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 ( HOD-MBA 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

Omaxe Limited

Designation

Chairman & Managing Director

Commencement
of Operations in
India

08-03-1989

Main area of
Operation
No. Of
Permanent
Employees of
Organisation

Real Estate development and Construction Company

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.

Omaxe House 7, Local Shopping Centre Kalkaji,

New Delhi-110019
91-11 41896680
91-11 41896798
Mr. Rohtas Goel

1100

MAJOR EVENTS OF COMPANY`

OMAXE LIMITED

Year

Event

March 1989

Omaxe Builders private Limited was incorporated

March 1997

Changed their name to Omaxe construction Private Limited

August 1999

Converted to a public company with the name of Omaxe

2003

construction limited.
First integrated Township NRI City in Greater Noida

2004

First theme mall in India Launch of The Forest luxury

March 2006

apartments
Received ISO 9001:2000 rating from Det Norske Veritas in relation
to Real estate development & construction of Housing complexes,

June 2006

Shopping Malls,Utilities & other infrastructure Projects.

Changed their name to Omaxe Limited

July 2006

Received 5A2 rating from D&B Rating for financial strength and
the composit appraisal of the company.

August 2006

Received PR1 rating from Credit analysis and Research Limited

for strong capacity for timely payment of short term debt

September 2006

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.

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.directories-today.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 2004-05. 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,

constructional engineers of every type of builders and contractors.

OMAXE LIMITED

engineers

and

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:-

1. To study organizations working capital financial mix.

2. To study the growth & performance of OMAXE LTD.
3. To study the objectives of the financial management.
4. To study about the working requirement of company.
5. To study inflows & outflows of the funds.
6. To analyze & interpret the financial management.
7. To locate weakness & suggest various suggestions.
8. To study the functioning of the organization.
9. To study the financial health of the organization.
10. 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

working capital

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.

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.

3. 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 dayto-day 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.

5.

CREDIT POLICY :Credit policy affects the working capital requirements in two ways:
(a)
(b)

Terms of credit allowed by customer to the firm,

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

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

Collect receivables
(debtors) slower

Your receivables
soak up cash

Get better credit (in terms

of duration or amount)

You increase your

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

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

Current Year

Previous Year Increase

Decrease

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

DESCRIPTIVE
&
DIAGNOSTIC
RESEARCH DESIGN

EXPLORATORY
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
8560.66
5486.36
1.56 Times
2005-06
14655.86
6613.79
2.22 Times
2006-07
9817.62
6047.60
1.62 Times
Current ratio = Current Assets/Current liabilities
Years
2004-05

Current Ratio
1.56

2005-06

2.22

2006-07

1.62
.

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 Liquid Assets (A) Current Liabilities (B) Quick Ratio (A/B)
2004-05
6395.79
5486.36
1.17 Times
2005-06
10664.52
6613.79
1.61 Times
2006-07
7263.23
6047.60
1.20 Times

Quick ratio = Liquid assets/current liabilities

Years
2004-05

Quick ratio
1.56

2005-06

1.61

2006-07

1.2

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

total assets

and tax (A)

(B)
8797.34
14921.79
9817.62

1515.47
1829.28
1608.34

Return on total assets Ratio

(A/B*100)

Return on total assets = profit before interest and tax/total asset

Years

Return on
total assets

17.23%
12.26%
16.38%

2004-05
2005-06
2006-07

17.23
12.26
16.38

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 Total debt (A) Total equity (B) Debt-to-equity ratio(A/B)

2004-05
10567.21
790.72
13.36
2005-06
11512.38
2011.22
5.72
2006-07
12636.49
4610.39
2.74
Years

Debt-Equity

2004-05
2005-06
2006-07

Ratio
13.36
5.72
2.74

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)

2004-05
2005-06
2006-07

816829714.8
1284205229.1
1248925048.8

130483980
150199442
154953480

Earning per
share Ratio
(A/B)
6.26
8.55
8.06

Earning per share= Net profit after tax and preference dividend/no of equity
shares
Years

Earning per

2004-05
2005-06
2006-07

share
6.26
8.55
8.06

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

Profit distributed to No. of equity shares (B) DPS (A/B)

equity shareholders A)
2004-05
1304839800
2005-06
2252991630
2006-07
2324302200

130483980
150199442
154953480

DPS= Profit distributed to equity shareholders/No. of equity shares

Years

Dividend per

2004-05
2005-06
2006-07

share
10
15
15

10
15
15

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

Dividend per share

Earning per share
Years

Dividend
payout ratio

2004-05
2005-06
2006-07

159.74
175.44
186.10

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

Net Assets

weighted no. of average equity shares

Current Ratio

(A)
2004-05 4468690000
2005-06 5497790000
2006-07 11709720000

outstanding (B)
130483980
150199442
154953480

(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

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
2004-

Profit after taxation

(A)
50.36

net worth
(B)
790.72

Return on net worth Ratio

(A/B*100)
63.69%

05
2005-

1188.15

2011.22

59.08%

06
2006-

2572.62

4610.39

55.80%

07
Return on net worth= Profit after taxation/net worth *100
Years

Return on
net worth

2004-05
2005-06
2006-07

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

before depreciation (A)

Cash earnings per

weighted no. of average
equity shares

2004-05
2005-06
2006-07

1238970000
1306780000
1284210000

outstanding (B)
130483980
150199442
154953480

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

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

Profit before tax

Operating income

PBT to operating income

2004-05
2005-06
2006-07

(A)
1067891163
1669264746
2307699682

(B)
456248829
627383424
884430705

(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

2004-05
2005-06
2006-07

19.32
19.49
19.44

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

2004-05
2005-06
2006-07

Fixed assets
to
proprietors
funds Ratio
6.93
6.67
8.3

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 200405 to 2006-07 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 Current Assets (A) Proprietors funds (B)
2004-05
8560.66
3415.47
2005-06
14655.86
3876.15
2006-07
9817.62
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

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

Equity share

2004-05
2005-06
2006-07

Fixed cost bearing

capital (A)
790.72
2011.22
4610.398

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

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

Capital employed

interest (A)

(B)
1515.47
1829.28
1608.34

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

2004-05
2005-06
2006-07

45.77
22.02
42.66

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
Particulars

Years
2005-06

2006-07

Change In Working Capital

Increase in working
Decrease In
capital
Working Capital

Inventories

2554.39

3991.34

1436.95

Sundry debtors

169.28

116.41

Cash & Bank Balance

919.33

985.30

65.97

Projects in progress

6174.62

9280.60

3105.98

9817.62

14373.65

Bank overdraft

173.71

148.53

Interest accrued but not due on

loans
Advances and deposits received

8.52

148.22

139.7

1432.37

2512.40

1080.03

Sundry creditors

3543.96

3966.42

422.46

Due to directors

107.85

23.13

Current Assets:-

Total current Assets(A)

Current Liabilities:-

52.87

25.18

84.72

Other liabilities

67.23

68.87

Total current Liabilities(B)

5333.64

6867.57

Net Working Capital (A-B)

4483.98

7506.08

Net Increase In working

Capital
Total

3022.1
7506.08

7506.08

1.64
3022.1

4718.8

4718.8
(Rs. In Million)

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

1875.14

2164.87

289.73

Sundry debtors

208.82

190.87

Cash & Bank Balance

734.65

868.24

133.59

Projects in progress

4567.38

5336.68

769.3

Total current Assets(A)

7385.99

8560.66

196.39

184.12

17.95

Current Liabilities:Bank overdraft

12.27

Interest accrued but not due on 5.17

loans
Advances & deposits received
891.16

7.42

2.25

1224.96

33.38

Sundry creditors

4638.24

4312.76

325.48

Due to directors

148.26

130.89

17.37

Other Liabilities

58.32

65.41

Total current Liabilities(B)

5937.54

5925.56

7.09

Net Working Capital (A-B)

Net Increase
Capital
Total

In

1448.45

2635.1

working 1186.65
2635.1

1186.65
2635.1

1547.74

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 200304.

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

Current Assets:Inventories

1492.87

1682.36

189.49

Sundry debtors

278.37

244.15

Cash & Bank Balance

674.27

711.52

37.25

Projects in progress

4065.81

4312.27

246.46

Total current Assets(A)

6511.32

6950.3

Bank overdraft

234.97

204.18

Interest accrued but not due on

loans
Advances & deposits received

4.23

4.87

0.64

795.36

849.32

53.96

Sundry creditors

5219.34

5012.47

206.87

Due to directors

170.19

158.64

11.55

Other Liabilities

46.71

52.24

Total current Liabilities(B)

6470.8

6281.72

Net working Capital (A-B)

40.52

668.58

Net Increase In working

Capital

628.06

34.22

Current Liabilities:30.79

5.53

628.06

Total

668.58

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=

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

XY

x2

-95.34
-83.48
0
1188.15
5145.24
XY=6154.57

4
1
0
1
4
2
x =10

3942.48
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
3250.34
3000
2572.622634.88
2500
2019.42
2000
TREND
ANALYSIS
OF
REVENUE:1500
1403.96
1188.15
1000
788.5
500
173.04 50.36
47.67 83.48
0
-442.42
-500 2002-032003-042004-052005-062006-072007-082008-09
-1000
YEAR

Profit
(Mn)

YEAR

Revenue

Deviations from

XY

x2

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

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

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

-2911.12
-2837.25
0
8198.62
28793.58
XY=31243.33

4
1
0
1
4
x2
=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

18668.16
15543.83
14396.79
12419.5

15000

R
e
v
e
n
u
e
(
M
n)

CORRELATION
10000

9295.17
Some important definitions of correlation
are given below:
8198.62
5000
0

6170.84
3965.99

3046.51
2837.25
1455.56
-77.82
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

-5000

YEAR

1. Correlation analysis deals with the association between two or more variablesSimpson and Kafka.
2. 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
correlated-Conner.
3. 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.

Degree

of Positive

Negative

1
2

correlation
Perfect correlation
+1
High
Degree
of Between

-1
+.75 Between -.75 to-1

correlation
to+1
Moderate Degree of Between

+.25 Between -.25 to-.75

Correlation
Low
Degree

to+.75
of Between 0 to+.25

Between 0 to-.25

Correlation
Absence

of 0

Correlation

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

Profit

Revenue

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

47.67
83.48
50.36
1188.85
2572.62

1455.56
2837.25
3965.99
8198.62
14396.79

r=

N dxdy - (dx) dy)

N dx2 - (dx)2

N dy2 - (dy)2

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

Profit

A= 83.48

(X)

(X-A)=dx

dx2

Revenue(Y)

A=

dy2

dxdy

3965.99
(Y-A)=

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

dy
-2510.43
-1128.74
0
4232.63
10430.8
dy=

6302258.78
1274053.99
0
17915156.72
108801588.64
dy2

89898.50
0
0
4678622.2231
25963721.512
dxdy=

11024.26 =134293058.13 30732242.24

r=

N dydx - (dx) (dy)

N dx2 - (dx)2

r=

N dy2 - (dy)2

22958860.13
23295518.51

r=

0.985

CORRELATION OF

PROJECTS IN PROGRESS

AND WORKING

CAPITAL:YEAR

PROJECTS IN
PROGRESS

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

r=

4065.81
4312.27
4567.38
5336.68
6174.62
9280.6

N dxdy - (dx) dy)

WORKING CAPITAL:40.52
668.58
1448.45
2635.1
5497.79
11709.72

N dx2 - (dx)2

N dy2 - (dy)2

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

Projects

A= 6174.62

in

(X-A)=dx

dx2

Working

A=

dy2

dxdy

capital(Y) 2635.10

progress

(Y-A)=

(X)

dy
-2594.58
-1966.52
-1186.62
0
2862.69
9074.62
dy=

6731845.37
3867200.91
1408138.22
0
8194994.04
82348728.14
dy2

6189.56

=102550906.68 39226644.35

4065.81
4312.27
4567.38
5336.68
6174.62
9280.60

-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

5471476.25
3662348.52
1907231.35
0
0
28185588.23
dxdy=

r=

N dydx - (dx) (dy)

N dx2 - (dx)2

r=

N dy2 - (dy)2

42641589.66
42769327.93

r=

0.997
CORRELATION OF INVENTORY AND REVENUE:

YEAR

Inventory

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

r=

1682.36
1875.14
2164.87
2554.39
3991.34

N dxdy - (dx) dy)

N dx2 - (dx)2

N dy2 - (dy)2

Where
N = Number of Observations

Revenue
1455.56
2837.25
3965.99
8198.62
14396.79

dx =deviations from X (X-A)

A =Assumed Mean
dy =deviations from Y (Y-A)

Inventory A=2554.39
(X)

dx2

Revenue(Y)

(X-A)=dx

A=

dy2

dxdy

3965.99
(Y-A)=

1682.36
1875.14
2164.87
2554.39
3991.34

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

760436.32
461380.56
151725.83
0
2064825.30
dx2=3438368.01

1455.56
2837.25
3965.99
8198.62
14396.79

503.85)

r=

6302258.78
1274053.99
0
17915156.72
108801588.64
dy2

2189170.27
766696.65
0
0
14988538.06
dxdy=

11024.26 =134293058.13 17944404.98

N dydx - (dx) (dy)

N dx2 - (dx)2

r=

N dy2 - (dy)2

19055319.66
19302534.41

r=

dy
-2510.43
-1128.74
0
4232.63
10430.8
dy=

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.

COR-RELATION TEST

Inventories
1682.36
1875.14
2164.87
2554.39
3991.34

Revenue
1455.56
2837.25
3965.99
8198.62
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

(rupees in mio)

A. Cash flow from operating activities

March
31,2007

March
31,2006

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

1829.28

1608.34

45.12
(21.51)
(40.78)
946.89
-

32.79
(0.00)
(17.35)
204.40
0.18

(0.48)
0.94

0.44
(12.03)
-

12.22
(0.03)
(0.37)

16.06
(0.56)

Operating Capital before working capital changes

Adjustments for working capital:

2771.28

1832.27

(1436.95)
(3105.97)
47.28
(1946.53)
554.51
(5887.66)
(3116.38)

(2425.17)
(4537.99)
(4.18)
1136.61
2859.20
(2971.53)
(1139.26)

676.31

116.60

(3792.69)

(1255.86)

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

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

C.

(135.96)
2.97
(5740.97)
5577.42
40.78
21.51

(51.75)
3.84
(86.84)
5.66
17.35
0.00

(234.25)

(111.74)

(792.73)
(2568.48)
7979.00
(70.37)
(172.30)

(185.97)
(486.48)
2501.52
(16.51)

4375.12

1812.56

348.18

444.96

919.33
1267.51

474.37
919.33

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

Sources of funds
Shareholders funds
Share capital
Stock option outstanding
Reserves and surplus

Schedule

March
31,2007

March
31,2006

1549.53
0.94
1662.22
3212.69

774.77
1321.32
2096.09

8833.02
307.65
9140.67

3710.94
4.75
3715.69

12353.36

5811.78

382.60
125.84
256.76

258.35
83.18
175.17

9.17
256.93

2.87
178.04

Loan funds
Secured loans
Unsecured loans

3
4

Total
Application of funds
Fixed assets
Gross block
Less:depreciation
Net block
Capital work in progress(including advances on
capital account)
Investments

295.37

131.45

Deferred tax asset (net)

11.97

4.50

Current assets,loans and advances

Inventories
Projects in progress
Sundry debtors
Cash and bank balances
Loans and advances

8
9
10
11
12

3991.34
9280.60
116.41
1267.51
3667.65
18323.51

2554.39
6174.62
169.28
919.33
1727.77
11545.39

Current liabilities and provisions

Current liabilities
Provisions

13
14

6445.11
168.68
6613.79

5756.10
291.50
6047.60

11709.72

5497.79

70.37

12353.36

5811.78

Net current assets

Miscellaneous expenditure

15

Total

Omaxe Limited
Balance Sheet as at March 31,2007
(Rupees in mio)

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

Schedule

March
31,2007

March
31,2006

Income
Operating income
Other income

16
17

9408.66
66.99
9475.65

8251.49
51.14
8302.63

Expenditure
Operating cost
Employee cost
Administrative cost
Selling cost
Finance cost
Depreciation

18
19
20
21
22
5

6590.40
213.60
405.13
103.89
297.44
35.91
7646.37

6134.97
102.80
307.62
90.31
35.83
22.76
6694.29

1829.28

1608.34

440.31
(7.47)
11.00
443.84

329.35
(11.36)
6.33
324.32

Profit after tax but before prior tax adjustments

Prior year tax adjustments

1385.44
137.14

1284.02
-

Profit after tax

Balance brought forward from previous year

1248.30
1257.02

1284.02
242.42

Profit available for appropriation

2505.32

1526.44

710.47
116.32
16.31
882.57
779.65
2505.32

167.91
32.63
4.58
64.30
1257.02
1526.44

8.94
8.06

8.55
8.55

8.94
8.06

8.55
8.55

Profit before tax

Provision for tax
Current
Deferred tax charge(credit)
Fringe benefit

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

(Rupees in mio)

Chi Square Test

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)

(O-E)

(O-E)/E

490.09
-89.56
-738.14
-215.81
553.2

240188.2081
8020.9936
544850.6596
46573.9561
306030.24

-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

problem and desired level of significanc

If the calculated value of > tabulated value of , we reject
the null hypothesis and otherwise we accept null hypothesis.

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 = She

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

-442.42 173.04
1
0
0
0
1
0
0
0

-442.42 2019.42
0
1
0
0
0
0
0
1

-442.42 788.5
0
0
1
0
0
1
0
0

47.67 1188.15
0
0
0
1
0
0
1
0

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
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

-442.42 173.04
1
0
0
0
1
0
0
0
2

-442.42 2019.42
0
1
0
0
0
0
0
1
2

-442.42 788.5
0
0
1
0
0
1
0
0
2

47.67 1188.15
0
0
0
1
0
0
1
0
2

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 200607 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 341- 342.
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-5859.

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.