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PREFACE

As a new paradigm based on proper integration of formal teaching and actual practice,

this Summer Training has been introduced under the Degree of Master of Business

Administration (M.B.A) to get a feel of actual Business Environment.

To bridge the gap between theory & practice and to cultivate proper temperament and

generate much needed morale i.e. to help the students to identify their strong and week

points in the following and appreciating various organizational activities. So that

appropriate measures can be taken at an earliest time.

Finance is the heart of any organization. Proper utilization of financial resources isFinance is the heart of any organization. Proper utilization of financial resources is

necessary for any organization to survive. With the purpose of getting myself wellnecessary for any organization to survive. With the purpose of getting myself well

dressed with the atmosphere of Prevailing industry, I went for eight week training atdressed with the atmosphere of Prevailing industry, I went for eight week training at

Bundy India LimitedBundy India Limited..

This report presents the workings, findings and recommendations from the study of

working capital management atBundy India Limited. It gives the better understanding ofthe financial position ofBundy India LimitedBundy India Limited.

Finally I shall consider my hard work worthwhile if this endeavor is able to satisfy all

those concerned and proves useful to anyone or for any further study in future.

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ACKNOWLEDGEMENT

I would like to take this opportunity to express my gratitude towards all those who have

helped me in directly or indirectly in conducting this study.

First of all, I am very grateful to the NRIBM for granting me this precious opportunity of

learning by way of this study.

I would like to thank my research guide Prof. Viral Pandya and Prof. Poonam Nair

who has been a source of professional guidance and support in the completion of this

study.

I am also thankful to all the respondents of this study for their cooperation in the study

and also indebted to them for their advices and suggestions.

I also would express my gratitude to staff ofBundy India Ltd, for their co-operation and

immense support especially to Mr. Anand for his help and support.

Last but not the least I would like to thank my family & friends without whom this thesis

would not be possible.

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Executive Summary

The project on Working Capital Management has been a very good

experience. Every manufacturing company faces the problem of Working

Capital Management in their day to day processes. An organizations cost

can be reduced and the profit can be increased only if it is able to manage itsWorking Capital efficiently. At the same time the company can provide

customer satisfaction and hence can improve their overall productivity and

profitability.

This project is a sincere effort to study and analyze the Working Capital

Management of Bundy india ltd. The project was focused on making a

financial overview of the company by conducting a Working Capital

analysis of Bundy India ltd for the years 2006 to 2009 and Ratios & various

components of working capital & for the year 2008 in a cma(cash

monitoring arrangement) format emphasizing on Working Capital.

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Role of Financial Managers:

The role of a financial manager can be discussed under the

following heads:

1. Nature of work

2. Working conditions

3. Employment

4. Training, Other qualifications and Advancement

5. Job outlook

6. Related occupations

Let us discuss each of these in a detailed manner.

1. Nature of work

Almost every firm, government agency and organization has

one or more financial managers who oversee the preparation of financial

reports, direct investment activities, and implement cash management

strategies. As computers are increasingly used to record and organize data,

many financial managers are spending more time developing strategies and

implementing the long-term goals of their organization.

The duties of financial managers vary with their specific titles,

which include controller, treasurer or finance officer, credit manager, cash

manager, and risk and insurance manager. Controllersdirect the preparation

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of financial reports that summarize and forecast the organizations financial

position, such as income statements, balance sheets, and analyses of future

earnings or expenses. Regulatory authorities also in charge of preparingspecial reports require controllers. Often, controllers oversee the accounting,

audit, and budget departments. Treasurers and finance officers direct the

organizations financial goals, objectives, and budgets. They oversee the

investment of funds and manage associated risks, supervise cash

management activities, execute capital-raising strategies to support a firms

expansion, and deal with mergers and acquisitions. Credit managers oversee

the firms issuance of credit. They establish credit-rating criteria, determine

credit ceilings, and monitor the collections of past-due accounts. Managers

specializing in international finance develop financial and accounting

systems for the banking transactions of multinational organizations.

Cash managers monitor and control the flow of cash receipts

and disbursements to meet the business and investment needs of the firm.

For example, cash flow projections are needed to determine whether loans

must be obtained to meet cash requirements or whether surplus cash should

be invested in interest-bearing instruments.Risk and insurance managers

oversee programs to minimize risks and losses that might arise from

financial transactions and business operations undertaken by the institution.

They also manage the organizations insurance budget.

Financial institutions, such as commercial banks, savings and

loan associations, credit unions, and mortgage and finance companies,

employ additional financial managers who oversee various functions, such

as lending, trusts, mortgages, and investments, or programs, including sales,

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operations, or electronic financial services. These managers may be required

to solicit business, authorize loans, and direct the investment of funds,

always adhering to State laws and regulations.

Branch managers of financial institutions administer and

manage all of the functions of a branch office, which may include hiring

personnel, approving loans and lines of credit, establishing a rapport with

the community to attract business, and assisting customers with account

problems. Financial managers who work for financial institutions must keep

abreast of the rapidly growing array of financial services and products.

In addition to the general duties described above, all financial

managers perform tasks unique to their organization or industry. For

example, government financial managers must be experts on the government

appropriations and budgeting processes, whereas healthcare financial

managers must be knowledgeable about issues surrounding healthcare

financing. Moreover, financial managers must be aware of special tax laws

and regulations that affect their industry.

Financial managers play an increasingly important role in

mergers and consolidations and in global expansion and related financing.

These areas require extensive, specialized knowledge on the part of the

financial manager to reduce risks and maximize profit. Financial managers

increasingly are hired on a temporary basis to advise senior managers on

these and other matters. In fact, some small firms contract out all accounting

and financial functions to companies that provide these services.

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4. Training, Other qualifications and Advancement

A bachelors degree in finance, accounting, economics, or

business administration is the minimum academic preparation for financial

managers. However, many employers now seek graduates with a masters

degree, preferably in business administration, economics, finance, or risk

management. These academic programs develop analytical skills and

provide knowledge of the latest financial analysis methods and technology.

Experience may be more important than formal education for

some financial manager positionsnotably, branch managers in banks.

Banks typically fill branch manager positions by promoting experienced

loan officers and other professionals who excel at their jobs. Other financial

managers may enter the profession through formal management training

programs offered by the company.

Continuing education is vital for financial managers, who must

cope with the growing complexity of global trade, changes in State laws andregulations, and the proliferation of new and complex financial instruments.

Firms often provide opportunities for workers to broaden their knowledge

and skills by encouraging employees to take graduate courses at colleges and

universities or attend conferences related to their specialty. Financial

management, banking, and credit union associations, often in cooperation

with colleges and universities, sponsor numerous national and local training

programs. Persons enrolled prepare extensively at home and then attend

sessions on subjects such as accounting management, budget management,

corporate cash management, financial analysis, international banking, and

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information systems. Many firms pay all or part of the costs for employees

who successfully complete courses. Although experience, ability, and

leadership are emphasized for promotion, this type of special study mayaccelerate advancement.

In some cases, financial managers also may broaden their skills

and exhibit their competency by attaining professional certification. There

are many different associations that offer professional certification

programs. For example, the Association for Investment Management and

Research confers the Chartered Financial Analyst designation on investment

professionals who have a bachelors degree, pass three sequential

examinations, and meet work experience requirements. The Association for

Financial Professionals (AFP) confers the Certified Cash Manager credential

to those who pass a computer-based exam and have a minimum of 2 years of

relevant experience. The Institute of Management Accountants offers a

Certified in Financial Management designation to members with a BA and

at least 2 years of work experience who pass the institutes four-part

examination and fulfill continuing education requirements. Also, financial

managers who specialize in accounting may earn the Certified Public

Accountant (CPA) or Certified Management Accountant (CMA)

designations.

Candidates for financial management positions need a broad

range of skills. Interpersonal skills are important because these jobs involve

managing people and working as part of a team to solve problems. Financial

managers must have excellent communication skills to explain complex

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financial data. Because financial managers work extensively with various

departments in their firm, a broad overview of the business is essential.

Financial managers should be creative thinkers and problem-

solvers, applying their analytical skills to business. They must be

comfortable with the latest computer technology. As financial operations

increasingly are affected by the global economy, financial managers must

have knowledge of international finance. Proficiency in a foreign language

also may be important.

Because financial management is critical for efficient business

operations, well-trained, experienced financial managers who display a

strong grasp of the operations of various departments within their

organization are prime candidates for promotion to top management

positions. Some financial managers transfer to closely related positions in

other industries. Those with extensive experience and access to sufficient

capital may start their own consulting firms.

5. Job outlook

Some companies may hire financial managers on a temporary

basis, to see the organization through a short-term crisis or to offer

suggestions for boosting profits. Other companies may contract out all

accounting and financial operations. Even in these cases, however, financial

managers may be needed to oversee the contracts.

Computer technology has reduced the time and staff required to

produce financial reports. As a result, forecasting earnings, profits, and

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Need of working capital management

The need for working capital gross or current assets cannot be over emphasized As

already observed, the objective of financial decision making is to maximize the

shareholders wealth. To achieve this, it is necessary to generate sufficient profits

can be earned will naturally depend upon the magnitude of the sales among other

things but sales can not convert into cash. There is a need for working capital in

the form of current assets to deal with the problem arising out of lack of immediate

realization of cash against goods sold. Therefore sufficient working capital is

necessary to sustain sales activity. Technically this is refers to operating or cash cycle. If

the company has certain amount of cash, it will be required for purchasing the raw

material may be available on credit basis. Then the company has to spend some

amount for labour and factory overhead to convert the raw material in work in

progress, and ultimately finished goods. These finished goods convert in to sales on

credit basis in the form of sundry debtors. Sundry debtors are converting into cash after

expiry of credit period. Thus some amount of cash is blocked in raw materials,

WIP, finished goods, and sundry debtors and day to day cash requirements. However

some part of current assets may be financed by the current liabilities also. The amount

required to be invested in this current assets is always higher than the funds available

from current liabilities. This is the precise reason why the needs for working capital arise

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Objectives of the study

Study of the working capital management is important because unless the working capital

is manged effectively monitored efficiently planed properly and reviewed periodically at

regular intervals to remove bottlenecks if any the company can not earn profirs and

increase its turnover. With this primary objective of the study, the following further

objectives are framed for a deprth analysis

To study the working capital management of Bundy India ltd

To study the optimum level of current assets and current liabilities of the

company

To study the liquidity position through various working capital related ratios

To study the working capital components such as receivables accounts, cash

management, inventory positions

To estimated the working capital requirement of bundy india ltd

Evaluation of liquidity position and working capital utilization

Analysis of relationship between working capital and profitability

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METHODOLOGY

The information is collected through secondary sources during

the project. That information was utilized for calculating performance

evaluation and based on that, interpretations were made.

Sources of secondary data:

1. Most of the calculations are made on the financial statements of

the company provided statements.

2. Referring standard texts and referred books collected some of

the information regarding theoretical aspects.

3. Method- to assess the performance of he company method of

observation of the work in finance department in followed.

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COMPANY PROFILE

Register office: Plot No.2, GIDC Industrial Estate, Makarpura, Vadodara, Gujarat

Co-operate Office :

Plot Area :

Build up Area :

Product : Double Wall tubes, Single wall Plated tubes (Rigid and

Flexible Tubes)

Brand Name : Bundy India

Collaborator :

Telephones :

Fax No :

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Web site : WWW. Tiautomotive.com

TI GroupGlobal Specialised Engineering

TI Groups Strategy is to be an international engineering

group concentrating on specialized engineering businesses,

operating in selected on a global basis.

Key businesses must be able to command positions of

sustainable technological and market share leadership.

They will have a high knowledge and service content and

will be able to anticipate and meet customers needs.

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TI GroupGlobal Specialised Engineering

BASIC BELIEFS

LEADERSHIP

CLEAR PURPOSE AND DIRECTION

QUALITY OF MANAGEMENT

FEWER LEAVELS

DECENTRALISED

SAMLL HQ

OPERATING COSTS AND DECISIONS

CLOSED TO THE SHARP END

MARKETING DRIVEN

CLOSED TO CUSTOMERS

STRONG FINANCIAL CONTROLS

COMPENSATION AND INCENTIVES

DEMANDING

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EXCITING

History

1920, USA Bundy Tubing was invented and Mr. Harry Bundy founded the Bundy Tubing

Company in the 1920s.

1970 Company was incorporated as Bundy Tubing of India Limited. It

manufactured small diameter double walled copper steel tubes for automotive

and refrigeration industries.

1975, India Commercial production commenced. Company quickly established itself as

high quality producer of tubes.

1985-87,

India

Company doubled its capacity and introduced Zinc coating and also entered

value added businesses in a small way in 1991-92.

1987, India

The TI (Tube Investment) Group purchased the Bundy Corporation and

restructured it.

TI Groups main activities were in:

Automotive and Refrigeration Tubing

Seals (for the petrochemical industry)

Aircraft landing gear

Specialty plastics

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1993, India Bundy Tubing of India Ltd was changed to Bundy India Ltd

TI UK took controlling interest in the company by increasing their equity

stake to 51%

2000, UK

TI and Smiths group got merged. The merger was conditional upon

demerging the automotive business. Specifically, Smiths Groups main

interest in TI was in its non-automotive assets. The TI name went with the

automotive business and the other former TI businesses became Smiths

companies. Smiths is still the major shareholder in TI but are not involved in

the day-to-day running of the business.

Bundy India Ltd. has time to time faced challenges due to highly dynamic or vibrant

environment. It has continuously paced with the challenges without being adamant.

Which can be sent with fledged implementation of various activities in the organization.

With an appropriate blend of infrastructure and professionalism it is progressing

continuously and exploring new horizons by setting new standards for self.

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MISSION

To maintain a leadership position by providing consistent profitable growth as an

integrated manufacturer of fluid carrying system in global niche market.

Target markets must require a high degree of knowledge and service.

Customer needs must be anticipated and satisfied.

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BIL Quality objective and strategies

Maintain a quality system based on International quality standards (such as ISO

9000) industry standards (such as QS 9000) and the relevant regional or industry

specific requirement in addition to any other customer requirements.

Support a standardized approach to quality procedures and implementation of

systems throughout Bundy India Ltd including all units.

Develop a customer/supplier relationship for internal Bundy customers which

benchmarks best practices and achieve performance targets set forth from year to

year.

Manage the continous improvement process, using a structured approaches like

TPM/CSM in order to improve quality, reduce cost and waste in supply chain and

increase customer satisfaction through timely delivery, continuous reduction in

customer complaints and retaining long term business. The management of each

Bundy unit will set objective and time frame for TPM/CSM in their respective

units.

Attract and develop superior, highly motivated and trained personnel organizedinto an appropriate structure.

Emphasize prevention activities with a target of Zero effect.

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HR objectives and policies

Creating learning and development climate through continuous training.

Nurturing a healthy respect towards ideas and suggestion of employees through

suggestion scheme.

Encouraging employees for participating in continuous improvement activities

through CSM (common sense manufacturing) and lean manufacturing approach

etc.

Creating awareness among the employees through display boards, e-mail,

employee satisfaction survey etc- internal communication.

Inducting socializing and placing the new hires through induction programme for

new recruits.

Evaluate changing skills and competencies and design appropriate training inputs

through skill/competence matrix of employees.

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Quality policies

Bundy is dedicated to becoming a globally preferred supporter through achieving

total customer satisfaction in an environment of prevention and continuous

improvement.

This is executed by accountable and responsible employee and supplier working

in flexible and responsive team dedicated to ensuring the satisfaction of internal

and external customers

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Environment policy

Bundy is committed to conserve natural resources and protecting the global environment.

We are committed to comply with relevant environmental legislations and regulation and

strive to shape our operational processes and products to bring sustainable social and

ecological benefits wherever we operate.

Implementation of this policy is a primary management objective and the responsibility

of every employee.

Specifically we are committed to

Introduce ISO 14001 throughout the group units in India.

Incorporate sensitivity to environmental issues and objectives in all appropriate

business decisions.

Monitor and review our performance on a regular basis.

Assess, if necessary revise environmental target periodically.

Train our employees in environmental awareness and encourage them to

contribute voluntarily.

Develop and market products that are environment friendly.

Respond positively to customer environmental programmes.

Encourages suppliers to apply standards compatible with our own.

Pursue a policy of continuous improvement and prevention of pollution the will to

enhance environmental management.

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TI Automotive safety policy

We consider employee safety of prime importance in the conduct of our business. Our

employees are over most important Asset and their safety is our greatest collective

responsibility.

The foundation for providing a clean and safe environment is based upon

Establishing local safety committees that develop and direct a proactive safety

programme for each location.

Top corporate and plant executives meeting regularly with safety committees.

Encouraging all employees to take an active part in safety performance.

The president and other appropriate executive reviewing all cost time injury

reports within 24 hours of the occurrence.

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ORGANOGRA

PRODUCT OFFERINGS

Single wall tubes

GM (O)

Gurgaion

GM (O)

Baroda

GM (O)

Chennai

Q & E andEnvironmentDepartment

Financeand system

HRAdministration

and security

ProductionMarketing

Sourcing andRetailer

Maintenance Packing andDispatch

Double wall Single wall Electrogalvanitors

CPPAuto parts

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Plain electric tubes

Copper coated

Hot dip zinc coated

Electro galvanized coating

Olive green passivation

Yellow passivation

PVF coating

Double wall tubes

Plain bundy weld

Electro galvanized coating

Olive green passivation

Yellow passivation

PVF coating

Automotive components

Brake lines

Fuel and vapour lines

Clusters / Bundles

Clutch lines

Power steering line

Internal products range through import

Fluororesin coated tubes

Epoxy coated tubes

Rilsan coated tubes

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BUNDY INTERNATIONAL

World leader in fluid carrying

Automotive fully integrated system for brake, fuel and power train

World leadership

Titeflex and Techno flow high performance brake and fuel hose

Huron quick connect technology

Over 150 facilities in 29 countries on 5 continents

Roll Bond and waveline new technology

Compressor component

Over 50 satelite facilities offering just-in-time delivery to

customers

20,000 employee worldwide customer service

GLOBAL CUSTOMER SERVICE

Over 150 facilities in 29 countries on 5 continents. Bundy the growth continues

New facilities recently added

Brazil Minasgerais satellite to support fiat sa Paulo refrigeration component

facility

China Wuhan satellite to support citroen

Germany Additional techno flow facility at fuldabruck Neukirchen facility to

support ford and Audi

Korea satellite facility near Inchon to support Daewoo

Poland Bievko Baila satellite to support fiat

South Africa Tube manufacturing plant in king Williams Town and satellite in

Pretoria, Durban, East London and uitenhage support fiat

UK Telford satellite to support rover, Ford & Toyota

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USA Greenville satellite to support BMW, Nissan, Mercedes-Benz, GM and

Chrysler.

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MANAGEMENT STYLE

HIGH DRIVE AND ENERGY

CONFIDENNCE CONSIDERED RISKS

UNDERSTAND HOW TO MAKE MONEY

HUNGRY HIGH ACHIEVABLE GOALS

LOYALTY TEAM PLAYERS

ADD VALUE

NO SURPRISES

INTERNATIONALIS

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An Introduction To Working Capital Management

Working capital means the part of the total assets of the business that change

from one form to another form in the ordinary course of business operations.

Concept of working capital:-

The word working capital is made of two words 1.Working and 2. Capital

The word working means day to day operation of the business, whereas the word

capital means monetary value of all assets of the business.

Working capital : -

Working capital may be regarded as the life blood of business. Working capital is

of major importance to internal and external analysis because of its close

relationship with the current day-to-day operations of a business. Every business

needs funds for two purposes.

* Long term funds are required to create production facilities through purchase of

fixed assets such as plants, machineries, lands, buildings & etc

* Short term funds are required for the purchase of raw materials, payment of

wages, and other day-to-day expenses.

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. It is other wise known as revolving or circulating capital

It is nothing but the difference between current assets and current liabilities. i.e.

Working Capital = Current Asset Current Liability.

Businesses use capital for construction, renovation, furniture, software, equipment,

or machinery. It is also commonly used to purchase inventory, or to make payroll.

Capital is also used often by businesses to put a down payment down on a piece of

commercial real estate. Working capital is essential for any business to succeed. It

is becoming increasingly important to have access to more working capital when

we need it.

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Concept of working capital

Gross Working Capital = Total of Current Asset

Net Working Capital = Excess of Current Asset over Current Liability

Current Assets Current Liabilities

Cash in hand / at bank

Bills Receivable

Sundry Debtors

Short term loans

Investors/ stock

Temporary

investment

Prepaid expenses

Accrued incomes

Bills Payable

Sundry Creditors

Outstanding expenses

Accrued expenses

Bank Over draft

FACTORS DETERMINING WORKING CAPITAL

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REQUIREMENTS:-

With the type of business and the ambition of proprietors the amount is

bound to vary. For instance, a small business would need lesser amount

of working capital than a larger business engaged in the same line. As

the business expands the amount needed would grow. Similarly,

business with seasonal demand would require larger amount of working

capital. Therefore, an estimate of requirements of working capital will

differ from concern and from industry to industry. Further, cyclical

changes, periods of prosperity and depression cause wide variations in

the demand for working capital. Other unexpected happenings are likely

to create unusual demands for working capital.

There is no concrete formula to decide the amount of workings capital

required by a business. There are also business in which fixed is small

ion relation to working capital.

The Major determinants of the proportion of fixed to working capital are

as follows:-

1.Nature of Business:-

Business units selling service (like public utilities) instead of a

commodity, have little need for working capital, as they have little

demand for large inventories. Generally they operate in cash and prepay

basis. But trading concerns (merchandising companies) make a greater

use of working capital, since inventory represents a major item of

investment. A relatively small proportion will consist of working capital

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in case of manufacturing concerns. Larger working capital will require in

labor intensive industries than in highly mechanized industries. In

chemical or engineering industries, working capital would be relatively

larger.

1)Size of Business :

The working capital requirements of a concern are directly influenced by

the size of the business which may be measured in terms of scale of

operations. Greater the size of a business unit generally larger will be the

requirement of working capital. However, in some cases even a smallerconcern may need more working capital due to high overhead charges

Insufficient use of available resources and other economic disadvantages

of small size.

Production Policy:-

In certain industries the demand is subject to wide fluctuation due to

seasonal variation. The requirement of working capital, in such cases

depends upon the production policy. The production could be kept either

steady by accumulating inventories during slack period with a view to

meet high demand during the peak season or the production could be

curtailed during the slack season and increased during peak season. If the

policy is to keep production steady by accumulation inventories it willrequire higher working capital. A company should have some production

policy i.e. to maintain the production is a considerable range in order to

meet the changing demand. A company like RIL whose productive

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capacities can be utilized for manufacturing varied products can have the

advantages of diversified activities and solve their working capital

problem.

2) Manufacturing Process/ Length of the production cycle:-

In manufacturing business, the requirements of working capital increase

in direct proportion to length of manufacturing process, longer the

process period of manufacture, longer is the amount of working capital

required. The longer the manufacturing time, the raw materials and other

supplies have to be carried for a longer period in the process with progressive increment of labor and service costs before the finished

product is finally obtained. Therefore, if there is alternative process of

production, the process with the shortest production period should be

chosen.

3) Working Capital Cycle:-

In manufacturing concern, working capital cycle starts with the purchase

of raw materials and ends with realization of cash from the sale of

finished goods. The cycle involves the purchase of raw materials and

ends with the realization of cash from the sale of finished products. The

cycle involves purchase of raw materials and stores, its conversion in to

stock of finished goods through work in progress with progressiveincrement of labor and service cost, conversion of finished stick in to

sales and receivables and ultimately realization of cash and this cycle

continuous again from cash to purchase of raw materials and so on.

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4) Market Condition:-

The degree of competition prevailing in the market places has an

important bearing on working capital needs. When competition keen, a

larger inventory of finished goods is required to promptly serve customer

who may not be inclined to wait because other manufacturers are ready to

meet their needs, further, generous credit terms may have to be offered to

attract customers in a highly competitive market. Thus, working capital

needs tends to be high because of greater investment in finished goods

inventory and accounts receivable.If the market is strong and completion weeks a firm can manage with a

smaller inventory of finished goods because customers can be served

with some delay. Further in such situation the firm can insist

on cash payment and avoid lock up of funds in accounts receivable, it

can even ask for advance payment, partial or total.

5) Credit Policy:-

The credit policy is concerned in its dealings with debtors and creditors

influence considerably the requirements of the working capital. A

concern that purchases its requirements on credit and sells its

products/services on cash requires lesser amount of working capital. On

the other hand a concern buying its requirements for cash and allowingcredit to its customers, shall need larger amount of funds are bound to be

tied up in debtors or bills receivables.

6) Business Cycle:-

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Business Cycle refers to alternate expansion and contraction in general

business activities. In a period of born i.e. when the business is

prosperous there is a need for larger amount of working capital due to

increase in sales, rise in prices, optimistic expansion of business etc. On

the country at he time of depression i.e. when there is a down swing of

the cycle, business contracts, sales decline, difficulties are faced in

collections from debtors and firms may have a large amount of working

capital lying ideal

7) Rate of Growth Of business:-

The working capital requirements of a concern increase with the growth

and expansion of its business activities. Although it is difficult to

determine the relation between growth in the volume of the business and

in the growth of the working capital of the business, yet it may be

concluded that for normal rate of expansion in the volume of the

business, we may have retained profits to provide for more working

capital but in the first growing concerns, we shall require larger amount

of capital.

8) Earning Capacity And Dividend policy:-

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Some firms have more earning capacity than others due to

the quality of their products, monopoly conditions etc. Such firms with

high earning capacity may generate cash profits from operations and

contribute to their capital. The dividend policy of a concern also

influences the requirements of the working capital. A firm that maintains

steady high rate of cash dividend irrespective of its generation of profits

needs more capital than the firm retains larger part of its profits and does

not pay high rate of cash dividend.

9) Price Level Changes:-

Changes in the prices level also effects the working capital requirements.

Generally the rising prices will require the firm to maintain larger amount

of working capital as more funds will require maintaining the same

current assets. The effect of rising prices may be different for different

firms. Some firms may be affected much while some other may not be

affected at all by the rise in prices.

10) Other Factors:-

Certain other factors such as operating efficiency, management ability,

irregularities a supply, import policy, asset structure, importance of labor,

banking facilities etc. also influences the requirement of working capital.

Working capital In terms of five components:

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1. Cash and equivalents: - This most liquid form of working capital requires

constant supervision. A good cash budgeting and forecasting system provides

answers to key questions such as: Is the cash level adequate to meet current

expenses as they come due? What is the timing relationship between cash inflow

and outflow? When will peak cash needs occur? When and how much bank

borrowing will be needed to meet any cash shortfalls? When will repayment be

expected and will the cash flow cover it?

2. Accounts receivable: - Many businesses extend credit to their customers. If you

do, is the amount of accounts receivable reasonable relative to sales? How rapidly

are receivables being collected? Which customers are slow to pay and what should

be done about them?

3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets,

so naturally it requires continual scrutiny. Is the inventory level reasonable

compared with sales and the nature of

your business? What's the rate of inventory turnover compared with other

companies in your type of business?

4. Accounts payable:- Financing by suppliers is common in small business; it is

one of the major sources of funds for entrepreneurs. Is the amount of money owed

suppliers reasonable relative to what you purchase? What is your firm's payment

policy doing to enhance or detract from your credit rating?

5. Accrued expenses and taxes payable: - These are obligations of your company

at any given time and represent a future outflow of cash.

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Two different concepts of working capital are:-

Balance sheet or Traditional concept

Operating cycle concept.

Balance sheet or Traditional concept:- It shows the position of the firm at certain

point of time. It is calculated in the basis of balance sheet prepared at a specific date.

In this method there are two type of working capital:-

Gross working capital

Net working capital

Gross working capital:- It refers to the firms investment in current assets. The sum

of the current assets is the working capital of the business. The sum of the current

assets is a quantitative aspect of working capital. Which emphasizes more on quantity

than its quality, but it fails to reveal the true financial position of the firm because

every increase in current liabilities will decrease the gross working capital.

Net working capital:- It is the difference between current assets and current liabilities

or the excess of total current assets over total current liabilities

Working capital= current assets - current liabilities.

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Net working capital: - It is also can defined as that part of a firms current assets

which is financed with long term funds. It may be either positive or negative. When

the current assets exceed the current liability, the working capital is positive and vice

versa.

Operating cycle concept:- The duration or time required to complete the sequence

of events right from purchase of raw material for cash to the realization of sales in

cash is called the operating cycle or working capital cycle.

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RAW MATERIAL

WORK INPROGRESS

FINISH GOODSSALES

DEBTORS &BILLS

RECEIVABLES

CASH

OPERATING CYCLE

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Types of Working Capital:-

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SIGNIFICANCE OF WORKING CAPITAL:-

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Estimate of working capital requirements: To avoid the storage of working capital at once an estimate of workingcapital requirements should be made in advances so that arrangementcan be made to procedure adequate working capital. But estimation ofworking capital requirements is not an easy task and a large number offactors have to be considered before starting this exercise.

Factors requiring consideration while estimating working capital:-

Total costs incurred on materials, wages and overheads.

1) The length of time for which raw materials are to remain in stores

before they are issued for production.

2) The length of the production cycle or work in progress, i.e. the time

taken for conversion of raw materials into finished goods.

3) The length of sales cycle during which finished goods are kept

waiting for sales.

4) The average period of credit allowed to customers.

5) The amount of cash required to pay day-to-day expenses of the

business.

6) The average amount of cash required to make advance payment.

7) The average period expected to be allowed by suppliers.

8) Time lag in the payment of wages and other expenses.

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Importance of Working Capital Ratios

Ratio analysis can be used by financial executives to check upon the efficiency

with which working capital is being used in the enterprise. The following are the

important ratios to measure the efficiency of working capital. The following, easily

calculated, ratios are important measures of working capital utilization.

Ratio Formulae Result Interpretation

Stock

Turnover

(in days)

Average Stock

* 365/

Cost of Goods

Sold

= x days On average, you turn over the value of your

entire stock every x days. You may need to

break this down into product groups for

effective stock management.

Obsolete stock, slow moving lines will

extend overall stock turnover days. Faster

production, fewer product lines, just in time

ordering will reduce average days.

Receivables

Ratio

(in days)

Debtors * 365/

Sales

= x days It takes you on average x days to collect

monies due to you. If your official credit

terms are 45 day and it takes you 65 days.

One or more large or slow debts can drag out

the average days. Effective debtor

management will minimize the days.

Payables

Ratio

(in days)

Creditors * 365/

Cost of Sales

(or Purchases)

= x days On average, you pay your suppliers every x

days. If you negotiate better credit terms this

will increase. If you pay earlier, say, to get a

discount this will decline. If you simply defer

paying your suppliers (without agreement)

this will also increase - but your reputation,

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the quality of service and any flexibility

provided by your suppliers may suffer.

Current

Ratio

Total Current

Assets/

Total Current

Liabilities

= x

times

Current Assets are assets that you can readily

turn in to cash or will do so within 12 months

in the course of business. Current Liabilities

are amount you are due to pay within the

coming 12 months. For example, 1.5 times

means that you should be able to lay your

hands on $1.50 for every $1.00 you owe.

Less than 1 times e.g. 0.75 means that you

could have liquidity problems and be under

pressure to generate sufficient cash to meet

oncoming demands.

Quick Ratio(Total Current

Assets -

Inventory)/

Total Current

Liabilities

= x

times

Similar to the Current Ratio but takes

account of the fact that it may take time to

convert inventory into cash.

Working

Capital

Ratio

(Inventory +

Receivables -

Payables)/

Sales

As %

Sales

A high percentage means that working

capital needs are high relative to your sales.

IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL

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SOLVENCY OF THE BUSINESS: Adequate working capital helps in

maintaining the solvency of the business by providing uninterrupted of

production.

Goodwill: Sufficient amount of working capital enables a firm to make

prompt payments and makes and maintain the goodwill.

Easy loans: Adequate working capital leads to high solvency and credit

standing can arrange loans from banks and other on easy and favorable

terms.

Cash Discounts: Adequate working capital also enables a concern to avail

cash discounts on the purchases and hence reduces cost.

Regular Supply of Raw Material: Sufficient working capital ensures

regular supply of raw material and continuous production.

Regular Payment Of Salaries, Wages And Other Day TO Day

Commitments: It leads to the satisfaction of the employees and raises the

morale of its employees, increases their efficiency, reduces wastage and

costs and enhances production and profits.

Exploitation Of Favorable Market Conditions: If a firm is having

adequate working capital then it can exploit the favorable market conditions

such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices.

Ability To Face Crises: A concern can face the situation during the

depression.

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Quick And Regular Return On Investments: Sufficient working capital

enables a concern to pay quick and regular of dividends to its investors and

gains confidence of the investors and can raise more funds in future.

High Morale: Adequate working capital brings an environment of

securities, confidence, high morale which results in overall efficiency in a

business.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run

its business operations. It should have neither redundant or excess working

capital nor inadequate nor shortages of working capital. Both excess as well as

short working capital positions are bad for any business. However, it is the

inadequate working capital which is more dangerous from the point of view of

the firm.

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DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING

CAPITAL

1. Excessive working capital means ideal funds which earn no profit for

the firm and business cannot earn the required rate of return on its

investments.

2. Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.

3. Excessive working capital implies excessive debtors and defective

credit policy which causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with

banks and other financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may alsofall.

7. The redundant working capital gives rise to speculative transactions

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DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working

capital arises due to the time gap between production and realization of cash from

sales. There is an operating cycle involved in sales and realization of cash. There

are time gaps in purchase of raw material and production; production and sales;

and realization of cash.

Thus working capital is needed for the following purposes:

For the purpose of raw material, components and spares.

To pay wages and salaries

To incur day-to-day expenses and overload costs such as office

expenses.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to the customer.

To maintain the inventories of the raw material, work-in-progress, stores

and spares and finished stock.

For studying the need of working capital in a business, one has to study the

business under varying circumstances such as a new concern requires a lot of

funds to meet its initial requirements such as promotion and formation etc.

These expenses are called preliminary expenses and are capitalized. The

amount needed for working capital depends upon the size of the company and

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ambitions of its promoters. Greater the size of the business unit, generally larger

will be the requirements of the working capital.

The requirement of the working capital goes on increasing with the growth and

expensing of the business till it gains maturity. At maturity the amount of

working capital required is called normal working capital.

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PERMANENT OR FIXED SOURCES OF WORKING CAPITAL:-

1)Shares

2)Debentures

3)Public Deposits

4)Ploughing back of profits

5)Loans from financial institutions

TEMPORARY OR VARIABLE SOURSES

OF WORKING CAPITAL:-

1) Commercial banks

2) Indigenous bankers

3) Trade creditors

4) Installment credit

5) Advances

6) Accounts receivable- credit/factoring

7) Accrued expenses

8) Commercial paper

Commercial banks are the most important sources of short term capital. The major

portions of working capital loans are provided by commercial banks. They provide

of wide variety of loans tailored to meet the specific

requirements of a concern. The different forms in which the banks normally provide

loans and advances are as follows:-

A) Loans

b) Cash credits

c) Overdrafts

D) Purchasing and discounting of bills

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In addition to the above mentioned forms of direct finance, commercial banks help

their customers in obtaining credit form their suppliers through the letter of credit

arrangements.

It is always a test to the prudence of a financial manager to obtain the correct

amount of working capital at the right time, at a reasonable cost and at the most

favorable terms.

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MANAGEMENT OF INVENTORY

MANAGEMENT OF CASH

MANAGEMENT OF RECEIVABLES

MANAGEMENT OF INVENTORY:-

Inventories constitute the most significant part of current assets of a largemajority of companies in India. On an average, inventories are approximately 60 %

of current assets in public limited companies in India.

Because of the large size of inventories maintained by firms maintained by firms, a

considerable amount of funds is required to be committed to them. It is, therefore

very necessary to manage inventories efficiently and effectively in order to avoid

unnecessary investments. A firm neglecting a firm the management of inventories

will be jeopardizing its long run profitability and may fail ultimately.

The purpose of inventory management is to ensure availability of materials in

sufficient quantity as and when required and also to minimize investment in

inventories at considerable degrees, without any adverse effect on production and

sales, by using simple inventory planning and control techniques.

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Need to Hold Inventories:-

There are three general motives for holding inventories:-

1) Transaction motive emphasizes the need to maintain inventories

to facilitate smooth production and sales operation.

2) Precautionary motive necessities holding of inventories to guard against the

risk of unpredictable changes in demand and supply forces and other factors.

3) Speculative motive influences the decision to increases or reduce inventory

levels to take advantage of price fluctuations and also for saving in re-ordering

costs and quantity discounts etc.

Objective of Inventory Management:-

The main objectives of inventory management are operational and financial. The

operational mean that means that the materials and spares

Should be available in sufficient quantity so that work is not disrupted for want of

inventory. The financial objective means that investments in inventories should not

remain ideal and minimum working capital

Should be locked in it. The following are the objectives of inventory management:-

1) To ensure continuous supply of materials, spares and finished goods.

2) To avoid both over-stocking of inventory.

3) To maintain investments in inventories at the optimum level as required by

the operational and sale activities.

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4) To keep material cost under control so that they contribute in reducing cost of

production and overall purchases.

5) To eliminate duplication in ordering or replenishing stocks. This is possible with

the help of centralizing purchases.

6)To minimize losses through deterioration, pilferage, wastages and damages.

7)To design proper organization for inventory control so that management. Clear

cut account ability should be fixed at various levels of the organization.

8)To ensure perpetual inventory control so that materials shown in stock ledgers

should be actually lying in the stores.

9)To ensure right quality of goods at reasonable prices.

10) To facilitate furnishing of data for short-term and long term planning and

control of inventory

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MANAGEMENT OF CASH:-

Cash is the important current asset for the operation of the business.

Cash is the basic input needed to keep the business running in the continuous basis,

it is also the ultimate output expected to be realized by selling or product

manufactured by the firm.

The firm should keep sufficient cash neither more nor less. Cash shortage will

disrupt the firms manufacturing operations while excessive cash will simply

remain ideal without contributing anything towards the firms profitability. Thus a

major function of the financial manager is to maintain a sound cash position.

Cash is the money, which a firm can disburse immediately without any restriction.

The term cash includes coins, currency and cheques held by the firm and balances

in its bank account. Sometimes near cash items such as marketing securities or

bank term deposits are also included in cash. Generally when a firm has excess

cash, it invests it is marketable securities. This kind of investment contributes some

profit to the firm.

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NEEDTO HOLD CASH:

The firms need to hold cash may be attributed to the following three motives:-The Transaction Motive: The transaction motive requires a firm to hold cash to

conduct its business in the ordinary course. The firm needs cash primarily to make

payments for purchases, wages and salaries, other operating expenses, taxes,

dividends, etc.

The Precautionary Motive: A firm is required to keep cash for meeting various

contingencies. Though cash inflows and outflows are anticipated but there may be

variations in these estimates. For example a debtor who pays after 7 days may

inform of his inability to pay, on the other hand a supplier who used to give credit

for 15 days may not have the stock to supply or he may not be in opposition to give

credit at present.

Speculative Motive: - The speculative motive relates to the holding of cash for

investing in profit making opportunities as and when they arise.

The opportunities to make profit changes. The firm will hold cash, when it is

expected that interest rates will rise and security price will fall.

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Statement showing change in working capital for Bundy india ltd for the year

2009-2008 :-

Particulars 09 08 Increase ( + ) Decrease (- )

Current Assets

Inventories 732.22 724.58 7.64

Sund. Debtors 1049.05 1033.22 15.83

Cash & Bank 39.78 106.43 66.65

Loan & Advances 750.33 712.43 37.9Total ( A ) 2562.38 2576.66

Current

Liabilities

C.L. 1108.32 1725.23 616.91

Provisions 144.50 118.50 26

Total ( B ) 1252.82 1843.73

( A-B ) 1309.56 732.93

in working

capital

576.63 576.63

Total 1309.56 1309.56 664 683.56

Statement showing change in working capital for Bundy india ltd for the year

2007-2006 :-

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Particulars 07 06 Increase ( + ) Decrease (- )

Current Assets

Inventories 581.85 802.42 220.57

Sund. Debtors 2589.31 1272.93 1316.38

Cash & Bank 264.11 335.38 71.27Loan & Advances 606.60 363.63 242.97

Total ( A ) 4041.87 2774.36

Current

Liabilities

C.L. 2630.75 1940.57 690.18

Provisions 151.75 133.79 17.96

Total ( B ) 2782.50 2074.36

( A-B ) 1259.37 700

in working

capital

559.37 559.37

Total 1259.37 1259.37 2267.49 291.84

1. CALCULATION OF WORKING CAPITAL FOR BIRLA

CORPORATION LIMITED

YEAR 06 07 08 09

Current assets

Inventories 802.42 581.85 724.58 732.22Sundry debtor 1272.93 2589.31 1033.22 1049.05

Cash & Bank 335.38 264.11 106.43 39.78

Loan &

Advances

363.63 606.60 712.43 750.33

Total current 2774.36 4041.87 2576.66 2562.38

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assets

Current

liabilities and

provisons

Current

liabilities

1940.57 2630.75 1725.23 1108.32

Provisions 133.79 151.75 118.50 144.50

Total current

assets

2074.36 2782.50 1843.73 1252.82

Net current

assets

700 1259.37 732.93 1309.56

200

400

600

800

1000

1200

Net Working

Capital

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ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL

INVENTORY ANALYSIS

Inventory is total amount of goods and materials content in a store of factory at any

given time. Inventory means stock of three things :-

1. Raw materials

2. Semi finished goods.

3. Finished goods.

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2. Position of inventory in Birla Corporation Limited

(rs. In lacs)

Year 2009 2008

Stores, spare parts etc 108.114 126.80

Raw material 469.20 388.29

Work in progress 127.33 200.95

Finished goods 18.55 8.54Total 723.22 724.58

5

723.5

724

724.5

o a

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INTERPRETATION:

By analyzing this data inventories for the year 2009 is slightly declined by only

0.18% . this will shows company is try to minimize its inventory level and

company has no plan for expansion in the time of recession.

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3. SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and

fall under current assets. Debtors will arise only when credit sales are made.

Debts outstanding for a

period more than six

months

2009 2008

Considered good 36.01 257.31Consider doubtful 23.99 6.04

Other debts consider good 1013.04 775.91

Other debts consider

doubtful

1073.04 1039.26

Less

Provison for doubtful 23.99 6.04

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1025

0

1035

1040

1045

1050

2009

debts

1049.05 1033.22

INTERPRETATION

In the table and figure we see that there is continuous rise in the debtors of Bundy

india Limited in the successive years. A simple logic is that debtors increase only

when sales increase and if sales increases it is good sign for growth. We can see

there is a 1.532% increase in debtors from previous years.

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We can say that it is a good sign as well as negative also. Company policy of

debtors is very good but a risk of bad debts is always present in high debtors.

when sales is increasing with a great speed the profit also increases. If company

decreases the Debtors they can use the money in many investment plans.

4. CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset and vital current assets, it is an important

component of working capital. In a narrow sense, cash includes notes, bank draft,

cheque etc while in a broader sense it includes near cash assets such as marketable

securities and time deposits with bank.

Position of Cash and Bank Balance in Bundy India Limited

2009 2008 2007 2006

Cash on hand 1.42 1.32

Balances with

scheduled

bank

38.19 103.18

Money deposit 0.17 1.93

Cash and bank

balances

39.78 106.43 264.11 335.38

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INTERPRETATION

If we analyze the above table and chart we find that it follows a decreasing trend.

In the year 2006 it had maintained a huge amount of cash and bank balance which

has fallen in the year 2007 but there is huge fall between the year 2007 and 2008

and also fallen drastically in 2009 . Although companys cash is decreasing but this

is very good sign for company because they are not holding the cash in hand but

using the cash for better projects. The analysis shows that the fix deposits of

006 2007 2008

Cas an an aance

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company are rapidly fallen in last three years as 21.25% and 59.70% and 62.62%

in 06-07 ,07-08 and 08-09 respectively from previous year. Company is utilizing

the fixed cash for exploding the projects that is good for growth.

5. LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties,

company, employees for a specific period of time and in return they will be liable

to make timely repayment of that amount in addition to interest on that loan.

2009 2008 2007 2006

Advances recoverable in cash 115.49 100.54

Sundry deposit 90.45 97.28

Balances with excise and govt.

authority

262.99 255.29

Advance payment of tax 281.40 259.32

750.33 712.43 606.60 363.63

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INTERPRETATION

If we analyze the table and the chart we can see that it follows an increasing trend

which is a good sign for the company. We can see that the increase of

66.83%,17.44%, and 0.53 % in 06-07 , 07-08, 08-09 respectively from previous

year.

The increasing pattern shows that company is giving advances for the expansion of

plants and machinery which is good sign for better production of other goods.

00

200300

400

500

600

loans and advances

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Although companys cash is blocked but this is good that company is doing

modernization of plants In time to compete with other competitors in market.

6. CURRENT LIABILITIES ANALYSIS

Current liabilities are any liabilities that are incurred by the firm on a short term

basis or current liabilities that has to be paid by the firm with in one year.

2009 2008 2007 2006

Acceptance 98.18 57.21

Outstanding dues 970.23 1519.2

4Advances from customer 4.77 0.27

Other liabilities 35.14 148.21

1108.3

2

1725.2

3

2630.7

5

1940.57

1000

1500

2000

00

current liabilities

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Interpretation

If we analyze the above table then we can see that it follow an uneven trend. The important

component of current liabilities is sundry creditors and other liabilities. In 07 it increased by

26.23% and in 08 it increased by 52.48%. In 08 it was decreased because by 55.56%.This is

liability for company so this should be less. when company have minimum liabilities it creates a

better goodwill in market. High current liabilities indicate that company is using credit facilities

by creditors.

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7. PROVISIONS ANALYSIS

2009 2008 2007 2006

Provison for

gratuity

66.61 50.04

Provison for

compensated

absences

77.89 68.46

144.50 118.50 151.75 133.79

06 2007 2008 200

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INTERPRETATION

From the above chart we can analyze that it has uneven trend and we can see that

in 2007 provison is increased by 13.42%, and in 2008 it decreased drastically by

21.91% and in 2009 it again increases by 21.94%.

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WORKING CAPITAL RATIOS AND ITS INTERPRETATION

8. Position of RECEIVABLE RATIO in Bundy india limited

FORMULA

DEBTORS

RECEIVABLE RATIO = ---------------- * 365

SALES

This ratio shows the proportion of sales to average receivables. It shows the

efficiency of the collection policy of the firm. The higher the ratio, the less

satisfactory position of the firm. Higher ratio indicates weak collection policy of

the firm.

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2009 2008 2007 2006

Receivable ratios in days 62.95 77.61 116.65 61.79

INTERPRETATION

Generally a low debtors turnover ratio implies that it considered congenial for the

business as it implies better cash flow. The ratio indicates the time at which the debts are

0

60

80100

120

Receivable ratios in days

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collected on an average during the year. Needless to say that a high Debtors Turnover Ratio

implies a shorter collection period which indicates prompt payment made by the customer.

PAYABLE RATIO

2009 2008 2007 2006

Payable ratios

in days

114 221

FORMULA

CREDITORS

PAYABLE RATIO= -----------------------------

COST OF SALES

Creditors turnover ratio shows the proportion of purchase to account payable

number of days within which we make payment to our creditors for credit

purchases estimated the creditors ratio if this ratio is higher it means company has

to check whether company is making payment within credit period available. If it

is making payment before the due date means the company is not taking full

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advantage of it credit period and if company making the payment the period that

indicates that the company is not taking the benefit of discount allowed.

Position of CURRENT RATIO in Bundy india limited

It is also known as working capital ratio .It is a measures of short-term financial

strength of the business and shows whether the business will be able to meet it s

current liabilities as when they mature.

Current Assets including assets which can be converted in to cash easily and itself

like market securities debtors, inventory, prepaid expenses etc.

Current Liabilities included creditors, bills payable, accrual expenses, short term

bank loan, income tax liabilities and long term debt maturity in current year. In

short it can be said as all obligation within a year are included in current liabilities.

Current ratio is a measure of the firms short term solvency. It indicate the

availability of current assets in rupee of current liabilities. As a conventional rule, a

current ratio should be or slightly more. It focuses the strong of weak position of

the company.

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9. Position of CURRENT RATIO in Bundy India Limited

FORMULA

TOTAL CURRENT ASSETSCURRENT RATIO= --------------------------------------------

TOTAL CURRENT LIABILITIES

(Rs. in Lacs)

Current Ratio

Year Current Assets Current Liabilities Ratio

2006 2774.36 2074.36 1.34

2007 4041.87 2782.50 1.45

2008 2576.66 1843.73 1.40

2009 2562.38 1252.82 2.05

4.

.4

Current ratio

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INTERPRETATION

This ratio reflects the financial stability of the enterprise. The standard of the

normal ratio is 2:1 but in most of companies standard is taken according to Tandon

Committee which is taken as 1.33:1.

Now if we analyze the three years data it can be predicted that it holds a stable

position all through out period but it is seen that it holds a low position than the

standard one and the company is required to improve its position.

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10.Position of QUICK RATIO in Bundy india limited

FORMULA

TOTAL CURRENT ASSETS - INVENTORIES

QUICK RATIO= -----------------------------------------------------------------

TOTAL CURRENT LIABILITIES

The measure of absolute liquidity may be obtained only cash and bank balance as

well as only ready marketable security with liquid liabilities. This is every existing

standard of liquidity and it is satisfaction if the ratio is 1.50:1

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(Rs. in Lacs)

Quick Ratio

Year Quick Assets Current Liabilities Ratio

2006 1971.94 2074.36 0.95

2007 3460.02 2782.50 1.24

2008 1852.08 1843.73 1.00

2009 1839.16 1252.82 1.47

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

RATIO

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INTERPRETATION

It is the ratio between quick liquid assets and quick liabilities. The normal value for

such ratio is taken to be 1:1. It is used as an assessment tool for testing the liquidity

position of the firm. It indicates the relationship between strictly liquid assets

whose realizable value is almost certain on one hand and strictly liquid liabilities

on the other hand. Liquid assets comprise all current assets minus stock.

By analyzing the four years data it can be said that its position was strong enough

in 2006.And in 2007 it increases much higher and in 2008 slighltly week and in

2009 again it stick on a strong position . it was very close to the standard and it can

be said that its liquidity position on an average is stable.

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11.WORKING CAPITAL TURNOVER RATIO

(Rs. in Lacs)

Working Capital Turnover Ratio

Year Cost of good sold Working Capital Ratio

2006 3764.28 833.79 4.51

2007 4217.16 1411.12 3.002008 2796.69 851.43 3.28

2009 3608.86 1454.06 2.48

GRAPHICAL REPRESENTATION

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

RATIO

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Interpretation

Higher the ratio more efficient is Inventory management & vice versa. In 2006,

working capital turnover ratio was 4.51 which were good for the company. In

2007, it was declined to 3.00 because of increasing in working capital. In 2009,

ratio was 2.48 where cost of good sold was similar to 2006 but large increased in

working capital and thats why decreased in ratio. So it is necessary to increase.

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12.DEBTORS TURNOVER RATIO

(Rs. in Lacs)

Debtors turnover Ratio

Year Net sales Average debtors Ratio

2006 6469.57 - -

2007 6953.71 1931.12 3.60

2008 4859.08 1811.27 2.68

2009 6082.53 1041.14 5.84

GRAPHICAL REPRESENTATION

1

2

3

4

5

6

RATIO

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Interpretation

Higher the Debtor Turnover Ratio higher the credit management efficiency of the

firm and the company is able to convert its receivables into cash. In 2008, ratio was

decreased to 2.68 because of decreasing in net sales. And in 2009, ratio was

increased to 5.84 because of increasing in net sales and decreasing in average

debtors which shows efficiency of the company to convert its receivables into cash.

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FINDINGS, SUMARRY & CONCLUSION

1. The net current asset of the company shows uneven trend but it increasing in 2008 and

2009 both the years so, its good sign for company and it shows companys strong

financial position

2. Companys inventory is slightly declined by only 0.18% , and its due to recession, and

company dont have any expansion plan in future, and its good for company to minimize

its inventory level

3. There is 1.50% increases in debtor of the company which is due to increase in sales, but

some how company has to minimize its debtor by his policy, and it will decrease chance

of bad debt

4. The analysis shows that the fix deposits of company are rapidly fallen in last three years

as 21.25% and 59.70% and 62.62% in 06-07 ,07-08 and 08-09 respectively from

previous year. And company will invest in some better project rather than holding.

5. If we analyze the table and the chart we can see that it follows an increasing trend which

is a good sign for the company. We can see that the increase of 66.83%,17.44%, and

0.53 % in 06-07 , 07-08, 08-09 respectively from previous year. no doubt companys

money is blocked but company is invest in some projects which is good sign for the

company

6. In 07 it increased by 26.23% and in 08 it increased by 52.48%. In 08 it was decreased

because by 55.56%.This is liability for company so this should be less.and companyz

minimum liability will create goodwill in the market..

7. From the above chart we can analyze that it has uneven trend and we can see that in 2007

provison is increased by 13.42%, and in 2008 it decreased drastically by 21.91% and in

2009 it again increases by 21.94%. . and it shows company is provison is according to its

policy and according to market condition

8. It shows an uneven trend , and company needs to modify its policy to collect its money as

quickly as possible to run operating cycle quickly

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9. The current ratio has shown in a fluctuating trend as 1.34, 1.45, 1.40, and 2.05 during

2006-09 of which indicates a decreased in both current assets and current liabilities of

2009 as compare to 2006.

10. The quick ratio is also in a fluctuating trend through out the period 2006 09 resulting as0.95, 1.24, 1.00, and 1.47. The companys present liquidity position is satisfactory

11. The working capital decreased from 4.51 to 2.48 in the year 2006-09.

12. The debtors turnover ratio was 3.60 in 2007, 2.68 in 2008 and 5.84 in 2009. Ratio

increased as compare to 2007

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