Operating cash flow ratio:

Cash flow is an indication of how money moves into and out of the company and how you pay your bills.Operating cash flow relates to cash flows that a company accrues from operations to its current debt. It measures how liquid a firm is in the short run since it relates to current debt and cash flows from operations.

Formula: Operating cash flow ratio = Cash flow from operations

Current liabilities

If the Operating Cash Flow Ratio for a company is less than 1.0, the company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate.

Sept 2007

Sept 2008

Sept 2009

Dec 2010

Dec 2011

Dec 2012

OCF ratio 0.93 0.86 1.04 0.77 0.64 0.52Operating cash flow before working capital changes

1,540.30

1,501.00

1,467.30

1,978.00

1,478.40

977.2

Current liabilities & provisions

1,649.90

1,735.90

1,415.10

2,583.40

2,308.40

1,891.70

Sept 2007 Sept 2008 Sept 2009 Dec 2010 Dec 2011 Dec 20120

0.2

0.4

0.6

0.8

1

1.2

0.930.86

1.04

0.770.64

0.52

OCF ratio

OCF ratio

In 2007 the OCF ratio is less than 1.0 i.e. 0.9In 2008 the OCF ratio is more than 1.0 i.e. 1.2In 2009 the OCF ratio is less than 1.0 i.e. 0.8In 2010 the OCF ratio is less than 1.0 i.e. 0.8In 2011 the OCF ratio is less than 1.0 i.e. (0.04)In 2012 the OCF ratio is less than 1.0 i.e. 0.4

The company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate.

In 2009 the OCF ratio is more than 1.0 i.e. 1.04.The company generated cash this was because the creditors paid the cash early that is 50 days instead of 53 days.

In 2010 the OCF ratio is less than 1.0 i.e. 0.77.This is because operating expense is more because the raw materials have been purchased. Also the creditor’s turnover ratio has increased & credit period has decreased which means now the company has to pay in 44 days instead of 50 days.

In 2012 the OCF ratio is less than 1.0 i.e. 0.52The company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate.

Inventory turnover ratio:

Inventory turnover is the ratio of cost of goods sold by a business to its average inventory during a given accounting period.

Generally calculated as:= Sales Inventory

It can also be calculated as:

= Cost of goods sold Sales Average Inventory

Minimizing inventory holdings reduces overhead costs and, hence, improves the profitability performance of the enterprise.

Sept 2007

Sept 2008

Sept 2009

Dec 2010

Dec 2011

Dec 2012

Inventory turnover ratio 4.02 3.73 3.40 4.63 2.55 2.20Sales 13401.2 12863.7 12357.3 17546.2 13793.1 12480.9 Inventories 3332.8 3452.9 3629.6 3788.3 5413 5665.8Purchases of RM 10706.4 10314.5 9988.2 14402.1 6312.8 5100.9

Sept 2007 Sept 2008 Sept 2009 Dec 2010 Dec 2011 Dec 20120.000.501.001.502.002.503.003.504.004.505.00

4.023.73

3.40

4.63

2.552.20

Inventory turnover ratio

Inventory turnover ratio

In the years 2007 – 2008 -2009 the purchases have decreased, the inventories have risen and the sales too have decreased. It means that the company is holding up inventory and sales is not being pushed enough so you inventory turnover has reduced. When you see the year 2010 we can see that the inventory has increased a little, purchases and sales have considerably increased. So that means the inventory is being converted to sales and hence the turnover has risen from 3.40 to 4.63 again.

Current ratio:

It is a liquidity ratio that measures a company's ability to pay short-term obligations.

The Current Ratio formula is:

Current ratio = Current Assets Current Liabilities

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

The ratio is mainly used to give an idea of the company's ability to pay back its current liabilities with its current assets. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations.A current ratio between 1 and 1.5 is considered standard. If a company's current assets are in this range, then it is generally considered to have good short-term financial strength. The higher the current ratio, the more capable the company is of paying its obligations.

Sept 2007

Sept 2008

Sept 2009

Dec 2010

Dec 2011

Dec 2012

Current ratio (CA/CL) 3.783 3.523 4.343 2.553 3.517 4.415Current assets 6242.3 6115 6145.2 6595.8 8118.6 8352.4Total Current liabilities 7954.167 7903.345 7667.285

9284.306

10494.43

10329.03

Purchases of RM 10706.4 10314.5 9988.2 14402.1 6312.8 5100.9Operating expenses 11885.6 11256.2 10908.4 15547.3 12347.3 11656.6

Sept 2007 Sept 2008 Sept 2009 Dec 2010 Dec 2011 Dec 20120.0000.5001.0001.5002.0002.5003.0003.5004.0004.5005.000

3.7833.523

4.343

2.553

3.517

4.415

Current ratio (CA/CL)

Current ratio (CA/CL)

When you see debtors turnover ratio for the first three years it has more or less been the same. But when you see the year 2010 it has raised which means the flow of cash in the company has increased. This would result in the low current ratio as you amount on current asset will reduce in the debtors. When you see the purchase of raw material it has increased from 2009 to 2010 which led to rise in operating expenses, this also effects the current ratio.Debtors’ turnover ratio:

Debtor’s turnover ratio measures company's efficiency in collecting its sales on credit and collection policies.

Sept 2007

Sept 2008

Sept 2009

Dec 2010

Dec 2011

Dec 2012

Debtors turnover ratio 4.836 5.038 5.114 6.583 5.334 4.862

Debtors 2771 2553.1 2416.6 2665.4 2585.9 2567Sales 13401.2 12863.7 12357.3 17546.2 13793.1 12480.9

Sept 2007 Sept 2008 Sept 2009 Dec 2010 Dec 2011 Dec 20120.000

1.000

2.000

3.000

4.000

5.000

6.000

7.000

4.836 5.038 5.114

6.583

5.3344.862

Debtors turnover ratio

Debtors turnover ratio

The debtors turnover ratio in Dec 2010 saw a rise because the company must have changed its credit polices this has made the company more efficient. Also since 2007 India faced recession this made money flow very slow which impacted on the operating cycle. The sales in the 2010 have increased from 12,357.30 in 2009 to 17.546.20 in 2010. Increase in sales has resulted in increasing debtor’s turnover ratio.

The sales in 2011 had decreased to 13,793.10 from 17,546.20 in 2010 due to the following reasons-

Rising prices (due to rise in raw material and rise in dollar value against rupees) Costlier loans Higher cost of living.

Working capital ratio

Sept 07 Sept 08 Sept 09 Dec 10 Dec 11 Dec 12Current liabilities & provisions 1,649.90 1,735.90 1,415.10 2,583.40 2,308.40 1,891.70Current assets 6,242.30 6,115.00 6,145.20 6,595.80 8,118.60 8,352.40

working capital ratio 3.783441

3.522668

4.342591

2.553147

3.516981

4.415288

Working Capital = Current Assets − Current Liabilities

Current assets are assets that are expected to be realized in a year or within one operating cycle.

Current liabilities are obligations that are required to be paid within a year or within one operating cycle.

Working capital ratio = current assets / current liabilities

From 2007 to 2012 the company has a sustainable working capital ratio. This indicates that the company has good amount of liquidity.

Net working capital interpretation

The net working capital from a position of rs.459 cr in Sep 2007, has increased to 646cr in Dec 20012, which is on account of slow collection. One of the contributing factors has been slow progress in collections. The debtors have hovered around 250 cr for all the six years. Additionally, the inventory has increased from 333 cr in Sep 2007 to 566 cr in Dec 2012. These increasing trends in inventory and constant level of debtors indicate inefficient operations of the company. It is further observed that only in two occasions the net working capital of the financial year has declined compared to previous year, i.e. in Sep. 2008 to Dec 2012.

All in all, the company’s working capital has been mismanaged with very high inventory and ever increasing creditors apart from slow collections.