DATA
ANALYSIS
Operating cycle = R + W + F + D – C
where,
R= Raw material conversion period
W= Work-in-process conversion period
F= Finished goods conversion period
D= Debtors conversion period
C= Creditors Deferral Period
The various components of operating cycle may be calculated as shown below:
(a) Raw material conversion period = (Average stock of raw material / Raw Material
Consumption) X 365 Days
(b) Work-in-process conversion period = (Average stock of W I P inventory / Cost of
Production) X 365 Days
(c) F = Finished goods conversion period = (Average stock of Finished Goods / Cost of
Goods Sold) X 365 Days
(d) D = Debtors conversion period = (Average debtors / Cost of sales) X 365 Days
(e) C = Creditors Deferral Period = (Average creditors / Credit purchases) X 365 Days
(a) Raw material conversion period = (Average stock of raw material / Raw Material
Comsumption) X 365 days
Particulars 2009-10 2008-09
Average Stock of raw material 121,745.25 122,207.65
Raw material consumption 4,198,466.65 4,487,736.20
Raw material conversion 11 days 11 days
period
(b) Work-in-process conversion period = (Average stock of W I P inventory / Cost of
production) X 365 days
Particulars 2009-10 2008-09
Average Stock of W I P 54,109.00 62,414.60
Inventory
cost of production 8,609,863.19 9,583,297.21
Work-in-process 2 days 2 days
conversion period
(c) Finished goods conversion period = (Average stock of Finished Goods / Cost of
goods sold) X 365 Days
Particulars 2009-10 2008-09
Average Stock of Finished 94,690.75 111,602.75
Goods
Cost of goods sold 8,613,324.69 9,613,659.71
Finished goods conversion 4 days 4 days
period
(d) Debtors conversion period = (Average debtors / Cost of sales) X 365 days
Particulars 2009-10 2008-09
Average Debtors 1,578,514.61 1,425,380.79
Credit purchases 9,164,654.64 10,093,915.70
Creditors Deferral period 63 days 52 days
(e) Creditors Deferral period = (Average Creditors / Creditor purchases) X 365 days
Particulars 2009-10 2008-09
Average Debtors 11,65,481.61 977,848.04
Credit purchases 4,103,618.18 4,374,195,90
Creditors Deferral period 103 days 82 days
ANALYSIS OF OPERATING CYCLE :-
Particulars No. of Days No. of Days
2009-2010 2008-2009
(a) Raw material conversion period 11 10
(b) Work-in-process conversion period 2 2
(c) Finished goods conversion period 4 4
(d) Debtors conversion period 63 52
(e) Creditors Deferral period 103 82
GROSS OPERATING CYCLE 80 68
PERIOD (a+b+c+d)
NET OPERATING CYCLE PERIOD -23 -14
(a+b+c+d-e)
CURRENT RATIO :-
Table No. 1 : Table showing Current ratio
Current Ratio = Current assets/current liabilities
Particulars 2009-2010 2008-2009 2007-2008
Current Assets 3,822,251.70 34,73,635.21 33,78,650.78
Current Liabilities 1,492,324.22 18,59,645.86 15,16,067.90
Current Ratio 2.56 1.87 2.23
Current Ratio
3
2.5
2
1.5
1
0.5
0
1
2009-2010 2008-2009 2007-2008
Interpretation :-
From the above data it is clear that the ideal current ratio is 2:1 as calculated above the
current ratio during the past Three years is well within the recommended range, i.e. 2.23 in 2007-
08, 1.87 in 2008-09 and 2.56 in 2009-10. That means during the years under review the company
had the liquidity to meet the short term obligations and at the same time it was not excessively
liquid.
INVENTORY TURNOVER RATIO :-
Table No. 3 : Table showing Inventory Turnover ratio
Inventory turnover ratio = cost of goods sold/average inventory
Average inventory = (opening + closing stock)/2
Particulars 2009-2010 2008-2009 2007-2008
Cost of Goods Sold 86,13,324.69 96.13,659.71 71.60,092.38
Average Inventory 2,70,545.00 2,96,225.00 2,27.385.00
Current Ratio 31.83 32.45 31.48
Inventory Turnover Ratio
32.6
32.4
32.2
32
31.8
31.6
31.4
31.2
31
30.8
1
2009-2010 2008-2009 2007-2008
Interpretation :-
From the above data it is clear that a high inventory turnover ratio indicates that
maximum sales turnover is achieved with the minimum investment in inventory. As such, as a
general rule high inventory turnover ratio is desirable. On the other hand, a low inventory
turnover ratio may indicate over investment in inventory.
In the year 2007-08 Inventory turnover ratio indicates that sales turnover was not
achieved with the minimum investment in inventory. In the year 2008-09 Inventory turnover
ratio indicates that maximum sales turnover was achieved with the minimum investment in
inventory. In the year 2009-10 Inventory turnover ratio indicates that maximum sales turnover
was achieved was but compare to year 2008-09 it is less.
INVENTORY HOLDING RATIO :-
Table No. 4 : Table showing Inventory holding period
Inventory holding period = period in months/inventory turnover ratio
Particulars 2009-2010 2008-2009 2007-2008
period in months 12 12 12
Inventory turnover ratio 31.83 32.45 31.48
Inventory holding period 0.37 i.e. 11 days 0.36 i.e. 10 days 0.38 i.e. 12 days
Inventory Holding Ratio
32.6
32.4
32.2
32
31.8
31.6
31.4
31.2
31
30.8
1
2009-2010 2008-2009 2007-2008
Interpretation :-
From the above data lesser inventory holding period is considered as good indicator of
business. In the year 2007-08 there was a decrease in inventory turnover ratio compare to 2008-
09. This shows a increase in inventory holding period.
In the year 2008-09 there was an increase in inventory turnover ratio. This shows an
decrease in inventory holding period.
In the year 2009-10 there was an increase in inventory turnover ratio compare to 2007-
08. This shows a decrease in inventory holding period. In the year 2009-10 it is 0.37 i.e. 11 day’s
app. is the holding period.
CURRENT ASSETS TURNOVER RATIO :-
Table No. 5 : Table showing Current Asset Turnover Ratio
Current Assets turnover Ratio = Net Sales / Current Assets
Particulars 2009-2010 2008-2009 2007-2008
Net sales 1,19,46,981.68 1,29,40,511.97 1,22,53,314.24
Current assets 38,22,251.70 34,73,635.21 33,78,650.78
C.A. turnover ratio 3.13 3.73 3.63
Current Asset Turnover Ratio
3.8
3.6
3.4
3.2
3
2.8
1
2009-2010 2008-2009 2007-2008
Interpretation :-
From the above data it indicates A high current assets turnover ratio indicates the
capability of the organization to achieve maximum sales with the minimum investment in current
assets. In the year 2007-08 ratio indicate that the organization had increased sales with the
minimum investment in current assets. It indicates that the current assets were turned over in the
form of sales more number of times.
In the year 2008-09 ratio indicates that the organization had increased sales but
investment in current assets were also increased compared to previous year. But it indicates that
current assets were turned over in the form of sales more number of times, compared to previous
year.
In the year 2009-10 ratio indicates that the sales had decreased, and current assets were
increased, it indicates that current assets were not turned over in the form of sales more number
of times, compared to previous year.
FIXED ASSETS TURNOVER RATIO :-
Table No. 6 : Table showing Fixed Asset Turnover Ratio
Fixed Assets Turnover Ratio = Net Sales / Fixed Assets
Particulars 2009-2010 2008-2009 2007-2008
Net sales 1,19,46,981.68 1,29,40,511.97 1,22,53,314.24
Fixed Assets 1,24,22,939.85 1,28,86,198.00 68,67,835.00
F.A. turnover ratio 0.96 1.00 1.78
Fixed Asset Turnover Ratio
2
1.5
1
0.5
0
1
2009-2010 2008-2009 2007-2008
Interpretation :-
From the above data it is clear that in the year 2007-08 that, the organization has
increased sales and organization had purchased new fixed assets as Machinery in this year. And
machinery is directly related to production, that’s why the ratio was increased. In the year 2008-
09 ratios indicate that, the organization had increased sales. But in this year company purchased
new fixed assets as vehicles and vehicles are not directly related to sales because of that fixed
assets turnover ratio was decreased compare to last year. If we excluded vehicles from the fixed
assets then the fixed assets turnover ratio is 1.29. (12940511.97/10050059)
In the year 2009-10 ratios indicate that, the sales has decreased and fixed assets were
increased. So it indicates that the fixed assets are not turned over in the form of sales more
number of times. If we excluded vehicles from the fixed assets then the fixed assets turnover
ratio is 1.19. (11946981.68/10012222.85)
WORKING CAPITAL TURNOVER RATIO :-
Table No. 7 : Table showing Working Capital Turnover Ratio
Working Capital Turnover Ratio = Net Sales / Working Capital
Particulars 2009-2010 2008-2009 2007-2008
Net sales 1,19,46,981.68 1,29,40,511.97 1,22,53,314.24
Working Capital 23,29,927.48 16,13,989.35 18,62,582.88
W.C. turnover ratio 5.13 8.02 6.58
Working Capital Turnover Ratio
10
8
6
4
2
0
1
2009-2010 2008-2009 2007-2008
Interpretation :-
From the above data it is clear that a high working capital turnover ratio indicates the
capability of the organization to achieve maximum sales with the minimum investment in
working capital. It indicates that the working capital is turned over in the form of sales more
number of times. As such, higher the working capital turnover ratio better will be the situation.
In the year 2007-08 the organization had increase sales with minimum investment in
working capital. Cause of organization kept low investment in fixed assets and current assets.
In the year 2008-09 also the organization had increased sales with minimum investment
in working capital. Cause of organization kept low investment in working capital. And it
increased sales more number of times. And ratio has increased to 8.02.
In the year 2009-10 the organization has decreased sales and increased investment in
working capital. And it shows that ratio it has further decreased to 5.13.
DEBTORS’ TURNOVER RATIO :-
Table No. 8 : Table showing Debtors Turnover Ratio
Debtors Turnover Ratio : Net Credit Sales / Average sundry Debtor’s
Particulars 2009-2010 2008-2009 2007-2008
Net Credit sales 1,19,46,981.68 1,29,40,511.97 1,22,53,314.24
Average Sundry 15,78,514.64 14,25,380.79 15,11,867.87
debtors
debtors turnover ratio 7.57 9.08 8.10
Debtors' Turnover Ratio
9.5
9
8.5
8
7.5
7
6.5
1
2009-2010 2008-2009 2007-2008
Interpretation :-
From the above data it is clear that in the year 2007-08 Debtors turnover ratio was 8.10. It
shows that delays in the collection of cash . In the year 2008-09 Debtors Turnover ratio was 9.08.
It shows that recovery was improving. In the year 20098-10 Debtors Turnover ratio is 7.57. It
shows that less recovery from debtors. It shows that very liberal & inefficient credit & collection
performance. This certainly delays the collection of cash.
Generally, higher the value of debtor’s turnover, the more efficient is the management of
credit.
Higher ratio mean less receivables
Lower ratio mean high receivables
CREDITORS’ TURNOVER RATIO :-
Table No. 9 : Table showing Debtors Turnover Ratio
Creditors Turnover Ratio : Net Credit Purchases / Average sundry Creditor’s s
Particulars 2009-2010 2008-2009 2007-2008
Net Credit purchase 41,03,618.08 43,74,195.90 38,68,483.54
Average Sundry 11,65,481.61 9,77,848.035 8.52,559.965
Creditors
debtors turnover ratio 3.52 4.47 4.54
Creditor's Turnover Ratio
5
4
3
2
1
0
1
2009-2010 2008-2009 2007-2008
Interpretation :-
From the above data it is clear that in the year 2007-08 Creditors turnover ratio was 4.54.
It shows that less payables. It shows that you have paid creditors amount. In the year 2008-09
Creditors turnover ratio was 4.47. It shows that more payables compared to previous year. And
ratio indicates credit period availed by company from suppliers. In the year 2009-10 Creditors
turnover ratio was 3.52. It shows that more payable compared to previous year. Because of the
recession company paid to their creditors late.
Creditors turnover ratio are basically concerned with
Higher ratio means less payables
Lower ratio means more payables
STATEMENT OF CHANGES IN WORKING CAPITAL
(2008-09)
PARTICULARS 2007-08 2008-09
Amount (Rs.) Amount (Rs.) Increase Decrease
Current Assets,
Loans & Advances
Stock In Trade
Raw Material 120,444.80 123.970.50 3,525.70
WIP 69,731.20 55,098.00 - 14633.2
Finished Goods 126784 96421.5 - 30362.5
Sundry Debtors 1,468,624.33 1,382,137.25 - 86.487.08
Loans & Avances
Adv – Employees 162,818.00 193,848.00 31,030.00 -
Adv-Marshal 850,615.00 944,545.00 93,930.00 -
Engineers
Advance To 50,404.00 - - 50,404.00
creditors
Tax Deducted At 33,202.00 49.032.00 15,830.00 -
Source
Advance Tax 225,000.00 150,000.00 - 75,000.00
Fringe Benefit Tax - 50,990.00 50,990.00 -
Fringe Benefit Tax - 11,533.23 11,533.23 -
(A.Y.2009-10)
MVAT Receivable - 410,198.28 410,198.28 -
Cash In Hand 17,294,45 5,861.45 - 11,433.00
RD with Janseva 253,733.00 - - 253,733.00
Bank
Total (A) 3,378.650.78 3,473.635.21
Current Liabilities
& Provisions
Sundry Creditors 809,915,51 1,145,780.56 335,865.05
Outstanding
Expenses
Light Bill Payable 11,500.00 19,860.00 - 8360.00
Telephone Expenses 6,861.20 7,650.00 - 788.8
Payable
A/C Writing - 1,500.00 - 1,500.00
Charges Payable
Salary & Wages 100,299.00 104,336.00 - 4,037.00
Payable
Ex-Gratia Payable 105,000.00 113,979.00 - 8,979.00
Service Tax Payable - 34,459.81 - 34,459.81
TDS Payable - 22,154.00 - 22,154.00
VAT Audit Duty 16,836.00 16,854.00 - 18.00
Payable
Audit Fees Payable 14,030.00 14.045.00 - 15.00
Professional Fees 9,112.00 18,224.00 - 9,112.00
Payable
CST Payable - - - -
VAT Payable - - - -
Duties & Taxes 26,150.49 10,803.49 15,347.00 -
Advances from 412,235,93 350,000.00 62,235.93 -
Debtors
Interest Paid On 3,841.00 - 3,841.00
Loans
TDS on L/C 286.77 - 286.77 -
Total (B) 1516,06.90 1,859,645,86
Working Capital 1,862,582.88 1,613,989.35
(A-B)
Decrease in 248,593.53 248,593,53
Working Capital
1,862,582.88 1,862,582.88 947,341,44 947,341.44
STATEMENT OF CHANGES IN WORKING CAPITAL
(2009-10)
PARTICULARS 2008-09 2009-10
Amount (Rs.) Amount (Rs.) Increase Decrease
Current Assets,
Loans & Advances
Stock In Trade
Raw Material 123,970.50 119,520.00 - 4450.5
WIP 55,098.00 53,120.00 - 1,978.00
Finished Goods 96421.5 92,960.00 - 3461.5
Sundry Debtors 1,382,137.25 1,774,891.97 392,754.72 -
Loans & Advances
Adv – Employees 193,848.00 233,238.00 39,390.00 -
Adv-Marshal 944,545.00 1,171,285.00 226,740.00 -
Engineers
Tax Deducted At 49,032.00 20,530.00 - 28,502.00
Source
Advance Tax 150,000.00 150,000.00 - -
Fringe Benefit Tax 50,990.00 86,294.00 35,304.00 -
Fringe Benefit Tax 11,533.23 7,987.00 - 3,546.23
(A.Y.2009-10)
MVAT Receivable 410,198.28 96,190.28 - 314,008.00
Cash In Hand 5,861.45 4,351.45 - 314,008.00
Bank of - 11,884.00 11,884.00 -
Maharashtra –CA
Total (A) 3,473,635.21 3,822,251.70
Current Liabilities
& Provisions
Sundry Creditors 1,145,780.56 1,185,182.66 39,402.10
Advances From 350,000.00 350,000.00
Debtors
Outstanding
Expenses
Light Bill Payable 19,860.00 - 19,860.00 -
Telephone 7,650.00 - 7,650.00 -
Expenses Payable
A/C Writing 1,500.00 1,500.00 - -
Charges Payable
Salary & Wages 104,336.00 139.306.00 - 34,970.00
Payable
Ex-Gratia Payable 113,979.00 - 113,979.00 -
Service Tax 34,459.81 48,051.56 - 13,591.75
Payable
TDS Payable 22,154.00 - 22,154.00 -
VAT Audit Duty 16,854.00 16,854.00 - -
Payable
Audit Fees Payable 14,045.00 36,470.00 - 22,425.00
Professional Fees 18,224.00 18.224.00 - -
Payable
CST Payable - 2,260.00 - 2,260.00
VAT Payable - 44,476.00 - 44,476.00
Duties & Taxes 10,803.49 - 10,803.49 -
Total (B) 1,859,645.86 1,492,324.22
Working Capital 1,613,989.35 2,329,927.48
(A-B)
Increase in 715,938.13 - - 715,938.13
Working Capital
2,329,927.48 2,329,927.48 1,230.519.21 1,230,519.21
FINDINGS
FINDINGS
On the basis of Data Analysis following findings are given to Marshal threading
company.
1) Standard current ratio is 2:1 and for industry it is 2.56 in this year. This shows that
Marshal Threading company’s ratios are satisfactory.
2) Liquid ratio is more than one so, it is satisfactory.
3) As there are more number of debtors the average collection period of debtors also
increased. The decrease in the debtor turnover ratio shows that there are more receivables
from debtors. Because of the recession, it was very difficult for a company to collect the
debtors hence; there is less recovery from debtors.
4) Inventory turnover ratio is improving, which means inventory is used in a better way so it
is good for the company & Inventory holding period is decreasing which is good
indicator of business.
5) Fixed assets turnover ratio is decreasing year after year. In the Year 2009-10 ratios
indicate that, the sales has decreased and fixed assets were increased. So indicates that the
fixed assets are not turned over in the form of sales most of the times.
6) In the year 2009-10 creditors turnover ratio was 3.52. It shows that there are more
payables as compared to previous year.
7) In the calculation of the net operating cycle it has been seen that the company has
negative net operating cycle which shows the company is getting more credit period and
they are making business with others’ money. It shows that company has good reputation
in the market.
LIMITATIONS
LIMITATIONS
Every project has its own limitations. But we have to work irrespective of these limitations and
find our way, so that we can achieve the required aim.
Some of the limitations of our project are :-
As the project is based on the data recorded by the company, we face the limitation of
extracting that particle data because our access is limited for the sake of confidential
information of the company.
The grouping of different items in the balance sheet also created difficulties for us, as it is
very difficult to identify which item is clubbed with which head. But thanks to accounts
personal who made it easy to understand these clubbing.
This project is based on three year annual reports. Findings and suggestions were based
on such limited data. The trend of last three year may or may not reflect the real working
capital position of the company.
The study is limited only to working capital management aspect of the Marshal Treading
Company, Pune.
CONCLUSION
CONCLUSION
The title of the project is “Working Capital Management” which is carried out in Marshal
Threading Company. The objectives of the project were primary and secondary i.e. to analyze
the financial statement of the company through ratio of the company, to find out the working
Capital of the company, the net operating cycle of the company. In this study an attempt is made
to provide an idea about the way in which a decision can be taken to decide in the field of
finance for better progress.
The ratio analysis of the Marshal Threading Company explains the different operations and
financial position which shows a recession affect on company that the sales were decreased.
There is a negative operating cycle in the company which means that they are doing business
with other’s money. The working capital management of Company is being effectively done as
they have a proper management and control over the WCM.
The Company has been progressive in all aspects. Through this analysis we can concluded that
even though the company is progressing. Company should minimize its loan and company
should work on its operating cycle although they have negative working capital company should
pay to its creditors on time.
SUGGESTIONS
SUGGESTIONS
On the basis of findings drawn following suggestions are given to Marshal threading company :-
1) It can be said that the overall financial position of the company is sound but it is required
to improve from the point of view of profitability.
2) Company should have proper policy for salary increment & labour welfare policy.
3) Company should minimize its inventory holding period.
4) Company should try to increase their sales.
5) Company should raise funds through short term requirement of funds, which is
comparatively economical as compared to the long terms funds.
6) Company should work on the negative working capital because it will affect the
company’s reputation in the long term, by paying off their creditors dues in the given
period of time i.e. the credit period.
7) Company should plan for the cash purchases & take a cash discount & bring down the
cost & make profit and also plan for the repayment of loan.
