CHANGES IN WORKING CAPITAL

There are so many reasons for changes in working capital as follows

CHANGES IN SALES AND OPERATION EXPENSES

There are changes in sales and operating expenses may be due to three

reasons.

1. There may be long run trend of change e.g. The price of raw

material i.e. oil may constantly raise necessity the holding of large

inventory.

2. Cyclical changes in economy dealing to ups and downs in business

activity will influence the level of working capital both permanent

and temporary.

3. Changes in seasonally in sales activities.

POLICY CHANGES

The second major cause of changes in the level of working

capital is because of policy changes initiated by management. The

term current assets policy may be defined as the relationship between

current assets and sale volume.

TECHNOLOGY CHANGES

The third major point if changes in working capital are change in technology

because changes in technology in our business more working capital is

required changes in operation expenses rise or full will have similar effects

on the levels of working following working capital statement is prepared on

the base of balance sheet of last year.

TABLE 4.1

SCHEDULE CHANGES OF IN WORKING CAPITAL FOR THE YEAR 2010-11 (IN RS.)

S.

No

Particulars As On

2010-11

As On

2011-12

Increase Decrease

(A)

(B)

Current Assets, Loans & Advances

Sundry debtors

Cash & bank balances

Stock

Loans and advances

Total (A)

Current liabilities and Provisions

a) Current liabilities

Sundry creditors

b) Provision

I. Audit fee payable

II. Electricity Charges payable

III. Labour charges payable

IV. Rent payable

V. Salaries payable

Total (B)

Working Capital (A-B)

Increase in working capital

426856

100000

19392

60000

606248

389411

12000

12200

40000

7100

80100

540811

65437

389935

455372

523116

140000

35506

60000

758622

137350

13500

11200

48500

7100

85600

303250

455372

-

455372

96260

40000

16114

-

252061

-

1000

-

-

-

-

-

405435

-

-

-

-

-

1500

-

8500

-

5500

-

389935

405435

INTERPRETATION:

In the year 2010-2011 there is an increase in working capital position

of the company to Rs. 389935. In the year 2010-2011 the currents assets of

the company had increased and current liabilities of the company had

decreased when compared to previous year. The above schedule of 2010-

2011 says about the position of the current assets and current liabilities of

the company.

Graph 4.1

Table showing changes in Current Asset, Current Liabilities and Working

Capital

2010-2011 2011-20120

100000

200000

300000

400000

500000

600000

700000

800000

Current AssetCurrent LiabilitiesWorking Capital

ANALYSIS

In the year 2010-11 the working capital dipped low which shows company

had financial problem but next working capital went high which shows

company had decreased its current liabilities and increased its current assets.

TABLE 4.2

SCHEDULE CHANGES OF IN WORKING CAPITAL FOR THE YEAR 2011-12 (IN RS.)

S. No Particulars As On

2011-12

As On

2012-2013

Increase Decrease

(A)

(B)

Current Assets, Loans & Advances

Sundry debtors

Cash & bank balances

stock

Loans and advances

Total (A)

Current liabilities and Provisions

a) Current liabilities

Sundry creditors

b) Provision

I. Audit fee payable

II. Electricity Charges payable

III. Labour charges payable

IV. Rent payable

V. Salaries payable

Total (B)

Working Capital (A-B)

Increase in working capital

523116

140000

35506

60000

758622

137350

13500

11200

48500

7100

85600

303250

455372

405315

860687

808518

230000

53569

200000

1292087

114600

5000

16800

95000

15000

185000

431400

860687

860687

285402

90000

18063

140000

22750

8500

-

564715

-

5600

46500

7900

99400

405315

564715

ANALYSIS:

In the year 2011-2012 there is an increase in working capital position

of the company to Rs. 405315. In the year 2011-2012 the currents assets of

the company had increased and current liabilities of the company had also

increase when compared to previous year. The above schedule of 2011-2012

says about the position of the current assets and current liabilities of the

company. As there is an increase in current assets and increase in current

liabilities with this working capital have increased. This indicates that

financial position of the company is satisfactory due to increase in current

assets of the company.

GRAPH 4.2

Table showing changes in Current Asset, Current Liabilities and Working

Capital

2011-2012 2012-20130

200000

400000

600000

800000

1000000

1200000

1400000

Current AssetCurrent LiabilitiesWorking Capital

INTERPRETATION;

There is a increase in working capital from 2011-2012 to 2012-2013.

Its shows the company is meeting its day to day expenses smoothly and

financial position is satisfactory.

Table 4.3

Statement of gross working capital for three years period from 2010-2011 to 2012-

2013

(IN RUPEES)

YEAR GROSS WORKING CAPITAL

2010-2011 606248

2011-2012 758622

2012-2013 1292087

ANALYSIS:

The above table indicates the Gross working capital position for three

years period i.e., from 2010-2011 to 2012-2013. In this year 2010-2011 its

amount is Rs. Rs.606248. It is increased to Rs. 758622 in the year 2011-

2012. It is increased to Rs. 1292087 in the year 2012-2013.

GRAPH 4.3

Showing Gross Working Capital

2010-2011 2011-2012 2012-20130

200000

400000

600000

800000

1000000

1200000

1400000

Gross Working Capital

Gross Working Capital

INTERPRETATION:

From the above the Gross Working Capital at Pro-B Tech Toolings

indicates that the utilization of working capital is good in the year 2012-

2013 the period is recorded almost a positive trend for 2011-2012 to 2012-

2013.

TABLE 4.4

Statement of net working capital for three year period from 2010-2011 to 2012-2013

(IN RUPEES)

YEAR

CURRENT

ASSETS

CURRENT

LIABILITIES

NET WORKING

CAPITAL

2010-2011 606248 540811 65437

2011-2012 758622 303250 455372

2012-2013 1292087 431400 860687

ANALYSIS:

The above table indicates the net working capital position for

three years period i.e., from 2010-11 to 2012-13. In this year 2010-11 its

amount is Rs.65437. It is increased to Rs. 455372 in the year 2011-12. It is

increase enormously to Rs. 860687 in the year 2012-13.

GRAPH 4.4

Showing Current Asset, Current Liability and Net Working capital

2010-112011-12

2012-13

0

200000

400000

600000

800000

1000000

1200000

1400000

Current AssetCurrent LiabilityNet Working Capital

INTERPRETATION:

From the above the Net Working Capital at Pro-B Tech Toolings

indicates that the utilization of working capital is good in the year 2012-

2013. The higher the net working capital ratio, the greater ability to meet its

current obligations.

WORKING CAPITAL TREND ANALYSIS

In the working capital analysis the direction at changes over a period of time is of

crucial importance. Working capital is one of the importance fields of management. It is

therefore very essential for analyst to make a study about the trend and direction of

working capital over a period of time. Such analysis enables as to study the upward and

downward trend in current assets and current liabilities and its effect on the working

capital position. The term trend is very commonly used in day-today conversion trend,

also called secular or long term need is the basic tendency of population, sales, income,

current assets and current liabilities to grow or decline over a period of time. The trend is

defined as smooth irreversible movement in the series. It can be increasing or decreasing.

Emphasizing the importance of working capital trends it have been pointed out that

“analysis of working capital trends provide as base to judge whether the practice and

privilege policy of the management with regard to working capital is good enough or an

important is to be made managing the working capital funds. Further, any one trend by

itself is not very informative and therefore comparison with illustrated their ideas in these

words, “An upwards trends coupled with downward trend or sells, accompanied by

marked increase in FTREPL investment especially if the increase in planning investment

by fixed interest obligation.

TABLE 4.5

Statement of net working capital for three year period from 2010-2011 to 2012-2013

(IN RUPEES)

PARTICULAR

2010-2011 2011-2012 2012-2013

NET WORKING

CAPITAL (A-B)

65437 455372 860687

WORKING

CAPITAL

INDENCES

100 695.89 189

ANALYSIS:

The above table indicates the net working capital position for

three years period i.e., from 2010-11 to 2012-13. In this year 2010-11 its

amount is Rs.65437. It is increased to Rs. 455372 in the year 2011-12. It is

increase enormously to Rs. 860687 in the year 2012-13.

GRAPH 4.5

Showing Working Capital Indices

2010-11 2011-12 2012-130

100

200

300

400

500

600

700

800

Working capital indices

Working capital indices

INTERPRETATION:

From the above the Net Working Capital at Pro-B Tech Toolings

indicates that the utilization of working capital is good in the year 2012-

2013. The higher the net working capital ratio, the greater ability to meet its

current obligations.

CURRENT ASSETS

Total assets are basically classified in two parts as fixed assets and

current assets. Fixed assets are in the nature of long term or life time for the

organization. Current assets convert in the cash in the period of one year. It

means that current assets are liquid assets or assets which can convert in to

cash within a year.

Table 4.6

Table is showing current assets (IN RUPEES)

PARTICULARS 2010-

11

2011-

12

2012-

13A)Current Assets

Inventories 19392 35506 53569

Sundry debtors 426856 523116 808518

Cash & bank

balance100000 140000 230000

Loan & advances 60000 60000 200000

Total of current

assets606248 758622 1292087

Current assets

indices100 125.13 170.32

ANALYSIS

Current assets indices in the year 2010-11 is 100, in the year 2011-12 it is

125.13, in the year 2012-13 current assets indices are 170.32.

TABLE 4.6

Showing current Asset Indices

2010-11 2011-12 2012-130

20

40

60

80

100

120

140

160

180

Current Asset Indices

Current Asset Indices

INTERPRETATION:

The company’s current asset indices are increasing from the year

2010-11. Here we can see that the company had good stability and had less

risk. The liquidity position of the company was on period up to 2012-13.

COMPOSITION OF CURRENT ASSETS

Analysis of current assets components enable one to examine in which

components the working capital fund has lacked. A large tie up of funds in

inventories affects the profitability of the business or the major portion of

current assets is made up cash alone, the profitability will be decreased

because cash is non-earning assets.

TABLE 4.7

Table is showing current assets(IN RUPEES)

PARTICULARS 2010-

11

2011-

12

2012-

13A)Current Assets

Inventories 3.20 4.68 4.14

Sundry debtors 70.41 68.96 62.57

Cash & bank

balance16.49 18.45 17.81

Loan & advances 9.90 7.91 15.48

Total of current

assets100 100 100

ANALYSIS

In 2010-11 the inventories was 3.20 and in other continuous years is

increasing except in 2012-13.

Sundry debtor’s has been decreased from 70.41 in the year 2010-11 to 62.57

in the year 2012-13. cash and bank balance is increasing format except the

year 2012-13.

GRAPH 4.7

Showing current asset composition

2010-11

2011-12

2012-13

0 10 20 30 40 50 60 70 80

Cash and Bank BalancesSundry DebtorsLoans and AvancesInventories

INTERPRETATION:

It was observed that the size of current assets is increasing with increase in

sales. The excess of current assets is showing positive liquidity position of

the firm but it is not always good because excess current assets then

required, it may adversely effects on profitability. Current assets include

some funds’ investments for which pay interest. The balance of current

assets is highly increased because of increase in sundry debtors, cash

balances and inventories. Current assets components show sundry debtors

are the major part in current assets in indicates that the inefficient collection

management. Over investment in the debtor affects liquidity of firm for that

company has raised funds from other sources like short term loan which

incurred the interest.

CURRENT LIABILITIES

Current liabilities mean the liabilities which have to pay in current

year. It includes sundry creditor’s means supplier whose payment is due but

not paid yet, thus creditors called as current liabilities. Current liabilities also

include short term loan provision as tax provisions. Current liabilities also

include bank overdraft, for some current assets like bank overdraft and short

term loan, company has to pay interest thus the management of current

liabilities has importance.

TABLE 4.8

Table is showing current liabilities (IN RUPEES)

PARTICULARS2010-

11

2011-

12

2012-

13Currnet liabilities 389411 137350 114600Provisions 151400 165900 316800Total of current liabilities

540811 303250 431400

Indices of current liabilities

100 56.07 142.25

ANALYSIS

In 2010-11 the indices of current liabilities is 100 after that the indices of

2011-12 current liabilities increased except the year 2012-13.

GRAPH 4.8

Showing current liabilities indinces

2010-11 2011-12 2012-130

20

40

60

80

100

120

140

160

180

Current Liabilities Indices

Current Liabilities Indices

INTERPRETATION:Current liabilities growth in the year 2012-13 because company created the

credit in the market by good transaction. There are also downs in current

liabilities during the year 2011-12. To get maximum credit from supplier

which is profitable to the company it reduces the need of working capital of

firm. But company enjoyed over creditors which may include indirect cost

of credit terms.

RATIO ANALYSIS

Ratio analysis is the powerful tool of financial statement analysis. A

ratio is define as “the indicated quotient of two mathematical expressions”

and as “the relationship between two or more things”. The absolute figures

reported in the financial statement do not provide meaningful understanding

of the performance and financial position of the firm. Ratio analysis helps to

summaries large quantities of financial data and makes qualitative judgment

of the firm’s financial performance.

ROLE OF RATIO ANALYSIS

Ratio analysis helps to appraise the firm in the term of their

profitability and efficiency of performance, either individually or in relation

to other firms in same industry. Ratio analysis is one of the best possible

techniques available to management to impart the basic functions like

planning and control. As future is closely related to the immediately past,

ratio calculated on the basis of historical financial data may be of good

assistance to predict the future. E.g. on the bases of inventory turnover,

ration or debtor’s turnover, ratio in the past, the level of inventory and

debtors can be easily ascertained for any given amount of sales. Similarly,

the ratio analysis may be able to locate the point out the various areas which

needs the management attention in order to improve the situation. E.g.

current ratio which shows a constant decline trend may be indicate the need

for further introduction of long term finance in order to increase the liquidity

position. As the ratio analysis is concerned with all the aspect of the firm’s

financial analysis liquidity, solvency, activity, profitability and overall

performance, it enables the interested persons to know the financial and

operational characteristics of an organization and take suitable decisions.

LIMITATIONS OF RATIO ANALYSIS

The basic limitation of ratio analysis is that may be difficult to find a

basis for making the comparison

Normally, the ratios are calculated on the basis of historical financial

statement organization for the purpose of decision making may need

the hint regarding the future happiness rather than those in the past.

The external analyst has depends upon the past which may not

necessary to reflect financial position and performance in future.

The technique o ratio analysis may prove inadequate in some situation

if there is differs in opinion regarding the interpretation of certain

ratio.

As the ratio calculates the basis of financial statements, the basic

limitation which is applicable to the financial statement is equally

applicable. In case of technique of ratio analysis also ie., only facts

which can be expressed in financial terms are considered by the ratio

analysis.

The technique of ratio analysis has certain limitation of use in the

sense that it only highlights the strong or problem arias; it does not

provide any solution to rectify the problem areas.

LIQUIDITY RATIOThe ratios compounded under this group indicate the short term

position of the organization and also indicate the efficiency with which the

working capital is being used. The most important ratio under this group is

follows

CURRENT RATIO

The current is calculated by dividing current assets by current liabilities:

Current assets include cash and those assets which can be converted in

to cash within a year, such as marketable securities, debtors and inventories.

All obligations within a year are include in current liabilities. Current

liabilities include creditors, bills payable accrued expenses, short term bank

loan income tax liabilities and long term debt maturing in the current year.

Current ratio indicates the availability of current assets in rupees for every

rupee of current liability.

Current assetsCurrent ratio =

Current liabilities

TABLE 4.9

Statement of current ratio from 2010-2011 to 2012-2013 (IN RUPEES)

YEAR

CURRENT

ASSETS

CURRENT

LIABILITIES

CURRENT

RATIO

2010-2011 606248 540811 1.12

2011-2012 758622 303250 2.50

2012-2013 1292087 431400 2.99

ANALYSIS:

The above table represents current assets, current liabilities of Pro-b

Tech Tooling for last 3 years from 2010-11 to 2012-13. Ratio between the

current assets and current liabilities is shown in the above table. The current

ratio in the year 2010-11 was 1.12. It was increased 2.50 in the year 2011-

2012 and 2.99 in the year 2012-2013.

.

GRAPH 4.9

Showing Current Ratio

2010-11 2011-12 2012-130

0.5

1

1.5

2

2.5

3

Current Ratio

INTERPRETATION:

From the above the Current Ratio at Pro-B Tech Toolings indicates that the

utilization of Current Ratio is good in the year 2012-13.The higher current

ratio is greater the margin of safety, the more the firm’s ability to meet its

current obligations

QUICK RATIO

Quick ratios establish the relationship between quick or liquid assets

and liabilities. An assets is liquid if it can be converting in its cash

immediately soon without a loss of value. Cash is the most liquid asset other

assets which are consider to be relatively liquid and include in quick assets

are debtors and bills receivable and marketable securities. Inventories are

considered as less liquid. Inventory normally required some time for

realizing into cash their value also be tendency to fluctuate. The quick ration

is found out by dividing quick assets by current liabilities.

TABLE 4.10

Current asset – inventory Quick ratio =

Current liabilities

Statement of quick ratio 2010-2011 to 2012-2013 (IN RUPEES)

YEAR

QUICK

ASSETS

CURRENT

LIABILITIES

QUICK

RATIO

2010-2011 586856 540811 1.08

2011-2012 723116 303250 2.38

2012-2013 1238518 431400 2.87

ANALYSIS:

The above table represents Quick ratio of Pro-B Tech Tooling for the

last three years from 2010-11 to 2012-13. The position of Quick ratio for the

past three years in the year 2010-11 was 1.08. It was increased to 2.38 in the

year 2011-12 and 2.87 in the year 2012-13.

GRAPH 4.10

Showing Quick Ratio

2010-11

2011-12

2012-13

0 0.5 1 1.5 2 2.5 3

Quick Ratio

Quick Ratio

INTERPRETATION:

From the above the analysis of Quick Ratio at Pro-B Tech Tooling indicates

that the utilization of Quick Ratio is good in the year 2010-11 the period is

recorded almost a positive trend for 2011-12 and 2012-13.

TABLE 4.11

Statement of quick ratio from 2010-2011 to 2012-2013(IN RUPEES)

YEAR

CASH AND

BANK

BALANCE

CURRENT

LIABILITIES

CASH

RATIO

2010-2011 100000 540811 0.18

2011-2012 140000 303250 0.46

2012-2013 240000 431400 0.55

ANALYSIS:

The above table represents cash ratio of Pro-B Tech Tooling for the

last five years from 2010-11 to 2012-13. . This means cash worth Rs. 1 are

adequate for liabilities worth Rs. 2. In the year 2010-11 the cash ratio is 0.18

and it is increased to 0.46 in the year 2011-12 and 0.55 in the year 2012-13

.GRAPH 4.11

Showing Cash Ratio

2010-11

2011-12

2012-13

0 0.1 0.2 0.3 0.4 0.5 0.6

Cash Ratio

Cash Ratio

INTERPRETATION:

From the above the Cash Ratio at Pro-B Tech Tooling indicates that the

utilization of Cash Ratio is not good in the year 0.18. But it showed positive

increase in next two year Cash ratio is very exact measure of liquidity. From

the point of view absolute liquidity ratio, a ratio of 1:2 or 0.5 considered as

on acceptable standard