is the study being made? o Where will the study be carried out? o What type of data is required? o Where can be required data be found? o What period of time will the study include? o What will be sample design? o What techniques of data collection will be used? o How will the data be analyzed? o In what style will the report be prepared?

Research Design can be categorized as:

TYPES OF RESEARCH DESIGN

EXPLORATORY RESEARCH DESIGN

DESCRIPTIVE & DIAGNOSTIC RESEARCH DESIGN

EXPERIMENTAL RESEARCH DESIGN

The present study is Descriptive in nature, as it seeks to discover ideas and insight to brig out new relationship. Research design is flexible enough to provide opportunity for considering different aspects of problem under study. It helps in bringing into focus some inherent weakness in enterprise regarding which in depth study can be conducted by management. SAMPLING DESIGN: A sample design is a definite plan for obtaining a sample from the sampling frame. It refers to the technique or the procedure that is adopted in selecting the sampling units from which inferences about the population is drawn. Sampling design is determined before the collection of the data. Several decisions have to be taken in context to the decision about the appropriate sample selection so that accurate data is obtained and efficient results are drawn. Following questions have to be considered while sampling design What is the relevant population? What is the parameter of interest? What is the sampling frame? What is the type of sample? What sample size is needed? How much will it cost?

DATA COLLECTION

After the research problem has been identified and selected the next step is to gather the requisite data. While deciding about the method of data collection to be used for the the researcher should keep in mind two types of data VIZ. primary and secondary

TYPES OF DATA

PRIMARY DATA

SECONDRY DATA

PRIMARY DATA: The primary data are those, which are collected afresh and for the first time, and thus happened to be original in character. We can obtain primary data either through observation or through direct communication with respondent in one form or another or through personal interview. METHODS OF PRIMARY DATA

OBSERVATION METHOD

INTERVIEW METHIOD

QUETIONAIRE METHOD

SCHEDULE METHOD

SECONDARY DATA: The secondary data on the other hand, are those which have already been collected by someone else and which have already been passed through the statistical processes. When the researcher utilizes secondary data then he has to look into various sources from where he can obtain them. For e.g. Books, magazine, newspaper, Internet, publications and reports. In the present study I have made use of secondary data collected from their website and from their records.

Analysis and Interpretation of Data

The data collected in the aforesaid manner have been tabulated in condensed from to draw the meaningful results. The different techniques are adopted to analyze the data. All the data and material is arranged through internal resources and the last part of the project consists of the conclusions drawn from the report, a brief summary and recommendation and giving the final touch to the report by stating a conclusion.

STATISTICAL TOOLS
An educated citizen needs an understanding of basic statistical tool to function in a world that is becoming increasingly dependant on quantitative information. Statistics means numerical description to most people. In fact the term statistics is generally used to mean numerical facts and figures such as agriculture production during a year, rate of inflation and so on. However as a subject of study, statistics refers to the body of principles and procedures developed for the collection, classification, summarization and interpretation of numerical data and for the use of such data.

MEANING:Broadly speaking, the term statistics has been generally used in two senses: Plural Sense Singular Sense Plural sense refers to the numerical data. Singular Sense refers to a Science in which we deals with the techniques of collecting, classifying, presenting, analyzing and interpreting the data, the concept in its singular sense, refers to Statistical Method. PURPOSE:Without the assistance of Statistical Method, an organization would find it impossible to make sense of the huge data. The purpose of statistics is to: Manipulate

Summarize investigate

The data so that useful decision making information results could be found out. In fact, every business manager needs a sound background of statistics. Statistics is a set of Decision Making techniques which aids businessman in drawing inferences from the available data.

STATISTICAL TOOLS:Statistical tools are the basic measures, which helps in defining the relation between different items, present, past and future trend of the future trend of the particular business etc. A wide variety of statistical tools are available and any of them can be used by any businessman depending upon the nature of his trade.

RATIO ANALYSIS TECHNIQUES

A ratio: Is the mathematical relationship between two quantities in the form of a fraction
or percentage.

Ratio analysis: is essentially concerned with the calculation of relationships which after
proper identification and interpretation may provide information about the operations and state of affairs of a business enterprise. The analysis is used to provide indicators of past performance in terms of critical success factors of a business. This assistance in decision-making reduces reliance on guesswork and intuition and establishes a basis for sound judgment. Note: A ratio on its own has little or no meaning at all. Consider a current ratio of 2:1. This means that for every 1 monetary value of current liabilities there are 2 of current assets. However each business is different and each has different working capital requirements. From this ratio, we cannot make any comments about the liquidity of the business, whether it carries too much or too little working capital. Significance of Using Ratios The significance of a ratio can only truly be appreciated when: 1. It is compared with other ratios in the same set of financial statements. 2. It is compared with the same ratio in previous financial statements (trend analysis). 3. It is compared with a standard of performance (industry average). Such a standard may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business.

TYPES OF RATIOS
Current Ratio
Years Current Assets (A) Current Liabilities (B) Current Ratio (A/B)

2004-05 2005-06 2006-07

8560.66 14655.86 9817.62

5486.36 6613.79 6047.60

1.56 Times 2.22 Times 1.62 Times

Current ratio = Current Assets/Current liabilities Years 2004-05 2005-06 2006-07 Current Ratio 1.56 2.22 1.62 .
Current Ratio 2.5 2 1.5 1 0.5 0 2004-05 2005-06 years 2006-07 Current ratio (times)

Current Ratio

Interpretation:
The standard amount of current ratio is 2:1 . It means that current liabilities would be paid even if 50 % fall in the price of current assets. The greater this ratio, better will be the short term solvency of the firm and more safe will be the interests of short term creditors. In year 2004-05 and 2006-07 it is less than the standard that means it has not sufficient current assets to paid the liabilities , but it is not too less and even in 2005-06 it is above standard. So short term solvency of firm is satisfactory.

.Quick Ratio:

Years 2004-05 2005-06 2006-07

Liquid Assets (A) 6395.79 10664.52 7263.23

Current Liabilities (B) 5486.36 6613.79 6047.60

Quick Ratio (A/B) 1.17 Times 1.61 Times 1.20 Times

Quick ratio = Liquid assets/current liabilities

Years 2004-05 2005-06 2006-07

Quick ratio 1.56 1.61 1.2

Quick ratio Quick ratio (times) 2 1.5 1 0.5 0 2004-05 2005-06 years 2006-07 Quick ratio

Interpretation:
A liquid ratio of 1:1 is a standard ratio. Sometimes the current ratio is high because of large proportion of stock but due to low liquidity ratio the short financial position of business is weak. As from 2004-05 to 2006-07 it is above the standard So we can say that the firm has good liquidity position

Return on total assets ratio:

Years 2004-05 2005-06 2006-07

profit before interest and tax (A)

1515.47 1829.28 1608.34

total assets
(B) 8797.34 14921.79 9817.62

Return on total assets Ratio

(A/B*100) 17.23% 12.26% 16.38%

Return on total assets = profit before interest and tax/total asset Years 2004-05 2005-06 Return on total assets 17.23 12.26

2006-07

16.38

Return on total assets Return on total assets (%) 20 15 10 5 0 2004-05 2005-06 years 2006-07

Return on total assets

Interpretation:
With the help of this ratio overall profitability of all the resources can be evaluated. Total assets is equal to sum of fixed assets and current assets. From 2004-05 to 2006-07 return on total assets is 17.23, 12.26, 16.38 % respectively. So we can say that overall profitability on all resources decreases over the years

Debt to Equity ratio:

Debt-to-equity ratio = Total debt Total equity Years 2004-05 2005-06 2006-07 Total debt (A) 10567.21 11512.38 12636.49 Total equity (B) 790.72 2011.22 4610.39 Years Debt-to-equity ratio(A/B) 13.36 5.72 2.74 Debt-Equity Ratio 13.36 5.72 Debt-Equity Ratio 2.74

Debt-Equity Ratio Debt-Equity ratio 15 10 5 0 2004-05 2005-06 2006-07 years

2004-05 2005-06 2006-07

Interpretation:
This ratio is very significant for the evaluation of capital structure of firm. The standard of this ratio is 1:1. The debt equity ratio from 2004-05 to 2006-07 is 13.36, 5.72, 2.74 respectively. So it is decreasing over the years but it is not satisfactory . It has to use more equity in its capital structure because if debt equity ratio is high, it has to bear a burden of fixed interest and it will also have to accept restrictive conditions for raising further funds in future.

Earning per share ratio:

Years

Net profit after tax and No of equity preference dividend/ (A) shares (B)

Earning per share Ratio

(A/B) 6.26 8.55 8.06

2004-05 2005-06 2006-07

816829714.8 1284205229.1 1248925048.8

130483980 150199442 154953480

Earning per share= Net profit after tax and preference dividend/no of equity shares
Years 2004-05 2005-06 2006-07 Earning per share 6.26 8.55 8.06

Earning per share Earning pershare ratio(Rs) 10 8 6 4 2 0 2004-05 2005-06 2006-07 Years

Earning per share

Interpretation:
This ratio measures the earning per share available to ordinary shareholders. This ratio is quite significant as it affects the market value of share. By comparing EPS with other firms management can know whether ordinary share capital is being utilized effectively or not. From 2004-05 to 2005-06 EPS is increasing from Rs 6.26 to 8.55 and in the year 2006-07 it is little decreased to Rs 8.06.

Dividend per share:

Years 2004-05 2005-06 2006-07 Profit distributed to equity shareholders A) 1304839800 2252991630 2324302200 No. of equity shares (B) 130483980 150199442 154953480 DPS (A/B) 10 15 15

DPS= Profit distributed to equity shareholders/No. of equity shares Years 2004-05 2005-06 2006-07 Dividend per share 10 15 15

Dividend per share 20 DPS(Rs) 15 10 5 0 2004-05 2005-06 2006-07 Years Dividend per share

Interpretation:
The dividend distributed per share to shareholders is increasing from Rs. 10 to Rs15 from year 2004-05 to 2006-07.It means that it distributed dividend to shareholders rather than retain the earnings in its business.

Dividend payout ratio:

Years DPS (A) EPS (B) 2004-05 10 6.26 2005-06 15 8.55 2006-07 15 8.06 Dividend payout ratio = Dividend payout ratio (A/B*100) 159.74 175.44 186.10

Dividend per share Earning per share Years 2004-05 2005-06 2006-07 Dividend payout ratio 159.74 175.44 186.10

Dividend payout ratio Dividend payout ratio(%) 190 180 170 160 150 140 2004-05 2005-06 2006-07 Years

Dividend payout ratio

Interpretation:
The dividend payout ratio from the year from 2004-05 to 2006-07 shows that the dividend paid by the firm increases from year by year. More the dividend payout ratio of the firm, lesser is the earnings of the firm retained in business for investment purposes.

NAV per share Ratio:

Years 2004-05 2005-06 2006-07

Net Assets (A) 4468690000 5497790000 11709720000

weighted no. of average equity shares outstanding (B) 130483980 150199442 154953480

Current Ratio (A/B)Rs 34.24 36.60 75.57

NAV per share= Net assets/weighted no. of average equity shares outstanding Years 2004-05 2005-06 2006-07 Net asset value per share 34.24 36.6 75.57

Net asset value per share NAV per share (Rs) 80 60 40 20 0 2004-05 2005-06 2006-07 years

Net asset value per share

Interpretation:
The NAV per share is increasing over the years from 2004-05 to 2006-07 i.e from 34.24 to 75.57 Rs. It indicates that worth of total assets underlying in the firm increases per share over the years.

Return on net worth

Years 200405 200506 200607 Return on net worth= Profit after taxation/net worth *100 Years 2004-05 2005-06 2006-07
Return on net worth Return on Net Worth (%) 65 60 55 50 2004-05 2005-06 years 2006-07 Return on net worth

Profit after taxation (A) 50.36 1188.15 2572.62

net worth (B) 790.72 2011.22 4610.39

Return on net worth Ratio (A/B*100) 63.69% 59.08% 55.80%

Return on net worth 63.69 59.08 55.8

Interpretation:
This ratio indicates how effectively the funds of shareholders are being utilized Relative profitability and soundness can be evaluated by comparing this ratio with other firms.The return on net worth are decreasing over the years i.e from 63.69 to 55.8%. So it means that funds of shareholders are not properly utilized.

Cash earnings per share:

Years Profit after tax but weighted no. of average before depreciation (A) equity shares outstanding (B) 2004-05 2005-06 2006-07 1238970000 1306780000 1284210000 130483980 150199442 154953480 Cash earnings per share Ratio (A/B*100) 9.5% 8.7% 8.29%

Cash earnings per share= Profit after tax but before depreciation/ weighted no. of average equity shares outstanding Years 2004-05 2005-06 2006-07 Cash earnings per share 9.5 8.7 8.29

Cash earnings per share Cash earnings per share (Rs) 10 9.5 9 8.5 8 7.5 200405 200506 years 200607

Cash earnings per share

Interpretation:
This ratio indicates total amount of cash earnings per share. More the cash earnings more is the beneficial for the firm.Cash earnings decreases from 9.5 to 8.29Rs from 2004-05 to 2006-07. So it needs to takecare of amount of cash earnings per share.

Profit before tax to operating income:

Years 2004-05 2005-06 2006-07 Profit before tax (A) 1067891163 1669264746 2307699682 Operating income (B) 456248829 627383424 884430705 PBT to operating income (A/B*100) 2.34 Times 2.61 Times 2.61 Times

Profit before tax to operating income= Profit before tax/ Operating income Years Profit before Tax to operating income 19.32 19.49 19.44

2004-05 2005-06 2006-07

Profit before Tax to operating income PBT to operating income (%) 19.6 19.5 19.4 19.3 19.2 2004-05 2005-06 2006-07 years

Profit before Tax to operating income

Interpretation:
This ratio indicates excess amount of profit earned over the operating income. In the year 2004-05 to 2006-07 it is 19.32, 19.49, 19.44% respectively. The profit is decreasing in 2005-06 as compared to 2004-05 but it again increases in 2006-07

Fixed assets to proprietors funds ratio:

Years Fixed Assets (A) Proprietors funds (B) FA to PF Ratio (A/B*100)

2004-05 2005-06 2006-07

236.68 258.35 382.60

345.47 3876.15 4610.39

6.93% 6.67% 8.30%

Fixed assets to proprietors funds ratio= Fixed assets/Proprietors funds Years Fixed assets to proprietors funds Ratio 6.93 6.67 8.3

2004-05 2005-06 2006-07

Fixed assets to proprietors funds Ratio FA to proprietors funds ratio (%) 10 8 6 4 2 0 2004-05 2005-06 2006-07 years

Fixed assets to proprietors funds Ratio

Interpretation:
The main objective of this ratio is to find out what proportion of owners funds are invested in fixed assets.The lower the ratio the better will be the long term solvency of business because proprietors funds will be available for working capital also.From 2004-05 to 200607 it is 6.93, 6.67 & 8.3% respectively.So it is increasing in 2006-07. They should invest less in fixed assets so that funds will be available for working capital also.

Current assets to proprietors funds ratio:

Years 2004-05 2005-06 2006-07 Current Assets (A) 8560.66 14655.86 9817.62 Proprietors funds (B) 3415.47 3876.15 4610.39 CA to PF Ratio (A/B) 2.51 Times 3.78 Times 2.13 Times

Current assets to proprietors funds ratio= Current assets/Proprietors funds

Years

2004-05 2005-06 2006-07

Current assets to proprietors funds Ratio 2.51 3.78 2.13

Current assets to proprietors funds Ratio CA to proprietors funds ratio 4 3 2 1 0 2004-05 2005-06 2006-07 years

Current assets to proprietors funds Ratio

Interpretation:
The main objective of this ratio is to find out what proportion of owners funds are invested in current assets. In the years from 2004-05 to 2006-07 the investment in current assets 2.51, 3.78, 2.13 respectively. The company has invest more on fixed assets than current assets. It need to invest more funds in current assets.

Capital gearing ratio:

Years 2004-05 2005-06 2006-07 Equity share capital (A) 790.72 2011.22 4610.398 Fixed cost bearing capital (B) 10567.21 11512.38 12636.49 Capital gearing Ratio (A/B) 0.07 Times 0.17 Times 0.36 Times

Capital gearing ratio= Equity share capital/Fixed cost bearing capital Years 2004-05 Capital gearing Ratio 0.07

2005-06 2006-07

0.17 0.36

Capital gearing Ratio capital gearing ratio 0.38 0.36 0.34 0.32 0.3 2004-05 2005-06 2006-07 years

Capital gearing Ratio

Interpretation:
The main objective of using fixed cost bearing capital in the capital structure is to maximize the return for equity shareholders.As it indicates that capital gearing ratio is increases over the years from 2004-05 to 2006-07 i.e from 0.07 to 0.36 so it means that fixed cost bearing securities are more than equity share capital

Return on capital employed:

Years 2004-05 2005-06 2006-07 Profit before tax and interest (A) 1515.47 1829.28 1608.34 Capital employed (B) 3310.98 8308 3770.02 ROCE Ratio (A/B*100) 45.77% 22.02% 42.66%

Return on capital employed= Profit before interest and tax/Capital employed*100 Years Return on capital employed 45.77 22.02 42.66

2004-05 2005-06 2006-07

Return on capital employed Return on capital employed (%) 50 40 30 20 10 0 2004-05 2005-06 2006-07 years

Return on capital employed

Interpretation:
This ratio helps the management in finding out how much efficiency capital employed in business is being used. From 2004-05 to 2006-07 tne return on capital employed is 45.77, 22.02, 42.66% Respectively. In the year 2005-06 only 22.02 % of capital employed in business is being used. Except this year the capital employed in business is utilized in sufficient manner.

Schedule of Change In Working Capital

For the year ended 31st December 2007

(Rs. In Million) Particulars Years 2005-06 2006-07 Change In Working Capital Increase in working Decrease In capital Working Capital 1436.95 52.87 65.97 3105.98

Current Assets:Inventories Sundry debtors Cash & Bank Balance Projects in progress 2554.39 169.28 919.33 6174.62 9817.62 3991.34 116.41 985.30 9280.60 14373.65

Total current Assets(A) Current Liabilities:Bank overdraft Interest accrued but not due on loans Advances and deposits received Sundry creditors Due to directors Other liabilities Total current Liabilities(B) Net Working Capital (A-B) Net Increase In working Capital Total

173.71 8.52 1432.37 3543.96 107.85 67.23 5333.64 4483.98 3022.1 7506.08

148.53 148.22 2512.40 3966.42 23.13 68.87 6867.57 7506.08

25.18 139.7 1080.03 422.46 84.72 1.64 3022.1

7506.08

4718.8

4718.8

Comments
In 2006-07, Inventories increase by 36%, Projects in progress increased by 33%, Sundry debtors decrease by 45%, cash and bank balances increased by 27%, Sundry creditors decreases by 11% and Bank overdraft decreases by 14% in comparison to 200506.

Schedule of Change In Working Capital

For the year ended 31st December 2005 (Rs. In Million) Particulars Years 2003-04 2004-05 Change In Working Capital Increase in Decrease In

working capital Working Capital

Current Assets:Inventories Sundry debtors Cash & Bank Balance Projects in progress 1875.14 208.82 734.65 4567.38 7385.99 2164.87 190.87 868.24 5336.68 8560.66 133.59 769.3 289.73 17.95

Total current Assets(A) Current Liabilities:Bank overdraft

196.39

184.12 7.42 1224.96 4312.76 130.89 65.41 5925.56 2635.1

12.27 2.25 33.38 325.48 17.37 7.09

Interest accrued but not due on 5.17 loans Advances & deposits received 891.16 Sundry creditors Due to directors Other Liabilities Total current Liabilities(B) Net Working Capital (A-B) Net Increase Capital Total In 4638.24 148.26 58.32 5937.54 1448.45

working 1186.65 2635.1 2635.1 1547.74

1186.65 1547.74

Comments
In 2004-05, Inventories increase by 15%, Projects in progress increased by 17%, Sundry debtors decrease by 9%, cash and bank balances increased by 18%, Sundry creditors decreases by 7% and Bank overdraft decreases by 6% in comparison to 2003-04.

Schedule of Change In Working Capital

For the year ended 31st December 2003 Particulars Years 2001-02 2002-03 (Rs. In Million) Change In Working Capital Increase in Decrease In working capital Working Capital 189.49

Current Assets:Inventories 1492.87 1682.36

Sundry debtors Cash & Bank Balance Projects in progress

278.37 674.27 4065.81 6511.32

244.15 711.52 4312.27 6950.3 37.25 246.46

34.22

Total current Assets(A) Current Liabilities:Bank overdraft Interest accrued but not due on loans Advances & deposits received Sundry creditors Due to directors Other Liabilities Total current Liabilities(B) Net working Capital (A-B) Net Increase In working Capital Total

234.97 4.23 795.36 5219.34 170.19 46.71 6470.8 40.52 628.06 668.58

204.18 4.87 849.32 5012.47 158.64 52.24 6281.72 668.58

30.79 0.64 53.96 206.87 11.55 5.53

628.06 668.58 722.41 722.41

Comments
In 2002-03, Inventories increase by 13%, Projects in progress increased by 6%, Sundry debtors decrease by 12%, cash and bank balances increased by 5%, Sundry creditors decreases by 11% and Bank overdraft decreases by 13% in comparison to 200102.

LIMITATION OF THE STUDY

In spite of best efforts made in the project, the study was subjected to following limitations:1. Some officers were too busy to give a sincere response to investigators & their response may not relate to real picture. 2. Manager some time denied to disclose some important financial matters, which can be helpful in this study.

3. The time period given to me for the completion of the project was short, in such a short span of time it is difficult to complete any project in detail. 4. Some information related to the study, which had been collected from the company was rounded off because of some influence. 5. Apart from taking personal interview of various members of organization, all the data are taken from secondary sources. 6. There was no proper arrangement and facilities provided for the trainees in the organization. 7. As there are many techniques of analyzing working capital and financial statements of the firm, So Result may not be adequate.

TREND ANALYSIS
To apply the statistical tool in this project TREND ANALYSIS is the most effective tool which is applied here. When estimates of future conditions are made on a systematic basis, the process is referred as forecasting and the figure or statement obtained is known as forecast. In this world of uncertainness, economic decision rest upon a forecast of future condition. Forecasting is concerned with mainly two tasks:- the determination of best basis available for formation of intelligent managerial expectations, and second handling of uncertainty about future. UTILITY OF TREND ANALYSIS: To study the past behaviour of data To forecast the future behaviour Estimation of Trade Cycles Comparison with other Time Series Study of present variations

TREND ANALYSIS OF PROFIT:-

YEAR 2002-03 2003-04 2004-05 2005-06 2006-07 N=5

Profit (mn.) Y 47.67 83.48 50.36 1188.15 2572.62 Y= 3942.48

Deviations from 2004-05 (X) -2 -1 0 1 2 X=0

XY -95.34 -83.48 0 1188.15 5145.24 XY=6154.57

x2 4 1 0 1 4 2 x =10

The equation of the straight line trend is Y= a + bX Since X=0, a = Y/ N, b = XY/ x2 Substituting values, we get a = 3942.48/5 = 788.5; b = 6154.57/10 = 615.46 Thus the straight line trend is Y= 788.5 + 615.46(X), Origin = 2004-05, X unit = 1 Year, TREND ANALYSIS 3500 3000 2500 2000 1500 1000 500 0 3250.34 2572.622634.88 2019.42 1403.96 1188.15 788.5

Profit (Mn)

173.04 47.67 83.48 50.36 -442.42 -500 2002-032003-042004-052005-062006-072007-082008-09 -1000 YEAR

TREND ANALYSIS OF REVENUE:-

YEAR 2002-03 2003-04 2004-05 2005-06 2006-07 N=5

Revenue (mn.) Y 1455.56 2837.25 3965.99 8198.62 14396.79 Y=30854.21

Deviations from 2004-05 X -2 -1 0 1 2 X=0

XY

x2

-2911.12 4 -2837.25 1 0 0 8198.62 1 28793.58 4 2 XY=31243.33 x =10

The equation of the straight line trend is Y= a + bX Since X=0, a = Y/ N, b = XY/ x2 Substituting values, we get a = 30854.21/5 = 6170.84; b = 31243.33/10 = 3124.33 Thus the straight line trend is Y= 6170.84 + 3124.33(X), Origin = 2004-05, X unit = 1 Year,

TREND ANALYSIS
20000 15000 10000 5000 0 6170.84 3965.99 9295.17 8198.62 3046.51 2837.25 1455.56 -77.82 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 R e v e n u e ( M n) 18668.16 15543.83 14396.79 12419.5

-5000

YEAR

CORRELATION
Some important definitions of correlation are given below:

Correlation analysis deals with the association between two or more variables- Simpson and Kafka. If two or ore quantities vary in sympathy, so that movement in one tend to be accompanied by corresponding movements in the other, then they are said to be correlatedConner. Correlation analysis attempts to determine the degree of relationship between variables.

Types
Correlation is classified in several different ways. Three of the most important ways are: Positive and Negative Correlation: When two variable X and Y move in same direction is Positive Correlation and when both variables move in opposite direction that is Negative Correlation. Simple, Partial and Multiple Correlations: When we study the relationship between two variables only that is Simple Correlation. When three or more variables are taken but relationship between any two of the variable is studied, assuming other variables as constant that is Partial Correlation and when we study the relationship among three or more variables that is Multiple Correlation. Linear and Curvi-Linear Correlation: when the ratio of change of two variables X and Y remains constant throughout, then they are said to be Linear Correlated and when the ratio of change between the two variables is not constant but changing, then correlation is said to be Curvi-Linear.

DEGREE OF CORRELATION:Sr. No. 1 2 Degree of correlation Positive Perfect correlation +1 High Degree of Between +.75 to+1 Negative -1 Between -.75 to-1

3 4 5

correlation Moderate Degree of Between Correlation Low Degree Correlation Absence Correlation

+.25 Between -.25 to-.75 Between 0 to-.25 0

to+.75 of Between 0 to+.25 of 0

WHY TO USE CORRELATION?

Different type of statistical tool are available but for using specifically correlation is of having a major reason i.e. Only this and this statically tool was giving the satisfactory result. I have to show the relationship between sales and profit which can be purely defined with the help of this statistical tool only. Further more with the help of Time Series Analysis we can define the future trend of the business by using Trend Analysis but my main motive is to find out the relationship between sales and profit of the company thats why I use this Particular type of tool only. Why to use Karl Pearsons Coefficient of Correlation? 1. Quantitative Method. 2. Best method of working out Correlation Coefficient. 3. Knowledge of Degree of Relationship. CORRELATION OF PROFIT AND REVENUE:YEAR 2002-03 2003-04 2004-05 2005-06 2006-07 Profit 47.67 83.48 50.36 1188.85 2572.62 Revenue 1455.56 2837.25 3965.99 8198.62 14396.79

r=

N dxdy - (dx) dy) N dx2 - (dx)2 Where N = Number of Observations dx =deviations from X (X-A) A =Assumed Mean dy =deviations from Y (Y-A) N dy2 - (dy)2

Profit (X)

A= 83.48 (X-A)=dx

dx2

Revenue(Y)

A= 3965.99 (Y-A)= dy -2510.43 -1128.74 0 4232.63 10430.8 dy=

dy2

dxdy

47.67 83.48 50.36 1188.85 2572.62

-35.81 0 -33.12 1105.37 2489.14 dx=3525.58

1282.36 0 1096.93 1221842.84 6195817.94 dx2=7420040.07

1455.56 2837.25 3965.99 8198.62 14396.79

6302258.78 1274053.99 0 17915156.72 108801588.64 dy2

89898.50 0 0 4678622.2231 25963721.512 dxdy= 30732242.24

11024.26 =134293058.13

r=

N dydx - (dx) (dy) N dx2 - (dx)2 N dy2 - (dy)2

r=

22958860.13 23295518.51

r=

0.985

CORRELATION OF CAPITAL:YEAR

PROJECTS IN PROGRESS

AND WORKING

PROJECTS IN PROGRESS WORKING CAPITAL:40.52 668.58 1448.45 2635.1 5497.79 11709.72

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

4065.81 4312.27 4567.38 5336.68 6174.62 9280.6

r=

N dxdy - (dx) dy) N dx2 - (dx)2 Where N = Number of Observations dx =deviations from X (X-A) A =Assumed Mean dy =deviations from Y (Y-A) N dy2 - (dy)2

Projects in progress (X)

4065.81 4312.27 4567.38 5336.68 6174.62 9280.60

A= 6174.62 (X-A)=dx

dx2

Working

A= (Y-A)=

dy2

dxdy

capital(Y) 2635.10 dy -2594.58 -1966.52 -1186.62 0 2862.69 9074.62 dy= 6189.56

-2108.81 -1862.35 -1607.24 -837.94 0 3105.98 dx=(3310.36)

4447079.61 3468347.52 2583220.42 702143.44 0 9647111.76 dx2=20847902.75

40.52 668.58 1448.45 2635.1 5497.79 11709.72

6731845.37 3867200.91 1408138.22 0 8194994.04 82348728.14 dy2 =102550906.68

5471476.25 3662348.52 1907231.35 0 0 28185588.23 dxdy= 39226644.35

r=

N dydx - (dx) (dy) N dx2 - (dx)2 N dy2 - (dy)2

r=

42641589.66 42769327.93

r=

0.997 CORRELATION OF INVENTORY AND REVENUE:

YEAR 2002-03 2003-04 2004-05 2005-06 2006-07

Inventory
1682.36 1875.14 2164.87 2554.39 3991.34

Revenue 1455.56 2837.25 3965.99 8198.62 14396.79

r=

N dxdy - (dx) dy)

N dx2 - (dx)2 Where

N dy2 - (dy)2

N = Number of Observations dx =deviations from X (X-A) A =Assumed Mean dy =deviations from Y (Y-A)

Inventory A=2554.39 (X) (X-A)=dx

dx2

Revenue(Y)

A= 3965.99 (Y-A)= dy -2510.43 -1128.74 0 4232.63 10430.8 dy=

dy2

dxdy

1682.36 1875.14 2164.87 2554.39 3991.34

-872.03 -679.25 -389.52 0 1436.95 dx=(503.85)

760436.32 461380.56 151725.83 0 2064825.30 dx2=3438368.01

1455.56 2837.25 3965.99 8198.62 14396.79

6302258.78 1274053.99 0 17915156.72 108801588.64 dy2

2189170.27 766696.65 0 0 14988538.06 dxdy= 17944404.98

11024.26 =134293058.13

r=

N dydx - (dx) (dy) N dx2 - (dx)2 N dy2 - (dy)2

r=

19055319.66 19302534.41

r=

0.9

COR-RELATION TEST
PROFIT 47.67 83.48 50.36 1188.85 2572.62 REVENUE 1455.56 2837.25 3965.99 8198.62 14396.79

XLSTAT 7.1 - Correlation Tests - 9/9/2007 at 4:44:14 AM Variable 1: workbook = documents piyush.xls / sheet = Sheet2 / range = $C$4:$C$8 Variable 2: workbook = documents piyush.xls / sheet = Sheet2 / range = $D$4:$D$8 Significance level: 0.05

Pearson's correlation coefficient test (parametric test):

Observed value Two-tailed p-value Alpha

0.986 0.002 0.05

Decision: At the level of significance Alpha=0.050 the decision is to reject the null hypothesis of absence of correlation. In other words, the correlation is significant.

COR-RELATION TEST
Projects in progress 4065.81 4312.27 4567.38 5336.68 6174.62 9280.6 Working capital 40.52 668.58 1448.45 2635.1 5497.79 11709.72

XLSTAT 7.1 - Correlation Tests - 9/21/2007 at 9:09:31 AM Variable 1: workbook = Book1.xls / sheet = Sheet1 / range = $D$5:$D$10 / 6 rows and 1 column Variable 2: workbook = Book1.xls / sheet = Sheet1 / range = $E$5:$E$10 / 6 rows and 1 column Significance level: 0.05

Pearson's correlation coefficient test (parametric test): Observed value Two-tailed p-value Alpha 0.997 < 0.0001 0.05

Decision: At the level of significance Alpha=0.050 the decision is to reject the null hypothesis of absence of correlation. In other words, the correlation is significant. Inventories Revenue COR-RELATION TEST 1682.36 1455.56 1875.14 2837.25 2164.87 3965.99 2554.39 8198.62 3991.34 14396.79

XLSTAT 7.1 - Correlation Tests - 9/24/2007 at 3:18:46 PM Variable 1: workbook = Book1 / sheet = Sheet1 / range = $E$10:$E$14 / 5 rows and 1 column Variable 2: workbook = Book1 / sheet = Sheet1 / range = $F$10:$F$14 / 5 rows and 1 column Significance level: 0.05

Pearson's correlation coefficient test (parametric test): Observed value Two-tailed p-value Alpha 0.987 0.002 0.05

Decision: At the level of significance Alpha=0.050 the decision is to reject the null hypothesis of absence of correlation. In other words, the correlation is significant.

OMAXE LTD.
Cash flow statement for the year ended March 31,2007

A. Cash flow from operating activities

Profit for the year before tax Adjustments for: Depreciation Dividend income Interest income Interest and finance charge Loss on sale of fixed assets Deferred revenue and miscellaneous expenditure Written off Liabilities written off Employee compensation expense Provision for doubtful debts, deposits and Advances Profit on sale of fixed assets Profit on sale of investment

March 31,2007 1829.28 45.12 (21.51) (40.78) 946.89 (0.48) 0.94 12.22 (0.03) (0.37) 2771.28 (1436.95) (3105.97) 47.28 (1946.53) 554.51 (5887.66) (3116.38) 676.31 (3792.69)

March 31,2006 1608.34 32.79 (0.00) (17.35) 204.40 0.18 0.44 (12.03) 16.06 (0.56) 1832.27 (2425.17) (4537.99) (4.18) 1136.61 2859.20 (2971.53) (1139.26) 116.60 (1255.86)

Operating Capital before working capital changes Adjustments for working capital:
Inventories Projects in progress Sundry debtors Loans and advances Current liabilities and provisions Cash used in operating activities Direct tax paid Net cash used in operating activities

(rupees in mio)

B.

Cash flow from investing activities

Purchase of fixed assets Sale of fixed assets Purchase of investments Sale of investments Interest received Dividend received Net cash used in investing activities (135.96) 2.97 (5740.97) 5577.42 40.78 21.51 (234.25) (51.75) 3.84 (86.84) 5.66 17.35 0.00 (111.74)

C.

Cash flow from financing activities

Interest paid Repayment for borrowings Proceeds from borrowings Share issue expenses Dividend and dividend tax paid Net cash generated from financing activities Net increase in cash and cash equivalents Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents (792.73) (2568.48) 7979.00 (70.37) (172.30) 4375.12 348.18 919.33 1267.51 (185.97) (486.48) 2501.52 (16.51) 1812.56 444.96 474.37 919.33

Omaxe Limited
Balance Sheet as at March 31,2007
(Rupees in mio) Sources of funds Shareholders funds Share capital Stock option outstanding Reserves and surplus Loan funds Secured loans Unsecured loans Total Application of funds Fixed assets Gross block Less:depreciation Net block Capital work in progress(including advances on capital account) Investments Deferred tax asset (net) Current assets,loans and advances Inventories Projects in progress Sundry debtors Cash and bank balances Loans and advances 6 7 8 9 10 11 12 382.60 125.84 256.76 9.17 256.93 295.37 11.97 3991.34 9280.60 116.41 1267.51 3667.65 18323.51 258.35 83.18 175.17 2.87 178.04 131.45 4.50 2554.39 6174.62 169.28 919.33 1727.77 11545.39 Schedule 1 2 March 31,2007 1549.53 0.94 1662.22 3212.69 8833.02 307.65 9140.67 12353.36 March 31,2006 774.77 1321.32 2096.09 3710.94 4.75 3715.69 5811.78

3 4

Current liabilities and provisions Current liabilities Provisions Net current assets Miscellaneous expenditure Total

13 14

6445.11 168.68 6613.79 11709.72

5756.10 291.50 6047.60 5497.79 5811.78

15

70.37 12353.36

Omaxe Limited
Profit and loss account fot the year ended March 31,2007

(Rupees in mio)

Chi Square Test

Schedule Income Operating income Other income Expenditure Operating cost Employee cost Administrative cost Selling cost Finance cost Depreciation Profit before tax Provision for tax Current Deferred tax charge(credit) Fringe benefit Profit after tax but before prior tax adjustments Prior year tax adjustments Profit after tax Balance brought forward from previous year Profit available for appropriation Appropriation Issue of bonus shares Interim dividend Proposed dividend Dividend tax Transfer to debenture redemption reserve Transfer to general reserve Balance carried to balance sheet Basic earnings per share (in rupees) Before prior year tax adjustment After prior year taxadjustment Diluted earnings per share (in Rupees) Before prior year tax adjustment After prior year tax adjustment 16 17

March 31,2007 9408.66 66.99 9475.65 6590.40 213.60 405.13 103.89 297.44 35.91 7646.37 1829.28 440.31 (7.47) 11.00 443.84 1385.44 137.14 1248.30 1257.02 2505.32 710.47 116.32 16.31 882.57 779.65 2505.32 8.94 8.06 8.94 8.06

March 31,2006 8251.49 51.14 8302.63 6134.97 102.80 307.62 90.31 35.83 22.76 6694.29 1608.34 329.35 (11.36) 6.33 324.32 1284.02 1284.02 242.42 1526.44 167.91 32.63 4.58 64.30 1257.02 1526.44 8.55 8.55 8.55 8.55

18 19 20 21 22 5

Null Hypothesis

Set up the null hypothesis that observed value of profit matches with Expected value of profit.

Applying Test on the values of profits:

Year 2002-03 2003-04 2004-05 2005-06 2006-07 Observed value (O) 47.67 83.48 50.36 1188.15 2572.62 Expected value (E) -442.42 173.04 788.5 1403.96 2019.42 (O-E) 490.09 -89.56 -738.14 -215.81 553.2 (O-E) 240188.2081 8020.9936 544850.6596 46573.9561 306030.24 (O-E)/E -542.90 46.35 691.00 33.17 151.54 (O-E)/E =379.16

So, = (O-E)/E=379.16 Degree of freedom = = 5-1= 4 The tabulated value of at 5% level of significance for 4 d.f. = 9.48

Result:
Since the calculated value of is more than the table value, so we do not accept the null hypothesis and conclude that Expected value of profit does not matches with Observed value of profit.

Chi-Square Test
Introduction:
The chi-Square test is an important test amongst several tests of significance developed by the statisticians. Chi-Square Symbolically written as 2 is a statistical measure used in the context of sampling analysis for testing the significance of a population variance.As a non-

parametric test, it can be used as a test of goodness of fit and as test of independence of attributes. Procedure Of Chi-Square Set up a null hypothesis Compute the value of 2 by using formula i.e = (O-E)/ Degrees of freedom are worked out by using formula: i.e = n-1 Obtain the table value of with reference to degrees of freedom for the given significanc If the calculated value of > tabulated value of , we reject the null hypothesis and otherwise we accept null hypothesis. problem and desired level of

Expected value of profit -442.42 173.04 788.5 1403.96 2019.42

Observed value of profit 47.67 83.48 50.36 1188.15 2572.62

XLSTAT 7.1 - Contingency Table (Two-Way Table) and Chi-square - 9/20/2007 at 3:26:52 AM Observations/variables table (for the rows of the contingency table): workbook = piyush excel.xls / sheet = Sheet1 /

Observations/variables table (for the columns of the contingency table): workbook = piyush excel.xls / sheet = Shee Uniform weighting (default)

Contingency table: -442.42 1403.96 -442.42 - 1403.96 -442.42 - 173.04 -442.42 - 2019.42 -442.42 - 788.5 47.67 - 1188.15 47.67 - 2572.62 47.67 - 50.36 47.67 - 83.48 1 0 0 0 1 0 0 0 -442.42 173.04 0 1 0 0 0 0 0 1 -442.42 2019.42 0 0 1 0 0 1 0 0 -442.42 788.5 0 0 0 1 0 0 1 0 47.67 1188.15 1 0 0 0 1 0 0 0

Chi-square independence test: Chi-square (observed value) Chi-square (critical value) DF One-tailed p-value Alpha

48.000 66.339 49 0.514 0.05

Decision: At the level of significance Alpha=0.050 the decision is to not reject the null hypothesis of independence between th In other words, the dependence between the rows and the columns is not significant.

Table of observed frequencies: -442.42 1403.96 -442.42 - 1403.96 -442.42 - 173.04 -442.42 - 2019.42 -442.42 - 788.5 47.67 - 1188.15 47.67 - 2572.62 47.67 - 50.36 47.67 - 83.48 Total 1 0 0 0 1 0 0 0 2 -442.42 173.04 0 1 0 0 0 0 0 1 2 -442.42 2019.42 0 0 1 0 0 1 0 0 2 -442.42 788.5 0 0 0 1 0 0 1 0 2 47.67 1188.15 1 0 0 0 1 0 0 0 2

SWOT ANALYSIS OF OMAXE LIMITED

Strengths:
1. Extensive land reserves 2. Ability to identify, acquire and consolidate land. 3. Experience in the construction industry with a track record for quality of construction and for timely delivery of projects. 4. An established brand image and consumer confidence.

5. Ability to identify emerging trends in customer requirement and strong marketing network. 6. They have diversified business within real estate sector. 7. Emphasis on innovation

Weaknesses:
1. The company has not sufficient amount of cash assets to paid out the current liabilities on time. 2. Earnings are not retained in the business for investment on development of projects. 3. More debt funds are used in capital structure as compared to equity capital. 4. Funds of shareholders are not utilized in proper manner. 5. More investment was done on the purchase of fixed assets rather than current assets to finance working capital.

Opportunities:
1. As the company is consistently focusing on innovation, it has the potential to lead in real estate sector. 2. Focus on Tier 2 and Tier 3 cities due to low cost of developing projects. 3. To maintain a spread of different types of residential and commercial projects to mitigate the risk of focusing on one or two types of projects. 4. To enter into key arrangement with strategic partners to enhance real estate development business.

Threats:
1. Competition from Other major real estate players like DLF, Prasavanath developers and Unitech Ltd. Etc. 2. The govt. may exercise rights of compulsory purchase in respect of their lands. 3. Restrictions on foreign direct investment in the real estate sector may hamper their ability to raise additional capital. 4. Their business is susceptible to adverse developments in the region in which they operate.

FINDINGS
1. The current ratio reveals that current assets are not sufficient in a firm to meet current liabilities. Except the year 2005-06, in the year 2004-05 & 2006-07 the current ratio is below the standard level of 2:1 i.e it is 1.56 & 1.62 respectively. 2. The quick ratio reveals that liquidity position of the firm is satisfactory as from the years i.e from 2004-05 to 2006-07 it is above than the standard level. 3. The position of profitability on all resources of a firm is satisfactory, as it is depicted from return on total assets. In the year 2004-05 & 2006-07 the ratio is 17.23 and 16.23% respectively. Although in the year 2005-06 it is low i.e 12.26%. 4. The return on capital employed shows that capital employed in business is being utilized in efficient manner. 5. The debt-Equity ratio shows that although it is decreasing from 2004-05 to 2006-07 but still the firm uses more debts which is more risky for the firm. 6. The return on networth is decreasing from 63.69 to 55.80 % in the years 2004-05 to 2006-07 which shows that shareholders funds are not utilized in efficient manner. 7. Cash earnings per share decreases from 9.5 to 8.29% which shows that there is need to increase the cash earnings. 8. A firm invest more of his funds on purchase of fixed assets in comparison to fixed assets. 9. The capital gearing ratio shows that amount of fixed cost bearing securities are more than amount of equity share capital. 10. Inventory forms the second largest component of working capital. It is 34.9% of total working capital in 2006-07 and 46.46% in year 2005-06. 11. Cash occupies the third place in order of importance among the different components of working capital.The percentage of cash to current assets is 6.92% in year 2006-07 and 7.96% in year 2005-06. 12. The cash to current liabilities ratio is 19.66% in year 2006-07 and 15.97% in year 2005-06.Ascompared to suggested norm of 25% by experts indicated that the organization should maintain sufficient cash to meet current liabilities.

RECOMMENDATIONS
1. More investment should be made in the purchase of current assets in order to increase the working capital of the firm. 2. More amount of equity share capital should be used in the capital structure instead of raising more funds from debt funds.Because debt funds carry more risk it is advisable to use more equity share capital. 3. Inventories sould be maintained at minimum level as it reduces the liquidity of the current assets. 4. Rather than distributing all dividend to shareholders, an attempt is made to retain part of the earnings for investment in profitable projects. 5. In addition to focusssing only in India, it should also expand its operation outside India. 6. It should outsource critical activities like designing, architecture and construction to take advantage of the expertise of reputed companies to reduce costs and to add value to their projects. 7. The excess balance of cash arises in course of business operations should immediately be invested in short term securities. 8. The management of organization should go for professionalism for working capital management. 9. Specific in depth study should be made for each components of working capital separately i.e. inventory, receivables and cash in an organization.

BIBLIOGRAPHY
Books:

1. Aggarwal N.K., Management of working capital, New Delhi, Sterling Publishers (P) Ltd. 2004, Page-125 2. Baruch, Lev., Financial Statement Analysis-A new approach, Englewood cliffs, N.J., Prentice Hall of India, 2006,p-11 3. Choudhary, Anil B., Analysis and Interpretation of Financial statements Through Financial Ratios, Bombay, Orient Longmen, p-69 4. Hampton John J., Financial Decision making, Prentice Hall of India limited, New Delhi, 2004,p-131 5. Kothari C.R., Quantitative Techniques, Vikas publishing house Pvt. Ltd. New Delhi, 2005, p-168- 174. 6. Misra R.K., Problems of working capital management with reference to selected public undertakings in India, New Delhi, Somaiya Publications Pvt.Ltd.,2004, p-326 and 341342. 7. Murthy, V.S., Techniques of financial management, Bombay, Sindhu publication Pvt. Ltd., 2002,p-208-214. 8. Sangan John, Towards a Theory of working capital management, The journal of Finance, Vol.X, May, 2004.p-148-150. 9. Mittal R.K., Management accounting And financial management, New Delhi, V.K. Publications,2006,p51-70. 10. Gupta S.P., Business Statistics, 31st edition, Sultan chand & sons,2005, p-378-418. 11. Chandra Prasanna , Financial Management- Theory and Practice, Tata McGraw Hill Publishing Co. Ltd. , Delhi, 2004, p-297. 12. Pandey I..M., Financial Management, Vikas Publishing House, New Delhi, 2003, p246-250. 13. Ramamoorthy V.E., Working Capital Management, Institute of Financial Management and Research, Madras, 2001, p-336-337.

Articles:
1. Aggarwal Jaidev, working capital management- A survey and Synthesis, New Delhi, Chartered Secretary, Dec. 2003,p-82-84

2. Heath Lloyd C., Is working capital Really working?, Journel of Accountancy, August 2004, p-55-62.

Websites:
1. www.omaxe.com/Background/Residential/commercial properties.htm 2. www.investopedia.com/terms/w//workingcapital.asp 3. www.iif.edu/the_institute/iif_pubwcm.htm

Others:
1. Annual Report Of Omaxe Limited for Three years i.e .From 2004-05 to 2006-07 to study the financial statements of organization. 2. Magazine-The Franchising world dated 30th November2006, Creating Global Lifestyle, p-60-63. 3. Magazine-Business India dated 11th February 2007, The New land Barons, p-58-59.

POLICY IMPLICATIONS
I suggested various policies to organization which I think that if they implemented in the right manner increase the earnings of the firm which in turn increases the goodwill of the firm. If the goodwill of firm is good in the market, then it will raise funds at low interest rates. The various policies that should be applied in an organization on the basis of my study of working capital management of organization are as follows: 1. Firstly, I suggested that the organization sould invest more on purchase of current assets as compared to fixed assets because no doubt that working capital of firm increases but it is not increasing in the manner as it should be to paid the current liabilities on time and toincrease the liquidity of firm. 2. Secondly the organization is raising more funds from debt capital as compared to equity share capital . This will result in bearing more cost for raising capital along with more risk associated with raising debt capital. 3. Inventories and receivables of firm are increasing over the years but efforts will be made so that lesser funds are tied in purchase of inventories to maintain adequate working capital position at all times in a year.

The management replied that they will think over the suggestions offered by me in efficient management of working capital and implementation of policy on the related issues depend upon the result of discussion among the top executives of an organization.

CONCLUSION

After all study of the project of working capital management in Omaxe limited, the result which I found in this study are as follow:1. The organization is more dependent on debt funds as compared to raising funds from equity share capital. It should raise more funds from equity share captal. 2. Better planning and control of working capital in the field of finance helped the organization to achieve better efficiency in working capital management. 3. Turnover of working capital is largely governed by turnover of inventory. The rising trend of inventory indicated efficient and sound inventory management.The management could avoid excess locking of working capital in different components of working capital by exercising strict control over it. 4. Cash is the most liquid asset and is of vital importance for the daily operations of business firm. Cash is bothe the end and beginning of working capital cycle.Its effective management is a key determinant of efficient working capital management. 5. The company has satisfactory liquidity position. They had current ratiuo marginally less than the generally accepted standard norm 2:1, but the quick ratio was more than 1:1.