INDUSTRY PROFILE

The power electronics is the application of

electronic circuit to energy conversion i.e., it
encompasses the use of electronic components, the
application of circuit theory and design techniques
and the developments of analytical tools toward
efficiency electronic conversion, control and
conditioning of electronic power. The power
electronics market comprises of uninterrupted power
supplies (UPS), AC/DC power supplies, battery
chargers and invertors. In 2003, the total world wide
power electronics market was $6351 millions, which
is expected to grow at a compound annual growth
rate of 6.1% to reach $7203 million by 2006. power
electronics is used in computers, automobiles
military, medical applications, telecommunications
systems and satellites, motors, lighting and
alternative energy (like solar and wind).
The major manufacturers in the power electronics
industry (India) are :

 Exide industries.
 Hyderabad batteries limited.
 Amararaja power systems private limited

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 Tudor Indian limited
 Standard batteries.

COMPANY PROFILE:
Amara Raja Power Systems is a
member company in Amara Raja Group of
companies, which has become a leading
business group in India forgoing ahead with its
innovative and collaborative technology and
emphasis on human resource development.

AMARA RAJA GROUP AND ITS

ENTERPRENEUR:
“Sri Galla Ramachandra Naidu” who is an
electrical engineering with an experience
promoted Amara Raja Group.

Amararaja Group of companies:

➢ Amara Raja Batteries Limited (ARBL),
Karakambadi,Tirupati.
➢ Amara Raja Power Systems Pvt Ltd.
(ARPSPL), karakambadi, Tirupati.

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 ➢ Harsh Electronics Pvt.Ltd(HEPL),
karakambadi, Tirupati.
➢ Mang Precision Products Pvt Ltd., (MPPPL)
Petamitta, Chittor.
➢ Amara Raja Electronics Pvt.Ltd.,(APREPL),
Dighavamgham, Chittoor.

AMARA RAJA BATTERIES LIMITED- THE

FLAGSHIP COMPANY:

Amara Raja Batteries Private Limited (ARBL)

Company is incorporated under the company’s act,
1956 in 13th February 1985, and converted into
public limited company on 6th September 1990.
ARBL is the first company in India to manufacture
VRLA ( value regulated lead acid) Batteries. The
main objective of the company is manufacturing of
good quality of SEALED MAINTENANCE FREE acid
batteries (SMF).

Innovation by Collaboration:

Amara Raja Batteries limited is in

collaboration with Johnson controls Inc. This is tie up
between Amara Raja , the largest manufacturer of

3
VRLA in Indian ocean Rim, and Johnson Controls is
also a leading global manufacturer of automotive
batteries. Both have have pioneered innovative
batteries in several crucial sectors. Through this tie-
up it is now possible for offering power solutions in
the automotive sector as well as the industrial sector
from one source.

Quality Products:

Amara Raja has always offered time tested

world class Technology and process developed on
international standards. High integrity VRLA systems
like Power Stack and Power Plus and the recently
launched high performance UPS battery- KOMBAT
and AMARON hi-life automotives battery AMARON
exemplify this. They are products of the collaborative
battery efforts of engineering at Johnson Controls
Inc. and Amara raja.

New Sensation:
With AMARON launched in January 2000,Amara
Raja has pioneered the introduction of hi_cube
automotive batteries in India. This zero maintenance
product uses the revolutionary patented Silver X

4
technology developed by Johnson controls for high
environments and incorporates many superior
features that make it the most advantage battery on
roads any where in the world.

1.3.3 Marketing Focus:

The company has clear-cut policy of direct

selling with out any intermediate. So they have
setup six branches, operated by corporate
operations office located in chennai. The company
has virtual monopoly in higher A.H. (Amp Hour)
rating market for its product VRLA. It is also having
the facility for industrial and automotive batteries.

1.3.4 Expansion:

The company is setting up to Rs. 1920 lacks

plant in 18 acres in Karakambadi village, Renigunta
Mandal. The project site is a notified under “B”
category.

Amara Raja’s Core Value:

➢ Work with integrity.

➢ Customers satisfaction.

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 ➢ Effective employee selection, employee
development, motivation and recognition.
➢ Safety and environment.
Amara Raja Core Purpose:

To transform the spheres of influence and to

enrich the quality of life by building institutions
that provides better access to better
opportunities, goods and services to more people
all the time.

Amara Raja’s Strengths:

➢ Proven technology from Gould National Battery

Co.Ltd(GNB) and being a pioneer.
➢ Strong and well organized customer base.
➢ Full- organized infrastructure in place.
➢ Manufacturing facilities perceived as benchmark
in India.
➢ Complete range of VRLA batteries.
➢ Proven field performance in all user segments.
➢ Approved vendor status in major user
segments.

AMARA RAJA POWER SYSTEMS:

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 Amara Raja Power systems Pvt.Ltd.,(ARPSL)
was incorporated in the year 1984 and was co-
promoted by Andhra Pradesh electronic development
corporation (APEDC) with a vision to provide
“Complete and integrated DC solutions” to customer
requirement. The company is situated in 200-acre
Amara Raja Complex, Renigunta, and 7 kilo meters
from Tirupati, India with a manufacturing facility with
a capital outlay of Rs.71 crores, machinery and
testing with Rs.53 crores.

Growth:

Amara Raja Power Systems began its

operations with first commercial production of
uninterrupted power supply systems in 1987 in
technical collaboration with M/s. HDR Power
Systems Inc., USA. In the 1989 Thyristor based
battery charger were added to the product line and
ever since, it is the leading manufacturer of custom
build battery charger in India catering all the types of
applications and services. Designs and products of
ARPSL are tested and well accepted by leading
consultants Viz. Mecon, EIL, PGCIL, TCE etc.

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 To cater to a wide range of applications
and customer needs, Amara Raja has developed
custom built investers in 1990 for Indian Railways
used in the AC coaches. Also they are regular
suppliers of chargers as per research design and
standard organization (RDSO) specifications for
Traction and signal & telecommunications for Indian
Railways.

With change in technology and opening

up of telecom sector, they are quick to adapt to the
fast changing scenario. As a result in 1999, Amara
Raja has started manufacturing switch mode
rectifiers (SMR) in technical collaboration with M/s.
Rectifier technologies, Australia for telecom
applications with expanded, modernized and
integrated plant facilities. The company also
received the ISO-9001 certification in the year 1999.
ARPSL implemented an ERP program in the
march 2000 for enhanced operational efficiencies
and tighter integration for expanding operations and
spreading of business. The company has crossed 30
crores turnover in 2003.

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Product Range:

1. Conventional battery Chargers : up to 220V/50

24V/2000A

Application(s):
Power Process Industries
Power Generating stations
Power Transmission
Oil & Natural gas plants
Sub-stations
2.Switch mode Rectifiers (SMR): Modules of 48V/25A
upto
200A and 48V/100A upto
3200A Modules of 110V/15A

Application(s):

➢ ERBX
➢ Telecom Exchanges

3.Integrated Power Supply Systems(IPS)

Application(S):

➢ Signaling
➢ Telecom
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 ➢ Traction

4. DC/AC Distribution Boards.

5. Charge/Discharge Units for Battery Information.
Customers and Solutions:

Today ARPSL is the largest supplier of

Switch Mode Power Supply (SMPS) Systems to
core Indian Utilities such as Bharat Sanchar
Nigam Ltd., Indian Railways, Power Generating
Stations, MTNL, BEL, PUNCOM and HTL. Major
MNC’s like Siemens, Fujitsu,
Motorola and Tata Liberty are among ARPSL clientele.

With their rich experience and available

technology they were closely involved with
Indian Railways in developing SMPS based
Integrated Power Supply Systems for Signaling
and Telecommunication applications. ARPSL
obtained RDSO approval in 2000 for its SMPS
based Integrated Power supply(IPS) System
and seems then they are preffered suppliers of
IPS.

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 Today they provide complete and
integrated DC solutions with having
manufacturing facility for MF-VRLA Battery,
Thyristor based Battery Charger, Switch
Mode Power Supply Systems, DC/AC
Distribution Board, Bus Ducts and associated
accessories in single complex with an
experience of more then 15 years in these
products catering to Power and Process,
Telecom and Railway sector.

Organization Chart of ARPSL:

The organization chart of ARPSL is given in

figure 1-1.
The various departments in APRSL are given
below:

➢ Research and Development.

➢ Engineering.
➢ Quality Management Department.
➢ Operations.
➢ Quality Assurance.
➢ Information Technology*.

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 ➢ Human Resource Development*.
➢ Finance and Accounts Development*.
➢ Supply Chain*.

Awards:

The award received by the company are:

➢ Best Industry all round Performance’ award

in 1998 by Federation of Andhra Pradesh
Chamber of Commerce and Industry
(FAPCCI).
➢ ‘Entrepreneur of the year’ awarded to
Mr. Ramachandra N. Galla, Chairman and
Managing Director in 1998 by Hyderabad
Management Association.
➢ ‘Business Excellence Award’ in 1998 by
Industrial Economists, chennai.
➢ ‘Udyog Rattan Award’ in 1999 by the
Institute of Economic Studies, New Delhi.
➢ “Excellence in Environmental Management “
for the year 2001-02 from the Andhra
Pradesh State pollution Control Board.

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➢ ‘World Excellence Award’ for the year 2003
by Ford Motor Company.

Social Concerns:

The company has high social concern

and it is implementing several programs for
clear environment and social uplift.

Environmental programmes:

➢ Advancement for ISO-14001 Certification.

➢ Health monitoring and awareness
programme.
➢ Both personal and industrial safety
programme.
➢ Start-up of Environmental Management
Systems(EMS) implementation programs.
➢ Nil discharge and lowest emission
awareness and implementation
programme.
➢ Waste reduction scheme.

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 ➢ Energy conservation programme.
➢ Continuous and massive greenbelt
development programme.
➢ Ground water level improvement
programme.
➢ Central wastage
collection,treatment,storage and safe
disposal programme.
➢ Personal health safe guarding program.
Social Programmes:

➢ Housing colony to the employees is in

process.
➢ Total plan-500 families over 5year. 108
already commissioned.
➢ Plan to provide community hall, open
Auditorium. Recreation Club, Parks and Play
Ground.
➢ Training center for employees.
➢ Bachelor’s Hostel, Co-operative Stores and
Bank in operation.

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➢ Roads, Water supply, Streetlights, Greenery,
Education and cultural activities,
enhancement in the neighboring villages.
➢ Award and reward to the younger generation
for improvement of education.
➢ Modernization of public parks for the full-
fledged recreation of children.
➢ Public awareness programme (in Mumbai) on
Environmental protection, through street
theatre “whose Mumbai is it any way” on the
occasion of
Earth Day, April 22nd, 2001.

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WORKING CAPITAL MANGEMENT

Working capital management forms the inching

of every business. As Gilberth Harold puts the
problems. Unfortunately, there is so much
disagreement among financiers, accountants,
business men and economists as to the exact
meaning of the term Working Capital.

Definition of Working Capital:

Working Capital or Circulating Capital indicates

circular flow of funds in the routine activities of
business.

Working Capital can be defined as “ Any

acquisition of funds which increases the current
assets, increases working capital also, for they are
one and the same”
-Bonnevile.

The current assets are cash, marketable

securities, accounts receivable and inventory.

The current liabilities are those liabilities which

are intended at their inception to be paid in the

16
ordinary course of business such as bills payable,
bank overdraft and outstanding expenses.

The goal of working capital management to

manage the firms current assets and current
liabilities in such a way that a satisfactory level of
working capital is maintained. This is because if the
firm cannot maintain a satisfactory level of working
capital, it is likely to become insolvent and may even
be forced into bankruptcy.

IMPORTANTCE OF WORKING CAPITAL

The source of any enterprise depends on the

proper management of working capital aims at
protecting the purchasing power of assets and
maximizing the return on investments, sales
expansion, dividend declaration, plant expansion,
increased salaries and wages, rising price level etc.,
but added strain on working capital maintenance.

CONCEPTS OF WORKING CAPITAL

There are two concepts of Working Capital

• Gross Working Capital

• Net Working Capital
Gross Working Capital:

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 It refers to the company’s investments in
Current assets. Current Assets are the assets which
can be converted into cash within an accounting
year and include cash, short-term securities, debtors,
bills receivables and stock.

Net Working Capital

It refers to the difference between current

assets and current liabilities. Current Liabilities are
those claims of outsiders, which are expected to
mature for payment within an accounting year and
include creditors, bills payable, and outstanding
expenses. Networking Capital can be positive or
negative.

A positive net working capital will arise when

current liabilities are in excess of current liabilities. A
negative net working capital occurs when current
liabilities are in excess of current assets.

The two concepts of working capital – gross and

networking capital are not exclusive, rather they
have equal significance from management view
point, the gross working capital concept focuses

18
attention on two aspects of current assets
management.

• Optimum investment current assets and

• Financing of current assets.

Net working capital being the difference between

current assets and current liabilities . It is a
qualitative concept. It aims at
• The firms liquidity position and
• Financing of current assets
• Suggests the extent to which working capital
needs may be financed by permanent sources
of funds.

The consideration of the level of investment in

current assets should avoid two danger points.
Current assets have excessive and inadequate
investments. Investment in current assets should be
just adequate, not more not less to the needs of the
business firm. Excessive investment in current
assets should be avoided because it impairs the
firm’s profitability an ideal investments nothing. On
the other hand inadequate amount of working capital

19
can threaten solvency of the firm because of its
inability to meet its current obligations.

CHARACTERISTICS OF CURRENT ASSETS

In the management of working capital two

characteristics of current assets must borne in mind.

• Short-term span
• Swiftly transformation into other assets
form

Current assets have a short life span. Accounts

receivable may have a life span of 30 to 60 days,
inventories may be held for 30 days to 100 days and
cash may be held idle for week or two.

Each current asset is swiftly transformed into

other assets form. Cash is used for acquiring raw
materials.

Raw materials are untransformed into finished

goods (this transformation may involve several
stages of work in progress), finished goods, generally
sold on credit, are converted into accounts
receivable and finally, accounts receivables, on
realization generates cash.

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Fig:

The need for current assets arise because of the

operating cycle. The operating cycle is a continuous
process and therefore, the need for current assets is
felt constantly. But the magnitude of current assets
needed in not always the same, it increases and
decreases over time.

However, there is always a minimum level of

current assets which time is continuously required by
the firm to carry on its business operations.

This minimum level of current assets is referred

to as permanent or fixed working capital. Depending
upon the changes in production and sales, the need
for working capital, over and above permanent
working capital will fluctuate.

The extra working capital needed to support the

changing production and sales activities is called
fluctuating or variable or temporary working capital.

21
NEED FOR WORKING CAPITAL

The need for working capital to run the day-to-

day business activities cannot be overemphasized.
We will hardly find a business firm, which does not
require any amount of working capital. We know that
a firm should aim at maximizing the wealth of its
shareholders. In its endeavor to do so, a firm should
earn sufficient return from its operations. The firm
has to invest enough funds in current assets of
generating sales. Current assets are needed because
sales do not convert into cash instantaneously. There
is always an operating cycle involved in the
conversion of sales into cash.

OPERATING CYCLE:

There is a difference between current assets

and fixed assets in terms of their liquidity. A firm
requires many years to recover the initial investment
in fixed assets such as plant and machinery or land
and buildings. Investment in current assets such as
inventories and debtors is realized during the firms
operating cycle which is usually less than a year.

22
 Operating cycle is the time duration required to
convert sales, after the conversion of resources into
inventories into cash. The operating cycle of a
manufacturing company involves three phases
acquisition of resources such as raw material, labour,
power and fuel etc., manufacture of product which
included conversion of raw material into work-in-
progress into finished goods, sale of the produce
either for cash or on credit create accounts
receivable for collection.

Stocks of raw material and work-in-process are

kept to ensure smooth production and to guard
against non-availability of raw material and other
components. The firm holds stock of finished goods
to meet the demands of customers on continuous
basis and sudden demand from some customers.
Debtors are created because goods are sold on
credit for marketing and competitive reasons. Thus,
a firm makes adequate investment in inventories
and debtors, for smooth, uninterrupted production
and sale.

23
Fig:

The total of inventory conversion period and

debtors conversion period is referred to as gross
operating cycle. The difference between operating
cycle and payables deferral period is net operating
cycle. Net operating cycle is also referred to as cash
conversion cycle.

DETERMINANTS OF WORKING CAPITAL

There are no set rules to determine the working

capital requirements of firms. A large number of
factors, each having a different importance,
influence working capital needs of firms. Therefore,
an analysis of relevant factors should be made in
order to determine total investment in working
capital. The following is the description of factors,
which generally influence the working capital
requirements of firms.

NATURE AND SIZE OF BUSINESS:

The size of business also has an important

impact on its working capital needs. Size may be
measured in terms of the scale of operations. A firm

24
with large scale of operations will need working
capital than small term. The working capital
requirements of a firm are basically influenced by
the nature of business trading and financial firm has
a very less investment infixed assets, but require a
large sum of money to be invested in working
capital.

TECHNOLOGY AND MANUFACTURING POLICY

The manufacturing cycle starts with the

purchase and use of raw materials and completes
with the production of finished goods. Longer the
manufacturing cycle, larger will be the firms working
capital requirements. An extended manufacturing
time span means a larger tie-up of funds in
inventories. Thus if there are alternative
technologies of manufacturing a product, the
technological process with the shortest
manufacturing cycle may be chooses.

FIRMS CREDIT POLICY

The credit policy of the firm affects the working

capital by influencing the level of debtors. The credit

25
term to be granted to customers may depend upon
the forms of the industry to which the firm belongs.

AVAILABILITY OF CREDIT

Creditors also affect the working capital

requirements of a firm. A firm will need less working
capital if liberal credit terms are available to it.

OPERATING EFFICIENCY

The operating efficiency of the firm relates to

the optimum utilization of resources at minimum
costs. The firm will be effectively contributing in
keeping the working capital investment at a lower
level if it is efficient to controlling operating costs
and utilizing current assets. The use of working
capital is improved and pace of a cash conversion
cycle is accelerated with operating efficiency.

BUSINESS FLUCTUATIONS

Most firms experience seasonal and cyclical

fluctuations in the demand for their products and
services. This business variation effects the working
capital requirements especially the temporary
working capital requirement of the firm. When these

26
is an upward swing in the economy, sales will
increase and vice-versa.
PRODUCTION POLICY

A steady production policy will cause inventories

to accumulate during the off-season periods and the
firm will be exposed to greater inventory cost and
risk. Thus, if the cost and risks of maintaining a
constant production schedules are high, the firm
may adopt the policy of varying its production
schedules in accordance with the change in demand.

GROWTH AND EXPANSION ACTIVITIES

The working capital needs of firm increases it

growth in terms of sales of fixed assets. If is difficult
to precisely determine the relationship between
volume of sales and the working capital needs. The
critical fact however is that the need for increased
working capital funds does not follow growth in
business activities but precedes it.

PROFIT MARGIN AND PROFIT APPROPRIATION

Firms differ in their capacity to generate profit

from business operations. Some firms enjoy a

27
dominant position, due to quality product or good
marketing management or monopoly power in the
market and earn a high profit margin. Some other
firms may have to operate in an environment of
intense competition and may earn low margin of
profits. A high net profit margin contributes towards
the working capital pool. In fact the net profit is a
source of working capital to the extent it has earned
in cash.

DIMIENSIONS OF WORKING CAPITAL

MANAGEMENT

Working Capital Management refers to the

administration of all aspects of current assets
namely cash, marketable securities, debtors and are
many aspects of working capital management, which
makes it an important function of the financial
manager.

Empirical observations show that the financial

managers have to spend much of their time to the
daily internal operations, relating to the current
assets and current liabilities of the firms.
Investments in current assets represents a very
significant portion of the total investment in assets.

28
It is particularly very important for small firms to
manage their current liabilities in financing current
assets is far significant incase of small firms, as
unlike large firms, the difficulties in raising long
terms finances.

There is a direct relationship between sale and

working capital needs. As sales grow, the firm needs
to invest more in inventories and book debts. These
needs become very frequent and fast when sales
grow continuously.

It may thus be concluded that all precautions

should be taken for the effective and efficient
management of working capital. To decide the levels
and financing of current assets, the risk return
implications must be evaluated.

FINANCING CURRENT ASSETS

The firm must find out the sources of funds to

finance its current assets. It can adopt different
financing policies. Three types of financing be
distinguished as follows.
• Long term financing

29
 • Short term financing
• Spontaneous financing

The important sources of long-term financing

are shares, debentures, preference shares, retained
earnings and debt from financial institutions.

Short term financing refers to those sources of

short credit that the firm must arranged in advance.
These sources include short term bank loans,
commercial papers and factoring receivable.
Spontaneous financing refers to the automatic
sources of short term funds. The major sources of
such financing are trade credit ( creditors and bill
payable)and outstanding expenses. Spontaneous
sources of finance are cost free.

TECHNIQUES FOR THE MANAGEMENT OF WORKING

CAPITAL:

In this section a few important techniques of

working capital are presented. All techniques of
working capital management can be divided into
two parts. Techniques relevant for the management
of working capital as a whole and the techniques
relevant for the management of each component of

30
working capital cash account receivable and
inventory.

Techniques relevant for the management of

working capital

One of the very important issues in the

management of working capital is to decide how
much to invest in current assets. The investment in
current assets is generally influenced by sales
volume. Therefore before firm is able to decide about
he quantum of working capital. It should be forecast
its feature sales volume accurately or near
accurately. This is equal true about the components
of working capital as well.

TIME SERIES MODELS:

The time series models are based on the

assumptions that the past trend will continue
repeating in the future. In the construction of tikes
series, models, historical recordings of the factors to
be forecasted is taken into the account and their
pattern and the relationship over the time is
established on the basis of the pattern so
established future forecast is made.

31
ECONOMETRIC MODELS

The models here are the equations consisting of

dependent and independent variable. These
equations attempt to establish the nature of
relationship between variables enabling the analysts
to study the value of the dependent variable on the
basis of the value of the independent variable. These
models are sophisticated, very useful techniques.

WORKING CAPITAL FORECASTING TECHNIQUES

Having determined the sales accurately, steps

can to taken to forecast working capital and the
various components of it. Working capital
requirements can be, determined into two.

• Percentage Sales method.

• Operational Cycle method.

32
 TABLE 1

STATEMENT SHOWING CHANGES IN

GROSS WORKING CAPITAL AND NET WORKING
CAPITAL

Particulars 1999-00 2000-01 2001-02 2002-03 2003-

04
I. Current
Assets
Inventory 4.13 6.83 8.61 11.69 9.31
Debtors 0.60 7.60 13.43 25.73 11.59
Cash & Bank 0.21 2.96 1.22 3.39 2.47
Balances
Loans & 1.79 2.95 4.35 5.91 6.84
Advances
Other Current 0.04 0.07 0.02 - -
Assets

Gross 6.77 20.41 27.63 46.72 30.21

Working
Capital
II. Current 5.40 5.62 13.16 21.20 12.20
Liabilities
Net Working 1.37 14.71 14.47 25.52 18.01
Capital

33
 TABLE 2
SCHEDULE OF CHANGES IN WORKING CAPITAL
Effect on Working
Particulars 1999- 2000-01 Capital
2000 Increase Decrease
A. Current Assets
Inventories 4.12 6.83 2.71
S.Debtors 6.03 7.60 1.57
Cash & Bank 0.20 2.96 2.76
Balances
Loans & 1.80 2.95 1.15
Advances
Other 0.04 0.07 0.03
Current
Assets
Total 12.9 20.41
Current
Assets : (A)

34
B.Current Liabilities
Current 5.40 5.62 0.22
Liabilities
and
Provisions
Net 7.5 14.79
Working
Capital (A-
B)
Increase in 8.00
Working
Capital
8.22 8.22

TABLE 3

SCHEDULE OF CHANGES IN WORKING CAPITAL

Effect on
Particulars 2000- 2001- Working Capital
01 02 Increas Decreas
e e
A. Current Assets
Inventories 6.83 8.61 1.78
S.Debtors 7.60 13.3 5.7
Cash & Bank 2.96 1.22 1.74
Balances
Loans & 2.95 4.3 1.35
Advances
Other 0.07 0.01 0.06
Current
Assets
Total 20.41 27.44
Current
35
Assets :
(A)
B.Current Liabilities
Current 5.62 13.16 7.54
Liabilities
and
Provisions
Net 14.79 14.28
Working
Capital (A-
B)
Decrease 0.51
in Working
Capital
9.33 9.34

TABLE 4

SCHEDULE OF CHANGES IN WORKING CAPITAL

Effect on
Particulars 2001- 2002- Working Capital
02 03 Increas Decreas
e e
A. Current Assets
Inventories 8.61 11.6 2.99
S.Debtors 13.3 25.7 12.4
Cash & Bank 1.22 3.39 2.17
Balances
Loans & 4.3 5.91 1.61
Advances
Other 0.02 - 0.02
Current
Assets
Total 27.45 23.47

36
Current
Assets :
(A)
B.Current Liabilities
Current 13.16 21.20 8.04
Liabilities
and
Provisions
Net 14.28 2.27
Working
Capital (A-
B)
Increase in 11.11
Working
Capital
19.17 19.17
TABLE 5

SCHEDULE OF CHANGES IN WORKING CAPITAL

Effect on
Particulars 2002- 2003- Working Capital
03 04 Increas Decreas
e e
A. Current Assets
Inventories 11.6 9.3 2.3
S.Debtors 25.7 11.5 14.2
Cash & Bank 3.39 2.47 0.92
Balances
Loans & 5.91 6.84 0.93
Advances
Other - - -
Current
Assets
Total 23.47 30.11

37
Current
Assets :
(A)
B.Current Liabilities
Current 21.20 12.20 9.00
Liabilities
and
Provisions
Net 2.27 17.91
Working
Capital (A-
B)
Decrease 7.49
in Working
Capital
17.42 17.42
RESEARCH METHODOLOGY

DATA SOURCES:
➢ Primary sources: The information and data related to the
project has been obtained by interviewing with the Finance
Manager
➢ Secondary sources: The secondary data is collected from the
profit and loss account, Balance sheet of AREPL.
➢ Techniques Adopted: In analyzing the data so collected.
 Ratio Analysis
 Statement of changes in working capital
 Funds Flow Statement
 Trend Analysis

38
 WORKING CAPITAL RATIOS
The financial strength and weakness of a
firm can identified with the help of financial analysis
by properly establishing the relationship between the
items of the balance sheet and the profit and loss
account. Ratio analysis is a powerful tool of a
financial analysis.

RATIO ANALYSIS

A Ratio is defined as “the indicated Quotient of

two mathematical expression” and as “the
relationship between two or more things”. Ratio
analysis is used as an index of yards stick for
evaluating the financial position and the
performance of a firm.

This technique is very much useful in

assessment of working capital requirement and also
to know the performance of the company. By using
these ratios we can arrive how much working capital
funds are invested in current assets. It is important
because investment in current asset’s must not be
39
short or in excess. If investment is short, it hinders
the production process and also utilization of the
capacity to the full extent. If it is excess than there
will be blockage of funds which is not safe for the
company i.e., excess interest burden etc.

Therefore, the investment in current asset’s

must not be in short or in excess. To know this we
can use ratio analysis techniques.

Classification from the point of financial

management is as follows

• Liquidity ratios
• Leverage ratios
• Activity ratios
• Profitability ratios

40
 CURRENT RATIO

The current ratio of a firm measures its short-term

solvency i.e., its ability to meet short term
obligations. It indicates the rupees of current assets
available for each rupee of current assets available
for current liability.

Current Ratio = Current Assets / Current Liabilities

TABLE 5

Year Current Current Ratio

Assets Liabilities

1999-2000 12.20 5.40 2.2

2000-2001 20.4 5.6 3.6
2001-2002 27.5 13.1 2.1
2002-2003 46.1 21.2 2.2

2003-2004 30.2 12.2 2.4

41
Table 1.1

INFERENCE:
In the above 1.1 table and chart the Ratio of
the current assets and current liabilities should be 2:1
according financial reports of the company that the firm is
liquid and has the ability to pay its ability to pay its current
obligation in time.

QUICK RATIO

It is a measurement of a firms ability to

convert its current assets quickly into cash in order
to meet its current liabilities. Quick ratio of 1:1 is
considered satisfactorily. This ratio measures the
firms ability to service short term liabilities.

Quick ratio = Current Assets-Inventories /

Current Liabilities.

42
 TABLE 6

Year Current Current Ratio

Assets – Liabilities
Inventories

1999-2000 8.07 5.4 1.5

2000-2001 13.6 5.6 2.4
2001-2002 18.9 13.1 1.4
2002-2003 35.00 21.2 1.6
2003-2004 20.9 12.2 1.7

Table 1.2
Quick Ratio.

INFERENCE:
1. During the year 1999-2000 the ratio is 1.5
2. During the year 2000-2001 it has slightly increased to 2.4 and
decreased to 1.4 and again it became 1.6 during 2002-2003 and
slightly keeps increasing year by year.

43
INVENTROY TURN OVER RATIO

This ratio indicates whether the inventory is

efficiently used or not. The purpose behind this is to
see whether only minimum required funds have
been locked up in inventory. It indicates the
efficiency of the firm in producing and selling its
products.

Inventory Turnover Ratio = Sales / Average

Inventory

TABLE 7

Year Sales Average Ratio

Inventory

1999-2000 15.3 3.0 5.03

2000-2001 31.8 5.4 5.8
2001-2002 36.4 7.7 4.7
2002-2003 54.2 10.1 5.3
2003-2004 32.3 10.5 3.00

44
Table:1.3
Inventory Turnover Ratio.

INFERENCE:
The Inventory turnover Ration is5.03 in 1999-2000 and
increased in 2000-01 to 5.8 and it is decreased to 3.00 in
the year 2003-2004.

WORKING CAPITAL TURNOVER RATIO

This ratio makes clear whether the business is

being carried on with small or large amount of
working capital in relation to sales.

Working Capital Turnover Ratio = Net sales / Net

working capital.

( Net working capital = Total current assets – Current

liabilities)

TABLE 8

Year Net sales Net Ratio

Working
Capital

45
1999-2000 15.3 6.7 2.26

2000-2001 31.8 14.8 2.15

2001-2002 36.4 14.4 2.53

2002-2003 54.2 25.5 2.12

2003-2004 32.3 18.00 1.79

Table 1.4
Working Capital turnover Ratio:

INFERENCE:

The Working Capital Turnover ratio is2.26 in the year 1999-2000 and
increased to 2.53 in the year 2001-2002 and finally decreased to 1.79 in
the year 2003-2004.

46
CASH POSITION RATIO

Cash is the most liquid asset, a financial analyst may

examine cash ratio and its equivalent to current
liabilities. Trade investment or marketable securities
are equivalent of cash; therefore, they may be
included in the computation of cash ratio.

Cash ratio=cash+marketablesecurities/current
liabilities
TABLE 9

Year Cash Current Ratio

liabilities

1999-2000 0.21 3.75 0.055

2000-2001 2.96 2.87 1

2001-2002 1.24 8.48 0.14

2002-2003 3.39 15.72 0.22

2003-2004 2.47 6.13 0.40

47
Table 1.5
Cash Position Ratio:

INFERENCE:

The cash Position Ratio is 0.055 in the year 1999-2000 and it is

increased to 1 in the year 2000-2001 and it is decreased to 0.14 in the
year 2001-02 and it slightly increased year by year.

DEBTORS TURNOVER RATIO

Debtors turn over ratio indicates the no of times

debtors turn over each year. Generally the higher
the value of debtors turnover, the more efficient is
the management of credit .

Debtors turnover ratio = credit sales/average

debtors
(or)
debtors turnover ratio = sales /debtors

TABLE 10

48
 Year Total sales Average Ratio
debtors

1999-2000 15.96 6.04 2.6

2000-2001 33.41 7.61 4.4

2001-2002 37.91 13.35 2.84

2002-2003 56.1 25.73 2.18

2003-2004 33.36 11.59 2.87

Table 1.5
Debtors Turnover Ratio:

INFERENCE:
The Debtors Turnover Ratio is 2.6 in 1999-2000 and it is
increased to 4.4 in the year 2000-01 and it is decreased
to 2.18 in the year 2002-03 and then increased to 2.87
in the year 2003-2004.

49
DEBTORS COLLECTION PERIOD

The average collection period measures the quality

of debtors since it indicates speed of their collection.
The shorter the average collection period, the
better the quality of debtors, since a short collection
period implies the prompt payments by debtors.

TABLE 11

Year Days in a Debtors In days

year turnover
ratio

1999-2000 365 2.6 140 days

2000-2001 365 4.4 83 days

2001-2002 365 2.84 128 days

2002-2003 365 2.18 167 days

2003-2004 365 2.87 127 days

EARNINGS PER SHARE

50
The profitability of the common shareholders
investment can also be measured in many other
ways. One such measure is to calculate the earnings
per share. The earnings per share is calculated by
dividing the profit after taxes by the total number of
common (ordinary) shares outstanding.

EPS = profit after tax / no of equity shares

TABLE 12

Year Profit after No of EPS

tax equity
shares

1999-2000 0.55 0.06 9.5

2000-2001 2.61 0.06 45.30

2001-2002 1.98 0.06 34.33

2002-2003 2.21 0.06 38.31

2003-2004 1.22 0.06 21.28

51
Table 1.6
Earning Per Share:

INFERENCE:
The Earning per share is 9.5 in the year 1999-2000 and it is increase to
45.30 in the year 2000-2001 and again decreased to 21.28 in the year
2003-2004.

52
PARTICULARS
YEARS 2000
2000 2001
2001 2002
2002 2003
2003 2004
2004
Raw materials 95473655182860975
210036689
368970142
188605718
Inventory
Payments & Benefits
conversion period: 1025244114612863202214692693130334916533
Manuf.exp
Raw materials 135.8
4589420102.8
8754564 9908914 13615749
130.7 86 7315729
108.79
Taxes & Licences
Work in process 14.54 23.0 11.68 17.89 37.00
Finished goods 26731609
0.06 57640545
0.16 63922059
1.1^6 79626493
4.3 45687482
8.5
Depreciation 120571051437499517211150
Debtors conversion
8347589
14.00 9957186
83.1 128.5 167.5 126.8
period
145394714
273826133
316146236
503518682
29373667
Add.op.stock in process
164.4
Gross operating cycle 3633047209.06
5709845270.88 275.69
16695313 281.1
10322736
29849453
Less payment deferral 67.0 17.0 102.0 131.0 76.5
period 149027761
279535978
332841549
513841418
32358606
Less clo.Stock in process
5709845 16695313
10322736
24020436
29849453
Net operating cycle 97.4 192.06 169 145 205
Cost of production
143317916262840665
322518813
489820982
29373661
Add.op.stock of F.G 30833
26568 115988 - 5721726

143348749
262867233
322634798
489820482
29945833
Less.cl.stock of 26568
F.G 115985 - 5721726 6823297

Cost of goods sold

143322181
262751248
322518813
484099256
29263504

Raw materials period

35531236X365
51515523X365
75215601X365
86985087X365
56217408X365
182860975 210036689 368970142 188605718
Rmcl X 365/Rmc 95473655 =102.8 =130.7 =86 =108.79
=135.8
Work in process 16695313X365
10322736 X365
24020436X365
29849453X365
Conversion period 5709845X365262840665 322518813 484099256 293736612
143317916 =23 =11.68 =17.89 =37
cl.WIPX365/cost of prod.
=14.54

F.G.Convertion period 115985X365 X 365 5721726X3656823297X365

cl.f.gX365/cost of goods
26568x365 262751248 322518813 484099256 292635041
sold 143822181 =0.16 =0.000001 =4.3 =8.5
=0.06

76061052X365
133491610X365
257319891X365
115908585X36
collection period(Deb.con
6037271X365334085791 379172049 560870412 333601680
53
 SUGGESTIONS
The following suggestions are made in accordance with the
stated findings.
1. The idle working capital should be fully utilized by
reducing the operation cycle to a minimum level.

2. The company is maintaining huge inventories, which

results in high inventory carrying cost. The company
should maintain an optimum size of inventory to
decrease the inventory carrying costs.

3. The company should increase its sales volume, so as to

results in optimum utilization of capacity and
maximization of profit.

54
4. The hike cash holding of the firm should be kept for any
other purpose such as investing in the investments or
discharging the loads.

5. The company can utilize the maximum long term funds

through bank and financial institutions.

6. They should see that then debtors be collected with in a

specified time by the company, so that they can
discharge some of its creditors or current liabilities and
avoid payment of interest.

7. The company can utilize the reserves and surplus by

either capitalizing or can invest the money some where
as investments to get benefits.

8. It is oblivious that the working capital which is

expressed to very much liquid. Thus the business has
been made vulnerable to technical insolvency a
grievance problem before the management.

55
 FINDINGS.

On the overall evaluation of the working capital management at

each and
every aspect, the following findings are found.

1. The current ratio is more than the industry standard of 2:1

through out the period of observation. It indicated the liquidity
position of the firm is good.
2. The quick ratio is also above the standard level of 1:1 through
out the period. This shows the company saving high liquidity
position and capable of meeting the quick liabilities promptly.
This is also an indication of the efficient management of the
inventories, which are reduced considerably during the period
of observation.
3. Cash position ratio during the year 1999-2000 is very low at
0.1. However the remarkable improvement in the cash
position has been achieved. There after and the company is
capable of meeting all its commitments promptly.

56
4. The reserves and surplus is always accumulating every year.
The company reserves are more than the company capital.
5. The company operating cycle and cash cycle is decreasing
year by year gradually.
6. The company’s book debts constitute a major portion in the
working capital
7. The share holders are getting maximum returns.
8. The funds flow reveals the liquidity of the firm.

Limitations of the study

1. The information provided in the company balance sheet

is only the data source available.
2. Some required secondary data which is not provided by
company.
3. The information available in the balance sheets have
taken from the published annual report, so it has only
limitations.
4. There is only two months period to finish the project,
due to lack of time in depth of financial matters have not
been touched.

57
 BIBLIOGRAPHY

Financial Management- I.M Pandey

Vikas Publishing
House
New Delhi.

Financial Management- M.Y.khan &

P.K.Jain
Vikas Publishing
House
New Delhi.

Financial Management-

58
 Theory & Practices Prasanna
Chandra,Tata
Megraw Hill
Publishing
Co. Limited, New
Delhi.

Working Capital Management- Choudhary,

Anil,B.R,
Eastern house
Calcutta.

59