`

UNIVERSITY OF MUMBAI

PROJECT REPORT ON

“A STUDY ON WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE

ARIES AGRO LTD”

FOR
BACHELOR OF MANAGEMENT STUDIES

SUBMITTED BY

DEEPA GOPAL SINGH

Roll No. B1617104

SUBMITTED TO

PROJECT GUIDE
Prof. Ms. TEJASAVI BHOSLE

INSTITUTE OF MANAGEMENT & COMPUTER STUDIES

THANE (W)
2018-19

UNIVERSITY OF MUMBAI

PROJECT REPORT ON
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“A STUDY ON WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE ARIES AGRO

LTD”

FOR
BACHELOR OF MANAGEMENT STUDIES

SUBMITTED BY

DEEPA GOPAL SINGH

Roll No. B1617104

SUBMITTED TO

PROJECT GUIDE
Prof. Ms. TEJASAVI BHOSALE

INSTITUTE OF MANAGEMENT & COMPUTER STUDIES

THANE (W)
2018-19

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This is to certify that MS. DEEPA GOPAL SINGH of BMS (Bachelor of Management

Studies) Semester VI (2018-19) has successfully completed the project on “A STUDY ON

WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE ARIES AGRO

LTD’’ under the guidance of Prof. Ms. TEJASVI BHOSLE.

Date:-20/03/2019
Place:Thane(W)

Principal . Course Co-ordinator

Dr. Irshad Kazi Dr. Trupti Shelke

Project Guide/Internal Examiner EXTERNAL EXAMINER

Prof. Ms. TEJASVI BHOSLE

DECLARATION

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I MS. DEEPA GOPAL SINGH the student of BMS SemesterVI (2018-19) here by declare that I have completed the

project on “A STUDY ON WORKING CAPITAL MANAGEMENT WITH

SPECIAL REFERENCE ARIES AGRO LTD’’ successfully

The information submitted is true and original to the best of my knowledge

Date:-20/03/2019

Place:-Thane(W)

Yours Faithfully,

MS. DEEPA GOPAL SINGH

ACKNOWLEDGEMENT
I would like to thank almighty for his shower of blessings. The desire of
completing this research project was given by my guide Prof. Ms.
TEJASVI BHOSLE. I am very much thankful to her for the guidance,
support and for sparing her precious time from a busy and hectic schedule.
I am thankful to DR.IRSHAD, principal of Institute of Management and
Computer Studies college. My sincere thanks to all my teachers who

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always motivated me and provided a helping hand for convincing higher

education.
I would like to thank pillars of my life and who always supported and
motivated me. Finally, I would express my gratitude to that entire persons
who directly and indirectly helped me in completing my research project

DEEPA GOPAL SINGH

SR. NO. CONTENTS PAGE NO.

1. List of Tables 7

2. Chapter 1: Introduction
1.1 Introduction 10 - 18
1.2 Characteristics of working capital
management
1.3 Operating cycle of working capital
management

3. Chapter 2: Research Methodology

2.1 Introduction

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2.2 Objective of the study 20 - 23

2.3 Scope of the Study
2.4 Importance of the Study
2.5 Limitation of the Study

4. Chapter 3: Literature Review

25 - 26
3.1 Introduction
3.2 Literature Review

5. Chapter 4: Data Analysis And Interpretation

4.1 Introduction
4.2 Data Analysis & Interpretation 28 - 48

6. Chapter 5: conclusion &Suggestion

5.1 Introduction
5.2 Finding
5.3 Suggestion 49 -52
5.4 conclusion

7. Bibliography 53

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LIST OF TABLES

TABLE NO TITLE PAGE NO

4.1 DATA ANALYSIS 28

4.2.1 NET WORKING CAPITAL 29

4.2.2 CURRENT RATIO 30

4.2.3 ACID TEST RATIO 31

4.2.4 ABSOLUTE LIQUID RATIO 32

4.2.5 INVENTORY TURNOVER RATIO 33

4.2.6 DEBTOR TURNOVER RATIO 34

4.2.7 DEBTOR COLLECTION 35

4.2.8 CREDITOR TURNOVER RATIO 36

4.2.9 WORKING CAPITAL TURNOVER RATIO 37

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CHAPTER NO 1

INTRODUCTION

CHAPTER NO. 1
INTRODUCTION

1.1 Introduction:-

Capital is the keynote of economic development. In this modern age, the level of economic
development is determined by the proportion of capital available.

Meaning of Capital:-

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In the ordinary sense of the word Capital means initial investment invested by businessman or
owner at the time of commencing the business. Capital (economics), a factor of production that is
not wanted for itself but for its ability to help in producing other goods.

Definition:-

Capital is a factor of production with a specific, changeable value attached to it that could,
potentially, provide its owner with more wealth. It is an abstract economic concept, and, as such,
has many different definitions and classifications, but the unifying feature of capital is that it has
a certain value, so it in itself is a type of wealth, and it has the potential of generating more
wealth.

Introduction of Working Capital:-

Working capital is the life blood and nerve centre of a business. Just as circulation of blood is
essential in the human body for maintaining life, working capital is very essential to maintain the
smooth running of a business. No business can run successfully without an adequate amount of
working capital. There is operative aspects of working capital i.e. current assets which is known
as funds also employed to the business process from the gross working capital Current asset
comprises cash receivables, inventories, marketable securities held as short term investment and
other items nearer to cash or equivalent to cash. Working capital comes into business operation
when actual operation takes place generally the requirement of quantum of working capital is
determined by the level of production which depends upon the management attitude towards risk
and the factors which influence the amount of cash, inventories, receivables and other current
assets required to support given volume of production.

Working capital management as usually concerned with administration of the current assets as
well as current liabilities. The area includes the requirement of funds from various resources and
to utilize them in all result oriented manner. It can be stated without exaggeration that effective
working capital management is the short requirement of long term success.

The importance of working capital management is indisputable; Business liability relies on its
ability to effective management of receivables, inventory, and payables. By minimizing the
amount of funds tied up in current assets. Firms are able to reduce financing costs or increase the
funds available for expansion. Many managerial efforts are put into bringing non-optimal level of
current assets and liabilities back towards their optimal levels.

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Meaning of Working:-

Working capital means the funds (i.e.; capital) available and used for day to day operations (i.e.;
working) of an enterprise. It consists broadly of that portion of assets of a business which are
used in or related to its current operations. It refers to funds which are used during an accounting
period to generate a current income of a type which is consistent with major purpose of a firm
existence.

In Accounting:

Definition:-

Many scholars’ gives many definitions regarding term working capital some of these are given
below.

According to Weston & Brigha ―Working capital refers to a firm’s investment in

short-term assets cash, short term securities, accounts receivables and inventories.

1.2 Characteristics of Working Capital:-

Needs that are Short Term: Working capital is being utilized in acquiring current assets
which will be converted to cash for a short period only.

Circular Movement: Working capital is being converted to cash constantly which will just
be turned as a working capital all over again.

Permanency: Although it is just a kind of short term capital, working capital is needed by
a business forever and always.

Fluctuation: Working still fluctuates every now and then even it is something
permanent.

Liquidity: It is very liquid for it can be converted as cash any time without losing anything.

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Less Risky: Investments in current assets such as working capital comes with less risk for
it is just for short term.

No Need for Special Accounting System: Since working capital is a short term asset that
will last for a year only, there will be no need for adoption of a special accounting system.

Types of Working Capital Management:-

1. Permanent Working Capital: It is otherwise called as Fixed Working Capital. Tandon

committee has referred to this type of working capital as Hard Core Working Capital.
Permanent working capital implies the base investment amount in all types of current resources
which is respected at all times to carry on business activities. The value of current assets have
been increased or decreased over a period of time. Even though, there is a need of having
minimum level of current assets at all times in order to carry on the business activities
effectively.

Features of Permanent Working Capital

a) The gross value of permanent working capital remains constant but the value of components
of current assets is differing from each other.

b) There is a positive correlation between the size of business and the amount of permanent
working capital.

c) Only long term sources of funds are used for permanent working capital.

2. Temporary Working Capital: It is otherwise called as Fluctuating or Variable Working

Capital. There is a close relationship prevailing between temporary working capital and the
level of production and sales. There is no uniform production and sales throughout the year. If
heavy order is received for production and there is a large amount of credit sales, there is a
need of more amount of temporary working capital. At the same time, if production is carried
on in anticipation of demand in near future, temporary working capital is required.

3. Gross & Net Working Capital: Discussed in previous article here Gross & Net Working

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Capital.

4. Negative Working Capital: Sometimes, the value of current assets is less than the current
liabilities, it shows negative working capital. If such type of situation arises, the firm is going
to meet the financial crisis very shortly.

5. Reserve Working Capital: It is otherwise called as Cushion Working Capital. It refers to

the meet uncertainties. A firm is always working with the expectation of some risks which may
be controllable or uncontrollable. The reserve working capital can be used in order to meet
the uncontrollable risks and sustain in the business world.

6. Regular Working Capital: The minimum amount of working capital to be maintained in

normal condition is called Regular Working Capital.

7. Seasonal Working Capital: Some products have seasonal demand. Seasonal demand arises
due to festival. In this way, seasonal working capital means an amount of working capital
maintained to meet the seasonal demand of the product.

8. Special Working Capital: Special programmes may be conducted for business development.
The programmes may be advertisement campaign, sales promotion activities, product
development activities, marketing research activities, launching of new products, expansion of
markets and the like. Therefore, special working capital means an amount of working capital
maintained to meet the expenses of special programs of the company.

1.3 Operating Cycle of Working Capital:-

The working capital cycle reserves to the length of time between the firm paying cash for
materials etc., this working capital also known as operating cycle. Working capital cycle or
operating cycle indicates the length or time between companies paying for materials entering into
stock and receiving the cash from sales of finished goods. The operating cycle (Working Capital)
consists of the following events. Which continues throughout the life of business?

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CASH

DEBTORS RAW
MATERIALS

FINISHED STOCK WORK -IN -PROGRESS

Conversion of cash into raw materials.

Conversion of raw materials into work in progress.

Conversion of work in progress into finished stock.

Conversion of finished stock into accounts receivables(Debtors)through sale and

Conversion of account receivables into cash.

1. Raw Material Inventory:-

The Investment in Raw Material can be computed with the help of the following formula:-

Budgeted Cost of Raw Average Inventory

Production x Material(s) x Holding Period

(In units) per unit (months/days)

12 months / 52 weeks / 365days

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2. Work-in-progress (W/P) Inventory:-

The relevant cost of determine work in process inventory are the proportionate share of
cost of raw material and conversion costs (labors and Manufacturing over Head cost excluding
depreciation) In case, full until of raw material is required in the beginning the unit cost of work
is process would be higher, i.e., cost of full unit + 50% of conversion cost compared to the raw
material requirement. Throughout the production Cycle, working process is normally equivalent
to 50% of total cost of production. Symbolically,

Budgeted Estimated work- Average Time Span Production x in-progress cost x of

work-in-progress

(In units) per unit inventory (months/days)

12 months / 52 weeks / 365days

3. Finished Goods Inventory:-

Working capital required to finance the finished goods inventory is given by factors

summed up as follows:-

Budgeted Cost of Goods Produced Finished Goods

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Production x per unit (excluding x Holding Period

(in units) depreciation) (months/days)

12 months / 52 weeks / 365days

4. Debtors:-

The working capital tied up in debtor should be estimated in relation to total cost price
(excluding depreciation) symbolically,

Budgeted Cost of Sales per Average Debt

Production x unit excluding x Collection Period

(In units) depreciation (months/days)

12 months / 52 weeks / 365days

Merits of working capital management:-

1. Solvency of the Business:

Adequate working capital helps in maintaining solvency of the business by providing

uninterrupted flow of production.

2. Goodwill:

Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining goodwill.

3. Easy Loans:

A concern having adequate working capital, high solvency and good credit
standing
can arrange loans from banks and others on easy and favorable terms.
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 4. Cash Discounts:

Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence it reduces costs.

5. Regular Supply of Raw Materials:

Sufficient working capital ensures regular supply of raw materials and continuous
production.

6. Regular Payment of Salaries, Wages and Other Day-to-day Commitments:

A company which has ample working capital can make regular payment of
salaries, wages and other day-to-day commitments which raises the morale of its
employees, increases their efficiency, reduces wastages and costs and enhances
production and profits.

7. Exploitation of Favorable Market Conditions:

Only concerns with adequate working capital can exploit favorable market conditions
such as purchasing its requirements in bulk when the prices are lower and by holding its
inventories for higher prices.

8. Ability to Face Crisis:

Adequate working capital enables a concern to face business crisis in emergencies

such as depression because during such periods, generally, there is much pressure on working
capital.

Demerits of Working Capital Management:-

1. Bankruptcy Risk:-

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Companies with negative working capital are using the money of creditor to finance
current assets as well as a part of fixed assets. Buying fixed assets with this money can pose
some financial trouble anytime.

2. Lower Rating Resulting in Higher Interest Rate:-

Business with NeWC is struggling to make payment to the creditors and not able to
collect money or sell the lying stock with it. The credit rating of such companies is bound to go
down. Lower rating results in higher interest rates charged by the banks.

3. Growth Opportunity Missed:-

Negative working capital effectively means no working capital. No growth crop up

without money. Without spare working capital, a company is not able to take up any season and
special growth opportunities. This is how companies with NeWC misses the growth opportunities.

4. Investors & Bankers Don’t Find it Worth Investing:-

Positive working capital is a sign indicating growth and profitability in the business. Also,
negative working capital implies over funding by suppliers. In both of the situations, a banker or
investor would not find it worth investing in such a company.

5. Lost Trade Discount:-

Normally, if a company is having NeWC, it is understood that the accounts payables are
not paid on time and that will definitely vanish the trade discount which is only allowed if paid
within a certain period of time.

6. Bad Financial Reputation:-

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reputation is a slow poison and it reaches a point when all suppliers in the market stop releasing
credit to the company.

7. Winding up Petition by Creditors:-

When the creditor’s concern changes from late payment to probably no payment, there are
good chances that they may file a petition for winding up of the company for the sake of their hard
earned money.

CHAPTER NO 2

RESEARCH METHODOLOGY

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CHAPTER NO 2

RESEARCH METHODOLOGY

2.1 Introduction:-

Working capital, also known as net working capital or NWC, is a financial metric which

represents operating liquidity available to a business. Along with fixed assets such as plant and
equipment, working capital is considered a part of operating capital. It is calculated as current
assets minus current liabilities. If current assets are less than current liabilities, an entity has a
working capital deficiency, also called a Working capital deficit.

Working Capital = Current Assets − Current Liabilities

A company can be endowed with assets and profit ability but short of liquidity if its
assets cannot readily be converted into cash. Positive working capital is required to ensure that a
firm is able to continue its operations and that it has sufficient funds to satisfy both maturing
short-term debt and upcoming operational expenses. The management of working capital
involves managing inventories, accounts receivable and payable and cash.

Working Capital Management:-

Impact of Working Capital Management in the Profitability of Hindal co Industries Limited J P

Singh* and Shi shir Pandey**for the successful working of any business organization, fixed and
current assets play a vital role. Management of working capital is essential as it has a direct
impact on profitability and liquidity. An attempt has been made in this paper to study the working
capital components and the impact of working capital management on profitability of Hindalco
Industries Limited. The paper also makes an attempt to study the correlation between liquidity,
profitability and Profit before Tax (PBT) of Hindal co. The study is based on secondary data
collected from annual reports of Hindalco for the study period1990 to 2007. The ratio analysis,
percentage method and coefficient of correlation have been used to analyze the data. Multiple
regressions were used to check the significant impact on the profitability of Hindalco.

Introduction a successful commercial organization needs two types of assets, viz., fixed assets
and current assets. Fixed assets include—land, building, plant, machinery, furniture, etc. These

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are not only purchased for the purpose of sale, but also for the purpose of earning profit for many
years. Current assets include, raw materials, work-in-progress, finished goods, sundry debtors,
bills receivables, cash, bank balance, etc. These are purchased for the purpose of production and
sales, like raw material into semi-finished products, semi-finished products into finished
products, finished products into debtors and debtors transferred into cash or bills receivables. The
fixed assets are used in increasing production of an organization and the current assets are used
in using the fixed assets for day to day working. The management of this working capital is
known as working capital management. The term working capital refers to the amount of capital
which is readily available to an organization. Management of working capital deals.

Meaning:-

Working capital management refers to a company's managerial accounting strategy

designed to monitor and utilize the two components of working capital, current assets and current
liabilities, to ensure the most financially efficient operation of the company.

Definition:-

Working Capital refers to that part of the firm’s capital, which is required for
financing short-term or current assets such a cash marketable securities, debtors and inventories.
Funds thus, invested in current asset keep revolving fast and are constantly converted into cash
and this cash flow out again in exchange for other current assets. Working Capital is also known
as revolving or circulating capital or short-term capital.

2.2 Objective of the Study:-

1. To study the sources and uses of the working capital.

2. To study the liquidity position through various working capital related ratios.

3. To study the working capital management and ratios of Aries Agro Ltd..

2.3Research Methodology:-

Type of Research:-

This project “A Study on Working Capital Management of Aries Agro Ltd” is considered as
an analytical research.

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Analytical Research is defined as the research in which, researcher has to use facts or
information already available, and analyze these to make a critical evaluation of the facts,
figures, data or material

Secondary Data:-

The secondary data are those which have already collected and stored. Secondary data easily get
those secondary data from records, annual reports of the company etc. It will save the time,
money and efforts to collect the data. The major source of data for this project was collected
through annual reports, profit and loss account of 5 year period from 2006-2010 & some more
information collected from internet and text sources.

Sampling Design:-

Sampling unit : Financial Statements.

Sampling Size : Last five years financial statements.

Tool Used for calculations: - MS-Excel.

Tools used for Analysis of Data:-

The data were analyzed using the following financial tools. They are

Ratio analysis.

Statement of changes in working capital.

2.4 Scope of the Study:-

The scope of the study is identified after and during the study is conducted. The main
scope of the study was to put into practical the theoretical aspect of the study into real life work
experience. The study of working capital is based on tools like Ratio Analysis, Statement of

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changes in working capital. Further the study is based on last 5 years Annual Reports of Aries
Agro ltd.

2.5 Importance of the Study:-

There are numerous aspects of working capital management that makes it an important topic for
the study.

The management of assets in any organization is an essential part of overall

management. The enterprise, at the time of formation attaches great importance to fixed assets
management, as a part of investment decision-making. However, in the overall day-to-day
financial management, after the initial investment, the management gives more importance to
managing working capital. If we look at any financial statement it will be evident that the
investment in fixed assets remains more or less static but the working capital is constantly
changing. A healthy working capital position is the sine-qua-none of a successful business. This
is reflected in adequate inventories, lowest level of debtors, minimum utilization of bank
facilities for working capital, etc. thus the study of working capital management occupies an
important place in financial management.

2.6 Limitation of the Study:-

The study duration (summer in plant) is short.

The analysis is limited to just five years of data study (from year 2005 to year 2010) for
financial analysis.

Limited interaction with the concerned heads due to their busy schedule. The
findings of the study are based on the information retrieved by the selected unit.

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CHAPTER NO. 3

LITERATURE REVIEW

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CHAPTER NO. 3

LITERATURE REVIEW

INTRODUCTION:
Working capital management plays an important role financial management of industry. Number
of researcher has been done the research on different components of Working capital subject on.
Here, I have included the relevant articles as well research work on the same topic and subject.
And this is a part of my research work on the same title the working capital management of
selected textile companies of india. The main aim of this paper is to identify the gaps in current
body of my research work which gives the direction towards forward attention to be given.

The National Council of applied Economic Research (NCEAR) in 1996 first time formal study was
conducted on working capital management in india . The council published a structure of working capital
which was limited analysis of the creation of working capital with special attention to the fertilizers, and
cement and sugar industries the main objective of this study was on come out with finding that working
capital management practices were extremely unplanned and hence need to develop proper accounting
policies like Inventory management, debtors management as above. And the study suggested developing
suitable working capital policies required in the success of business.

Bhatt V.V.(1972) :
He has given concentration on system to appraise working capital management and its finance specially
for the large scale companies. This tools also helpful to others sectors like agriculture as well retail trade
etc. As bank provide short term finance to operation of business at the same time need to pay attention
on repayment of loan and required finance necessity. If these two area is to be maintain properly no need
to appraise the working capital management concern.

Smith Keith V. (1973)

Research has been given focused on the short term finance need to be given more attention for
success of the individual firm. for that finance manager has to give more attention on the current
asstes current liabilities. many firms do investment of current assets in a basket while current
liability in many different request. This paper consist eight distinct approaches to working capital
management out of it first three common guidelines next three regarding constrain set an cost
balancing and last two about probability models an portfolio theory.

Chakraborthy S.K.(1974)
In this research author try to make difference among cash working capital v/s balace sheet
working capital. And research is based on two dimensions.
First is Operating Cycle concept and second calculation operating cycle period in all the four
cases, Main aim of this research is to exhibit operating cycle concept based on published annual
report of the firm.

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Misra (1975)
Here, in this analysis try to identify the problems of working capital in six public enterprise for the
period of 1960. Important and findings are here under: selected samples of companies were not
able to utilize working capital efficienly. As well excess inventory level which shows inappropriate
management of inventory. In order delay exchange was made to foreign exchange and issue of
import license. Furthermore account receivable ratio is very law because liberal credit policy and
inappropriate collection policy. In most of the selected firms were having huge cash amount on
account and improper management and control on cash.

Natarajan Sunder (1980)

Has been given views on working capital is having immense important at both, the national as
well business level to keep control on working capital at the national level by controlling credit
controls. In practice efficient working capital includes to determine the best suitable level of working
capital, financing it and control over it If we talked about coperate level investment is important in both
case short term investment and fixed assets. And that can be possible many company not surviving as well
not incurring profit becauseof not efficiently manage the working capital. Thus, cost management
with improved operational efficiency, and that aspect working capital is very important to be manage in
proper way.
Rajeshwar (1985)
He has done the study on few selected public enterprise in India. He tried to check the working
capital policies adopted by the same units. He made attempt to examine the working capital
components how efficiently managed. At the last no one company clearly defined working capital
policies and hence most o them could not achieve efficiency in working capital management. In
this study it is found that majority of investment was made in finished goods inventory that was
indicate that working capital was not managed in planned way. Thus, study recommended for
careful management of working capital in finance management.

Rao K.V. and Rao Chinta (1991)

This study observed that strong and weak point of conventional techniques of working capital
analysis. Outcomes of this study shows that some of the conventional techniques which could
realized the working capital behavior well. And some of them fall to do so. And thus authors
suggest proper working capital management with conventional method i.e. ratio analysis. Study
suggest further inclusive factors which are decisive yardstick in working capital efficiency.

Fazzari Steven M. and Petersen Bruce C. (1993):

Research has been put on light on financial restrain on investment by giving focuse the ignoring
role of working capital in both as use and source of funds. As per the views of author liquidity can
be maintain by maintaining working capital on smooth manner means to be investment in a
manner which does not create cash flow constrain. Through the research found that working
capital investment should be "excessively sensitive" with summing up that controlling on
smoothing working capital create a long term impact of finance constraints and reported in many
other studies also.

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Rafuse(1996):

The article stressed on working capital enhancement by halting payment of creditors. That was
clear many UK companied delayed payment for the long period. Very surprisingly the story
reveled in 1994 by the forum for private business, That was a small business association, and
reverse side 50 days before payment of debtors were been paid beyond the due date. This article
stressed to maintain heathy and close relationship among supplier and customer. The discovery of
the study warranted the firms to reduce inventory level as fast as possible in order to increase the
profit of the firms. Another fact of study was that control over working capital responsibility goes
on the head of finance manager.

Swamy (1997):

Swamy was done research with 19 key agriculture area in the contour of Dakshina Kannada
district in Karnataka.The research exposed maintenance of liquidity and profitability is a major
problem in the targeted are ,to be safe in side of working capital management were found to be
suffered and low profitability due to the interest burden.The effects of this firms raised the fund
for working capital requirement by borrowing fund from despositors.This study has been given
stressed on pope management of working capital so the future of business would be bright.

Hossainsaiyedzabid and Akon Md.HabiburRahman(1997):

The main objective of thos study is to maintain working capital in proper way.i.e. time of fund
requirement ,amount of fund and from where to raise fund to be maintain so can possible to aquire
trade off among liquidity and profitability.The anylysis showed that BTMC hd followed agessive
working capital policy by taking the risk of liquidity.The study analysed that company
continuously raising trend in negative net working capital during the period of the study. That was
suggest to BTMC not to raise only fund from long term source instead by understanding the
requirement of fund need to take short term source also.

Ahmed Habib (1998)

This study is evaluated that the interest rate of fund reducing money power on output. For the
study rational expectation model is used to find out relation between production decision and debt
finance. As working capital having immense important factors and its cost, the rate of interest,
affects the supply osf goods , this study revealed that this model helps to identify the alarming
situation when interest rate is used. This model also revealed that effects of monetary policy on the
price level and supply side.

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CHAPTER NO 4

DATA ANALYSIS AND INTERPRETATION

CHAPTER NO 4

DATA ANALYSIS AND INTERPRETATION

4.1 Introduction:-

Ratio analysis is an accounting tool, which can be used to measure the solvency, the
profitability, and the overall financial strength of a business, by analyzing its financial accounts
(specifically the balance sheet and the profit and loss account).

Accounting ratios are very easy to calculate and they enable a business to highlight which areas
of its finances are weak and therefore require immediate attention.

4.2 Data Analysis

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Table No:-

4.2.1 Net Working Capital:-

An analysis of the net working capital will be very help full for knowing the operational
efficiency of the company. The following table provides the data relating to the net working
capital of Aries Agro Ltd.

NET WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIS

Years Current Asset Current Liabilities NWC

2005-06 4563099.00 2041543.00 2521556.00

2006-07 9599646.00 3887765.00 5711881.00

2007-08 9077617.00 2829079.00 6248538.00

2008-09 11003428.00 3889899.00 7113529.00

2009-10 11946666.00 4165659.00 7781007.00

(Data: - Secondary Source)

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Interpretation:-

The above chart shows that during the year 2005-06 the company has 2521556.00 N.W.C. In the
year 2006-07 huge increase in the N.W.C is 5711881.00 and in the year 2007-08 the company
has 6248538.00 N.W.C in the year 2008-09 the company has 7113529.00 N.W.C the N.W.C of
the company is increasing compared to the previous years, in the year 2009-10 the company has
7781007.00 N.W.C this means the company in a positive position & N.W.C has improved very
fast as compared to the previous years which show liquidity Position of the Aries Agro Ltd has
always more & sufficient working capital available to pay off its current liabilities.

4.2.2 Ratio Analysis:-

Introduction:-

Ratio Analysis is a powerful tool of financial analysis. Alexander Hall first presented it in
1991 in Federal Reserve Bulletin. Ratio Analysis is a process of comparison of one figure against
other, which makes a ratio and the appraisal of the ratios of the ratios to make proper analysis
about the strengths and weakness of the firm’s operations. The term ratio refers to the numerical
or quantitative relationship between two accounting figures. Ratio analysis of financial
statements stands for the process of determining and presenting the relationship of items and
group of items in the statements.

Note: I have used the ratio analysis in this project in order to substantiate the managing of
working capital. For this, I used some of the ratios to get the required output.

Various working capital ratios used by me are as follows:

1. Liquidity Ratio:-

Liquidity refers to the ability of a firm to meet its current obligations as and when
these become due. The short-term obligations are met by realizing amounts from current,
floating or circulating assets.

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 Following are the ratios which can help to assess the ability of a firm to meet its current
liabilities.

1. Current ratio

2. Acid Test Ratio / Quick Ratio / Liquidity Ratio

3. Absolute liquid ratio

2. Turnover Ratio:-

These are the ratios which indicate the speed with which assets are converted or turned
over into sales.

1. Inventory Turnover Ratio.

2. Debtors/ Accounts receivables Turnover Ratio.

3. Creditors/Accounts Payables Turnover Ratio.

4. Working Capital Turnover Ratio.

4.2.2 Current Ratio:-

It is a ratio, which express the relationship between the total current Assets and current liabilities.
It measures the firm’s ability to meet its current liabilities. It indicates the availability of current
assets in rupees for every one rupee of current liabilities. A ratio of greater than one means that
the firm has more current assets than current liabilities claims against them. A standard ratio
between them is 2:1.

Current Ratio: Current Assets

 Current Liabilities

Year Current Assets Current Liabilities Current Ratio

2005-06 4563099.00 2041543.00 2.23

2006-07 9599646.00 3887765.00 2.47

2007-08 9077617.00 2829079.00 3.21

2008-09 11003428.00 3889899.00 2.83

2009-10 11946666.00 4165659.00 2.87

(Data: - Secondary Source)

Interpretation:-

It is seen from the above chart that during the year 2005-06 the current ratio was
2.23, during the year 2006-07 it was 2.47 and in the year 2007-08 it was 3.21. This shows
the current ratio increases every year but in the year 2008-09 the current ratio was dropped
to 2.83 due to increase in current liabilities. In the year 2009-10 the current ratio has

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 increases 2.87. The current ratio is above the standard ratio i.e., 2:1. Hence it can be said
that there is enough current assets in Aries Agro Ltd to meet its current liabilities.

4.2.3 Acid Test Ratio / Quick Ratio / Liquidity Ratio:-

This ratio establishes a relationship between quick/liquid assets and current liabilities. It
measures the firms’ capacity to pay off current obligations immediately. An asset is liquid if it
can be converted in to cash immediately without a loss of value; Inventories are considered to be
less liquid. Because inventories normally require some time for realizing into cash. This ratio is
also known as acid-test ratio. The standard quick ratio is 1:1. Is considered satisfactory.

Quick Ratio = Quick Assets (current assets - Inventory)

Current Liabilities

Year Current Assets Inventories Quick Assets Current Liabilities Quick Ratio

2005-06 4563099.00 1532455.00 3030644.00 2041543.00 1.48

2006-07 9599646.00 2161071.00 7438575.00 3887765.00 1.91

2007-08 9077617.00 3336430.00 5741187.00 2829079.00 2.03

2008-09 11003428.00 2622901.00 8380527.00 3889899.00 2.15

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2009-10 11946666.00 2360611.00 9586055.00 4165659.00 2.30

(Data: - Secondary Source)

Interpretation:-

During the year 2005-06 the quick ratio was 1.48, in the year 2006-07 it increases
to 1.91 This shows the company maintains satisfactory quick ratio, in the year 2007-08
the quick ratio increases to 2.03, in the year 2008-09 it increases 2.15, in the year 2009-10
it increases 2.30, due to increase in quick assets. The quick ratio is above the standard
ratio i.e., 1:1. Hence it shows that the liquidity position of the company is adequate.

4.2.4 Absolute Liquid Ratio:-

Absolute liquid ratio may be defined as the relationship between Absolute liquid
assets and current liabilities. Absolute liquid assets include cash in hand and cash at bank.

The standard ratio is 0.5: 1.

Absolute Liquidity Ratio = Cash & Bank Balance

Current Liabilities

Years Cash & Bank Balance Current Liabilities Absolute Liquidity Ratio

2005-06 493742.00 2041543.00 0.24

2006-07 1205660.00 3887765.00 0.31

2007-08 1033152.00 2829079.00 0.36

2008-09 1720815.00 3889899.00 0.44

2009-10 1978938.00 4165659.00 0.47

(Data: - Secondary Source)

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Interpretation:-

During the year 2005-06 the Absolute liquidity ratio was 0.24, during the year 2006-07 it was
0.31 and in the year 2007-08 it was 0.36, in the year 2008-09 it was 0.44 this shows the Absolute
liquidity ratio increases every year but it is below the standard ratio. In the year 2009-10 the
Absolute liquidity ratio has increases 0.47.

Hence it shows that the liquidity position of the company is satisfactory

4.2.5 Inventory Turnover Ratio:-

Inventory turnover ratio is the ratio, which indicates the number of times the stock is turned over
i.e., sold during the year. This measures the efficiency of the sales and stock levels of a company.
A high ratio means high sales, fast stock turnover and a low stock level. A low stock turnover
ratio means the business is slowing down or with a high stock level.

Inventory Turnover Ratio = Net Sales

Closing Inventory

Year Days in a Year Inventory Turnover Ratio Inventory Holding Period

2005-06 365 12.75 Times 28.63 Days

2006-07 365 14.49 Times 25.19 Days

2007-08 365 8.36 Times 43.66 Days

2008-09 365 14.68 Times 24.86 Days

2009-10 365 17.94 Times 20.34 Days

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(Data: - Secondary Source)

Interpretation:

Inventory holding period fluctuating over the years. It was 28.63 days in the year 2005-

6. It decreased to 25.19 days in the year 2006-07, it increased to 43.66 days in the year 2007-08,

there was a subsequent decrease in the year 2008-09 and 2009-10 to 24.86 days and 20.34 days
respectively.

This shows the company is minimizing these inventory-holding days thereby to increase the
sales.

4.2.6 Debtors / Accounts Receivable Turnover Ratio:-

Debtor’s turnover ratio indicates the speed of debt collection of the firm. This ratio computes
the number of times debtors (receivables) has been turned over during the particular period.

Debtors Turnover Ratio = Net Sales

Average Debtors

Note: in BCM, we have taken the total net sales instead of the credit sales, because the credit
sales information has not available for the calculation of DTR.

Year Net Sales Average Debtors Debtors Turnover Ratio

2005-06 19542081.00 2201381.00 8.88 Times

2006-07 31321229.00 4958527.00 6.32 Times

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2007-08 27894285.00 1805948.00 15.44 Times

2008-09 38496046.00 3787274.00 10.16 Times

2009-10 42345651.00 4355365.00 9.72 Times

(Data: - Secondary Source)

Interpretation:-

It is clear that debtor turnover ratio fluctuating over the years. It was 8.88 times in the
year 2005-06. It decreased to 6.32 times in the year 2006-07, It again increased to 15.44 times
in the year 2007-08 but it decreased to 10.16 times and 9.72 Times in the year 2008-09 and
2009-10 respectively. This shows the company is not collecting debt rapidly.

4.2.7 Debtors Collection Period :-

Debtors collection period measures the quality of debtors since it measures the rapidity or
the slowness with which money is collected from them a shorter collection period implies prompt
payment by debtors. It reduces the chances of bad debts. A longer collection period implies too
liberal and inefficient credit collection performance.

Average Collection Period = Days in a Year

Debtors Turnover Ratio

Year Days in a Year Debtors Turnover Ratio Debtors Collection Period

2005-06 365 8.88 Times 41.10 Days

2006-07 365 6.32 Times 57.75 Days

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2007-08 365 15.44 Times 23.64 Days

2008-09 365 10.16 Times 35.92 Days

2009-10 365 9.72 Times 37.55 Days

(Data: - Secondary Source)

Interpretation:-

Debt collection period changing over the years. It was 41.10 days in the year 2005-06. It
increased to 57.75 days in the year 2006-07, but in the year 2007-08 it decreased to 23.64 days.
There was a subsequent increase in the year 2008-09 and 2009-10 to 35.92 days and 37.55 days
respectively.

This shows the inefficient credit collection performance of the company.

37
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38
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4.2.8Creditor’s/Accounts Payables Turnover Ratio:-

Creditor’s turnover ratio is the ratio, which indicates the number of times the debts are paid in
the year. This ratio is calculated as follows.

Creditors Turnover Ratio = Net Purchases

Average Creditors

Note: In the BCM, we have taken the total Purchases instead of the credit purchases, because the
credit purchases information has not available for the calculations of CTR.

Year Net Purchases Average Creditors Creditors Turnover Ratio

2005-06 11691090.00 1673515.00 6.98 Times

2006-07 17778675.00 3492127.00 5.09 Times

2007-08 18896828.00 2649781.00 7.13 Times

2008-09 23605773.00 2658999.00 8.88 Times

2009-10 27146639.00 3057849.00 8.88 Times

(Data: - Secondary Source)

Interpretation:

It is clear that creditor turnover ratio changing over the years. It was 6.98 times in the year
2005-06. It decreased to 5.09 times in the year 2006-07, there was a subsequent increase in the
year 2007-08 and 2008-09 to 7.13 times and 8.88 times respectively. In the year 2009-10 it is
same as compared to 2008-09. It shows that company has making prompt payment to the
creditors.

4.2.9. Working Capital Turnover Ratio:-

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`

This ratio indicates the number of times the working capital is turned over in the course of the
year. This ratio measures the efficiency with which the working capital is used by the firm. A
higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise.

But a very high working capital turnover is not a good situation for any firm.
Working Capital Turnover Ratio = Net Sales

Net Working Capital

Interpretation:-

The working capital t/o ratio is fluctuating year to year that was high in the year 2005-06,

7.75 times; there was a subsequent decrease in the year 2006-07 and 2007-08 to 5.48 times and

4.46 times. But it increases in the year 2008-09 and 2009-10 to 5.41 and 5.44 times respectively.

This shows the company is utilizing working capital effectively.

C] Fund Flow Statements:-

Principles of working capital for calculation purpose

Current Assets:-

If the current assets increase as a result of this, working capital also increases. If the

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current assets decreases as a result of this working capital decreases.

Current Liabilities:

If the current liabilities increases as a result of this working capital decreases. If the
current liabilities decreases as a result of this working capital Increase

Statement of Changes in Working Capital:

The purpose of preparing this statement is for finding out the increase or decrease in working
capital and to make a comparison between two financial years.

Table 1: Statement of Changes in Working Capital for the Year 2005-2006

Effect on working capital

Particulars As on 31-3- As on 31-3-

2005 2006
Increase Decrease

CURRENT ASSETS

Inventories 2001305.00 1532455.00 __ 468850.00

Sundry debtors 1438810.00 2201381.00 762571.00 __

Cash & Bank balance 503667.00 493742.00 __ 9925.00

Other current assets 134364.00 148822.00 14458.00 __

Loans and Advances 193081.00 186699.00 __ 6382.00

(A)Total Current Assets 4271227.00 4563099.00

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`

CURRENT LIABILITIES

Sundry creditors 1606195.00 1673515.00 __ 67320.00

Provisions 511561.00 368028.00 143533.00 __

(B)Total Current Liabilities 2117756.00 2041543.00

(A)-(B) Net Working Capital 2153471.00 2521556.00

Increase in Working Capital 368085.00* __ __ 368085.00*

TOTAL 2521556.00 2521556.00 920562.00 930487.00

Interpretation:-In the above table, it is seen that during the year 2004-05 and 2005-06 there was
a net increase in working capital of Rs.368085.00. It indicates an adequate working capital in
Aries Agro Ltd. This is because of

1. Increase current assets such as Sundry debtors by Rs.762571.00, other current assets by
Rs.14458.00. And decrease in Inventories by Rs.468850.00, Cash & Bank balance by

2. Increase in current liabilities such as in Sundry creditors by Rs.67320.00 and decrease in

Provisions by Rs.143533.00.
Table 2: Statement of Changes in Working Capital for the Year 2006-2007

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Effect on working capital

Particulars As on 31-3- As on 31-3-

2006 2007
Increase Decrease

CURRENT ASSETS

Inventories 1532455.00 2161071.00 628616.00 __

Sundry debtors 2201381.00 4958527.00 2757146.00 __

Cash & Bank balance 493742.00 1205660.00 711918.00 __

Other current assets 148822.00 78260.00 __ 70562.00

Loans and Advances 186699.00 1196128.00 1009429.00 __

(A)Total Current Assets 4563099.00 9599646.00

CURRENT LIABILITIES

Sundry creditors 1673515.00 3492127.00 __ 1818612.00

Provisions 368028.00 395638.00 __ 27610.00

(B)Total Current Liabilities 2041543.00 3887765.00

(A)-(B) Net Working Capital 2521556.00 5711881.00

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`

Increase in Working Capital 3190325.00* __ __ 3190325.00*

TOTAL 5711881.00 5711881.00 5107109.00 5107109.00

Interpretation:

In the above table, it is seen that during the year 2005-06 and 2006-07 there was huge net
increase in working capital by Rs.3190325.00 as Compare to 2004-05 and 2005-06. This is
because

1. There is Increase in current assets such as Inventories by Rs.628616.00, Sundry debtors by

Rs.2757146.00, Cash & Bank balance by Rs.711918.00, Loans and Advances by
Rs.1009429.00. And decrease in other current assets by Rs.70562.00.

2. There is Increase in current liabilities such as Sundry creditors by Rs.1818612.00,

Provisions by Rs.27610.00.

Table 3: Statement of Changes in Working Capital for the Year 2007-2008

Effect on working capital

Particulars As on 31-3- As on 31-3-

2007 2008
Increase Decrease

CURRENT ASSETS

Inventories 2161071.00 3336430.00 1175359.00 __

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Sundry debtors 4958527.00 1805948.00 __ 3152579.00

Cash & Bank balance 1205660.00 1033152.00 __ 172508.00

Other current assets 78260.00 189683.00 111423.00 __

Loans and Advances 1196128.00 2712404.00 1516276.00 __

(A)Total Current Assets 9599646.00 9077617.00

CURRENT LIABILITIES

Sundry creditors 3492127.00 2649781.00 842346.00 __

Provisions 395638.00 179298.00 216340.00 __

(B)Total Current Liabilities 3887765.00 2829079.00

(A)-(B) Net Working Capital 5711881.00 6248538.00

__ __

Increase in Working Capital 536657.00* 536657.00*

TOTAL 6248538.00 6248538.00 3861744.00 3861744.00

INTERPRETATION

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`

In the above table, it is seen that during the year 2006-07 and 2007-08 there was also net increase
in working capital by Rs.536657.00. As compare to 2005-06 and 2006-07. This is because

1. There is Increase in current assets such as Inventories by Rs.1175359.00, other current

assets by Rs.111423.00, Loans and Advances by Rs.1516276.00 and decrease in Sundry

debtors by

Rs.3152579.00, Cash & Bank balance by Rs.113618.00.

2. There is Decrease in current liabilities such as Sundry creditors by Rs.842346.00,

Provisions by

Rs.216340.00.

Table 4: Statement of Changes in Working Capital for the Year 2008-2009

Effect on working capital

Particulars As on 31-3- As on 31-3-

2008 2009
Increase Decrease

CURRENT ASSETS

Inventories 3336430.00 2622901.00 __ 713529.00

Sundry debtors 1805948.00 3787274.00 1981326.00 __

Cash & Bank balance 1033152.00 1720815.00 687663.00 __

Other current assets 189683.00 206206.00 16523.00 __

Loans and Advances 2712404.00 2666232.00 __ 46172.00

(A)Total Current Assets 9077617.00 11003428.00

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CURRENT LIABILITIES

Sundry creditors 2649781.00 2658999.00 __ 9218.00

Provisions 179298.00 1230900.00 __ 1051602.00

(B)Total Current Liabilities 2829079.00 3889899.00

(A)-(B) Net Working Capital 6248538.00 7113529.00

__ __

Increase in Working Capital 864991.00* 864991.00*

TOTAL 7113529.00 7113529.00 2667512.00 2667512.00

Interpretation:-

In the above table, it is seen that during the year 2007-08 and 2008-09 there was also net increase
in working capital by Rs.864991.00 As compare to 2006-07 and 2007-08. This is because

1. There is Increase in current assets such as Sundry debtors by Rs.1981326.00, Cash & Bank
balance by Rs.687663.00, Other current assets by Rs.16523.00 and decrease in Inventories
by

Rs.713529.00, Loans and Advances by Rs.46172.00.

2. There is Increase in current liabilities such as Sundry creditors by Rs.9218.00, Provisions

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by
Rs.1051602.00.

Table 5: Statement of Changes in Working Capital for the Year 2009-2010

Effect on working capital

Particulars As on 31-3- As on 31-3-

2009 2010
Increase Decrease

CURRENT ASSETS

Inventories 2622901.00 2360611.00 __ 262290.00

Sundry debtors 3787274.00 4355365.00 568091.00 __

Cash & Bank balance 1720815.00 1978938.00 258123 .00 __

Other current assets 206206.00 185585.00 __ 20621.00

Loans and Advances 2666232.00 3066167.00 399935.00 __

(A)Total Current Assets 11003428.00 11946666.00

CURRENT LIABILITIES

Sundry creditors 2658999.00 3057849.00 __ 398850.00

Provisions 1230900.00 1107810.00 123090.00 __

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(B)Total Current Liabilities 3889899.00 4165659.00

(A)-(B) Net Working Capital 7113529.00 7781007.00

Increase in Working Capital 667478.00* __ __ 667478.00*

TOTAL 8270981.00 8270981.00 1349239.00 1349239.00

Interpretation:-

In the above table, it is seen that during the year 2008-09 and 2009-10 there was also net increase
in working capital by Rs.1157452.00 As compare to 2007-08 and 2008-09. This is because

1. There is Increase in current assets such as Sundry debtors by Rs.568091.00, Cash & Bank
balance by Rs.258123.00 Loans and Advances by Rs.399935.00 and decrease in Inventories by

Rs.262290.00, other current assets by Rs.20621.00.

2. There is Increase in current liabilities such as Sundry creditors by Rs.398850.00 and decrease
in Provisions by Rs123090.00.

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CHAPTER NO 5

CONCLUSION AND SUGGESTION

50
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CHAPTER NO 5

CONCLUSION AND SUGGESTION

5.1 Introduction:

Working capital is the measure of cash and liquid assets available to fund a company's day-today
operations. Having this information can help you manage your business and make good
investment decisions. By calculating working capital, you can determine if, and for how long, a
business will be able to meet its current obligations. A company with little or no working capital
is probably not one with a bright future. Calculating working capital is also useful for assessing
[1] whether a business is making
efficient use of its resources. The formula to calculate working capital is:
5.2 Findings:-

Working capital of the Aries Agro Ltd. was increasing and showing positive working capital per
year.

The Aries Agro Ltd has higher current and quick ratios are i.e., 2.87 and 2.30 respectively.

Inventory turnover ratio is very low in the year 2007-08. In the year 2008-09 it has increased by
6.32 times as compared to 2007 -08 and in the last year 2009-10 it has again increased by 3.26
times as compared to 2008-09.

Debtor’s turnover ratio is very high in the year 2007-08. In the year 2008-09 it has decreased by
5.28 times as compared to 2007 -08 and in the last year 2009-10 it has again decreased by 0.44
times as compared to 2008-09.

Creditor’s turnover ratio has increased in the years of 2007 -08 and 2008-09. It is same in the
last year 2009-10 as compared to 2008-09.

Working capital turnover ratio is very low in the year 2007-08. In the year 2008-09 it has
increased by 0.95 times as compared to 2007 -08 and in the last year 2009-2010 it has again
increased by 0.03 times.

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5.3 Suggestion:-

Working capital of the company has increased every year. Profit also increases every year
this is good sign for the company. It has to maintain it further, to run the business long term.
The Current and quick ratios are almost up to the standard requirement. So the Working
capital management. Aries Agro Ltd. is satisfactory and it has to maintain it further.

The company has sufficient working capital and has better liquidity position. By efficient
utilizing this short-term capital, then it should increase the turnover.

The company should take precautionary measures for investing and collecting funds from
receivables and to reduce the bad debts.

The company has sufficient working capital and has better liquidity position. By efficient
utilizing this short-term capital, then it should increase the turnover.

Creditor’s turnover ratio has increasing from 2007-08 to 2008-09 and in the last year 2009-
2010 it is same as compared to 2008-09. Company is making prompt payment to its
creditors. This is good sign for the company. On-time payment to suppliers will increase the
credibility of the firm. It has maintained it further to survive in the market.

The company is utilizing working capital effectively this is good for the company. It has to
maintain it further.

5.4 Conclusion:-

The study on working capital management conducted in Aries Agro Ltd. to analyze the
financial position of the company. The company’s financial position is analyzed by using the
tool of annual reports from 2005-06 to 2009-10. The financial status of Aries Agro Ltd. is
good.

In the last year the inventory turnover has increased, this is good sign for the company.

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The company’s liquidity position is very good With regard to the investments in current
assets there are adequate funds invested in it. Care should be taken by the company not to
make further investments in current assets, as it would block the funds, which could
otherwise be effectively utilized for some productive purpose. On the whole, the company is
moving forward with excellent management.

BIBLIOGRAPHY

1. Annual Report of Aries Agro Limited.

WEB SITE VISITED

www.google.com

www.wikipedia.org

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