A PROJECT REPORT ON ANAYLSIS OF WORKING CAPITAL OF EASTMAN CAST & FORGE LTD.

MASTER OF BUISNESS ADMINISTRATION Session 2011- 2012

SUBMITTED TO: Prof. VIKRAM SHARMA MBA DEPTT. SUBMITTED BY: RAMANDEEPKAUR MBA 4th Sem ROLL NO. 1173449

GULZAR GROUP OF INSTITUTES, KHANNA (PUNJAB) Affiliated To PUNJAB TECHNICAL UNIVERSITY

CERTIFICATE BY THE GUIDE

This is to certify that Ms. Ramandeep Kaur student of MBA4th SEM Gulzar group of institute khanna, has undertaken the project entitled Analysis of Working Capital of Eastman Cast & Forge ltd. .Under my guidance and supervision for partial fulfillment of the requirement for the degree of Master of Business Administration of Punjab Technical University. In my opinion, this study embodies the results of her work and recommends that the same may be forward for evaluation.

Date:

Mr.Sanjiv Modi

(Project Guide)

STUDENT DECLARATION

This is to certify that I have complete the project titled Analysis Working Capital of Eastman Cast & Forge Ltd.Under the guidance of Mr. Vikram Sharma in the partial fulfillment of the requirement for the award of the degree of Master in Business Administration from Gulzar Group of Institutes, Khanna. This is an original work and I have not submitted it earlier elsewhere.

Ramandeep Kaur Roll no. 1173449

ACKNOWLEDGEMENT

As I write this acknowledgement, I must clarify that this is not just a formal acknowledgement but also a sincere note of thanks and regard from my side. I feel a deep sense of gratitude and affection for those who were associated with the project and without whose cooperation and guidance this project could not have been conducted properly. It was a great privilege to work as summer trainee in Axis Bank Ldh.. Every person in this Axis group guided me to his or her heart content to help me paying my way towards the success. Words fail me to express my regard towards Mr. Rahul Kumar(Business Development Coordinator), who was not only my coordinator during the training but also a good companion from whom I learnt a number of virtues of business and of life. I would also like to thank Mr. Amit Bhandari (Branch Manager) for their valuable guidance and support. A note of thanks to my colleagues who have always encouraged, motivated and given expert guidance to me. In the end, I dedicate this effort of my to those persons who are lights of my life: My respected teachers, My Parents and My friends who have been behind every sucessful endavour in my life.

PREFACE
This project is the result of six weeks training at Axis bank ldh.. Industry training is an integral part of Master in Business management course and it aims at providing a first hand experience of industry to students. This practical experience helps the students to view the real Business World closely. I was really fortunate of getting an opportunity to pursue my Industrial Training in reputed, well established, fast growing and professionally managed organization like Axis bank Ludhiana.

Table of Contents

S. No.

CHAPTERS

Page No.

Executive summary 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Introduction to project Review of Literature Definition and concept of Training and Development Profile of Company Objectives of the Project Research Methodology Data Analysis & Interpretations Limitations Questionnaire Bibliography 1-4 5-7 8-16 17-23 24-25 26-28 29-40 41-42 43-46 47-48

CHAPTER: - 1

INTRODUCTION OF EASTMAN CAST & FORGE LTD.

(1.1) EASTMAN CAST & FORGE AT LUDHIANA PLANT

We have manufacturing facilities at Ludhiana for Hand Tools and Power Tools. The Export of Tools is directed towards 27 markets out of India such as Russia, Ukraine, Belarus, Turkey, Panama, Peru, Bulgaria, France, Portugal, Malaysia, and Srilanka etc. Eastman brand has presence in domestic market and 21 vehicle

manufacturers such as Tata Motors, Mahindra & Mahindra, Ashok Leyland, JohnDeere, New Holland, Eicher, TAFE, and Hero Honda Motors etc. Eastman tool kits are supplied as original equipments along with the vehicles manufactured by these companies. In India Eastman products are available through a strong network of more than 400 dealers and Company's exclusive Show Rooms cum Demo & Service Centers. We have installed capacity of 300000 Tools per annum. To ensure the quality parameters we have state of the art testing lab that contains equipments for Motor Endurance, Complete unit life testing, temperature rise testing, High voltage testing, Parts testing, Cable tension etc. Being a customer focused organization and to increase its competitiveness in the overseas markets the company has full-fledged strong technical force to adhere to the goals of the company. We look forward "to help you work better" with our tools.

(1.2) 5S AT ECFL
This enables the plant to have better working conditions and also increase work efficiency. A copy of it also displayed at each shop and depth to motivate the employee towards healthy work environment. Meaning and benefits of 5S system are as follows

1. SEIRI:

It stands for Sorting

Take out necessary items and suitably dispose with them.

Benefits:

1. Effective Space Utilization 2. Stop Material from deteriorating or getting damaged 3. Reduce wastage and searching items

2. SEITON: It stands for Set in Order

Arrange. All necessary items in a proper order so that they can be easily picked up for use

Benefits:
1. Reduce preparation and machine setting and machine setting timings. 2. Reduce time in locating or waiting for Tool Parts and Machines.

3. SIIESO: It stands for Shine/Completely Clean

Clean your workplace completely so that there is no dust anywhere.

Benefits:
1. Promotes Orderly and Safe Working Environment
2. Reduces Breakdown and Accidents.

4. SEIKETSU: It stands for Standardize

Maintain a high standard of house keeping and work place organizational at all times Benefits: 1. Quick Response through Visual Management
2. Create a maintenance system of House keeping for all the times .

5. SHITSUKE:

It stands for Self Discipline Attitude

Train People to follow Good House Keeping Discipline Independently

Benefits:
1. Self Discipline 2. Improves Industrial Safety 3. Creates Healthy Attitude and Habits

Advantages of 5S
Healthy Working Environment Improves Work Efficiency Producing Better Quality Products and Higher Productivity Cutting Cost Down Ensuring Delivery on time Safe Working High Morale and Better Life

(1.3) ECFL MISSION, VISION

(1.3.1) ECFL VISION

Vision Create a team of Business Managers with a clear visible career growth path to run and lead the organization to a virtuous cycle and gain national leadership in hand tools and power tools

(1.3.2) ECFL MISSION

Mission To provide Competitive quality product with maximum customer satisfaction by active participation of all members of the organization

(1.4) COMPANY MANAGEMENT

MANAGING DIRECTOR Mr. J.R.Singal

REGISTERED OFFICE Flate no-101, First floor, 1, community center, Naraina industrial area, New Delhi-110028

DIRECTORS Smt. Darshana Singal Smt. Reema Jain Sh. Ranjodh Singh Sh. Satish Kumar Vadera Sh. Joginder Singh Juneja Sh. Vineet Jain Smt. Vandana Aggarwal Sh. Shekhar Singal

AUDITORS M/S Dass Khanna & Co.

BANKERS State Bank Of India HDFC BANK PUNJAB NATIONAL BANK

(1.5) HISTORICAL BACKGROUND

1970 Mr. J. R. Singal, our Chairman sets up a bicycle brake shoe manufacturing plant in Ludhiana, Punjab. 1974 Our first export consignment gets dispatched to Thailand. 1978 First Export to Argentina & Ivory Cost by now Chairman & CMD (Eastman Group) Mr. J R Singal.

1982 "EASTMAN INDUSTRIES LIMITED" (E.I.L), a corporate entity established as a first step to professionalize operations. 1986 "EASTMAN CAST & FORGE LTD" (E.C.F.L.) incorporated for export of hand tools. 1990 Major product and market expansion initiated. "EASTMAN" products are available in all major markets of South America and introduced in Mediterranean regions of Europe. E.C.F.L. adds garden and agriculture tools to its range. 1994 E.I.L. wins the "Latin America Focus" award as per the Foreign Trade Policy decided by Directorate of Foreign Trade, (Ministry of Commerce, and Govt. of India). 1998 Both E.I.L. and E.C.F.L. certified ISO 9002 & ISO 9001 respectively. 1999 E.I.L. wins Focus LAC Award for outstanding Export performance in 1999-2000. 2000 E.I.L. wins "National Export Awards" for excellence in Exports. 2002 After a small beginning previous year, "EASTMAN INDUSTRIAL COMPANY" (E.I.C) is formed for export of two wheelers and their spare parts. 2005 E.C.F.L. wins the "EEPC INDIA" Excellence award 2005-06. 2006 "EASTMAN AUTO & POWER LIMITED" is incorporated for launch of Lead Acid Batteries. 2006 E.C.F.L. wins the "EEPC INDIA" Excellence award 2006-07. 2007 E.I.L. awarded "Niryat Shree" for Excellence in exports. 2008 E.C.F.L. wins the "EEPC INDIA" Excellence award 2008-09. 2009 E.C.F.L. wins the "Energy Conservation - 2008" award as per the Punjab Energy development Agency. 2010 E.C.F.L. wins the "Energy Conservation Award under the aegis of power ministry. 2010 E.A.P.L. certified ISO 9001:2008. 2010E.C.F.L. awarded The Corporate Citizen of the year Award 2010 by PHDCCI. 2011E.C.F.L. awarded Kaizen Competition Award on dtd 12.03.11 by CICU.

(1.6) GEOGRAPHICAL OVERVIEW

Export to 47 countries
Europe Southern Asia France, Finland, Greece, Portugal, India, Sri Lanka, Nepal, Iran Ukraine, Bulgaria, Romania, Belarus Central America Honduras, Panama

Eastern Asia China, Hong Kong, Russia South Eastern Asia Thailand, Malaysia

South America Peru, Guyana

South Africa Algeria, Kenya, Nigeria, Tanzania, Egypt Western Asia Saudi Arabia, Jordan, UAE, Syria, Turkey

(1.7)Group Structure

Eastman Industries Limited, Ludhiana Eastman Cast & Forge Ltd., Ludhiana

EASTMAN GROUP
Eastman Auto & Power Limited Baddi

Eastman Industrial Company Gurgaon

(1.8) PRODUCT PROFILE

The main products of the company are:

Adjustable Wrench Alien Keys Automotive Spanners Automotive Tools Bi-Hexagonal Spanners Carpenter Tools Combination Spanners Deo Spanners Hammer Jumbo Spanners Leather Aprons Mason Tools Measurement Instrument

Non Sparking Tools Oil Can Pincer Pipe Cutting Tools Pipe Wrench Punches Ratchet Saw Socket Socket Bits Tap Wrench Vice Water Pump & Pliers

Products
Adjustable Wrench Adjustable Wrench Adjustable Wrench

Allen Keys

Automotive Spanners

Automotive Spanners

Automotive Spanners

Automotive Spanners

Automotive Tools

Bi-Hexagonal Spanners Automotive Tools Carpenter Tools

Carpenter Tools

Carpenter Tools

Carpenter Tools

Combination Spanners

Doe Spanners Hammer

Jumbo Spanners Hammer Leather Aprons

Mason Tools

Mason Tools

Measurement Instrument

Non Sparking Tools

Oil Can

Oil Can

Pincer

Pincer

Pincer

Pipe Cutting Tools

Pipe Cutting Tools

Pipe Wrench

Pipe Wrench

Pipe Wrench

Pipe Wrench

Punches

Ratchet

Saw

Saw

Socket

Socket Bits

Tap Wrench

Tap Wrench

Vice

Vice

Water Pump Plier

Water Pump Plier

(1.9) MANUFACTURING PROCESS

RAW MATERIAL
Incoming raw material is Lab tested at entry level to the plant

BLANKING
The Quality of Blanks are checked for primary conformity

FORGING
The forging Die is Inspected for good forging out put

TRIMMING
Good finished products are selected after Trimming stage

PUNCHING
Inspection at punching stage rejects poorly finished goods

BROACHING
After broaching all spanners are checked for Jaw accuracy

HEAT TREATMENT
Heat treated products are is inspected for proper internal structural formation and Hardness of the Product

GAUGING
All Products are checked with gauges for operational fitment

SHOT BALLAST
Inspection at Shot Ballasting checks for finishing out put

ELECTRO PLATING
Final inspection is carried after electroplating stage. This is the final and detailed inspection carried out manually.

OEM CLIENTS

TATA MOTORS TAFE JOHN DEERE NEW HOLLAND

OEM CLIENTS

EICHER ASHOK LEYLAND MAHINDRA & MAHINDRA L&T

(1.10) DEPARTMENTS

Procurement

Audit

Excise

HR

IT

Marketing

Accoun t& Finance

Documentatio n

Nine Showroom

Delhi & Gurgaon Off.

Tractor parts

China Off.

Production

(1.11) SWOT ANALYSIS

SWOT analysis provides the information that is helpful in matching the firms resources and capabilities to the competitive environment in which it operates. Environmental factors internal to the firm can be classified as Strengths (S) and Weaknesses (W) and those external to the firm are classified as Opportunities (O) and Threats (T). Such an analysis of strategic environment is called SWOT ANALYSIS .

SWOT ANALYSIS OF EASTMAN CAST & FORGE LTD, LUDHIANA IS AS FOLLOWS: STRENGTHS:-

The firms strengths are its resources and capabilities that can be used as competitive advantage. The main strengths of Eastman Cast & Forge Ltd. are: Full-fledged strong technical force. Good reputation among the customers (like M&M, Tata Motors) Peaceful Industrial Environment. Strong discipline and positive attitude culture. Strong HRD development tools for work force. Approach to the plant at Ludhiana, It is through National highway.

WEAKNESS:The absence of certain strengths may be viewed as weakness and the major weakness faced by the ECFL is: Non-availability of tax exemptions and subsidies. Gross profit is going Upward in the comparison of last year. Raw material Turnover ratio is going Upward. It is not registered under any stock exchange.

OPPORTUNITIES:External environment analysis may reveal certain new opportunities for profit and growth and the opportunities before ECFL are: Availability of latest / state of art technology Liberalization in Gov. policies and tax laws

THREATS:Changes in external environment may also poses threats to the firm Major threats to ECFL are: High inflation has offset the rise in household incomes as the disposable income of people has declined vis--vis previous years. Government Policies, Rules and Regulations. Competition from other MNCs like Snap on company, Kraft Tool Company, Hands 2 You-US Company.

CHAPTER:-2

INTRODUCTION OF WORKING CAPITAL

(A) MEANING OF WORKING CAPITAL

In simple words working capital means that which is issued to carry out the day-to-day operation of business. Capital required for a business can be classified under two main categories. Fixed capital Working capital Every business needs funds for two purposes, for its establishment and to carry on its day-to-day operations. Long term is required to create production facilities through purchase of fixed assets such as Plant, machinery, and building, furniture etc. Investment in these assets represent that part of firms capital, which is blocked on a permanent or fixed basis, is called fixed capital. Funds are also needed for short-term purposes i.e. for the purchase of raw material, payment of wages and carry on day-today operations of business etc. These funds are known as working capital. The management of fixed and current assets however, differs in three important ways: 1. In managing fixed assets, time is a very important factor consequently discounting and compounding techniques play a significant role in capital budgeting and a minor one in the management of current assets. 2. Large holding of current assets, especially cash, strengthens firms liquidity position but it also reduces the overall profitability. 3. Levels of fixed as well as current assets depend upon expected sales, but it is not only current assets which can be adjusted with sales fluctuating in short run.

In simple words working capital refers to that part of firms capital, which is required, be financing short term and current assets such as cash, marketable securities, debtors and inventories.

(B) CONTENTS OF WORKING CAPITAL

CURRENT ASSETS
Cash in hand and bank balance Bills receivables Sundry debtors Short term loans and advances Investment of stock as: Raw material Work in progress Finished goods Store and spares Temporary investment Prepaid expenses Accrued incomes

CURRENT LIABILITIES
Bills payable Sundry creditors Accrued loans Short term loans Advances and deposits Dividend payable Bank overdraft Provision for taxation

(C) GROSS WORKING CAPITAL

Simply called working capital it is total of current assets, it refers to the firms investment in current assets. Current assets refer to those assets, which in the ordinary course of business can be continued into cash within an accounting year .

Debtors (Receivables)

Cash

Finished Goods

Raw Materials

Work-in-Progress

Gross Working Capital = Current Assets

(D) NET WORKING CAPITAL

Net working capital is the difference between current assets and current liabilities. Current liabilities include items payable or expected to be turned within one year from the date of the balance sheet and the term is used to designate obligation whose liquidation is reasonably expected require the use of existing resources assets or creation of other current liabilities. Net working capital may be positive or negative. A positive working capital arises when current assets exceed current liabilities a negative net working capital occurs when current liabilities are more than current assets. Net working capital = Current Assets Current Liabilities

(E)

WORKING CAPITAL CYCLE

Cash flows in a cycle into, around and out of a business. It is the business's lifeblood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans. Each component of working capital (namely inventory, receivables and payables) has two dimensions: TIME and MONEY, when it comes to managing working capital TIME IS MONEY. If one can get money to move faster around the cycle (e.g. collect money due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will

need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales. It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment loans, equity, leasing etc. Similarly, if you pay dividends or increase Drawings, these are cash outflows and, like water flowing downs a plughole, they remove liquidity from the business. More businesses fail for lack of cash than for want of profit. It is this importance of cash that, cash management is one of the key areas of working capital management. Apart from the fact that it is the most liquid asset, cash is the common denominator to which all the current assets can be reduced because the other major liquid assets, that is, receivables and inventory eventually get converted into cash. This underlines the significance of cash management. The term cash with reference to cash management is used in two senses. In a narrow sense it is used to cover currency and generally accepted equivalents of cash, such as cheques, drafts and demand deposits in banks. The broad view of cash also includes, near cash assets such as marketable securities and time deposits in banks. A firm is well advised to hold adequate cash balances but should avoid excessive balances. The firm has, therefore, to assess its need for cash properly. Cash budget is a device that helps affirm to plan and control the use of cash. It is statement showing the estimated cash inflows and outflows over the planning horizon. In other words, the net cash position (surplus and deficiency) of a firm as it moves from one budgeting sub period to other is highlighted by cash budget.

(F) NEED OF WORKING CAPITAL

1. 2. 3. 4. 5. 6. 7. 8. For the purchase of raw material components and stores For the payment of wages and salaries. To incur day-to-day expenses and overhead costs such as fuel, power and office expenses. To meet the selling cost as packing, advertising etc. To provide credit facility to the customers. To maintain the inventories of raw material, work-in-progress, stores and spares and finished stock. To meet the requirement of anticipated needs of future. To face business crisis in emergencies such as depression, because during such periods, generally, there is much pressure on working capital.

(G)

FINANCIAL RATIO ANALYSIS

Financial ratio analysis is a study of ratios between various items or group of items in financial statement and the turnover ratios. Ratio analysis is the powerful tool of financial analysis. In financial analysis, ratio analysis is used as an index or yardstick to measure the performance of the firm. Working capital is that part of total capital which is important in current assets. To get better insights about the working capital position of the firm ratio analysis has been utilized.

To determine the Working Capital position of the firm following ratios have been analyzed: Current ratio Absolute liquid ratio Quick ratio Current asset turnover ratio Working capital turnover ratio Inventory turnover ratio Debtors turnover ratio Creditors turnover ratio Current ratio, Quick ratio and absolute liquidity ratio are regarded ad liquidity ratios. The liquidity aspect is essential for both the creditors as well as management of a business enterprise. These ratios are used to judge firms ability to meet short-term obligations. These ratios give an insight about present cash solvency of the firm and its ability to remain solvent in the event of adversities.

CURRENT RATIO:
The current ratio is very popular financial ratio, which is used to measure the ability of a firm to meet its current liabilities. Current assets are converted into cash for the payment of current liabilities. Apparently higher is the current ratio; greater is the short-term solvency. Current Assets Current ratio is given by the formula: Current Liabilities

 QUICK RATIO (ACID TEST RATIO):

Quick ratio is much more exacting measure than the current ratio. By excluding inventories, it concentrates on really liquid assets, with value fairly certain. Quick Assets consist of only cash and near cash assets. Inventories are deducted from current assets on the belief that these are not near cash assets. Liquid Assets Quick ratio is given by the formula: Current liabilities

ABSOLUTE LIQUID RATIO (CASH RATIO):

This ratio measures the absolute liquidity of the business. This ratio considers only the absolute liquidity of the business and is calculated as: Cash + Marketable Securities _________________________ Current Liabilities . Activity ratios are also called as turnover ratios or performance ratios. These ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios usually indicate the frequency of sales with respect to its assets.

CURRENT ASSETS TURNOVER RATIO:

The idea of the current assets turnover is to ascertain the contribution of the current assets to sales. The relationship indicates efficiency or otherwise utilization of current assets to attain the maximum turnover sales.

WORKING CAPITAL TURNOVER RATIO:

Net working capital turnover ratio indicated the velocity of the utilization of working capital. A higher ratio indicates the effective utilization of working capital and a low ratio indicate otherwise.

INVENTORY TURNOVER RATIO:

This ratio is also known as stock turnover ratio and establishes the relationship between the cost of goods sold during the year and average inventory held during the year. It is calculated as follows: Sales Average Inventory

DEBTORS TURNOVER RATIO:

In case firm sells goods on credit, the realization of sales is delayed and the receivables are created. The cash is realized from these receivables later on. The speed with which these receivables are collected affects the liquidity position of the firm. The debtors turnover ratio throws light on the collection and credit policies of the firm. The debtors turnover ratio is calculated as follows: Sales Average Accounts Receivable

 CREDITORS TURNOVER RATIO:

This ratio is calculated on same lines as receivable turnover ratio is calculated. This shows the velocity of debt payment by the firm. A low creditors turnover ratio reflects liberal terms granted by the suppliers. While a high ratio shows the accounts are settled rapidly. It is calculated as follows: Credit Purchases Average Accounts Payable

CHAPTER :- 3

OBEJECTIVES OF THE STUDY

OBJECTIVES OF STUDY
The study was conducted with following broad and specific objectives:

BROAD OBJECTIVE:
Main objective of the project is to analyse the whole data of ECFL and find various opportunities to improve the working capital of the company.

SPECIFIC OBJECTIVES:
To find the needs of the working capital requirements. To find the level of working capital in the company. To find the sources of finance in working capital. To know the maintenance system of working capital. To measure the profitability ratios. To measure the liquidity position of the company. To measure the debtors and creditors turnover ratios. To measure the Future-plans, current plans and past performance of working capital at ECFL

CHAPTER :- 4

RESEARCH METHODOLOGY

(3.1) SCOPE OF STUDY

The above project was conducted keeping in mind the components of Working capital mentioned above i.e. inventory, receivables, and payables and further, credit terms with suppliers; project Working Capital took its shape. The project Working Capital was

started at LUDHIANA plant of ECFL Ltd. early this year with an idea of standardization of credit period across sites, scrutinizing the inventory holding period of raw materials, packaging materials and finished goods and estimating the working capital thus released through these initiatives.

(3.2) RESEACH METHODOLOGY

Primary Data:
The information is collected through the primary sources like: (1) Talking with the employees of the department. (2) Trough questionnaire. (3) Discussion with the head of the department.

Secondary Data:
The data is collected through the secondary sources like: (1) Annual Reports of the company. (2) Office manuals of the department. (3) Policy documents of various departments.

(3.3) ANALYSIS:
The data thus obtained was ready for analysis, interpretations and drawing conclusions out of it. Thus the data used for conducting the project was secondary in nature. For purpose of analysis, data was further captured in spreadsheet for better comparisons both within a

site as well as between different sites simultaneously. The results obtained after comparing it within a site and across different sites were presented in form of power point presentation.

(3.4)LIMITATIONS OF THE STUDY

Due to constraints of time & resources the present study is likely to suffer from certain limitations some of these are mentioned below, so that study can be understood in a proper way: From my part: 1. Shortage of time available for the survey

2. The study was conducted only in LUDHIANA, District Punjab i.e. only one Plant
has been covered therefore results evolving out may not as be true at Inter-national level.

3. The use of all the accounting techniques is not possible. 4. Study depends on the availability and reliability of secondary data.

CHAPTER :- 5

ANALYSIS & INTERPRETATION

(4.1) RATIO ANALYSIS

 CURRENT RATIO:
Current Assets Current Liabilities Particulars Current Assets Current Liabilities CURRENT RATIO
1.04 1.02 1 0.98 0.96 0.94 0.92 0.9 2012 2011 2010 0.95 Ratio 1.04 1.01

2012(Rs.Lacs) 3433.66 3305.97 1.04

2011(Rs. Lacs) 3076.95 3050.42 1.01

2010(Rs. Lacs) 2822.29 2984.93 0.95

Current ratio is 0.95 in 2010, 1.01 in 2011 and 1.04 in 2012.It is good.

QUICK RATIO ( ACID TEST OF RATIO):

Liquid assets __________________

Current liabilities Particulars Quick Assets Current Liabilities QUICK RATIO 2012(Rs.Lacs) 2011(Rs.Lacs) 2213.04 1916.63 1408.92 1548.36 1.57 1.24 2010(Rs.Lacs) 1618.84 1154.2 1.40

QUICK RATIO
1.6 1.4 1.2 1 RATIO 0.8 0.6 0.4 0.2 0 1.57 1.24 1.4

QUICK RATIO

2012

2011

2010

YEARS

Quick ratio is 1.40 in 2010, 1.24 in 2011 and 1.57 in 2012. The liquidity position of the company is better in comparison to 2012.

ABSOLUTE LIQUID RATIO (CASH RATIO):

Cash + Marketable Securities _________________________

Current Liabilities Particulars 2012(Rs.Lacs) Absolute Liquid 133.82 Assets Current Liabilities ABSOLUTE LIQUID RATIO 3305.97 0.04 2011(Rs. Lacs) 140.30 3050.42 0.05 2010(Rs. Lacs) 129.68 2984.93 0.04

SUPER QUICK RATIO

0.05 0.04 RATIO 0.03 0.02 0.01 0 2012 2011 2010 SUPER QUICK RATIO 0.04 0.05 0.04

YEARS

Super quick ratio is 0.04 in 2010, 0.05 in 2011 and 0.04 in 2012 so it is good as compared to last year.

CURRENT ASSETS TURNOVER RATIO:

Particulars Cost of Good Sold Current Assets TURNOVER RATIO

2012(Rs.Lacs) 4697.17 3433.66 1.36

2011(Rs. Lacs) 6982.95 3076.95 2.26

2010(Rs. Lacs) 3455.14 2822.29 1.22

CURRENT ASSET TURNOVER RATIO

2.5 2
RATIO

2.26 1.36

1.5 1 0.5 0

1.22

CURRENT ASSET TURNOVER RATIO

2012

2011

2010

YEARS

Current asset turnover ratio is 1.22 in 2010, in 2011 it is 1.94 and in 2012 1.36. So it is better in 2012 if we compare it with 2011 as its less than that.

WORKING CAPITAL TURNOVER RATIO:

2012(Rs.Lacs) 9253.93 2011(Rs. Lacs) 7987.41 2010(Rs. Lacs) 6289.35

Particulars Net Sale

Working Capital WORKING CAPITAL TURNOVER RATIO

127.69 72.47

26.53 301.07

162.64 38.67

WORKING CAPITAL TURNOVER RATIO

RATIO

350 300 250 200 150 100 50 0

301.07 WORKING CAPITAL TURNOVER RATIO

72.47 2012 2011

38.67 2010

YEARS

Working capital turnover ratio is less in 2012 in comparison to 2011 as it is 38.67 in 2010, 301.07 in 2011 and 72.47 in 2012.

 INVENTORY TURNOVER RATIO:

Cost of Goods Sold Average Inventory Particulars Cost of Good Sold Average Inventory INVENTORY TURNOVER RATIO 2012(Rs.Lacs) 4697.17 1146.25 4.09 2011(Rs. Lacs) 6982.95 1094.03 6.38 2010(Rs. Lacs) 3455.14 1143.94 3.02

INVENTORY TURNOVER RATIO

7 6 5 4 RATIO 3 2 1 0 6.38 4.09 3.02 INVENTOPRY TURNOVER RATIO

2012

2011

2010

YEARS

By Comparing the stock turnover ratio of current year with the previous year, the management can assess whether stock has been more efficiently used or not. Inventory turnover ratio is 3.02 in 2010, 6.38 in 2011 and 4.09 in 2012 so it is good.

DEBTORS TURNOVER RATIO:

Net Credit Sales Average Accounts Receivable

Particulars Net Credit Sales Average Receivable DEBTOR TURNOVER RATIO Account

2012(Rs.Lacs) 9253.93 2079.21 4.45

2011(Rs. Lacs) 7987.41 1776.33 4.50

2010(Rs. Lacs)

6289.36
1577.12 3.98

DEBTOR TURNOVER RATIO

4.6 4.4
RATIO

4.45

4.5

4.2 4 3.8 3.6 2012 2011 2010

YEARS

3.98

DEBTOR TURNOVER RATIO

A lower debtor turnover ratio will indicate the inefficient credit sale policy of the management. It mean that credit sale have been made to customer who do not deserve much credit. Debtor turnover ratio is 3.98 in 2010 ,4.50 in 2011 and 4.45 in 2012

CREDITORS TURNOVER RATIO:

Credit Purchases Average Accounts Payable

Particulars 2012(Rs.Lacs) Credit Purchases 5003.57 Average Accounts 882.36 Payable CREDITORS TURNOVER RATIO

2011(Rs. Lacs) 4245.03 756.14

2010(Rs. Lacs) 3128.20 512.42

5.67

5.61

6.10

CREDITOR TURNOVER RATIO

6.1 6 5.9 5.8 RATIO 5.7 5.6 5.5 5.4 5.3 6.1

5.67

5.61

CREDITOR TURNOVER RATIO

2012

2011

2010

YEARS

Creditor turnover ratio is 6.10 in 2010,5.61 in 2011 and 5.67 in 2012 so it is also good in comparison to 2012.

(4.2) WORKING CAPITAL ANALYSIS

Particulars (a) Current Assets 2012 (Rs. Lacs) 3433.66 3305.97 2011(Rs. Lacs) 3076.95 3050.42 2010(Rs. Lacs)

2822.85 9659.37

(b) Current

liabilities Net WC (a-b)

127.69

26.53

-6836.52

In 2012, Working capital of the company is good as it has increased to the extent of 127.59 , It was 26.53 last year.

NET PROFIT TURNOVER RATIO

NET PROFIT _________________100
NET SALES

Particulars Net Profit Net Sale Net Profit Turnover Ratio

2012(Rs. Lacs) 455.12 9253.93 4.92

2011(Rs. Lacs) 212.96 7987.41 2.67

2010(Rs. Lacs) 124.45 6289.39 1.93

NET PROFIT RATIO

5 4 RATIO 3 2 1 0 2012 2011 2010 2.67 1.93 NET PROFIT RATIO 4.92

YEARS

Net Profit Ratio is 4.92 in 2012, 2.67 in 2011 and 1.93 in 2010. It is increasing in 2012 in comparison of 2011.

 GROSS PROFIT TURNOVER RATIO

GROSS PROFIT _________________100 NET SALE Particulars Gross Profit Net Sales Gross Profit Turnover Ratio 2012(Rs.Lacs) 2640.50 9253.93 28.53 2011(Rs. Lacs) 2277.74 7987.41 27.89 2010(Rs. Lacs) 1900.35 6289.39 30.21

GROSS PROFIT RATIO

30.5 30 29.5 29 RATIO 28.5 28 27.5 27 26.5 30.21 28.53 27.89 GROSS PROFIT RATIO 2010

2012

2011

YEARS

Gross Profit Ratio is 28.53 in 2012,27.89 in 2011 and 30.21 in 2010. It is Increasing in 2012 in comparison of 2011.

(4.3) OPERATING CYCLE

There is a difference between current assets and fixed assets in terms of their liquidity. A firm requires many years to recover the initial investment in fixed assets such as Plant & Machinery. On the contrary, investment in current assets is turned over many times in a year. Operating cycle is the time duration required to convert sales (after conversion of resources into inventories and inventories into finished goods) into cash. The operating cycle of a manufacturing Company involves three phases: 1. 2. 3. Acquisition of resources such as raw material labor, power and fuel etc. Manufacture of the product which includes conversion of raw material into work-in-progress into finished goods. Sale of the product either for cash or on credit. Credit sales create book debts for collection. The length of the operating cycle of a manufacturing firm is the sum of: Inventory conversion period (ICP) and Book debts conversion period (BDCP).

The inventory conversion period is the total time needed for producing and selling the product. It includes: 1. 2. 3. Raw material conversion period (RMCP) Work in progress conversion period (WIPCD) Finished goods conversion period.

The book debts conversion period is the time required collecting outstanding amount from customer. The total of inventory conversion period and book debts conversion period is the maximum time required to collect outstanding amount from customers and sometimes it referred to as gross operating cycle. Generally, a firm acquires resources on

credit and temporarily postpones payment of certain expenses. The difference between operating cycle and payables deferral period is net operating cycle. The length of Operating cycle can be determined as: GOC =ICP+BDCP NOC=ICP+BDCP-PDP ICP=RMCP+WIPCP+FGCP Where, GOC=Gross Operating Cycle; NOC=Net Operating Cycle; ICP=Inventory Conversion Period; BDCP= Book Debts Conversion Period; PDP= Payable Deferral Period; RMCP= Raw Material Conversion Period; FGCP= Finished Good Conversion Period.

OPERATING CYCLE ANALYSIS

In order to understand the length of time taken to convert sales (after conversion of resources into inventories and inventories into finished goods) into cash, operating cycle analysis has been done. The operating cycle of a firm begins with the acquisition of raw material and ends with the collection of receivables. There are four aspects of operating cycle, which involves commitment of resources, a material stage, accounts finished stage and account payable stage. The operating cycle is calculated as the sum of first three stages minus accounts payable stage.

(4.4) OPERATING CYCLE OF ECFL 1. Raw Material Conversion Period (RMCP) Average raw material inventory x 365 Raw material consumed during the year
Particulars Opening Stock of R.M Closing Stock of R.M Average Stock Raw Material 2012(Rs.Lacs) 76.59 42.76 119.35 1816.13 2011(Rs. Lacs) 42.44 76.59 59.15 1550.94 2010(Rs. Lacs) 52.93 42.44 47.68 1279.32

Consumed Raw Material Conversion Period

24 Days

13 Days

13 Days

24 days are sufficient time period for the Raw Material Consumption in ECFL

2. Finished Goods Conversion Period (FGCP) Average finished goods inventory x 365 Cost of goods Particulars 2012(Rs.Lacs) Opening Stock 163.66 Closing Stock 226.91 Average Stock 195.28 Cost of Good 4697.17 Sold Finished Goods Conversion Period 15Days 2011(Rs. Lacs) 203.36 163.66 183.51 6982.95 9Days 2010(Rs. Lacs) 289.54 203.36 246.45 3455.14 26Days

15 days are sufficient time period for the Conversion in Finished Goods at ECFL.

3. Work in process conversion period (WIPCP)

Average stock in process inventory x 365 Particulars Opening Stock of Work in Process Closing Stock of Work in Process Average Stock of Work in Process Cost of Production Conversion Period Cost of production 2012(Rs.Lacs) 2011(Rs. Lacs) 115.22 83.14 156.20 135.71 2687.72 18Days 115.22 99.18 2348.48 15Days 2010(Rs. Lacs) 115.67 83.14 99.41 1916.53 18Days

18 Days Period of are sufficient time period for the Conversion of Work In Progress at ECFL.

4. Debtors Conversion Period or Book Debts Conversion Period

Average debtors x 365 Credit sales
Particulars Average Debtors Credit Sales Debtors Conversion Period Period of 62 days is good time period Debtors Conversion at ECFL. 2012(Rs.Lacs) 1575.54 9253.93 62Days 2011(Rs. Lacs) 1306.21 7987.41 59Days 2010(Rs. Lacs) 1215.91 6289.36 70Days

5. Creditors Conversion Period or Payable Deferral Period Average creditors x 365 Credit purchases
Particulars Average Creditors Credit Purchases Creditors Conversion Period 2012(Rs.Lacs) 882.36 5003.57 64Days 2011(Rs. Lacs) 756.14 4245.03 65Days 2010(Rs. Lacs) 512.42 3128.20 59Days

Period of 64 days are good time period Creditors Conversion at ECFL Also it is greater than the Debtor Conversion period.

CHAPTER :- 6

FINDINGS & CONCLUSION

(5.1) MAJOR FINDINGS

(1) Current ratio of 2012 is satisfactory as compared to 2011. It is 1.04 in 2012 and 1.01 in 2011. (2) Liquidity position ratio is not satisfactory in 2012 as compared to 2011. It is 0.05 in 2010 and 0.04 in 2012. (3) Gross profitability ratio is also satisfactory in 2012 as compared to 2011. It is 28.53 in 2012 and 27.89 in 2011. (4) Net profit ratio is good in 2012 as compared to 2011. It is 4.92 in 2012 and 2.67 in 2011. (5) Fixed assets turnover ratio is also good. It is 4.13 in 2011 and 5.06 in 2012. (6) Working capital turnover ratio is not Satisfactory in 2012 as compare to 2011. It is 72.47 in 2012 and 301.07 in 2011. (7) Debtor turnover ratio is satisfactory. It is 4.50 in 2011 and 4.45 in 2012. (8) Creditor turnover ratio is also good. It is 5.61 in 2011 and 5.67 in 2012. (9) Working Capital is more essential factors in ECFL. Company Is getting funds from SBI Bank only.

(5.2) CONCLUSION

Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. The major current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those liabilities, which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or earnings of the concern. 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 liabilities in such a way that a satisfactory level of working capital is maintained. The majority of Indian companies maintain relatively lower cash/bank balances. Marketable securities are yet to emerge as a popular means of cash management. The excess cash is deployed to retire short-term debt/ in short-term bank deposits. Though there is a notable decline over the years but yet inventory constitutes an important part of total current assets. Debtors/ receivables also constitute an important part of current assets. The collections are required to be as quick as possible and thus corporate offer cash discounts for the purpose. Accounts payables and short-term loan/ advances are major components of current liabilities. The project Working Capital cardinally focuses on inventory and credit terms for the creditors and debtors.

The approach followed in the project is to reduce the inventory so as to adhere to the standard norms of the inventory holding thereby releasing the working capital out of it. Secondly to revise the credit terms in such a way so as to make them uniform across all the sites. Thus releasing the working capital at the sites where the credit terms were proposed to be revised.

CHAPTER :- 7

RECOMMENDATIONS

(6.1) RECOMMENDATONS
The result of the live project done at ECFL is presented in the form of following recommendations:

Working capital can be improved by:

1. Reducing the inventory-holding period of items.

2.

Increasing the credit period of Creditors.

3. Decreasing the credit period of Debtors.

Pertaining to the above three major prerequisites of the project following key focus areas have been suggested.

4. Eastman Cast & Forge Ltd is getting finance from SBI bank,
It should raise its sources of finance.

BIBLIOGRAPHY
BOOKS:1) Goel, D.K., Management Accounting & Financial Management, Avichal Publishing Company, 2004 2) Bhalla V.K., Working Capital Management, Anmol Publication Pvt. Ltd., 2005

MAGAZINE:1) Business world 2) Business time

NEWSPAPER:1) Economic times.

SEARCH ENGINE:1) www.Wikipedia.org 2) www.Investopedia.com 3) www.Planware.org 4) www.Study finance.com

5) www.Google.com