Effectiveness of Working Capital Management - Asees

Working capital management THE TRAVANCORE COCHIN
CHEMICALS
LIST OF TABLES
TABLE No: TABLE NAME PAGE No:
TABLE NO 5.1 NET WORKING CAPITAL 35
TABLE NO 5.2 WORKING CAPITAL TURNOVER RATIO 36
TABLE NO 5.3 COMPONENTS OF WORKING CAPITAL 37

INVENTORY AS A PERCENTAGE OF
TABLE NO 5.4 38
CURRENT ASSETS
TABLE NO 5.5 INVENTORY TURNOVER RATIO 39
TABLE NO 5.6 INVENTORY CONVERSION PERIOD 40

DEBTORS AS A PERCENTAGE OF CURRENT
TABLE NO 5.7 41
ASSETS
TABLE NO 5.8 DEBTORS TURNOVER RATIO 42
TABLE NO 5.9 AVERAGE COLLECTION PERIOD 43

CASH AS A PERCENTAGE OF CURRENT
TABLE NO 5.10 44
ASSETS
TABLE NO 5.11
ABSOLUTE LIQUIDITY RATIO 45
TABLE NO 5.12 COMPONENTS OF CURRENT LIABILITIES 46
CREDITORS AS A PERCENTAGE OF
TABLE NO 5.13 47
CURRENT LIABILITIES
Magnus school of business, Cochin Page 1

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LIST OF TABLES
TABLE No: TABLE NAME PAGE No:
TABLE NO 5.14 CREDITORS TURNOVER RATIO 48
OTHER LIABILITIES AS A PERCENTAGE OF

TABLE NO 5.15
CURRENT LIABILITIES 49
PROVISION AS A PERCENTAGE OF CURRENT

TABLE NO 5.16 50
LIABILITIES
RETURN ON INVESTMENT
TABLE NO 5.17 51
TABLE NO 5.18 CURRENT RATIO 52
TABLE NO 5.19 QUICK RATIO 53
TABLE NO 5.20 GROSS PROFIT RATIO 54
TABLE NO 5.21 NET PROFIT RATIO 55
TABLE NO 5.22 TREND ANALYSIS OF NET WORKING CAPITAL 56
TABLE NO 5.23 TREND ANALYSIS OF INVENTORY 57
TABLE NO 5.24 TREND ANALYSIS OF DEBTORS 58
TABLE NO 5.25 TREND ANALYSIS OF CREDITORS 59
COMBINED TRENDS OF INVENTORY, DEBTORS

TABLE NO 5.26 60
AND CREDITORS

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LIST OF FIGURES
FIGURE No: FIGURE NAME PAGE No:

FIGURE 5.1 NET WORKING CAPITAL 35
FIGURE 5.2 WORKING CAPITAL TURNOVER RATIO 36

FIGURE 5.3 COMPONENTS OF WORKING CAPITAL 37
INVENTORY AS A PERCENTAGE OF
FIGURE 5.4 38
CURRENT ASSETS
FIGURE 5.5 INVENTORY TURNOVER RATIO 39
FIGURE 5.6 INVENTORY CONVERSION PERIOD 40

DEBTORS AS A PERCENTAGE OF CURRENT
FIGURE 5.7 41
ASSETS
FIGURE 5.8 DEBTORS TURNOVER RATIO 42
FIGURE 5.9 AVERAGE COLLECTION PERIOD 43

CASH AS A PERCENTAGE OF CURRENT
FIGURE 5.10 44
ASSETS
FIGURE 5.11 ABSOLUTE LIQUIDITY RATIO 45
FIGURE 5.12 COMPONENTS OF CURRENT LIABILITIES 46
CREDITORS AS A PERCENTAGE OF
FIGURE 5.13 47
CURRENT LIABILITIES

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LIST OF FIGURES
FIGURE No: FIGURE NAME PAGE No:

FIGURE 5.14 CREDITORS TURNOVER RATIO 48
OTHER LIABILITIES AS A PERCENTAGE OF

FIGURE 5.15 CURRENT LIABILITIES 49
FIGURE 5.16 PROVISION AS A PERCENTAGE OF CURRENT

50
LIABILITIES
RETURN ON INVESTMENT
FIGURE 5.17 51
FIGURE 5.18 CURRENT RATIO 52
FIGURE 5.19 QUICK RATIO 53
FIGURE 5.20 GROSS PROFIT RATIO 54
FIGURE 5.21 NET PROFIT RATIO 55
FIGURE 5.22 TREND ANALYSIS OF NET WORKING CAPITAL 56
FIGURE 5.23 TREND ANALYSIS OF INVENTORY 57
FIGURE 5.24 TREND ANALYSIS OF DEBTORS 58
FIGURE 5.25 TREND ANALYSIS OF CREDITORS 59
COMBINED TRENDS OF INVENTORY, DEBTORS

FIGURE 5.26 61
AND CREDITORS

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EXECUTIVE SUMMARY
The study was conducted at Travancore Cochin Chemicals Ltd
(TCC) Udyogamandal. The Travancore Cochin Chemicals Ltd (TCC) is
a state public sector company undertaking owned by the Government of
Kerala an ISO 9001:2000 certified company. The study was aimed at
assessing the effectiveness of working capital management in TCC. This
was done through exploratory research method using analysis of annual
reports of the company.
Through this study the researcher was able to assess the existing
working capital management in TCC and can able to suggest remedial
measures to be taken by management to improve the working capital
management in TCC.
CHAPTER - 1

CHEMICALS
INTRODUCTION
Working capital refers to that part of the firm’s capital which is required
for financing short term or current assets such as cash, marketable securities,
debtors and inventories. Funds, thus invested in current assets keep revolving fast
and are being constantly converted in to cash and these cash flows out again in
exchange other current assets. Hence, it is also known as revolving or circulating
capital or short term capital.
According to Genesten berg, “circulating capital means current assets of a
company that are changed in the ordinary course of business from one form to
another, as for example, from cash to inventories, inventories to receivables,
receivables into cash”. Working capital, in general practice, refers to the excess of
current assets over current liabilities. Management of working capital therefore, is
concerned with the problem that arises in attempting to mange the current assets,
the current liabilities and the interrelationship that exist between them. In other
words it refers to all aspects of administration of both current assets and current
liabilities.
The basic goal of working capital management is to manage the current
assets and current liabilities of a firm in such a way that a satisfactory level of
working capital is maintained, i.e., it is neither inadequate nor excessive. This is so
because both inadequate as well as excessive working capital positions are bad for
any business. Inadequacy of working capital may lead the firm to insolvency and
excessive working capital implies idle funds which earn no profits for the business.

CHEMICALS
The goal of working capital management is to ensure that a firm is able to
continue its operation. And that is has sufficient ability to satisfy both maturing
short term debt and upcoming operational expenses. The better a company
manages its working capital, the less the company needs to borrow. Even
companies with cash surpluses need to manage working capital to ensure those
surpluses are invested in ways that will generate suitable returns for investors
The prime objective of the company is to obtain maximum profit though the
business. The amount of profit largely depends upon the magnitude of sales.
However the sale does not convert into cash instantaneously. There is always a
time gap between sale of goods and receipt of cash. Additional capital required to
have uninterrupted business operations, and the amount will be locked up in the
current assets. Regular availability of adequate working capital is inevitable for
sustained biasness operations. If the proper fund is not provided for the purpose,
the business operations will be effected.
STATEMENT OF THE PROBLEM
A study of working capital is of major importance to internal and external

analyst because of its close relationship with the current day to day operations of a
business. Now a days many public sector companies are not performing well.
Major reason for this is under utilization of capacity and inefficiency in the
technical and financial management.
Efficient management of working capital is the key to the success of every

business. In this study, an effort is made to analyze the working capital
management and its components in TCC Limited. Hence the problem is stated as
“A study to assess the working capital management of The Travancore Cochin
Chemicals Limited Udyogamandal.”

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1.2 OBJECTIVE OF THE STUDY:
 To assess the effectiveness of working capital management of The

Travancore Cochin Chemicals Limited (TCC) Udyogamandal.
SUB OBJECTVES ARE:
 To measure the operational and financial efficiency of the company,
 To ascertain the liquidity and profitability position of the company,
 To interpret the operational and financial efficiency of the company,
 To suggest any ways to improve the present condition,
 To give suggestions to improve working capital management of the
company,
 To analyze the various components of the working capital and its share
in total capital and to study their efficiency,
 To analyze the credit policy of the company.

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1.3 SCOPE OF THE STUDY

Working capital is referred to as the life and blood of the business firm. In
the event of working capital being ill-managed, the flow of money gets choked,
raw materials and supplies are interrupted, dues and payments get delayed and
clamor for clearance and outstanding obligations and commitment gathers
momentum. All these may entail virtual stoppage of operations, jeopardizing the
viability of the firm.
While inadequate working capital has the potential to disrupt production

sales operations of otherwise well-run and managed firms, excessive working
capital is equally unwarranted in the view of its adverse impact on profitability.
Hence, effective management of working capital is imperative. Working capital
management is concerned with the problems that arise in attempting to manage
current assets, current liabilities and the interrelationships that exit between them.
Working capital is the single best method of determining the position of the
company or how well that company may be doing.
This study is conducted to analyze the working capital of The Travancore

Cochin Chemicals Udyogamandal. The study involves the analysis of working
capital, liquidity, and profitability position as well as the operational efficiency of
the company. For the purpose of this, the study has been conducted for the period
of the last five years.

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1.4 RESEARCH METHODOLOGY
RESEARCH DESIGN
The research is exploratory in nature.
TYPES OF DATA
The methodology used in the study involves the collection of primary data
as well as secondary data. Majority of the data was collected with the help of the
annual reports provided by the company.
SOURCE OF DATA
 Secondary data: Secondary data were obtained from the internal records of
the company i.e., from the published annual reports, website of the
company, journals and magazines and also other books related to working
capital management.
PERIOD OF STUDY
A five year period from 2004 to 2008 has been taken for the study.
TIME OF STUDY
Two Months, from 25/04/2009 to 25/06/2009
TOOLS OF DATA ANALYSIS
 Ratio analysis
 Trend analysis
 Analysis of components of working capital

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1.5 LIMITATIONS OF THE STUDY
THE LIMITATIONS OF THE STUDY ARE AS FOLLOWS:
 The study is restricted for a period of five years,

 The financial statements contain only historical data and would not
necessarily reflect the future,
 The reliability and accuracy of calculations and interpretation depends very
much on the information supplied in the form of annual reports and other
records,
 Lack of professional knowledge of the researcher,
 In this short period of time, the research could not go through all aspects of
working capital,
 Authorities were reluctant to reveal full information about the working of the
company.

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CHAPTER - 2
INDUSTRY PROFILE
WORLD SCENARIO
Now the world is full of competition. The Chlor-alkali industries are

growing faster in the world. The chemical industries are also growing faster in the
world. The chemical industry plays a vital role in the production of many
manufactured goods. The industry provides a tremendous variety of materials to
other manufacturers. It also produces chemical products that benefits people
directly. Major products of the industry include detergents, drugs, fertilizers, food
preservatives flavoring and paper products etc.
Most major chemicals are basic chemicals used in many countries. It is

used to produce fertilizer and other chemical. Other basic chemicals include
chlorine, alkali like lime and sodium hydroxide and these chemicals are used in
plastics.
Production of chemicals has become increasingly concentrated in

Multinational Corporations, which have plants and offices in a number of
countries. To reduce costs, most of the multinational companies locate their
factories in countries where raw materials and cheap skilled labour are readily
available. So many basic chemicals are produced in developing countries by units
of multinational firms. But chemicals requiring advanced production methods are
made in industrialized countries.

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Chlor-Alkali Industry in the world
During the 1970’s Caustic Soda used to be manufactured by utilizing the

mercury cell technology. It was produced by amalgam process. But this technology
consumes a lot of energy and power. There was also the problem of mercury
population.
The Mina Mata tragedy (resulting from mercury pollution), forced the
Japanese Government issued a direction to all caustic soda plants to change over to
other process under a time bound-programme. This paved the way for the
development of Ion Exchange Membrane Cell (IEMC) technology. This process
apart from totally avoiding mercury, consumed 30% less power compared to the
conventional process. Increased production of paper, aluminium, soap, and
detergents at the international level naturally led to increased requirement of
caustic soda. The international markets operates in the context of demand and
supply conditions prevailing from time to time, So price of caustic soda became
highly volatile. Predator pricing has become common and drop in import duty
often led to steep drop in price of the chemical.
Though demand for chlorine is growing fast the demand for caustic soda is
not so promising. Hence the units in the gulf and western countries are selling
caustic soda at a cheaper price.
Major Countries Producing Caustic Soda
1. U.S.A 5. France
2. China 6. Russia
3. Japan 7. Canada
4. Germany 8. India

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INDIAN SCENARIO
The Indian chemical industry is an integral part of the Indian economy,

contributing around 6.7% to the Indian GDP. It touches our lives in many different
ways. Whether it is thermoplastic furniture we use, or a synthetic garment we
wear, or drug we consume. The industry is a vital part of the agricultural and
industrial development in India has key linkages with several other downstream
industries such as automotive, consumer durables, engineering, food processing,
etc.
The chemical industry in India has the potential to grow around USD 100
billion by 2010 (according to KPMG’s analysis based on a survey of the industry).
This would imply an annual growth rate of 15.5%. For the industry to achieve this
size, specialty and knowledge chemical segments would need to grow 16.4 %
( current growth rate is 7.9%) and 27 %( current growth rate is 12.3%)
respectively. The basic chemicals segment would need to sustain its current growth
rate of 7.7% to match the profile of the chemical industry in global markets.
At the industry level, the Indian Chemical industry is characterized by:
 High domestic demand potential, as Indian markets develop and per

capita consumption level increase
 High degree of fragmentation and small scale operations
 Limited emphasis on exports due to domestic market focus and smaller
scale of operation.
 Low competitiveness as compared to other countries due to higher cost of
power, import duties, taxes and cost of capital.
 Low focus on R&D despite initiatives to innovate processes to synthesis
products cost effectively.

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In spite of the disadvantages, a few proactive Indian companies have

created sizeable international operations to become significant players in the
global market place. The ability of chemical companies in India to perform
better than global companies has already been reflected by a comparatively
better performance of the Indian operations of some global companies.
Operating profit margins of these Indian subsidiaries range from 8 % to 13 % as
compared to the global operating margins range less than 1 % to 6%.
Indian chemical industries have now have a great opportunity in the field
of research and development, in view of its large manpower of reasonably good
talent and R&D facilities already created and operating. With the WTO regime
in force, Indian industries should be able to protect their newly developed
technologies and emerge competitive in the global market.
Major South Indian Chlor-Alkali Units
Chempalst, Tamil Nadu
Chern Fab Alkalies Ltd., Pondicherry
Kothari Petrochemicals Ltd., Chennai
Sree Rayalaseema Alkalies & Allied Chemicals Ltd, Andhra Pradesh
Andhra Sugars, Andhra Pradesh
Southern Petrochemical Industries Corporation Ltd., Chennai
The Travancore-Cochin Chemicals Limited, Eloor; Kerala.

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STATE SCENARIO
Caustic Soda is one of the basic inorganic chemicals manufactured from

common salt. There are four processes used in the manufacturing of caustic soda,
chlorine and Hydrochloric acid which are the bye products obtained through these
processes.
In the state, only TCC is engaged in the production of caustic soda, chlorine
and hydrochloric acid. The company has helped in attracting user industries to
Kerala in the past, by offering steady supply of raw materials. Some of the
industries, which come up include Indian Rare Earth Limited, Hindustan News
Print Ltd, and Hindustan Insecticides Ltd etc. TCC has an installed capacity to
produce 175 TPD caustic soda and it is used in manufacturing of soaps, textiles,
plastics etc. There are many small scale industries in the state which consumes
caustic soda for the production of soaps, plastics, textiles.
Though the average demand, at an average rate of 4% the capacity has

been increased by nearly 7% in view of the high transportation cost and hazardous
nature of chemicals transported. The caustic soda industry in the state is more
localized and the units have comes nearer the consuming center. Also because of
the high transportation cost, it is not possible to export caustic soda in large volume
from the state.
The chlorine industrial units are working properly. Chlorine is a basic

material required for water purification and without chlorine; the government
water works will not be able to supply drinking water to the public.

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CHAPTER - 3
COMPANY PROFILE
INTRODUCTION
The Travancore Cochin Chemicals Ltd (TCC) is a state public sector

undertaking owned by the government of Kerala. It is situated at Udyogamandal in
Cochin Industrial area, about 10 kms from Aluva. Incorporated in 1951, TCC is
now one of the oldest chlor- alkali units in India. Today it has a production
capacity of about 57750 MT caustic soda per annum. The other products are
chlorine, Hydrochloric acid, Sodium Hypochlorite, and C.S flakes. The company
supports a large number of industrial units of strategic importance by supplying
basic chemicals with continuous effort for up gradation of technology and
professional management. A wide range of industries like mineral processing,
paper, textiles, petrochemicals, oil refining, pesticides, water treatment, etc uses
the products. The market is spread over southern and western India.
BRIEF HISTORY OF TCC LTD
The company was formed as a partnership between FACT (Fertilizers and

Chemicals Travancore Ltd) and MCIC (Mettur Chemicals and Industrial
Corporation). The partnership concern floated in the name and style as Travancore
Mettur Chemicals. When commissioned it was the first mercury cell plant for
manufacturing caustic soda in the country and it was the first producer of rayon
grade caustic soda. When the company faced financial difficulties, the Govt. of
Travancore Cochin stepped in with massive financial assistance and the company
was renamed as TCC in 1951. Commercial production started in 1954 with 20
tonnes per day caustic soda production capacity.
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LOCATION
The Travancore Cochin Chemicals Ltd (TCC) is a state public sector

undertaking owned by the government of Kerala. It is situated at Udyogamandal in
Cochin industrial Belt. The factory and the registered office are located 20 KM
from the Cochin International Airport and 15 KM from Ernakulam railway station.
QUALITY POLICY OF TCC
“We are committed to enhance customer satisfaction by providing

Products and related services complying with a continually improving quality
improving management system.”
MISSION
The mission statement of the company is as follows:
TCC is committed to supply quality chemicals at competitive prices to

customers. Customer satisfaction, concern for environment and safety are our
priorities.
We intend to achieve:
 Utmost level of conservation of all resources including energy.

 Cost effectiveness in all our operation.
 Regular up gradation of technologies used in processing.
 Compliance with law and statutory regulations.

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CORPORATE OBJECTIVE
The company states in its objective the following:
 To produce and market chemicals such as Caustic Soda, Liquid Chlorine,

Hydrochloric acid and soda bleach economically and in an environmentally
sound manner.
 To maintain optimum level of efficiency and productivity so as to secure
optimum returns on investment.
 To maximize profits from projects taken up.
 To continuously improve the plant and operational safety and to confirm
statutory pollution control standards.
 To continuously upgrade the quality of human resources of the company and
to promote organizational development. .
 To ensure corporate growth by expansion and diversification.
 Concerned about the protection of environment.
COMPANY PRODUCT AND PRODUCTION CAPACITY
PRODUCTS QUANTITY /ANNUM IN M.T

1. Caustic soda 57750
2. Liquid chlorine 23760
3. Hydrochloric acid 127742
4. Sodium hypo chloride 15,000
5. C.S Flakes 30,000

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RAW AMTERIALS USED
 Common salt: The most important and basic raw material used by TCC for
the manufacture of caustic soda is the industrial grade common salt (sodium
Chloride).
 Electricity: The process involved is manufacture of caustic soda is the
electrolysis of saturated brine. In the process, the caustic soda and chlorine
are produce in the ratio of 1:0:886 by weight. For this electrolysis process
the largest import is electricity and it accounts for 60%of the cost of
production in India, at an average.
INVESTMENT RECEIVED BY THE COMPANY:
INVESTMENT RS. IN CRORES

Govt. of Kerala 24.80
FACT 2.53
KSIDC 1.5
Sanmar properties & investment 1.17
Total 30.00
GROWTH OF TCC
 1956- A Continuous Caustic Fusion plant with a capacity to upgrade 20

tonnes of caustic soda per day was added.
 1958- A Chlorine Liquefaction Plant was added mainly to meet demand

from the new DDT plant of Hindustan Insecticides Ltd, Udyogamandal.
 1963- The caustic soda capacity was raised to a new level of 40 tonnes per
day. The company established a new unit for the manufacture of Sodium
hydro sulphite with rated capacity of 3 tonnes per day.
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 1967- The third stage of expansion of capacity was raised to 60 tonnes per
day.
 1970- A 60 tones per day caustic soda concentration plant was set up.
 1975- 1980 - Exported commercial HCL to gulf countries.
 1983- Installed an indigenously developed plant to recover mercury from
effluents.
 1987- Installed Hydrogen firing system in Continuous Caustic Fusion plant.
 1988- Replacement of Graphite anodes by Titanium anode.
 1990- Brine Dechlorination unit commissioned.
 1992- A Research & Development section was set up.
 1994- The Company in collaboration with Regional Research Laboratory
commissioned a pilot plant on synthetic retiles.
 1997- The Company commissioned a 100 TPD caustic soda plant in
technical collaboration with ASAHI GLASS Company of Japan using
Membrane cell Technology.
 2000 - The Company setup a Brine purification plant.
 2001-2002- The Company commissioned a new continuous caustic fusion
plant (CCF).
 2002-2003 - The Company increased its production capacity of membrane
cell plant to 125 tonnes per day.
 2004-2005- Additional for either metric tonnes membrance ell process 25tpd
 19 2006- A 25 TPD caustic soda plant employing membrane cell technology
from Uhde, Germany, was commissioned.
TCC AT PRESENT:
TCC is the only chlorine- Alkali unit in Kerala. In India there are
approximately 38 chlor-alkali units as competitors. The company has helped in

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attracting user industries to Kerala in the past, due to assurance in availability of
raw materials. Some of the industries which came up include Indian Rare Earth
Ltd, Hindustan Insecticides Ltd, Hindustan News print Ltd, Kerala Minerals and
Metals Ltd, Kerala chemicals and Proteins Ltd etc.
FUTURE PLANS
TCC is in process of setting up a power project on its own. Electricity is

one of the raw materials for the company. It contributes to about 60% of the
production cost. The company would like to go for cheaper sources of power and
insulate itself from the future tariff hikes of the electric supply utility. A hydel
power project is under consideration at present. The problem faced by TCC with
respect to this is the shortage of funds. As expansion in the 1990s and subsequent
adverse conditions has caused TCC to drain its entire reserves and surpluses. It is
also difficult to raise debt funds under this situation. This has forced the company
to think about newer methods of project implementation like the BOT.
In 1992, the R&D of the company started working on a project to

manufacture synthetic rutile. The company along with The Regional Research
Laboratories set up a pilot plant to manufacture synthetic rutile. It succeeded in
developing the technology. The process uses the products of the company in
manufacturing synthetic rutile. The technology is now ready for
commercialization.
INDUSTRIES SERVED BY TCC’S PRODUCT
 Caustic Soda: Soap, Paper, Textile, Fertilizers, Drugs and Pharmaceuticals,

Vanaspathi, Petroleum, Chemicals.

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 Chlorine: Paper, Textile, Water Purification, Drugs and Pharmaceuticals,
Mineral processing Sugar, Fine Chemicals, Rubber etc.
 Commercial HCI Acid: Fertilizers, Engineering, Mineral processing,
Starch, Ossein, Plastics etc.
MAJOR COMPETITORS OF T.C.C.
T.C.C. is the only chlor-alkali unit in the public sector in India. Some of major
competitors.
 Atul Ltd., Ahmadabad

 Bilt Chemicals Ltd., New Delhi
 Chern Fab Alkalies Ltd., Pondicherry
 Champlast Sanmat Ltd:, Mumbai
 D.C.W. Ltd., Mumbai
 Grassim Industries Ltd., Nagda (M.P)
 Gujarat Alkalies & Chemicals Ltd., Gujarat
 Gujarat Heavy chemicals Ltd., Ahmadabad
 Indian Petrochemicals Corporation Ltd., Gujarat
 India Rayon and Industries Ltd., Mumbai
 Jayashree Chemicals Ltd., Orissa
 Kothari Petrochemicals Ltd., Chennai
 Saurashtra Chemicals ltd., Gujarat
 Southern Petrochemical Industries Corporation Ltd., Chennai
 Sree Rayalaseema Alkalies & Allied Chemicals Ltd., Kurnool, Karnataka
PRODUCT PROFILE
CAUSTIC SODA:

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Caustic soda is a basic alkali (NaOH) used in the manufacture of products
like soap, paper, textiles etc. It also serves the industries like fertilizers, drugs,
engineering and pharmaceuticals, petrochemicals etc. Caustic soda production
increased in the later half of 19th century with the development of electrolysis for
the manufacture of Caustic soda. Caustic soda lye obtained from Membrane cell is
a clear colorless odorless and soapy liquid.
CHLORINE (CL2):
Chlorine, a co-product obtained in the process of manufacture of caustic
soda is an equally important basic chemical, inevitable for the manufacture of
paper textiles, insecticides, drugs and pharmaceuticals etc. It also serves the
industries such as mineral processing, sugar, fine chemicals, and rubber etc. It is
also renowned water purification chemical. It is a greenish yellow gas.
HYDROCHLORIC ACID (HCL):

TCC also produces high purity HCl, used for ossein, fertilizers etc. HCl
finds its application in number of chemical industries such as mineral processing,
gelatin, Food industry, water treatment, etc. It also serves the industries like
engineering, starch, and plastics. It is a yellowish green color liquid.
SODIUM HYPOCHLORITE:
Another by product, Sodium hypochlorite finds its use in bleaching and
disinfectant applications and also for extraction of rare earth materials. It is a pale
yellowish green color liquid. Soda bleach is the only branded product that
company producing, brand name is the “Eko clean”.
FINANCE DEPARTMENT

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Travancore Cochin chemicals Ltd has an efficient finance department
headed by a finance manager and he is assisted by the deputy manager, finance.
Finance manager is responsible for shaping the fortunes of the company,
preparing budgets, raising funds, keeping different accounts etc. TCC is having a
management information system to assist the finance department. The finance
department is dividing into different sections like general accounts, costing bills,
establishment and provident fund accounts section, each having its own functions.
DEPUTY FINANCE MANAGER
DFM controls the costing process. Various costs such as material costs and
production cost are assessed. Fixed capital and working capital are also planned
by this department. A comparative study on budgeting control is made. The
various areas coming under DFM are as follows;
AOGA: The main area coming under this section is finalization of accounts and
preparation of profit and loss account and balance sheet. Different vouchers,
journals and ledgers are also maintained under this area. Bank, cash, payroll etc
also come under this department. Based on the above data, ratio analysis is done.
AOEDP: This area mainly deals with hardware and software programs of the
computers. Any problems with computers are mainly analyzed by this department.
AO Bills: Under this area, first a quotation is collected from various companies. If
it is accepted, make purchase orders, contains the specifications, date, place etc.
Receiving repots are given. Income, Sales tax and VAT are verified in this area.
Senior Accounts Officer: The SAO deals with sales accounting. He also
maintains the account of sundry debtors, sales tax, VAT, etc.
Finance Manager: The function of finance manager is to have an overall control
of the above departments.
The various sections coming under finance department are explained below;
GENARAL ACCOUNTS SECTION
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In this section, a large number of general accounts are kept. These include;
general journal in which the transaction are entered first. Standard journal in
which all recurring items are entered (salary, wages, excise duty), Cash book in
which all cash receipts and payments are recorded, Sundry debtors and Sundry
creditors ledger, Bank book in which all bank payments and receipts are entered,
Subsidiary ledger, which include individual accounts maintained by each
department. A trial balance is prepared every 4 months. Balance sheet is prepared
annually for the financial year coming from April 1st extending to the period till
March 31st.
BILL SECTION
In this section, all payments for purchase are recorded. This includes bills
payable to suppliers and contractors. In case supplier demand advance, it is paid
and properly accounted. Sundry creditors ledger and supplier account are kept in
this section. At the end of the year, the accounts are ratified and send to the
general accounts section. In this section, separate cost records are kept and
maintained, and cost audit is conducted every year, both internally as well as by
Government nominees.
COSTING SECTION
Budgeting and budgetary control is the main function of the costing section
where both revenue and capital expenditure budget are prepared. Capital
expenditure is prepared based on the total asset incurred for all the items in all
debts. Revenue budget is prepared on the basis of estimates for production, sales
and expenditure. The balance sheet with total assets and liabilities is prepared and
total cash flow is found.
CHAPTER - 4
LITERATURE REVIEW
CHEMICALS
INTRODUCTION
Working capital is usually defined to be the difference between current

assets and current liabilities. However, we will modify that definition when we
measure working capital for valuation purposes. In a perfect world, there would be
no necessity for current assets and liabilities because there would be no
uncertainty, no transaction costs, information search costs, scheduling costs, or
production and technology constraints. The unit cost of production would not vary
with the quantity produced. Borrowing and lending rates shall be same. Capital,
labour, and product market shall be perfectly competitive and would reflect all
available information, thus in such an environment, there would be no advantage
for investing in short term assets. These real world circumstances introduce
problem’s which require the necessity of maintaining working capital.
WORKING CAPITAL
In simple words working capital is the excess of current Assets over current
liabilities. Working capital has ordinarily been defined as the excess of current
assets over current liabilities. Working capital is the heart of the business. If it is
weak business cannot proper and survives. Sit is therefore said the fate of large
scale investment in fixed assets is often determined by a relatively small amount of
current assets. As the working capital is important to the company is important to
keep adequate working capital with the company. Cash is the lifeline of company.
If this lifeline deteriorates so does the companies ability to fund operation, reinvest
do meet capital requirements and payment.
The company must have adequate working capital as much as needed by

the company. It should neither be excessive or nor inadequate. Excessive working

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capital cuisses for idle funds laying with the firm without earning any profit, where
as inadequate working capital shows the company doesn’t have sufficient funds for
financing its daily needs working capital management involves study of the
relationship between firm’s current assets and current liabilities. The goal of
working capital management is to ensure that a firm is able to continue its
operation. And that is has sufficient ability to satisfy both maturing short term debt
and upcoming operational expenses.
THE PRIMARY OBJECTIVE OF WORKING CAPITAL MANAGEMENT
Is to ensure that sufficient cash is available to;

 Meet day to day cash flow needs.
 Pay wages and salaries when they fall due
 Pay creditors to ensure continued supplies of goods and services.
 Pay government taxation and provider of capital – dividends and
 Ensure the long term survival of the business entity.
CONCEPTS OF WORKING CAPITAL
There are two thoughts that re currently accepted about working capital. They are
1) GROSS WORKING CAPITAL CONCEPT
This thought says that total investment in current assets is the working
capital of the company. This concept does not consider current liabilities at all.
Reasons given for the concept.
a) When we consider fixed capital as the amount invested in fixed assets. Then
the amount invested in current assets should be considered as working
capital.

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b) Current asset whatever my be the sources of acquisition, are used in
activities related to day to day operations and their forms keep on changing.
Therefore they should be considered as working capital.
2) NET WORKING CAPITAL
It is narrow concept of working capital and according to this, current assets

minus current liabilities forms working capital. The excess of current assets over
current liabilities is called as working capital. This concept lays emphasis on
qualitative aspect. This indicates the liquidity position of the concern/enterprise.
The reasons for the net working capital method are:
a) The material thing in the long fun is the surplus of current assets over
current liability
b) Financial health can easily be judged by with this concept particularly from
the view point of creditors and investors.
c) Excess of current assets over current liabilities represents’ the amount which
is not liable to be returned and which can be relied upon to meet any
contingency.
d) Inter company comparison of financial position may be correctly done
particularly when both the companies have the same amount of current
assets.
If the current assets are higher than current liability it is considered the
financial position of the company is sound. If both current assets and liabilities are
equal, the company has resorted to short term funds for financing the working
capital and long term sources of funds have been used to finance the acquisition of
fixed assets. It doesn’t not indicate the financial soundness for the company. If the
current assets are lesser than current liabilities there is negative working capital
which indicates financial crisis.

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KINDS OF WORKING CAPITAL
Working capital can be put in two categories:
I. FIXED OR PERMANENT WORKING CAPITAL
The volume of investment in current assets an change over a period of time.

But always there is minimum level of current assets that must be kept in order to
carry on the business. This is the irreducible minimum amount needed for
maintaining the operating cycle. It is the investment in current assets. This is
permanently locked up in the business, and therefore known as permanent working
capital.
II. VARIABLE/TEMPORARY WORKING CAPITAL
It is the volume of working capital. This is needed over and above the fixed
working capital in order to meet the unforced market changes and contingencies. In
other words any amount over and about the permanent level of working capital is
variable or fluctuating working capital. This type of working capital is generally
financed from short term source of finance such as bank credit because this amount
is not permanently required and is usually paid back during off season or after the
contingency.
DETERMINANTS OF WORKING CAPITAL
Working capital requirements of a concern depends on a number of factors,

each of which should be considered carefully for determining the proper amount of
working capital. It may be however be added that these factors affect differently to
the different units and these keeps varying from time to time. In general, the
determinants of working capital which re common to all organization’s can be
summarized as under:

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a. Nature of business: Need for working capital is highly depends on what
type of business, the firm in. there are trading firms, which needs to invest a
lot in stocks, ills receivables, liquid cash etc. public utilities like railways,
electricity, etc., need much less inventories and cash. Manufacturing
concerns stands in between these two extends. Working capital requirement
for manufacturing concerns depends on various factors like the products,
technologies, marketing policies.
b. Production policies: Production policies of the organization effects working
capital requirements very highly. Seasonal industries, which produces only
in specific season requires more working capital. Some industries which
produces round the year but sale mainly done in some special seasons are
also need to keep more working capital.
c. Size of business: Size of business is another factor to determines the need
for working capital
d. Length of operating cycle: Operating cycle of the firm also influence the
working capital. Longer the orating cycle, the higher will be the working
capital requirement of the organization.
e. Credit policy: Companies; follows liberal credit policy needs to keep more
working capital with them. Efficiency of debt collecting machinery is also
relevant in this matter. Credit availability form suppliers also effects the
company’s working capital requirements. A company doesn’t enjoy a liberal
credit from its suppliers will have to keep more working capital
f. Business fluctuation: Cyclical changes in the economy also influence the
level of working capital. During boom period, the tendency of management
is to pile up inventories of raw materials and finished goods to avail the
advantage of rising prove.

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g. Current asset policies: The quantum of working capital of a company is
significantly determined by its current assets. Policies. A company with
conservative assets policy may operate with relatively high level of working
capital than its sales volume. A company pursuing an aggressive amount
assets policy operates with a relatively lower level of working capital.
h. Fluctuations of supply and seasonal variations: Some companies need to
keep large amount of working capital due to their irregular sales and
intermittent supply. Similarly companies using bulky materials also maintain
large reserves’ of raw material inventories. This increase the need of
working capital. Some companies manufacture and sell goods only during
certain seasons. Working capital requirements of such industries will be
higher during certain season of such industries period.
i. Other factors: Effective co ordination between production and distribution
can reduce the need for working capital. Transportation and communication
means. If developed helps to reduce the working capital requirement.
SOURCES OF WORKING CAPITAL
The company can choose to finance its current assets by
1) Long term sources 2) Short term sources 3) A combination of them.
Long term sources of permanent working capital include equity and

preference shares, retained earning, debentures and other long term debts from
public deposits and financial institution. The long term working capital needs
should meet through long term means of financing. Financing through long term
means provides stability, reduces risk or payment. And increases liquidity of the
business concern.

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Various types of long term sources of working capital are summarized as follow;
 Issue of shares * Retained earnings

 Issue of debentures * Long term debt
* Other sources: sale of idle fixed assets, securities received from employees and
customers are examples of other sources of finance.
SHORT TERM SOURCES OF TEMPORARY WORKING CAPITAL

Temporary working capital is required to meet the day to day business
expenditures. The variable working capital would finance from short term sources
of funds. And only the period needed. It has the benefits of ,low cost and
establishes closer relationships with banker.
SOURCES OF TEMPORARY WORKING CAPITAL
 Commercial bank
 Public deposits
 Various credits
 Reserves and other funds
ADVANTAGES OF ADEQUATE WORKING CAPITAL
 Increase in debt capacity and goodwill

 Increase in production inefficiency
 Exploitation of favorable opportunities
 Meeting contingencies adverse changes
 Available cash discount
 Solvency and efficiency fixed assets.
 Attractive dividend to shareholders

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CHAPTER - 5
ANALYSIS AND INTERPRETATION
Ratio analysis is an important and age-old technique. It is a powerful tool
of financial analysis. It is defined as “the indicated quotient of two mathematical
expression” and as “the relationship between two or more things”. Systematic use
of ratio is to interpret the financial statement so that the strength and weakness of a
firm as well as its historical performance and current financial condition can be
determined.
A ratio is only comparison of the numerator with the denominator. The

term ratio refers to the numerical or quantitative relationship between two figures.
Thus, ratio is the relationship between two figures, and obtained by dividing the
former by the latter. Ratios are designed show how one number is related to
another. The data given in the financial statements are in absolute form, are dump,
and are unable to communicate anything. Ratios are relative form of financial data
and very useful technique to check upon the efficiency of a firm. Some ratios
indicate the trend, progress, or downfall of the firm.
In the view of the requirements of the various users of ratio, it has divided
into the following important categories:
A Activity Ratio
B. Leverage Ratio
C. Liquidity Ratio
D. Profitability Ratio

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I. ACTIVITY RATIOS
1. NET WORKING CAPITAL
Table no: 5.1
YEAR CA (Rs in CL (Rs in NET WORKING
Source: lakhs) lakhs) CAPITAL Annual
Reports of 2004 4267.84 4889.1 -621.26 TCC
Graph no: 2005 2588.75 5063.93 -2475.18 5.1

2006 3576.06 5859.42 -2283.36
2007 3717.33 5583.33 -1866
2008 3457.23 5473.83 -2016.6
INTERPRETATION AND INFERENCE: From the above table,

networking capital of the TCC shows negative trend that means for the last five
years current asset is less than current liabilities. It reveals that the company not in
a position to meet its day to day obligations. Management must take adequate

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interest in increasing the working capital of the company for the coming years by
increasing current assets of the company.
2. WORKING CAPITAL TURNOVER RATIO

Table No: 5.2
YEAR SALES (Rs in NET WORKING RATIO

lakhs) CAPITAL
2004 9123.33 -621.26 -14.6852
2005 8868.57 -2475.18 -3.583
2006 10877.3 -2283.36 -4.76373
2007 12313.8 -1866 -6.59904
2008 9384.56 -2016.6 -4.65365
Source: Annual Reports of TCC
Graph No: 5.2
INTERPRETATION AND INFERENCE:
Here all the working capital turnover ratio of TCC is found to be negative,
because of the negative working capital. In all years the current liabilities exceeds
the current assets. If we ignore the negatives all ratios are found satisfactory. From
this, we can understand that the working capital turn over ratio is fluctuating. That
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is in the beginning period it shows an increasing trend then declines and again
increases and then shows a decreasing trend.
3. COMPONENTS OF CURRENT ASSETS
Table No: 5.3
YEAR INVENTARY(Rs DEBTORS(Rs CASH (Rs LOANS AND TOTAL (Rs
in lakhs) in lakhs) in lakhs) ADVANCE(Rs in lakhs)
in lakhs)S
2004 1336.39 1175.4 710.41 1045.64 4267.84
2005 644.19 954.67 166.17 823.72 2588.75
2006 967 1098.56 124.12 1386.38 3576.06
2007 1044.91 1424.95 139.28 1108.19 3717.33
2008 1018.27 1229.14 115.26 1094.56 3457.23
Graph No: 5.3

The table shows that the different components of current assets in last
five years. Debtors is the main component in current assets allover the years.
Loans and advances also have major part in current assets of the company. But the
amount of each component is varies over the years. It also shows that current

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assets of the company fluctuating over the years. The above graph shows that the
different components of current assets in last five years.
INVENTORY MANAGEMENT
4. INVENTORY AS A PERCENTAGE OF CURRENT ASSETS
Table No: 5.4
YEAR CA (Rs in INVENTORY(Rs PERCENTAGE

lakhs) in lakhs)
2004 4267.84 1336.39 31.31
2005 2588.75 644.19 24.88
2006 3576.06 967 27.04
2007 3717.33 1044.91 28.11
2008 3457.23 1018.27 29.45
Graph no: 5.4

The table shows that the percentage of inventory shows a gradual increase
in the last four years. In 2005, inventory’s percentage was 24.88%. It was

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gradually increased to 29.45% in 2008. It shows that inventory in current assets is
increased in recent years.
5. INVENTORY TURNOVER RATIO

Table No: 5.5
YEAR NET SALES AVERAGE RATIO
(Rs in lakhs) INVENTORY (Rs
in lakhs)
2004 9123.33 1336.39 6.826847
2005 8868.57 644.19 13.76701
2006 10877.3 967 11.2485
2007 12313.8 1044.91 11.78456
2008 9384.56 1018.27 9.21618
Source: Annual Reports Of TCC

Graph No: 5.5

Inventory turnover ratio measures the velocity of conversion of stock into
sales. The Inventory Turnover Ratio is fluctuating over the years. The lower ratio
indicates the smooth movement of stock from the company to the market. The ratio
of TCC shows an almost steady level of movement of goods to the market. In the
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last year the inventory turnover ratio is decreased, it is a bad sign of decrease in
sales. If sales decrease, the inventory cost can be increased.
6. INVENTORY CONVERSION PERIOD

Table No: 5.6
YEAR DAYS IN A INVENTORY PERIOD

YEAR TURNOVER RATIO
2004 365 6.826847 53.46538
2005 365 13.76701 26.51266
2006 365 11.248501 32.44877
2007 365 11.784556 30.97274
2008 365 9.2161804 39.60426
Graph No: 5.6
Inventory conversion period measures the average time taken for clearing
the stocks. This inventory conversion period of TCC shows a fluctuating trend. In
2004, it was very high, but later it decreased. In later period, it shows an
increasing trend. In 2008, it is 39 days.
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The above graph shows the fluctuating trend of inventory conversion
period of TCC.
RECEIVABLES MANAGEMENT
7. DEBTORS AS A PERCENTAGE OF CURRENT ASSETS
Table No: 5.7
YEAR CA (Rs in DEBTORS (Rs PERCENTAGE
lakhs) in lakhs)
2004 4267.84 1175.4 27.54
2005 2588.75 954.67 36.88
2006 3576.06 1098.56 30.72
2007 3717.33 1424.95 38.33
2008 3457.23 1229.14 35.55
Graph No: 5.7
The amount of debtors in current assets is fluctuating over the years. In 2004,
it was 27.54%, after that it is increasing in to 36.88% in next year. But it shows
fluctuating trend after 2005. In 2008, it shows 2.78% decreased from 2006-2007.

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The above bar diagram shows the fluctuating nature of percentage of debtors in
current assets.
8. DEBTORS TURNOVER RATIO
Table No: 5.8
YEAR SALES (Rs in DEBTORS(Rs in RATIO

lakhs) lakhs)
2004 9123.33 1175.4 7.761894
2005 8868.57 954.67 9.289671
2006 10877.3 1098.56 9.901416
2007 12313.8 1424.95 8.641566
2008 9384.56 1229.14 7.635062

Graph No: 5.8
Debtors’ turnover ratio measures the liquidity of the company and also
discusses credit collection power and policy of the firm. Debtors’ turnover ratio of
TCC shows variation in each year. In 2004 it was 7.76%, after that it is increased
till 2006, but later it shows decreasing trend. But it runs under satisfactory level. It

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shows that company’s credit policy is effective. The above graph shows the
variation of debtors’ turnover ratio over the study period.
9. AVERAGE COLLECTION PERIOD

Table No: 5.9
YEAR NO OF DEBTORS PERIOD
WORKING TURNOVER
DAYS RATIO
2004 360 7.7618938 46.38043
2005 360 9.2896708 38.75272
2006 360 9.9014164 36.35843
2007 360 8.6415664 41.65911
2008 360 7.6350619 47.15089
Graph No: 5.9
The average collection period ratio represents the average number of days
for which a firm has to wait before its receivables are converted into cash.
Generally, the shorter period is better to the company. Average collection period
of TCC shows an increasing trend in recent years. It is not well for the company.

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In 2006, average collection period is 36 days, after that it is increased to 47 days
in 2008. It is not satisfactory.
CASH MANAGEMENT
10. CASH AS A PERCENTAGE OF CURRENT ASSETS
Table No: 5.10
YEAR CA (Rs in CASH (Rs in PERCENTAGE

lakhs) lakhs)
2004 4267.84 710.41 16.65
2005 2588.75 166.17 6.42
2006 3576.06 124.12 3.47
2007 3717.33 139.28 3.75
2008 3457.23 115.26 3.33
Graph No: 5.10

The above table and graph shows cash position in the company. In 2004,
company have better cash balance, but later it shows declining trend. In the study
period, higher percentage 16.65% shows in 2003-2004. Lower percentage shows
in 3.33% in 2007-2008. Moreover, we cannot neglect the fact that, as a

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government company, like TCC will get short-term funds easily, and can meet its
short-term liabilities in time.
11. ABSOLUTE LIQUID RATIO

Table No: 5.11
CASH (Rs in CL (Rs in
YEAR RATIO
lakhs) lakhs)
2004 710.41 4889.1 0.145305
2005 166.17 5063.93 0.032814
2006 124.12 5859.42 0.021183
2007 139.28 5583.33 0.024946
2008 115.26 5473.83 0.021057
Graph No: 5.11
Here the Absolute Liquidity Ratio of TCC is not Satisfactory, as it never

touches the standard level of 0.75. The highest ratio is 0.24 in 2006-2007 and the
lowest ratio was 0.02 in 2005-2006. As a government company, like TCC will get

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short-term funds easily, and can meet its short-term liabilities in time. TCC is
keeping a very low amount of cash to meet the requirements. Therefore, we can
interpret that available funds are properly utilized and no funds are kept idle.
12. COMPONENTS OF CURRENT LIABILITIES

TABLE NO: 5.12
YEAR CREDITORS (Rs OTHER PROVISION(Rs TOTAL (Rs

in lakhs) LIABILITIES(Rs in lakhs) in lakhs)
in lakhs)
2004 4054.14 828.03 6.93 4889.1
2005 4184.11 879.82 0 5063.93
2006 4519.02 1292.35 48.05 5859.42
2007 3950.05 1580 53.28 5583.33
2008 3577.14 1893.15 3.54 5473.83
Graph NO: 5.12
The above table and graph shows the components of current liabilities. In
every year creditors have major part in current liabilities of the company.

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Provision is comparatively lower in current liabilities. TCC’s liquidity position is
not satisfactory. Company’s current assets are lower than its current liabilities. So
company tries to decrease the current liabilities, through payment of creditors in
time. It will help the company to decrease the amount of creditors.
13. CREDITORS AS A PERCENTAGE OF CURRENT LIABILITIES
Table No: 5.13
YEAR CL (Rs in CREDITORS(Rs in PERCENTAGE

lakhs) lakhs)
2004 4889.1 4054.14 82.92
2005 5063.93 4184.11 82.63
2006 5859.42 4519.02 77.12
2007 5583.33 3950.05 70.75
2008 5473.83 3577.14 65.35
Graph No: 5.13

CHEMICALS
Here, we analyze that, creditors is the major portion of the current liabilities.
In the study period creditors shows a declining trend. It shows company try to pay
its creditors in time. It is good sign for the company because, decrease in creditors
help the company to control its current liabilities. Creditors is the major portion
of current assets all over the years.
14. CREDITORS TURNOVER RATIO
Table No: 5.14

YEAR PURCHASES CREDITORS (Rs RATIO
(Rs in lakhs) in lakhs)
2004 1160.96 3910.37 0.296893
2005 1031.98 4119.13 0.250533
2006 1593.88 4351.57 0.366277
2007 1647.65 4234.54 0.389098
2008 1253.26 3763.6 0.332995
Graph No: 5.14

CHEMICALS
The creditors turnover ratio indicates the velocity with which the creditors
are turned over in relation to purchase. Generally higher the creditors’ velocity
better it is or otherwise lower the creditors velocity, less favorable are the results.
TCC’s creditors’ turnover ratio shows a fluctuating trend all over the study period.
Higher ratio is 0.38 in 2006-2007. Last year shows a decreasing trend, it is better
to the company.
15. OTHER LIABILITIES AS A PERCENTAGE OF CURRENT

LIABILITIES
Table No: 5.15
YEAR CL (Rs in OTHER LIABILITIES PERCENTAGE
lakhs) (Rs in lakhs)
2004 4889.1 828.03 16.94
2005 5063.93 879.82 17.37
2006 5859.42 1292.35 22.06
2007 5583.33 1580 28.3
2008 5473.83 1893.15 34.59
Graph No: 5.15

CHEMICALS
Here we analyze that the proportion of other liabilities in current liabilities.
The above table and graph shows the percentage of other liabilities in current
liabilities, it shows a gradual increase in the study period, in 2007-2008, other
liabilities is 34% of the current liabilities.
16. PROVISION AS A PERCENTAGE OF CURRENT LIABILITIES
Table No: 5.16

YEAR CL (Rs in PROVISION(Rs PERCENTAGE
lakhs) in lakhs)
2004 4889.1 6.93 0.14
2005 5063.93 0 0
2006 5859.42 48.05 0.82
2007 5583.33 53.28 0.95
2008 5473.83 3.54 0.06
Graph No: 5.16

CHEMICALS

In the above table and graph, we interpret that provision is the least portion
of the current liabilities in all over the study period. The higher portion is 0.95%,
in 2005-2006. But in the last year, provision is only 0.06% of the current
liabilities. In 2004-2005, there is no provision in the company.
17. RETURN ON INVESTMENT
Table No: 5.17

YEAR NET PRO(Rs SHAREHOLDER'S FUNDS PERCENTAGE
in lakhs)FIT (Rs in lakhs)
2004 83.23 2131.19 3.90533
2005 -829.24 2131.19 -38.9097
2006 523.01 2131.19 24.54075
2007 48.52 2131.19 2.276662
2008 27.67 2131.19 1.298336
Graph No: 5.17

CHEMICALS
Return on investments is one of the most important ratio used for measuring
the overall efficiency of the firm. It reveals, how well the resources of a firm are
being used, higher the ratio, better are the results. In 2004-2005, company shows
negative (-38%) return of investment. Butter later company recovers, the very
next year company shows higher ratio (24.54%) in 2005-2006. But later it shows a
declining trend. In last year, company has 1.30% return on investment.
II. LIQUIDITY RATIOS
18. CURRENT RATIO
Table No: 5.18
YEAR CA (Rs in CL (Rs in CURRENT RATIO
lakhs) lakhs)
2004 4267.84 4889.1 0.87
2005 2588.75 5063.93 0.51
2006 3576.06 5859.42 0.61
2007 3717.33 5583.33 0.67
2008 3457.23 5473.83 0.63
Graph No: 5.18

CHEMICALS
Standard current ratio of a sound business is two and TCC’s current ratio is
below one for the last five years. The highest ratio was 0.87 in 2003-2004, and the
lowest was in 2004-2005 i.e, 0.51. Therefore, we can interpret that the company is
suffering from inadequate working capital. That is they cannot meet their short-
term obligations in time. The main reason for the decrease in current ratio is that,
in all the five years the current liabilities of the company are more than the CA.
19. QUICK RATIO
Table No: 5.19

YEAR QA (Rs in CL (Rs in QUICK RATIO
lakhs) lakhs)
2004 2887.77 4889.1 0.59
2005 1921.74 5063.93 0.38
2006 2568.69 5859.42 0.44
2007 2644.85 5583.33 0.47
2008 2414.75 5473.83 0.44
Graph No: 5.19
0.7
0.6
R 0.5
A 0.4
T
I 0.3
QUICK RATIO
O 0.2
0.1
0
2004 2005 2006 2007 2008
YEAR

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Here in the case of TCC the Acid Test Ratio for the five years are below
one therefore the financial position of TCC shall be deemed unsound. In most
cases, the quick ratio of TCC could not achieve the standard quick ratio of 1:1. The
highest Quick Ratio was 0.59 in 2003-2004 and the lowest is 0.38 in 2004-
2006.The greater amount of current liability is the main reason for the low Quick
Ratio of the company.
III. PROFITABILITY RATIOS

20. GROSS PROFIT RATIO
Table No: 5.20
YEAR GROSS SALES (Rs in G/P RATIO
PROFIT (Rs in lakhs)
lakhs)
2004 90.16 9123.33 0.988236
2005 -829.24 8868.57 -9.35032
2006 581.08 10877.3 5.342135
2007 61.87 12313.8 0.502444
2008 43.69 9384.56 0.465552
Graph No: 5.20

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Gross profit ratio indicates the degree to which selling price per unit may
decline without resulting in losses from operations to the firm. An increase in the
gross profit ratio may be due to an increase in the selling price without a
corresponding increase in the cost of goods sold or due to a decrease in the cost of
goods sold without a corresponding decrease in the selling price of goods.
21. NET PROFIT RATIO

Table No: 5.21
YEAR NET PROFIT (Rs SALES (Rs in lakhs) N/P RATIO
in lakhs)
2004 83.23 9123.33 0.912277
2005 -829.24 8868.57 -9.35032
2006 523.01 10877.3 4.80827
2007 48.52 12313.8 0.394029
2008 27.67 9384.56 0.294846
Graph No: 5.21

CHEMICALS

Net profit ratio is used to measure the overall profitability of the
organization. Here the company is running at a loss in 2004-2005. In the year,
2004-2005 the company is incurred a loss of Rs.829.24 lakh. This is reported
mainly due to the unabsorbed depreciation of Rs.472.86 lakh, written of advance
amounting to Rs. 237.91 lakh. The cost of raw material is increasing day by day
and the company could not increase the selling price.
TREND ANALYSIS
1. TREND ANALYSIS OF WORKING CAPITAL

Table No: 5.22
NET WORKING
CAPITAL (Rs in INCREASE/
YEAR lakhs) TREND DECREASE
2004 -621.26 100 0
2005 -2475.18 398.4129 298.4129
2006 -2283.36 367.5369 267.5369
2007 -1866 300.3573 200.3573

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2008 -2016.6 324.5984 224.5984
Graph No: 5.22

Here we analyze the trend of net working capital of TCC. This analysis shows
that networking capital shows a fluctuating trend during the study period.
Fluctuations in working capital is high in allover the years.
2. TREND ANALYSIS OF INVENTORY
Table No: 5.23
YEAR INVENTORY (Rs in TREND INCREASE OR
lakhs) DECREASE
2004 1336.39 100 0
2005 644.19 48.20374 -51.7963
2006 967 72.35912 -27.6409
2007 1044.91 78.189 -21.811
2008 1018.27 76.19557 -23.8044
Graph No: 5.23
CHEMICALS
The above table and graph shows the trend of inventory in the
study period, it also shows a fluctuating trend. In2004-2005 it shows a
high decline, later it recovers. But compared to 2003-2004, now
company shows a decreasing trend. TCC has high amount of inventory
in 2003-2004.
3. TREND ANALYSIS OF DEBTORS

Table No: 5.24
YEAR DEBTORS (Rs in TREND INCREASE OR
lakhs) DECREASE
2004 100 0
1175.4
2005 81.22086 -18.7791
954.67
2006 93.46265 -6.53735
1098.56
2007 121.2311 21.23107
1424.95
2008 104.5721 4.572061
1229.14

CHEMICALS
Graph No: 5.24

Trend of debtors of TCC Company shows fluctuating trend. Compared to
2003-2004, company has better debtor position in 2006-07 and 2007-08. But in last
year it shows a decreasing trend from previous year.
4. TREND ANALYSIS OF CREDITORS
Table No: 5.25

YEAR CREDITORS (Rs in TREND INCREASE OR
lakhs) DECREASE
2004 4054.14 100 0
2005 4184.11 103.2059 3.205859
2006 4519.02 111.4668 11.4668
2007 3950.05 97.4325 -2.5675
2008 3577.14 88.23425 -11.7658

CHEMICALS
Graph No: 5.25

Here we analyze that company’s creditors shows a fluctuating trend. In 2004-
05 and 2005-06 company’s creditors have increasing trend but later it shows a
decreasing trend. In 2007-08 company’s creditors have least amount compared to
other years in study period. It is good sign for the company.
5. COMBINED TRENDS OF INVENTORY, DEBTORS AND
CREDITORS
Table No: 5.26

YEAR INVENTORY TREND DEBTOR(Rs TREND CREDITORS(Rs TREND
(Rs in lakhs) in lakhs)S in lakhs)
2004 100 100 100
1336.39 1175.4 4054.14
2005 48.2037 81.2208 103.205
4 6 9
644.19 954.67 4184.11

CHEMICALS
2006 72.3591 93.4626 111.4668
2 5
967 1098.56 4519.02
2007 78.189 121.2311 97.4325
1044.91 1424.95 3950.05
2008 76.1955 104.572 88.2342
7 1 5
1018.27 1229.14 3577.14

From the above table, we analyze the trend of TCC’s inventory, debtors and
creditors. These changes highly affect the changes in working capital of the
company. From the table we can see that, all components has fluctuating trend all
over the years. First two years, all components show a increasing trend. But later
creditors decrease to 97% and 88%. But inventory shows a constant trend in last
two years. In case of debtors, in 2006-07, it have high increase but later it shows a
decreasing trend (104%).
Graph No: 5.26

CHEMICALS

The above graph shows combined trends of inventory, debtors and creditors of
TCC. First two years in study period creditors trend is much higher than debtors
and inventory. In 2004-05, inventory and debtors shows a decreasing trend, but
creditors have increasing trend. In 2005-06, all components shows a increasing
trend. But later years creditors show a decreasing trend and others shows
increasing trend, it is good sign for the company.
CHAPTER - 6
FINDINGS
CHEMICALS
 The company shows negative working capital for the last five years, due to
the increase in current liabilities and decrease in current assets. The major
reason is the existing loan of nearly 40 lakhs from the Government.
 Current ratio of the company shows a fluctuating trend. An ideal current
ratio is 2:1. Average current ratio of the company for the last five years is
0.66. Showing that the liquidity position of the company is not satisfactory.
 Company’s average quick ratio for the last five years is 0.46. The standard
norm fixed for quick ratio is 1:1; this again shows that the company’s
liquidity position is not satisfactory. This is unfavorable to the creditors.
The quick ratio is decreasing year to year. But the last year it is slightly
increased.
 The average absolute liquidity ratio is 0.05. The acceptable ratio is 1:2.
This shows that the company’s financial position is not satisfactory.
 During the year 2003-2004 and 2004-2005, the company had satisfactory
Gross profit ratios. Which indicating increasing sales. A high profit margin
in ratio is a sign of good and efficient management.
 Net profit ratio shows a downward trend. It has declined over the five
years, and has not increased as fast as the gross profit margin. This implies
that the operating expenses relative to sales have been increasing.
 Operating ratio is an indicator of the growth the business. The operating

profit ratio shows a declining trend, the reason pertaining is the increasing
operating cost.
 The average inventory turnover ratio is 10.57. A high inventory turnover

ratio is indicative of good inventory management.
CHEMICALS
 The average debtors turn over ratio is 8.65 times. This is satisfactory. It
shows that the company’s credit policy is effective. The average debt
collection period is 42 days.
 The profitability ratios such as net profit ratio, operating ratio and earnings
pr share are also found unsatisfied.
 The company is the one and only chlor-alkali industry in Kerala, and meets
the demand of Kerala. The new technology of membrane cell has the
advantage of pollution free environment.
 Networking capital shows a fluctuating trend during the study period.
Fluctuations in working capital is high in allover the years.
 In 2004-05 and 2005-06 company’s creditors have increasing trend but
later it shows a decreasing trend. In 2007-08 company’s creditors have
least amount compared to other years in study period. It is good sign for
the company.
 Trend of debtors of TCC Company shows fluctuating trend. Compared to

2003-2004, company has better debtor position in 2006-07 and 2007-08.
But in last year it shows a decreasing trend from previous year.
CHAPTER - 7
SUGGESTIONS

CHEMICALS
 The company shows a negative working capital since 2003. This should be
maintained through adequate current assets for its daily operations. The
company should increase the current assets by increasing its cash and bank
balance.
 The increasing liabilities should be controlled by the company and adequate
measures are to be taken henceforth.
 Inventory management of the company is not satisfactory. Therefore the
company should reduce the holding period as much as possible.
 The liquidity position of the company being unsatisfactory should be tried
to be in par with required ratio.
 The debtors of the company is fluctuating over the years, company should
adopt a competent credit policy to attract the customers. Increasing debtors
is a solution to over come the liquidity problem.
 The company can reduce the cost of production and try to improve its
profitability.
 The operating expenses of the company must be put to check as there exist
a wide gap between gross profit and net profit. The net profit ratio is also
under the ratio requirements. This should be brought to control for the
effective running of the company.
 The cash management should be done effectively as a major portion
comprises of current assets which are present in the company.
 High creditors’ payment period will affect the regular supply of raw
materials, so company can make necessary steps to pay its creditors at
reasonable time period.
CHAPTER - 8
CONCLUSION
CHEMICALS
In this study an attempt has been made to analyze the working capital
position of Travancore Cochin Chemicals. The study shows that the overall
performance of the company is not satisfactory. Through the company is a profit
making organization, its profit is not up to the mark with respect to the asset
employed in the organization. Since the working capital amount shows a negative
trend it reveals that the company is not in a position to meet its day to day
obligations. The analysis and interpretation of various data relating to working
capital management helped to reach into a conclusion that the efficiency of the
working capital is not sufficient. Since the working capital shows a negative
balance. But this cannot be blamed, as this is a government run company and the
major portion of the current liability is the loan taken from the govt. it is also
reveals that the company is not having a satisfactory liquidity and profitability
position.
The overall success of any company depends upon the working capital
position. So it should be handled properly because it shows the efficiency and
financial strength of the company. Therefore the company should adhere to strict
measures in every sphere of its activities to bring the company back to sufficient
working capital position and improve its financial performance.

CHEMICALS
BIBLIOGRAPHY
 Kevin .S, securities and portfolio management, First

edition (2008), Prentice hall India Pvt Limited.
 Shashi K. Gupta, Sharma R.K, Management
Accounting, 10th edition (2005), Kalyani Publishers.
 Khan M.Y, Jain P.K, Financial Management,
4th edition (2004), Tata McGraw Publishing Company
Limited.
 www.tcckerala.com
 www.moneycontrol.com

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Working capital management THE TRAVANCORE COCHIN

TABLE No: TABLE NAME PAGE No:

TABLE NO 5.1 NET WORKING CAPITAL 35

TABLE NO 5.2 WORKING CAPITAL TURNOVER RATIO 36

TABLE NO 5.3 COMPONENTS OF WORKING CAPITAL 37

TABLE NO 5.6 INVENTORY CONVERSION PERIOD 40

TABLE NO 5.9 AVERAGE COLLECTION PERIOD 43

TABLE NO 5.12 COMPONENTS OF CURRENT LIABILITIES 46

Magnus school of business, Cochin Page 1

TABLE No: TABLE NAME PAGE No:

TABLE NO 5.14 CREDITORS TURNOVER RATIO 48

OTHER LIABILITIES AS A PERCENTAGE OF

PROVISION AS A PERCENTAGE OF CURRENT

TABLE NO 5.18 CURRENT RATIO 52

TABLE NO 5.19 QUICK RATIO 53

TABLE NO 5.20 GROSS PROFIT RATIO 54

TABLE NO 5.21 NET PROFIT RATIO 55

TABLE NO 5.22 TREND ANALYSIS OF NET WORKING CAPITAL 56

TABLE NO 5.23 TREND ANALYSIS OF INVENTORY 57

TABLE NO 5.24 TREND ANALYSIS OF DEBTORS 58

TABLE NO 5.25 TREND ANALYSIS OF CREDITORS 59

COMBINED TRENDS OF INVENTORY, DEBTORS

Magnus school of business, Cochin Page 2

FIGURE No: FIGURE NAME PAGE No:

FIGURE 5.2 WORKING CAPITAL TURNOVER RATIO 36

FIGURE 5.5 INVENTORY TURNOVER RATIO 39

FIGURE 5.6 INVENTORY CONVERSION PERIOD 40

FIGURE 5.9 AVERAGE COLLECTION PERIOD 43

FIGURE 5.11 ABSOLUTE LIQUIDITY RATIO 45

FIGURE 5.12 COMPONENTS OF CURRENT LIABILITIES 46

Magnus school of business, Cochin Page 3

FIGURE No: FIGURE NAME PAGE No:

OTHER LIABILITIES AS A PERCENTAGE OF

FIGURE 5.16 PROVISION AS A PERCENTAGE OF CURRENT

FIGURE 5.18 CURRENT RATIO 52

FIGURE 5.19 QUICK RATIO 53

FIGURE 5.20 GROSS PROFIT RATIO 54

FIGURE 5.21 NET PROFIT RATIO 55

FIGURE 5.22 TREND ANALYSIS OF NET WORKING CAPITAL 56

FIGURE 5.23 TREND ANALYSIS OF INVENTORY 57

FIGURE 5.24 TREND ANALYSIS OF DEBTORS 58

FIGURE 5.25 TREND ANALYSIS OF CREDITORS 59

COMBINED TRENDS OF INVENTORY, DEBTORS

Magnus school of business, Cochin Page 4

The study was conducted at Travancore Cochin Chemicals Ltd

(TCC) Udyogamandal. The Travancore Cochin Chemicals Ltd (TCC) is

a state public sector company undertaking owned by the Government of

Kerala an ISO 9001:2000 certified company. The study was aimed at

assessing the effectiveness of working capital management in TCC. This

was done through exploratory research method using analysis of annual

reports of the company.

working capital management in TCC and can able to suggest remedial

measures to be taken by management to improve the working capital

Magnus school of business, Cochin Page 5

Magnus school of business, Cochin Page 6

STATEMENT OF THE PROBLEM

A study of working capital is of major importance to internal and external

Efficient management of working capital is the key to the success of every

Magnus school of business, Cochin Page 7

1.2 OBJECTIVE OF THE STUDY:

 To assess the effectiveness of working capital management of The

SUB OBJECTVES ARE:

 To measure the operational and financial efficiency of the company,