Complete Sandeep

8/9/2019 Complete Sandeep

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1.2 OBJECTIVE OF THE STUDY

The principal objective of preparing the project report on Working

Capital Management of Prime seal strap pvt.ltd. Saper, is to asses the

performance of a firm based on the available financial data. The other

objectives are:

To study how the company manages it working capital and its

day to day transaction.

To study the liquidity position of the company.

To check the profitability of the company.

To study the operating cycle at prime seal strap pvt.ltd


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1.3 LIMITATIONS OF THE STUDY

The main limitations faced during the preparation of this project report of

Working Capital Analysis at PRIME SEAL STRAP PVT. Ltd. areas under:

As per certain document & data were confidential, it was not possible to

collect all the information necessary for the deep study.

In this report, information written by me is as per my limited

understanding of the concern subject.

At the time of training, department heads are very busy in his routine

work. Therefore, we get only brief idea of functioning of the organization.

The report is based on the analysis of the later of last 4-5 year which maynot be sufficient in some cases.


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METHDOLOGY

Preparing the project report include the processes of collecting data,

analyzing data and reporting data for absolute results. Research is done to gain

some knowledge so as it may bid in understanding the information gathered on

specific topic. It is a scientific and systematic way of understanding information

on specific and particular subjects. It is a scientific and particulars. It is a

scientific investigation to understand the cause and effect as well as reasons

through investigation. It is an academic activity and it is to be used in technicalsense.

2.1 Research type: Descriptive research.

Descriptive study is fact finding investigation with adequate

interpretation. It is well structured tends to be rigid and its approach can not be

change every now and there. It is more specific than an exploratory study as it

has focused on particular aspect of the problem studied.

2.2 Sources of Data:

This project report is based on the two types of data, i.e. primary data and

secondary data.

1. Primary sources of information

2. Secondary sources of information

1.Primary sources:-

Primary data is that data, which has not been collected, and this data are

collected at the first hand or from the persons of the company directly for the

purpose of the study. But for this project work I have not used primary data.

2.Secondary sources:-


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The data which are collected earlier for some other purposes and used bythe researcher for his present study are called secondary data. For this project

work I have collected the secondary data from various sources such as

companys annual report of previous years, different document prepared by

company and from various reference books.


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3.1 HISTORY

PRIMESEAL STRAPS PVT. LTD.

Rajkot, is a privately managed firm, established in the year 2001, with aresolution to produce high quality, 100% virgin box straps. The companyis situated at Veraval - Shapar, a prime industrial area on the outskirts ofRajkot (Gujarat).

In yesteryears, wooden boxes and metal straps were in use for packingpurpose. These have now been replaced by corrugated paper cartonsand PP straps.

We have been engaged in the manufacturing of PP box straps of varioussizes, for a decade. We have now ventured into the production of 100%virgin box straps, This would cater to all the future requirements of thepackaging industry, keeping in mind the quality as well.

P.S.P.L. has therefore been established to be able to cater to any andevery need of the customer, by providing the right quality as well as thespecific requirements. This would include the printing of the company's

name and logo as well. The motto at P.S.P.L. is to treat each customerwith equal importance and cater to every requirement of the customer.


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LOCATION OF THE FIRM & ITS AREA:

PRIMESEAL STRAP PVT.LTD.

SERVEY NO.125 PLOT NO.85,B/H PANARA AUTO, SIDC PLOTS,

NEAR SANTIDHAM SOCIETY,

SIDC ROAD, VERAVAL (SHAPAR),

T-KOTDASANGANI, D- RAJKOT.

About 10 minutes from Shapar Railway station (East). Firm has a plot area of

about 836.43 sq.mt. Main building covers about 436.36 sq.mt. Total land is

covered by boundary wall of 12 Ft by 5 Ft. within the compound the open space

is covered by plantation.

MANAGEMENT PERSONNEL OF THE FIRM:

Mr. Paresh Sheladiya (M.E) Partner

Mr. Kalpesh Sheladiya (M.B.A) Genera Manager

Mr. Mitul patel (B.E/M.B.A) Production Manager

Mr. Manoj patel (M.B.A) Finance Manager

HEADS OF VARIOUS DEPARTMENTS:

Finance department: Mr. Manoj Patel

Marketing department: Dr. H. M. Patel

Personnel department: Mr. Bipin Patel

Production department: Mr.Mitul Patel

TURNOVER:

The turnover of the firm is approximately Rs. 2.5 crores.


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3.2 PRODUCT PROFILE

PRODUCT LINES:

Product is anything that can be offered to market for attention,

acquisition, use or consumption that might satisfy a want or need.

A product line is a group of products that are closely related because they

perform a similar function, are sold to the same customer. Groups are marketed

through the same channel or make up a particular range.

The mission of Primeseal Straps Pvt. Ltd. is to produce to the highestquality of strapping material for the packaging requirements of various

industries.

The directors of P.S.P.L. felt that a unit for the production of 100%

virgin quality box straps should be produced by a semi-automatic heat sealable

plant which would be the solution for all futuristic needs for the packaging

industry. Hence, the Primeseal brand was established.

P.S.P.L. will be able to cater the various requirements of strapping for

textile, pharmaceutical, electronic, automobile, Plastic, agricultural & various

other industries.Earlier, the consumers were not getting the best quality, even though they

were willing to spend for it. Therefore, it was unilaterallydecided by the

directors and the employees that the consumer should not suffer at any cost.

This resolution has helped us to not only produce the quality according to the

requirements of the industry, but also the produce the required quantity for our

customers / consumers according to their customised and specific requirements.

This transparency has yielded a reasonable success and our industry has earned

us a lot of goodwill. All the employees at P.S.P.L. are grateful to their patrons

for their valuable support and futuristic vision. We undertake to serve in good

spirit and the best attitude.


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The company has mainly Four product lines.

Semi Automatic Heat Sealable Straps

Manual Sealable Straps

Most UsagesFuture Product

Semi Automatic HeatSealable Straps Manual SealableStraps Fully automaticstrap

List of Box Straps manufactured.

1. 6 m.m. Box Straps.

2. 11 m.m Box Straps.

3. 12 m.m Box straps.4. 15 m.m Box straps.

5. 16 m.m Box straps.

6. 19 m.m Box straps

Semi Automatic Sealable Straps.

Standard Colours : Transparent, White, GoldenYellow, Lemon Yellow, Red, Blue, Green etc.

Core Size and Weight :

(1) 165 x 203 mm (0.800 kg.)(2) 165 x 203 mm (1.000 kg.)

Printing facility is available as per the requirements ofquality, sizes and the available range of colours.


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Specifications :

CodeWidth

mm

Thick

mm

Metre

per kg.

Length per

roll metre

Kg.per

roll

Breakload

kg.

Elongation

%905 9.00 0.50 400.00 2000 5.00 50-55 17.00

906 9.00 0.60 333.00 2000 6.00 70-75 18.00

1205 12.00 0.50 285.00 2000 7.00 85-90 19.00

1206 12.00 0.60 250.00 2000 8.00 100-105 20.00

1505 15.00 0.50 200.00 1000 5.00 100-105 22.00

1506 15.00 0.60 165.00 1000 6.00 120-125 23.00

1806 18.00 0.60 145.00 1000 7.00 155-160 30.00

1807 18.00 0.70 125.00 1000 8.00 175-180 32.00

Average Contents per Package : 2 Rolls

Manul Sealable Straps

Standard Colours : Transparent, White, GoldenYellow, Lemon Yellow, Red, Blue, Green etc.

Core Size and Weight :

(1) 102 x 152 mm (0.250 kg.)(2) 076 x 152 mm (1.150 kg.)

Printing facility is available as per the requirements ofquality, sizes and the available range of colours.


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Specifications :

Code Widthmm Thickmm

Metre

perkg.

Length

per rollmetre

Breakload kg. Elongation %

1205 12.00 0.50 285.00 2000 85-90 19.00

1206 12.00 0.60 250.00 2000 100-105 20.00

1207 12.00 0.70 225.00 2000 120-125 21.00

1505 15.00 0.50 200.00 1000 100-105 22.00

1506 15.00 0.60 165.00 1000 120-125 23.00

1507 15.00 0.70 145.00 1000 135-140 24.00

1806 18.00 0.60 145.00 1000 155-160 30.00

1807 18.00 0.70 125.00 1000 175-180 32.00Packing depends on the Weight of Roll.

Most Usage

Its purity, toughness and other striking qualities will furnish the entire needsof the customer in on-line strapping of textile, pharmaceuticals, electricautomobile, plastic, agricultural items etc.

PRIMESEAL STRAP is basically used in :

Industries such as Steel, Glass, Automobile,Sheets, Corrugated, Hardboard, etc.

Bales such as Man-made Fibre, Cotton, Jute, Coir,Rubber, etc.

Building Materials such as Pipes, Clay buildingbricks, Roofing Tiles, Plasterboards, etc.


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Palletisation such as Medicine Cartons, Film Rolls,Bags, Bottles, other plastic materials, etc.

Consumer Products such as Fruit Cartons,Vegetable Markets, Insecticides, etc.

Paper Products such as News Paper Bundles,Loose Sheets, Stationery etc.

Future Product

Fully Automatic Strap

The future plan of PRIMESEAL STRAPS PVT. LTD. is to

produce fully automatic strap. Fully automatic rolls aremanufactured taking into consideration the precisionrequired at the high speed of strapping in fullyautomatic machine. The straps are made maintainingrigid of quality control to produce curvature-free straps.

Friction Seal Strap

Friction seal strap is used in fully automatic strapping machine and the samerequires a curvature-free strap with minimum size variation. Our straps are fullysuitable for those types of

machines and are available in various strap & core size.


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MAJOR CUSTOMERS


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4.1 CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross concept

2. Net concept

1. GROSS WORKING CAPITAL

Its simply called as working capital refers to the firms investment in'

current assets which can be converted in to cash within an accounting year) or

operating cycle) and include cash, short-term securities, debtors, bills

receivables and stock (inventory).

2. NET WORKING CAPITAL

It refers to the difference between current assets and current liabilities.

Net working capital can be positive or negative. A positive net working capital

will arise when current assets exceeds current liabilities. A negative net

working capital occurs when current liabilities are in excess of current assets.

Net working capital being the difference between current assets and

current liabilities is a qualitative concept. It (a) indicates the liquidity position

of the firm and (b) suggests the extent to which working capital needs may be

financed by permanents sources of funds. Current assets should be sufficiently

excesses of current liabilities to constitute a margin or buffer for maturing

obligations within the ordinary operating cycle of a business. In order to protect

their interests, short term creditors always like a company to maintain current

assets at a higher level than current liabilities. However the quality of current


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refrigerators is more and the firm needs low working capital in the periods of

winter, as the demand for the product is low.

3. Production Cycle:

The term production cycle refers to the time involved in the manufacture

of goods. It covers the time span between theprocurement of the raw materialsand the completion of the manufacturing process leading to the production of

goods. As funds are necessarily tied up during the production cycle, the

production cycle has a bearing on the quantum of working capital. The longer

the time span of production cycle, the larger will be the funds tied up and

therefore the larger the working capital needed and vice versa.

4. Production Policy:

The quantum of working capital is also determined by production policy.

In case of the firms having seasonal demand of the products like refrigerators, air

coolers etc., The production policy of the firm determines the amount of working

capital requirement. If the firm has production policy to carry production at a

steady level to meet the peak demand, this will result in a large accumulation of

finished goods (inventories) during the off-seasons and the abrupt sale during the

peak season. The progressive accumulation of finished goods will naturally

require an increasing amount of working capital. If the firm has production

policy to produce only when there is a demand then the firm needs low workingcapital during the slack season and high working capital during season.

5. Credit Policy:

The level of the working capital is also determined by the credit policy, as

the firms credit policy determines the amount of receivables. If the firm has a

liberal credit policy, then the firm needs high working capital and the firm needs

low working capital if the companys credit policy does not allow it to extend

credit to the buyers.

6. Market Conditions:

The working capital requirements are also determined by the market

conditions. In case of the high degree of competition prevailing in the market the

firm has to maintain larger inventories as customers are not inclined to wait for

the product. This needs higher working capital requirements. If there is good

demand for the product and the competition is weak, a firm can manage with

smaller inventory of finished goods, as customers can wait for the product if it is


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not available in the market. Thus, a firm can manage with low inventory and will

need low working capital requirements.

7. Conditions of Supply:

The availability of raw materials and spares also determine the level of

working capital. If there is ready availability of raw materials and spares, a firm

can maintain minimum inventory and need less working capital. If the supply of

raw materials is unpredictable, then the firm has to acquire stocks as and when

they are available for ensuring continuous production. Thus, the firm needs to

maintain larger inventory average and needs larger requirement of working

capital.

The effects of excessive working capital are as followsy It results in unnecessary accumulations of inventories. Thus chances of

inventory mishandlings, waste, theft and losses increase.

y It is an indication of detective credit policy and slack collection periods

consequently higher incidents of bed debts results, which adversely affects

profits.

yExcessive working capital makes management complacement which

degenerates in to managerial in efficiency.

yTendencies of accumulative inventories to make speculative profits grow.

This may tend to make dividend policy liberal and difficult to cope with in

future when the firm is unable to make speculative profits.

Inadequate working capital is also bad and has the

following Effects

y It stagnates growth. It becomes difficult for the firms to under take profitable

projects for non availability of working capital funds.

y It becomes difficult to implement operating plans and achieves the firms

profit target.


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yOperating influences creep in when it become difficult even to meet day-to-

day commitments.

yFixes assets are not efficiently utilized for the lack of working capital funds

thus the firm's profitability would deteriorate.

yPaucity of working capital funds renders the firm unable to avail attractive

credit opportunities etc.

An enlightened management should there for maintain a right amount of

working capital on a continue basis. Only then a proper functioning of the

business operations will be ensured. Sound financial and statistical techniques

supported by judgment should be used to predict the quantum of working

capital needed at different time periods.

4.3 CONCEPT OF OPERATING CYCLE

There is always an operating cycle involved in conversion of sales into

cash. There is a difference between current and fixed assets in terms of their

liquidity. A firm requires many years to recover the initial investment in fixed

assets such as plant and machinery or land and buildings. On the contrary,

investment in current assets is turned over many times in a year. Investment in

current assets such as inventories and book debts is realized during the firmsoperating cycle which is usually less than a year.

Operating cycle is the time duration required to convert sales after the

conversion of resources into inventories into cash. The operating cycle of

a manufacturing company involves three phases:

1. Acquisition of resources such as raw material, labour & fuel etc.

2. Manufacturing of the product which include conversion of rawmaterial into work in progress in to finished goods.

3. Sales of the product either for cash or on credit, credit sale creature bookdebts for collection.

The title of operating cycle is more expressive in the sense that the

normal business operations of a manufacturing and trading company start with

cash , for through the successive segments of the operating cycle that is raw


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materials, work in progress period, finished goods periods and collection from

debtors before getting back cash along with the profits. The total duration of all

the components' define about a gross operating cycles.

The purchase of raw materials, components' etc. all usually made on

credit basis there by giving rise to the spontaneous current liabilities, viz.

account payable when the payment period of the company to its suppliers is

deducted from the gross. Operating cycle period the resultant period is called

net operating cycle period. It becomes obvious that the short term duration of

operating cycle period; the factor will be the transactions of current assets into

cash.

The companys financial manager is concerned with the smooth and

rapid flow of funds; the more efficient is the usage of each rupee of the working

capital investment. in other words when the flow of working capital is smooth

and rapid, the amount of working capital is required is less.

Operating Cycle of Prime Seal Strap Pvt.Ltd.

Conversion of cash into raw material.

Conversion of raw material into work-in-process.

Conversion of work-in-process into finished goods.

Conversion of finished goods into sales.

Conversion of debtors into cash.


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Cash conversion cycle of a Manufacturing

enterprise is shown in the following figure

The boxes are in the figure represented stock at a point of time, or cash

materials finished goods and sundry debtors. The stock should be maintained at

level appropriate to business turnover. High would lead to blocking of funds or

Cash

Finished goods Work inprogress

Debtors

collection

eriod Raw material

inventory


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low would lead to interpreting of the smooth flow of cash cycle. Thus the

objectives of working capital management are to maintain smooth and rapid

flow of funds over cash.

MEASURING WORKING CAPITAL

REQUIREMENTS

Operating cycle concept penetrates to the understanding of the working

capital management in a more dynamic form. The aim of such an approach is

not only to direct towards management of working capital and its fund inflows

and outflows but also directed to refine the balancing judgments between

liquidity and profitability. In financial planning understanding of the operating

cycle approach is very essential this means that working capital is not only to be

viewed as working funds for meeting the current liabilities but also as a source

of increasing profitability and these by maximize the return on capital

employed.

The conventional definition of working capital adopts a balance sheetview of resources for sustaining of the current operations of the firm. However

the balance sheet is a static statement of the firm on a certain date and if fails to

indicate the dynamics position of the pressure on cash flows that are combines

in the firms income more profit and loss account which has all operated inflows

and outflows. Working capital derived from such a sources of known as cash

working capital which is considered to be the most practical approach in

context of the working capital management. There is an effect on the item of

the value that flows in and flows out through the series of item comprising the


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components of the profit and loss account and balance sheet. This is more

evident than operating cycle period is calculated.

The inventory conversion period is the total time needed for producing

and selling the product typically it includes:

1. Raw material conversion period

2. Work-in-process conversion period

3. Finished goods conversion period

4. Debtors conversion period

5. Creditors conversion period

1. Raw Material Conversion Period:

Raw Material turnover indicates the velocity with which the raw

materials are consumed & shows the period for which the raw material was

stored before they are released to the production department.T

he lower theturnover, more are the working funds blocked in the material & Vice-Versa.

Shorter the raw material storage period require lesser investment in raw

material turnover & the storage period of raw material further indicates over or

under investment in raw materials inventory. The company has major

production on order basis. Hence, it purchases raw material specific to the

demand. As a result, the storage period of raw materials mainly consist of

inspection of raw material.

The amount of raw material consumed has been divided by value of

inventory of raw materials for computing raw material turnovers. Further tocalculate raw materials storage period, the amount of inventory raw materials

has been multiplied by the number of days in the year and divide by the amount

of raw materials consumed during the year.

2.Work-In-Process Conversion Period:


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Work-In-Process inventories are semi-manufactured products. Theyrepresent that need further processing before they become finished product for

sale. The length of product cycle & current level of operation determines the

size of work-in-process. The longer the production cycle & higher the current

level of operations, greater will be the value of work-in-process.

3.Finished Goods Conversion Period:

The turnover of inventory of finished goods is a benchmark to measure

the number of times inventory of finished goods is sold. A higher turnover is a

reflection of fast movement of stock which denotes lesser amount of working

capital being blocked up in the form of finished goods inventory. A lower

turnover may indicate slump business, excessive production in relation to sales

or over stocking in anticipating of higher price & profits.

Finished goods are built up with additions from production line and are

reduce with sales. The business firm may find it advantageous to maintain high

level of finished goods only for timely execution of orders.

4.Debtors Conversion Period:

The debtors turnover rate measures the liquidity of the debtors of a firm.

In other words, it shows the efficiency achieve in using he fund invested indebtors. Increase in the volume of debtors without corresponding increase in the

total current assets, may decrease in the volume of investment in the other

current assets.

If investment in inventory is reduced, it may in turn affect total sales and

consequently reduce the profit of the firm. The reverse may be true in case of

decrease in volume of receivables. Higher debtors turnover coupled with quick

collection of debtors enable the firm to manage a larger volume of business

without corresponding rise in the investment of debtors. In a competitive

market, where there are many players to same line of product. The company

may have to resort to increase credit period, special incentive to safe guard the

clients.

Thus, an insight into firm turnover in collection period of debtors reveals

the credit policy followed by it.

5.Creditors Deferral / Conversion Period:


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Trade credit is one of the major sources of funds to finance inventories.

The period of volume of trade credit varies from industry to industry & in an

industry from firm to firm. The main advantage of trade credit is that it has

generally no cost, if discount is not a part of credit term. It is spontaneous,

being available without any formalities. Hence, finance manager should try to

exploit this spontaneous short-term source of funds to the fullest possible

extent.

Creditors turnover coupled with slower payment to creditors enables the

firm to maintain sufficient level of inventories at lower cost. Banks now a day

offers various facilities for lending funds for the working capital requirements.

RATIO ANALYSIS

INTRODUCTION

An inventor in interested in information regarding the exact financial

position of the business, its earning capacity and the present position with

regarded to profitability and future possibility of the company. He has only the

published accounts of the company before him, which would enable him to take

any decision with respect to investing his money. The published accounts are P

& L account, Balance sheet, Director's report and Auditor's report and

chairman's speech. The earning capacity and past result could be ascertained

from the profit and loss account. An idea about the financial position can be

derived from the balance sheet. The director's report and chairman's speech

would assist him in foreseeing the future prospects of the company. However,

accurate conclusion cannot be drawn from the mass of figures included in

theses financial statements. Hence they are to be analyzed and interpreted with

the help of a number of devices. Let us at this clarify the meaning of important

terms useful in our study of analysis of accounts.

MEANING


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The relationship between two related items of financial statement isknown as ratio.

ASSUMPTION OF RATIO ANALYSIS:-

1. Financial statement gives the current position of business.

2. Company which is being analyzed its facts (accounting) data are

comparable with other company in the field and also comparable with

whole industry facts

IMPORTANCE OF RATIO ANALYSIS

The following statements show clearly the importance of ratio analysis:

y It simplifies, summarize and systemize a long array of accounting figures. It

means contribution lies in bringing into bold relief to the inter-relationship

which exists between various segments as expressed through accounting

statement and avoiding and distortion that may result from an absolute student

accounting.

y It is an instrument for diagnosis of financial health of an enterprise. It does

by evaluation important aspects of conduct of business like liquidity, solvency,

Profitability, capital gaining, etc.

y Important point is in connection with use of ratio is that in numerous

situation, if your ratio portrait a certain aspect of conduct of business. A sales

management will normally be interested in ratio of sells, selling cost and other


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related aspects, while the production manager will be interested in ratio relating

to the production functions.

LIMITATIONS OF RATIO ANALYSIS

The following are the limitations of ratio analysis:

y Ratios are useful in so far as they give expression to study of the relative

aspect of a problem because ratio is meaningless by itself and carries

signification only when it is studied along with another ratio.

y Another limitation of ratio analysis lies in illusionary aspect of variousaccounting data. In fact, the data are usually estimates regarding the life of

assets, the proper rate of depreciating the assets, provision for doubtful depts.,

etc.

LIQUIDITY RATIO

Liquidity ratio measure the ability of a firm to meet its short term

obligations and reflect the short term financial strength / solvency of the firm.

The ratios which indicate the liquidity of the firm are as follows:

1. Current ratio

2. Acid test ratio

3. Cash ratio

1) CURRENT RATIO:-

Current Ratio is the most widely used ratio shows the proportion of

current assets to current liabilities. The ratio is obtained by dividing current

assets by current liabilities. It is a measure of short term financial strength of

the business and shows whether the business will be able to meet its current

liabilities, as and when they mature.


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Formula: - Current Ratio = Current Assets / Current Liabilities

Current Assets indicate cash and bank balance, stock (inventories) sundry

debtors, loans and advances, investment, bills receivables etc.

Current Liabilities indicates creditors, bank overdraft, provisions, bills

payable, unclaimed dividend etc.

It is generally believe that 2: 1 ratio shows a comfortable working capital

position. Those current assets should be twice more than current liabilities.

However, this rule should not be taken as a hard and fast rule, because a ratio,

which is satisfactory for one business may not be satisfactory for the other. If

the amount for stock-in-trade is unduly appointed by Reserve Bank of India

than it has recommended a current ratio of 2: 1. However, after ward the Chore

Committee, appointed by the RBI recommended a satisfactory current ratio of1.33: 1.

Before giving any opinion about the liquidity of the company base on

current ratio, the types of assets and size must be considered. Some times the

ratio seems to be high, Because of excessive stock included in current assets.

Due to high proportion of obsolete, slow moving stock, the current may be high

but its capacity to pay current liabilities on maturity will be definitely weak.

2) ACID TEST RATIO

The measure of absolute liquidity may be obtained by comparing only

cash and bank balance as well as readily marketable securities with liquid

liabilities. This is very exacting standard of liquidity an it is satisfactory is the

ratio is 0.5: 1. It is calculated by dividing the value of quick assets by liquid

liabilities. The ratio is also considered as "Absolute Liquidity Ratio".

Formula

Acid - Test Ratio = Quick Assets / Current Liabilities

Where,

Quick assets = Cash balance + Bank balance + Debtors + Other

security Inventory.


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Current Liabilities = Creditors + Liability + Provision for taxation.

3) CASH RATIO

The Cash ratio is also known as a "liquid Ratio". A variant of current

ratio is the liquid or quick ratio, which is design to show the amount of each

available to meet immediate payments. It is obtained by dividing Liquid assets

by liquid liabilities.

Liquid assets are obtained by deducting stock in trade from currentassets. Stock is not treated as liquid asset because it can not be readily

converted in to cash as and when required. The current ratio of business does

not reflect the true liquid position if its current assets consists largely of stock in

trade.

The liquid liabilities are obtained by deducting bank over draft from

current liabilities because bank over draft is not likely to be called on demand is

treated as short of permanent mode of financing. Hence, it is not treated as

quick liability.


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Formula

Cash Ratio = Cash and bank balance + Current investment

Current Liabilities

OR

Cash or Liquid Ratio = Liquid Assets / Liquid Liabilities

PROFITABILITY RATIO

GROSS PROFIT RATIO

This ratio expresses the relationship between gross profit and sales. Gross

profit ratio indicates the average margin on the goods sold. It shows whether theselling prices are adequate or not. It also indicates the extent to which selling

prices may be reduced without resulting in losses.

A low gross profit ratio may indicate a higher cost of goods sold due to

higher cost of production. It may also be due to low selling prices. A high gross

profit ratio, on the other hand, indicates relatively lower cost and a sign of good

management.


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FORMULA:-

GROSS PROFIT RATIO = GROSS PROFIT / NET SALES *100

Where,

Net sales = sales - sales return

Gross profit = net sales cost of good sold

NOTE: -This ratio is usually expressed in percentage.

NET PROFIT RATIO

This is the ratio of net profit to net sales. in calculating net profit, all non-

operating expenses and losses (e.g. loss on sale of old assets, provision for legal

damages etc.) are also deducted & all non-operating incomes (e.g. dividendincome, interest received on investment etc.) are added.

A firm with high net profit ratio is in an advantageous position to survive

in the face of rising cost of production and falling selling prices. Where the net

profit ratio is low; the firm will find it difficult to withstand these types of

adverse conditions.

FORMULA:-


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NET PROFIT RATIO = NET PROFIT /NET SALES *100

Where,

Net profit = net operating profit + non-operating incomes - non-operating

expenses.

NOTE:-This ratio is usually expressed in percentage.

RETURN ON TOTAL ASSETS( WORKING CAPITAL)

It is an index of profitability of business and is obtained by the company

net profit with capital employed. The ratio is normally expressed in the

percentage. The term average total assets include fixed assets, investment & net

current assets.

It must be remembered that is in this ratio, net profit is profit before

deducting interest and taxes. The success of enterprise is judge with the help of

this ratio.


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Return on total assets = Net Profit / Average total assets *100


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5.1 STATEMENT OF CHANGES IN WORKING

CAPITAL FOR LAST FOUR YEAR

Statement of changes in working capital for year 2007-2008

Particulars2006-2007

(RS.)

2007-2008

(RS.)

Increase in

workingcapital

Decrease

in workingcapital

Current Assets:

Inventories 2667531 1852552 - 814979

Sundry debtors 6520141 7611703 1091562 -

Cash & bank balance 61657 404570342913

-


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STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR

2008-2009


(RS.)

2008-2009

(RS.)

Increase in

working

capital

Decrease in

working

cap

ital

Current Assets: -

Inventories 1852552 1593934 258618

Sundry debtors 7611703 6534058 1077645

Cash & bank balance 404570 1095919 691349

Loans & advances 545465 643773 98308

Loans & advances 412138 545465 133327 -

Total Current

Assets:9661467 10414290 - -

Current Liabilities:

Current liabilities 4846582 4124459 722123

Total Current

Liabilities:4846582 4124459 - -

Working Capital: 4814885 6289831 - -

Changes in working

capital:1474946 - - 1474946

Total: 6289831 6289831 2289925 2289925


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Total Current Assets: 10414290 9867684

Current Liabilities:


Total Current Liabilities: 4124459 3536082 - -

Working Capital:6289831

6331602 - -

Changes in working

capital: 4177

1 4177

1

Total: 8213480 1378034 1378034

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR

2009-2010


(RS.)

2009-2010

(RS.)

Increase in

working capital

Decrease in

working

capital

Current Assets:

Inventories 1593934 2620508 1026574

Sundry debtors 6534058 6853267 319209

Cash & bank balance 1095919 358487 737432

Loans, advances & 643773 1075598 431825


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deposits

Total Current Assets: 9867684 10907860 - -

Current liabilities :


Total Current

Liabilities:3536082 4921259 - -

Working Capital: 6331602 5986601 - -

Changes in working

capital:

345001345001

Total: 6331602 6331602 2122609 2122609

AFTER SOURCES OF WORKING CAPITAL

YEAR CURRENT

ASSETS

(RS.)

CURRENT

LIABILITIES

(RS.)

WORKING

CAPITAL

(RS.)

CHANGES

WORKING

CAPITAL

(RS.)

2007-2008 10414290 4124459 6289831 1474946

2008-2009 9867684 3536082 6331602 41771

2009-2010 10907860 4921259 5986601 345001


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By analyzing the data of the company regarding changes in

working capital we find the following changes

In year 2007-2008 the working capital shows the amount

by 6289831/- Rs. And in the year 2008-2009 it get increase by 41771/-Rs. Only. And in current year it is decrease by 345001/-Rs. However the

liquidity position of the company is not been at the level of

satisfaction.


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5.2 STATEMENT OF COST OF SALES

Particulars 2007-2008

(RS.)

2008-2009

(RS.)

2009-2010

(RS.)

Opening stock of raw

material

889177 617517 531311

+ Purchase11128713 8068042 14820311

- Closing stock of rawmaterial

617517 531311 873502

Raw material

consumed

11400373 8154248 14478120

+ Manufacturing exp. 2632655 1359394 1742670

+ Depreciation 256844 238627 223565

+ Operating exp. 1083428 973740 1836521

15

37

3300 107

26

009 18280876

+ Opening stock of WIP 296392 205839 177103

-Closing stock of WIP 205839 177103 291168

Cost of Production 15463853 10754745 18166811

+ Opening stock of

finished goods

1481962 1029196 885520

- Closing stock of

finished goods

1029196 885520 1455838

Cost of Good Sold 15916619 10898421 17596493


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5.3 CONVERSION PERIOD OF OPERATING CYCLE

Raw material conversion period:-

Raw Material Conversion Period = Raw Material inventory x 300Raw material consumption

YEAR RAW MATERIALINVENTORY

(RS.)

RAW MATERIALCONSUMED

(RS.)

RAW MAT.CONVERSION

PERIOD (DAYS)

2007-2008 617517 11400373 16

2008-2009 531311 8154248 20

2009-2010 873502 14478120 18

CONCLUSION:-Raw material conversion period in days is 16 in 2007-2008 and it has

increased by 4 days in 2008-2009. And in 2009-2010 it again decrease by 2days. Shorter raw material conversion period is beneficial whereas longer rawmaterial conversion period requires more investment and funds get blocked in

it.

RAW MAT. CONVERSION PERIOD

(DAYS)

16

2018

0

5

10

15

20

25

2007-08 2008-09 2009-10

YEARS

DAYS


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Work-In-Process Conversion Period:-

Work-In-Process conversion Period = Work in process inventory x300

Cost of production

YEAR WIPINVENTORY

(RS.)

COST OFPRODUCTION

(RS.)

WIPCONVERSION

PERIOD(DAYS)

2007-2008 205839 15463853 4

2008-2009 177103 10754745 5

2009-2010 291168 18166811 5

CONCLUSION:-

WIP conversion period is only 4 days in 2007-2008. In 2008-2009, It isincrease by 1day only and in 2009-2010 it remain same. so it has no impact on

companys funds.

WIP CONVERSION PERIOD (DAYS)

4

5 5

0

1

2

3

4

5

6

2007-08 2008-09 2009-10

YEARS

DAYS


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Finished Goods Conversion Period:-

Finished Goods Conversion Period = Finished goods Inventory x300Cost of goods sold

YEAR FINISHED

GOODS

INVENTORY

(RS.)

COST OF

GOODS SOLD

(RS.)

FINISHED GOODS

CONVERSION

PERIOD (DAYS)

2007-2008 1029196 15916619 19

2008-2009 885520 10898421 24

2009-2010 1455838 17596493 25

CONCLUSION:-

In the year 2007-2008 the finished goods inventory period is 19 days

which is increase to 24 days in 2008-2009 and it again slowly increase in 2009-2010 by 1 days. It show increase trend, so the investment of company is more

blocking in finished goods.

FINISHED GOODS CONVERSION

PERIOD (DAYS)

19

24 25

0

5

10

15

20

2530

2007-08 2008-09 2009-10

YEARS

DAYS


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Debtors Conversion Period

Debtors Conversion Period = Debtors x300Credit sales

YEAR DEBTORS

(RS.)

CREDIT SALES

(RS.)

DEBTORS

CONVERSIONPERIOD (DAYS)

2007-2008 7611703 18421726 124

2008-2009 6534058 12451717 157

2009-2010 6853267 19000911 108

CONCLUSION:-The investment in sundry debtors has change a lot in this three year. It

increase more in 2008-2009 by 33 days And in 2009-2010 it is decrease to 108.It consider beneficial because it is lesser days. But overall the Debt collectionperiod is very long so lots of fund of company is blocked.

NOTE:

All sales on credit bases.

DEBTORS CONVERSION PERIOD

(DAYS)

124

157

108

0

50

100

150

200

2007-08 2008-09 2009-10

YEARS

DAYS


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Creditors Conversion Period

Creditors Conversion Period = Creditors x300Credit purchase

YEAR CREDITORS

(RS.)

CREDIT

PURCHASE

(RS.)

CREDITORS

CONVERSION

PERIOD (DAYS)

2007-2008 3518908 11128713 95

2008-2009 2962434 8068042 110

2009-2010 4449415 14820311 90

`CONCLUSION:-

As it is shown that creditors payment period is so long it is concluded that

the companys good will in market is very high . The payment period to creditorsis 95 days in 2007-2008 and it increase by 15 days in 2008-2009 and it is

decrease in next year 2009-2010 to90 days. So it is concluded that in the year

2009-2010 payment period is less and it is not beneficial for company.

NOTE:All purchase on credit bases.

CREDITORS CONVERSION PERIOD

(DAYS)

95110

90

0

20

40

60

80100

120

2007-08 2008-09 2009-10

YEARS

DAYS


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5.4 NET OPERATING CYCLE

PERTICULARS 2007-

2008

(DAYS)

2008-

2009

(DAYS)

2009-

2010

(DAYS)

(1) RAW MATERIALCONVERSION PERIOD

16 20 18

(2) WIP CONVERSION PERIOD4 5 5(3) FINISHED GOODS

CONVERSION PERIOD21 27 28

(4) INVENTORY CONVERSION

PERIOD (1+2+3)41 52 51

(5) DEBTORS CONVERSIONPERIOD

124 157 108

(6)GROOS OPERATING CYCLE

(4+5)

165 209 159

(7) CREDITORS CONVERSIONPERIOD

95 110 90

NET OPERATING CYCLE(6-7) 70 99 69

Conclusion:-

The gross operating cycle of the company in 2007-2008, 2008-2009&2009-2010 are 165days, 209 days & 159 days respectively. so there is a

fluctuation in gross operating cycle. In 2008-2009 it is increases by 44 days butin 2009-2010 it decreases to 159days.Therefore, we can say that the company is

converting its raw material into sales and then into cash very fast.

The net operating cycle is also high in 2008-2009. It is 99 days and itdecrease in next year. That it decreases in 2009-2010 is 69 days. So there is afluctuation in net operating cycle.


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CONCLUTION:-

Current ratio indicates the working capital position. Normally, this ratio shouldbe 2: 1 Prime Strap Pvt.Ltd current ratio in current year is 2.22: 1. The ratio ofthe company is satisfactory because this ratio shows a comfortable working

position over the stipulated ratio of 2: 1. The company's ratio is higher than theideal proportion of ratio. this ratio for the company is satisfactory. and in 200 8-

09 it was 2.79:1 & in 2007-2008 it was 2.52:1.


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2. ACID-TEST RATIO:

Acid-Test Ratio = Quick AssetsQuick liability

Year Quick Assets

(RS.)

Current liability

(RS.)

2007-2008 85617384124459

2008-2009 8273750

35360822009-2010 8287352 4921259

ACID-TEST RATIO:

YEAR ACID TEST RATIO

2007-2008 2.07:1

2008-2009 2.33:1

2009-2010 1.68:1

CONCLUSION:-Normally, this ratio should be 1:1. However, it is a reasonably satisfactory ratio

of 1:1. In the year 2007-2008 the company's acid-test ratio was 2.07:1 and yearafterwas 2.33:1. In the year 2009 - 2010, this ratio was 1.68:1 which is atsatisfactory level but as compared to previous 2 years it is low. In the graph

drawn above clearly 'shows that there is lot of fluctuations in the acid -test ratioof the firm. This is due to cyclical fluctuations in the industry.

ACID-TEST RATIO: RATIO

2.072.33

1.68

0

0.5

1

1.5

2

2.5

2007-08 2008-09 2009-10

YEARS

RATIO


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3. CASH RATIO:

Cash ratio = Cash & bank + current investment

Current liabilities

YEAR CASH & BANK BAL.(RS.)

CURRENT LIABILITIES

(RS.)

2007-2008 9500354124459

2008-2009 17396923536082

2009-2010 1434085 4921259

YEAR CASH RATIO

2007-2008 0.23:1

2008-2009 0.49:1

2009-2010 0.29:1

CONCLUSION:-

If the current assets are equal to or more than current liabilities, the

condition of cash ratio is satisfactory. In the year 2007-2008 the companys cashratio is 0.23:1. in the next year 2008-2009 it increase to 0.49:1 and in year 2009-

2010 it decrease to 0.29:1. Thus the cash ratio of company is fluctuating.PROFITABILITY RATIO

CASH RATIO

0.23

0.49

0.29

0

0.1

0.2

0.3

0.4

0.5

0.6

2007-08 2008-09 2009-10

YEARS

RATIO


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RETURN ON TOTAL ASSETS

YEAR NET PROFIT

(RS.)

TOTAL ASSETS

(RS.)

2007-2008 2505107 12290878

2008-2009 1553296 11537644

2009-2010 1404418 12493763

YEAR RETURN ON ASSETS

2007-2008 20 %

2008-2009 13.46 %

2009-2010 11.24 %

CONCLUSION:-

The return on assets ratio shows the decreasing trend in the year 2008-

2009 and in 2009-2010 i.e. 13.46% and 11.24% as camper to 2007-2008. But theprofit in 2009-2010 is still optimum i.e. 11.24%.


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OVERALL CONCLUSION

From calculation of conversion cycle it is concluded that the net operatingcycle in the year 2009-2010 is beneficial to the company because it has less days

and in 2008-2009 it take more time. the operating cycle shows downward

movement.

The liquidity ratio measures the ability of the firm to meet its short termobligations with the help of liquidity rat io the conclusion can be drawn regardingposition of the company.

The current ratio of the company is 2.52:1, 2.79:1 and 2.22:1 which saws

satisfactory level.

The acid test ratio of the company is 2.07:1, 2.33:1 and 1.68:1 This ratio isfluctuating.

The cash ratio of the company for last three years is 0.23:1, 0.49:1 and

0.29:1 This ratio is also fluctuating, thus the liquidity ratio of the company isincrease and decrease, but still it is satisfactory.

The profitability ratio is valuable for the purpose of ascertaining the

overall profitability.

Return on total assets or working capital is highest in 2007-2008 and it islowest in current year 2009-2010. So it is fluctuating the earning power ofcompany but it is still satisfactory in year 2009-2010.

The statement of changes in working capital indicates the increase and

decrease in working capital requirement. The changes in working capital are as

follows for last 3 years.

YEAR CHANGES WORKING CAPITAL

(RS.)

2007-2008 1474946


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2008-2009 41771

2009-2010 345001

The working capital of the company is very high in the year

2008-2009. In the year 2009-2010 it is lowest. This position is

satisfactory for the company to generate efficient management

position.


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BIBLIOGRAPHY

I M PANDEY, Financial Management , Vikas

Publishing Pvt. New Delhi, Sixth Edition, 1996. M.y.Khan &P.K. Jain, Financial Management ,

Tata MC Graw hill publishing company ltd;

New Delhi, 2nd

edition, 1999.

The last 4 years Annual Report of Treffer

Pharmaceutical Ltd. Navsari.


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-66-

ANNEXURE

M/S PRIMESEAL STRAP PVT.LTD

BALANCE SHEET AS ON 31ST MARCH 2008

LIABILITIES AMOUNT

(RS.)

ASSEST AMOUNT

(RS.)

CAPITAL 1340349 FIXED ASSEST 1752128

SECURED LOAN 1499274 SUNDERY

DEBTORS

6520141

UNSECURED LOAN 3727390 CLOSING

STOCK

2667531

SUNDERY

CREDITORS

4462742 RECOVERALE

IN CASH

412138

OTHER CURRENT

LIABILITES

383840 CASH AND

BANK

BALANCE

61657

11413595 11413595


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LIABILITIES AMOUNT

(RS.)

ASSEST AMOUNT

(RS.)



DEBTORS

7611703


STOCK

1852552

SUNDERY

CREDITORS

3518908 RECOVERALE

IN CASH

545465

OTHER CURRENT

LIABILITES

605551 CASH AND

BANK

BALANCE

404507

12290878 12290878


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LIABILITIES AMOUNT

(RS.)

ASSEST AMOUNT

(RS.)



DEBTORS

6534058


STOCK

1593934

SUNDERY

CREDITORS

2962434 RECOVERALE

IN CASH

643773

OTHER CURRENT

LIABILITES

573648 CASH AND

BANK

BALANCE

1095919

11537644 11537644


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LIABILITIES AMOUNT

(RS.)

ASSEST AMOUNT

(RS.)



DEBTORS

6853267


STOCK

2620508

SUNDERY

CREDITORS

4449415 RECOVERALE

IN CASH

1075598

OTHER CURRENT

LIABILITES

471844 CASH AND

BANK

BALANCE

12493763 12493763

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