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INTRODUCTION

SRM University AMARRAJA BATTERIES LIMITED1

1. INTRODUCTION

In Indian situation on an average approximately 60, 70% of the total product

cost is contributed by raw materials costs which form the single major component of

current assets. It is even worse in the case of industries which strives on imported

components for it’s to day functioning. It is no exaggeration that in few Indian

industries imported components are stocked for more than 24 months.

One of the problem of inventory management is maintaining inventory of a

given financial investments, an adequate supply of something to meet an expected

demand patterns is very difficult to achieve. Inventory turn over ratio is an index of

business performance. A soundly managed organization will have higher turnover and

vice versa.

Inventory management deals with the determination of optimal policies and

procedures for procurement of commodities, since it is quite difficult to image a real

work situation in which the required material will be made available at the point of

use instantaneously, hence maintaining inventories become almost necessary.


1.1 INDUSTRY PROFILE

MANUFACTURING INDUSTRY:

India's manufacturing base, which is the fourth-largest among emerging economies, is

among the fastest growing and has seen more investments as a proportion of gross domestic

product than any country except China. The Government has taken several initiatives to

accelerate growth in this sector and improve competitiveness of Indian industry in general

and manufacturing in particular.

The Indian manufacturing sector has been witnessing a major revival, with a

significant turnaround in performance which is reflected in the increase in its growth rate

from 5 per cent in 2000-01 to an impressive growth rate of 12.5 per cent 2006-07. It has

continued its growth in the new fiscal by growing at a rate of 10.3 per cent during 2007-08

and is expected to continue the same next year also. In fact, growth in manufacturing has

been instrumental in the index of industrial production (IIP) growing at a rate of 9.8 per cent

during this period. As many as 15 out of the 17 industry groups have shown positive growth

during the month of August 2008 as compared to the corresponding period in the previous

year i.e. 2007.

The manufacturing industry in India has all the qualities which enhance economic

development, increase the productivity of the manufacturing industry and face competition

from the global markets. The Manufacturing industry in India is believed to have the

potential of improving the economic condition of India Manufacturing industry in a modern

economy operates under regulations framed by the Government. Studies conducted on the

manufacturing industry have concluded that India has a working population of 75%. Out of

this, only 600 million have acquired education till middle school. Due to this reason, the

manufacturing industry in India, which is labor intensive, can provide the requisite number of

employment units in the country.

Exports of manufactured goods in India accounted for 75% in comparison to exports

of manufactured goods all over the world. Owing to the performance manifested by the

export sector in India, the scenario indicates that there is less competition in the

manufacturing segment. Absence of competition is also established by the fact that in spite of

reducing the tariff in the early and mid 90s, India continued to be one of the protected

economies of the world. Contribution of India's export towards international market grew


from 0.5% to 0.7% during 1990 to 2000. During the same period, Malaysia, China, Thailand

and South Korea, registered almost double increase in exports.

The key driver of the huge growth of the manufacturing companies in India is due to the

multinational companies. The manufacturing companies in India are booming in every sector.

The Indian manufacturing companies are famous worldwide. Some of the top manufacturing

companies like Larsen & Turbo, Jindal steel, Bombay Dyeing, Hindustan Lever Network and

many others have made a landmark in the manufacturing industry.

ROAD AHEAD 2010

This identifies the key trends within the manufacturing sector in 2009. As the economic crisis

worsens, manufacturers are trying to safeguard the future of their businesses. Different

regions and industries are feeling the pressure in varying ways with the resulting impact on

technology investment grim. Still, opportunities exist for technology vendors to be able to

quickly adapt to the situation.

BATTERY MANUFACTURING INDUSTRY:

Power supply is a buffer circuit that provides power with the characteristics required by the

load from a primary power source with characteristics incompatible with the load. It makes

the load compatible with its source.

A Power supply is sometimes called a power converter and the process is called power

conversion. It is also sometimes called a power conditioner and the process is called power

conditioning.

A switching mode power supply is a power supply that provides power supply function

through low loss components such as capacitors, inductors and transformers and the use of

switches that are in one of two States, on or off. The advantage is that the switch dissipates

very little power in either of these two states and power conversion can be accomplished with

minimal power loss, which equates to high efficiency. The terms switch mode was widely

used for the this type of power supply unit Motorola, Inc., Who used the trademark SWICTH

MODE TM for products aimed at the switching mode power supply market, started to

enforce their trademark. Others the term switching power supply which seems to be the

popular term. PSMA does not define either switching mode Power supply, but does define

switching regulator.


Because of its emphasis on the efficiency, switching mode power supply design minimize the

use of loss components such as resistors and uses components that are ideally loss less such

as Switches, Capacitors, Inductors and Transformers. The primary design problem is how to

inter connect these components and control the switches so the desired results are obtained.

The secondary design problem is to select, design or over come the performance

characteristics of less than ideal components.

GLOBAL SCENARIO:

The global automotive battery market is highly competitive. Battery makers compete

on price, quality, technical innovation, service and warranty, and consolidation among the

major battery manufacturers continues to shape the industry. The outlook for the automotive

industry has significantly changed since 2008. As recently as the beginning of 2008, we were

looking at a 'managed slowdown' for the global economy and the automotive industry was

very much part of that.

The segment has a domestic market volume of roughly USD 900million, which is

expected to grow as high as USD 10-15 billion by 2015, according to Fraunhofer Magazine.

The automotive battery industry is growing at a rapid rate despite the economic crisis.

The increased focus on hybrid and electric vehicles has led to battery innovation and market

growth. With heavy investment in research and development, Germany is positioned to be a

global leader in this market segment.

It is estimated that the OE (original equipment) starter battery market across Europe,

Japan, North America and China was worth some EUR856m in 2007, and has a potential to

exceed EURlbn in 2014.

A number of other factors are also shaping the lead-acid automotive starter battery

market. Some are market driven, while others are outside manufacturers' control. With a

significant rise in the cost per metric ton of lead over the past year, the price of oil driving up,

the cost of polypropylene used in battery manufacture, and imported batteries flooding in

from emerging economies; they continue to pose a serious challenge to European

manufacturers. Cooperation in this field offers a number of possibilities for international

partnerships and investment. For example, Daimler has decided to take a ten percent share of

Tesla Motors, a California-based start-up. The company supplied batteries for the electric


versions of Daimler's Smart vehicles, which will begin production at the end of 2009.

Daimler has also entered into a strategic alliance with the German company Evonik to further

Lithium-ion battery development.

The industry benefits from political support, due to a number of factors: Battery-

powered cars hold long-term potential to reduce carbon dioxide emissions, curb global

warming, and reduce foreign oil dependency. At the same time, they reduce noise and

pollution in cities and contribute to higher quality of life.

Within the framework of the German economic stimulus program, over USD 700

million have been allocated for research funding in the area of electric mobility. Interest-

reduced loans and grants can be received for developing new battery technology, as well

another hybrid drives and fuel cell technologies.

LEADING BRANDS IN THE WORLD:

Blains Farm & Fleet

Blain's Farm & Fleet carries an extensive line of starting and deep cycle batteries to start or

run whatever you drive. From cars and trucks to boats and RV's, agricultural equipment to

garden tractors and wheelchairs. Blains Farm & Fleet has the batteries you need.

Mazda

A Mazda® battery is the best possible choice when it comes to replacing the battery in a

Mazda car, van or truck. It's the battery engineered to match the exact specs of your Mazda

vehicle including the unique requirements for the Mazda Miata today's filled lead-acid

batteries. With OPTIMA under your hood, you can count on longer lasting battery life under

starting and deep-cycle applications

DieHard

Since its introduction in 1967, DieHard has become a trusted household name. As the

DieHard batteries are built for reliable performance, low maintenance and long life.

Kirkland Signature

If you are a Costco member, you know the Kirkland Signature brand as a symbol of quality

and value, backed by the Costco Guarantee of satisfaction. Kirkland Signature batteries are

no exception to this tradition! There is a Kirkland Signature battery to meet most automotive

needs, each offering premium power and warranties at competitive pricing.


COUNTRY PROFILE:

Organized Sector set to capture market share from unorganized sector battery

manufacturers as growing automotive aftermarket demands novel, cost-effective products.

Steady growth in the automotive batteries aftermarket in India is attributed to burgeoning

vehicle sales across all vehicle segments. As batteries are non-discretionary replacement

products, the demand for them is expected to rise significantly. High replacement rates are

also helping the momentum a great deal. However, rising raw material] prices could be a

dampener for manufacturers. The battery industry is heavily dependant on lead, which

constitutes over 70 percent of the cost of inputs of a battery. In 2006, the automotive

batteries organized aftermarlcel stood at approximately 8.5 million units. While strict

regulations on legislations on recycling and smelting of lead have reined in the prospects of

the unorganized sector, it still accounts for a strong 58.1 percent of the total

aftermarket.

'The Battery Management Handling Rules (BMHR), laid down by the Ministry of

Environment and Forests in May 2001, stipulates that at least 90 percent of sales of new

batteries by a company has to be collected from the market for organized smelting/recycling,'

notes the analyst of this research service. The BMHR, if strictly enforced, will curb the

unorganized market to a considerable extent, as scrap batteries form a part of the raw material

for unorganized manufacturing and/or smelting.' Trends also indicate a preference for

technologically advanced, maintenance-free batteries, and market participants are cashing in

on the opportunity and enhancing their product offerings, driving units in the after market.

INDUSTRY STRUCTURE AND DEVELOPMENT:

The domestic Battery Industry is poised to grow by more than double within the next

five years. Though the un-organized sector is about three times the size of the organized

business but with stricter pollution control and regulatory norms, especially with regard to

recycling of toxic waste such as Lead, it may be difficult for small scale un-organised

business to sustain their operations in the long term. Notwithstanding the recent setback

arising out of the global meltdown, the automobile industry in India is poised for quantum

growth especially in the small car and two wheeler segments. With Tata Motors launching

the Nano and Bajaj and Renault announcing their plans, India would emerge as a small car

hub in the Region. Nearly all the major global automobile manufacturers have set up base in

India and are also looking at India for export of their products. Interestingly, several


commercial vehicle manufacturers have identified India as a manufacturing base for their

export market which would also lead to a higher demand for Indian batteries. This would

definitely expand the market base for automotive batteries manifold. In addition, with the

thrust on infrastructure, communication and power sectors, the consumption of industrial

batteries are also expected to rise substantially. That India is emerging as a global player is

evident from the fact that for the first time an International Battery Fair was hosted in India in

2008 instead of its traditional venues like the US, Europe or Asia-Pacific region.

In general, the storage Batteries Industry consists of two segments - automotive

and industrial. The major players in this industry include Exide Industries, Amara Raja

Industries, Amco and Tudor India. With relaxation of import duties and the recent removal of

quantitative restrictions, Indian Companies are facing the threat of cheaper imports.

Historically, the Indian automotive battery market was original equipment (OE)

driven by one dominant player, i.e., Exide Industries Ltd., in the organized segment followed

by many manufacturers from the unorganized segment especially in the light and heavy

commercial vehicle segment. Exide at a point of time controlled nearly 100 percent of the

Indian auto OE market and was the biggest name in the Indian automotive battery industry

All this was changed in the late 1990s with the entry of battery manufacturers like

Amara Raja Batteries Ltd. (ARBL) (JV with Johnson Controls Inc. USA) and Tudor India

Ltd. (the Indian arm of Exide Technologies). Both entered the market with technologically

advanced products and ARBL became the first company to launch the Zero Maintenance

Free Batteries for the automotive segment.

The total Indian battery market is estimated at close to Rs 2100 crores. Out of this the

industrial battery market is estimated at around Rs 860 crores which includes the VRLA

(valve regulated lead acid) battery market, which is estimated at around Rs 500 crores in the

current year. The telecom segment is the largest consumer of industrial batteries followed by

the railways. The power and UPS industries are other key user segments. The automotive

battery business is estimated at around Rs 1200 crores, including OE (original equipment)

and after-market or replacement market segments. The OE market is around 1.2 million units

and the replacement market is around 5 million units per annum The unorganized sector

comprises the small-scale assemblers and rebuilders, it is currently estimated to have a share

of around 60-65% of the replacement market. This sector largely dominates the tractor and


commercial vehicle segments although in some areas of the country they have a significant

presence in the car and multi-utility segments too.


With the advent of newer more advanced technologies, the consumer is getting the

best of both worlds; a superior product at an affordable price. ARBL sells its automotive

battery under the brand name Amaron which is the country's first Zero Maintenance Free

Automotive battery while the competitors had only maintenance free batteries that needed

topping up of distilled water. Today, all the leading manufacturers are also offering a similar

product with focus shifting towards offering a technologically superior product. Amaron was

also the first to talk about what goes into making a great product. It spoke of having silver

inside which is used as an alloy mix that actually increases the battery life and this was the

first attempt by any battery manufacturer to educate the consumers.

The consumer becoming educated enough to make intelligent comparisons among

products to get a better bargain which in turn, has led to the erosion in the market share of the

unorganized sector and cheaper imports. This move towards branding a low interest product

will go a long way in setting some standards for the industry, increasing the entry barriers and

making quality products available at affordable prices.

The results are there for all to see. Exide Industries has more or less doubled its

dealer network and has also increased its share with the acquisition of Standard Batteries

some time back and a slew of new products thus making it the number one in the

replacement market. Amaron is the second largest selling brand in the country today with

Prestolite of Tudor India following it really close. In the coming months, there is bound to be

more action in the battery industry with an increase in the number of cars filling the Indian

highways and with the upturn in the economy.


1.2COMAPANY PROFILE

Amara Raja Batteries Private Limited (ARBL) was incorporated under the company's

act, 1956, on 13th February 1985, and converted into public limited company on 6th

September 1990.

Amara Raja Batteries Ltd, (ARBL) is the largest manufacturer of Standby Valve

Regulated Lead Acid (VRLA) batteries in the Indian Ocean Rim comprising the area ranging

from Africa and the Middle East to South East Asia. Based in Chennai, with a fully integrated

manufacturing unit for its industrial batteries at Tirupati, Amara Raja has reached a position

of leadership in a short span of 7 years.

Amara Raja is in a strategic partnership with Johnson Controls Inc., USA. With this,

ARBL is in Global Supply Alliance with Varta AG of Europe and Enertec. Who are joint

venture partners of JCI in South America and Mexico. The Business Group of Amara Raja is

categorized as Industrial Battery Division, Automobile Battery Division and Power System

Division.

ARBL is the largest suppliers of stand-by power systems, catering to Indian utilities

such as Departments of Telecommunication, Indian Railways, Power Generation Stations,

MTNL, VSNL, IT! and HTL. The company has preferential status with most MNC-OEMs

such as ABB, Alcatel, Ericsson, Fujitsu, Lucent, Motorola, Nokia, Tata Liebert and Siemens.

ARBL has prestigious Automotive OE clients including Ford, GM, Daimler Chrysler,

Ashok Leyland, TELCO, and Mahindra & Mahindra. Amara Raja has a replacement Battery

Brand Amaron hi-life. ARBL has a capacity for manufacturing around 1,000,000 units at its

facility at Tirupati with an investment of US $ 10 million.

A Greenfield project is planned at the same site with an additional investment of US

$6 million to augment capacity to 2 million batteries. The Amaron hi-life battery is a product

of the collaborative efforts of engineers at Johnson Controls Inc. and Amara

Raja.

This Zero maintenance product incorporates the latest technological advances in the

field and is on par with batteries manufactured and marketed in developed countries. A fully

charged, factory-activated battery provides extra high starting performance and power at any

temperature. The Power System Division is an important supplier of SMR based power plants

to Telecom Industry.


The key customers being the Telecom switching Equipment Manufacturers. As the

company saw a growing business proposition in the integrated power supply, the production

capacities of the same have been augmented. IPS using SMPS technology, for usage in

Railways has been added into the product basket.

ARBL has also design custom-built power electronics products like Industrial Battery

Chargers, Charge Discharge Circuits, Formation Chargers, AC/DC distribution boards etc.

Progressive conformance of Amara Raja to changing global standards and processes made it

achieve ISO 9001 and the QS 9000 Certification.

VISION:

"To transform our spheres of influence and to improve the quality of life by building

institutions that provide better access to better opportunities, goods and services to more

people...................all the time."

> Introduce latest generation technologies.

> Adapt these technologies to suit the operating environment.

> Develop and manufacture globally competitive, Customer-focused products of world-

class quality.

> Responsibly introduce these products into relevant markets.

> Provide world-class customer support.

1.3 PRODUCT PROFILE:

> Automotive batteries

> Industrial batteries

Applications of Automotive batteries

• 3 Wheelers

• Passenger cars

• Two-wheelers

• Four-Wheelers


Applications of Industrial batteries

BOARD OF DIRECTORS:

The company has a non-executive chairman and the number of independent directors

is 3 representing 33.33% of the total number of directors i.e. more than one-third of the total

number of directors. The number of the total non-executive directors are 8 i.e. 88.89% which

is more than 50% of the total number of directors. Hence the board of the company has an

optimum combination of executive and non-executive directors in conformity with the

provisions clause 49 of the listing agreement.

None of the members of the board is holding membership in more than 10 committees or chairmanship in more than 5 committees as specified in clause 49 of the listing agreement. The composition and category of the board of directors as at March 31, 2008 and the number of other directorships/committee memberships held by them are as under:

S.no Name of the Director Category

1. Dr. Ram Chandra N Galla Promoter/Non-executive chairman

2. Mr. Jayadev Galla Promoter/Managing Director

3. Dr. G.Ramadevi Promoter/Non-executive Director

4. Mr. Frank E Kraick Non-Executive Director

5. Mr. Raymond J Brown Non-Executive Director

6. Mr. Shu Qing Yang Non-Executive Director

7. Mr.P.Lakshmana Rao Independent Director

8. Mr.Ravi Bhamidi pati Independent Director

9. Mr.Nagarjun Valluripalli Independent Director

10. Mr. Rohit Kochhar Alternate director to Mr.Shu Qing Yan

SRM University AMARRAJA BATTERIES LIMITED

> Telecom

>Railways

>Power generation

>Oil & gas

>Process industry

> UPS & EPABX

> Defense

>Motive power

13

AMARA RAJA NETWORK

Registered Office Karakambadi, Tirupathi.

Corporate Operations Office Chennai

Marketing Offices & Services Centers Bangalore, Mumbai, Kolkata,

New Delhi, Hyderabad and

Chennai

Selling Policy;-

The Company is adopting the policy of direct selling without any intermediates as the

product falls under the category of Capital Goods. The Company established it's based and in

major cities like Mumbai, Calcutta, New Delhi, Mysore, Bangalore and Hyderabad. All these

units are fully equipped with experienced staff and infrastructure. ARPS has also widened

services network. As a member of Amara Raja Batteries automotive branch's facilities for

service points to serve the need of its clientele better.

Product Line:-

Conventional Batteries Charges : Up to 220V / 500 A 24 V /2000 A.

Switch Mode Power Supply ( SMPS ) : Modules of 48 V/25A up to 200A

and 48V/100A up to 3200A

Integrated Power Supply (IPS) Systems Specially designed for Railway Signalling & Telecommunications.

DC/AC Distribution Boards.

Amara raja battery products:

Power stacks (general purpose battery) : 40AH to 6000AH.

Brute (Motive Power Battery) : 40AH to 1500AH.

Combat (UPS battery) : 40AH to 80AH.

Diagnostic Tools

Beta Check (Health Monitor) : 100A & 300A.


BUSINESS OVERVIEW:

Industrial battery

In industrial batteries the company is the market leader in the Valve Regulated Lead

Acid (VRLA) batteries segment and has a presence in the telecom, railway, power, oil and

gas sectors, This segment contributes about 75 per cent of its turnover. Last year the company

increased its market share in this segment to 45 percent from 42 percent earlier.

Amara Raja has expanded the market for its products over a broader base of

applications to become a full range supplier of VRLA batteries .The company has launched

new products for motive power and genset applications and is now pursuing opportunities in

renewable energy to add to its existing customer base. Recently, it launched its new ‘Quanta’

medium range UPS batteries in the Rs. 250 crore domestic UPS market which is growing at

25 per cent per annum. The Quanta range of UPS batteries is being targeted at banks,

financial services, insurance companies, IT and IT-enabled services and educational

institutions.

Telecom is one of the major business areas for the company. Last year, there was a

decline in demand from this segment, but over the longer run this segment holds good

potential for the company. Recently, released data indicates that the Communications

Ministry's targets for enhanced teledensity of 15 per cent by 2010 are on course and will be

met. In India, presently, the telecom players use the basic 2 volt cells as back-up batteries at

their base stations. But ARBL has brought in the Front Access Terminal backup batteries

which are being widely used by telecom operators in other countries. It will be cost-efficient

and far more convenient for the operators.

Automotive batteries:

The company has increased brand recognition to a great extent and established an excellent

brand recall for its Amaron brand of batteries. Amara Raja has invested about Rs3 crore for

marketing Amaron, which contributed about 25 per cent to the turnover. Since its entry in the

automotive segment the company has notched a market share of a little more than 0.25

million in the 6-million total automotive sector and about 15 per cent in the passenger car

segment.The newly-launched two-wheeler battery Amaron ProBike Rider has received

overwhelming response and the volumes are growing exponentially.


Amara Raja is all set for battery powered cars to be launched in India soon. The

company is already in talks with manufacturers of passenger cars, to develop batteries for

them. There are already hybrid versions being launched and the market for battery driven

cars will only increase. Amara Raja stands a competitive edge as its partner, Johnson

Controls, has the technology for Lithium Ion batteries. The technology would be backed

them as JC1 is already developing the next gen batteries for the same. India has also

witnessed a sharp growth in the niche segment of electric motorcycles. ARBL manufactures

two-wheeler batteries and the specific small batteries for these

Bikes. In the OEM and aftermarket segment of Rs 500 crores, which is growing at a CAGR

of 8%, Amara Raja with its current portfolio of products can cash on this. The new users of

un-geared scooters opt for kick start models which require higher technologies in battery,

and hence crucial demand. Amaron Pro Bike Rider is the longest lasting and most powerful

with 30% more cranking power Packs first ever 60 month warranty for 2-wheeler batteries.

Based on proprietary JCI technology designed and developed for Indian market by Arnara

Raja. Amaron Pro Bike Rider has been customized to meet the harsh conditions prevailing in

the Indian sub-continent at the in-house R&D lab of ARBL.

The company has continually added to its list of OEM clients which include Ford, General

Motors and Diamler Chrysler for whom it is the exclusive vendor. It is also a preferred

supplier to M&M, Ashok Leyland and has recently added Swaraj Mazda, Telco 407 and

Hindustan Motors - Lancer to its clients.

Overseas Markets

Amara Raja maintains its leadership in the automotive aftermarket in Singapore and is stretching out to newer markets like Asia Pacific. Middle East and Africa. The exports of ARBL for the year ended March 2008 was clocked at Rs 40 cr, In Japan, due to strict Quality and technology norms, Amaron's presence can be experienced under private labels. Amaron supplies automotive batteries to the entire fleet of 'Comfort Delgro' cabs in Singapore. In Australia, Amaron has evidently confirmed to be the only battery that has twice the span compared to the other batteries in the dry and humid conditions. Amara Raja is all set to become a leading global player in the battery markets.

Amara Raja's Industrial and Automotive batteries are exported to Singapore , Malaysia,

Hongkong , Thailand , Indonesia , Vietnam , Taiwan , Philippines , China , Japan , Greece ,

SriLanka , Mauritius , Australia , Kuwait, Dubai, Iran , Yemen , Omen , Bahrain , Qatar,

UAE , Kenya, Tanzania and South Africa


Moderating lead prices:

Lead accounts for 70 per cent of the raw material used by ARB. Rising lead prices during a

major part of FY 2008 had taken a toll on the margins. Lead prices appear to have stabilised

currently but declining inventories and lower exports from China may again keep prices on

the higher side. Like Exide, the market leader, ARB has been able to pass on the increase to

its customers periodically. But Exide may score over ARB in shielding itself from volatilities

in lead prices as it has acquired two smelting companies from where it would partly source

lead over the next three years to save on raw material costs.

Growing share in the market

The company enjoys a comfortable market share of 26 percent in the automotive OEM

segment and nearly 28 percent in the organized segment of the after-market. The sales

volumes are growing by 27 percent Y-o-Y. It also has more than 27 percent market share of

industrial batteries in the domestic market.

Presence in lucrative, high-growth businesses

ARBL strategically entered the promising two wheeler segment which is showing an

increasing shift to self start. The significance and application of battery technology is vital in

this segment. We see great potential for the company from rewarding businesses like

telecom, automotives.

Amara Raja has major application areas which include Telecommunications, Power Utilities,

Railways, Defense and other heavy Industries. The company has a current production facility

for automotive 4-wheeler batteries of 4.9 million units per annum and after expansion in

Sep 2009, it would reach 5.4 million units by Sep 2009.

Expanding Horizons

With the soaring demand for batteries in the industrial and automotive sector, Amara Raja

plans to invest Rs 220 cr by the end of this fiscal in three projects to speed up its

manufacturing capacity. The company aims to:

Increase the capacity of large VRLA (valve-regulated lead-acid batteries) batteries to 900

million Ah from current 400 million Ah to be used in telecom applications. The project is

anticipated to be accomplished by Sep 2008.


Expand the capacity of two-wheeler and small VRLA batteries, aiming the mini UPS and

other similar applications. The capacity will be enhanced from 1 million units to 3.2 million

units. It is estimated to be concluded by June 2009.To further consolidate its growing

presence, the company is expanding its dominance in industrial battery markets with an

investment of Rs 52 crore.

ARBL's future plans

• Development of flooded batteries for motor cycle application

• Start supplies of motor cycle batteries to new OEMs

• Developing a variant for NANO and other equivalent small car segments

• Expansion of DIN range batteries for automotive battery application

• Development of batteries for various applications for Indian Railways

• New modular UPS & cellular application to make the installation process faster

• Development of suitable batteries for export requirement

• Develop technologies for motive power & other industrial Applications• Study the relevant alternate energy storage technologies, thereby establish new

Business opportunities

Awards Received:

• 'Best Industry all round performance' award to 1988 by FAPCCI. 'Entrepreneur of the Year' award to Mr. ramachandra.N. Chairman & Managing

Director in 1988 by HMA. ‘Business Excellence Award' in 1988 by Industrial Economist. 'Udyog Rattan Award' in 1999 by the Institute of Economics Studies.

Environmental Prograrnmes:-

> Advancement for ISO-4001 Certification.

> Health monitoring and awareness Programme.

> Both personal and Industrial Safety Programme.

> Start up of EMS implementation Programme.

> Nil discharge and lowest emission awareness and implementation Programme.

> Waste Reduction Scheme.

> Energy Conservation Programme.


> Continuous and massive greenbelt development Programme.

> Ground Waste Collection, Treatment, Storage and Safe Disposal Programme.

> Central Waste Collection, Treatment, Storage and Safe Disposal Programme.

> Personal health Safe Guarding Programme.

Social Programmes:-

> Housing Colony to the Employees is in Progress.

> Total Plan 500 families over five years, 108 already commissioned.

> Plant provide Community Hall Open Auditorium, Recreation club,

> Park and play Ground.

> Training Centre for Employees.

> Bachelor's hostel, Co-operative Store and Banks in Operation.

> Roads, Water Supply, Street Lights, Greenery, Educational and Cultural Activities.

> Enhancement in neighboring villages. Awards and Rewards to the Younger Generation

for improvement of Education.

> Modernization of Public Parks for the fledged of Children.

AMARA RAJA GROUP OF COMPANIES

The Amara Raja Group consists of the following companies:-

1. Amara Raja Batteries Limited (ARBL).

2. Amara Raja Power Systems Limited (ARPSL )

3. Mangal Precision Pvt. Ltd., (1)

4. Mangal Precision Pvt.Ltd. (2).

5. Amara Raja Electro Systems Pvt.Ltd.

6. Galla Foods Pvt. Ltd.


AMARA RAJA BATTERIES LIMITED (ARBL).

Amara Raja Batteries Limited Were Established in the year 1985 as private limited and

converted in to Limited in the year 1990. the company is currently poised on a healthy

growth curve and the Turnover of the Financial Year -2001.20002 is of around 200 Crores.

Amara Raja Batteries have a strategic tie up with Johnson Control Inc, of the USA who owns

26% stake in the company ( Johnson Control is the largest manufacturer of lead acid batteries

in North America and a leading global supplier to major Automobile has always offered time

tested world class technology and process developed on International Standards be it high

integrity VRLA Systems like power Stack and Power plus are the recently launched high

performance UPS Batteries KOMBAT and Amaron High Life Automotive Batteries. Amara

Raja Batteries Limited comprises of two major divisions Industrial Battery Division (IBD)

and Automotive Battery Division (ABD).

INDUSTRIAL BATTERY DIVISION (IBD):-

Amara Raja has become the bench mark in the manufacture of Industrial Batteries. It is also

having the facility for producing Plastic Components required for Industrial Batteries. ARBL

is the 1 st company in India to manufacture VRLA advent of

GNB Industrial Battery Company U.S.A. or manufacturing sealed Value Regulated Lead

Acid storage batteries (VRLA).

Capacity :-

The actual installed capacity of IBD is 4, 00,000 cells per annum and utilization capacity is

reached to 3,25,000 cells per annum.

Products:-

Types of VRLA Batteries manufactured in the Industrial Battery Division are

• Power stack.

• Kombat (ups Battery)

• Brute.

• Genpro.


With the requisite approvals and manufacturing facilities, Amara Raja has established itself

as a reliable supplier of high quality products to the major segments like Telecom, Railway

and Power.

Competitors

The major Competitors for Amara Raja Batteries Products are Exide Industries,

Hyderabad batteries.

AUTO MOTIVE BATTERY DIVISION (ABD):-

Amara Raja Batteries Limited inaugurated its new automotive plant at Karakambadi in

Tirupathi on Sep 24th 2001. It is having complete control over inventory and product quality.

In this project Amara Raja's strategic alliance partners Johnson control. U.S.A. have closely

worked with their Indian counter parts to put together the largest advances in manufacturing

Technology and Plant Engineering. It is also having the facility for producing plastic

components required for Automotive Batteries.

Capacity:-

With an existing production capacity of 5,00,000 units of Automotive Batteries the new

Green Field Plant will now be able to produce 1 million batteries per annum. These are the 1 st

phase in the enhancement of Amara Raja Production capacity in which the company has

invested Rs.25 Crores, Production capacity will increase to 2 million units, the plant will

cover a built up area of over 2,00,000sq.ft. And will be the single largest facility for Battery

manufacturing in Asia.

Products:- Amaron Hi-way.

Amaron Harvest

Amaron Shield,

Amaron High Life,

Amaron Pro.

Amaron Flo.

Amaron Go.


Amaron Black,

Amaron Fresh,

Amaron Optima.

Customers:-

ARBL has prestigious OEM (Original Equipment Manufacture) clients like FORD, General

Motors, Daewoo Leyland and Hindustan Motors. The Company entered the replacement

Battery segment with launch of Amaron High Life Auto Batteries.

Competitors;-

Exide, Prestolite, AMCO.

HISTORY OF THE ORGANISATION

DEC 1985 -Foundation stone laid for Ainara raja.

MAY 1992 -Designed and implemented the most advanced battery manufacturing facility in India.

FEB 1997 -Received the ISO 9001 certification.

DEC 1997 -Commissioned own plastics and tool room sections.

Signed Joint Venture with Johnson controls.

MAY 1999-Received QS 9000 certification.

JAN 2000- Launched Amaron batteries.

April 2001 --Launched the new corporate logo.

Sep 2001-Awarded the ISO 14001 certification.

New corporate logo launched.

May 2002-commissioned phasel of new automotive battery plant with a capacity of 2 million batteries.

JUL 2002-Launched Quanta UPS batteries.


AUG 2002-Launched Amaron Hiway and Harvest batteries.

MAR 2004-Received Ford World Excellence Award.

SEP 2004-Launched Amaron PRO,GO and FRESH automotive batteries

OCT 2004-OE agreement with Maruthi Udyog Ltd.

JUN 2005-OE agreement with Hyundai Motors.

AUG 2005-NK series limited edition batteries launch.

DEC 2007-Launched power zone.

Launched new-look Amaron range with Amaron Black, Flo batteries.

MAY 2008-Launched Amaron PRO BIKE RIDER 2w batteries.

ORGANISATION STRUCTURE OF ARBL

SCM-Supply Chain management

QMD-Quality management and Development

MKT-Marketing

HR-Human Resources


Share holders

Chairman

Managing Director

VPSCM

VP MKT

VPQMD

VP R&D

VP HR VPF& A

F&A-Finance and Accounts

R&D-Research and Development

VARIOUS DEPARTMENTS AT ARBL

Supply chain management

Quality management and development

Finance and Accounts

Marketing

Human resources

Research and Development

Finance and Accounts

The finance and accounts department handles all the finance matters of ARBL.ARBL

follows double entry system of book-keeping. In this method of book-keeping,, every

transaction is written in two accounts. Of the two accounts, one account is given debit while

the other account is given credit with an equal amount. Thus on any date, the total of all

debits must be equal to the total of all credits because every debit has a corresponding credit.

Transactions are recorded on accrual basis where all transactions relating to a period are

recorded. This department maintains all transactions on computerized accounting software

called Ramco package where all necessary records are automatically stored in a central database

to provide easy access to data for higher levels of management.

The sub departments under accounts department are:

Commercials

Costing

Accounts Payable

Accounts receivable

General ledger


ORGANIZATION CHART OF FINANCE AND ACCOUNTS

Commercials:

This department takes care of taxes and insurances.

Costing:

Costing department takes care of budget required for producing a product. It carries

out variance analysis in order to find the difference between budgeted cost and actual cost.

Accounts Payable:

This department maintains files or accounts that contain details of money that the

company owes to suppliers, but has not paid yet. Thus Accounts payable is a form of credit

that suppliers offer to their purchases by allowing them to pay for a product or service after it

has already been received.

Accounts Receivable:

Accounts receivable contains a series of accounting transactions dealing with billing

of customers who owe money to company for goods and services that have been provided to

the customer. This department takes care of such accounts and makes use of sales ledger.


Vice President

Dy. General Manager

Manager(General Ledger)

Manager (Commercial)

Manager (Costing Head)

Sr. Officer(General Ledger

Sr. Officer (Accounts Payable)

Sr. Officer(Accounts Receivable)

General ledger:

General ledger is the main accounting record of a business which uses double-entry

bookkeeping. It includes accounts for such items as current assets, fixed assets, liabilities,

revenue, expense items, gains and losses. This department in ARBL acts as link between

Accounts payable and Accounts receivable and takes care of everything

PROCESS FLOW CHART OF BATTERIES:


Converting pure Lead into Lead Oxide

Pasting mixing by adding Sulphuric acid with water

Grid castingPasting Grid with Lead Oxide paste

Winding the pasted Grid with separator

Group insertion Jar

Sealing the Jar

Formation

Finishing

InputPureLead

RESEARCH METHOLOGY


2. RESEARCH METHODOLOGY

2.1 STATEMENT OF OBJECTIVES:

1. To study the working capital management of Amara Raja Batteries Ltd.

2. To find out liquidity position of the company threw working capital ratios.

3. To study the profitability of the company through the net and gross working capital of

the organization.

4. To estimate the working capital requirement of the company by using operating cycle

approach.

5. To analysis the past and present financial performance of the

company.

Primary objective

To find out working capital position of the company for the last 5 financial years.

Secondary objective

> To know the liquidity position of the firm

> To know the company's sources and application of funds.

> To identify the performance in terms of efficiency in cash receivable and

inventory management.

> To study the financial performance of the company.

> To analyze the operating cycle of the company

> Analysis of the current assets and current liabilities.


2.2 NEED OF THE STUDY:

Working capital management plays a vital role in any organization and one should have a

thorough knowledge about the working capital position.

In view of this context, I have undertaken this study and it would be a great advantage to

the company also, to know it's working capital position.

2.3 SCOPE OF THE STUDY:

The scope of the study is confined to the analysis of solvency & profitability position

of the company. The data collected from both primary and secondary data.

Primary data

Primary data has been collected through personal interviews with finance department

and the executive

Secondary data

Secondary data collected from the records like B/S, income statement and necessary

records. The information is also collected from the annual reports of the company, Internet data

and books and brochures.

1. Disclosed fully. This is set back while drawing the conclusion.

2. The study is based on 5 annual financial reports only.

3. The information from annual reports is insufficient to calculate few ratios.

4. Limited time does not allowed to do more analysis.


2.4 PERIOD OF THE STUDY:-

The period of the study was two months from May to July 2010; during the period all the

required data was collected through secondary sources and analyzed with the help of

financial tools of analysis. It includes data collection analysis of data and interpretation.

TOOLS APPLIED IN THE STUDY:-

Working capital ratios

Operating cycle

Analysis of current assets and current liabilities.

2.5 METHODOLOGY:

The objective of the study is to analyze the working capital position of the company for the

past five years from 2004 - 05 from and to achieve those objective the following

methodology was adopted.

> Firstly to find out liquidity and solvency position of the company through working

capital ratios.

> Secondly, to estimate the working capital requirement of the company by using

Operating cycle.

> Finally Analysis of current assets and current liabilities.

2.6 LIMITATIONS OF THE STUDY :

1. The analysis was confined to a period of five years during 2004-09.

2. Financial statement of prepare on the basis of certain accounting concepts in

conventions any change in methods are procedures of accounting will limit the utility

of financial statements. So, the reliability of results depends on the accuracy of the

published information.

3. Time of two months is one of the limiting factors.

4. The analysis and interpretation is restricted of collected data is restricted to necessary

information.


INTRODUCTION

OF

WORKING CAPITAL


3. INTRODUCTION TO WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the problem that arises in attempting to manage the current assets, the current liabilities and the interrelationship that arises between them. Current assets refer to those assets, which in the ordinary course of business can be or will be turned into cash within one year. The major current assets are cash, marketable securities, accounts receivables and inventory. Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, with in a year. The basic current liabilities are accounts payable, bills payable, Bank Overdraft and Outstanding expenses.

The goal of working capital management is to manage the firms Current Assets and Current Liabilities in such a way that a satisfactory level of working capital is maintained.

Working capital ensures normal and smooth working of a business unit. It is required for the raw materials and stores, payments of wages and other regular expenses like electricity, water charges, taxes etc. working capital is necessary when regular manufacturing activities are under taken and normal production activities are conducted. Such capital is required for a short period as it is recovered from the customers when the products are sold to them. Therefore, interaction between Current Assets and Current Liabilities are the main theme of working capital management. Profits are earned with the help of assets, which are partly fixed and partly current. Working capital some times referred to as “CIRCULATING CAPITAL”.

The management of fixed and current assets is differs in three ways:

In managing fixed assets, time is a very important factor, consequently, discounting and compounding techniques play a significant role in capital budgeting and minor one in the management of current assets.

The large holding of current assets especially cash, strengthens the firm’s liquidity position(and reduces risk ness) but also reduces the overall profitability. Thus a risk-return trade off is involved in holding current assets.

The level of fixed as well as current assets depends upon expected sales, but it is only current assets which can be adjusted with sales fluctuations in the short run. Thus, the firm has a greater degree of flexibility in managing current assets.

DEFINITIONS:-

“Working Capital is the amount of funds necessary to cover the cost of operating the enterprise. Working capital in a going concern is a revolving fund; it consists of cash receipts from sales which are sed to cover the cost of current operations”. - Shubin

“Working capital means a sum of Current Assets only”


- Field, Backer & Malott

“Working capital refers to managing the firms Current Assets and Current Liabilities in such a way that a satisfactory level of working capital is maintained”.

- M Y Khan & P.K.Jain

“Working capital is an amuont which is necessary to cover the cost of operating the enterprise”.

- Cubing

3.1 CONCEPTS:-

3.1.1 GROSS WORKING CAPITAL:-

The Gross working capital is the firm’s investment in current assets. The current assets are the assets which can be converted into cash with in an accounting year and includes cash, short term securities like debtors, bills receivables and inventory.

Gross working capital constitutes current assets i.e. (1) inventory which are further classified into (a) Raw materials (b) Work in progress (c) Finished Goods(2) Accounts Receivables (3) Cash and Bank balance. Any business firm needs to provide these current assets. So that it can carry on its business operations smoothly.

These assets are to be essential which are circulating in nature. That is to say that the business buys raw materials with cash or credit and receives in the form of sales that may in cash or credit.

3.1.2 NET WORKING CAPITAL:-

Net working capital refers to the difference between current assets and current liabilities, which are expected to mature for payment within an accounting year and includes Creditors, Bills payable and outstanding expenses. Net working capital helps the management to look after the permanent sources for its financing of working capital under this approach does not increase with increase in short term borrowing.

PROPRIETORS


FUNDS

CASH

CASH FROM CREDITORS

DEBTORS

DEBTORS

3.2 NEED FOR WORKING CAPITALS:

Business firms aim at maximizing the wealth of shareholders. In its endeavor to

maximize shareholder’s wealth a firm should earn sufficient return from its operation earning

a steady amount of profits required successfully sales activity. The firm has to invest enough

funds in current assets for the success of sales activity current assets are needed because sales

doesn’t convert into cash instantaneously there is always an operating cycle involved in the

conversion of sales into cash.

Level of working capital is necessary on a continuous and uninterrupted basis. This

requirement is referred to as permanent level of working capital is temporary. Fluctuating or

variable working capital. This is portion of the required working capital is needed to meet

fluctuating in demand consequent upon changes in production and sales as a result of

seasonal changes.


TEMPORARY

Permanent

TIME

The above shows permanent level is fairly constant. While temporary working capital

is fluctuating some times increasing and some times decreasing in accordance with seasonal

demand. In the case an expanding firm the permanent working capital may not be a

horizontal. This is because the demand for permanent current assets might be increasing or

decreasing supports a rising level of activity. In that the line should be a rising one.

3.3 PERMANENT AND TEMPORARY WORKING CAPITAL:

Both kinds of working capital are necessary to facilitate the sale process through the

operating cycle. Temporary working capital is created to meet liquidity requirements that are

purely transient in nature.

3.4 CHANGES IN WORKING CAPITAL:

The changes in working capital occur for the following basic reasons

1. Changes in level of sales and operating expenses.

2. Policy changes.

3. Changes in technology.

1. CHANGES IN SALES AND OPERATING EXPENSES :


The first factor causing a change in the working capital requirement is a change in

the sales and operating expenses. The changes in this factor may occur due to top three

reasons first there may be a long run trend of changes for instance the price of raw

materials any oil may constantly rise necessitating the holding of a large inventory. The

secular trends would mainly affect the need for permanent current assets. In the second

place cyclical changes in the economy leading to ups and downs in business activities will

influence level of working capital. The third source of changes is seasonality in sales

activity.

The changes in sales always and operating expenses may either in the form of an

increase or decrease an increase in the volume of sales is bound to be accompanying by

higher levels of cash in inventory and receivables. The decline in sales will have exactly

the opposite effect a decline in the need for working capital. Changes in the operating

expenses rise or fall will have a similar effect on the level of working capital.

2. POLICY CHANGES:

The second major cause of changes in the level of working capital is policy

changes initiated by the management there is wide choice in the matter of current assets

policy. The term current assets and sales value. A following a conservative policy in this

respect having a very level of current assets in relation to sales may deliberately opt for

less conservations policy and vice versa these conscious managerial decisions will

certainly have an impact on the level of working capital.

3. TECHNOLOGIAL CHANGES:

Finally another factor that can change in the level of working capital is technology

changes if a new process emerges as results of technological development. This shortens

the operating cycle it will reduce the need for working capital.

3.5 FACTORS INFLUENCING WORKING CAPITAL


REQUIREMENTS:

1) NATURE OF BUSINESS:

The working capital requirement of a firm is closely related to the nature of its

business a service firm lie an electricity undertaking or a transport corporation which a short

operating cycle and which sells predominantly on cash bases has most requirement on the

other hand a manufacturing concern like a machine tool unit which has long operating cycle

and sells largely on credit has a very substantial working capital requirement.

2) SEASONALITY OF OPERATIONS:

Firms which have marked seasonality in their operations usually have fluctuating

working capital requirements. For during the summer months and drops sharply during the

winter period. The working capital need for such a firm likely to increase considerably in

summer months and decrease significantly during the winter period. On the other hand a firm

manufacturing a product laps which have fairly even round the year trends to have stable

working capital need.

3) CHANGE IN PRICE:

The increase shifts in price level makes the functions of financial manager difficult.

He should anticipate the effect of rising price level will require a firm to maintain higher

amount of working capital same level of current assets will need increased investment when

prices are increasing.

4) CREDIT POLICY:

The level of working capital is also influenced by credit policy which relates to sales

and purchase. If influences the working capital in two ways

1. Through credit terms granted by the firm to its customers buyers of goods.

2. Credit terms available to the firm from its of creditors.

5) LEVEL OF PRODUCTIONS: -

The quantum of working capital is also determined by production level. In case of

seasonal products the demand for product is seasonal i.e. they will be purchased during

certain months of the year. For this purpose it has to serve its needs either by confirming their

production only to periods when goods are purchased or they follow a steady production

policy through out the year.

6) PROFIT LEVEL: -

The level of profits earned differs from an enterprise to enterprise. In general the


nature of the products hold on the market quality of management and monopoly power would

by a large determined the profits earned by a firm. Higher profits margin would improve the

prospects of generating more internal funds there by contributing to the working capital.

7) PRODUCTION POLICY:

A firm marketed by pronounced seasonal fluctuations in its sales may pursue a

production which may reduce the sharp variance in working capital requirement for example

a manufacturer of ceiling fans may maintain a steady production through out the year rather

then intensity the production activity peak business season. Such production policy may

dampen the fluctuation in working capital requirements.

8) MARKET CONDITIONS:

The degree of competition prevailing in the market place gas an important bearing on

working capital needs when promptly serve customers who may be inclined to attract in a

who may be inclined to wait because other manufacturers are ready to be offered to attract

customers in a highly competition market. Thus working capital needs tends to be high

because of greater investment in finished goods inventory and accounts receivables.

9) CONDITIONS OF SUPPLY:

The inventory of raw materials spears and stores depend on the conditions of supply.

If the supply is prompt and adequate the firm can manage with small inventory however if the

supply is unpredictable and scant them the firm to ensure continuity of production would

have to acquire stocks as and when they are available and carry large inventory on an

average. A similar policy may have to be followed when the raw material is available only

seasonally and production operations are carried out around the year.

10) SALES GROWTH:

The working capital of the firm increase as it sales growth. It is difficult to determine

the relation between volume of sales and working capital needs. It is necessary to make

advance planning of working capital for a growth from on a continuous basis. The firm has to

make use of its external swell as internal sourced to meet increasing needs of funds.

3.6 PERMANENT AND TEMPORARY WORKING CAPITAL

Both kinds of working capital are necessary to facilitate the sale process through the

operating cycle. Temporary working capital is created to meet liquidity requirements that are

purely transient in nature.


3.7 THE DANGERS OF EXCESSIVE WORKING CAPITAL

1. It results in unnecessary accumulation of inventories thus chances of inventory

mishandling waste theft and losses increase.

2. It is an indication of defective credit policy and slack collection period. Consequently

higher incidence of bad debts results, which adversely effect degenerated into

managerial inefficient.

3. Excessive working capital makes management complacent, which degenerates in to

managerial in efficiency.

4. Tendencies of accumulating inventories to make speculation profits grow this may

tend to make dividend policy liberal and difficult to cope with in future when the firm

is unable to9 make speculative profits.

3.8 INADQUATE WORKING CAPITAL

1. It stages growth become difficult for the firm to undertake profitable projects for non

– availability of working capital funds.

2. It becomes difficult to implement operating plans and achieve the firms profit target.

3. Operating inefficiencies creep in when it becomes difficult even to meet day – to –

day commitments.

4. Fixed assets are not efficiently utilized for the lack of working capital funds thus the

firms profitability would deteriorate.

5. Paucity of working capital funds renders the firm unable to avail attractive credit

opportunities etc.

6. The firm losses its reputation when it is not in position to honor its short term

obligation as results the firm faces tight credit terms.

Thus enlightened management should there fore maintains a right amount of working

capital on a continuous basis which help to develop the organization effectively and

efficiently.


ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL

MANAGEMENT

1. Working capital management requires must of the finance manager time as it

represent a large position of investment is assets.

2. Working capital management requires much of the finance management time as it

represent larger position of investment in assets.

3. Action should be taken to curtail unnecessary investment in current assets.

4. All precaution should be taken for the effective and efficient management of working

capital.

5. I agree have to manage their current assets and current liabilities very carefully and

should see that the work should be done properly in order to achieve predetermined

organizational goals.

6. The financial manager should pay special attention to the management of current

assets on continuing basis.


CASH MANAGEMENT

Cash is the important current assets for the operations of the business. Cash is the basis input needed to keep the business running on a basis. The firm should keep sufficient cash, neither more nor less.

The term cash includes coins, currency, and cheques held by the firm, and balances in its bank accounts. Sometimes near cash items such as marketable securities or bank deposits are also included in cash. Generally, when a firm has excess cash, it invests it in marketable securities. This kind of investment contributes some profit to the firm.

CASH MANAGEMENT STRATEGIES:- The cash management strategies are intended to minimize the operating

cash balance requirement. The basic strategies of the firm is1. Stretching account payable without affecting the credit of the firm. 2. Efficient inventory management.3. Speedy collection of accounts receivables.

Thus the main objective of cash management are to reconcile two mutually contradictory and conflicting tasks to meet the payment schedules and to minimize funds committed to cash.

USES OF CASH MANAGEMENT:-

1. It indicates company’s future financial need especially for its working capital requirement.

2. To help in evaluating proposed capital projects.3. It pinpoints the cash required to finance these projects as well as the cash to be

generated by the company to support them.4. It helps to improve corporate planning.5. Cash forecasting helps to future and to formulate projects carefully.

MOTIVE OF HOLDING CASH:-

The firm need to held cash to the following three motives1. TRANSACTION MOTIVE:- This refers to holding cash to meet anticipated payments whose timing is not perfectly matched with cash receipt.

2. PRECAUTIONARY MOTIVE:- The precautionary motive is the need to hold cash to meet contingencies in the future. Cash provides a cushion or bffer to withstand some unexpected emergency. Thus precautionary balance should be hold more in marketable securities and relatively less in cash.

3. SPECULATIVE MOTIVE:- The speculative motive relates to the holding of cash for investing in profit making opportunities as and when they arise. Thus the primary motive to cash and


marketable securities are transaction and precautionary motives.

ACTS OF CASH MANAGEMENT:-

MANAGING THE CASH FLOWS:- The flow of cash should be properly managed. The inflows should be accelerated while as far possible decelerating the cash outflows.

OPTIMUM CASH LEVEL:- The firm should decide about the appropriate level of cash balance. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balance.

INVESTING SURPLUS CASH:- The surplus cash balance should be properly invested to earn profits. The firm should decide about divisions of such balance between bank deposits, marketable securities and inter corporate lending.


RECEIVABLES MANAGEMENT

The receivables represent an important component of the current assets of a firm. The term receivables are defined as debt owned to the firm by customers arising from sale of goods or service in the ordinary course of business. Receivables management is also called trade credit management. The maintenance of receivables involves direct and indirect costs. Direct cost includes the cost of investments allowance and concessions to customers and also losses on account of bad debts.

OBJECTIVES OF RECEIVABLES MANAGEMENT:-

The goals of receivables management are

To maintain an optimum level of investment in receivables. To keep down the average collection of sales. To obtain the optimum volume of sales. To control the cost of credit allowed and to keep it at the minimum possible level

The three crucial decision of receivables management are: Credit standards and analysis Credit terms Collection policy

CREDIT STANDARDS AND ANALYSIS:

Credit standards represent the basic criteria for the extension of credit to creditors. The quantitative bases of establishing credit standards are factors such as credit financial ratio. Credit standards are divided into

a) Tight or restrictiveb) Liberal or non-restrictive

CREDIT TERMS:- The stipulations under which goods are sold on credit to customers are called credit terms. These stipulations are

a) Credit periodb) Cash discount

COLLECTION POLICY:- It determines the actual collection period. Lower the collection period, lower the investment in accounts receivables and vice-versa.


INVENTORY MANAGEMENT

Inventories are stock of the product that a company is manufacturing for sale and components that make up of the product. The various forms in which inventories exist in a manufacturing company are raw materials, work in progress and finished goods. The three kinds of inventories for a firm depends on nature of its business.

RAW MATERIALS:- Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units, which have been purchased and stored for future production.

WORK IN PROGRESS:- Inventories are semi-manufactured products. They represent products that need more work before they become finished products for sale.

FINISHED GOODS:- Finished goods inventories are those completely manufactured products, which are ready for sale. Stock of raw materials and work in progress facilitates production, while stock of finished goods is required for smooth marketing operations.

OBJECTIVES OF INVENTORY MANAGEMENT:-

To maintain sufficient stocks of raw materials in the periods of short supply and anticipate price changes.

To ensure a continuous supply of raw materials to facilitate uninterrupted production. To maintain sufficient finished goods inventory for smooth sales operations and

efficient customer service. To minimize the carrying costs and time. To control investments in inventories and keep it at an optimum level.

INVENTORY MANAGEMENT TECHNIQUES:-

The firm should determine the optimum level of inventory. Efficiently controlled inventories make the firm flexible. Determining an optimum level involves two types of costs.

a) Ordering costs.b) Carrying costs.

a) Ordering costs:- The term ordering cost is used in case of raw materials and includes the entering costs of acquiring raw materials. Ordering costs are involved in

1. Preparing purchase or requisition form.2. Receiving inspecting and records the goods receiving to ensure both quality

and quantity. The cost of acquiring materials consists of clerical costs of stationary.

b) Carrying costs:- Carrying costs are involved in maintaining or carrying inventory may be divided into four categories

1. Storage cost i.e. tax, depreciation, insurance and maintain acre of building, utilities and services.


2. Insurance of inventory against fire and theft.3. Depreciation in inventory because of technical obsolescence, fire, style

obsolescence and price declines.4. Serving cost such as labor for holding inventory, clerical and accounting costs.


CALCULATION

AND

INTERPRETATION


4.DATA ANALYSIS AND INTERPRETATION

STATEMENT SHOWING THE CHANGES IN WORKING CAPITAL

Table – 4.1 (Rs. In Lakhs)

Particulars 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

1.Current Assets

Inventory 4,409.59 5,719.62 9,217.13 19,433.35 16,082.68

Sundry debtors 6,497.06 8565.20 14,595.44 22,646.82 20,784.93

Cash & Bank balance

1,691.22 2,052.12 2,560.00 5,114.53 7,028.51

Loans,Advances & Deposits

3,429.30 6,349.73 8,598.24 12,484.78 8,612.87

Other current assets

99.26 120.35 31.10 80.11 90.01

Total Current Assets(A)

16,126.43 22,807.02 35,001.93 59,759.61 52,599.00

2.Current Liabilities

Liabilities 3,450.43 6,738.95 7,353.04 10,273.73 11,379.68

Provisions 2,939.15 4,801.48 5,769.68 9,933.71 7,051.23

Total Current Liabilities(B)

6,389.58 11,540.44 13,122.72 20,207.44 18,430.91

Net working capital(A-B)

9,736.84 11,266.58 21,879.20 39,552.16 34,168.09


CHART-1

INFERENCE:

From the plot of Gross working capital and Net working capital it can be observed that the increase in Gross working capital is more than the increase in Net working capital, this is due to increase in the investments in current assets.


A Statement of Changes on Working Capital in the Year2004- 05

Table -4.2 amount in Rupees

Particulars 2004 2005 Increase Decrease

CURRENT ASSETS

Inventories 307,245,534 440,958,913 133,713,379Debtors 471,673,642 649,706,121 178,032,479

Cash & bank balances 152,292,556 169,121,827 16,829,271

Loans, Advances &

Deposits

251,402,682 342,929,588 91,526,906

Other current Assets 7,622,683 9,926,048 2,303,365

TOTAL CURRENT ASSETS[A]

1,190,237,097 1,612,642,49

7CURRENT LIABILITIES

Current liabilities 162,283,498 345,042,817182,759,319Provisions 198,416,622 293,915,44995,95,498,827

TOTAL CURRENT LIABILITIES [B]NET WORKING CAPITAL [A-B]

829,536,977 973,684,231

WORKING CAPITAL

INCREASE144,147,254 700,663,546

Total 973,684,231 973,684,231 700,663,546 700,663,546


INTERPRETATION:-

• It is observed from Table-4.2 that the net working capital was increased by

Rs.144,147,254 in the year 2004-05. The current assets and the current liabilities both

have increases compared to the previous year. But still as the liabilities did not exceed

the assets the net working capital of the company turned out to be positive.

• Total current assets were increased by Rs. 422,405,400 in the year 2004-05

percentage is 35.5%.

• Total current liabilities were increased by Rs. 278,258,146 in the year 2004-05


• Inventories were increased by Rs. 133,713,379 for the year 2004-05


• Debtors were increased by Rs. 178,032,479 for the year 2004-05,percentage is

37.7%

• Cash on hand &bank balance increased by Rs. 16,829,271 to the year 2004-

05.precentage is 11.1%.

• Loans & Advance's were increased by Rs. 91,526,906 for the year 2004-05


• Other assets were increased by Rs. 2,303,365 for the year 2004-05, percentage

is 30.2%.

• Current liabilities were increased by Rs. 182,759,319 in the year 2004-05


• Provisions were increased by Rs. 95,498,827 in the year 2004-05 percentage is

48.1 %.



Table-4.3 amount in RupeesParticulars Years Increase Decrease

2005 2006

CURRENT ASSETS

Inventories 440,958,913 571,962,221 131,003,308 ----------Debtors 649,706,121 856,520,556 206,814,435 -----------

Cash & bank balances 169,121,827 205,212,363 36,090,536 ----------

Loans, Advances &

Deposits

342,929,588 634,973,597 292,044,009 ----------

Other current Assets 9,926,048 12,035,439 2,109,391

TOTAL CURRENT

ASSETS [A]

1,612,642,497 2,230,704,176

CURRENT LIABILITIES

Current liabilities 345,042,817 700,855,298 355,812,481Provisions 293,915,449 480,148,548 186,233,099

TOTAL CURRENT LIABILITES [B]

638,958,266 1,181,003,846

NET WORKING CAPITAL [A-B]

973,684,23 1 1,099,700,330

WORKING CAPITALINCREASE

126,016,099 1,210,107,259

Total 1,099,700,330 1,099,700,330 1,210,107,259 1,210,107,259


INTERPRETATION:-

• It is observed from Table-4.3 that the net working capital was increased by Rs.126,

016,099 in the year 2005-06. The current assets and the current liabilities both have

increases compared to the previous year. But still as the liabilities did not exceed the

assets the net working capital of the company turned out to be positive.

• Total current assets were increased by Rs.668, 061,679 in the year 2005-06


• Total current liabilities were increased by Rs.542, 045,580 in the year 2005-06


• Inventories were increased by Rs. 131, 003,308 for the year 2005-06 percentage is

29.7%.

• Debtors were increased by Rs.206,814,435 for the year 2005-06,percentage is 31.8%

• Cash on hand &bank balance increased by Rs.36, 090,536 to the year 2005-


• Loans & Advance's were increased by Rs.292, 044,009 for the year 2005-06


• Other assets were increased by Rs.2, 109,391 for the year 2005-06, percentage is

21.2%.

• Current liabilities were increased by Rs.355, 812,481 in the year 2005-06 percentage

is 103.1%.

Provisions were increased by Rs. 186, 233,099 in the year 2005-06 percentage is 63.3%.




2006 2007

CURRENT ASSETS

Inventories 571,962,221 921,713,415 349,751,194 ------------ Debtors 856,520,556 1,459,544,977 603,024,421 ------------

Cash & bank balances 205,212,363 256,000,280 50,787,917 ------------Loans, advances &

deposits634,750,549 859,824,054 225,073,505 ------------

Other current assets 12,035,439 3,110,568 8,924,871

TOTAL CURRENT ASSETS [A]

2,280,481,128 3,500,193,294

CURRENT LIABILITIES

Current liabilities 673,895,907 735,304,583 61,408,676Provisions 480,148,548 576,968,027 96,819,479

TOTAL CURRENT LIABILITES

1,154,044,455 1,312,272,610


1,126,436,673 2,187,920,684

WORKING CAPITAL INCREASE

1,061,484,011 1,377,940,321

Total 2,187,920,684 2,187,920,684 1,386,865,192 1,386,865,192


INTERPRETATION:

• It is observed from Table-4.4 that the net working capital was increased by

Rs.l, 061,484,011 in the Year 2006-07. The current assets and the current liabilities

both have increases compared to the Previous year. But still as the liabilities did not

exceed the assets the net working capital of the Company turned out to be

positive.

• Total current assets were increased by Rs.l, 219,712,166 in the year 2006-07

percentage is 53.5 %.



• Inventories were increased by Rs.349, 751,194 for the year 2006-07


• Debtors were increased by Rs.603,024,421 for the year 2006-07,percentage is

70.4%





• Other assets were decreased by Rs.8, 924,871 for the year 2006-07, percentage

is 74.5%.

• Current liabilities were increases by Rs.61, 408,676 in the year 2006-07


• Provisions were increased by Rs.96, 819,479 in the year 2006-07 is.2%.




2007 2008

CURRENT ASSETS

Inventories 921,713,415 1,943,335,704 1,021,622,289 ------------Debtors 1,459,544,977 2,264,682,019 805,137,042

Cash & bank balances 256,000,280 511,453,739 255,453,459Loans, advances and

Deposits859,824,054 1,248,478,477 388,654,423 ------------

Other current assets 3,110,568 8,011,086 4,900,518 -------------TOTAL CURRENT

ASSETS [A]3,500,193,294 5,975,961,025

CURRENT LIABILITIES

Current liabilities 735,304,583 1,027,373,819 292,069,236 -----------Provisions 576568.027 993,371,133 416,403,106 -----------

TOTAL CURRENT

LIABILITES [B]1,312,272,610 2,020,744,952


2,187,920,684 3,955,216,073

WORKING CAPITAL

INCREASE

1,767,295,389 3,184,240,073

Total 3,955,216,073 3,955,216,073 3,184,240,073 3,184,240,073


INTERPRETATION:

• It is observed from Table 4.5 that the net working capital was Rs. 1,

767,295,389 increased in the year 2007-08. The current assets and the current

liabilities both have increases compared to the previous year. But still as the liabilities

did not exceed the assets the net working capital of the company turned out to be

positive.

• Total current assets were increased by Rs.2, 475,767,731 in the year 2007-08




• Inventories were increased by Rs.l, 021,622,289 for the year 2007-08

percentage is 110%.

• Debtors were increased by Rs.805,137,042 for the year 2007-08,percentage is

55.5%


08.precentage is 99.8%..



• Other assets were increased by Rs.4, 900,518 for the year 2007-08, percentage

is 157%.

• Current liabilities were increased by Rs.292, 069,236 in the year 2007-08


• Provisions were increased by Rs.416, 403,106 in the year 2007-08 percentage

is 72.2%.




2008 2009

CURRENT ASSETS

Inventories 1,943,335,704 1,608,268,673 ------------ 335,067,031Debtors 2,264,682,019 2,078,493,040 ------------ 186,188,979

Cash & bank balances 511,453,739 702,851,806 191,398,067 ------------Loans, advances and

Deposits1,248,478,477 870,287,297 ------------ 378,191,180

Other current assets 8,011,086 ----------- 8,011,086TOTAL CURRENT

ASSETS [A]5,975,961,025 5,259,900,816

CURRENT LIABILITIES

Current liabilities 1,027,373,819 1,137,968,083 110,594,264 ------------Provisions 993,371,133 705,123,629 ----------- 288,247,504

TOTAL CURRENT

LIABILITES [B]2020,744,952 1,843,091,712 339,284,308


3,955,216,073 3,416,809,104 538,406,969

WORKING CAPITAL

DECREASE

538,406,969

Total 3,955,216,073 3,955,216,073 1,187,694,694 1,187,694,694


INTER PRETATION:

It is observed form table 4.6 that the net working capital was Rs. 538,406,969

decreased in the year 2008-09. The current assets and the current liabilities both have

decreased compared to the previous year. But still as the liabilities did not exceed the

assets the net working capital of the company turned out to be positive.

Total current assets were ildecreased by Rs. 1,187,694,694 in the year 2008 – 09


Total current liabilities were decreased by Rs. 117,653,240 in the year 2008 -09


Inventories were decreased by Rs. 335,067,031 for the year 2008 -09 percentage is 90%.

Debtors were decreased by Rs. 186,188,979 for the year 2008 – 09 percentage 70%

Cash on hand & bank balance increased by Rs. 191,398,068 to the year 2008 -09

percentage 60%.

Loans & ADVANCE WERE DECREASED BY Rs. 378,191,180 for the year 2008-09

percentage is 30%.

Other assets were increased by Rs. 8,011,086 for the year 2008-09 percentage is 169%

Current liabilities were increased by Rs. 110,594,264 in the year 2008-09 percentage is

49.5%

Provisions were decreased by Rs. 288,247,506 in the year 2008-09 percentage is 50.3%.


4.1 RATIOS

CURRENT RATIO:

This is the most widely used ratio. It is the ratio of current assets and current

liabilities. It shows a firm’s ability to cover its current liabilities with its current assets.

Generally 2:1 is considered ideal for a concern i.e., current assets should be twice of the

current liabilities. If the current assets are two times of the current liabilities, there will be no

adverse effect on business operations when the payment of current liabilities is made. If the

ratio is less than 2 difficulty may be experienced in the payment of current liabilities and day-

today operation of the business my suffer. If the ratio is higher than w it is comfortable for

the creditor but. For the business concern it is indicator of idle funds and a lack of

enthusiasm for work. It is calculated as follows:

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

For the calculation of this ratio

Current assets include inventories sundry debtors, cash and bank balances and loans

& advances.

Current liabilities include Current liabilities and provisions.

YEAR CURRENT

ASSETS

CURRENT

LIABILITIES

RATIOS

2004-05 1,190,237,092 360,700,120 3.2:1

2005-06 1,612,642,497 636,958,266 2.5:1

2006-07 2,280,704,176 1,181,003,846 11.9:1

2007-08 3,500,193,294 1,312,272,610 2.6:1

2008-09 5,975,961,025 2,020,744,952 2.9:1


INFERENCE:

The current ratio normal standards are 2 : 1. In the above diagram we show that all

years are above the standards. In the 2004-05 the current ratio is so high i.e.3: 1. So it is

profitable to the company as current increase. In 2007-08 the current ratio is 2.6: 1 and in the

year 2008-09 the ratio is 2.9:1.


QUICK RATIO (OR) ACID TEST RATIO:

This is the ratio of liquid assets to current liabilities. Is shown a firm’s ability to meet

current liabilities with its most liquid or quick assets. The standard ratio 1: 1 is considered

ideal ratio for a concern. Liquid assets are those which can be easily converted in to cash

within a short period of time without loss of value. This ratio can be calculated by using the

formula:

LIQUID RATIO = LIQUID ASSETS / CURRENT LIABILITIES

For the calculation this ratio

A liquid asset of quick asset includes sundry debtors, cash and bank balance and loan

& advances.

Current liabilities include current liabilities and provisions.

YEAR QUICK ASSETS QUICK

LIABILITIES

RATIOS

2004-05 882,991,558 360,700,120 2.4:1

2005-06 1,171,683,584 638,958,266 1.8:1

2006-07 1,708,741,995 1,181,003,846 1.4:1

2007-08 3,150,442,100 1,312,272,610 2.4:1

2008-09 4,032,625,321 2,020,744,952 1.9:1


INFERENCE:

The standard norm of the ratio is 1; 1. A clear position of liquidity can be known from

Quick ratio. From the above table &graph. Company can able to the Current Liabilities with

the help of Quick Assets. In 2005 and 2008 ratio is that effective which same percentage.

This ratio is more profitable to the company, and in the year 2008-09 the ratio is 1.9:1.


ABSOLUTE LIQUID RATIO:

Absolute liquid ratio is the relationship between absolute liquid assets and current

liabilities. The standard is 0: 5: 1 for this ratio even though the ratio gives a more meaningful

measure of liquidity. But it is not in much use because the idea of keeping large cash balance

or near cash items has long since been disproved. This ratio can be calculated by using the

formula.

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS / CURRENT

LIABILITIES

For the calculation this ratio

Absolute liquid assets included cash in hand, cash at bank and short – term

marketable securities.

Current liabilities included Current liabilities and provisions.

YEAR ABSOLUTE

QUICK ASSETS

QUICK

LIABILITIES

RATIOS

2004-05 152,292,556 360,700,120 0.42:1

2005-06 169,121,827 638,958,266 0.26:1

2006-07 205,212,363 1,181,003,846 0.17:1

2007-08 256,000,280 1,312,272,610 0.19:1

2008-09 511,453,739 2,020,744,952 0.25:1


INFERENCE:

The standard of absolute Quick Ratio is 0.5:1. From the table and graph from 2004 to

2008, there are no sufficient absolute Quick Assets to pay -off the current liabilities expect in

2005, and in the year 2009 the ratio is 0.25:1.


OPERATING RATIO:

The operating ratio Explain t6he changes in the profit margin (EBIT) to sales ratio

this is computed by dividing the operating expenses to sales operating expenses calculated as

cost of good sold +selling genera! And administrative expenses this ratio lower is profitable

to the company.

OPERATING PROFIT = OPERATING EXPENCES / SALES X 100

YEAR OPERATING

EXPENCES

SALES RATIOS

2004-05 390,766,202 1,999,232,783 19.55%

2005-06 392,609,728 2,685,436,096 14.62%

2006-07 581,551,589 2,685,436,096 21.66%

2007-08 819,239,302 7,451,032,998 10.99%

2008-09 152, 868, 7425 13,499,867,499 11.32%


INFERENCE:

Operating expenses in general will changes in sales. From the above table & graph, is

decrease with slight variation from 2004 to 2006.but in 2007 it is increased which in term

more expenses. Then the company in 2008 it is decrease, which in term improved the profits

and in the year 2009 the ratio is 11.32%.


NET PROFIT RATIO:

Net profit ratio tells the Relationship between net profit ratio and sales higher this

ratio profitability to the company. This ratio is expressed as fallows.

NETPROFIT RATIO = NETPROFIT / SALES X 100

YEAR NET PROFIT SALES RATIOS

2004-05 13,897,597 1,999,232,783 0.70 %

2005-06 86,900,563 2,685,436,096 3.24 %

2006-07 238,465,730 2,685,436,096 8.88 %

2007-08 470,434,575 7,451,032,998 6.31 %

2008-09 943,631,511 13,499,867,499 6.98%

INFERENCE:

Profit increase generally when sales increase. From the above table and graph, it is

identified that in 2006. Here the company was having more net profit. Compared with 2004,

2006, 2008. 2005 the company was having less net profit and in the year 2009 the ratio is

6.98%.


CURRENT ASSETS TO FIXED ASSETS RATIO:

This ratio will differ from industry to industry and therefore no standard can be laid

down. A decrease in the ratio may mean that trading is slack or more mechanization has been

put through. An increasing in the ratio may reveal that inventories and debtors have unduly

increased or fixed assets have been intensively used. This ratio worked out as

RATIO OF CURRENT ASSETS TO FIXED ASSETS = CURRENT ASSETS / FIXED

ASSETS

YEAR CURRENT

ASSETS

FIXED ASSETS RATIOS

2004-05 1,190,237,092 991,886,349 119.9%

2005-06 1,612,642,497 948,631,374 169.9%

2006-07 2,280,704,176 1,043,547,559 218.5%

2007-08 3,500,193,294 1,568,304,581 223.1%

2008-09 5,975,961,025 1,888,508,475 316.4%


INFERENCE:

A constant level of fixed assets, a high Current Asset to Fixed Assets ratio indicates a

conservative current policy. Low current assets to fixed assets Ratio indicate aggressive

current policy. So the above table and graph indicates a conservative current policy.


NET WORKING CAPITAL TURNOVER RATIO:

The Net Working Capita! Turnover Ratio tells that how many numbers, of times

working capital funds are utilized in generation of sales. A higher working capita turnover

Ratio indicates the efficient turn of the company.

NET WORKING CAPITAL TURNOVER RATIO: NET SALES/ NET WORKING CAPITAL X100

(Net working capital =current assets-Current Liabilities)

YEAR SALES NET WORKING CAPITAL

RATIOS

2004-05 1,759,017,304 829,536,972 2.12times

2005-06 2,363,765,256 973,684,231 2.43times

2006-07 3,636,709,293 1,099,700,330 3.31times

2007-08 5,958.016,404 2,187,920,684 2.72 times

2008-09 10,833,256,904 3,955,216,073 2.73 times

INFERENCE:

From the above table and graph, net working capital has increase from 2004 to 2009,

and then the company sales are maximum 3 times repeated. Working capita turnover Ratio

indicates the efficient turn of the company. So the company in efficient position.


RECEIVABLE MANAGEMENT

DEBTORS TURN OVER RATIO:

Debtors Turn over Ratio is also known as receivables turn Over Ratio, ft is the Ratio

between Sales and the amounts due from the Debtors to sell the goods are sold on credit.

Higher the debtor’s turnover indicates the management of credit. This Ratio is formulated as

DEBTORS TURN OVER RATIO = CREDITS SALES/ AVERAGE ACCOUNTS RECEIVABLES

Accounts receivables = debtors +bill receivables

Average Accounts receivables = Opening (debtors +bill receivables) + closing

(debtors +bill receivables)

YEAR SALES AVG.ACCOUNTS RECEIVABLES

RATIOS

2004-05 1,999,232,783 1,077,966,399 2 times

2005-06 2,685,436,096 796,526,703 3 times

2006-07 2,685,436,096 691,556,481 4 times

2007-08 7,451,032,998 681,343,243 10.94 times

2008-09 13,499,867,499 2,264,682,01 4.78 times


INFERENCE:

From the above table and graph, comparing with 2004-2009 it is having in increasing

trend, which shows a positive response to the company. Overall it indicates an improvement

in collection from debtors on an average basis

DEBTORS COLLECTION PERIOD:

Debtor's collection period measures the quality of the debtors. Since it indicates the

speed of their collection. The shorter the collection period it is better quality of the debtors.

Since the shorter collection period indicated the debtors. The debtor collection period is

expressed as follows.

DEBTORS COLLECTION PERIOD= NUMBER OF DAYS IN YEAR / DEBTORS TURN OVER RATIOX100

YEAR NO OF DAYS DEBTORS TURNOVER

RATIO

RATIOS

2004-05 365 1.85 196 days

2005-06 365 3.37 108 days

2006-07 365 3.88 94 days

2007-08 365 10.94 33 days

2008-09 365 4.78 28 days


INFERENCE:

From the above table and graph, in 2008 debtors collection period is lower comparing

with other 4 years which indicates a positive sign. In remaining years 2004, 2005, 2006

&2007, 2008, 2009 which are196, 108, 94, 33, 28 days indicates a moderate period.

INVENTORY MANAGEMENT

INVENTORY TURN OVER RATIO:

This Ratio is also known as stock turnover ratio. This indicates the number of times

inventory is replaced during the year. It measures the Relationship between cost of good sold

and the inventory level. This Ratio is expressed as.

INVENTORY TURN OVER RATIO= COST OF GOOD SOLD/AVERAGE INVENTORY

Cost of good sold = Sales - gross profit

Average inventory = Opening inventory +closing inventory / 2

YEAR COST OF

GOODS SOLD

AVERAGE INVENTORY

RATIOS

2004-05 1,987,713,446 447,836,553 4.4

2005-06 2,549,624,940 527,724,991 4.8


2006-07 2,311,971,873 726,940,023 3.1

2007-08 6,739,048,550 1,032,818,929 6.5

2008-09 120, 404, 860, 74 143, 25, 24,559 8.4

INFERENCE:

Inventory turn over ratio measures the conversation of stock into sales. From 2004 to

2006, there is an increasing trend from 3 to 5 times. In 2006 ratio is decreased from 5 to 3.

Hence it is concluded that in 2008 and in the year 2009 the ratio is 8.4, the company

converted it stock into sales fastly.

INVENTORY CONVERSATION PERIOD (HOLDING PERIOD):

Inventory Conversation Period expressed as in how many days that stock is replaced

or in how ma days the stock is covered into sales. This ratio is formed as follows

INVENTORY CONVERSATION PERIOD =NO OF WORKING DAYS/ INVENTORY TURNOVER RATIO

YEAR NO OF DAYS INVENTORY TURNOVER

RATIO

RATIOS

2004-05 365 4.4 82 Days


2005-06 365 4.8 75 Days

2006-07 365 3.1 114 Days

2007-08 365 6.5 55 Days

2008-09 365 8.4 43.4 Days

INFERENCE;

From the above table and graph, in 2008 conversation period is lower which is good

to the company. But in 2004 & 2007 it is increased. In 2008 and 2009 ratio was decreased in

which is a positive sign. Finally concluded that in 2009 the company converted it stock into

sales fastly


RAW MATERIAL CONVERSION PERIOD:

RAW MATERIAL CONVERSION PERIOD= INVENTORIES/ RAW MATERIAL CONSUMEDX365 DAYS

YEAR INVENTORIES RAW MATERIAL CONSUMED

RATIOS

2004-05 100,350,715 831,843,012 44 Days

2005-06 139,746,690 1,382,962,610 36 Days

2006-07 151,830,013 2,229,601,146 24 Days

2007-08 300,836,280 3,937,812,454 27 Days

2008-09 631,703,870 7,794,794,675 29 Days

INFERENCE:

Always raw material conversation period is low which reduce the maintenance cost of

stores. In 2004 and 2005 was high for 43 and 44 days which a very bad sign to the company.

The period was lower in 2006, 2007, 2008, 2009 like 36, 24, 27, 29 days, which is good to

the company.


CASH MANAGEMENT

CASH TO CURRENT ASSETS RATIO:

Cash is an important and sensitive Current Asset; it is viewed as the most liquid

assets. When the proportion of cash in Current Assets in more then it is said that the company

had more liquid. High-proportion of cash in Current Assets also indicates the good stock in

receivables turn over of the company. This kind of analysis is helpful to the management to

understand the turn over capacity of the concern. This ratio indicates the cash proportion in

current assets.

CASH TO CURRENT ASSETS RATIO=CASH AND BANK BALANCES/CURRENT

ASSETSX100

YEAR CASH AND

BANK

BALANCES

CURRENT ASSETS RATIOS

2004-05 152,292,556 1,190,237,092 12.7

2005-06 169,121,827 1,612,642,497 10.4

2006-07 205,212,363 2,280,704,176 8.9


2007-08 256,000,280 3,500,193,294 7.3

2008-09 511,453,739 5,975,961,025 8.5

INFERENCE:From the above table and graph, In 2007 & 2008 the ratios are 8.9 and 7.3 which is

not good to the company as cash and bank balances are very negligible. But in 2004, 2005 &

2006 are in good position to the company like 12.4, 12.7 & 10.4. In general company should

not maintain much cash which will lead to wastage of cash.


CASH TO CURRENT LIABILITIES RATIO:

Percentage of cash in relation to Current Liabilities will enable to us understand the

creditor repayment capacity of the concern without damaging the regular operation. The Idle

ratio to cash to Current Liabilities is 0.5: 1, which means that for very 1 rupee of the Current

Liabilities. The company will able to pay 50 paise of cash and bank balances.

CASH TO CURRENT ASSETS RATIO=CASH AND BANK BALANCES/CURRENT

LIABILITIESX100

YEAR CASH AND BANK

BALANCES

CURRENT LIABILITIES RATIOS

2004-05 152,292,556 360,700,120 0.42

2005-06 169,121,827 638,958,266 0.26

2006-07 205,212,363 1,181,003,846 0.17

2007-08 256,000,280 1,312,272,610 0.19

2008-09 511,453,739 2,020,744,952 0.25

INFERENCE:

From the above table and graph, we depict that in ail the years expect 2005, the ratio

is bellow 0.5: 1. But it is not good to the company and will not able to pay the credit.


FINDINGS

AND

SUGGESTION


5. FINDINGS AND SUGGESTIONS

5.1 FINDINGS

The company maintenance reserves and surplus in an increasing trend.

A current asset position has increased over the four year period current ration has also

increased steability.

Resources were allocated mainly to increase the fixed assets over the 5 years period

and inventory was also raised.

Working Capital position has strengthened over the years

Employee salary & Benefits are in an increasing trend.


5.2 SUGGESTIONS

The idle working capital should be fully utilized by reducing the operating cycle to a

minimum level.

The company increases the contract receipts volume. So as results in optimum

utilization of capacity and maximization of profit.

Cost control techniques are to be adopted on the company where ever possible.

Company can utilizes the reserves and surplus by either capitalizing or an invest the

money some where an investment to get benefit.

The debtor’s position should have maintained at 60 to 75 days


6. CONCLUSION

From the study of the working capital management, I conclude that from the

findings that the company is using its current assets more in its development. The Net profit

ratio is also showing a positive sign. To improve its performance more, the company needs to

concentrate on reducing operating expenses.

The company has a good credit policy and is able to collect from its debtors at a

faster rate.


BIBILOGRAPHY


BIBILOGRAPHY

BOOKS

FINANCE MANAGEMENT - I.M. PANDEY

Vikas Publishing House

New Delhi.

FINANCE MANAGEMENT - M.Y KHAN & P.K. JAIN

Vikas Publishing House

New Delhi.

FINANCE MANAGEMENT - PRASANNA CHANDRA

THEORY & PRACTICES Tata McGraw Hill Publishing

Company Ltd. New Delhi.

WEB SITES

www.arbl.com

www.amararaja.co.in

www.wikipedia.com


http://www.wikipedia.com/

http://www.amararaja.co.in/

http://www.arbl.com/

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