CHAPTER-1

INTRODUCTION

1

INTRODUCTION

Working Capital is essential for the day-to-day operations of a business, and hence it is

the life-blood of any business. The basic theme of working capital management is to

provide adequate support for smooth and efficient functioning of normal day-to-day

business operations by striking a trade-off between the three dimensions of working

capital, i.e., liquidity, profitability and risk. In the present environment of cut-throat

competition, business does not have any other option than cutting the cost of its

operations in order to be competitive as well as financially healthy. It is in this

connection that effective management of working capital plays a vital role. But a great

deal of controversy exists over the issue as to whether the working capital of a firm, as

determined by its financing and investment decisions, affects its profitability or not.

They argue that inadequacy of working capital keeps fixed assets incorporative.

Obviously, a large number of considerations play a vital role in the development of

arguments and counter arguments in this regard. Against the backdrop of this academic

debate, an attempt has been made in this study to evaluate this interrelationship between

working capital management and profitability of 8 years data to analyze the Indian

Construction Sector during the period from 2001-2008.

The importance of working capital in any industry needs no special emphasis. Working

capital refers to that portion of total fund, which finances the day-to-day working

expenses during the operating cycle. Management of working is one of the most

important functions of corporate management. The efficient working capital management

is the most crucial factor in maintaining liquidity and profitability of the concerned

business organization.

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Profitability:-

Profitability has been defines as ability to earn profit. It is measured in relative terms of

either size, past years. The most commonly used measure of profitability is in terms of

size that is profit or loss divided by total assets. Sometimes profitability is measured by

taking profit of two years to judge the more profitable year. In peer terms the

profitability is measured by comparing the profits of two firms in the same industry.

Profitability has been an important criterion to evaluate the overall efficiency of firm

operations. Being a relative measure, it is devoid of the pitfalls associated with

interpretation of term ‘profit’. Even if one ignores the past year or peer aspect of

measuring profitability. It is still the best indicator of efficiency of banking operations.

The concept of profitability is used and interpreted the same way both in a business firm

and a banking company. Profitability in banking parlance denotes the efficiency with

which a bank deploys its total resources to optimize its profit and thus serves an index of

assets utilization and managerial effectiveness.

The relationship of profitability with macro dimensions of solvency and liquidity has

been that of risk return trade-off the more risk a bank is willing to take in terms of less

solvency and/ or low liquidity. The more return it is able to earn. In other words, there is

a direct inverse relationship between profitability and solvency/liquidity. An increased

level of solvency means low leverage, low risk and consequently low profitability. In the

same way high liquidity increases interest burden (if purchased) or decreases earning

ability (if stored), reduces risk and profitability becomes low.

The term ‘total assets’ has been used instead of working fund. As working fund is equal

to total assets/liabilities minus contra items, there is no difference between the two terms.

Two important variables, viz working fund and total income which are indicative of size,

have therefore been used to obtain relative values for these variables and also to purge the

effect of size factor. Thus, spread, burden and their four components have been divided

by working fund and total income respectively thereby giving 12 ratios for analysis.

3

The rationale behind using working fund and total income is that income is related to

income generating capacity. Both the criteria are independent and are guided by deposit

mix, loan portfolio, share of earning assets etc., for example, a large company may have

small amount of total income in comparison to its size, that is working fund due to large

proportion of no-performing assets and also vice versa. In spread divided by working

fund is actually net interest margin while burden has been divided by working fund to

indicate efficiency of non-banking activities. Alternatively, these two variables have also

been divided by total income to measure their contribution to total revenue, in the last

stage, these two variables have been factored into their sub-components and their relative

contributions in terms of size and total revenue have been measured by calculating eight

ratios.

The multiplier, spread and burden variables are by nature independent, as they are guided

by capital structure, interest rates on deposits and advances, non-banking activities and

functional efficiency. While the multiplier, spread and burden ratios are the established

old ratios and as such do not require elaborate explanation.

Interest comprises of interest/discount on advance/bills/income on investments, interest

on balances with RBI and others. It indicates interest earnings capacity of a bank and is

directly related to quality and size of loan portfolio and investment. A part from these; it

is also influenced by fund management policy, liquidity perception and reputation of

bank. On the other hand, interest expended reflects the costs incurred by the bank

keeping deposits and procuring borrowings. It includes interest paid on deposits, interest

paid on RBI/ Inter-bank borrowings and others. The important liquidity practices

followed (purchased or stored).

4

NEED FOR THE STUDY

Working capital management is about management of current assets and current

liabilities in such a way that a satisfactory level of working capital, which maximizes the

profits of the firm, is maintained. Inadequacy of working capital may lead the firm to

insolvency, whereas excessive working capital implies idle funds which earn no profits.

Therefore efficient management of working capital is an integral part of the overall

corporate strategy to improve corporate profitability. But in reality, controversy persists

on the issue whether the working capital of the firm affects its profitability or not. The

issue has been tackled using relevant statistical tools and techniques.

OBJECTIVES OF THE STUDY

To determine the working capital requirements of the Tecumseh Products India

Ltd.

To know the liquidity and profitability position of the company.

To assess the influence of the working capital on profitability by computing Karl

Pearson's simple correlation coefficient.

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SCOPE OF THE STUDY

The study in an attempt to make appraisal of working capital of the

company.

The study of the company has been undertaken certain objectives by

lighting the features, functions, and working capital as well as statuary

regulations governing the company.

To access the impact of working capital and profitability of the company.

To combined effect of the ratios relating to working capital management

of the company.

To know the working capital requirements, to compare the profitability

position of the company.

LIMITATIONS OF THE STUDY

The information used is taken from historical annual reports available. The

secondary data is used for calculations.

Chapter-2

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Research Methodology

Definition:

“Procedures used in making systematic observations or otherwise obtaining data, evidence, or information as part of a research project or study”

1. Is being undertaken within a framework of a set of philosophies (approaches);2. Uses procedures, methods and techniques that have been tested for theirValidity and reliability;3. Is designed to be unbiased and objective.Philosophies means approaches e.g. qualitative, quantitative and the academicDiscipline in which you have been trained.Validity means that correct procedures have been applied to find answers to aQuestion. Reliability refers to the quality of a measurement procedure that providesRepeatability and accuracy.Unbiased and objective means that you have taken each step in an unbiasedManner and drawn each conclusion to the best of your ability and withoutIntroducing your own vested interest.

Meaning:

The basic concept of research methodology refers to the way in which companies conduct their research and how they collect the data they need. Whenever a company or organization needs to investigate a particular area of their business dealings, they need to adapt the most suitable research methodology for thejob. 

Research methodology typically involves a full breakdown of all the options that have been chosen by a company in order to investigate

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something. This would include the procedures and techniques used to perform the research; as well as any of the terminology and explanations of how these methods will be appliedeffectively. 

A company may need to decide what format of research they want to use before the investigation begins. For example, if a company that sells a particular product needs to launch research to find out how effective or desirable a new product is, they will need to conduct what is known as primary research. This method means that the company will collect data and information themselves first hand. 

Primary data:

Primary data is gathered for a specific purpose. for example   a company might a specific own customers directly to find out more about their buying habits, Primary data means data you get by yourself through experiment or other ways. Primary data is collect information.

Secondary data

The data collected by someone other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through qualitative methodologies or qualitative research. Primary data, by contrast, are collected by the investigator conducting the research.

Secondary data analysis saves time that would otherwise be spent collecting data and, particularly in the case of quantitative data, provides larger and higher-quality databases than would be unfeasible for any individual researcher to collect on their own. In addition to that, analysts of social and economic change consider secondary data essential, since it is

8

impossible to conduct a new survey that can adequately capture past change and/or developments.

Hypothesis

Hypothesis testing means subjecting a hypothesis to an appropriate empirical scrutiny and statistical test to determine its validity. A researcher has to do a number of things as pre requirements for testing a hypothesis. Hypothesis testing is two types that are

1) Null hypothesis (Ho):

A type of hypothesis used in statistics that proposes that no statistical significance exists in a set of given observations. The null hypothesis attempts to show that no variation exists between variables, or that a single variable is no different than zero. It is presumed to be true until statistical evidence nullifies it for an alternative hypothesis.

2) Alternative hypothesis (Ha):

Alternative hypothesis is the "hypothesis that the restriction or set of restrictions to be tested does NOT hold." Often denoted H1. Epidemiology A hypothesis to be adopted if a null hypothesis proves implausible, where exposure is linked to disease. See Hypothesis testing.

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The null hypothesis is specifically formulated for testing for possible rejection or nullification. Hence the name null hypothesis. It is accompanied by an alternative hypothesis.

Tools of analysis

T –test:

The t-test was developed by W.S. Gosset around 1915. Since he published his finding under a pen name student,it is known as student’s t-test. It is suitable for testing the significance of a sample mean or for judging the significance of difference between the means of two samples, when the samples are less than 30 in number and when the population variance is not known. When two samples are related, the paired t-test is used. The t-test can also be used for testing the significance of the coefficients of simple and partial correlations.

Formula :

chi-square test :

It is used to make comparisons between two or more nominal variables. Unlike the other tests of significance, the chi-square is used to make comparisons between frequencies rather than between mean scores.

Formula

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CHAPTER-3

COMPANY PROFILE

11

COMPANY PROFILE

TECUMSEH INDIA PRODUCTS COMPANY

Tecumseh Products Company started in 1930 when Ray W. Herrick opened the

Hillsdale machine and tool company of Hillsdale Michigan. A farmer employee of

ford motor company, Ray Herrick initially produced parts for automobiles as well

as electric refrigerator components, small towns 60 miles south west of Detroit, and

Ray Herrick renamed is company after his home town. In 1937 the company went

public with an offering of 25000 shares. Tecumseh means “crouching panther”

derived from chief of the Shawnee Tribe (1768-1813), it was not in the automobile,

industry, but in the burgeoning new refrigeration industry. By 1939, Tecumseh

turned out 1,60,000 compressors a year for mechanical refrigerators.

After world war 2nd Tecumseh resumed manufacturing compressors, expanding its

products base to include compressors for window air conditioners in 1847. In the

1950’s the company acquired two Wisconsin based small engine manufactures.

Lauson engine and power products. The addition of these two companies made

Tecumseh an important presence in the expanding outdoor power equipment

industry. Today Tecumseh has over 30 principal location producing compressors,

engines and pumps worldwide, with facilities in Brazil, Canada, Czech Republic,

France, India and U.S.

The company sells compressors in four major segments:

Household refrigerators and freezers

Room air conditioners

Commercial and residential unitary freezers, dehumidifiers, water

coolers and welding machines.

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The company sells compressors to original equipment manufacturers and cool

products distributors in the United States, as well as distributors around the globe.

Tecumseh Products Company continues to invite money and resources in order to

develop new improved products.

The head quarters engineering department plays an important role as the technology

center of the Tecumseh group companies and entails various testing and facilities

for the purpose. The test facilities include calorimeter, locked rotor, application

testing, endurance testing, development/production sample, sound testing, etc. In

the room of development/production samples, they work on sample of new

production compressors net yet released for production, such as scroll and advanced

reciprocating design.

FORMATION OF TPIPL IN INDIA

Tecumseh India Products Limited (TIPL) or “the company” was incorporated in New

Delhi, India with limited Liability on January 30, 1997.

TPIL is principally promoted on behalf of Tecumseh produce company, USA (TPC) and

its nominees hold its share.

Tecumseh products India limited (TIPL0, another wholly owned subsidiary of TPC

(through its subsidiary TPC, Mauritius), incorporated on January 29,1996 in New Delhi,

India and engaged in the manufacture of compressors for air conditioning equipment was

amalgamated with TPIPL with effect from april1,1998.In accordance with the scheme of

amalgamation, these name of the amalgamation company was changed to Tecumseh

products India private ltd (TPIPL). Subsequently, on an application made by TPIPL, a

fresh certificate of incorporation changing it’s name to Tecumseh product India ltd, was,

effective october21, 1999.

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MANIFACTURING UNITS LOCATED IN INDIA

In Andhra Pradesh AT Hyderabad,

In Haryana at ballabgarh.

REGIONAL SALES OFFICES

Delhi

Mumbai

Kolkata

Chennai

BRANCH OFFICES

Balanagar

Ahmadabad

Tecumseh India is a part of the us$2 billion cooling giant, Tecumseh product company

(TPC), and the world’s largest independent compressor manufacturer. TPC has 29

manufacturing locations in 4 continents and its products are available in over 100

countries. Tecumseh India came into existence in July 1997 with the acquisition of Siel

compressors ltd at Hyderabad.

Today, just after coming into its own, Tecumseh India has established its presence as the

NO 1 compressor manufacturer in the country.

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Tecumseh caters to the entire spectrum of cooling needs, with a range of high

performance compressors used in all air conditioners, refrigerators, bottle coolers etc. The

products port folio of the company can be broadly categorized.

Compressor for air conditioners.

Compressor for refrigerators.

Commercial compressors for refrigeration appliances

Commercial compressors for air conditioners.

History of the Hyderabad unit of tpipl

Usha refrigeration industry ltd started in 1963. Uril manufactured compressors for water

cooler, air conditioners and air coolers. Lala charath ramji who was from a renowned

industrial family of DCM and coromandal group of companies started URIL.

In 1970 the URIL was changed to shriram refrigerators ltd., and the business was

diversified towards manufacturing of diesel engines and water coolers.

Shriram industries played a great role in the field and captured more than 50%of the

market share in India. Shriram industries also kept its hand in international trade and

were successful in exporting their products to the neighboring countries, Nepal and

Bangladesh.

Siel compressors were the first Indian company to manufacture compressors. We sting

house stopped manufacturing compressors and siel went into technological collaboration

with Tecumseh products company usa in 1988. Tecumseh means “crouching panther

“derived from chief of the Shawnee tribe (1768-1813), it started its operations to offer

new state of mi aw series to Indian customers. Subsequently Tecumseh Products

Company took over siel group in a997 and siel group became 100%subsudiary of

“Tecumseh Products Company”. As doom as Tecumseh too over the company it stopped

manufacturing water cooler. And restricted its production to CFC/hermetically sealed

compressors.

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Tecumseh products company invested $80 billion in Indian operation known as

Tecumseh products India products private ltd(TPIPL). TPIPL has two stated of art

manufacturing facilities at Hyderabad. Andhra Pradesh, and ballabgarh, Haryana, with a

CADAM center. At the Hyderabad plant to meet global engineering needs. TPIPL has

gained core expertise in research and development, AW assembly and AW machine

shops such that it acquires a lion’s share of Indian compressor markets by gaining a50%

share.

Profile of the Hyderabad unit of TIPIPL

Tecumseh products India private ltd is an ISO 14001 and 9001 certified, American based

multi-national company, which has core expertise in manufacturing hermetically, sealed

compressors. Tecumseh India is a 100% subsidiary to Tecumseh products company

(TPC) USA, which is the world only full line, independence manufacturing locations in 4

continents. In India the company has 20 sales officers and executive network or over 200

dealers and more than 600 registered small scale manufacturers.

Tecumseh India is the preferred supplier to who’s of the AC&R industry in India and in

the Middle East, SAARC countries. The company was originally established and

registered in 1963 under the name of usha refrigeration industries ltd (URIL).

The Hyderabad plant is on a sprawling 54-acre land at the balanagar industries belt 151m

away from Hyderabad city on the high way line going towards HMT ltd narsapur road.

At Hyderabad plant TPIL manufactures air conditioners, from 1200 BTU and

compressors for deep freezers, bottle coolers and water coolers which are considered to

be world’s no:1in the 150 million compressors market a year. Hyderabad plant has a

capacity of manufacturing more than 3000 units per day. The Hyderabad plant has six

regional offices among which four offices are the metro cities. Mumbai, Kolkata,

Ahmadabad and Chennai and the remaining two are at Ahmadabad and secunderabad.

Beside these there are office and depots located in prime cities across the country.

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The Hyderabad plant also has network of about 177 dealer across the nation and are

preferred supplier to key original equipments manufacturers (OEM’s) like LG, Volta’s

blue star, godrej, Videocon, feeders, matrix Hitachi etc.

TPIPL Hyderabad plant was successful in the ISO 9001certification for manufacturing

quality of the compressors in 1994. For the eco friendly environment maintenance the

company has got ISO 14001certification.

BALLABGARH PLANT

At Ballagarh, Haryana TPIPL has invested Rs 200 corers for manufacturing of non -cfc

compressors. The Ballagarh plant is one of the best compressors manufacturing unit in

Asia. The plant is extended on 21-acres land on the Delhi Mathura national high way.

The plant has a capacity to manufacture 25000 units per month.

Compressors for registration applications came from our most advanced, ozone friendly

plant at BALLAGARH, HARYANA.

The management has started development activities in the following areas:

Effluent treatment of plant.

Tree plantation

Rain water harvesting is to increase the ground water level and TPIPL has the

distinction of being the first organization in the record.

Vermin culture is the process of utilizing the canteen food wastage for converting

into natural manner.

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PHILOSOPHIES:

Tecumseh encourages its employees to following these philosophies, which is the

Japanese way of working.

1. SERIES (sorting out):

Look around your work area and ask your self is “it really necessary for all items

to bee there?”

Separate item “OK” re-workable and rejected items.

Re –work the re-workable items and dispose of the rejected items.

2. SEITION (systematic arrangement):

Item must be placed in pre fixed locations so that they are accessible and can be

easily.

Used.

Item should be clearly identified by labeling them properly.

3. SEISO (spic and span):

Clean the work place yourself.

Clean all the equipment including tables etc. yourself.

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4. SEIKETSO (serene atmosphere):

A clean work place properly selected and with proper arrangement will soon

become.

Dirty if SEIRI, SEITON and SEISO are not practiced regularly.

To achieve serene atmosphere the three steps of SEIRI, SEITON and SEISO

should be continuously repeated.

We should keep our area of work neat and clean including your own attire.

5. SHITSHUKE (stick to self discipline):

Follow rules and regulation strict

Adhere to timing and respect time

Conform to standards while working

Follow the prescribed operational standards

The company pays an incentive of Rs 75 per month to its employee for following

these.

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ADVANTAGES OF 5’S:

By thoroughly enforcing 5-8 in each work area.

Operations can be performed without error proceeding in, well regulated fashion,

resulting in fewer defective items. There by increasing the overall quality of the

product.

Operations can be performed safely and comfortably, reducing the chance of

accidents.

Machinery and equipment can be carefully maintained, reducing the no of

breakdowns.

Operations can be performed efficiently, eliminating waste there by increasing the

efficiency and productivity.

HOW TO ACHIEVE 5’S:

Every employee can achieve’5-s’ easily by having a close look at his work place. He

is to ensure that.

No rejected/unwanted items are lying at his work place.

All items are kept in proper locations/order.

Everybody should co-operative in keeping his and others area and the work.

Machines clean.

Follow the rules and regulations and maintain required standards.

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VISION AND MISION:

VISION

It is our goal to be the global leader in all of the markets in which we choose to

participate. We will peruse disruptive technologies to re-define our products.

MISSION

We will leverage our global expertise in mechanical, electrical fluid handling,

related components and services to provide comprehensive solutions for our

costumers needs-compressors, engines, electric motors, pumps, electronics, and

controls.

We will be best in class and most effective producer by utilizing the principles of

TQM, 6sigma and lean.

Our organization will modify itself in response to change in environment at a pace

and amount of change that can be made without eliminating or impending our

ongoing effectiveness.

Inclusive, continues strategy thinking will communicated and shared by the

organization.

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Products and services:

With a widely used of reciprocating, rotary and scroll compressors for varied

applications, Tecumseh caters to the entire spectrum of cooling needs for air-

conditioning, refrigerators, and commercial refrigeration applications. The superior

technology build into compressors ensures that they operate with energy efficiency and at

low noise levels. Compressors manufactured in India are trivialized to suit the exacting

Indian conditions. Which means that they with stand voltage fluctuations and perform

well even under extreme weather conditions.

The range includes the energy efficient AW series, super silent AWQ series and the

study, reliable and eco-friendly MLA series of compressors.

PRODUCT RANGE:

1. Refrigerators compressors.

2. Commercial refrigeration compressors.

3. Commercial air-conditioning compressors.

4. Air-conditioning compressors.

5. Condensing units.

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TECUNSEH

IMPORTANT EVENTS:

1998

TECUMSEH FULLY ACQUIRED

SRIRAM, HYDERABAD

WHIRLPOOL’S COMPRESSOR

Facility at Faridabad, ballabgarh.

1999

Development of plant in ballabgarh.

2000

Amalgamation with TIPL.

2001

Voluntary retirement scheme.

Industrial unrest and lock out in the first half of the year.

Export obligations not met during the year & high foreign outgo.

Obligations met towards customers by importing finished goods and selling loss.

2002

Setting up of the CADAM center.

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2003

Setting up of a 100% EOU for export of compressors and its parts.

Expansion in installed capacity at the Hyderabad plant.

Total foreign outgo reduced drastically.

Improvement in the market for compressor as a result of an improvement in

market for air conditioners and refrigerators.

2004

This year exports showed a growth of three times over previous years in volumes.

AW capacity expansion program.

Company has launched two new commercial models of MLA sense country wide

competition among the engineering industries.

Won the “GREENTECH environment excellence silver award” in the

countrywide competition among the engineering industries.

2005

Tecumseh compressors for chain.

Tecumseh posts 84% raise in the exports earnings.

Tecumseh India to set up rotary compressors unit.

2006

Won the “GREENTECH environment award” in the countrywide competition

among the engineering industry.

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AWARDS AND RECOGNITION

HYDERABAD plant was awarded the commendation in safety, health & SHE

conducted by CII Chennai.

Hyderabad plant achieves the GREENTECH ENVIRONMENT EXCELLENCE

GOLD AWARD in the countrywide competition among the engineering

achievement in environment management.

DEPARTMENTS

Human resource department.

Accounts departments.

Attendance and pay office (A&PO).

Export oriented unit (EOU).

Research and development(R&D)

Maintenance and engineering department.

Quality development Aw assembly.

AW press shop.

Aw machine shop.

Service center.

Dispensary.

Chemical and technological laboratories.

TPIPL Hyderabad has a total of 766 permanent employees.

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TPIPL’S KEY BUSINESS OBJECTIVE:

Set the world industry standards of excellence of customer.

Satisfaction achieves total quality.

To attain and surpass global quality and reliability standards for our products.

Maintain clear technology leadership.

Market share leadership with focus on customer needs.

Meet business and financial commitments.

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COMPETITOR ANALYSIS

In India TPIPL has four main competitors viz., Kirloskar, Volta’s, blue star and carrier

air conditions ltd. TPIPL is the market leader with an overall 50% market share

impressed in terms of value. In these segments of air condition compressor, it has still

competitions with kirloskar Copeland. The other manufacturers i.e. carrier air con blue

star and Voltas are manufacturing compressor mostly for their indigenous use as they are

in their air condition markers and refrigerators market. Carrier air con is looking for

divestment of their compressor division as of their comeback strategy they have been on

downslides since 1999 it has also listed its shares during their period.

Tecumseh refrigerators and air condition products have concerned a large chunk of the

Indian markets as its clients includes most of the OEM’s Tecumseh has a 40% of markets

share of the domestic and 30% of the refrigerator compressor markets.

Kirloskar is 51:49 joint ventures between kirloskar brother and US based Copeland

Corporation, global competitors of TPIPL, USA. Joint Venture Company was

incorporation, on 19 march 1993. The joint venture company took over the compressors

manufacturing and sells business of hermetic compressor division at karad and atilt of

kirloskar brother ltd from 1 April 1993. Kirloskar brother ltd started production of

hermetic compressor way back in 1996, at kirloskar wadi. It was then with a technical

collaboration with TPC USA, which had not yet entered India. Kirloskar Copeland as a

part of their strategy to increase their sales have started manufacturing of condensers,

which are mainly used in dairies, cold storage, industrial chillers and water coolers. The

estimated market size is India being Rs 25 crores.

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CHAPTER-4

DATA ANALYSIS &

INTERPERTATION

28

4.1. TOOLS OF ANALYSIS

WORKING CAPITAL MANAGEMENT:

Current Ratio: - current ratio is the ratio b/w current assets and current liabilities. The

firm is said to the comfortable in its liquidity position if the current ratio is 2:1.

Current assets

Current Ratio =

Current liabilities

Inventory turnover ratio: -It is also called stock turnover ratio. It indicates the number

of times the average stock is being sold during a given accounting period.

Cost of goods sold

Inventory turnover ratio =

Average inventory

Debtor’s Turnover Ratio: - Debtor’s turnover ratio reveals the no. of times the average

debtors are collected during a given accounting period. In other words, it shows how

quickly the firm is in a position to collects its debts.

Credit sales

Debtor’s Turnover Ratio =

Average debtors

Net Working Capital Ratio: - It refers to the difference between current assets and

current liabilities. Current liabilities are those claims of outsiders which are expected to

mature for payment with in an accounting year and include creditors (account payable),

bills payable and outstanding expenses.

Working Capital Ratio = Current Assets – Current Liabilities

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Working Capital Turnover Ratio: - Working capital turnover ratio establishes a

relationship between net sales and working capital. This ratio measures the efficiency of

utilization of working capital.

Cost of goods sold

Working Capital Turnover Ratio =--------------------------------

Net Working Capital

PROFITABILITY RATIO:

Return on Capital Employed: -This is widely used ratio. It shows whether the funds

entrusted to the management have been properly used or not. ROCE is calculated as

given below.

PAT

Return on Capital Employed = ------------------------x100

Capital employed

Profit before Interest & Tax Margin: Profit before interest and tax margin ratio is the

ratio between PBIT and Sales.

PBIT

Profit before Interest & Tax Margin =--------------X100

Sales

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CORRELATION:

Coefficient of correlation is independent of change of scale and origin of the

variable X and Y. By change of origin we mean subtracting some constant from every

given value of x and y by change of scale. We can divide or multiply every value of x and

y by some constant.

TREND ANALYSIS:

The method of least squares may be used either to fit a straight line trend is

represented by the equation

Yc = a+bx

In order to determine the values of the constants a and b the following to normal

equations are to be solved.

ΣY = Na+bΣX

ΣXY = aΣX +bΣ X2

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4.2. WORKING CAPITAL MANAGEMENT

4.2.1.1. CURRENT RATIO (CR):

Current Assets

Current Ratio = -----------------------------

Current Liabilities

Table 4.2.1.1: Calculation of CR (Rs. In thousands)

YearsCurrent Assets Current Liabilities

Current Ratio

2003-2004 2307604 1155154 1.99: 1

2004-2005 2150110 1359165 1.58: 1

2005-2006 2013225 1472238 1.36: 1

2006-2007 2209580 1586074 1.39: 1

2007-2008 2009419 1335586 1.50: 1

2008-2009 2110729 1615990 1.30: 1

Graph 4.2.1.1:

CURRENT RATIO

1.99

1.581.36 1.39 1.5

1.3

0

0.5

1

1.5

2

2.5

2003 2004 2005 2006 2007 2008YEARS

RA

TIO

S

Interpretation:

From the above table no: 4.2.1.1, it was observed that Current Ratio of Tecumseh India

Ltd was showing continuously decreased during the study period 2003-2006. This is due

to the continuous fluctuation in current assets and current liabilities. Standard Ratio is 2:1

so that the company is can’t maintain the Liquidity position.

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4.2.1.2. INVENTORY TURNOVER RATIO (ITR):

Cost of Goods Sold

Inventory Turnover Ratio = -----------------------------------

Average Inventory

Table: 4.2.1.2: Calculation of ITR (Rs. In thousands)

Years

Cost of goods

sold

Average Inventory Inventory Turnover

Ratio(Times)

2003-2004 5555963 1008066 5.51

2004-2005 5197833 1197500 4.34

2005-2006 5472012 1035446 5.28

2006-2007 5072476 934170 5.42

2007-2008 5060105 853264 5.93

2008-2009 5025701 811703 6.19

Graph 4.2.1.2:

INVENTORY TURNOVER RATIO

5.93 6.195.425.28

4.34

5.51

0

1

2

3

4

5

6

7

2003 2004 2005 2006 2007 2008YEARS

TIM

ES

Interpretation:

From the above table no: 4.2.1.2, it was observed that Inventory Turnover Ratio of

Tecumseh India Ltd was showing continuously increased during the study period 2005-

2008. This is due to the fluctuation in cost of goods sold and average inventory. In the

year 2008-09, ITR was high (6.19) when compared to the other years, because of high

level decreased in average inventory compared to cost of goods sold.

33

4.2.1.3. DEBTORS TURNOVER RATIO (DTR):

Credit Sales

Debtors Turnover Ratio = -----------------------------

Average Debtors

Table 4.2.1.3: Calculation of DTR (Rs. In thousands)

Years

Credit Sales Average Debtors Debtors Turnover

Ratio(Times)

2003-2004 3925325 612590 6.41

2004-2005 3614471 442498 8.17

2005-2006 4417676 419824 10.52

2006-2007 4563812 588575 7.75

2007-2008 4964463 666639 7.45

2008-2009 4127203 596667 6.92

Graph 4.2.1.3:

DEBTORS TURNOVER RATIO

6.41

8.17

10.52

7.75 7.45 6.92

0

2

4

6

8

10

12

2003 2004 2005 2006 2007 2008YEARS

TIM

ES

Interpretation:

From the above table no: 4.2.1.3, it was observed that Debtors Turnover Ratio of

Tecumseh India Ltd was showing continues decreased during the study period 2005-

2008. Because of increased in average debtors and decreased in credit sales. From the

year 2003and 04, DTR was decreased because of high percentage increased in average

debtors compare to credit sales.

34

4.2.1.4 WORKING CAPITAL:

Working Capital = Current Asset – Current Liabilities

Table 4.2.1.4: Calculation of Working Capital (Rs. In thousands)

YearsCurrent Assets Current Liabilities

Working Capital

2003-2004 2307604 1155154 1152450

2004-2005 2150110 1359165 790945

2005-2006 2013225 1472238 540987

2006-2007 2209580 1586074 623506

2007-2008 2009419 1335586 673833

2008-2009 2110729 1615990 494739

Graph 4.2.1.4:

WORKING CAPITAL

1152450

790945

540987623506

673833

494739

0

200000

400000

600000

800000

1000000

1200000

1400000

2003 2004 2005 2006 2007 2008YEARS

VA

LU

E (

Rs

000)

Interpretation:

From the above table no: 4.2.1.4, it was observed that Working Capital of Tecumseh

India Ltd was fluctuated during the study period 2003-2008. Because of fluctuated the

current assets and current liabilities.

35

4.2.1.5. WORKING CAPITAL TURNOVER RATIO (WCTR):

Cost of goods sold

Working Capital Turnover Ratio = -----------------------------

Net Working Capital

Table 4.2.1.5: Calculation of WCTR (Rs. In thousands)

Years

Cost of goods sold Net Working

Capital

Working Capital

Turnover Ratio

(Times)

2003-2004 5555963 1152450 4.82

2004-2005 5197833 790945 6.57

2005-2006 5472012 540987 10.11

2006-2007 5072476 623506 8.14

2007-2008 5060105 673833 7.51

2008-2009 5025701 494739 10.16

Graph 4.2.1.5:

4.82

6.57

10.11

8.14 7.51

10.16

0

2

4

6

8

10

12

TIM

ES

2003 2004 2005 2006 2007 2008

YEARS

WORKING CAPITAL TURNOVER RATIO

Interpretation:

From the above table no: 3.2.1.5, it was observed that Working Capital Turnover Ratio

of Tecumseh India Ltd was showing fluctuations during the study period 2003-2008. This

is due continues fluctuation in sales and in net working capital.

36

4.2.2. PROFITABILITY

4.2.2.1. PROFIT BEFORE INTEREST & TAX MARGIN (PBITM):

PBIT

PBITM = --------------- *100

Sales

Table 4.2.2.1: Calculation of PBITM (Rs. In thousands)

Years PBIT Sales PBITM (%)

2003-2004 -6558 3925325 -0.17

2004-2005 -210703 3614471 -5.83

2005-2006 -439277 4417676 -9.94

2006-2007 -349100 4563812 -7.65

2007-2008 246197 4964463 4.96

2008-2009 -367892 4127203 -8.91

Graph 4.2.2.1:

PROFIT MARGIN

-5.83

-9.94

-7.65

4.96

-8.91

-0.17

-12

-10

-8

-6

-4

-2

0

2

4

6

2003 2004 2005 2006 2007 2008

YEARS

RE

TU

RN

S (

%)

Interpretation:

From the above table no: 4.2.2.1, it was observed that PBITM of Tecumseh India Ltd

was showing fluctuations during the study period 2003-2008. From the year 2007 it

shows positive it means company can earn profits. But in the year 2003-06 and 2008

37

company can earning loss because of operating expenses is more when compare to

operating income.

4.2.2.2RETURN ON CAPITAL EMPLOYED (ROCE):

PBIT

Return on Capital Employed = ----------------------------- * 100

Capital Employed

Table 4.2.2.2: Calculation of ROCE (Rs. In thousands)

Years

PBIT Capital Employed Return on Capital

Employed (%)

2003-2004 -6558 3000055 -0.21

2004-2005 -210703 3375515 -6.24

2005-2006 -439277 3360395 -13.07

2006-2007 -349100 3321109 -10.51

2007-2008 246197 3084670 7.98

2008-2009 -367892 3221817 -11.41

Graph 4.2.2.2:

RETURN ON CAPITAL EMPLOYED

-0.21

-6.24

-10.51

7.98

-11.41-13.07

-15

-10

-5

0

5

10

YEARS

RE

TU

RN

S

(%)

Interpretation:

38

From the above table no: 4.2.2.2, it was observed that Return on Capital Employed of

Tecumseh India Ltd was showing fluctuations during the study period 2003-2008. The

company return on capital employed is negative because of company can earning

continuously loss.

4.2.3 COEFFICENT OF CORRELATION

Coefficient of correlation is independent of change of scale and origin of the variable X

and Y. By change of origin we mean subtracting some constant from every given value of x and y

by change of scale. We can divide or multiply every value of x and y by some constant.

Impact of Current Ratio, Inventory Turnover Ratio, and Debtors Turnover Ratio &

Working Capital Turnover Ratio on Return on capital employed (PBITM).

Table 4.2.3.1, Calculations

Years

Current

Ratio

Inventory

Turnover

Ratio

Debtors

Turnover

Ratio

Working

Capital

Turnover

Ratio

PBITM

(ROCE)

2003-2004 1.99 5.51 6.41 4.82 -0.17

2004-2005 1.58 4.34 8.17 6.57 -5.83

2005-2006 1.36 5.28 10.52 10.11 -9.94

2006-2007 1.39 5.42 7.75 8.14 -7.65

2007-2008 1.50 5.93 7.45 7.51 4.96

2008-2009 1.30 6.19 6.92 10.16 -8.91

Co-efficient

of

Correlation

0.549873 0.216919 -0.49159 -0.63137

39

Interpretation:

It is evident from the table no: 4.2.3.1 that the co-efficient of correlation between

Current Ratio and PBITM is +0.549873. Therefore there is a positive relationship

between Current Ratio and PBITM. Because of 100% change in Current Ratio

that must be lead to 54% change in PBITM.

It is evident from the table no: 4.2.3.1 that the co-efficient of correlation between

Inventory Turnover Ratio and PBITM is +0.216919. Because of 100% change in

Inventory Turnover Ratio that must be lead to 21% change in PBITM. It shows

positive relationship between Inventory Turnover Ratio and PBITM.

It is evident from the table no: 4.2.3.1 that the co-efficient of correlation between

Debtors Turnover Ratio and PBITM is -049159. Because of 100% change in

Debtors Turnover Ratio that must be lead to -49% change in PBITM. It shows

negative relationship between Debtors Turnover Ratio and PBITM.

It is evident from the table no: 4.2.3.1 that the co-efficient of correlation between

Working capital turnover ratio and PBITM is -0.63137. Because of 100% change

in Working capital that must be lead to -63% change in PBITM. It shows negative

relationship between Working capital turnover ratio and PBITM.

40

4.2.4 TREND ANALYSIS

Estimation of Sales using Exponential Curve

ΣY = Na+bΣX

ΣXY = aΣX +bΣ X2

Table 3.2.4.1: Calculations (Rs. In thousands)

* Indicates the estimated value

Graph 4.2.4.1:

Years (x) Sales (y)

2003-2004 3925325

2004-2005 3614471

2005-2006 4417676

2006-2007 4563812

2007-2008 4964463

2008-2009 4127203

2009-2010* 4789375

2010-2011* 4938104

SALES VALUE

4938104

4789375

4127203

4964463

4563812

4417676

3614471

3925325

0

1000000

2000000

3000000

4000000

5000000

6000000

2003 2004 2005 2006 2007 2008 2009 2010

YEARS

41

Interpretation

From the above table no: 4.2.4.1, it is observe that the forecast value of Sales for the year

2009 is Rs 4789375 and for the year 2010 is Rs 4938104.

Estimation of ROCE using Exponential Curve

ΣY = Na+bΣX

ΣXY = aΣX +bΣ X2

Table 4.2.4.2: Calculations ( Rs. In thousands)

* Indicates the estimated values

Graph 4.2.4.2:

Years (x) ROCE (y)

2003-2004 -6558

2004-2005 -210703

2005-2006 -439277

2006-2007 -349100

2007-2008 246197

2008-2009 -367892

2009-2010* -222468

2010-2011* -232348

42

Interpretation

From the above table no: 4.2.4.2, it is observe that the forecast value of ROCE for

the year 2009 is -222468 and for the year 2010 is -232348.

CHAPTER-5

RETURNS

-232348-222468

-367892

246197

-349100-439277

-210703

-6558

-600000

-400000

-200000

0

200000

400000

2003 2004 2005 2006 2007 2008 2009 2010

YEARS

43

FINDINGS:

Current Ratio of Tecumseh India Ltd was showing continuously decreased during

the study period 2003-2006. This is due to the continuous increase in current

assets and fluctuation in current liabilities. Standard Ratio is 2:1 so that the

company is maintaining the Liquidity position.

Inventory Turnover Ratio of Tecumseh India Ltd was high in the year 2008-09

because percentage increase in Average Inventory is more when compare to

percentage increase in Cost of Goods Sold.

Debtors Turnover Ratio of Tecumseh India Ltd was showing fluctuations during

the study period. From the year 2005-06 it was high because of increase in credit

44

sales and in the year 2003-04 it was low because of high increase in Average

debtors.

PBITM of Tecumseh India Ltd was showing fluctuations during the study period

2003-2008. From the year 2007 it shows positive it means company can earn

profits. But in the year 2003-06 and 2008 company can earning loss because of

operating expenses is more when compare to operating income.

Working Capital of Tecumseh India Ltd was decreased during the study period

2003-05. Because of increasing current liability and decreased in current assets. In

the year 2003 it was high because of company can maintain high level current

assets.

ROCE of Tecumseh India Ltd was showing fluctuations during the study period.

This is due to the continuous decreased in sales and fluctuations in PBIT

(negative/loss).

The co-efficient of correlation between Current Ratio and Profitability showing

positive association i.e., both current ratio & profitability are moving in the same

direction positively that means a 100% change in CR would cause only a +54%

change in PBITM.

The co-efficient of correlation between Inventory Turnover Ratio and Profitability

showing positive association i.e., both ITR & profitability are moving in the same

direction positively that means a 100% change in ITR would cause only a +21%

change in ROCE.

The co-efficient of correlation between Debtors Turnover Ratio and Profitability

showing negatively that means a 100% change in DTR -49% change in opposite

direction of PBITM.

45

The co-efficient of correlation between Working capital turnover ratio and

PBITM is -63%. It means 100% change in Working capital that must be lead to -

63% changes in PBITM. It shows negative relationship between Working capital

turnover ratio and PBITM.

BIBILOGRAPHY

Financial Management - S.N.MAHESWARI

Financial Management - M.Y. KHAN

Research Methodology - C.R.KOTHARI

Annual Reports - “www.Tecumseh.com”

Financial Management - I.M.PANDEY

46

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