WORKING CAPITAL MANAGEMENT

Finance is a blood of business. Financial Management helps in achieving group goals.

It reduces the cost and optimum utilization of funds and maximum efforts.

Financial management also referred to as corporate finance and managerial finance. It

involves planning, allocation of resources and control. There are three broad areas of financial
decisions. They are capital budgeting, capital structure and working capital management and
dividend decisions.

Working capital is one of the most important requirements of any business concern.
Working capital can be compared with the blood of human beings, as human cannot survive
without blood, in the same way no business concern can survive without capital.

1. In managing fixed assets, time is an important factor discounting and compounding

aspects of time play an important role in capital budgeting and a minor part in the
management of current assets.
2. The large holdings of current assets, especially cash, may strengthen the firm’s liquidity
position, but is bound to reduce profitability of the firm as ideal car yield nothing.
3. The level of fixed assets as well as current assets depends upon the expected sales, but it
is only current assets that add fluctuation in the short run to a business.

MEANING OF WORKING CAPITAL MANAGEMENT

Every business needs funds for two purposes for its establishment and to carry out its day
to day operations. To carry out day-to-day operations such as for purchase of raw materials,
payment of wages and other day-to-day expenses, funds are required. These funds are known as
working capital.
In other words working capital refers to the funds invested in current assets.

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IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Because of its close relationship with day to day operations of business, a study of
working capital and its management is of major importance to internal, as well as external
analysis. It is being increasingly realized that inadequacy or mismanagement of working capital
in leading cause of business failures.

Neglect of management of working capital may result in technical insolvency and

even liquidation of a business unit.

With receivables and inventories tending to grow and with increasing demand for
bank credit in the wake of strict regulations of credit in India by the central bank, mangers need
to develop a long term prospective for managing working capital. Inefficient working capital
management may cause either inadequate or excessive working capital which is dangerous.

A firm may have to face the following adverse consequences from inadequate working
capital:

 Growth may be stunned. It may become difficult for the firm to undertake profitable
projects due to non availability of funds.
 Implementation of operating plans may become difficult and consequently the firms
profit goals may not be achieved.
 Operating inefficiencies may creep in due to difficulties in meeting even day to day
commitments.
 Fixed assets may not be efficiently utilized due to lack working funds, thus lowering the
rate of return on investments in the process.
 Attractive credit opportunities may have to be lost due to paucity of working capital.

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 COMPONENTS OF WORKING CAPITAL

From the accounting point of view, working capital is the difference between current
assets and current liabilities.

CURRENT ASSETS

Cash is required to pay salaries, office expenses and to pay creditors for purchases stock
of raw materials in adequate quantities to ensure uninterrupted production.

Stock of finished goods in sufficient quantities to meet the demand from customers.

Debtors that is people to whom we sell goods on credit basis for increased sales.

Prepaid expenses that is the expenses paid in advance such as insurance, rent, salaries and so on

Bills Receivables these are the bills of exchange received for the money lent or to be received
for a short period.

CURRENT LIABILITIES

Creditors that are the people from whom we purchase on credit basis.

Accruals that is, those expenses in respect of which, the liability has arisen. In other words the
expenses have fallen due and hence to incurred, such as interest, salaries, taxes and so on.

Bills payable these are the bills of exchange against which money is to be paid within a short
period.

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NEED FOR WORKING CAPITAL

The basic objective of financial management is to maximize the shareholders wealth.

This is possible only when the company earns sufficient profits. The amount of such profits
largely depends upon the magnitude of sales. However sales do not get converted into cash
instantaneously.

There is always a time gap between the sale of goods and their actual realization in to
cash. Working capital is required in order to sustain the sales activities.

The company will not be in a position to purchase raw materials, pay wages and other
expenses required for manufacturing the goods. Therefore sufficient amount of working capital
is to be maintained at any point of time.

ADEQUACY OF WORKING CAPITAL

A firm must have adequate working capital i.e., as much as needed by the firm. It should
neither be excessive nor inadequate. Both the situation are harmful to the concern.

Excessive working capital means the firm has idle funds, which earn no profits for the
firm. Inadequate working capital ultimately results in production interruptions and lowering
down of the profitability.

It will be interesting to understand the relationship between working capital, risk and
return in manufacturing concern. It is generally accepted that higher levels of working capital
concern with risk and have the potential of increasing the profitability also.

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CONCEPTS OF WORKING CAPITAL

There are two concepts of Working Capital

1. Gross Working Capital
2. Net Working Capital

1. GROSS WORKING CAPITAL

In the broad sense, the term working capital refer to the gross working capital and
represents the amount of funds invested in current assets. Thus the gross working capital is the
capital invested in the total current assets of the enterprise. Current assets are those assets, which
in the ordinary course of the business can be converted into cash with in a short period of
normally one accounting year.
Examples of the current assets are cash in hand, bank balance, bills receivable, sundry debtors,
short term loans and advance, stocks, temporary investments, prepaid expenses, accrued
incomes.

2. NET WORKING CAPITAL

In a narrow sense, the term working capital refers to the net working capital. Net
working capital is the difference between current assets and current liabilities. The net working
capital can be positive or negative. Current liabilities are those liabilities, which have taken due
and hence to be incurred in short period normally one accounting year.

Examples of current liabilities are Bills payable, sundry creditors or accounts payable, accrued or
outstanding expenses, short term loans and advances, dividends payable bank overdraft,
provisions.

Net Working Capital = Current Assets – Current Liabilities

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DETERMINING WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS

The nature of business has an important bearing on its working capital needs. Some
ventures like retail stores, construction companies etc., require an abundance of working capital.
In other cases, such as power generations and supply, the current assets play a minor and
secondary role.

2. SIZE OF BUSINESS

A large firm operating on a large scale and thus requires more working capital as
compared to a smaller firm in the same line of business.

3. MANUFACTURING AND OPERATING CYCLE

The term manufacturing cycle refers to the time span between procuring raw materials up
to the stage of production of finished goods. Operating cycle refers to the time that elapses
between purchase of materials and final cash received by the sale of goods. The longer the
operating cycle, larger will be the working capital requirements because the funds are tied up
during the manufacturing process.

4. BUSINESS CYCLES

Business cycles refers to economic phases like boom, recession, depression, recovery etc.
These market conditions change the demand for products and services in all the industries. In
boom times, there is an increase in business activities and the need for working capital also
grows, particularly the temporary working capital. Similarly during depression, when there is
fall in activity level, the need for working capital also declines.

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5. SEASONAL VARIATIONS

For seasonal industries like woolen garments, ice cream etc., having seasonal fluctuations
in demand, the working capital requirements also change with changes in demand. In such
industries, during active season, there is necessary to provide additional working capital to meet
additional inventories and book debts as well as higher costs for increased production. Similarly,
during slack season, the demand for products falls and volume of business. Accordingly low
amount of working capital is needed.

6. GROWTH AND EXPANSION

Growth and expansion plans of business call for larger amount of working capital.
Infract, the need for increased working capital fund does not follow the growth in business but
proceed it in other words, working capital requirements are assessed in advance of
implementation of growth and expansion of business operations.

7. CHANGES IN PRICE LEVEL

Working capital requirements are affected by price level changes, when price increases
the requirement of working capital with increase and vice-versa.

8. CREDIT POLICY

Business makes purchases and sales on cash basis credit term is also generated to its
customers and the same is extended to the firm by the suppliers will affect the working capital
requirements of a firm. More of credit sales result in more receivable which means more
working capital is required. On the other hand, if suppliers of goods liberal credit terms, the
need of working capital is less.

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9. DIVIDEND POLICY

If a company pays higher dividends, it consumes cash resources which affect working
capital to that extent. But if the firm does not pay dividend, and retains profits, the working
capital of the firm increases. Therefore, in planning working capital requirements, dividend pay-
out ratio is a very important factor.

10. DEPRECIATION POLICY

It is commonly said that depreciation, the profit and therefore the tax liability is reduced,
resulting in higher cash profits. Higher depreciation also reduces the amount of distributable
profit and therefore lower dividend payouts. In brief, higher change of depreciation on fixed
assets make cash position of the company more comfortable. The management has to prepare its
depreciation keeping in new the above said point.

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 WORKING CAPITAL CYCLE

In a manufacturing concern, the working capital cycle starts with the purchase of raw
material and ends with the realization of cash from the sale of finished products. This cycle and
stores, its conversion into stocks of finished goods through work in progress with progressive
increment of labour and service costs, conversion of finished stock into sales, debtors and
receivables and ultimately realization of cash and this cycle continues again from the cash to
purchase of raw materials and so on.

RAW
MATERIALS

2. WORK – IN –
PROGRESS
5. CASH

4. DEBTORS
3. FINISHED
(RECEIVABLES)
GOODS

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

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 RESEARCH METHODOLOGY

Research means it is an academic activity and as such the term should be used in
technical sense. Research methodology implies a systematic attempt by the researcher to obtain
knowledge about the subject under study. This is infact is a systematic way to show the problem
and it is important components of the study without which a research may not be able obtain the
facts and figures from employee.

OBJECTIVES OF THE STUDY

The main purpose of the study is to project into the various aspects of financial
management of BLUE STAR AIR CONDITIONERS. The study focuses on the following
objectives:

1. To study the existing system of working capital management in BLUE STAR AIR
CONDITIONERS.
2. To know the liquidity position of the BLUE STAR AIR CONDITIONERS.
3. To know how the working capital is being financed.
4. To find out the ability of the company to meet its current obligations.
5. To know the profitability position using with few ratios.
6. Suggesting a better way to improve working capital management.

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SCOPE OF THE STUDY

1. The study mainly focuses on BLUE STAR AIR CONDITIONERS.

2. The study mainly focuses on working capital management
3. The study is confined to evaluation of the last five years annual reports only
4. The study focuses to a certain level on ratios to find profitability position of the BLUE
STAR AIR CONDITIONERS.
5. The information obtained from the primary and secondary sources were limited to BLUE
STAR AIR CONDITIONAES.

LIMITATIONS OF THE STUDY

The amount used in the reports is taken from the annual reports, published at the end of the
respective years.
1. The study was confined to a period of 5 years.
2. As most of the data is from secondary sources, so the results are not accurate.
3. This analysis was confined to BLUE STAR AIR CONDITIONERS only.

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COLLECTION OF DATA

Methodology is a systematic procedure of collecting information in order to analyze and

verify a phenomenon. The collection of data is done through two principles sources
 Primary Data
 Secondary Data

Primary Data

It is the information collected directly without any reference. In the study, it was mainly
collected from interaction with concerned officer and staffs members and some of the
information was gathered by personal observation.

Secondary Data

The secondary data was collected from already published sources such as pamphlets
annual reports, internal records and internet sites.
The data include:
1. Collection of required data from annual reports of BLUE STAR AIR CONDITIONERS.
2. Reference books of financial management.

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COMPANY PROFILE

Blue Star is India's largest central air-conditioning company with

an annual turnover of Rs 2270 crores, a network of 24 offices, 5 modern manufacturing facilities,
650 dealers and around 2500 employees. Blue Star has business alliances with world renowned
technology leaders such as Rheem Mfg Co, USA; Hitachi, Japan; Eaton - Williams, UK; Thales
e-Security Ltd., UK; Jeol, Japan; ISA, Italy and many others, to offer superior products and
solutions to customers.

The Company has manufacturing facilities at Thane, Dadra, Bharuch, Himachal

and Wada which use state-of-the-art manufacturing equipment to ensure that the products have
consistent quality and reliability Blue Star fulfills the air-conditioning needs of a large number of
corporate and commercial customers and has also established leadership in the field of
commercial refrigeration equipment ranging from water coolers to cold storages. The company’s
other businesses include marketing and maintenance of hi-tech professional electronic and
industrial products.

Blue Star primarily focuses on the corporate and commercial markets. These
include institutional, industrial and government organizations as well as commercial
establishments such as showrooms, restaurants, banks, hospitals, theatres, shopping malls and
boutiques.

VISION, MISSION, OBJECTIVES

• To deliver a world class customer experience.

• Focus on profitable company growth.
• Be a company that is a pleasure to do business with.
• Work in a boundary – less manner between divisions to provide best solutions to
customers.
• Win our people’s hearts and minds.
• Place the company’s interest above one’s own.

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 • Encourage innovation, creativity and experimentation in what we do.
• Build an extended organisation of committed business partners.
• Be a good corporate citizen.
• Honour all personal and corporate commitments.
• Ensure high standards of corporate governance.

HISTORY AND GROWTH OF COMPANY

Blue Star was founded in 1943, by Mohan T Advani, an entrepreneur of exemplary

vision and drive. The Company began as a modest 3-member team engaged in reconditioning of
air conditioners and refrigerators. An expanding Blue Star then ventured into the manufacture of
ice candy machines and bottle coolers and also began the design and execution of central air-
conditioning projects. Then came the manufacture of water coolers. In 1949, the proprietorship
company set its sights on bigger expansion, took on shareholders and became Blue Star
Engineering Company Private Limited.

Ever since, there has been a constant and profitable growth. Blue Star diversified and
took up agencies for Material Testing Machines and Business Machines. The export arena
beckoned and the Company began exporting water coolers to Dubai, where in fact, 'Blue Star'
soon became the generic name for water coolers. The sixties and the early seventies witnessed
Blue Star continuing to expand and thrive. A team of dedicated professionals aided Mohan T
Advani in ever furthering his vision of a profitable company dedicated to its ideals of
professionalism and success.

Employee strength crossed the 1000 mark and the company went public in 1969 to
become Blue Star Limited, as it continues to be called today. Blue Star crossed the Rs. 500 crore
milestones in 2000 and the Rs. 600 crore milestones in 2002-03. With the boom in construction
activity and increased infrastructure investments, the Company leveraged its leadership position
to grow employees and the environment in which it operates.

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MILESTONES

Year Event
1943 Mohan T Advani establishes Blue Star Engineering Company as a
proprietary firm
1946 Blue Star secures Melchior Armstrong Dessau agency
1947 Worthington selects Blue Star as Indian Partner. Manufacturing of ice
candy machines and bottle coolers begins. Central air-conditioning
system design and execution begins
1948 Manufacture of water coolers commences
1949 Proprietorship converted to Private Limited Companies
1954 Blue Star selected as distributor for Honeywell
1955 GDR Testing machines distributorship begins
1957 Perkin-Elmer tie-up marks the start of the electronics business. GDR
business machines agency commences
1960 Total Income crosses the Rs 1 crore mark
1964 Total employment crosses 1,000
1965 Techniglas Pvt Ltd set up to manufacture insulation material
1969 Factory moves from Colaba in Mumbai to Thane
1970 Hewlett- Packard distributorship commences
First skyscrapers of Mumbai – Air India Building, Express Towers and
1972
Oberoi Hotel set-up – all air-conditioned by Blue Star
1972 Total Income crosses Rs 10 crores. Employment crosses 2,000
Water Cooler manufacturing license granted to Yusuf Alghanim,
1974
Kuwait
1977 Middle East thrust begins. Joint Venture (JV) with Al Shirawi in Dubai
1977 Hitachi Medical Equipment distributorship begins
1978 Industrial Division commences activity
1980 Bharuch Factory set up
1980-86 Major AC and R projects executed in the Middle East
1983 International Software Division inaugurated in Seepz
1984 York technology collaboration begins

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1985 Manufacture of centrifugal packaged chillers commences at Thane Plant
1986 Total Income crosses Rs 100 crores
1987 Yokogawa Blue Star JV formed
1987 Gandhinagar factory set up for EPABX systems
1988 Blue Star becomes India’s largest central air-conditioning company
1988 Manufacturing collaboration with Mitsubishi
1988 Assembly of personal computers under the brand name ‘Quantum’ begins
1989 JV with Hewlett-Packard and Motorola
1990 Gandhinagar factory closes
1992 Total Income crosses Rs 200 crores
1992 Blue Star exits from Motorola JV
1993 Formation of Arab Malaysian Blue Star JV in Malaysia
1995 Blue Star exits from HP India JV
1997 Dadra Plant inaugurated
1998 Major thrust on dealerisation and brand building begins
1999 Blue Star exits from Industrial Projects business
International Software business spun off to form Blue Star InfoTech,
2000
listed on stock exchanges
Total Income crosses 500 crores. Export of air-conditioning products
2001
begins
2003 Blue Star exits Yokogawa JV
2005 Blue Star sets up new factory at Kala Amb in Himachal Pradesh
2006 Total Income crosses the Rs 1000 crores mark
2006 Blue Star opts for a 5 for 1 stock split
2007 Blue Star sets up its fifth factory at Wada, Thane District
Blue Star powers into Building Electrification. Acquires Naseer
2008
Electricals, a leading Electrical Contractor
2008 Total income crosses Rs. 2000 Crores.

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17
MANUFACTURING PROCESS

Blue Star understands that skilled manpower and other staff members are an
indispensable part of the manufacturing set-up and the management should work shoulder to
shoulder with them.

Management grade staff too is put through training programs on various aspects of
manufacturing and business. Also, performance awards are announced every year. Apart from
enhancing the skills of the staff, such initiatives create a positive, firm and lasting emotional
bond between staff and company. This in turn contributes to greater productivity.

MANUFACTURING SYSTEMS

The factories make extensive use of IT to enhance productivity and product development
capabilities. All our factories are ISO 9001: 2000 certified BAAN ERP implemented in 3
factories and Himachal under implementation.

RAW MATERIAL AND MATERIAL MANAGEMENT

Sheet metal fabrication

A high degree of repetitive accuracy in sheet metal fabrication is achieved by using specialized
equipment, CNC metal forming machines. The raw material used is prime quality, corrosion-
resistant, galvanized steel for enhanced life of the product. The equipment used for processing
the steel includes CNC machines such as an Amada turret punch press, a LVD / Amada
hydraulic press-break. All these allow for high quality cabinet fabrication within tight tolerances
Power coating plant

The state-of-the-art powder coating plant covers a wide range of very specialized process
equipment, and is fully automated. A water-softening unit treats the raw water before it is
utilized in the automatic hot spray pre-treatment system.

It provides an even distribution of chemicals, controlled by an auto dosing mechanism

that maintains the chemical bath composition with the help of electronic sensors. After a final

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mineral water rinse, the components pass through a dry-off oven under dust-free conditions to
remove all traces of moisture.

The components are then transferred into the powder painting booth for coating, where
temperature, humidity and dust levels are controlled. The powder painting equipment, supplied
by Nordson, USA, is equipped with automatic electromechanical oscillators, for even powder
deposition.

Desiccant dry air-with a dew point of minus 40 0 C - helps avoid any moisture
contamination of the powder. A 'smart spray' mechanism senses the conveyor movement and
component geometry to adjust powder flow.

Polyester powder - ideally suited for out door applications - provides the maximum
protection against UV deterioration and corrosion. The components finally pass through a
temperature-regulated curing oven to achieve desired gloss and surface hardness.

Heat exchangers

Experienced engineers create heat exchanger designs using high precision design software,
which are then validated in our test labs. Blue Star also makes sure that the designs are energy
efficient for optimum heat transfer.

Fin and Tube: The sophisticated coil shops have some of the most advanced machines from
USA, Japan and Korea. The Burr Oak coil line produces energy efficient DX heat exchangers.
These have plain or enhanced split fins with grooved copper tubes for maximum heat transfer
efficiency. Then the source plain and inner grooved copper tubes with coated aluminum fin stock
of international quality from leading manufacturers to fit our specifications.

Shell and Tube: Blue Star has shell and tube exchangers using specially enhanced surface
copper tubes and shell design as per Blue Star or TEMA standards. Blue Star uses Heat Transfer
Research Inc. (HTRI design software for these heat exchangers).

Plate Type: Blue Star products also incorporate stainless steel plate heat exchangers for
specialized process applications.

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System tubing

3-axis CNC copper tube-bending machines from Japan fabricate wrinkle-free system tubing to
exact dimensions for a perfect stress-free fit. Special purpose machines carry out operations like
end closing, flaring and forming for good joint formation. Prime quality copper tubes sourced
globally help in optimum product performance.

Brazing

The brazing process is carried out in an inert atmosphere to avoid oxidation and the resultant
impurities from contaminating the refrigerant system. Specially selected brazing equipment and
fixtures are used to produce high quality brazing. The joints are pressure-tested to check weld
strength and leakage. The coils are then tested for fine leaks with ultra-sensitive electronic leak
detectors. An automated coil brazing line from Korea ensures consistent quality brazing and leak
proof joints.

PUF installation

Blue Star fabricates CFC-free PUF insulated panels by using the latest equipment from Cannon.
This enables to achieve a uniform and constant density of insulation for air handling units,
telecom shelters and cold storage panels. Blue Star supply panels of up to 6 meters in length and
25 mm to 125 mm in PUF thickness. PUF insulation expertise finds use in a wide range of
applications such as Air Handling Units, water coolers, deep freezers, reach-in coolers and
mortuary chambers.

Assembly and testing

The final product is assembled sequentially on conveyors, with in-built quality checks during
assembly operations. Pneumatic tools permit torque-controlled rigidity, and specially coated
corrosion-resistant hardware provides firm locking. Each machine is then electronically tested
for leaks and run-tested for performance and electrical safety parameters before packaging.

PRODUCTS

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CENTRAL AIRCONDITION
The building blocks of Blue Star’s solutions are its products. The most comprehensive range of
air-conditioning products in the country. A wide range of models are available in each product
category to ensure that the air-conditioning system design is implemented without any
compromise. All products have been designed on the energy-efficiency platform, and offer a host
of advanced features.

Room air conditioners

By being an expert in the area of central air-conditioning, it also helps us understand the cooling
requirements of a diverse range of applications. This expertise, knowledge and the skills have
helped us to have some of the most technologically advanced and energy efficient air-
conditioning solutions for small spaces.

Commercial Refrigeration

Having been the leaders in commerciall refrigeration, we have a wide range of products catering
to various small and large scale industries

Cold storages

Blue Star’s Cold Storage Division offers us a wide range of cooling and preservation solutions.
Solutions tailored made to suit any industry that requires storage of perishable produce over
extended periods of time without suffering any loss of quality – be it in look, feel, touch, taste or
chemical composition. Industries that find Blue Star’s cold storage solutions enormously useful
include the agriculture sector including horticulture and floriculture units, manufacturers of fresh
produce of any kind, food processing units, pharmaceutical industries, seafood and other similar
industries, as well as the dairy and hospitality sectors, including hotels, restaurants, and eateries.

Specialty Cooling Products

Blue Star has developed specialized products for process applications, IT/ITES, telecom and the
dairy industry. It has diverse experience and have a deep understanding of the demands on air-

21
conditioning and refrigeration in each industry. This knowledge and domain expertise has helped
in designing and manufacturing a range of specialized products which ensure that critical
applications work seamlessly.

Research & Development

Blue Star offers complete engineered products and solutions with differentiated features. With
the extent of climatic conditions varying across the nation, our products are designed to suit the
specific local conditions. Considering the shortfall of Electricity supply, all the products are
designed for energy efficiency. Blue Star products are most preferred in the domestic market
because of energy efficiency features. In the offer, they are widest range of products for varying
applications. This is possible due to extensive research and development that goes behind the
products.

All our factories are equipped with robust R&D facilities and a lot of importance is given
towards continuous up gradation. Currently R&D team constitutes nearly 20% of the
manufacturing division work force. This is a testimony to the significance that R&D has in the
product development process at Blue Star. R&D team is encouraged to update with the latest
techniques and processes in the field and thus are sent to various exhibitions / site visits across
the globe. Consultants from various industries are also hired for specific industrial design
projects.

Blue Star also believes in associating itself with leading global organizations that have done path
breaking work in the field of innovations. The company also has tie-ups with reputed companies
for knowledge sharing and technical institutions like IIT, Mumbai, where individual projects are
executed. R&D at Blue Star also handles customer specific requirements, which require
tremendous amount of expertise in that particular domain. Software that R&D team has deployed
and which is used on a regular basis - Pro-Engineer, Solid Edge, AutoCAD, Pro Mechanics,
R&R, HTRI, Mechanical Desktop, Rhino, Alias, CATIA, IDEAS, Solid Works, Patran,
Hypermesh, Femap, Ansys, Nastran, Fluent, Flow Mechanica and Moldflow.

Software packages including those for system design, air handling unit selection and heat
exchanger optimization.

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TECHNOLOGY ASSOCIATES

Blue Star has associated itself with global knowledge partners who have been leaders in specific
product manufacturing. Through this partnership, Blue Star has been able to command a
leadership position in the domestic market. Blue Star initially tied-up with York in the mid
1980s. It has been able to leverage this expertise and learning to manufacture its own Chillers.
We now manufacture our own range of Screw, Scroll and Process Chillers. For Cold Rooms,
Blue Star had tied-up with Kolpak, USA and Heat Craft for Freezing Units. Rheem, USA not
only provided technical support for building the world class Dadra manufacturing unit, but also
shared technical expertise. The foray in precision equipment business was achieved with support
from Eaton Williams. Blue Star now manufactures Precision Control Packaged Units for
domestic and global markets.

BUSINESS ASSOCIATES

In keeping with its win-win approach, Blue Star treats its vendors as not just suppliers, but as
business partners and tries to build long term associations that are profitable both to the suppliers
and to Blue Star. In line with this thought, Blue Star has entered into long term arrangements
with its key suppliers, many of whom are world leaders. For instance, Blue Star sources its
Switchgears from Siemens, Compressors from Danfoss of Netherlands and Refrigerant from
DuPont. General Electric Corp of USA provides Motors, while Hanbell of Taiwan supplies
Screw Compressors. Copeland of USA assists in System Design.

Over the years, Blue Star has built a strong network of suppliers around it. Not only that, the
company also helps in the development of its smaller suppliers by providing various business
related and technical inputs to them. For instance, since the vendors are also manufacturers, they
will benefit from some of the good manufacturing practices that Blue Star adopts. Blue Star has
educated a number of small vendors on the importance of ISO certification and encouraged them
to get certified within a certain time period. This approach has greatly boosted the morale of
vendors and firmly bonded them with Blue Star. Also, it ensures that the suppliers walk side-by-
side with Blue Star on the path to growth.

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MARKETING ACTIVITIES AND MANAGEMENT IN BLUE STAR

EXPORTS
Blue Star has been exporting its products to the Middle East for over two decades. Blue
Star products have stood the test of time in some of the most difficult climatic conditions in the
world such as UAE, Qatar, Bahrain, Oman and Kuwait. On offer it has a comprehensive range of
products such as chillers with screw and hermetic scroll compressors, a wide range of air
handling and fan coil units, duct able packaged and duct able split air conditioners including the
heat pump versions. Blue Star also offers unitary products such as window and split air
conditioners, deep freezers, cold rooms, water coolers and specialized air conditioners for
precision control applications, Variable Refrigerant Flow (VRF) Systems with digital scroll
technology and process chillers with frequency modulation. These world-class products are
manufactured at our state-of-the-art manufacturing facilities in India. All the manufacturing
facilities are ISO 9001: 2000 certified, and are powered through integrated Enterprise Resource
Planning (ERP) software. Moreover, most of the products go through stringent tests on reliability
and performance in our test labs.

SUPPLY CHAIN MANAGEMENT

Rapid growth coupled with volatility of input costs necessitated an agile and adaptable supply
chain. The Blue Star focused on both the efficiency and responsiveness of all aspects of the
supply chain by improving all round execution capability. A combination of short term and long
term view along with the support of business associates helped the
Company tide over the uncertainty and turbulence of increasing input costs. The supply chain
adequately met the increased demands of the market place supporting greater channel.

CHANNEL DEVELOPMENT

Blue Star has around 180 systems dealers who exclusively deal in the Company's systems
businesses consisting of packaged air conditioning and cold rooms. These dealers are provided
technical expertise, installation and service competence of a high order. On the other hand, room
air conditioners and refrigeration products, which are simple to install, are sold through a larger

24
network of approximately 600 dealers. Most of them deal exclusively with Blue Star products in
the HVAC domain. A few are multi-brand, multi-product dealers. The Company has established
a Channel Management Centre to oversee the policy framework, certification and development
of dealers and also put in place a Training Department for training channel partners. During the
year, the Company implemented a number of initiatives in order to strengthen the competence of
the dealer channels and make them more robust. A Management Development Program (MDP)
for systems dealers was held to impart the essentials of managing a business professionally.
Systems dealers were also put through a Sales Management training programme in order to
enhance their sales competence.

CORPORATE SOCIAL RESPONSIBILITY

Eco friendly initiative

Blue Star has made significant progress towards minimizing and even eliminating the
environmental hazards resulting from CFCs in certain refrigerants used for cooling. As a matter
of fact, Blue Star is one of the few companies selected in India for funding by "The Multilateral
Fund for the implementation of the MONTREAL PROTOCOL". Blue Star has already
introduced 'ozone friendly' centrifugal chillers using HCFC-123, the safe refrigerant replacing
CFC-11. Blue Star also markets absorption chillers which use water as refrigerant. All Blue Star
reciprocating chillers already use HCFC-22 refrigerant which is friendlier to the environment
than the older R-12. The Company actively promotes wider use of large refrigeration systems
using ammonia as the refrigerant. In fact, Blue Star is a member of the International Institute of
Ammonia Refrigeration, USA.

Social initiative

Blue Star firmly believes that organizations must look beyond making profits and should
contribute to the development and welfare of the society. This attitude is most evident in the
outreach initiatives organized by Blue Star's factories. Blue Star factories take active
participation in providing temporary shelters and essentials for the victims of an earthquake,

25
sponsoring health check-ups and health education programs in local schools. The families of
operators are an integral part of social development. Blue Star gives them appropriate advice on
personal matters, financial and investment matters. The family members are also imparted
training on diverse subjects. They are taught English as well.

Environmental initiative
Blue Star's factories have been exquisitely landscaped with lawns and flowering plants dotting
the campus. Trees have also been planted on a proactive basis even outside the Blue Star
factories. As a responsible organization, special ETP plants are installed to dispose off the wastes
generated. Additionally, all our factories are designed for rain water harvesting

HUMAN RESOURCE MANAGEMENT

Blue Star takes pride in the fact that the invaluable technical and business
knowledge it has acquired in 65 years as an organization in the field of air conditioning and
refrigeration is perhaps the richest in the country. During the review period, with the substantial
increase in business volume, the Company increased its total head count to 2565 (including the
absorbing of 124 employees from Nasser Electricals) as on March 31, 2008, an increase of 18%
over the previous year, while Net Sales grew by 39%. Organizational productivity continued to
grow in terms of sales per person and value added per person. The focus on people development
continued at the same pace with special attention to developing the technical skills of dealers and
business associates. Training in soft skills for Blue Star employees was enhanced with the
introduction of some new training programmes. In order to sustain the positive culture of the
Company, a new corporate programme was introduced called 'The Blue Star Way'. This
programme is intended to create an awareness of, and strengthen the Blue Star Way of working.
A 360-degree feedback system continued to be used to measure behavior of Senior
Managers pertaining to the Corporate Values and Beliefs. Environment, Health & Safety (EHS)
has gained relevance as a new management discipline in recent times. In order to improve its
performance in the EHS domain.
The company decided to provide a corporate focus by creating a new department
called 'Environment, Health & Safety'. The EHS Department will be responsible for creating

26
standards and conducting workshops to sensitize all employees and business partners on the EHS
norms to be followed in the course of business. The Welfare initiatives include providing life
insurance cover to all employees through HDFC Standard Life Insurance, annual medical check-
ups for employees above the age of 40 years, and the Company subsidizing the medical
insurance premium for dependent parents. The Mohan T Advani Education Trust disbursed
scholarships to employees' children pursuing higher professional education while Blue Star
Sahayata Foundation extended financial assistance to a number of deserving cases for mitigating
emergency medical expenses. Harmonious and constructive relations between the Management
and workmen helped to maintain a cordial work atmosphere and achieve business growth.

RISKS AND CONCERNS

RISKS

The Company has in place an effective Risk Management framework under which all internal
and external risks across the various businesses and functions are periodically identified,
assessed and acted upon by the risk owners to minimize and mitigate their impact. These
processes are also periodically reviewed to ensure their effectiveness.

The Company continues to satisfactorily address the various financial risks relating to interest
rates, exchange rates and credit risks as well as operating risks arising out of high input costs,
changes in technology, customer preferences, increasing size and complexity of contracts and
competitive pressures.

CONCERNS
While the strong fundamentals of the Company and it's sound financial base have placed it in a
strong position to face the vagaries of the market, the overall uncertain economic scenario

27
coupled with local and global inflation and the high price of oil are causes for concern and
consequently a slow down in the economy could impact the

growth of the Company to some extent in the coming year. The Company will continue to
remain vigilant and will proactively take steps to mitigate the adverse impact, if any, arising out
of these concerns.

Employee development

The benefit of a mature business organization with 65 years of operational excellence is that
there are several good systems in place. From a prospective employee point of view, Blue Star
offers the following advantages:

• There are well designed induction and technical orientation programmes. There is a
Corporate Technical Training Organization which delivers a variety of technical training
programmes for the AC&R business. Engineers who join the Electronics Division get a
chance to go abroad for training with the Principals. The Corporate HR runs a menu of
non-technical soft skills training programmes such as Business Communication Skills
and Business Etiquette.

• The Blue Star Company has many well designed, time tested HR practices such as setting
the performance objectives at the beginning of the year, reviewing employee performance
every year through an annual appraisal system and an annual compensation review based
on market surveys. In addition to a market aligned salary structure, Blue Star also has a
fairly attractive incentive scheme wherein, the employee gets an incentive based on his
department’s performance coupled with his own performance rating.

• Typically, graduate engineers can look forward to entering real managerial grades within
4 to 5 years. Once an employee enters the managerial grade, he is exposed to a variety of
management education programmes including some programmes at IIM. Ahmedabad.

• Last, but not the least, Blue Star rightly boasts of the Blue Star Way, which is founded on
a set of values and beliefs which have evolved over time. These beliefs have made Blue

28
 Star a highly respected, secular organization. The Company has an excellent track record
of employees working for many decades with the Company. In today’s high attrition
market, the Company continues to enjoy the privilege of retaining many of its employees
for many decades, thanks to its positive work culture.
• The company lays stress on continuously upgrading the skills of operators, so that they
keep increasing their productivity in the face of changing manufacturing practices.
Operators are put through training programs, on passing which they are given certificates.
In the long term, these certificates also become a yardstick for measuring employee
performance. Learning through cross functional activities is encouraged. In addition to
that, staff members and operators are encouraged to exercise yoga, play sports and
participate in community development initiatives. This helps in the overall development
of the individual and improves performance. Kaizen and 5S are an integral part of all
factory operations.

Career at BLUE STAR

Since engineering and technical expertise are at the heart of the Blue Star value proposition,
engineers constitute the bulk of Blue Star’s recruitment. Consequently, engineers (graduate as
well as diploma) can find technically satisfying and well paying jobs in the following areas of
Blue Star

Air conditioning Projects Division:

Mechanical engineers are deployed in 3 different disciplines i.e. Sales, Design & Engineering
and Construction. Blue Star also entered the commercial building electrical business since 2008.
Consequently, electrical engineers (graduate and diploma) can also find careers in the Electrical
Projects

29
Manufacturing:

Blue Star manufactures a wide range of air conditioning and refrigeration equipment at its five
factories. Here, careers can be made in R & D, Production, Production Planning, Manufacturing
Engineering, Quality and Reliability and Procurement.

Air-conditioning & Refrigeration Service Division:

Here again, engineers constitute the bulk of recruitment. Careers can be made broadly in 3
disciplines viz. Service Marketing, Service Delivery and Service Specialists’ Group.

Channel Businesses:

Packaged air conditioners, room air conditioners, refrigeration products and cold storages are
mostly executed through licensed channel partners. Consequently, engineers as well as MBAs
with an aptitude for marketing can develop satisfying careers in any of the channel businesses.

Management Services:

Like in all large corporate, the Company has well structured management service departments
such as Procurement & Logistics, Finance and Accounts and Human Resources. Blue Star looks
for talented professionals with appropriate qualifications for these departments.

Work with BLUE STAR

An industry that’s over Rs. 12,000 crores can be the opportunity to

meet your ambitious career goals. The cooling industry is thriving in a rapidly developing

30
industrial landscape wherein almost every major corporate and commercial segment needs to
cool down with efficient cooling systems. No wonder the company is slated to grow at a rate of
more than 30% in the next few years. And this is the point where the cooling company really
becomes hot.

To propel career in this arena, one definitely need an organization that

has what it takes to command a leadership position in the industry. Blue Star is the India’s largest
central air-conditioning and commercial refrigeration company with over six decades of
experience in providing expert cooling solutions.

It has been associated with the most prestigious installations and

projects in the country and enjoys a preferred partner status in most of the high growth segments.
The Company has tripled its turnover over the last three years and continues to be on a strong
growth trajectory.

STATEMENT OF CHANGES IN WORKING CAPITAL FOR

THE YEAR ENDING 2005-2006
(Rs.in crores)
WORKING CAPITAL
2005 2006
PARTICULARS INCREASE DECREASE
(Rs) (Rs)
(Rs) (Rs)

31
Current assets

advances 1,25,753 1,34,977 9,224 ─

Inventories 35,092 54,276 18,374 ─
Receivables 18,830 28,730 9,900 ─
Cash 414 563 149 ─
Sundry debtors 1,28,464 1,10,603 ─ 17,861
bank 2,732 5,346 2,614 ─

Total Current Asset (A) 3,12,095 3,34,495

Current liabilities

Borrowing 20,000 37,464

12,388 ─
Payables 12,545 17,464
─
Surplus 10,158 9,813 157
2,541 342
Dividends 2,731 ─
─ 187

Total Current Liabilities (B) 45087 62553

Net working capital = (A-B) 267088 271942

Increase in working capital 4934

4934
Total 271942 271942 40603 40603

Interpretation:
From the above table it can be observed that
1. Loans/advances has been increased by 9,224crore, hence the company, provided loans to
its employees.

32
 2. Inventories has been increased by 18,374crore, due to increase in purchase of raw
materials.
3. Sundry debtors has been decreased by 17,861crore, due to decrease in credit sales.
4. Cash balance were increased by 149crore, due to need of maintain cash.
5. The overall net working capital increased by 4,937crore.
6. The overall performance of the company was satisfactory.

STATEMENT OF CHANGES IN WORKING CAPITAL FOR

THE YEAR ENDING 2006-2007
(Rs. in Crore)
WORKING CAPITAL
2006 2007
PARTICULARS INCREASE DECREASE
(Rs) (Rs)
(Rs) (Rs)
Current assets

33
advances 134,977 1,46,047 ─
Inventories 54,276 57,676 11,070 ─
Receivables 28,730 52,759 3,400 ─
Cash 563 1,382 24,029 ─
Sundry debtors 1,10,603 1,30,622 819 ─
bank 5,346 5,961 20,019 ─
615
Total Current Asset (A) 3,34495 3,94,447
Current liabilities
Borrowing 37,464 53,858
─ 16,394
Payables 12,545 12,658
─ 113
Surplus 9,813 10,555
─ 742
Dividends 2,731 2,924
─ 193

Total Current Liabilities (B) 62,553 79,995

Net working capital = (A-B) 2,71,942 3,14452

Increase in working capital 42,510

42,510
Total 3,14,452 3,14,452 59952 59952

Interpretation:

From the above table it can be observed that

1. Loans/advances has been increased by 11,070crores, hence the company, provided loans
to its employers.
2. Inventories has been increased by 3,400crore, due to increase in purchase of raw
materials.
3. Sundry debtors has been increased by 20,019crore, due to increased in credit sales.

34
 4. Borrowings are increased by 16,394crore, due to additional borrowing taken to meet
current obligation.
5. The overall net working capital increased by 42,510crore.
6. The overall performance of the company was satisfactory

STATEMENT OF CHANGES IN WORKING CAPITAL FOR

THE YEAR ENDING 2007-2008
(Rs. in Crore)

WORKING CAPITAL
2007 2008 INCREAS
PARTICULARS DECREASE
(Rs) (Rs) E
(Rs)
(Rs)

35
Current assets

advances 1,46,047 1,68,135 22,088 ─

Inventories 57,676 81,341 23,665 ─
Receivables 52,759 77,171 24,412 ─
Cash 1,382 448 ─ 934
Sundry debtors 1,30,622 2,09,649 79,027 ─
bank 5,961 4,630 ─ 1,331

Total Current Asset (A) 3,94,447 5,41,374

Current liabilities
Borrowing 53,858 1,60,694
─ 1,06,836
Payables 12,658 21,544
─ 8,886
Surplus 10,555 10,973
─ 418
Dividends 2,924 3,329
─ 405
Total Current Liabilities (B) 79,995 1,96,540

Net working capital = (A-B) 3,14,452 3,44,834

Increase in working capital 30,382

30,382
Total 3,44,834 3,44,834 1,49,192 1,49,192
Interpretation:

From the above table it can be observed that

1. Loans/advances has been increased by 22,088crore.
2. Inventories has been increased by 23,665crore,due to increase in purchase of raw

materials.

3. Sundry debtors has been increased by 79,027crore,due to increased in credit sales.

36
 4. Borrowing are increased by 1,06,836crore, due to additional borrowings taken to meet
current obligations.
5. The overall performance of the company, was satisfactory.

STATEMENT OF CHANGES IN WORKING CAPITAL FOR

THE YEAR ENDING 2008-2009
(Rs. in Crore)

WORKING CAPITAL
2008 2009
PARTICULARS INCREASE DECREASE
(Rs) (Rs)
(Rs) (Rs)

37
Current assets

advances 1,68,135 2,09,200 41,065 ─

Inventories 81,341 1,36,935 55,594 ─
Receivables 77,171 54,219 ─ 22,952
Cash 448 1,210 762 ─
Sundry debtors 2,09,649 3,20,344 1,10,695 ─
bank 4,630 11,919 7,288 ─

Total Current Assets (A) 5,41,374 7,33,827

Current liabilities
Borrowing 1,60,694 2,08,818
─ 48,124
Payables 21,544 21,053
491 ─
Surplus 10,973 10,431
542 ─
Dividends 3,329 3,571
─ 242

Total Current Liabilities (B) 1,96,540 2,43,873

Net working capital = (A-B) 3,44834 4,89,954

Increase in working capital 1,45,119

1,45,119
4,89,953 4,89,953 2,16,437 2,16,437
Total

Interpretation:

From the above table it can be observed that

1. Loans/advances has been increased by 41,065crore, the company provided loans to its
employees.
2. Inventories increased by 55,594crore, due to increase in purchase of raw materials.

38
 3. Sundry debtors has been increased by 1,10,695crore,due to increased in credit sales.
4. Borrowings are increased by 48,124crore, due to additional borrowings taken to meet
current obligations.
5. The overall performance of the company was satisfactory.

STATEMENT OF CHANGES IN WORKING CAPITAL FOR

THE YEAR ENDING 2009-2010
(Rs. in Crore)

WORKING CAPITAL
2009 2010
PARTICULARS INCREASE DECREASE
(Rs) (Rs)
(Rs) (Rs)

39
Current assets

advances 2,09,200 2,38,435 29,325

Inventories 1,36,935 69,104 ─ 67,831
Receivables 54,219 41,016 ─ 13,203
Cash 1,210 1,557 347 ─
Sundry debtors 3,20,344 3,06,167 ─ 14,177
bank 11,918 33,565 21,647

Total Current Assets (A) 7,33,826 6,89,844

Current liabilities
Borrowing 2,08,818 1,98,968
9,850 ─
Payables 21,053 24,057
─ 3,004
Surplus 10,431 12,113
─ 1,682
Dividends 3,571 4,200
─ 629

Total Current Liabilities (B) 2,43,873 2,39,338

Net working capital = (A-B) 4,89,953 4,50,506

Increase in working capital 39,447

39,447 ─
Total 4,89,953 4,89,953 1,00,526 1,00,526

Interpretation:

From the above table it can be observed that

1. Loans/advances has been increased by 29,325crore.

40
 2. Inventories has been decreased by 67,831crore,due to sale of finished goods.
3. Bank balance has been increased by 21,647crore, hence the cash deposited into bank.
4. Borrowings are decreased by 9,850crore,due to amount paid to borrowers.
5. Sundry debtors decreased by 14,177crore, due to decrease in credit sales.
6. The overall net working capital decreased by 39,447crore.
7. The overall performances of the company was not satisfactory.

LIQUDITY RATIOS:
Liquidity refers to the ability of a concern to meet its current obligations and when they
become due. To measure the liquidity of a firm, the following ratios are calculated.
1. Current ratio

2. Quick ratio

41
Current ratio:
Current ratio may be defined as relationship between the current assets and the current
liabilities. These ratio is also known as working capital ratio, it measures of general liquidity and
is most widely used to make the analysis of a short term financial position or liquidity of a firm.
It is calculated by dividing the total current assets by the current liabilities.

Standard:
As convention a minimum of 2:1 is referred as rule of thumb.

Formula:
Current Assets
Current Ratio =
Current Liabilities

A) CURRENT RATIO ANALYSIS

YEAR/PARTICULARS 2003-04 2004-05 2005-06 2006-07 2007-08

(Rs) (Rs) (Rs) (Rs) (Rs)
CURRENT ASSETS 334495 394447 541374 733827 689844

CURRENT LIABILITIES 62553 79995 196540 243873 237338

RATIO 5.35 4.93 2.75 3.01 2.90

42
 current ratio

0
2005-06 2006-07 2007-08 2008-09 2009-10

Interpretation

1. It can be observe from the above graph that the current ratio of the company moves 5.35
to 2.90 during the study perform from 2005-06 to 2009-10.
2. Generally consider satisfactory ratio 2:1 the ratio of bank less than the consider
satisfactory ratio, this ratio indicate that the cushion over able to short-term creditors are
relatively lower.
3. An average its standards at 2:1 which is less than the consider satisfactory ratio of 2:1
that is every one rupee of current liabilities minimum 2 Rupees are available as margin
of set.

43
. B) QUICK RATIO:
Quick Ratio also known as Acid Test or Liquid ratio is a more vigorous quick assets
and current Liabilities. Quick ratio can be calculated by dividing the total quick assets by total
current liabilities
Formula:
Current Assets
Current Ratio =
Current Liabilities

Usually a high quick ratio is an indication that the company is liquid and has the ability to
meet its current or liquidity liabilities in time and on the other hand a low quick ratio represents
that the company liquidity position is not good. An increase in the quick ratio reveals the
liquidity position of the company improved. As a general rule a quick ratio of 1:1 is considered
to be satisfactory. But the acceptable ratio for Indian firms may 0.80:1 instead of 1:1.

QUICK ASSETS = CURRENT ASSETS – (STOCK+PREPAID EXPENSES)

B. QUICK RATIO:-

YEAR/PARTICULARS 2003-04 2004-05 2005-06 2006-07 2007-08

(RS) (Rs) (Rs) (Rs) (Rs)

QUICK ASSETS 20219 336771 460033 596891 620167

CURRENT LIABILITIES 62553 79995 196540 243873 237560

RATIO 4.48 4.21 2.34 2.45 2.61

44
 Quick ratio

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2005-06 2006-07 2007-08 2008-09 2009-10

Interpretation:

1. By the above table we can observe the quick ratio of the bank at 2008-09 is 2.45 but
idle quick ratio is 1:1.
2. These ratios are used to know the liquidity positions of organizations. The ideal ratio
for Quick ratio is 1:1.
3. The above graph shows the changes in quick ratio from the year 2005-06 to 2009-10.
4. In the year 2005-06 the quick ratio is 4.48, it is decreased to 4.21 in 2006-07.
5. In the year 2005-06 it is decreased to 2.34, in the year 2006-07 if we compare with to
05-06 it is increased to 2.45, in the year 2007-08 it is increased to 2.61.

45
DEBT-EQUITY RATIO:

The debt equity ratio is calculated to measure the extent to which debt financing has used in
a business; the ratio indicates the proportionate claims of owner and outsiders against the firm’s
asset. Debt usually refers to long term debts and equity includes equity share preference share
and reserves and surplus.

Formula:

DEBT EQUITY RATIO = LONG TERM DEBTS / SHARE HOLDERS FUNDS

SHARE HOLDERS FUND = SHARE CAPITAL + PREFERENCE SHARES

+GENERAL RESERVES

YEAR/PARTICULARS 2003-04 2004-05 2005-06 2006-07 2007-08

(Rs) (Rs) (Rs) (Rs) (Rs)
LONG TERM DEBTS 2951 3233 1870 2529 12796

SHRE HOLDERS FUNDS 160602 183979 211604 239850 302103

RATIO 0.02 0.017 0.008 0.011 0.04

46
 Debt equity ratio

0.045

0.04

0.035
0.03

0.025

0.02

0.015

0.01

0.005

0
2005-06 2006-07 2007-08 2008-09 2009-10

Interpretation:

1. From the above graph it can be observe that in the year 2005-06 the debt equity ratio is
0.02, which is decreased to 0.017 in the year 2006-07.

2. In the year 05-06 it is decreased to 0.008, in 2007-08 it is 0.011, in the year 2009-10 it is
increased to 0.04.

47
D) Absolute Cash Ratio

Absolute Cash Ratio =Absolute assets / Current Liabilities

YEAR/PARTICULARS 2003-04 2004-05 2005-06 2006-07 2007-08

Absolute assets 58895 64094 99753 121380 163814

Current Liabilities 62553 79995 196540 243873 237560

Ratio 0.941 0.801 0.507 0.497 0.589

Absolute Assets= C.H + C.B + Short Term Investment+ Market securities

48
 absolute cash ratio

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2005-06 2006-07 2007-08 2008-09 2009-10

Interpretation:

1. From the above graph we can observe that the absolute cash ratio is decreased compared
to 2005-06 to 2006-07 is 0.941 to 0.801, in the year 2007-08 is 0.507 which is decreased
to 0.497 in 2008-09.

2. In the year 2007-08 ratios is decreased compared to 2006-07 is 0.689.

49
CONCLUSIONS:

50
 1. The liability position of the company was satisfactory.
2. The profitability of the company was satisfactory the net profit after has been showing
increased debt.
3. The net profit of the company shows increasing from year to year.
4. The cash/bank balances were increasing year to year.
5. The overall performances of the company was satisfactory.

SUGGESTIONS:
1. The society should take some remedial measures to control its productive cost to increase
its profits.

51
2. The society should decrease its unrecovered percentage of loan and advances.
3. The company should study the worthiness for the members and based on advances loans.
4. The company starts recording its non performing assets.It could understand the current
financial positions of its at end of the year and it could take necessary to control NPA’S
as this are productive.
5. The society should decrease its long term borrowing(deposits)to decrease the interest
payment as it pay’s more EPS.

52