effectiveness of working capital management- asees

Working capital management THE TRAVANCORE COCHIN CHEMICALS

LIST OF TABLES

TABLE No: TABLE NAME PAGE No:

TABLE NO 5.1 NET WORKING CAPITAL 35

TABLE NO 5.2 WORKING CAPITAL TURNOVER RATIO 36

TABLE NO 5.3 COMPONENTS OF WORKING CAPITAL 37

TABLE NO 5.4INVENTORY AS A PERCENTAGE OF

CURRENT ASSETS38

TABLE NO 5.5 INVENTORY TURNOVER RATIO 39

TABLE NO 5.6 INVENTORY CONVERSION PERIOD 40

TABLE NO 5.7DEBTORS AS A PERCENTAGE OF CURRENT

ASSETS41

TABLE NO 5.8 DEBTORS TURNOVER RATIO 42

TABLE NO 5.9 AVERAGE COLLECTION PERIOD 43

TABLE NO 5.10CASH AS A PERCENTAGE OF CURRENT

ASSETS44

TABLE NO 5.11 ABSOLUTE LIQUIDITY RATIO 45

TABLE NO 5.12 COMPONENTS OF CURRENT LIABILITIES 46

TABLE NO 5.13CREDITORS AS A PERCENTAGE OF

CURRENT LIABILITIES47

Magnus school of business, Cochin


LIST OF TABLES

TABLE No: TABLE NAME PAGE No:

TABLE NO 5.14 CREDITORS TURNOVER RATIO 48

TABLE NO 5.15

OTHER LIABILITIES AS A PERCENTAGE OF

CURRENT LIABILITIES 49

TABLE NO 5.16PROVISION AS A PERCENTAGE OF CURRENT

LIABILITIES50

TABLE NO 5.17 RETURN ON INVESTMENT 51

TABLE NO 5.18 CURRENT RATIO 52

TABLE NO 5.19 QUICK RATIO 53

TABLE NO 5.20 GROSS PROFIT RATIO 54

TABLE NO 5.21 NET PROFIT RATIO 55

TABLE NO 5.22 TREND ANALYSIS OF NET WORKING CAPITAL 56

TABLE NO 5.23 TREND ANALYSIS OF INVENTORY 57

TABLE NO 5.24 TREND ANALYSIS OF DEBTORS 58

TABLE NO 5.25 TREND ANALYSIS OF CREDITORS 59

TABLE NO 5.26COMBINED TRENDS OF INVENTORY, DEBTORS

AND CREDITORS60



LIST OF FIGURES

FIGURE No: FIGURE NAME PAGE No:

FIGURE 5.1 NET WORKING CAPITAL 35

FIGURE 5.2 WORKING CAPITAL TURNOVER RATIO 36

FIGURE 5.3 COMPONENTS OF WORKING CAPITAL 37

FIGURE 5.4INVENTORY AS A PERCENTAGE OF

CURRENT ASSETS38

FIGURE 5.5 INVENTORY TURNOVER RATIO 39

FIGURE 5.6 INVENTORY CONVERSION PERIOD 40

FIGURE 5.7DEBTORS AS A PERCENTAGE OF CURRENT

ASSETS41

FIGURE 5.8 DEBTORS TURNOVER RATIO 42

FIGURE 5.9 AVERAGE COLLECTION PERIOD 43

FIGURE 5.10CASH AS A PERCENTAGE OF CURRENT

ASSETS44

FIGURE 5.11 ABSOLUTE LIQUIDITY RATIO 45

FIGURE 5.12 COMPONENTS OF CURRENT LIABILITIES 46

FIGURE 5.13CREDITORS AS A PERCENTAGE OF

CURRENT LIABILITIES47



LIST OF FIGURES

FIGURE No: FIGURE NAME PAGE No:

FIGURE 5.14 CREDITORS TURNOVER RATIO 48

FIGURE 5.15

OTHER LIABILITIES AS A PERCENTAGE OF

CURRENT LIABILITIES 49

FIGURE 5.16 PROVISION AS A PERCENTAGE OF CURRENT

LIABILITIES50

FIGURE 5.17 RETURN ON INVESTMENT 51

FIGURE 5.18 CURRENT RATIO 52

FIGURE 5.19 QUICK RATIO 53

FIGURE 5.20 GROSS PROFIT RATIO 54

FIGURE 5.21 NET PROFIT RATIO 55

FIGURE 5.22 TREND ANALYSIS OF NET WORKING CAPITAL 56

FIGURE 5.23 TREND ANALYSIS OF INVENTORY 57

FIGURE 5.24 TREND ANALYSIS OF DEBTORS 58

FIGURE 5.25 TREND ANALYSIS OF CREDITORS 59

FIGURE 5.26COMBINED TRENDS OF INVENTORY, DEBTORS

AND CREDITORS61



EXECUTIVE SUMMARY

The study was conducted at Travancore Cochin Chemicals Ltd

(TCC) Udyogamandal. The Travancore Cochin Chemicals Ltd (TCC) is

a state public sector company undertaking owned by the Government of

Kerala an ISO 9001:2000 certified company. The study was aimed at

assessing the effectiveness of working capital management in TCC. This

was done through exploratory research method using analysis of annual

reports of the company.

Through this study the researcher was able to assess the existing

working capital management in TCC and can able to suggest remedial

measures to be taken by management to improve the working capital

management in TCC.

CHAPTER - 1



INTRODUCTION

Working capital refers to that part of the firm’s capital which is required

for financing short term or current assets such as cash, marketable securities,

debtors and inventories. Funds, thus invested in current assets keep revolving fast

and are being constantly converted in to cash and these cash flows out again in

exchange other current assets. Hence, it is also known as revolving or circulating

capital or short term capital.

According to Genesten berg, “circulating capital means current assets of a

company that are changed in the ordinary course of business from one form to

another, as for example, from cash to inventories, inventories to receivables,

receivables into cash”. Working capital, in general practice, refers to the excess of

current assets over current liabilities. Management of working capital therefore, is

concerned with the problem that arises in attempting to mange the current assets,

the current liabilities and the interrelationship that exist between them. In other

words it refers to all aspects of administration of both current assets and current

liabilities.

The basic goal of working capital management is to manage the current

assets and current liabilities of a firm in such a way that a satisfactory level of

working capital is maintained, i.e., it is neither inadequate nor excessive. This is so

because both inadequate as well as excessive working capital positions are bad for

any business. Inadequacy of working capital may lead the firm to insolvency and

excessive working capital implies idle funds which earn no profits for the business.


Working capital management THE TRAVANCORE COCHIN CHEMICALS The goal of working capital management is to ensure that a firm is able to

continue its operation. And that is has sufficient ability to satisfy both maturing

short term debt and upcoming operational expenses. The better a company

manages its working capital, the less the company needs to borrow. Even

companies with cash surpluses need to manage working capital to ensure those

surpluses are invested in ways that will generate suitable returns for investors

The prime objective of the company is to obtain maximum profit though the

business. The amount of profit largely depends upon the magnitude of sales.

However the sale does not convert into cash instantaneously. There is always a

time gap between sale of goods and receipt of cash. Additional capital required to

have uninterrupted business operations, and the amount will be locked up in the

current assets. Regular availability of adequate working capital is inevitable for

sustained biasness operations. If the proper fund is not provided for the purpose,

the business operations will be effected.

STATEMENT OF THE PROBLEM

A study of working capital is of major importance to internal and external

analyst because of its close relationship with the current day to day operations of a

business. Now a days many public sector companies are not performing well.

Major reason for this is under utilization of capacity and inefficiency in the

technical and financial management.

Efficient management of working capital is the key to the success of every

business. In this study, an effort is made to analyze the working capital

management and its components in TCC Limited. Hence the problem is stated as

“A study to assess the working capital management of The Travancore Cochin

Chemicals Limited Udyogamandal.”



1.2 OBJECTIVE OF THE STUDY:

To assess the effectiveness of working capital management of The

Travancore Cochin Chemicals Limited (TCC) Udyogamandal.

SUB OBJECTVES ARE:

To measure the operational and financial efficiency of the company,

To ascertain the liquidity and profitability position of the company,

To interpret the operational and financial efficiency of the company,

To suggest any ways to improve the present condition,

To give suggestions to improve working capital management of the

company,

To analyze the various components of the working capital and its share

in total capital and to study their efficiency,

To analyze the credit policy of the company.



1.3 SCOPE OF THE STUDY

Working capital is referred to as the life and blood of the business firm. In

the event of working capital being ill-managed, the flow of money gets choked,

raw materials and supplies are interrupted, dues and payments get delayed and

clamor for clearance and outstanding obligations and commitment gathers

momentum. All these may entail virtual stoppage of operations, jeopardizing the

viability of the firm.

While inadequate working capital has the potential to disrupt production

sales operations of otherwise well-run and managed firms, excessive working

capital is equally unwarranted in the view of its adverse impact on profitability.

Hence, effective management of working capital is imperative. Working capital

management is concerned with the problems that arise in attempting to manage

current assets, current liabilities and the interrelationships that exit between them.

Working capital is the single best method of determining the position of the

company or how well that company may be doing.

This study is conducted to analyze the working capital of The Travancore

Cochin Chemicals Udyogamandal. The study involves the analysis of working

capital, liquidity, and profitability position as well as the operational efficiency of

the company. For the purpose of this, the study has been conducted for the period

of the last five years.



1.4 RESEARCH METHODOLOGY

RESEARCH DESIGN

The research is exploratory in nature.

TYPES OF DATA

The methodology used in the study involves the collection of primary data

as well as secondary data. Majority of the data was collected with the help of the

annual reports provided by the company.

SOURCE OF DATA

Secondary data: Secondary data were obtained from the internal records of

the company i.e., from the published annual reports, website of the

company, journals and magazines and also other books related to working

capital management.

PERIOD OF STUDY

A five year period from 2004 to 2008 has been taken for the study.

TIME OF STUDY

Two Months, from 25/04/2009 to 25/06/2009

TOOLS OF DATA ANALYSIS

Ratio analysis

Trend analysis

Analysis of components of working capital



1.5 LIMITATIONS OF THE STUDY

THE LIMITATIONS OF THE STUDY ARE AS FOLLOWS:

The study is restricted for a period of five years,

The financial statements contain only historical data and would not

necessarily reflect the future,

The reliability and accuracy of calculations and interpretation depends very

much on the information supplied in the form of annual reports and other

records,

Lack of professional knowledge of the researcher,

In this short period of time, the research could not go through all aspects of

working capital,

Authorities were reluctant to reveal full information about the working of the

company.



CHAPTER - 2

INDUSTRY PROFILE

WORLD SCENARIO

Now the world is full of competition. The Chlor-alkali industries are

growing faster in the world. The chemical industries are also growing faster in the

world. The chemical industry plays a vital role in the production of many

manufactured goods. The industry provides a tremendous variety of materials to

other manufacturers. It also produces chemical products that benefits people

directly. Major products of the industry include detergents, drugs, fertilizers, food

preservatives flavoring and paper products etc.

Most major chemicals are basic chemicals used in many countries. It is

used to produce fertilizer and other chemical. Other basic chemicals include

chlorine, alkali like lime and sodium hydroxide and these chemicals are used in

plastics.

Production of chemicals has become increasingly concentrated in

Multinational Corporations, which have plants and offices in a number of

countries. To reduce costs, most of the multinational companies locate their

factories in countries where raw materials and cheap skilled labour are readily

available. So many basic chemicals are produced in developing countries by units

of multinational firms. But chemicals requiring advanced production methods are

made in industrialized countries.


Working capital management THE TRAVANCORE COCHIN CHEMICALS Chlor-Alkali Industry in the world

During the 1970’s Caustic Soda used to be manufactured by utilizing the

mercury cell technology. It was produced by amalgam process. But this technology

consumes a lot of energy and power. There was also the problem of mercury

population.

The Mina Mata tragedy (resulting from mercury pollution), forced the

Japanese Government issued a direction to all caustic soda plants to change over to

other process under a time bound-programme. This paved the way for the

development of Ion Exchange Membrane Cell (IEMC) technology. This process

apart from totally avoiding mercury, consumed 30% less power compared to the

conventional process. Increased production of paper, aluminium, soap, and

detergents at the international level naturally led to increased requirement of

caustic soda. The international markets operates in the context of demand and

supply conditions prevailing from time to time, So price of caustic soda became

highly volatile. Predator pricing has become common and drop in import duty

often led to steep drop in price of the chemical.

Though demand for chlorine is growing fast the demand for caustic soda is

not so promising. Hence the units in the gulf and western countries are selling

caustic soda at a cheaper price.

Major Countries Producing Caustic Soda

1. U.S.A 5. France

2. China 6. Russia

3. Japan 7. Canada

4. Germany 8. India


Working capital management THE TRAVANCORE COCHIN CHEMICALS INDIAN SCENARIO

The Indian chemical industry is an integral part of the Indian economy,

contributing around 6.7% to the Indian GDP. It touches our lives in many different

ways. Whether it is thermoplastic furniture we use, or a synthetic garment we

wear, or drug we consume. The industry is a vital part of the agricultural and

industrial development in India has key linkages with several other downstream

industries such as automotive, consumer durables, engineering, food processing,

etc.

The chemical industry in India has the potential to grow around USD 100

billion by 2010 (according to KPMG’s analysis based on a survey of the industry).

This would imply an annual growth rate of 15.5%. For the industry to achieve this

size, specialty and knowledge chemical segments would need to grow 16.4 %

( current growth rate is 7.9%) and 27 %( current growth rate is 12.3%)

respectively. The basic chemicals segment would need to sustain its current growth

rate of 7.7% to match the profile of the chemical industry in global markets.

At the industry level, the Indian Chemical industry is characterized by:

High domestic demand potential, as Indian markets develop and per

capita consumption level increase

High degree of fragmentation and small scale operations

Limited emphasis on exports due to domestic market focus and smaller

scale of operation.

Low competitiveness as compared to other countries due to higher cost of

power, import duties, taxes and cost of capital.

Low focus on R&D despite initiatives to innovate processes to synthesis

products cost effectively.



In spite of the disadvantages, a few proactive Indian companies have

created sizeable international operations to become significant players in the

global market place. The ability of chemical companies in India to perform

better than global companies has already been reflected by a comparatively

better performance of the Indian operations of some global companies.

Operating profit margins of these Indian subsidiaries range from 8 % to 13 % as

compared to the global operating margins range less than 1 % to 6%.

Indian chemical industries have now have a great opportunity in the field

of research and development, in view of its large manpower of reasonably good

talent and R&D facilities already created and operating. With the WTO regime

in force, Indian industries should be able to protect their newly developed

technologies and emerge competitive in the global market.

Major South Indian Chlor-Alkali Units

Chempalst, Tamil Nadu

Chern Fab Alkalies Ltd., Pondicherry

Kothari Petrochemicals Ltd., Chennai

Sree Rayalaseema Alkalies & Allied Chemicals Ltd, Andhra Pradesh

Andhra Sugars, Andhra Pradesh

Southern Petrochemical Industries Corporation Ltd., Chennai

The Travancore-Cochin Chemicals Limited, Eloor; Kerala.



STATE SCENARIO

Caustic Soda is one of the basic inorganic chemicals manufactured from

common salt. There are four processes used in the manufacturing of caustic soda,

chlorine and Hydrochloric acid which are the bye products obtained through these

processes.

In the state, only TCC is engaged in the production of caustic soda, chlorine

and hydrochloric acid. The company has helped in attracting user industries to

Kerala in the past, by offering steady supply of raw materials. Some of the

industries, which come up include Indian Rare Earth Limited, Hindustan News

Print Ltd, and Hindustan Insecticides Ltd etc. TCC has an installed capacity to

produce 175 TPD caustic soda and it is used in manufacturing of soaps, textiles,

plastics etc. There are many small scale industries in the state which consumes

caustic soda for the production of soaps, plastics, textiles.

Though the average demand, at an average rate of 4% the capacity has

been increased by nearly 7% in view of the high transportation cost and hazardous

nature of chemicals transported. The caustic soda industry in the state is more

localized and the units have comes nearer the consuming center. Also because of

the high transportation cost, it is not possible to export caustic soda in large volume

from the state.

The chlorine industrial units are working properly. Chlorine is a basic

material required for water purification and without chlorine; the government

water works will not be able to supply drinking water to the public.



CHAPTER - 3

COMPANY PROFILE

INTRODUCTION

The Travancore Cochin Chemicals Ltd (TCC) is a state public sector

undertaking owned by the government of Kerala. It is situated at Udyogamandal in

Cochin Industrial area, about 10 kms from Aluva. Incorporated in 1951, TCC is

now one of the oldest chlor- alkali units in India. Today it has a production

capacity of about 57750 MT caustic soda per annum. The other products are

chlorine, Hydrochloric acid, Sodium Hypochlorite, and C.S flakes. The company

supports a large number of industrial units of strategic importance by supplying

basic chemicals with continuous effort for up gradation of technology and

professional management. A wide range of industries like mineral processing,

paper, textiles, petrochemicals, oil refining, pesticides, water treatment, etc uses

the products. The market is spread over southern and western India.

BRIEF HISTORY OF TCC LTD

The company was formed as a partnership between FACT (Fertilizers and

Chemicals Travancore Ltd) and MCIC (Mettur Chemicals and Industrial

Corporation). The partnership concern floated in the name and style as Travancore

Mettur Chemicals. When commissioned it was the first mercury cell plant for

manufacturing caustic soda in the country and it was the first producer of rayon

grade caustic soda. When the company faced financial difficulties, the Govt. of

Travancore Cochin stepped in with massive financial assistance and the company

was renamed as TCC in 1951. Commercial production started in 1954 with 20

tonnes per day caustic soda production capacity.


Working capital management THE TRAVANCORE COCHIN CHEMICALS LOCATION

The Travancore Cochin Chemicals Ltd (TCC) is a state public sector

undertaking owned by the government of Kerala. It is situated at Udyogamandal in

Cochin industrial Belt. The factory and the registered office are located 20 KM

from the Cochin International Airport and 15 KM from Ernakulam railway station.

QUALITY POLICY OF TCC

“We are committed to enhance customer satisfaction by providing

Products and related services complying with a continually improving quality

improving management system.”

MISSION

The mission statement of the company is as follows:

TCC is committed to supply quality chemicals at competitive prices to

customers. Customer satisfaction, concern for environment and safety are our

priorities.

We intend to achieve:

Utmost level of conservation of all resources including energy.

Cost effectiveness in all our operation.

Regular up gradation of technologies used in processing.

Compliance with law and statutory regulations.


Working capital management THE TRAVANCORE COCHIN CHEMICALS CORPORATE OBJECTIVE

The company states in its objective the following:

To produce and market chemicals such as Caustic Soda, Liquid Chlorine,

Hydrochloric acid and soda bleach economically and in an environmentally

sound manner.

To maintain optimum level of efficiency and productivity so as to secure

optimum returns on investment.

To maximize profits from projects taken up.

To continuously improve the plant and operational safety and to confirm

statutory pollution control standards.

To continuously upgrade the quality of human resources of the company and

to promote organizational development. .

To ensure corporate growth by expansion and diversification.

Concerned about the protection of environment.

COMPANY PRODUCT AND PRODUCTION CAPACITY


PRODUCTS QUANTITY /ANNUM IN M.T

1. Caustic soda 57750

2. Liquid chlorine 23760

3. Hydrochloric acid 127742

4. Sodium hypo chloride 15,000

5. C.S Flakes 30,000

Working capital management THE TRAVANCORE COCHIN CHEMICALS RAW AMTERIALS USED

Common salt: The most important and basic raw material used by TCC for

the manufacture of caustic soda is the industrial grade common salt (sodium

Chloride).

Electricity: The process involved is manufacture of caustic soda is the

electrolysis of saturated brine. In the process, the caustic soda and chlorine

are produce in the ratio of 1:0:886 by weight. For this electrolysis process

the largest import is electricity and it accounts for 60%of the cost of

production in India, at an average.

INVESTMENT RECEIVED BY THE COMPANY:

INVESTMENT RS. IN CRORES

Govt. of Kerala 24.80

FACT 2.53

KSIDC 1.5

Sanmar properties & investment 1.17

Total 30.00

GROWTH OF TCC

1956- A Continuous Caustic Fusion plant with a capacity to upgrade 20

tonnes of caustic soda per day was added.

1958- A Chlorine Liquefaction Plant was added mainly to meet demand

from the new DDT plant of Hindustan Insecticides Ltd, Udyogamandal.



1963- The caustic soda capacity was raised to a new level of 40 tonnes per

day. The company established a new unit for the manufacture of Sodium

hydro sulphite with rated capacity of 3 tonnes per day.

1967- The third stage of expansion of capacity was raised to 60 tonnes per

day.

1970- A 60 tones per day caustic soda concentration plant was set up.

1975- 1980 - Exported commercial HCL to gulf countries.

1983- Installed an indigenously developed plant to recover mercury from

effluents.

1987- Installed Hydrogen firing system in Continuous Caustic Fusion plant.

1988- Replacement of Graphite anodes by Titanium anode.

1990- Brine Dechlorination unit commissioned.

1992- A Research & Development section was set up.

1994- The Company in collaboration with Regional Research Laboratory

commissioned a pilot plant on synthetic retiles.

1997- The Company commissioned a 100 TPD caustic soda plant in

technical collaboration with ASAHI GLASS Company of Japan using

Membrane cell Technology.

2000 - The Company setup a Brine purification plant.

2001-2002- The Company commissioned a new continuous caustic fusion

plant (CCF).

2002-2003 - The Company increased its production capacity of membrane

cell plant to 125 tonnes per day.

2004-2005- Additional for either metric tonnes membrance ell process 25tpd

19 2006- A 25 TPD caustic soda plant employing membrane cell technology

from Uhde, Germany, was commissioned.


Working capital management THE TRAVANCORE COCHIN CHEMICALS TCC AT PRESENT:

TCC is the only chlorine- Alkali unit in Kerala. In India there are

approximately 38 chlor-alkali units as competitors. The company has helped in

attracting user industries to Kerala in the past, due to assurance in availability of

raw materials. Some of the industries which came up include Indian Rare Earth

Ltd, Hindustan Insecticides Ltd, Hindustan News print Ltd, Kerala Minerals and

Metals Ltd, Kerala chemicals and Proteins Ltd etc.

FUTURE PLANS

TCC is in process of setting up a power project on its own. Electricity is

one of the raw materials for the company. It contributes to about 60% of the

production cost. The company would like to go for cheaper sources of power and

insulate itself from the future tariff hikes of the electric supply utility. A hydel

power project is under consideration at present. The problem faced by TCC with

respect to this is the shortage of funds. As expansion in the 1990s and subsequent

adverse conditions has caused TCC to drain its entire reserves and surpluses. It is

also difficult to raise debt funds under this situation. This has forced the company

to think about newer methods of project implementation like the BOT.

In 1992, the R&D of the company started working on a project to

manufacture synthetic rutile. The company along with The Regional Research

Laboratories set up a pilot plant to manufacture synthetic rutile. It succeeded in

developing the technology. The process uses the products of the company in

manufacturing synthetic rutile. The technology is now ready for

commercialization.


Working capital management THE TRAVANCORE COCHIN CHEMICALS INDUSTRIES SERVED BY TCC’S PRODUCT

Caustic Soda: Soap, Paper, Textile, Fertilizers, Drugs and Pharmaceuticals,

Vanaspathi, Petroleum, Chemicals.

Chlorine: Paper, Textile, Water Purification, Drugs and Pharmaceuticals,

Mineral processing Sugar, Fine Chemicals, Rubber etc.

Commercial HCI Acid: Fertilizers, Engineering, Mineral processing,

Starch, Ossein, Plastics etc.

MAJOR COMPETITORS OF T.C.C.

T.C.C. is the only chlor-alkali unit in the public sector in India. Some of major

competitors.

Atul Ltd., Ahmadabad

Bilt Chemicals Ltd., New Delhi

Chern Fab Alkalies Ltd., Pondicherry

Champlast Sanmat Ltd:, Mumbai

D.C.W. Ltd., Mumbai

Grassim Industries Ltd., Nagda (M.P)

Gujarat Alkalies & Chemicals Ltd., Gujarat

Gujarat Heavy chemicals Ltd., Ahmadabad

Indian Petrochemicals Corporation Ltd., Gujarat

India Rayon and Industries Ltd., Mumbai

Jayashree Chemicals Ltd., Orissa

Kothari Petrochemicals Ltd., Chennai

Saurashtra Chemicals ltd., Gujarat

Southern Petrochemical Industries Corporation Ltd., Chennai

Sree Rayalaseema Alkalies & Allied Chemicals Ltd., Kurnool, Karnataka



PRODUCT PROFILE

CAUSTIC SODA:

Caustic soda is a basic alkali (NaOH) used in the manufacture of products

like soap, paper, textiles etc. It also serves the industries like fertilizers, drugs,

engineering and pharmaceuticals, petrochemicals etc. Caustic soda production

increased in the later half of 19th century with the development of electrolysis for

the manufacture of Caustic soda. Caustic soda lye obtained from Membrane cell is

a clear colorless odorless and soapy liquid.

CHLORINE (CL2):

Chlorine, a co-product obtained in the process of manufacture of caustic

soda is an equally important basic chemical, inevitable for the manufacture of

paper textiles, insecticides, drugs and pharmaceuticals etc. It also serves the

industries such as mineral processing, sugar, fine chemicals, and rubber etc. It is

also renowned water purification chemical. It is a greenish yellow gas.

HYDROCHLORIC ACID (HCL):

TCC also produces high purity HCl, used for ossein, fertilizers etc. HCl

finds its application in number of chemical industries such as mineral processing,

gelatin, Food industry, water treatment, etc. It also serves the industries like

engineering, starch, and plastics. It is a yellowish green color liquid.

SODIUM HYPOCHLORITE:

Another by product, Sodium hypochlorite finds its use in bleaching and

disinfectant applications and also for extraction of rare earth materials. It is a pale

yellowish green color liquid. Soda bleach is the only branded product that

company producing, brand name is the “Eko clean”.



FINANCE DEPARTMENT

Travancore Cochin chemicals Ltd has an efficient finance department

headed by a finance manager and he is assisted by the deputy manager, finance.

Finance manager is responsible for shaping the fortunes of the company,

preparing budgets, raising funds, keeping different accounts etc. TCC is having a

management information system to assist the finance department. The finance

department is dividing into different sections like general accounts, costing bills,

establishment and provident fund accounts section, each having its own functions.

DEPUTY FINANCE MANAGER

DFM controls the costing process. Various costs such as material costs and

production cost are assessed. Fixed capital and working capital are also planned

by this department. A comparative study on budgeting control is made. The

various areas coming under DFM are as follows;

AOGA: The main area coming under this section is finalization of accounts and

preparation of profit and loss account and balance sheet. Different vouchers,

journals and ledgers are also maintained under this area. Bank, cash, payroll etc

also come under this department. Based on the above data, ratio analysis is done.

AOEDP: This area mainly deals with hardware and software programs of the

computers. Any problems with computers are mainly analyzed by this department.

AO Bills: Under this area, first a quotation is collected from various companies. If

it is accepted, make purchase orders, contains the specifications, date, place etc.

Receiving repots are given. Income, Sales tax and VAT are verified in this area.

Senior Accounts Officer: The SAO deals with sales accounting. He also

maintains the account of sundry debtors, sales tax, VAT, etc.

Finance Manager: The function of finance manager is to have an overall control

of the above departments.


Working capital management THE TRAVANCORE COCHIN CHEMICALS The various sections coming under finance department are explained below;

GENARAL ACCOUNTS SECTION

In this section, a large number of general accounts are kept. These include;

general journal in which the transaction are entered first. Standard journal in

which all recurring items are entered (salary, wages, excise duty), Cash book in

which all cash receipts and payments are recorded, Sundry debtors and Sundry

creditors ledger, Bank book in which all bank payments and receipts are entered,

Subsidiary ledger, which include individual accounts maintained by each

department. A trial balance is prepared every 4 months. Balance sheet is prepared

annually for the financial year coming from April 1st extending to the period till

March 31st.

BILL SECTION

In this section, all payments for purchase are recorded. This includes bills

payable to suppliers and contractors. In case supplier demand advance, it is paid

and properly accounted. Sundry creditors ledger and supplier account are kept in

this section. At the end of the year, the accounts are ratified and send to the

general accounts section. In this section, separate cost records are kept and

maintained, and cost audit is conducted every year, both internally as well as by

Government nominees.

COSTING SECTION

Budgeting and budgetary control is the main function of the costing section

where both revenue and capital expenditure budget are prepared. Capital

expenditure is prepared based on the total asset incurred for all the items in all

debts. Revenue budget is prepared on the basis of estimates for production, sales

and expenditure. The balance sheet with total assets and liabilities is prepared and

total cash flow is found.



CHAPTER - 4

LITERATURE REVIEW

INTRODUCTION

Working capital is usually defined to be the difference between current

assets and current liabilities. However, we will modify that definition when we

measure working capital for valuation purposes. In a perfect world, there would be

no necessity for current assets and liabilities because there would be no

uncertainty, no transaction costs, information search costs, scheduling costs, or

production and technology constraints. The unit cost of production would not vary

with the quantity produced. Borrowing and lending rates shall be same. Capital,

labour, and product market shall be perfectly competitive and would reflect all

available information, thus in such an environment, there would be no advantage

for investing in short term assets. These real world circumstances introduce

problem’s which require the necessity of maintaining working capital.

WORKING CAPITAL

In simple words working capital is the excess of current Assets over current

liabilities. Working capital has ordinarily been defined as the excess of current

assets over current liabilities. Working capital is the heart of the business. If it is

weak business cannot proper and survives. Sit is therefore said the fate of large

scale investment in fixed assets is often determined by a relatively small amount of

current assets. As the working capital is important to the company is important to

keep adequate working capital with the company. Cash is the lifeline of company.

If this lifeline deteriorates so does the companies ability to fund operation, reinvest

do meet capital requirements and payment.


Working capital management THE TRAVANCORE COCHIN CHEMICALS The company must have adequate working capital as much as needed by

the company. It should neither be excessive or nor inadequate. Excessive working

capital cuisses for idle funds laying with the firm without earning any profit, where

as inadequate working capital shows the company doesn’t have sufficient funds for

financing its daily needs working capital management involves study of the

relationship between firm’s current assets and current liabilities. The goal of

working capital management is to ensure that a firm is able to continue its

operation. And that is has sufficient ability to satisfy both maturing short term debt

and upcoming operational expenses.

THE PRIMARY OBJECTIVE OF WORKING CAPITAL MANAGEMENT

Is to ensure that sufficient cash is available to;

Meet day to day cash flow needs.

Pay wages and salaries when they fall due

Pay creditors to ensure continued supplies of goods and services.

Pay government taxation and provider of capital – dividends and

Ensure the long term survival of the business entity.

CONCEPTS OF WORKING CAPITAL

There are two thoughts that re currently accepted about working capital. They are

1) GROSS WORKING CAPITAL CONCEPT

This thought says that total investment in current assets is the working

capital of the company. This concept does not consider current liabilities at all.

Reasons given for the concept.

a) When we consider fixed capital as the amount invested in fixed assets. Then the amount invested in current assets should be considered as working capital.



b) Current asset whatever my be the sources of acquisition, are used in

activities related to day to day operations and their forms keep on changing.

Therefore they should be considered as working capital.

2) NET WORKING CAPITAL

It is narrow concept of working capital and according to this, current assets

minus current liabilities forms working capital. The excess of current assets over

current liabilities is called as working capital. This concept lays emphasis on

qualitative aspect. This indicates the liquidity position of the concern/enterprise.

The reasons for the net working capital method are:

a) The material thing in the long fun is the surplus of current assets over

current liability

b) Financial health can easily be judged by with this concept particularly from

the view point of creditors and investors.

c) Excess of current assets over current liabilities represents’ the amount which

is not liable to be returned and which can be relied upon to meet any

contingency.

d) Inter company comparison of financial position may be correctly done

particularly when both the companies have the same amount of current

assets.

If the current assets are higher than current liability it is considered the

financial position of the company is sound. If both current assets and liabilities are

equal, the company has resorted to short term funds for financing the working

capital and long term sources of funds have been used to finance the acquisition of

fixed assets. It doesn’t not indicate the financial soundness for the company. If the

current assets are lesser than current liabilities there is negative working capital

which indicates financial crisis.


Working capital management THE TRAVANCORE COCHIN CHEMICALS KINDS OF WORKING CAPITAL

Working capital can be put in two categories:

I. FIXED OR PERMANENT WORKING CAPITAL

The volume of investment in current assets an change over a period of time.

But always there is minimum level of current assets that must be kept in order to

carry on the business. This is the irreducible minimum amount needed for

maintaining the operating cycle. It is the investment in current assets. This is

permanently locked up in the business, and therefore known as permanent working

capital.

II. VARIABLE/TEMPORARY WORKING CAPITAL

It is the volume of working capital. This is needed over and above the fixed

working capital in order to meet the unforced market changes and contingencies. In

other words any amount over and about the permanent level of working capital is

variable or fluctuating working capital. This type of working capital is generally

financed from short term source of finance such as bank credit because this amount

is not permanently required and is usually paid back during off season or after the

contingency.

DETERMINANTS OF WORKING CAPITAL

Working capital requirements of a concern depends on a number of factors,

each of which should be considered carefully for determining the proper amount of

working capital. It may be however be added that these factors affect differently to

the different units and these keeps varying from time to time. In general, the

determinants of working capital which re common to all organization’s can be

summarized as under:



a. Nature of business: Need for working capital is highly depends on what

type of business, the firm in. there are trading firms, which needs to invest a

lot in stocks, ills receivables, liquid cash etc. public utilities like railways,

electricity, etc., need much less inventories and cash. Manufacturing

concerns stands in between these two extends. Working capital requirement

for manufacturing concerns depends on various factors like the products,

technologies, marketing policies.

b. Production policies: Production policies of the organization effects working

capital requirements very highly. Seasonal industries, which produces only

in specific season requires more working capital. Some industries which

produces round the year but sale mainly done in some special seasons are

also need to keep more working capital.

c. Size of business: Size of business is another factor to determines the need

for working capital

d. Length of operating cycle: Operating cycle of the firm also influence the

working capital. Longer the orating cycle, the higher will be the working

capital requirement of the organization.

e. Credit policy: Companies; follows liberal credit policy needs to keep more

working capital with them. Efficiency of debt collecting machinery is also

relevant in this matter. Credit availability form suppliers also effects the

company’s working capital requirements. A company doesn’t enjoy a liberal

credit from its suppliers will have to keep more working capital

f. Business fluctuation: Cyclical changes in the economy also influence the

level of working capital. During boom period, the tendency of management

is to pile up inventories of raw materials and finished goods to avail the

advantage of rising prove.



g. Current asset policies: The quantum of working capital of a company is

significantly determined by its current assets. Policies. A company with

conservative assets policy may operate with relatively high level of working

capital than its sales volume. A company pursuing an aggressive amount

assets policy operates with a relatively lower level of working capital.

h. Fluctuations of supply and seasonal variations: Some companies need to

keep large amount of working capital due to their irregular sales and

intermittent supply. Similarly companies using bulky materials also maintain

large reserves’ of raw material inventories. This increase the need of

working capital. Some companies manufacture and sell goods only during

certain seasons. Working capital requirements of such industries will be

higher during certain season of such industries period.

i. Other factors: Effective co ordination between production and distribution

can reduce the need for working capital. Transportation and communication

means. If developed helps to reduce the working capital requirement.

SOURCES OF WORKING CAPITAL

The company can choose to finance its current assets by

1) Long term sources 2) Short term sources 3) A combination of them.

Long term sources of permanent working capital include equity and

preference shares, retained earning, debentures and other long term debts from

public deposits and financial institution. The long term working capital needs

should meet through long term means of financing. Financing through long term

means provides stability, reduces risk or payment. And increases liquidity of the

business concern.


Working capital management THE TRAVANCORE COCHIN CHEMICALS Various types of long term sources of working capital are summarized as follow;

Issue of shares * Retained earnings Issue of debentures * Long term debt

* Other sources: sale of idle fixed assets, securities received from employees and

customers are examples of other sources of finance.

SHORT TERM SOURCES OF TEMPORARY WORKING CAPITAL

Temporary working capital is required to meet the day to day business

expenditures. The variable working capital would finance from short term sources

of funds. And only the period needed. It has the benefits of ,low cost and

establishes closer relationships with banker.

SOURCES OF TEMPORARY WORKING CAPITAL

Commercial bank

Public deposits

Various credits

Reserves and other funds

ADVANTAGES OF ADEQUATE WORKING CAPITAL

Increase in debt capacity and goodwill

Increase in production inefficiency

Exploitation of favorable opportunities

Meeting contingencies adverse changes

Available cash discount

Solvency and efficiency fixed assets.

Attractive dividend to shareholders

CHAPTER - 5Magnus school of business, Cochin


ANALYSIS AND INTERPRETATION

Ratio analysis is an important and age-old technique. It is a powerful tool

of financial analysis. It is defined as “the indicated quotient of two mathematical

expression” and as “the relationship between two or more things”. Systematic use

of ratio is to interpret the financial statement so that the strength and weakness of a

firm as well as its historical performance and current financial condition can be

determined.

A ratio is only comparison of the numerator with the denominator. The

term ratio refers to the numerical or quantitative relationship between two figures.

Thus, ratio is the relationship between two figures, and obtained by dividing the

former by the latter. Ratios are designed show how one number is related to

another. The data given in the financial statements are in absolute form, are dump,

and are unable to communicate anything. Ratios are relative form of financial data

and very useful technique to check upon the efficiency of a firm. Some ratios

indicate the trend, progress, or downfall of the firm.

In the view of the requirements of the various users of ratio, it has divided

into the following important categories:

A Activity Ratio

B. Leverage Ratio

C. Liquidity Ratio

D. Profitability Ratio



I. ACTIVITY RATIOS

1. NET WORKING CAPITAL

Table no: 5.1

Source: Annual Reports of TCC

Graph no: 5.1

INTERPRETATION AND INFERENCE: From the above table,

networking capital of the TCC shows negative trend that means for the last five

years current asset is less than current liabilities. It reveals that the company not in

a position to meet its day to day obligations. Management must take adequate

interest in increasing the working capital of the company for the coming years by

increasing current assets of the company.


YEAR CA (Rs in lakhs)

CL (Rs in lakhs)

NET WORKING CAPITAL

2004 4267.84 4889.1 -621.26

2005 2588.75 5063.93 -2475.18

2006 3576.06 5859.42 -2283.36

2007 3717.33 5583.33 -1866

2008 3457.23 5473.83 -2016.6

Working capital management THE TRAVANCORE COCHIN CHEMICALS 2. WORKING CAPITAL TURNOVER RATIO

Table No: 5.2

YEAR SALES (Rs in lakhs)

NET WORKING CAPITAL

RATIO

2004 9123.33 -621.26 -14.6852

2005 8868.57 -2475.18 -3.583

2006 10877.3 -2283.36 -4.76373

2007 12313.8 -1866 -6.59904

2008 9384.56 -2016.6 -4.65365


Graph No: 5.2

INTERPRETATION AND INFERENCE:

Here all the working capital turnover ratio of TCC is found to be negative,

because of the negative working capital. In all years the current liabilities exceeds

the current assets. If we ignore the negatives all ratios are found satisfactory. From

this, we can understand that the working capital turn over ratio is fluctuating. That

is in the beginning period it shows an increasing trend then declines and again

increases and then shows a decreasing trend.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 3. COMPONENTS OF CURRENT ASSETS

Table No: 5.3

YEAR INVENTARY(Rs in lakhs)

DEBTORS(Rs in lakhs)

CASH (Rs in lakhs)

LOANS AND ADVANCE(Rs in lakhs)S

TOTAL (Rs in lakhs)

2004 1336.39 1175.4 710.41 1045.64 4267.84

2005 644.19 954.67 166.17 823.72 2588.75

2006 967 1098.56 124.12 1386.38 3576.06

2007 1044.91 1424.95 139.28 1108.19 3717.33

2008 1018.27 1229.14 115.26 1094.56 3457.23


Graph No: 5.3


The table shows that the different components of current assets in last

five years. Debtors is the main component in current assets allover the years.

Loans and advances also have major part in current assets of the company. But the

amount of each component is varies over the years. It also shows that current

assets of the company fluctuating over the years. The above graph shows that the

different components of current assets in last five years.



INVENTORY MANAGEMENT

4. INVENTORY AS A PERCENTAGE OF CURRENT ASSETS

Table No: 5.4


INVENTORY(Rs in lakhs)

PERCENTAGE

2004 4267.84 1336.39 31.31

2005 2588.75 644.19 24.88

2006 3576.06 967 27.04

2007 3717.33 1044.91 28.11

2008 3457.23 1018.27 29.45


Graph no: 5.4


The table shows that the percentage of inventory shows a gradual increase

in the last four years. In 2005, inventory’s percentage was 24.88%. It was

gradually increased to 29.45% in 2008. It shows that inventory in current assets is

increased in recent years.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 5. INVENTORY TURNOVER RATIO

Table No: 5.5

YEAR NET SALES (Rs in lakhs)

AVERAGE INVENTORY (Rs in lakhs)

RATIO

2004 9123.33 1336.39 6.826847

2005 8868.57 644.19 13.76701

2006 10877.3 967 11.2485

2007 12313.8 1044.91 11.78456

2008 9384.56 1018.27 9.21618

Source: Annual Reports Of TCC

Graph No: 5.5


Inventory turnover ratio measures the velocity of conversion of stock into

sales. The Inventory Turnover Ratio is fluctuating over the years. The lower ratio

indicates the smooth movement of stock from the company to the market. The ratio

of TCC shows an almost steady level of movement of goods to the market. In the

last year the inventory turnover ratio is decreased, it is a bad sign of decrease in

sales. If sales decrease, the inventory cost can be increased.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 6. INVENTORY CONVERSION PERIOD

Table No: 5.6

YEAR DAYS IN A YEAR

INVENTORY TURNOVER RATIO

PERIOD

2004 365 6.826847 53.46538

2005 365 13.76701 26.51266

2006 365 11.248501 32.44877

2007 365 11.784556 30.97274

2008 365 9.2161804 39.60426


Graph No: 5.6


Inventory conversion period measures the average time taken for clearing

the stocks. This inventory conversion period of TCC shows a fluctuating trend. In

2004, it was very high, but later it decreased. In later period, it shows an

increasing trend. In 2008, it is 39 days.

The above graph shows the fluctuating trend of inventory conversion

period of TCC.



RECEIVABLES MANAGEMENT

7. DEBTORS AS A PERCENTAGE OF CURRENT ASSETS

Table No: 5.7


DEBTORS (Rs in lakhs)

PERCENTAGE

2004 4267.84 1175.4 27.54

2005 2588.75 954.67 36.88

2006 3576.06 1098.56 30.72

2007 3717.33 1424.95 38.33

2008 3457.23 1229.14 35.55


Graph No: 5.7


The amount of debtors in current assets is fluctuating over the years. In 2004,

it was 27.54%, after that it is increasing in to 36.88% in next year. But it shows

fluctuating trend after 2005. In 2008, it shows 2.78% decreased from 2006-2007.

The above bar diagram shows the fluctuating nature of percentage of debtors in

current assets.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 8. DEBTORS TURNOVER RATIO

Table No: 5.8

YEAR SALES (Rs in lakhs)

DEBTORS(Rs in lakhs)

RATIO

2004 9123.33 1175.4 7.761894

2005 8868.57 954.67 9.289671

2006 10877.3 1098.56 9.901416

2007 12313.8 1424.95 8.641566

2008 9384.56 1229.14 7.635062


Graph No: 5.8


Debtors’ turnover ratio measures the liquidity of the company and also

discusses credit collection power and policy of the firm. Debtors’ turnover ratio of

TCC shows variation in each year. In 2004 it was 7.76%, after that it is increased

till 2006, but later it shows decreasing trend. But it runs under satisfactory level. It

shows that company’s credit policy is effective. The above graph shows the

variation of debtors’ turnover ratio over the study period.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 9. AVERAGE COLLECTION PERIOD

Table No: 5.9

YEAR NO OF WORKING

DAYS

DEBTORS TURNOVER

RATIO

PERIOD

2004 360 7.7618938 46.38043

2005 360 9.2896708 38.75272

2006 360 9.9014164 36.35843

2007 360 8.6415664 41.65911

2008 360 7.6350619 47.15089


Graph No: 5.9


The average collection period ratio represents the average number of days

for which a firm has to wait before its receivables are converted into cash.

Generally, the shorter period is better to the company. Average collection period

of TCC shows an increasing trend in recent years. It is not well for the company.

In 2006, average collection period is 36 days, after that it is increased to 47 days

in 2008. It is not satisfactory.



CASH MANAGEMENT

10. CASH AS A PERCENTAGE OF CURRENT ASSETS

Table No: 5.10


CASH (Rs in lakhs)

PERCENTAGE

2004 4267.84 710.41 16.65

2005 2588.75 166.17 6.42

2006 3576.06 124.12 3.47

2007 3717.33 139.28 3.75

2008 3457.23 115.26 3.33


Graph No: 5.10


The above table and graph shows cash position in the company. In 2004,

company have better cash balance, but later it shows declining trend. In the study

period, higher percentage 16.65% shows in 2003-2004. Lower percentage shows

in 3.33% in 2007-2008. Moreover, we cannot neglect the fact that, as a

government company, like TCC will get short-term funds easily, and can meet its

short-term liabilities in time.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 11. ABSOLUTE LIQUID RATIO

Table No: 5.11

YEARCASH (Rs in

lakhs)CL (Rs in

lakhs)RATIO

2004 710.41 4889.1 0.145305

2005 166.17 5063.93 0.032814

2006 124.12 5859.42 0.021183

2007 139.28 5583.33 0.024946

2008 115.26 5473.83 0.021057


Graph No: 5.11


Here the Absolute Liquidity Ratio of TCC is not Satisfactory, as it never

touches the standard level of 0.75. The highest ratio is 0.24 in 2006-2007 and the

lowest ratio was 0.02 in 2005-2006. As a government company, like TCC will get

short-term funds easily, and can meet its short-term liabilities in time. TCC is

keeping a very low amount of cash to meet the requirements. Therefore, we can

interpret that available funds are properly utilized and no funds are kept idle.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 12. COMPONENTS OF CURRENT LIABILITIES

TABLE NO: 5.12

YEAR CREDITORS (Rs in lakhs)

OTHER LIABILITIES(Rs in lakhs)

PROVISION(Rs in lakhs)

TOTAL (Rs in lakhs)

2004 4054.14 828.03 6.93 4889.12005 4184.11 879.82 0 5063.932006 4519.02 1292.35 48.05 5859.422007 3950.05 1580 53.28 5583.332008 3577.14 1893.15 3.54 5473.83


Graph NO: 5.12


The above table and graph shows the components of current liabilities. In

every year creditors have major part in current liabilities of the company.

Provision is comparatively lower in current liabilities. TCC’s liquidity position is

not satisfactory. Company’s current assets are lower than its current liabilities. So

company tries to decrease the current liabilities, through payment of creditors in

time. It will help the company to decrease the amount of creditors.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 13. CREDITORS AS A PERCENTAGE OF CURRENT LIABILITIES

Table No: 5.13

YEAR CL (Rs in lakhs)

CREDITORS(Rs in lakhs)

PERCENTAGE

2004 4889.1 4054.14 82.92

2005 5063.93 4184.11 82.63

2006 5859.42 4519.02 77.12

2007 5583.33 3950.05 70.75

2008 5473.83 3577.14 65.35


Graph No: 5.13


Here, we analyze that, creditors is the major portion of the current liabilities.

In the study period creditors shows a declining trend. It shows company try to pay

its creditors in time. It is good sign for the company because, decrease in creditors

help the company to control its current liabilities. Creditors is the major portion

of current assets all over the years.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 14. CREDITORS TURNOVER RATIO

Table No: 5.14

YEAR PURCHASES (Rs in lakhs)

CREDITORS (Rs in lakhs)

RATIO

2004 1160.96 3910.37 0.296893

2005 1031.98 4119.13 0.250533

2006 1593.88 4351.57 0.366277

2007 1647.65 4234.54 0.389098

2008 1253.26 3763.6 0.332995


Graph No: 5.14


The creditors turnover ratio indicates the velocity with which the creditors

are turned over in relation to purchase. Generally higher the creditors’ velocity

better it is or otherwise lower the creditors velocity, less favorable are the results.

TCC’s creditors’ turnover ratio shows a fluctuating trend all over the study period.

Higher ratio is 0.38 in 2006-2007. Last year shows a decreasing trend, it is better

to the company.



15. OTHER LIABILITIES AS A PERCENTAGE OF CURRENT LIABILITIES

Table No: 5.15


OTHER LIABILITIES (Rs in lakhs)

PERCENTAGE

2004 4889.1 828.03 16.94

2005 5063.93 879.82 17.37

2006 5859.42 1292.35 22.06

2007 5583.33 1580 28.3

2008 5473.83 1893.15 34.59


Graph No: 5.15


Here we analyze that the proportion of other liabilities in current liabilities.

The above table and graph shows the percentage of other liabilities in current

liabilities, it shows a gradual increase in the study period, in 2007-2008, other

liabilities is 34% of the current liabilities.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 16. PROVISION AS A PERCENTAGE OF CURRENT LIABILITIES

Table No: 5.16


PROVISION(Rs in lakhs)

PERCENTAGE

2004 4889.1 6.93 0.14

2005 5063.93 0 0

2006 5859.42 48.05 0.82

2007 5583.33 53.28 0.95

2008 5473.83 3.54 0.06


Graph No: 5.16


In the above table and graph, we interpret that provision is the least portion

of the current liabilities in all over the study period. The higher portion is 0.95%,

in 2005-2006. But in the last year, provision is only 0.06% of the current

liabilities. In 2004-2005, there is no provision in the company.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 17. RETURN ON INVESTMENT

Table No: 5.17

YEAR NET PRO(Rs in lakhs)FIT

SHAREHOLDER'S FUNDS (Rs in lakhs)

PERCENTAGE

2004 83.23 2131.19 3.90533

2005 -829.24 2131.19 -38.9097

2006 523.01 2131.19 24.54075

2007 48.52 2131.19 2.276662

2008 27.67 2131.19 1.298336


Graph No: 5.17

INTERPRETATION AND INFERENCE: Return on investments is one of the most important ratio used for measuring

the overall efficiency of the firm. It reveals, how well the resources of a firm are

being used, higher the ratio, better are the results. In 2004-2005, company shows

negative (-38%) return of investment. Butter later company recovers, the very

next year company shows higher ratio (24.54%) in 2005-2006. But later it shows a

declining trend. In last year, company has 1.30% return on investment.



II. LIQUIDITY RATIOS

18. CURRENT RATIOTable No: 5.18


CL (Rs in lakhs)

CURRENT RATIO

2004 4267.84 4889.1 0.87

2005 2588.75 5063.93 0.51

2006 3576.06 5859.42 0.61

2007 3717.33 5583.33 0.67

2008 3457.23 5473.83 0.63


Graph No: 5.18


Standard current ratio of a sound business is two and TCC’s current ratio is

below one for the last five years. The highest ratio was 0.87 in 2003-2004, and the

lowest was in 2004-2005 i.e, 0.51. Therefore, we can interpret that the company is

suffering from inadequate working capital. That is they cannot meet their short-

term obligations in time. The main reason for the decrease in current ratio is that,

in all the five years the current liabilities of the company are more than the CA.



19. QUICK RATIO

Table No: 5.19

YEAR QA (Rs in lakhs)

CL (Rs in lakhs)

QUICK RATIO

2004 2887.77 4889.1 0.59

2005 1921.74 5063.93 0.38

2006 2568.69 5859.42 0.44

2007 2644.85 5583.33 0.47

2008 2414.75 5473.83 0.44


Graph No: 5.19


Here in the case of TCC the Acid Test Ratio for the five years are below

one therefore the financial position of TCC shall be deemed unsound. In most

cases, the quick ratio of TCC could not achieve the standard quick ratio of 1:1. The

highest Quick Ratio was 0.59 in 2003-2004 and the lowest is 0.38 in 2004-

2006.The greater amount of current liability is the main reason for the low Quick

Ratio of the company.



III. PROFITABILITY RATIOS

20. GROSS PROFIT RATIOTable No: 5.20

YEAR GROSS PROFIT (Rs in lakhs)

SALES (Rs in lakhs)

G/P RATIO

2004 90.16 9123.33 0.988236

2005 -829.24 8868.57 -9.35032

2006 581.08 10877.3 5.342135

2007 61.87 12313.8 0.502444

2008 43.69 9384.56 0.465552


Graph No: 5.20


Gross profit ratio indicates the degree to which selling price per unit may

decline without resulting in losses from operations to the firm. An increase in the

gross profit ratio may be due to an increase in the selling price without a

corresponding increase in the cost of goods sold or due to a decrease in the cost of

goods sold without a corresponding decrease in the selling price of goods.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 21. NET PROFIT RATIO

Table No: 5.21

YEAR NET PROFIT (Rs in lakhs)

SALES (Rs in lakhs) N/P RATIO

2004 83.23 9123.33 0.9122772005 -829.24 8868.57 -9.350322006 523.01 10877.3 4.808272007 48.52 12313.8 0.3940292008 27.67 9384.56 0.294846


Graph No: 5.21


Net profit ratio is used to measure the overall profitability of the

organization. Here the company is running at a loss in 2004-2005. In the year,

2004-2005 the company is incurred a loss of Rs.829.24 lakh. This is reported

mainly due to the unabsorbed depreciation of Rs.472.86 lakh, written of advance

amounting to Rs. 237.91 lakh. The cost of raw material is increasing day by day

and the company could not increase the selling price.



TREND ANALYSIS

1. TREND ANALYSIS OF WORKING CAPITALTable No: 5.22

YEAR

NET WORKING CAPITAL (Rs in

lakhs) TRENDINCREASE/ DECREASE

2004 -621.26 100 0

2005 -2475.18 398.4129 298.4129

2006 -2283.36 367.5369 267.5369

2007 -1866 300.3573 200.3573

2008 -2016.6 324.5984 224.5984Source: Annual Reports of TCC

Graph No: 5.22


Here we analyze the trend of net working capital of TCC. This analysis shows

that networking capital shows a fluctuating trend during the study period.

Fluctuations in working capital is high in allover the years.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 2. TREND ANALYSIS OF INVENTORY

Table No: 5.23

YEAR INVENTORY (Rs in lakhs)

TREND INCREASE OR DECREASE

2004 1336.39 100 0

2005 644.19 48.20374 -51.7963

2006 967 72.35912 -27.6409

2007 1044.91 78.189 -21.811

2008 1018.27 76.19557 -23.8044Source: Annual Reports of TCC

Graph No: 5.23


The above table and graph shows the trend of inventory in the

study period, it also shows a fluctuating trend. In2004-2005 it shows a

high decline, later it recovers. But compared to 2003-2004, now

company shows a decreasing trend. TCC has high amount of inventory

in 2003-2004.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 3. TREND ANALYSIS OF DEBTORS

Table No: 5.24

YEAR DEBTORS (Rs in lakhs)


2004 1175.4 100 0

2005 954.67 81.22086 -18.7791

2006 1098.56 93.46265 -6.53735

2007 1424.95 121.2311 21.23107

2008 1229.14 104.5721 4.572061


Graph No: 5.24


Trend of debtors of TCC Company shows fluctuating trend. Compared to

2003-2004, company has better debtor position in 2006-07 and 2007-08. But in last

year it shows a decreasing trend from previous year.


Working capital management THE TRAVANCORE COCHIN CHEMICALS 4. TREND ANALYSIS OF CREDITORS

Table No: 5.25

YEAR CREDITORS (Rs in lakhs)


2004 4054.14 100 0

2005 4184.11 103.2059 3.205859

2006 4519.02 111.4668 11.4668

2007 3950.05 97.4325 -2.5675

2008 3577.14 88.23425 -11.7658Source: Annual Reports of TCC

Graph No: 5.25


Here we analyze that company’s creditors shows a fluctuating trend. In 2004-

05 and 2005-06 company’s creditors have increasing trend but later it shows a

decreasing trend. In 2007-08 company’s creditors have least amount compared to

other years in study period. It is good sign for the company.



5. COMBINED TRENDS OF INVENTORY, DEBTORS AND

CREDITORS

Table No: 5.26

YEAR INVENTORY (Rs in lakhs)

TREND DEBTOR(Rs in lakhs)S

TREND CREDITORS(Rs in lakhs)

TREND

2004 1336.39

100

1175.4

100

4054.14

100

2005 644.19

48.20374

954.67

81.22086

4184.11

103.2059

2006 967

72.35912

1098.56

93.46265

4519.02

111.4668

2007 1044.91

78.189

1424.95

121.2311

3950.05

97.4325

2008 1018.27

76.19557

1229.14

104.5721

3577.14

88.23425



From the above table, we analyze the trend of TCC’s inventory, debtors and

creditors. These changes highly affect the changes in working capital of the

company. From the table we can see that, all components has fluctuating trend all

over the years. First two years, all components show a increasing trend. But later

creditors decrease to 97% and 88%. But inventory shows a constant trend in last

two years. In case of debtors, in 2006-07, it have high increase but later it shows a

decreasing trend (104%).



Graph No: 5.26


The above graph shows combined trends of inventory, debtors and creditors of

TCC. First two years in study period creditors trend is much higher than debtors

and inventory. In 2004-05, inventory and debtors shows a decreasing trend, but

creditors have increasing trend. In 2005-06, all components shows a increasing

trend. But later years creditors show a decreasing trend and others shows

increasing trend, it is good sign for the company.



CHAPTER - 6

FINDINGS

The company shows negative working capital for the last five years, due to

the increase in current liabilities and decrease in current assets. The major

reason is the existing loan of nearly 40 lakhs from the Government.

Current ratio of the company shows a fluctuating trend. An ideal current

ratio is 2:1. Average current ratio of the company for the last five years is

0.66. Showing that the liquidity position of the company is not satisfactory.

Company’s average quick ratio for the last five years is 0.46. The standard

norm fixed for quick ratio is 1:1; this again shows that the company’s

liquidity position is not satisfactory. This is unfavorable to the creditors.

The quick ratio is decreasing year to year. But the last year it is slightly

increased.

The average absolute liquidity ratio is 0.05. The acceptable ratio is 1:2.

This shows that the company’s financial position is not satisfactory.

During the year 2003-2004 and 2004-2005, the company had satisfactory

Gross profit ratios. Which indicating increasing sales. A high profit margin

in ratio is a sign of good and efficient management.

Net profit ratio shows a downward trend. It has declined over the five

years, and has not increased as fast as the gross profit margin. This implies

that the operating expenses relative to sales have been increasing.

Operating ratio is an indicator of the growth the business. The operating

profit ratio shows a declining trend, the reason pertaining is the increasing

operating cost.



The average inventory turnover ratio is 10.57. A high inventory turnover

ratio is indicative of good inventory management.

The average debtors turn over ratio is 8.65 times. This is satisfactory. It

shows that the company’s credit policy is effective. The average debt

collection period is 42 days.

The profitability ratios such as net profit ratio, operating ratio and earnings

pr share are also found unsatisfied.

The company is the one and only chlor-alkali industry in Kerala, and meets

the demand of Kerala. The new technology of membrane cell has the

advantage of pollution free environment.

Networking capital shows a fluctuating trend during the study period.

Fluctuations in working capital is high in allover the years.

In 2004-05 and 2005-06 company’s creditors have increasing trend but

later it shows a decreasing trend. In 2007-08 company’s creditors have

least amount compared to other years in study period. It is good sign for

the company.

Trend of debtors of TCC Company shows fluctuating trend. Compared to

2003-2004, company has better debtor position in 2006-07 and 2007-08.

But in last year it shows a decreasing trend from previous year.



CHAPTER - 7

SUGGESTIONS

The company shows a negative working capital since 2003. This should be

maintained through adequate current assets for its daily operations. The

company should increase the current assets by increasing its cash and bank

balance.

The increasing liabilities should be controlled by the company and adequate

measures are to be taken henceforth.

Inventory management of the company is not satisfactory. Therefore the

company should reduce the holding period as much as possible.

The liquidity position of the company being unsatisfactory should be tried

to be in par with required ratio.

The debtors of the company is fluctuating over the years, company should

adopt a competent credit policy to attract the customers. Increasing debtors

is a solution to over come the liquidity problem.

The company can reduce the cost of production and try to improve its

profitability.

The operating expenses of the company must be put to check as there exist

a wide gap between gross profit and net profit. The net profit ratio is also

under the ratio requirements. This should be brought to control for the

effective running of the company.

The cash management should be done effectively as a major portion

comprises of current assets which are present in the company.

High creditors’ payment period will affect the regular supply of raw

materials, so company can make necessary steps to pay its creditors at

reasonable time period.



CHAPTER - 8

CONCLUSION

In this study an attempt has been made to analyze the working capital

position of Travancore Cochin Chemicals. The study shows that the overall

performance of the company is not satisfactory. Through the company is a profit

making organization, its profit is not up to the mark with respect to the asset

employed in the organization. Since the working capital amount shows a negative

trend it reveals that the company is not in a position to meet its day to day

obligations. The analysis and interpretation of various data relating to working

capital management helped to reach into a conclusion that the efficiency of the

working capital is not sufficient. Since the working capital shows a negative

balance. But this cannot be blamed, as this is a government run company and the

major portion of the current liability is the loan taken from the govt. it is also

reveals that the company is not having a satisfactory liquidity and profitability

position.

The overall success of any company depends upon the working capital

position. So it should be handled properly because it shows the efficiency and

financial strength of the company. Therefore the company should adhere to strict

measures in every sphere of its activities to bring the company back to sufficient

working capital position and improve its financial performance.



BIBLIOGRAPHY

Kevin .S, securities and portfolio management, First

edition (2008), Prentice hall India Pvt Limited.

Shashi K. Gupta, Sharma R.K, Management

Accounting, 10th edition (2005), Kalyani Publishers.

Khan M.Y, Jain P.K, Financial Management,

4th edition (2004), Tata McGraw Publishing Company

Limited.

www.tcckerala.com

www.moneycontrol.com


http://www.moneycontrol.com/

http://www.tcckerala.com/

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