Traco Cable WCM Project

Traco Cable Company Ltd.
CHAPTER-I
INTRODUCTION
St.Michael College Of Engg. & Tech. -1-

1.1 INTRODUCTION TO THE STUDY

The process of financial analysis is widely employed to evaluate the past
present & future performance of business organization and identifying the financial strength
and weakness of the enterprise by properly established relationship between the items of the
balance sheet and profit and loss account.
The financial information contained in the statement is used by the management,
creditors, investors and others to from qualitative judgments about the operating
performance and financial position of the enterprise. These statements are more fruitfully
used if they are efficiently analysed and interpreted in knowing the financial strength of the
enterprise to make their best use and to be able to spot out the financial weakness of the
enterprise to make suitable corrective measures
Thus, we can say financial statements are prepared primarily for the decision making.
The statement are not an end in itself but are useful in decision making context. The financial
analysis is the starting point for making plans before using any sophisticated forecasting and
budgetary. Procedures. It is the financial analysis which help the management in their over
all respondibility to see the resources of the enterprise are used more efficiently and
effectively, that the enterprises financial condition is sound.
According to John Myer “The financial statement s provide a summary of the
accounts of a business enterprise” The balance sheet reflecting assets, liabilities and capital
as on certain date and the income statement showing the results of operation during a certain
period. The American Institute of Certified Public Accounts sates the nature of financial
statements as “Financial statements are prepared for the purpose of presenting a periodical
review or report Financial analysis which help the management in their over all responsibility
to see the resources of the enterprise are used more efficiently and effectively, that the
enterprises financial condition is sound.
According to John N Myer :The financial statement s provide a summary of the
accounts of a business enterprise” The balance sheet reflecting assets, liabilities and capital
as on certain date and the income statement showing the results of operation during a certain
period. The American Institute of Certified Public Accounts sates the nature of financial
statements.

“ Financial statements are prepared for the purpose of presenting a periodical review
or report on progress by the management and deal with the status of invest in the business
and results achieved during the period under review. They reflect a combination of recorded
facts accounting principles and personal judgments”
1.2 OBJECTIVE OF THE STUDY

Primary objective
1) To review the effect of working capital management in the over all functioning of
Traco cable Ltd.
Secondary objective
1) To analyse the ratios in relation to working capital

2) To study the effect of working capital management of the company with
respect to
 Cash Management
 Inventory Management
 Receivable Management of Traco cable
 Creditors Management
3) To suggest suitable measures for the improvement of working capital
1.3 LIMITATION OF THE STUDY

1) The study is restricted for the short period.
2) Entire Study depend upon the secondary data like Annual Reports.

1.4 RESEARCH METHODOLGY
This project study is mainly based on secondary data. The data source is the annual
published accounts of “Traco Cables Ltd.” from 2004 to 2008. Hence the researcher resorted
to convenience sampling technique and most of the inferences are drawn through analyzing
the balance sheet and profit and loss account of the company during the last 5 years.
1.5 RESEARCH DESIGN
Research design states that “A research design is the arrangement of conditions for
collections and analysis of data analysis of data a manner that aims to combine relevance to
the research purpose with economy in procedure.”
1.6 DATA COLLECTION

The data is collected from both primary and secondary sources
Primary Data
Primary data is collected by discussions with the company officials and other
staff in the office as well as in the factory. This is further followed up with the observation
recording of necessary information and their analysis and interpretation
Secondary Data
Secondary data is collected through published materials like journals,
periodicals etc. The statistical figures and company polices etc pertaining to “Traco Cable
Ltd” is complied from annual report.
Tool Used
Ratio Analysis

1.7 TYPE OF RESEARCH

The nature of the study of this project is analytical study. In analytical study, one has
to use fact or information already available and analyze these to make critical evaluation of
the material. The objective of this research is to generate new ideas.

CHAPTER-II
PROFILES

2.1 INDUSTRY PROFILE
The jelly Filled telephone cable and Electrical cable industry in an area where there
are only very few players as compared to other related industrial products. This is mainly due
to the fact that the only customers for the product is Bharath Sanchar Nigam Ltd (BSNL) nad
Kerala State Electricity Board (KSEB)are the main factor to fixing the piece of the product.
There are 27 important players in the field. The major players are Hindustan cables,
TamilNadu telecom, Sterlite, T X cable, Finolex cables, R P G etc. Traco cable Ltd is the
major supplier for southern region. BSNL and KSEB calls for sealed tenders when
requirements come up. The tenders are scrutinized and price is fixed by BSNL and KSEB
according to certain parameters of ranking of the manufactures. One parameters is having
earlier supply experience, another being ISO certification for good quality product and
internationality accepted method of production.
2.1.1 PIONEERS OF CABLE INDUSTRY
Vision International, Ahmedabad

Supplying and wholesale exporting a range of jelly filled telephone cables. Also export of LT
cables, HT cables, house wiring cables, coaxial cables, thermocouple cables and submersible
cables.
Uniflex Cables Limited

Exporters of jelly filled telephone cables, unfilled telephone cables, aerial cables, self
supported aerial cables, drop wires, switch board wires and buried service wires. Also
manufacture power cables, LT power cables and elastomeric cables.
U M Cables Limited
Manufacturer, exporter and supplier of copper cables, telephone cables, jelly filled copper
cables, jelly filled telephone cables, jelly filled aerial copper cable, jelly filled copper cable,
armoured copper cable and duct copper cable.

Siechem Technologies Private Limited

Engaged in export of jelly filled telephone cables, heat shrinkable cables, control cables, jelly
filled cables, instrumentation cables, power cables, aerial bunched cable, building wires,
flexible cords cable and automotive wires.
Alankar Sales Corporation, Ghaziabad

Manufacturer, exporter and supplier of jelly filled telephone cables, PVC jelly filled
telephone cables, PVC jelly filled armored telephone cables, PVC jelly filled unarmored
telephone cables and copper PVC jelly filled telephone cables.
Sudarshan Telecom
Engaged in wholesale manufacture and exports of jelly filled communications such as duct
cables, aerial cables, duct burial cables and 50 pair jelly filled telephone cables.
Miracle Cables India Private Limited

Suppliers and manufacturers of telephone cables, jelly filled telephone cables, telecom
cables, telecommunication cables, armoured telephone cables, multicore telephone cables
etc.
Birla Ericsson Optical Limited

Manufacturer of jelly filled telephone cables, fibre optic cables, switch board cables and data
communication cables.
Mayfair Machine Kraft Pvt. Ltd.

Manufacturers and exporters of cable making machinery for jelly filled telephone cables and
power cables including caterpillar unit, rotating die holder, construction machine, pay off
device and sector sensing unit.

2.2 COMPANY PROFILE
2.2.1 TRACO CABLES COMPANY LTD.
Traco Cable Company is a Kerala Government undertaking which started its

operation in the year of 1964 with a total capital of 61 crores. That was the time when Kerala
has been looking for the telecommunications development.
Telephone cables were the most wanted commodities for BSNL to expand their
networks. And at the right time realizing the need Government started the Traco Cable
Company. The company had a technical collaboration with Kelsey Engineering Company of
Canada for its high quality electric cable wires with changes in cable technology, the
company assessed the opportunities in Jelly Filled Telephone Cables (JFTC), which has
much more quality and reliability than the existing cables. The company has been using
technical know-how form General Cable Inc. of USA and now is one of the cable producing
units in India out of 28 others.
The Traco Cable Company Ltd at Thiruvalla has been started the production of
electric cables for state Electricity Board and having nearly 500 employees. The company
holds very impressible track record in these years by effective management, services and
workers participation, when compared to other public sector companies, the company has a
better employee relationship and a pleasant organizational climate.
Department of Bharath Sanchar Nigam Ltd and the Kerala State Electricity Board is
the customer who buys almost 99% of the cable that produced in this company. Considering
all the relevant aspects we are sure that the future of the company will be a brightful one.
2.2.2 ISO 9001 CERTIFICATION

Traco is certified by M/s IC EMA – NETHERLANDS IS AWARDED is ISO9002;
1994 certification in the year 1998 and the same in the certified in the year 2000. The
company is again certified as 156 9001: 2000 by M/s RIWA- Italy.

2.2.3 ISO 14001 CERTIFIACTION

Traco is certified by M/s RINA-ITALY and is awarded ISO 14001 1996 certification
in the year 2001.
2.2.4 INDIAN STANDARD CERTIFICATION

Traco is presently processing is certification for the products viz AAC, ACSR, AAA
(BAR AND CONDUCTORS), POWER CABLES AND HOUSE WIRING CABLES.
2.2.5 QUALITY POLICY

Traco Cable Company Ltd., shall strive for continual improvement in (As
performance by meeting the needs of internal and external customers, complying with
regulation through the involvement of all its employees.)
2.2.6 ENVIRONMENT POLICY

“Traco cable company Ltd., is committed for continual improvement in its
performance in preventing environment pollution, to conserve resources and to comply with
relevant environmental regulations”.
St.Michael College Of Engg. & Tech. - 10 -

2.3 PRODUCT PROFILE
2.3.1 Jelly Filed Cables

Polythene insulated Jelly filled, Moisture barrier armoured/unarmoured
Telephone cable 10 pair to 2400 pairs conductor dia: 0.4mm, 0.5mm, 0.63mm, 0.9mm, Spec:
TK 110 with reference to various ASTM, IEC and IS specification.
2.3.2 Characteristics of jelly filled cables

 Ideally suited for extreme hot and cold weather conditions
 Ideal for water logging areas
 Highest clarity in communication
 Easier to handle and less maintenance
 Free from Rodent attacks
2.3.3 Range of Products
 Jelly filled Underground Armoured Cables for direct burial

 Jelly Filled Unarmoured Cables for ducts
 Unfilled dry core Cables-Armoured and Unarmoured
 Aerial Cable-drop wire
 Self Supporting Aerial Cables
 Pulse Code Modulated (PCM) Cables

CHAPTER -III
WORKING CAPITAL
MANAGEMENT

3.1 IMPORTENCE OF FINANCE

Finance is regarded as the lifeblood of business enterprise. This is because in the
money-oriented economy, finance is one of the basis foundations of all kind of economic
activities. It is the master key which provides access to all sources for being employed in
manufacturing and merchandising activities. It has rightly been said that business needs
money to make more money. However, it is also true that money be gets more money, only
when it is properly managed. Hence efficient management of every business enterprise is
closely linked efficient management of its finance.
The importance of financial management cannot be over emphasized In every
organization, where are involved, sound financial management is necessary. As Collins
Brookes has remarked, “Bad production management and bad sales management have
slain in hundreds but faulty financial management has slain in thousand.” Finance
manager must realize that when a firm makes a major decision, the effect of the action
will be felt through out the enterprise.
Second financial management is essential in both profit and non-profit organization.
The financial management helps, in monitoring the effective development of funds in
fixed assets and in working capital. The finance manager assesses the financial position
of the company through the working out of the return on capital structure with that of
similar companies.
Financial management also helps in ascertaining how the company would perform in
future. It helps in indicating whether the firm will generate enough funds to meet its
various obligations like repayment of various installment due of loans, redemption of
other liabilities, etc.
Sound financial management is indispensable for any organization. It helps in profit
planning, capital spending, measuring costs, controlling inventories, accounts
receivables, etc. Financial management essentially helps to optimizing the output from a
given input of funds.

3.2 LITERATURE SURVEY

Emerson has very rightly observed that “Business with an adequate level of
working capital has more option available to it and can make its own choice as to when
working capital will be used and how it will be used. On the other hand if a firm is short
of working capital, It may be forced to limit business operations, extensions of credit to
customers and the amount that it invests in inventory. This will adversely affect
production as well as sales which in turn will affect production as well as sales which I
turn will effect profitability of the concern. Thus in general terms working capital
management is concerned with the problems that arise in attempting to manage the
current assets, the current liabilities and interrelationship that exists between them.
3.3 WORKING CAPITAL

Funds required for carrying on current operations have been variously called as
short term financing, short term funds, working capital etc. The term working capital
seems to be more suitable for the present purpose as it has been more frequently used in
business and is understood quiet commonly.
Capital can be resolved into two main categories
1) Fixed Capital
2) Working capital
Fixed capital represents that part of business resources which is invested in fixed assets of
the business firm.
Working Capital as the other hand represents that part of business resources, which
makes the business work and paves it’s way from year to year.
3.4 DEFINITION
The most widely accepted observation is that “Working Capital represents the
excess of current assets over current liabilities.”

3.5 CONCEPTS OF WORKING CAPITAL

The concept of working capital has been a matter of great controversy among
financial experts. Broadly speaking different views of working capital can be categorized
in to two groups.
1) Gross Concept
2) Net Concept
According to the concept, working capital refers to the sum total of all current
assets of the firm employed in the business process. Current assets are those assets, which
can be converted to cash with in an accounting year of operating cycle.
The net working capital represents excess of current assets over current liabilities.
Current liabilities are those claims of outsiders, which are expected to mature for
payment with an accounting year. It includes.
1) Creditors
2) Bills payable
3) Bank overdraft
4) Outstanding expenses etc
Both these concepts have their own significance. According to 1.M.Pandey “The
two concepts of working capital-Gross and Net-are not exclusive, rather they have equal
significance from management view point. The gross working capital concept focuses
attention on two aspects of current assets management.
(a) Optimum investment in current assets and
(b) Financing of current assets.
The investment in current assets should be just adequate, not more, not less, to the
need of the business firm. Excessive investment in current asset should be avoided
because it impairs firm’s profitability, as idle investments earn nothing. On the other hand
inadequate amount of working capital can threaten the solvency of the firm, if it fails to
meet its current obligations Thus financial manager should have the knowledge of the
sources of working capital as well as the investment avenues where the ideal funds may
be temporarily invested

In words of I.M.Pandey “The net working capital indicates.

a) The liquidity of the firm.
b) suggests the extend to which capital needs may be financed by permanent source of
funds.
Current assets should be sufficiently in excess of current liabilities to constitute

a margin of buffer for maturing obligations with in the ordinary operating cycle of a
business. In order to protect their interest, the short-term creditors always like a affirm to
maintain current assets at a higher level that current liabilities. The net working
capital concept also covers the questions of judicious mix of long tern and short term
funds for financing current assets.
The net concept of working capital has been taken into consideration in the present
study. The main object of study is to examine the liquidity position and its effect on
working capital management of the industry.
3.6 CIRCULATION SYSTEM WORKING CAPITAL

Working capital is also known as “Circulating Capital” or “Current Capital”.
The funds in a business are obtained from the issue of shares, debentures other long
term arrangement and operations of business. A huge part of generated funds is used to
acquire fixed assets viz plant and machinery, land and building and some other fixed
assets, while the remaining part of the generated funds is used for day to day operation
of the business i.e. to pay wages and overhead expenses for the raw materials
processed. This makes possible the stocking of finished goods by whose sales either
accounts receivables are created or cash is received. In thus process profits are
generated. A part of the profit is used to pay tax, interest and dividends, while the
remaining part is ploughed back in the business. This cycle goes on constantly through
out life of the business.

3.7 OPERATING CYCLE

The duration of time required to complete sequence of events right from
purchase of raw materials for cash to the realization of sales in cash is called the
operating cycle, working capital, or cash cycle.
In the words O.M. Joy “the operating cycle refers to the length of time necessary to
complete the following cycle of events”.
1) Conversion of cash into raw materials
2) Conversion of raw materials into work-in-progress
3) Conversion of work-in-progress into finished goods
4) Conversion of finished goods into debtors or bills receivable through sales.
5) Conversion of debtors or bills receivables into cash
“Operating cycle is the time duration required to convert sales, after the conversion of
resources into inventories, into cash” says I.M Pandey
The operating cycle of a manufacturing company involves three phases.
1) Acquisition of resources-such as raw materials, labours, power and fuel etc.
2) Manufacture of the product which includes conversion of raw materials into finished
goods.
3) Sale of the product-either for cash or credit.
The cycle will again and again over the period depending upon the
type of the product produced.

3.8 KINDS OF WORKING CAPITAL
3.8.1 PERMANENT OR FIXED WORKING CAPITAL

The permanent or regular working capital is the minimum amount which
should always be there in the business to carry out its activity. It is permanent in the
same way as the firms fixed assets are. A sound financial policy demands that
permanent working capital should be financed from long term sources of finance.
3.8.2 TEMPRORY OR VARIABLE WORKING CAPITAL

Depending upon the changes in production and sales the need for working
capital over above the permanent working capital will fluctuate. The extra working
capital needed to support the changing production and sales activities is called the
fluctuating or variable or temporary working capital.
Both kinds of working capital are needed to facilitate production and sales
through the operation cycle but temporary working capital is created by the firm to
meet liquidity requirements that will last only temporarily.
3.9 ADVANTAGES OF ADEQUATE WORKING CAPITAL

 It helps for continuous supply of raw materials which leads for
uninterrupted production.
 It helps for prompt payment of wages, salaries, and other day to day
expenses, and it also increases the goodwill of the firm.
 It helps to utilize the favorable market conditions.i.e, by purchasing in
bulk at cheaper price.
 It helps for reduction of cost.i.e; purchase at a cheaper rate reduces
the cost of production.
 It helps raising short term loans especially banks.
 It helps for maintaining the solvency of the business.
 It also helps for prompt payment of dividend, results in maintaining

or increasing the market value of the shares, and makes raising
additional capacity easy.
 It also helps for prompt supply of finished goods by which the brand
loyal customers can be maintained.
 It creates high morale and provides job security for employees.
3.10 DISADVANTAGE OF INADEQUATE WORKING CAPITAL

 It stagnates growth of the business
 Implementation of operating plans becomes difficult.
 Operating inefficiencies creep in when it becomes difficult even to meet day to day
commitments.
 The firm loses its reputation when if it is not in opposition to meet its short term
obligations.
3.11 DANGERS OF EXCESS WORKING CAPITAL

 It result in unnecessary stock accumulation. Thus the chance of inventory
mishandling, Waste etc increases.

 It is an indication of defective credit policy collection period
 Excessive working capital makes satisfied which degenerates into managerial
inefficiency.
3.12 NEED FOR WORKING CAPITAL
 To pay for wages and salaries
 To pay for day to day expenses and overhead cost
 To meet selling cost
 To provide credit facilities to customers
 To maintain inventories of raw materials, works-in-progress and finished
goods.
3.13 RATIO ANALYSIS

A ratio is a mathematical expression of the relationship of one number to
another of quantitative relationship between two numbers. Advantages of Ratio
Analysis.
1) Simplifies financial statement
Ratio analysis helps in comprehending complex financial statements into simple
stories
3) Facilitates inter firm comparison
Ratio analysis facilitates inter firm comparison and high lights factors associated
with successful and unsuccessful firms, reveal strong firms and weak firms, over valued
and under valued firms
4) Utility to Managers
Ratio analysis helps managers in decision making planning financial
forecasting, coordination and control.
5) Utility to Share holders
Ratio analysis helps share holders to evaluate their investments
6) Utility to Creditors
Ratio analysis helps creditors to evaluate a firm’s repayment capacity.
7) Utility to Employees
Ratio analysis evaluate the profit earning capacity of the firm

8) Utility to Government
Ratio analysis helps government in bringing about economic equality
3.14 LIMITATIONS OF RATIO ANALYSIS

o Limited use of single ratio
o Lack of adequate standards
o Inherent limitations of accounting
o Price level changes
CHAPTER-IV
DATA ANALYSIS AND
INTERPRETATION
4.1 WORKING CAPITAL POSITION ANALISYS
4.1.1 GROSS WORKING CAPITAL
The term gross working capital represents the amount fund invested in
current assets. Thus gross working capital is the working invested in total assets of the
enterprise.
Table-1
Current Assets 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
Inventories 985.61 955.38 1466.04 848.01 627.98
Sundry 2922.85 3511.71 183.53 1430.43 1318.27

Debtors
Cash& Bank 230.69 183.06 140.95 171.13 203.16
Balance

Other current 4.99 4.44 4.33 4.60 4.76
assets
Loans and 427.42 372.16 466.07 508.06 447.82
Advances
Interpretation
This table shows the component of current assets of the company, which are the main
parts of the working capital.
GROSS WORKING CAPITAL
Chart-1
4000
3500
3000
2500 Inventories
2000 Sundry Debtors
1500 Cash& Bank Balance
Other current assets
1000
Loans and Advances
500
0
St.Michael College
2003- Of2004-
Engg. &2005-
Tech. 2006- 2007- - 23 -
2004 2005 2006 2007 2008
4.1.2 NET WORKING CAPITAL
It is the difference between current assets and current liability. It is used for the day to
day activities of the concern.
Net Working Capital = Current Asset – Current Liability

Table-2
Year Current Assets Current Liability Net Working
Capital
2003-2004 4571.56 1755.21 2816.35
2004-2005 5026.75 1980.26 3046.49
2005-2006 3909.52 2078.86 1831.06
2006-2007 2962.23 1923.28 1038.95
2007-2008 2601.99 1168.00 1433.99
Avg 2033.37
Source: Annual Report
Interpretation
There is a sudden decline in net working capital in the year 2005-2006 due to increase
in current liability and decrease in current asset.

NET WORKING CAPITAL

Chart-2

4.1.3 RATIO OF GROSS WORKING CAPITAL TO SALES
This ratio indicates the amount of working capital employed per rupees of sales. It is
obtained by dividing gross capital by sales.
Gross working capital
Ratio of Gross Working Capital =
Sales
Table-3
Year Gross Working Sales Ratio
Capital
2003-2004 4571.56 8249.72 .55
2004-2005 5026.75 9086.42 .55
2005-2006 3909.92 3430.76 1.13
2006-2007 2962.23 2924.36 1.03
2007-2008 2601.99 2464.61 1.06
Avg .864
Interpretation
Gross working capital to sales in 2007-2008 indicates a position where to make Rs.
1/-sales Rs 1.06/-worth of current asset is maintained. This is mainly due to poor sales
position.

RATIO OF GROSS WORKING CAPITAL

Chart-3

4.1.4 CURRENT ASSETS TURNOVER RATIO
Current asset turnover ratio can be calculated using the following formula
Sales
Current Asset Turnover Ratio =
Current Assets
Table-4
Year Sales Current Assets Ratio
2003-2004 8249.72 4571.56 1.80
2004-2005 9086.42 5026.75 1.81
2005-2006 3430.76 3909.52 .88
2006-2007 2924.36 2962.23 .99
2007-2008 2464.61 2601.99 .95
Avg 1.29
Interpretation
Company’s current asset turnover ratio is very poor. It averages at 1.29 This ratio is
poor due to decrease in sales.

CURRENT ASSET TURNOVER RATIO

Chart-4

4.1.5 WORKING CAPITAL TURNOVER RATIO
The different use of overall working capital in a firm can be measured with
the help of working capital turnover ratio. This ratio indicates the ratio of working capital
utilization in the firm. A higher ratio up to a certain level indicates the efficient use of
working capital and vice versa
Sales
Working Capital Turnover Ratio –
Net Working capital
Table -5
Year Sales Net working Ratio
2003-2004 8249.72 2816.35 2.93
2004-2005 9086.42 3046.49 2.98
2005-2006 3430.76 1831.06 1.87
2006-2007 2924.36 1038.95 2.81
2007-2008 2464.61 1433.99 1.72
Avg 2.46
Interpretation
Working capital turnover ratio is poor. This indicares the company’s inability to
generate sufficient revenue from the investment made in working capital. Positive
working capital shows that the company uses long term funds for financing working
needs which is costive.

WORKING CAPITAL TURNOVER RATIO

Chart-5

4.2 LIQUIDITY RATIOS
4.2.1CURRENT RATIO
It explains relationship between current assets and current liabilities. The general
norm is to maintain 2:1 ratio
Current Assets
Current Ratio =
Current Liability
Table-6
Year Current Assets Current Liability Ratio
2003-2004 4571.56 1755.21 2.60
2004-2005 5026.75 1980.26 2.54
2005-2006 3909.52 2078.86 1.88
2006-2007 2962.23 1923.28 1.54
2007-2008 2601.99 1168.00 2.23
Avg 2.16
Interpretation
Current ratio has averaged 2.16. It is required to maintain the ratio at a reasonable ie
2:1

CURRENT RATIO
Chart-6

4.3 CASH MANAGEMENT
Introduction
Cash is an important component of current asset. It is the most liquid asset. It is
common denominator to which all current asset can be reduced because the other major
liquid assets get eventually converted into cash.
Motives for holding cash
1) Transaction Motive
This refers to the holding of cash to meet routine cash requirements to finance
transaction which a firm carries in the ordinary courses of business.
2) Precautionary Motive
This refers to the cash balance held in reserve for random unforeseen
fluctuation cash flow.
3) Speculative Motive
It refers to the desire of a firm to take advantage of opportunities which
present themselves at unexpected moments and which are typically outside the normal
course of business.
4) Compensation Motive
This refers to compensate banks for providing certain service and loans.
Objective of Cash Management
1) To meet payment schedule
2) To minimize funds committed to cash balance

4.3.1 CASH AS A PERCENTAGE OF CURRENT ASSETS
Cash as a percentage of current assets can be calculated using the formula.

Cash Balance
Cash as a percentage of current assets = x 100
Current Assets
Table-7
Year Cash Balance Current Assets Cash as a % of
current assets
2003-2004 230.69 4571.56 5.05
2004-2005 183.06 5026.75 3.64
2005 -2006 140.95 3909.52 3.61
2006-2007 171.13 2962.23 5.78
2007-2008 203.16 2601.99 7.81
Avg. 5.16
Source: annual Report
Interpretation
There is only 5.16% of cash in current assets. From 2006-2007 there is an increase of
cash in current assets.

CASH AS APERCENTAGE OF CURRENT ASSETS

Chart-7

4.3.2 CASH TURNOVER RATIO
This ratio explains the speed with which the cash is turned over. Higher the turnover.
lesser the cash balance required for any given level of sales and it shows greater
efficiency in the utilization of cash.
Sales
Cash Turnover Ratio =
Cash
Table-8
Year Sales Average cash Ratio
2003-2004 8249.72 214.76 38.41
2004-2005 9086.42 206.88 43.92
2005-2006 3430.76 162.01 21.18
2006-2007 2924.36 156.04 18.74
2007-2008 2464.61 187.15 13.17
Avg. 27.08
Interpretation
The cash turnover ratio shows a declining tendency from the year 2005-2006 This is
due to the decrease in sales.

CASH TURNOVER RATIO
Chart-8
4.2.3 CASH HOLDING PERIOD

Every management of the concerns might be interested to know whether cash is being
held in the concerns for a period or not. This can be estimated using the following
formula.
Average Cash Balance
Cash Holding Period = x 365
Sales
Table-9
Year Average cash Sales Cash Holding
2003-2004 214.76 8249.72 9.50
2004-2005 206.88 9086.42 8.31
2005-2006 162.01 3430.76 17.23
2006-2007 156.04 2924.36 19.48
2007-2008 187.13 2464.61 27.71
Avg 16.45
Interpretation
The company cash position is more or less stable but the sales position has badly
affected the cash holding period.
CASH HOLDING PERIOD

Chart-9

4.4 INVENTORY MANAGEMENT
Introduction
Inventories constitute the most significant part of current asset of a large majority of
companies in India. Larger the size of inventories, more is the amount of founds invested
in them. It become necessary to manage inventories efficiently and effectively. Otherwise
the firm will be jeoparidise its long run profitability and may fail ultimately.
Need to hold inventory

There are three general motives for holding inventories
a) Transaction Motive:
It emphasizes the need to maintain inventories facilitate smooth production and sale
operations.
b) Precautionary Motive:
It emphasis the necessity to hold inventory to guard against the risk of unpredictable
changes demand and supply forces and other factors.
c) Speculative Motive:
It influences the decision to increase or reduce inventory levels to take advantages of
price fluctuations.

OBJECTIVE OF INVENTORY MANAGEMENT

a. To minimize the firms over investment in inventory
b. To meet a demand for the product efficiently organizing the firms production
and sales operation.
Factors influencing inventory management
i. Lead time
ii. Quantity Discount
iii. Obsolete inventory and Scarp
iv. Service Level
v. Material Planning
vi. Cost of holding inventory
vii. Re-order point
viii. Stocks
ix. Variety Reduction

4.4.1 INVENTORY TO SALES

Inventory to sales indicates the relationship between closing inventory and sales. The
ratio shows the variations in the level of investment in inventories with volume of sales
Closing Inventory
Inventories to sales = x 100
Sales
Table-10
Year Closing stock Sales Inventory to
sales
2003-2004 985.61 8249.72 11.95
2004-2005 955.38 9086.42 10.51
2005-2006 1466.04 3430.76 42.73
2006-2007 848.01 2924.36 29.00
2007-2008 627.98 2464.61 25.48
Avg. 23.93

Interpretation
25.48% of inventory to sales has goes down in 2007-2008 .This is due to decrease in
stock and sales.
848.01-627.98
% decrease in stock = x 100 = 35.04%

627.98
2924.36-2464.61
% decrease in sales = x 100 = 18.55%
2464.61
INVENTORY TO SALES
Chart-10

4.4.2 INVENTORY TURNOVER RATIO
It measures the velocity of conversion of the stock into sales. It is obtained by

dividing sales average inventories. Usually a higher inventory turnover indicates efficient
management of inventory.
Annual Net Sales
Inventory turnover ratio =
Stock
Table-11

Year Inventory Sales Ratio
2003-2004 985.61 8249.72 8.38
2004-2005 955.38 9086.42 9.51
2005-2006 1466.04 3430.76 2.34
2006-2007 848.01 2924.36 3.45
2007-2008 627.98 2464.61 3.93
Avg. 5.52
Interpretation
Inventory has been converted to sales only one times in 2006-2007.But during 03-
05the ratio was between 8 and 10.
INVENTORY TURNOVER RATIO

Chart-11

4.4.3 INVENTORY HOLDING PERIOD
Inventory turnover gives the number of times inventory turn into sales in year.
The reciprocal of inventory turnover gives average inventory holding in percentage
terms. It is always advisable for the firm to have a minimum value of days of inventory
holding. Since it help in minimizing the funds locked up with the inventory as well as an
indicator of improved turnover.
Inventory
Inventory holding period = x 365
Sales
Table-12
Year Inventory Sales Period
2003-2004 985.61 8249.72 43.61
2004-2005 955.38 9086.42 38.38
2005-2006 1466.04 3430.76 155.98
2006-2007 848.01 2924.36 105.98
2007-2008 627.98 2464.61 93.00
Avg. 87.36
Interpretation
Holding period is very high in 2005-2006 at 156 days.. The holding period is around
40 days during 2003-2004.
INVENTORY HOLDING PERIOD

Chart-12


4.4.4 FINISHED GOOD TURNOVER RATIO
Finished goods turnover ratio help in ascertaining the efficiency of the firm to
sell the finished goods in the market. If the finished goods are turned over faster, the
amount of locking up of funds would be less. Here also higher level of ratio is desirable.
Net Sales
Finished Goods Turnover Ratio =
Finished Goods
Table-13
Year Net Sales Finished Goods Ratio
2003-2004 8249.72 138.31 59.65
2004-2005 9086.42 35.74 254.23
2005-2006 3430.76 478.25 7.17
2006-2007 2924.36 141.97 20.60
2007-2008 2464.61 80.64 30.56
Avg. 74.44
Interpretation
Finished goods turnover ratio is very high in the year 2004-2005 and very low in the
2005-2006.

FINISHED GOODS TURNOVER RATIO

Chart-13

4.4.5 FINISHED GOODS STORAGE PERIOD
Raw material turnover gives the number of times raw materials turns into sales in a
year. The reciprocal of raw material turnover gives average raw material holding period
in percentage terms.
Closing stock of finished goods
Finished Goods Storage Period. = x 365
Sales
Table-14
Year Finished Goods Sales Period
2003-2004 138.31 8249.72 6.12

2004-2005 35.74 9086.42 1.44
2005-2006 478.25 3430.76 50.88
2006-2007 141.97 2924.36 17.72
2007-2008 80.64 2464.61 11.94
Avg. 17.62
Interpretation
Finished goods storage period is high in the year 2005-2006 and less in the year
2004-2005.
FINISHED GOODS STORAGE PERIOD

Chart-14

4.4.6 RAW MATERIAL STORAGE PERIOD
Raw material turnover gives the number of times raw materials turns into sales in a
year. The reciprocal of raw material turnover gives average raw material holding period
in percentage terms.
Closing stock of raw material
Raw material storage period = x 365
Sales
Table-15
Year Closing stock of Sales Period
raw materials
2003-2004 269.30 8249.72 11.92
2004-2005 200.24 9086.42 8.04
2005-2006 409.28 3430.76 43.54
2006-2007 143.89 2924.36 18.00
2007-2008 163.37 2464.61 24.19
163.37 Avg. 21.14
Interpretation
Raw material storage period is high in the year 2005-2006 because of less sales and
low in the year 2004-2005.
RAW MATERIAL ATORAGE PERIOD

Chart-15

4.4.7 WORK-IN-PROGRESS CONVERTION PERIOD

Work-in-progress conversion period is the period requires converting raw materials
into finished goods. This can be calculated by using the formula.
Closing Stock of W I P
Work-in-progress conversion period = x 365

Sales
Table -16
Year Closing stock of Sales Period
work-in-progress
2003-2004 301.05 8249.72 13.32
2004-2005 462.04 9086.42 18.56
2005-2006 291.96 3430.76 31.06
2006-2007 322.30 2924.36 40.23
2007-2008 151.26 2464.61 22.40
Avg. 25.11
Interpretation
Work-in-progress is showing a fluctuating tendency during the period of study. It is
high during the year 2006-2007 and low during 2003-2004.
WORK-IN-PROGRESS CONVERSION PERIOD

Chart-16


4.5 RECEIVABLES MANAGEMENT

Introduction
It is another important component of current assets. It involve analysis of
a) Credit policy
This has two dimensions such as credit standard and credit analysis.
b) Credit terms
It comprises cash discount, cash discount period, and credit period.
c) Collection policies
This includes type and degree of effort made to collect receivable from
customers.
Features of Receivable Management are:
i. It involves as element of risk.
ii. It is based on an economic value
iii. It implies futurity
The objective of Receivable Management are:
a. To maintain an optimum level of investment in receivable.
b. To keep down average collection period.
c. To obtain the optimum volume of sales.
d. To control cost of credit allowed and keep it at the minimum possible level.
e. Growth or expansion of sales.
f. To increase the profit.

4.5.1 RECEIVABLES AS THE PERCENTAGE OF SALES
It is the relationship between receivables and sales expressed as a percentage.
Debtors
Receivable as % of sales = x 100
Sales
Table-17
Year Debtors Sales Percentage

2003-2004 2922.85 8249.72 35.43
2004-2005 3511.71 9086.42 38.65
2005-2006 1832.53 3430.76 53.41
2006-2007 1430.43 2924.36 48.91
2007-2008 131.27 2464.61 53.49
Avg. 45.98
Interpretation
Here the average ratio is 45.98 that means 45.98% of sales is blocked up in
receivables.

RECEIVABLES AS THE PERCENTAGE OF SALES

Chart-17

4.5.2 DEBTORS TURNOVER RATIO
It shows the number of times the debtors are tuned over during year. It is calculated
by dividing net sales by average debtors.
Net Sale
Debtors Turnover Ratio =
Average Debtors
Table-18
Year Net Credit Sales Average Debtors Ratio
2003-2004 8249.79086.42 2848.99 2.90

2004-2005 9086.42 3217.28 2.82
2005-2006 3430.76 2672.12 1.28
2006-2007 2924.36 1631.48 1.79
2007-2008 2464.61 1374.35 1.79
Avg 2.11
Interpretation
From the analysis we can see the number of times the debtors turned out during the
year. This ratio shows fluctuating tendency. The number of times debtors turned out is
less than the satisfactory level.
DEBTORS TURNOVER RATIO

Chart-18


4.5.3 AVERAGE DEBT COLLECTION PERIOD
The average debt collection period suggests the average number of days for which a
firm has to wait before the receivables are converted into cash. It is calculated by dividing
the debtors credit sale per day.
Debtors
Average Debt Collection Period = x 365
Sales
Table-19
Year Debtors Sales Avg. collection
period
2003-2004 2922.85 8249.72 129.32
2004-2005 3511.71 9086.42 141.06
2005-2006 1832.53 3430.76 194.96
2006-2007 1430.43 2924.36 178.54
2007-2008 1318.27 2464.61 195.23
Avg. 167.82
Interpretation
Average debt collection period shows a fluctuation tendency during the period of
study.

AVERAGE DEBT COLLECTION PERIOD

Chart-19

4.6 PROFITABILITY RATIOS
4.6.1 NET PROFIT RATIO
Net profit ratio established a relationship between net profit (After tax) and
sales. It indicates the efficiency of the management in manufacturing selling and
administrative and other activities of the firm. This ratio is very useful as if the profit is
not sufficient the firm shall not be able to achieve a satisfactory retune on investment .
Profit tax
Net Profit Ratio = x 100
Sales
Table-20
Year Net Profit Sales N.P.Ratio (%)
2003-2004 916.57 8249.72 11.11
2004-2005 434.36 9086.42 4.78
2005-2006 - 905.61 3430.76 - 26.40
2006-2007 - 886.53 2924.36 - 30.32
2007-2008 - 795.97 2464.61 - 32.30
Interpretation
From2004-2005 the shows a decreasing tendency because of less sales.

NET PROFIT RATIO

Chart-20

CHAPTER-V
FINDINGS

&
SUGGESTIONS
5.1 FINDINGS
 Working Capital turnover shows a fluctuating trend

 There is a sudden decline in net working capital in the year 2005-2006 due to increase
in current liability and decrease in current asset.
 Company’s current asset turnover ratio is very poor. It averages at 1.29 This ratio is
poor due to decrease in sales.
 Working capital turnover ratio is poor. This indicates the company’s inability to
generate sufficient revenue from the investment made in working capital.

 Current Ratio Maintaing a satisfactory level ie, 2.16
 The cash turnover ratio shows a declining tendency from the year 2005-2006 This is
due to the decrease in sales.
 Inventory has been converted to sales only one times in 2006-2007.But during 2003-
2005 the ratio was between 8 and 10.
 Holding period is very high in 2005-2006 at 156 days.. The holding period is around
40 days during 2003-2004.
 Here the average ratio is 45.98 that means 45.98% of sales is blocked up in
receivables.
 Debtors Turnover Ratio fluctuating tendency
 Net profit ratio shows a decreasing tendency from 2004-05, because of decrease in
sales.
5.2 SUGGESTIONS
 The company should increase the percentage of cash and marketable securities in
current assets so as to meet its current liabilities.
 To avoid blocking up of founds in debtors the company should reduce the dept
collection period.

 The unnecessary blocking up of founds in inventory should be reduced by adopting
new sales promotion activities so that it can be used to meet the current expense
efficiently.
 The main problem of the-company is less sales. This can be removed by adopting
new technology.
 Now BSNL started use Optical Fiber Cables (OFC) and reduce the usage of JFTC. So
the company should change its technology and they have to introduce variety of
products.

CHAPTER-VI
CONCLUSION
Conclusion
The study was undertaken in Traco Cables Company Ltd on the working capital
management. This study provides an insight into the working of Traco Cable Company. For
the study of working capital management secondary source of data and various analysis are

used. As result of financial analysis net profit ratio, working capital turnover ratios are not at
the satisfactory level. So the company should take more concentration to increase profit. The
net working capital of the company is decreasing over the years. The company should invest
more funds to increase the quantum of net working capital. The management of inventory
also indicates bad sign.
The performance of the company or the last three years is not good. Company is
running under loss due to decrease in sales.

BIBLIOGRAPHY
BIBLIOGRAPHY
1. Financial Management, I M Panday
2. Working capital Management, Dr P K Sing
3. Working Capital Management And Control, Sathis B Mathur
4. Annual Report, Traco Cable Company
WEBSITE

www.tracocables.com

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Traco Cable Company Ltd.

St.Michael College Of Engg. & Tech. -1-

1.1 INTRODUCTION TO THE STUDY

St.Michael College Of Engg. & Tech. -2-

1.2 OBJECTIVE OF THE STUDY

1) To analyse the ratios in relation to working capital

1.3 LIMITATION OF THE STUDY

St.Michael College Of Engg. & Tech. -3-

1.4 RESEARCH METHODOLGY

1.5 RESEARCH DESIGN

1.6 DATA COLLECTION

St.Michael College Of Engg. & Tech. -4-

1.7 TYPE OF RESEARCH

St.Michael College Of Engg. & Tech. -5-

St.Michael College Of Engg. & Tech. -6-

2.1 INDUSTRY PROFILE

2.1.1 PIONEERS OF CABLE INDUSTRY

Vision International, Ahmedabad

Uniflex Cables Limited

St.Michael College Of Engg. & Tech. -7-

Siechem Technologies Private Limited

Alankar Sales Corporation, Ghaziabad

Miracle Cables India Private Limited

Birla Ericsson Optical Limited

Mayfair Machine Kraft Pvt. Ltd.

St.Michael College Of Engg. & Tech. -8-

2.2 COMPANY PROFILE

2.2.1 TRACO CABLES COMPANY LTD.

Traco Cable Company is a Kerala Government undertaking which started its

2.2.2 ISO 9001 CERTIFICATION

St.Michael College Of Engg. & Tech. -9-

2.2.3 ISO 14001 CERTIFIACTION

2.2.4 INDIAN STANDARD CERTIFICATION

2.2.5 QUALITY POLICY

2.2.6 ENVIRONMENT POLICY

St.Michael College Of Engg. & Tech. - 10 -

2.3 PRODUCT PROFILE

2.3.1 Jelly Filed Cables

2.3.2 Characteristics of jelly filled cables

2.3.3 Range of Products

 Jelly filled Underground Armoured Cables for direct burial

St.Michael College Of Engg. & Tech. - 11 -

St.Michael College Of Engg. & Tech. - 12 -

3.1 IMPORTENCE OF FINANCE

St.Michael College Of Engg. & Tech. - 13 -

3.2 LITERATURE SURVEY

3.3 WORKING CAPITAL

St.Michael College Of Engg. & Tech. - 14 -

3.5 CONCEPTS OF WORKING CAPITAL

St.Michael College Of Engg. & Tech. - 15 -

In words of I.M.Pandey “The net working capital indicates.

Current assets should be sufficiently in excess of current liabilities to constitute

3.6 CIRCULATION SYSTEM WORKING CAPITAL

St.Michael College Of Engg. & Tech. - 16 -

3.7 OPERATING CYCLE

St.Michael College Of Engg. & Tech. - 17 -

3.8 KINDS OF WORKING CAPITAL

3.8.1 PERMANENT OR FIXED WORKING CAPITAL

3.8.2 TEMPRORY OR VARIABLE WORKING CAPITAL

3.9 ADVANTAGES OF ADEQUATE WORKING CAPITAL

St.Michael College Of Engg. & Tech. - 18 -

 It also helps for prompt payment of dividend, results in maintaining