Escolar Documentos
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PROJECT REPORT
ON
Submitted By
Year - 2009-11
Submitted To
Nadiad- 387001
1
PREFACE
The M.B.A programme is well structured and integrated course of business studies. The
main objective of summer training at M.B.A level is to develop skill in student by supplement to
the theoretical study of business management in general. Industrial training helps to gain real life
knowledge about the industrial environment and business practices. The MBA programme
provides student with a fundamental knowledge of business and organizational functions and
activities, as well as an exposure to strategic thinking of management.
Training is an integral part of MBA and each and every student has to undergo the
training for 6 to 8 weeks in a company and then prepare a project report on the same after the
completion of training.
During this whole training I got a lot of experience and came to know about the
management practices in real that how it differs from those of theoretical knowledge and the
practically in the real life.
In today's globalization world, where cut throat competition is prevailing in the market,
theoretical knowledge is not sufficient. Beside this one need to have practical knowledge, which
would help to individual in his/her carrier activities and it is true that "Experience is best
teacher".
Thus since the industrial training offer variety of advantages, the Dharamsinh Desai
University offer such industrial training consist of interesting and purposeful visit of various
department of industry like production, personnel, marketing, finance etc, It is thus, training
programme is held for the taste of management application in industrial world.
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ACKNOWLEDGEMENT
In my eight weeks training, I realised that the M.B.A course differ from M.COM,M.CA
course in that it gives more weightage to the subject of business management with practical
training. It is a subject which changed the life style of human beings all over the world including
India. In other developed country more weight age is given on only practical training.
“Accomplishment of a task with desired success calls for dedication towards work and
prompting guidance, co-operation and deliberation from seniors.”
This report is the outcome of Eight weeks training that I received at ELECON
ENGINEERING LTD.
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EXECUTIVE SUMMARY
In the project both primary as well as secondary data has been used. The
scope of the study is identified after and during the study . With the increase in complexity of the
business the working capital management is also getting due importance as we know that finance
is life blood of the business. The study of working capital is based on tools like trend Analysis,
Ratio Analysis, working capital leverage, operating cycle etc.
The internship is a bridge between the institute and the organization. This
made me to be involved in a project that helped me to employ my theoretical knowledge about
the myriad and fascinating facets of finance. And in the process I could contribute substantially
to the organization’s growth.
The experience that I gathered over the past two months has certainly provided the orientation,
which I believe will help me in shouldering any responsibility in future.
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CONTENT
-Introduction 8
-Types of research methodology 8
-Objective of study 9
-Scope and limitations of study 9
-Company Profile 16
-Social welfare 20
-Overview of company 21
-Products of company 27
-Introduction 39
-Operating cycle 47
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-Sources of working capital 57
-Introduction to ratios 76
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RESEARCH
METHEDOLOGY
7
RESEARCH METHEDOLOGY
INTRODUCTION
Methods comprise the procedures used for generating, collecting and evaluating
data. All this means that it is necessary for the researcher to design his methodology for his
problem as the same may differ from problem to problem. Data collection is important step in
any project and success of any project will be largely depend upon now much accurate you will
be able to collect and how much time, money and effort will be required to collect that necessary
data, this is also important step. Data collection plays an important role in research work.
Without proper data available for analysis you cannot do the research work accurately.
1) Primary data
The primary data is that data which is collected fresh or first hand, and for first
time which is original in nature. Primary data can collect through personal interview etc to
support the secondary data.
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5. Annual report of Elecon 2008-09
Study of the working capital management is important because unless the working capital
is managed effectively, monitored efficiently planed properly and reviewed periodically at
regular intervals to remove bottlenecks if any the company can not earn profits and increase its
turnover. With this primary objective of the study, the following further objectives are framed for
a depth
analysis.
1) Limited data:-
This project has completed with annual reports; it just constitutes one part of data
collection i.e. secondary. There were limitations for primary data collection because of
confidentiality.
2) Limited period:-
This project is based on five year annual reports. Conclusions and recommendations are
based on such limited data. The trend of last five year may or may not reflect the real working
capital position of the company
3) Limited area:-
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Also it was difficult to collect the data regarding the competitors and their financial information.
Industry figures were also difficult to get.
INTRODUCTION
OF
COMPANY
10
HISTORY OF ENGINEERING COMPANY IN INDIA
The 21st century has seen a different trend. With the onset of
technical outsourcing to India and other cheap foreign destination from the USA and Europe,
engineering degrees and careers have taken a whole new meaning in India. The last ten years has
seen a lot of low skilled as well as software testing work shift to destinations like India due to the
lower cost of labor. Several engineers of Indian origin in the USA are electing to go back as
more and more opportunities emerge in India due to rapid globalization and shifting of
technology related work to low cost destination such as India.
With the high economic growth rate in India and rapid globalization of technical
services worldwide, engineering in India is poised to climb to the next level. Plans are
underway to revamp the engineering education system and make it more answerable to
emerging global demands.
• Engineering Education
Engineering education in India has long been dominated by the Indian Institutes
of Technology and the Regional Engineering Collages. The Indian institute of
Technology has earned a reputation for graduating outstanding engineers who have risen
to the top of their profession globally. However, critics call it more a phenomena of
admitting the best and not necessarily the institutes having top-notch professors. Other
engineering collages such as the regional Engineering collages have also made huge
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strides. But the majority of the Engineering collages in India rely on rote as the teaching
methodology.
There is an increasing awareness that the Engineering education system has to be
revamped. Reports reveal that only 25% of the engineering graduates are employable.
Several companies have set-up their own training institutes to fill the gap between what
the education system delivers and what is needed in the market place. Also theer is a
dearth of engineers in areas other than software engineering. Because of opportunities
and prevailing trends, most engineers gravitate towards computer engineering. This has
exposed a gap in engineering skills for other professions – some that are just emerging as
competitive areas.
However, some other fields of engineering are not developed such as offshore,
nuclear etc. The reason is a lack of private participation in these industries.
Several challenges face engineers in India. The most important is access to state
of the art engineering education that adheres to the international best practices. The other
is the availability of well paying jobs in the field of Research and Development that help
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to propel innovations. Also as become more global, Indian engineers have to figure out a
way in which to respond to challenges thrown by global economy and become
accustomed to project management on global scale.
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HISTORY OF ELECON ENGINEERING COMPANY
From a modest start of design and manufacture of Elevators and Conveyors from which
incidentally, the company derives its corporate identity. viz. "Elecon". It has grown over the
years to be known as a pioneer of the concept of mechanised way of Bulk Material Handling
Equipment in India. During the span of more than 4 decades, Elecon has encompassed all the
major core sectors through its supplies of highly sophisticated equipment bearing ample
testimony of the symbolic mark of Elecon's unbeatable technology. Elecon has thus, made its
presence felt through consistent and satisfactory performance of its equipment in such core
sectors as fertilizer, cement, coal/power generation, chemical, steel plant and port mechanisation
etc., across the country.
After India’s independence, Elecon starting making it’s presence felt in industrial
scenario in most productive and enriching manner. This process has its root as far back as 1951.
A small beginning that was destined to have a glorious present and spectacular future was
made in 1951 in Bombay by a dynamic visionary late Shri Ishwarbhai B Patel. A small firm
indigenously manufacturing conveying equipments started spreading its wings in the area so far
unexplored, resulting in valuable savings in foreign exchange outflow. With obvious increase in
business operations, it was converted into a Private Limited Company on 11th January 1960.
On formation of a separate Gujarat State in May 1960, with a view to contribute towards
the development of home-land Gujarat, Elecon shifted its base to Vallabh Vidaynagar, and
became a Public Limited Company soon after.
Elecon has played a pioneering role by way being first in design, manufacturing and
supplying many of the above products in India, and thereby adhering to the motto of “ALWAYS
A STEP AHEAD IN TECHNOLOGY”.
The company has gone a long way from a moderate beginning at Goregaon in Bombay,
in the early fifties to a sprawling workshop area spanning over 1,17,051 sq. mtr. The present
manufacturing facilities are equipped with latest computerized machine tools, and quality control
equipments.
After dawn of its Sliver Jubilee Year in 1976, Elecon set up a separate Gear Division,
having an area, spread 1,73,098 sq. mtr., equipped with state of the art manufacturing
infrastructure. The Gear Division today, provides a total solution to industries for power
transmission equipments by designing, supplying and servicing products like – Worm Gears,
Helical Gears, Sprial Bevel Helical Gears and different types of Couplings. While MHE division
have an area of 117,000 sq.mtr. equipped with a modern infrastructure.
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A team of experts is geared up to serve customers for Specialized Gear requirement for
various applications like Steel Rolling Mills, Marine application for Coast Guard, Space
Applications etc. This Division has recently specialized in developing speed increasing
application for Windmills as well.
Elecon has also set up an Alternate Energy Division in the year 1995 for manufacturing
and supply of Wind Turbine Generators – a non – conventional source of producing energy.
Under the technical know-how obtained from a Belgium Company.
Elecon is the first industrial gear manufacturer in India to achive ISO 9001 in 1994 and
again first to achieve ISO 9001:2000 in 2001.
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COMPANY’S PROFILE
Gujarat ,India.
Website: www.elecon.com
2.Gear division
Bank Of Baroda,
EXIM Bank,
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Citi Bank,
HDFC Bank.
2.TRF Ltd.,
4. Metso,
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5. Praj industries.
MISSION
• Be present in all the leading & emerging markets of the world by expanding, collaborating
and associating with other partners and consolidating our presence in already penetrated
markets.
• Follow environment friendly practices to protect environment and continuously review and
improve products and processes throughout the supply chain.
VISION
Create global presence in power transmission by innovating and developing products to enhance
value and satisfaction of our Customers.
We adapt to the changes and meet the challenges by creative entrepreneurship, empowered
teamwork, continuous improvements, environment friendly practices and optimize profits to
delight our stakeholders.
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EMPLOYEES BENEFITS AND SERVICES
Employees are the best assets for any organization. Satisfy employees means successful
organization. For employees satisfaction and welfare Elecon gives various services to its
employees which are as follow:
1. CANTEEN :
2. BONOUS:
Elecon gives proper attention towards their employees and also gives
bonus to them as well as promotions to employees as per their working
capabilities and progress.
Elecon is also maintaining separate safety division for workers safety and
provides medical facilities for emergency. 5 S training Programme was
held from 17th Sep’ 07 to 20th Sep’07 at Gear Division of Elecon
engineering company Ltd which was conducted by Shri Hemendra K
Varma, director of 5 S Institute Of India.
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CONTRIBUTION TOWARDS SOCIETY BY ELECON
Elecon emphasis on the quality of life for the community in which they live and work.
They maintain a holistic approach to make a difference by engaging in social issues of health,
education, livelihood and environment. Following are such work done by Elecon in society.
1. A dialysis and cardiac centre has been set up in the name of Bhanubhai I Patel at Shree
Krishna Hospital karamsad.
3. Elecon provided financial assistance to enhance livelihood of the hearing and speech
impaired children at the P. C. Bhatt Deaf and Dumb School at Sojitra.
4. Elecon has created and promoted a TRUST which provides scholarship to engineering
students.
5. Elecon has built and maintain three large public parks including I.B.Patel Memorial park
and Shanta Baa Park in local community.
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COMPANY OVERVIEW AT GLANCE
1965 - Issued 12,000 Right Equity shares at par in the prop. 1:5, 425
1974 - 24,000 - 9.8% Pref. shares issued to the public. Pref. shares
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1981 - Equity shares sub-divided on 15.6.1981. 8,10,000 Bonus Equity
1982 - The name of this subsidiary was changed to Elecon (Chennai) Ltd.,
per share in the prop. 2 No. of equity shares for every debenture.
articles viz., shearer and continuous miner with an annual capacity of 10 units.
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1989 - The High Courts of Chennai and Gujarat by their orders dated
(Chennai) Ltd. with the Company effective from 1st January, 1987.
of SBI Capital Markets Ltd., and Canara Bank in equal prop. To meet
September, 1998.
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The Company proposed to diversify into the business relating
outside parties and 2 were retained by the company for its own
consumption.
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in shrimp farms, all over India.
eight additional wind mills during the year raising the total to twenty two.
1998 - The Company launched Super NU Universal Mounting Worm Gears which
The Company launched POSIRED 2 Helical Bevel Gears for which the
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2004- Elecon Engineering produces gear boxes for Stealth Frigate battle ships
Elecon Engineering Company Ltd has informed that the Company has
Ltd.
2008- Elecon Engineering Company Ltd has informed that the Board of
Directors of the Company at its meeting held on July 29, 2008, Shri.
51.74 crore from Techpro Systems, Chennai and SAIL- Durgapur Steel
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Plant, Durgapur.
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PRODUCTS OF ELECON
From elevators, conveyors and gears to material handling plants. For over 5 decades, Elecon
has supplied hi-tech equipment to core sectors such as steel, fertilizer, cement, coal, lignite and
iron are mines, power stations and port mechanization in India and abroad.
MININING INDUSTRY
Elecon provides custom engineered solutions for movement and storage of bulk materials in the
Mining and Metallurgy industry.
Typical applications are the movement and storage of bulk materials using modular designs in
conveyors. Elecon offers an extensive range of rail mounted Single or Twin Boom Stackers,
Portal and Bridge type Scraper Reclaimers for longitudinal and circular storage systems for
handling iron ore, coal, minerals or coke in mining and metallurgy projects.
MHEs used in mining & metallurgy industry: Shiftable Conveyors, Idlers, Pulleys, Trawler
Mounted Trippers, Spreaders, Mobile Transfer Conveyors, etc.
Elecon provides the following solutions for the Mining & Metallurgy industry and also provides
custom engineered solutions for specific requirements.
1. SHIFTABLE CONVEYER
Shiftable conveyors, used at open-caste mines. Capable of handling materials at the rate of
20,000 tph and is suitable for belt widths upto 2,400 mm.
2. CONVEYER
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Conveyor System is suitable for belt widths upto 2,400 mm. and capable of handling materials at
the rate of 20,000 tph.
3. IDLERS
Idlers are impact idlers, troughing idlers, garland idlers. Capacity upto 24,000 tph. Guaranteed
for minimum 25,000 working hours.
4. PULLY
Pulley is suitable for conveyors of belt width ranging from 400 mm. to 2400 mm. for capacities
upto 24,000 tph.
PORT MECHANIZATION
Elecon material handling solutions for ports and terminals cover various aspects of dry bulk
cargo handling for import, export and storage including intake from rail wagons. Elecon provides
an extensive range of bucket elevators, heavy duty feeders and conveyors and Wagon Tippers for
discharging wagons.
Port mechanization equipments: Ship Loader & Unloader, Rail Pusher Car, Wagon Tipplers,
Wagon Marshalling Equip., Conveyor Systems.
Elecon provides the following solutions for Port mechanization and also provides custom
engineered solutions for specific requirements.
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1. SHIP LOADERS
Ship Loader is for handling coal, clinker, cement, iron ore, and bulk materials for ocean
going ships and barges.
2. WAGON TRIPPLERS
Rail Pusher Car for hauling of rake wagons and placement of wagons on wagon tippler
table.
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Wagon Marshalling Equipment is for charging and spotting of wagon on tippler
table by beetle charger
FERTILIZER INDUSTRY
The Fertilizer industry recognizes Elecon Material Handling Solutions as technology
centric, innovative solutions that cater to all their material handling needs. Solutions from Elecon
assure robust, dependable and economical operations. Customers rely on Elecon to provide
solutions for storing, blending and movement of raw material, finished product and other bulk
materials.
Elecon provides the following solutions for the Fertilizer industry and also provides custom
engineered solutions for specific requirements
1.SCRAPPER RECLAIMER
Portal Scraper Reclaimer is full portal, semi portal, bi-rail scraper reclaimer for handling
fertilizer, limestone, coal, qypsum, clinker, etc.
2.WAGON LOADER
Mobile Wagon Loader is suitable for handling iron ore, coal, limestone for loading to railway
wagons.
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CEMENT INDUSTRY
Elecon has been providing bulk material handling technology and solutions for various
applications in the Cement industry for over 50 years. These include (products & solutions)
MHEs used in Cement industry: Stacker Reclaimers, Conveyors, Twin Boom Stackers,
Impactors, Circular Stock Piles, Bridge Type Scrapers, etc.
Elecon provides the following solutions for the Cement industry and also provides custom
engineered solutions for specific requirements
Twin Boom Stacker is suitable for handling limestones, iron ore, dolomite, coal, etc.
2.IMPACTOR
Impactor is for crushing hard and medium hard rocks such as limestone, basalt, blast furnace
slag etc.
Circular Stockpile is for handling coal, limestone, iron ore, in pre homogenisation and blending
stockyard
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4.BRIDHE TYPE SCRAPER
Bridge Type Scraper Reclaimer is for handling coal, lignite, limestone in a liner stockyard.
5.SHIP LOADER
Ship Loader is for handling coal, clinker, cement, iron ore, and bulk materials for ocean going
ships and barges.
STEEL INDUSTRY
Elecon Material Handling Solutions caters to the requirements of the Steel industry
through the various stages of innovative concept application, design, manufacture, and onsite
erection and commissioning.
Elecon provides the following solutions for the Steel industry and also provides custom
engineered solutions for specific requirements
1.WAGON TRIPPLERS
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2.STACKER RECLAIMER
Stacker Reclaimer is for stacking and wheel on boom reclaimer for handling bulk materials like
coal, iron ore, limestone, etc. Combined bucket wheel stacker reclaimer and reversible type
bucket wheel stacker reclaimer are also manufactured to suit particular application.
Barrel Type Blender Reclaimer for handling coal, iron ore, lime stone in a homogenisation stock
yard in steel plant, thermal power station and cement plants.
Elecon is known for its robust concepts and technical designs which take into account individual
projects and customer requirements. Elecon's strong track record coupled with skilled engineers
and industry process technology in the Power industry for coal handling, makes it the ideal
solution provider for all bulk material handling solutions. Customers rely on Elecon to provide
solutions for storing, blending and reclaiming of coal and other bulk materials.
Side Arm Charger for hauling rake of wagons, placement of wagons on tippler table and
evacuation of empty wagons from tippler table.
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2.APRON FEEDER
Apron Feeder is rugged and dependable designed to receive and control the flow of material
from bins and hoppers.
3.PADDLE FEEDER
Paddle Feeder is for reclaiming bulk material from bunkers, silos and stockpiles.
Cable Reeling Drum is for using on the mobile equipment for power supply.
5..ROLLER SCREEN
Roller Screen is suitable for seperating coarse, wet, sticky and clay raw material.
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POWER TRANSMISSION SOLUTIONS
Elecon also has a proven track record in the design and manufacture of worm gears, parallel
shaft and right angle shaft, helical and spiral bevel helical gears, fluid , geared & flexible
couplings and planetary gear boxes. And when it comes to special gears, Elecon is the supplier of
choice to core sectors like Sugar, Cement, Chemical, Fertilizer, Steel, Plastic Extrusion and
Rubber.
Elecon also enjoys the rare distinction of begin the first Indian gear company to receive the
coveted ISO 9001:2000 certification. With significant investments in manufacturing facilities,
technology and innovation, Elecon promises a long-term alliance with all its customers in the
long run.
Today, Elecon boasts of state-of-the-art manufacturing facilities that include fully automated
machining lines, comprehensive production capacity and a dedicated task force aptly supported
with expedite after sales services. With customer footprint across the nation and in Australia,
Africa, South East Asia, Middle East, Europe and products comparable with the bet in the world.
1. ET – Series
2. Cooling Tower Gear Boxes
3. Dual Tandem Gear Boxes
4. Loose Gears - Spiral Bevel Pair
5. Custom Built Gear Boxes
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1. ER - Series
2. Special Worm Gears
3. Super NU Series
• COUPLINGS
1. Elflex Flexible
2. Elign Gear
3. Fluid
4. Scoop Fluid
5. Torison Shaft
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1. Turbo Gear Unit
• GEARED MOTORS
1. Helical Gear Motor with Solid Shaft
2. Helical Geared Motor
3. Helical Bevel Geared Motor
4. Helical Gear Motor with Hollow Shaft
5. PBL Geared Motor
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ALTERNATIVE ENERGY
As per the present study and situation, Wind Power installation is growing at a faster pace of
17.4 % worldwide and expected to maintain the same growth rate in next 10 years.
Elecon having the prior experience in the field of Wind Power, installed around 50 Nos. Wind
Turbines of 300 KW rating during 1995 to 1998 in Gujarat. During the year 2001, ELECON
decided to diversify the Wind Turbine Business and installed 2 WTGs of 600 KW in Gujarat and
2 WTGs in T.N as a prototype turbine. Elecon is now planning to expand its Wind Turbine
business all over the world with it expertise in the field of manufacturing and strong
infrastructure available at their plants at Vallabh Vidynagar, a town near Anand in Gujarat, India.
With diversed focus, Elecon has decided to produce the Quality Wind Turbines in technical
collaboration with TURBOWIND n.v of Belgium. With wide experience in the field Turbowind
has worldwide installation of 600KW* Wind Turbines in many countries in Europe, India,
Canada, Ukraine etc. working in diverse climatic conditions.
With buoyancy in the Wind Energy Sector, Elecon contemplates introduction of Multi-Megawatt
range of Wind Turbines in their manufacturing range in near future, besides the present range of
600 KW.
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WORKING
CAPITAL
MANAGEMENT
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WORKING CAPITAL MANAGEMENT
“More business fails for lack of cash than for want of profit…
Efficient management of working capital is one of the pre-conditions for the success of
an enterprise. Efficient management of working capital means management of various
components of working capital in such a way that an adequate amount of working capital is
maintained for smooth running of a firm and for fulfillment of twin objectives of liquidity and
profitability.
While inadequate amount of working capital impairs the firm’s liquidity. Holding of excess
working capital results in the reduction of the profitability. But the proper estimation of working
capital actually required, is a difficult task for the management because the amount of working
capital varies across firms over the periods depending upon the nature of business, production
cycle, credit policy, availability of raw material, etc.
Working capital is the amount of capital that a business has available to meet the day to- day
cash requirements of its operations, or more specially, for financing the conversion of raw
material into finished goods, which the company sells for payment. Funds are also needed for
short-term purposes for the purpose of raw materials, payment of wages and other day-to-day
expenses, etc. These funds are known as working capital.
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In simple words, 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.
Working capital is a valuation metric that is calculated as current assets minus current liabilities.
Working capital is also known as operating capital.
Current Assets
This is any cash or assets that can be quickly turned into cash. Current assets are
assets, which can be converted into cash within an accounting year.
• bills receivables
• Inventories of stocks.
• Raw material.
• Work in progress.
• Finished goods.
• Prepaid expenses.
• Accrual incomes.etc
Current Liabilities
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Current liabilities are those claims of outsiders, which are expected to mature for payment within
an accounting year.
• Bills payable
• Dividend payable
• Bank overdraft
• Provisions
• Outstanding expenses
• Unaccrued income
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 are
common to all organization’s can be summarized as under:
1.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, ete., 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.
2.Production policies:
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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.
3.Size of business:
Size of business is another factor to determines the need for working capital
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.
5.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.
6. Business fluctuation:
Cyclical changes in the economy also influencing the 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. This creates demand for more capital. Similarly during depression
when the prices and demand for manufactured goods. Constantly reduce the industrial and
trading activities show a downward termed. Hence the demand for working capital is low.
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.
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.
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9.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.
Every business concern should have adequate working capital to run its business
operations. It should not have either redundant / excess working capital or inadequate/ shortage
of working capital. Both excess as well as shortage of working capital situations are bad for any
business. However, out of the two, inadequacy or shortage of working capital is more dangerous
from the point of view of the firm.
6. Due to low rate of return on investments, the market value of shares may fall.
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The basic objective of financial management is to maximize shareholder’s wealth. For this it is
necessary to generate sufficient profits. The extent to it, which the profit can be earned, largely
depends on the magnitude of sales. However sales do not convert into cash instantly. There is
invariable the time gap between the sales of goods and receipts of cash. There is, therefore, a
need for working capital in the form of Current Assets to deal with the problem arising. Out of
the lack of immediate realization of cash again goods sold. Therefore, sufficient working capital
is necessary to sustain sales activity.
2. To incur day to day expenses and overhead costs such as fuel, power and
5. To maintain the inventories of raw material, work in progress, stores and spare
Working Capital Management is concerned with the problems that arise in attempting to
manage the Current Assets, Current Liabilities and the inter-relationship that exists between
them. Working Capital Management means the deployment of current assets and current
liabilities efficiently so as to maximize short-term liquidity. Working capital management entails
short term decisions - generally, relating to the next one year periods - which are "reversible"
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Steps involved in working capital management
II. Decide Optimal Mix of Short Term and Long Term Capital
• Total costs incurred on materials, wages and overheads. The length of time for
which raw materials remain in stores before they are issued to production.
• The length of the production cycle or WIP, i.e., the time taken for conversion
• The length of the sales cycle during which finished goods are to be kept
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waiting for sales.
• The amount of cash required to pay day to day expenses of the business.
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OPERTING CYCLE
The working capital requirement of a firm depends, to a great extent upon the operating
cycle of the firm. The operating cycle may be defined as the time duration starting from the
procurement of goods or raw material and ending with the sales of realization. The length and
nature of the operating cycle may differ from one firm to another depending upon the size and
nature of the firm. In a trading concern, there is a series of activities starting from procurement of
goods (saleable goods) and ending with the realization of sales revenue (at the time of sale itself
in the case of cash sales and at the time of debtors realization in case of credit sales).similarly in
case of manufacturing concern, this series starts from the procurement of raw materials and
ending with the sales realization of finished goods. In both the cases, however, there is a time
gap between the happening of the first event and the happening of the last event. This time gap is
called the operating cycle.
Thus, the operating cycle of a firm consists of the time required for the completion
of the chronological sequences of some or all of the following:
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Operating cycle period
The length or time duration of the operating cycle of any firm can be defined as the sum of
its inventory conversion period and the receivable conversion period.
It is the time required for the conversion of raw material into finished goods sales. In a
manufacturing firm the inventory conversion period is consisting of raw material conversion
period (RMCP), work-in-progress conversion period (WPCP) and finished goods conversion
period (FGCP).
Raw material conversion period refers to the period for which the raw material is generally
kept in stores before it is issued to the production department.
The work-in-progress conversion period (WPCP) refers to the period for which the raw
material remains in the production process before it is taken out as finished units.
The finished goods conversion period refers to the period for which finished units remains in
stores before being sold a customer.
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2. Receivable conversion period (RCP):
It is the time required to convert the credit sales into cash realization. It refers to the
period between the occurrence of credit sales and collection from debtors. The total of Inventory
conversion period (ICP) and Receivable conversion period (RCP) is also known as total
operating cycle period (TOCP).the firm might be getting some credit facilities from supplier of
raw material, wages earners etc.This period for which the payment to these parties are deferred
or delayed is known as deferred period (DP).the net operating cycle (NOC) of the firm is arrived
at by deducting the DP from TOCP.
NOC =TOCP-DP
=ICP+RCP-DP
For calculating total operating cycle period (TOCP) and net operating cycle (NOC),
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Avg. raw material \ raw material conversion period
2009 ________________________
=12272.12
= 70 day
2008 __________________________
= 10226.30 + 6784.72 \ 2
= 8505.5
= 56 day
2009__________________________
Avg. work in pro. = op. Stock of work in progress + clo. Stock of work in progress \ 2
= 12,282.45 + 21,378.85 \ 2
= 16830.65
52
= 86,538.48 - 158.40 = 86380.08
= 71 day
2008__________________________
Avg. work in pro. = op. Stock of work in progress + clo. Stock of work in progress \ 2
= 8136.52 + 12282.45 \ 2
= 10209.48
= 45 day
2009____________________________
Avg. finish good inventory = op. stock of finish stock + clo. Stock of finish stock \ 2
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= 13 days
2008_______________________________
Avg. finish good inventory = op. stock of finish stock + clo. Stock of finish stock \ 2
= 1304.87 + 740.80 \ 2
= 1022.84
= 6 days
2009_________________________________
= 48202.59
= 222 day
2008________________________________
54
Avg. debtors = 49,231.61 + 38198.60 \ 2
= 43715.10
= 218 day
2009__________________________________
=27847.02
= 135 days
2008________________________________
55
=23960.88
= 145 days
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 we 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, we can reduce the cost of bank interest or will have additional free
money available to support additional sales growth or investment. Similarly, if we can negotiate
improved terms with suppliers.
e.g. get longer credit or an increased credit limit; we effectively create free finance to
IF WE THEN
Collect receivables (debtors) faster We release cash from cycle
Collect receivables(debtors) faster Our receivables soak up cash
Get better credit(in terms of duration or We increase our cash resources
amount from suppliers)
Shift inventory(stocks)faster We free up cash
Move inventory(stocks) slower We consume more cash
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TYPE OF WORKING CAPITAL
1. Gross working capital: the gross working capital refers to the firm’s investment in all the
assets taken together. The total of investment in all the individual current assets is the gross
working capital.
For example: if a firm has a cash balance of Rs. 50,000 ,debtors of Rs.70,000 and inventory of
raw material and finished goods has been assessed at Rs.1,00,000,then the gross working capital
of the firm is Rs.2,20,000 (i.e. ,Rs 50,000+Rs.70,000+Rs.1,00,000).
57
2. Net working capital: the term net working capital may be defined as the excess of total
current assets over total current liabilities. Current liabilities refer to those liabilities which are
payable within a period of 1 year. The net working capital may either be positive or negative. If
the total current assets are more than total current liabilities, then the difference is known as
positive net working capital, otherwise the difference is known as negative net working capital.
The net working capital measures the firm’s liquidity. The greater the margin, the better will be
the liquidity of the firm.
WORKING CAPITAL
A financial manager must consider both (gross and net working capital) because they
provide different interpretation. The gross working capital denotes the total working capital or
the total investment in current assets. This will help avoiding 1.the unnecessarily stoppage of
work or chance of liquidation due to insufficient working capital, and 2.effects on profitability
(over flowing working capital implies cost).The gross working capital also gives an idea of total
funds required for maintaining current assets.
On the other hand, net working capital refers to the amount of funds that must be
invested by firm, more or less, regularly in current assets. The net working capital also denotes
the net liquidity being maintained by the firm.
1. Permanent /fixed working capital: Permanent working capital may be defined as the
minimum level of current assets, which is required by a firm to carry on its business operations.
Every firm has to maintain a minimum level of raw materials, work-in-progress, finished goods
and cash balances.
For example-extra inventory of finished goods will have to be maintained to support the peak
periods of sale. Permanent working capital is permanently needed for the business and therefore,
it should be financed out of long term funds.
2. Fluctuating /variable working capital: It is the extra working capital needed to support the
changing production and sales activities of the firm. The amount of temporary working capital
keeps on fluctuating on time to time on the basis of business activity. Both kind of working
capital – permanent and fluctuating (temporary) are necessary to facilitate production and sales
through the operating cycle. The amount over and above permanent working capital is
temporarily variable or fluctuating.
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SOURCES OF WORKING CAPITAL
3. A combination of them.
Long term sources of permanent working capital include equity and preference shares,
retained earnings, 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. Various types of long term sources of working capital
are summarized as follow:
1. Issue of shares:
It is the primary and most important sources of regular or permanent working capital.
Issuing equity shares as it does not create and burden on the income of the concern. Nor the
concern is obliged to refund capital should preferably raise permanent working capital.
2. Retained earnings:
Retain earning accumulated profits are a permanent sources of regular working capital. It
is regular and cheapest. It creates not charge on future profits of the enterprises.
3. Issue of debentures:
Company can raise fund from accepting public deposits, debts from financial institutution
like banks, corporations etc. the cost is higher than the other financial tools.
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5. Other sources:
Sale of idle fixed assets, securities received from employees and customers are
examples of other sources of finance.
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.
Some sources of temporary working capital are given below:
1. Commercial bank:
A commercial bank constitutes significant sources for short term or temporary working
capital. This will be in the form of short term loans, cash credit, and overdraft and though
discounting the bills of exchanges.
2. Public deposits:
Most of the companies in recent years depend on this source to meet their short term
working capital requirements ranging from six month to three years.
3. Various credits:
Trade credit, business credit papers and customer credit are other sources of short term
working capital. Credit from suppliers, advances from customers, bills of exchanges, etc helps to
raise temporary working capital.
Various funds of the company like depreciation fund. Provision for tax and other
provisions kept with the company can be used as temporary working capital.The company
should meet its working capital needs through both long term and short term funds. It will be
appropriate to meet at least 2/3 of the permanent working capital equipments form long term
sources, whereas the variables working capital should be financed from short term sources. The
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working capital financing mix should be designed in such a way that the overall cost of working
capital is the lowest, and the funds are available on time and for the period they are really
required.
If we have insufficient working capital and try to increase sales, we can easily over
stretch the financial resources of the business. This is called overtrading. Early warning signs
include
2. Exceptional cash generating activities. offering high discounts for clear cash payment
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TRADE OFF BETWEEN PROFITABILITY AND RISK
In evaluating the firm’s working capital position an important consideration is the trade-
off between profitability and risk. In other words, the level of NWC has a bearing on profitability
and risk. The term profitability used in this context is measured by profit after expenses. The
term risk is defined as the profitability that a firm will become technically insolvent so that it will
not be able to meet its obligation when they become due for payment. It is assured that greater
amount of NWC, the less risk prone the firm is, or greater the NWC, the more liquid is the firm,
and therefore the less likely it is to become technically insolvent. Conversely lower level of
NWC and liquidity are associated with increasing level of risk. A firm must have adequate WC.
It should neither be excessive nor inadequate. Excessive WC means the firms has idle funds,
which
are in no profit for the firm. This situation decreases both risk and profitability of the firm.
Inadequate WC means the firm doesn’t have sufficient funds for running its operation which
ultimately results in production interruption, and lowering down the profitability. Lower level of
WC increases the risk but has the potentiality of increasing the profitability also.
3. Short term funds are less expensive than long term funds.
The effect of level of CA’s on profitability risk trade-off can be shown using the ratio of CA to
TA. This ratio indicates the percentages of TA’s that are in form of CAs.An increase in the ratio
will lead to decline in profitability because CAs is less profitable than FAs. It would also
increase risk of technical insolvency because increase in CA assuming no change in CL will
increase NWC. Conversely a decrease in ratio will result in increase in profitability as
well as risk.
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Effect of level of CL on risk profitability trade-off:
The effect of CL can be demonstrated by using the ratio of CL to TAs. This portion of short term
financing which is less expensive as compared to long term financing. These will therefore, be a
decline in cost and corresponding rise in profitability. The increased ratio will also increase risk
because assuming no change in CA, this would decrease in NWC. The consequence of decrease
in the ratio is exactly opposite to the result of an increase. Thus it will lead to decrease in
profitability and risk.
63
STATEMENT SHOWING WORKING CAPITAL REQUIREMENT (RS IN lacs)
64
PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05
CURRENT ASSETS,
LOANS AND ADVANCES
(i) Raw Materials (at lower of 14,317.94 10,226.30 6,784.72 6,784.72 4,732.51
cost or net realisable value)
(iii) Finished Goods (at lower of 2,758.11 1,304.87 740.80 1,926.75 994.98
cost or net realisable value)
(v) Land as Stock in Trade (For ---------- --------- --------- ----------- ---------
Wind Mill)
Working capital is the funding that a company needs to support its accounts
receivable and inventory, and is offset by the amount of funding it obtains from its suppliers
through accounts payable.
Working capital can have a much greater impact on a company’s cash flows than
the results of its operations. One of the best ways to positively impact the amount of cash flow
that a company spins off is to take tight control of its working capital and eliminate much of the
investment in this area.
After analysis the 5 year data we can conclude that the Working Capital
requirement is increasing year by year. We are looking increasing pattern in working capital.
The company is managing working capital very precisely as we know that Elecon
Engineering is high working capital oriented organization. The sale is increasing year by year
which results into increase in working capital requirement. Elecon is getting new order at regular
interval as it gives importance to quality.
Investment in the current asset is also increasing with increase in the span. On the
other hand there is also increase in the current liabilities. From the above statement we can say
that current assets and current liabilities go hand in hand.
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SALES
PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05
MHE 37,490.13 30812.56 35102.13 15743.86 5810.2
Gear (Transmission Equipments) 36,132.05 35,873.70 28423.36 21017.08 18893.6
WTG & Electricity Generation 605.24 1,960.53 123.31 665 635.54
Export Sales 4,064.98 3,703.30 2430.7 2190.08 1629.17
Miscellaneous Sales 668.92 717.49 567.04 261.57 133.52
TOTAL SALES 78,961.32 73,067.58 66646.54 39877.59 27102.1
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INTERPRETATION:
Here we have the sales figure of last 5 years. From the available data we can say
that the sale is increasing with increasing span. Sales in increasing by 47, 67, 9, 8 % in each
every consecutive year. By this growth we can say that the company is growing very rapidly in
engineering sector. With increasing sales the company is trying to make a great presence in the
market. Elecon is also entering in new business which results into increase in sales revenue.
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PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05
(i) Raw Materials (at lower of
cost or net realisable value) 14,317.94 10,226.30 6,784.72 6,784.72 4,732.51
INTERPRETATION
By analysing 5 year data we can about inventories we can say that the level of
inventoties are increasing year by year. There is an increasing trend in the inventory level. As
compare d to last year the level of inventory has been incraesed by 60 % which indicates the
growth of the company in engineering sector. It is fact that the company uses more inventory
when there is demand in the market and elecon is having in great demand when quality comes
first than other things. From other point of view we can say that the liquidity of the firm is
blocked in inventoies but proper inventory on other side is good due to uncertainty of availability
of raw material in time.
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CURRENT ASSETS
70
PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05
(I) Stock of Stores, Loose Tools, 1,461.36 1,272.71 1,185.70 760.21 577.14
Dies
Mechanical, Electrical and
Electronic
Spares (as taken, valued and
certified
by the Management) at lower of
cost or net realizable value
(i) Raw Materials (at lower of 14,317.94 10,226.30 6,784.72 6,784.72 4,732.51
cost or net realisable value)
(ii) Semi-Finished Goods (at lower 21,378.85 12,282.45 8,136.52 5,980.13 5,152.96
of
cost or net realisable value)
(iii) Finished Goods (at lower of 2,758.11 1,304.87 740.80 1,926.75 994.98
cost or net realisable value)
Current assets are important to businesses because they are the assets that
are used to fund day-to-day operations and pay ongoing expenses. Depending on the nature of
the business.
From the above table of 5 year current assets we can say that there is
increasing trend in current assets as the business is of such nature there is increase in blocakage
of money in current assets more as compared to fixed assets.The level of current assets has been
increased by 24% as compared to last year which is a good symptom of growth.
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SUNDARY DEBTORS
INTERPRETATION
In the above table five years debtors information is given I which we can
see that there is increase in debtors except last year. The change might be occure due to change
in collection policy, credit policy and others.
A simple logic is that debtors increases only when sales increases. More and
more debtors higher the chances of bad debts. When sales increases the profit also increases. If
company decreases the debtors they can use the spare money in many investment plans.
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LOANS AND ADVANCES
INTERPRETATION
If we analyze the above table we can say that there is increase in loans and
advances in more or less percentage.
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CURRENT LAIBILITIES
(4) Interest accrued but not due 97.16 162.85 57.19 55.27 62.15
INTERPRETATION
If we analyse the above table we can say that each and every item in the
current liabilities reveals uneven trend. But at aggregate level it shows an increasing trend.elecon
is charging 50 % of advance from the customer which increases the current liabilities of the
company. In 2008-09 current liabilities has been increased by 24% the main reason behind that is
increase in advances from the customer. It indicates change in sales policy .While in 2007-08
current liabilities has been increased because of increase in other liabilities by 32%. The
company having minimum liability has good prestige in the market.
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PROVISIONS
PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05
(1)Provision for Gratuity 680.58 479.20 ----------- 98.06 287.61
INTERPRETATION
The provisions increases with increases in time span. The provisions are
increased by 10% in 2008-09 while it increased by nearly 300% which indicates the company’s
presence in the market by providing regular dividend.
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RATIO
ANALYSIS
77
WORKING CAPITAL ANALYSIS
The analysis of working capital can be conducted through a number of devices, such as:
1. RATIO ANALYSIS
3. BUDGETING
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1. RATIO ANALYSIS
A ratio is a simple arithmetical expression one number to another. The technique of ratio
analysis can be employed for measuring short-term liquidity or working capital position
of a firm. The following ratios can be calculated for these purposes:
1. Current ratio.
2. Quick ratio
4. Inventory turnover.
5. Receivables turnover.
Fund flow analysis is a technical device designated to the study the source from which
additional funds were derived and the use to which these sources were put. The fund flow
analysis consists of:
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It is an effective management tool to study the changes in financial position (working capital)
business enterprise between beginning and ending of the financial dates.
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ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF LIQUIDITY
The short –term creditors of a company such as suppliers of goods of credit and
commercial banks short-term loans are primarily interested to know the ability of a firm
to meet its obligations in time. The short term obligations of a firm can be met in time
only when it is having sufficient liquid assets. So to with the confidence of investors,
creditors, the smooth functioning of the firm and the efficient use of fixed assets the
liquid position of the firm must be strong. But a very high degree of liquidity of the
firm being tied – up in current assets. Therefore, it is important proper balance in regard
to the liquidity of the firm. Two types of ratios can be calculated for measuring short-
term financial position or short-term solvency position of the firm.
1. Liquidity ratios.
A) LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current,
floating or circulating assts. The current assets should either be liquid or near about
liquidity. These should be convertible in cash for paying obligations of short-term
nature. The sufficiency or insufficiency of current assets should be assessed by
comparing them with short-term liabilities. If current assets can pay off the current
liabilities then the liquidity position is satisfactory. On the other hand, if the current
liabilities cannot be met out of the current assets then the liquidity position is bad. To
measure the liquidity of a firm, the following ratios can be calculated:
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1. CURRENT RATIO
2. QUICK RATIO
1. CURRENT RATIO
Current Ratio, also known as working capital ratio is a measure of general liquidity and
its most widely used to make the analysis of short-term financial position or liquidity of
a firm. It is defined as the relation between current assets and current liabilities. Thus,
CURRENT LIABILITES
1) CURRENT ASSETS
2) CURRENT LIABILITES
Current assets include cash, marketable securities, bill receivables, sundry debtors,
inventories and work-in-progresses. Current liabilities include outstanding expenses,
bill payable, dividend payable etc.
A relatively high current ratio is an indication that the firm is liquid and has the ability
to pay its current obligations in time. On the hand a low current ratio represents that the
liquidity position of the firm is not good and the firm shall not be able to pay its current
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liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets
double the current liabilities is considered to be satisfactory.
(Rupees in lacs)
83
Interpretation:-
2. QUICK RATIO
Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be
defined as the relationship between quick/liquid assets and current or liquid liabilities.
An asset is said to be liquid if it can be converted into cash with a short period without
loss of value. It measures the firms’ capacity to pay off current obligations
immediately.
CURRENT LIABILITES
1) Marketable Securities
3) Debtors.
A high ratio is an indication that the firm is liquid and has the ability to meet its current
liabilities in time and on the other hand a low quick ratio represents that the firms’
liquidity position is not good.
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short-term obligations. However, a firm having high quick ratio may not have a
satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm
having a low liquidity position if it has fast moving inventories.
(Rupees in lacs)
Interpretation:
85
Generally quick – ratio of 1:1 is considered to represent a satisfactory to current financial
condition and this ratio is sufficient. Elecon has ability to pay its current claim quickly. So,
Elecon has sufficient current assets which convert in the cash immediately.
Although receivables, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately
or in time. So absolute liquid ratio should be calculated together with current ratio and
acid test ratio so as to exclude even receivables from the current assets and find out the
absolute liquid assets. Absolute Liquid Assets includes:
CURRENT LIABILITES
(Rupees lacs)
86
B) CURRENT ASSETS MOVEMENT RATIOS
Funds are invested in various assets in business to make sales and earn profits.
The efficiency with which assets are managed directly affects the volume of sales. The
better the management of assets, large is the amount of sales and profits. Current assets
movement ratios measure the efficiency with which a firm manages its resources. These
ratios are called turnover ratios because they indicate the speed with which assets are
converted or turned over into sales. Depending upon the purpose, a number of turnover
ratios can be calculated. These are :
The current ratio and quick ratio give misleading results if current assets include high
amount of debtors due to slow credit collections and moreover if the assets include high
amount of slow moving inventories. As both the ratios ignore the movement of current
assets, it is important to calculate the turnover ratio.
87
1. INVENTORY TURNOVER OR STOCK TURNOVER RATIO:
AVERAGE INVENTORY
Inventory turnover ratio measures the speed with which the stock is converted into sales.
Usually a high inventory ratio indicates an efficient management of inventory because more
frequently the stocks are sold; the lesser amount of money is required to finance the inventory.
Whereas low inventory turnover ratio indicates the inefficient management of inventory. A low
inventory turnover implies over investment in inventories, dull business, poor quality of goods,
stock accumulations and slow moving goods and low profits as compared to total investment.
(Rupees in lacs)
88
Interpretation:
This ratios shows how rapidly the inventory is turning into receivable through sales. In
2007 the company has high inventory turnover ratio but in 2008 and 2009 it has reduced. This
shows that the company’s inventory management technique is less efficient as compare to last
year.
89
2. INVENTORY CONVERSION PERIOD:
90
Interpretation:
Inventory conversion period shows that how many days inventories takes to
convert from raw material to finished goods. In the company inventory conversion
period is decreasing. This shows the efficiency of management to convert the inventory
into cash.
A concern may sell its goods on cash as well as on credit to increase its sales and
a liberal credit policy may result in tying up substantial funds of a firm in the form of
trade debtors. Trade debtors are expected to be converted into cash within a short
period and are included in current assets. So liquidity position of a concern also
depends upon the quality of trade debtors. Two types of ratio can be calculated to
evaluate the quality of debtors.
AVERAGE DEBTORS
Debtor’s velocity indicates the number of times the debtors are turned over during
a year. Generally higher the value of debtor’s turnover ratio the more efficient is the
management of debtors/sales or more liquid are the debtors. Whereas a low debtors
turnover ratio indicates poor management of debtors/sales and less liquid debtors. This
ratio should be compared with ratios of other firms doing the same business and a trend
may be found to make a better interpretation of the ratio.
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AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR
5 7 5
DEBTORS 48202.59 44015.10 30108.09 16407.17 11316.75
5
DEBTORS 5.89 5.74 4.54 5.15 4.20
RATIO
92
Interpretation :
This ratio indicates the speed with which debtors are being converted or turnover
into sales. The higher the values or turnover into sales. The higher the values of debtors
turnover, the more efficient is the management of credit. But in the company the debtor
turnover ratio is decreasing year to year. This shows that company is not utilizing its
debtors efficiency. Now their credit policy becomes liberal as compare to previous
years.
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. It measures the
quality of debtors. Generally, shorter the average collection period the better is the
quality of debtors as a short collection period implies quick payment by debtors and
vice-versa.
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TURNOVER
RATIO
AVERAGE 62 Days 64 Days 80 Days 71 Days 87 Days
COLLECTION
PERIOD
Interpretation:
The average collection period measures the quality of debtors and it helps
in analyzing the efficiency of collection efforts. It also helps to analysis the credit
policy adopted by company. In the firm average collection period increasing year to
year. It shows that the firm has Liberal Credit policy. These changes in policy are due
to competitor’s credit policy.
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3. CREDITOR TURNOVER RATIO:
Creditors are the businesses or people who provide goods and services in credit terms.
That is, they allow us time to pay rather than paying in cash.
There are good reasons why we allow people to pay on credit even though literally it
doesn't make sense! If we allow people time to pay their bills, they are more likely to buy from
your business than from another business that doesn't give credit. The length of credit period
allowed is also a factor that can help a potential customer deciding whether to buy from your
business or not: the longer the better, of course.
In spite of what we have just said, creditors will need to optimise their credit control
policies in exactly the same way that we did when we were assessing our debtors' turnover ratio -
after all, if you are my debtor I am your creditor!
The formula for this ratio is:
COST OF SALES
=
Creditors' Turnover CREDITORS
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Interpretation:
It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable
include both sundry creditors and bills payable. Higher the payable period lower the working
capital requirement, but on the other hand it may affect the prestige of the firm so the company
has to frame creditors policy in such manner. The creditors ratio is improving as compare to the
last years. This situation enhances the credit worthiness of the company.
Working capital turnover ratio indicates the velocity of utilization of net working
capital. This ratio indicates the number of times the working capital is turned over in the course
of the year. This ratio measures the efficiency with which the working capital is used by the firm.
A higher ratio indicates efficient utilization of working capital and a low ratio indicates
otherwise. But a very high working capital turnover is not a good situation for any firm.
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YEAR 2009 2008 2007 2006 2005
SALES 177619.34 110304.14 57912.12 34239.91 16846.98
NET 57,668.62 45,960.06 35,312.27 21,670.83 10939.60
WORKING
CAPITAL
WORKING 3.08 2.4 1.64 1.58 1.54
CAPITAL
TURNOVER
RATIO
Interpretation:
This ratio indicates low much net working capital requires for sales. In
2008, the reciprocal of this ratio (1/1.64 = .609) shows that for sales of Rs. 1 the
company requires 60 paisa as working capital. Thus this ratio is helpful to forecast the
working capital requirement on the basis of sales.
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CONCLUSION,
FINDINGS &
BIBILOGRRAPHY
98
CONCLUSION
The recent boom in the engineering and technology sector has coupled with
continuous thrust of government on infrastructure projects is expected to sustain healthy growth
of engineering products demand. Almost all major players have announced substantial increase
in capacity which results into increase in sales of Elecon.
An increase in tax rates, transportation charges, railway freight, cost of coal can
add worries for the company.
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SUGGESTIONS AND FINDINGS
• Company’s main strength is its employees and company is properly taking care of that by
providing safety working conditions, canteen facilities etc
• Elecon is investing more and more money in subsidiary companies for its faster growth.
• Company’s working capital us enough to maintain company’s sales and other operations
easily. Due to high goodwill the company is not getting any problem in getting short term
finance.
• Company gives 75% of dividend since last two years, instead of giving 75% dividend the
company should give 60 to 65% and reinvest the balance amount in financing the
working capital.
• Company is targeting to increase foreign exchange transactions and also trying to avoid
hedging risk.
• Company should try to utilize cheap source of finance for financing working capital
requirements.
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BIBILOGRAY
• http://elecon.nlihost.com/investors-relations_details.php?type=fs
• http://elecon.nlihost.com/page_details.php?id=31&level1_id=33
• http://www.netmba.com/finance/financial/ratios/
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