CHANGES IN WORKING CAPITAL
There are so many reasons for changes in working capital as follows
CHANGES IN SALES AND OPERATION EXPENSES
There are changes in sales and operating expenses may be due to three
reasons.
1. There may be long run trend of change e.g. The price of raw
material i.e. oil may constantly raise necessity the holding of large
inventory.
2. Cyclical changes in economy dealing to ups and downs in business
activity will influence the level of working capital both permanent
and temporary.
3. Changes in seasonally in sales activities.
POLICY CHANGES
The second major cause of changes in the level of working
capital is because of policy changes initiated by management. The
term current assets policy may be defined as the relationship between
current assets and sale volume.
TECHNOLOGY CHANGES
The third major point if changes in working capital are change in technology
because changes in technology in our business more working capital is
required changes in operation expenses rise or full will have similar effects
on the levels of working following working capital statement is prepared on
the base of balance sheet of last year.
TABLE 4.1
SCHEDULE CHANGES OF IN WORKING CAPITAL FOR THE YEAR 2010-11 (IN RS.)
S.
No
Particulars As On
2010-11
As On
2011-12
Increase Decrease
(A)
(B)
Current Assets, Loans & Advances
Sundry debtors
Cash & bank balances
Stock
Loans and advances
Total (A)
Current liabilities and Provisions
a) Current liabilities
Sundry creditors
b) Provision
I. Audit fee payable
II. Electricity Charges payable
III. Labour charges payable
IV. Rent payable
V. Salaries payable
Total (B)
Working Capital (A-B)
Increase in working capital
426856
100000
19392
60000
606248
389411
12000
12200
40000
7100
80100
540811
65437
389935
455372
523116
140000
35506
60000
758622
137350
13500
11200
48500
7100
85600
303250
455372
-
455372
96260
40000
16114
-
252061
-
1000
-
-
-
-
-
405435
-
-
-
-
-
1500
-
8500
-
5500
-
389935
405435
INTERPRETATION:
In the year 2010-2011 there is an increase in working capital position
of the company to Rs. 389935. In the year 2010-2011 the currents assets of
the company had increased and current liabilities of the company had
decreased when compared to previous year. The above schedule of 2010-
2011 says about the position of the current assets and current liabilities of
the company.
Graph 4.1
Table showing changes in Current Asset, Current Liabilities and Working
Capital
2010-2011 2011-20120
100000
200000
300000
400000
500000
600000
700000
800000
Current AssetCurrent LiabilitiesWorking Capital
ANALYSIS
In the year 2010-11 the working capital dipped low which shows company
had financial problem but next working capital went high which shows
company had decreased its current liabilities and increased its current assets.
TABLE 4.2
SCHEDULE CHANGES OF IN WORKING CAPITAL FOR THE YEAR 2011-12 (IN RS.)
S. No Particulars As On
2011-12
As On
2012-2013
Increase Decrease
(A)
(B)
Current Assets, Loans & Advances
Sundry debtors
Cash & bank balances
stock
Loans and advances
Total (A)
Current liabilities and Provisions
a) Current liabilities
Sundry creditors
b) Provision
I. Audit fee payable
II. Electricity Charges payable
III. Labour charges payable
IV. Rent payable
V. Salaries payable
Total (B)
Working Capital (A-B)
Increase in working capital
523116
140000
35506
60000
758622
137350
13500
11200
48500
7100
85600
303250
455372
405315
860687
808518
230000
53569
200000
1292087
114600
5000
16800
95000
15000
185000
431400
860687
860687
285402
90000
18063
140000
22750
8500
-
564715
-
5600
46500
7900
99400
405315
564715
ANALYSIS:
In the year 2011-2012 there is an increase in working capital position
of the company to Rs. 405315. In the year 2011-2012 the currents assets of
the company had increased and current liabilities of the company had also
increase when compared to previous year. The above schedule of 2011-2012
says about the position of the current assets and current liabilities of the
company. As there is an increase in current assets and increase in current
liabilities with this working capital have increased. This indicates that
financial position of the company is satisfactory due to increase in current
assets of the company.
GRAPH 4.2
Table showing changes in Current Asset, Current Liabilities and Working
Capital
2011-2012 2012-20130
200000
400000
600000
800000
1000000
1200000
1400000
Current AssetCurrent LiabilitiesWorking Capital
INTERPRETATION;
There is a increase in working capital from 2011-2012 to 2012-2013.
Its shows the company is meeting its day to day expenses smoothly and
financial position is satisfactory.
Table 4.3
Statement of gross working capital for three years period from 2010-2011 to 2012-
2013
(IN RUPEES)
YEAR GROSS WORKING CAPITAL
2010-2011 606248
2011-2012 758622
2012-2013 1292087
ANALYSIS:
The above table indicates the Gross working capital position for three
years period i.e., from 2010-2011 to 2012-2013. In this year 2010-2011 its
amount is Rs. Rs.606248. It is increased to Rs. 758622 in the year 2011-
2012. It is increased to Rs. 1292087 in the year 2012-2013.
GRAPH 4.3
Showing Gross Working Capital
2010-2011 2011-2012 2012-20130
200000
400000
600000
800000
1000000
1200000
1400000
Gross Working Capital
Gross Working Capital
INTERPRETATION:
From the above the Gross Working Capital at Pro-B Tech Toolings
indicates that the utilization of working capital is good in the year 2012-
2013 the period is recorded almost a positive trend for 2011-2012 to 2012-
2013.
TABLE 4.4
Statement of net working capital for three year period from 2010-2011 to 2012-2013
(IN RUPEES)
YEAR
CURRENT
ASSETS
CURRENT
LIABILITIES
NET WORKING
CAPITAL
2010-2011 606248 540811 65437
2011-2012 758622 303250 455372
2012-2013 1292087 431400 860687
ANALYSIS:
The above table indicates the net working capital position for
three years period i.e., from 2010-11 to 2012-13. In this year 2010-11 its
amount is Rs.65437. It is increased to Rs. 455372 in the year 2011-12. It is
increase enormously to Rs. 860687 in the year 2012-13.
GRAPH 4.4
Showing Current Asset, Current Liability and Net Working capital
2010-112011-12
2012-13
0
200000
400000
600000
800000
1000000
1200000
1400000
Current AssetCurrent LiabilityNet Working Capital
INTERPRETATION:
From the above the Net Working Capital at Pro-B Tech Toolings
indicates that the utilization of working capital is good in the year 2012-
2013. The higher the net working capital ratio, the greater ability to meet its
current obligations.
WORKING CAPITAL TREND ANALYSIS
In the working capital analysis the direction at changes over a period of time is of
crucial importance. Working capital is one of the importance fields of management. It is
therefore very essential for analyst to make a study about the trend and direction of
working capital over a period of time. Such analysis enables as to study the upward and
downward trend in current assets and current liabilities and its effect on the working
capital position. The term trend is very commonly used in day-today conversion trend,
also called secular or long term need is the basic tendency of population, sales, income,
current assets and current liabilities to grow or decline over a period of time. The trend is
defined as smooth irreversible movement in the series. It can be increasing or decreasing.
Emphasizing the importance of working capital trends it have been pointed out that
“analysis of working capital trends provide as base to judge whether the practice and
privilege policy of the management with regard to working capital is good enough or an
important is to be made managing the working capital funds. Further, any one trend by
itself is not very informative and therefore comparison with illustrated their ideas in these
words, “An upwards trends coupled with downward trend or sells, accompanied by
marked increase in FTREPL investment especially if the increase in planning investment
by fixed interest obligation.
TABLE 4.5
Statement of net working capital for three year period from 2010-2011 to 2012-2013
(IN RUPEES)
PARTICULAR
2010-2011 2011-2012 2012-2013
NET WORKING
CAPITAL (A-B)
65437 455372 860687
WORKING
CAPITAL
INDENCES
100 695.89 189
ANALYSIS:
The above table indicates the net working capital position for
three years period i.e., from 2010-11 to 2012-13. In this year 2010-11 its
amount is Rs.65437. It is increased to Rs. 455372 in the year 2011-12. It is
increase enormously to Rs. 860687 in the year 2012-13.
GRAPH 4.5
Showing Working Capital Indices
2010-11 2011-12 2012-130
100
200
300
400
500
600
700
800
Working capital indices
Working capital indices
INTERPRETATION:
From the above the Net Working Capital at Pro-B Tech Toolings
indicates that the utilization of working capital is good in the year 2012-
2013. The higher the net working capital ratio, the greater ability to meet its
current obligations.
CURRENT ASSETS
Total assets are basically classified in two parts as fixed assets and
current assets. Fixed assets are in the nature of long term or life time for the
organization. Current assets convert in the cash in the period of one year. It
means that current assets are liquid assets or assets which can convert in to
cash within a year.
Table 4.6
Table is showing current assets (IN RUPEES)
PARTICULARS 2010-
11
2011-
12
2012-
13A)Current Assets
Inventories 19392 35506 53569
Sundry debtors 426856 523116 808518
Cash & bank
balance100000 140000 230000
Loan & advances 60000 60000 200000
Total of current
assets606248 758622 1292087
Current assets
indices100 125.13 170.32
ANALYSIS
Current assets indices in the year 2010-11 is 100, in the year 2011-12 it is
125.13, in the year 2012-13 current assets indices are 170.32.
TABLE 4.6
Showing current Asset Indices
2010-11 2011-12 2012-130
20
40
60
80
100
120
140
160
180
Current Asset Indices
Current Asset Indices
INTERPRETATION:
The company’s current asset indices are increasing from the year
2010-11. Here we can see that the company had good stability and had less
risk. The liquidity position of the company was on period up to 2012-13.
COMPOSITION OF CURRENT ASSETS
Analysis of current assets components enable one to examine in which
components the working capital fund has lacked. A large tie up of funds in
inventories affects the profitability of the business or the major portion of
current assets is made up cash alone, the profitability will be decreased
because cash is non-earning assets.
TABLE 4.7
Table is showing current assets(IN RUPEES)
PARTICULARS 2010-
11
2011-
12
2012-
13A)Current Assets
Inventories 3.20 4.68 4.14
Sundry debtors 70.41 68.96 62.57
Cash & bank
balance16.49 18.45 17.81
Loan & advances 9.90 7.91 15.48
Total of current
assets100 100 100
ANALYSIS
In 2010-11 the inventories was 3.20 and in other continuous years is
increasing except in 2012-13.
Sundry debtor’s has been decreased from 70.41 in the year 2010-11 to 62.57
in the year 2012-13. cash and bank balance is increasing format except the
year 2012-13.
GRAPH 4.7
Showing current asset composition
2010-11
2011-12
2012-13
0 10 20 30 40 50 60 70 80
Cash and Bank BalancesSundry DebtorsLoans and AvancesInventories
INTERPRETATION:
It was observed that the size of current assets is increasing with increase in
sales. The excess of current assets is showing positive liquidity position of
the firm but it is not always good because excess current assets then
required, it may adversely effects on profitability. Current assets include
some funds’ investments for which pay interest. The balance of current
assets is highly increased because of increase in sundry debtors, cash
balances and inventories. Current assets components show sundry debtors
are the major part in current assets in indicates that the inefficient collection
management. Over investment in the debtor affects liquidity of firm for that
company has raised funds from other sources like short term loan which
incurred the interest.
CURRENT LIABILITIES
Current liabilities mean the liabilities which have to pay in current
year. It includes sundry creditor’s means supplier whose payment is due but
not paid yet, thus creditors called as current liabilities. Current liabilities also
include short term loan provision as tax provisions. Current liabilities also
include bank overdraft, for some current assets like bank overdraft and short
term loan, company has to pay interest thus the management of current
liabilities has importance.
TABLE 4.8
Table is showing current liabilities (IN RUPEES)
PARTICULARS2010-
11
2011-
12
2012-
13Currnet liabilities 389411 137350 114600Provisions 151400 165900 316800Total of current liabilities
540811 303250 431400
Indices of current liabilities
100 56.07 142.25
ANALYSIS
In 2010-11 the indices of current liabilities is 100 after that the indices of
2011-12 current liabilities increased except the year 2012-13.
GRAPH 4.8
Showing current liabilities indinces
2010-11 2011-12 2012-130
20
40
60
80
100
120
140
160
180
Current Liabilities Indices
Current Liabilities Indices
INTERPRETATION:Current liabilities growth in the year 2012-13 because company created the
credit in the market by good transaction. There are also downs in current
liabilities during the year 2011-12. To get maximum credit from supplier
which is profitable to the company it reduces the need of working capital of
firm. But company enjoyed over creditors which may include indirect cost
of credit terms.
RATIO ANALYSIS
Ratio analysis is the powerful tool of financial statement analysis. A
ratio is define as “the indicated quotient of two mathematical expressions”
and as “the relationship between two or more things”. The absolute figures
reported in the financial statement do not provide meaningful understanding
of the performance and financial position of the firm. Ratio analysis helps to
summaries large quantities of financial data and makes qualitative judgment
of the firm’s financial performance.
ROLE OF RATIO ANALYSIS
Ratio analysis helps to appraise the firm in the term of their
profitability and efficiency of performance, either individually or in relation
to other firms in same industry. Ratio analysis is one of the best possible
techniques available to management to impart the basic functions like
planning and control. As future is closely related to the immediately past,
ratio calculated on the basis of historical financial data may be of good
assistance to predict the future. E.g. on the bases of inventory turnover,
ration or debtor’s turnover, ratio in the past, the level of inventory and
debtors can be easily ascertained for any given amount of sales. Similarly,
the ratio analysis may be able to locate the point out the various areas which
needs the management attention in order to improve the situation. E.g.
current ratio which shows a constant decline trend may be indicate the need
for further introduction of long term finance in order to increase the liquidity
position. As the ratio analysis is concerned with all the aspect of the firm’s
financial analysis liquidity, solvency, activity, profitability and overall
performance, it enables the interested persons to know the financial and
operational characteristics of an organization and take suitable decisions.
LIMITATIONS OF RATIO ANALYSIS
The basic limitation of ratio analysis is that may be difficult to find a
basis for making the comparison
Normally, the ratios are calculated on the basis of historical financial
statement organization for the purpose of decision making may need
the hint regarding the future happiness rather than those in the past.
The external analyst has depends upon the past which may not
necessary to reflect financial position and performance in future.
The technique o ratio analysis may prove inadequate in some situation
if there is differs in opinion regarding the interpretation of certain
ratio.
As the ratio calculates the basis of financial statements, the basic
limitation which is applicable to the financial statement is equally
applicable. In case of technique of ratio analysis also ie., only facts
which can be expressed in financial terms are considered by the ratio
analysis.
The technique of ratio analysis has certain limitation of use in the
sense that it only highlights the strong or problem arias; it does not
provide any solution to rectify the problem areas.
LIQUIDITY RATIOThe ratios compounded under this group indicate the short term
position of the organization and also indicate the efficiency with which the
working capital is being used. The most important ratio under this group is
follows
CURRENT RATIO
The current is calculated by dividing current assets by current liabilities:
Current assets include cash and those assets which can be converted in
to cash within a year, such as marketable securities, debtors and inventories.
All obligations within a year are include in current liabilities. Current
liabilities include creditors, bills payable accrued expenses, short term bank
loan income tax liabilities and long term debt maturing in the current year.
Current ratio indicates the availability of current assets in rupees for every
rupee of current liability.
Current assetsCurrent ratio =
Current liabilities
TABLE 4.9
Statement of current ratio from 2010-2011 to 2012-2013 (IN RUPEES)
YEAR
CURRENT
ASSETS
CURRENT
LIABILITIES
CURRENT
RATIO
2010-2011 606248 540811 1.12
2011-2012 758622 303250 2.50
2012-2013 1292087 431400 2.99
ANALYSIS:
The above table represents current assets, current liabilities of Pro-b
Tech Tooling for last 3 years from 2010-11 to 2012-13. Ratio between the
current assets and current liabilities is shown in the above table. The current
ratio in the year 2010-11 was 1.12. It was increased 2.50 in the year 2011-
2012 and 2.99 in the year 2012-2013.
.
GRAPH 4.9
Showing Current Ratio
2010-11 2011-12 2012-130
0.5
1
1.5
2
2.5
3
Current Ratio
INTERPRETATION:
From the above the Current Ratio at Pro-B Tech Toolings indicates that the
utilization of Current Ratio is good in the year 2012-13.The higher current
ratio is greater the margin of safety, the more the firm’s ability to meet its
current obligations
QUICK RATIO
Quick ratios establish the relationship between quick or liquid assets
and liabilities. An assets is liquid if it can be converting in its cash
immediately soon without a loss of value. Cash is the most liquid asset other
assets which are consider to be relatively liquid and include in quick assets
are debtors and bills receivable and marketable securities. Inventories are
considered as less liquid. Inventory normally required some time for
realizing into cash their value also be tendency to fluctuate. The quick ration
is found out by dividing quick assets by current liabilities.
TABLE 4.10
Current asset – inventory Quick ratio =
Current liabilities
Statement of quick ratio 2010-2011 to 2012-2013 (IN RUPEES)
YEAR
QUICK
ASSETS
CURRENT
LIABILITIES
QUICK
RATIO
2010-2011 586856 540811 1.08
2011-2012 723116 303250 2.38
2012-2013 1238518 431400 2.87
ANALYSIS:
The above table represents Quick ratio of Pro-B Tech Tooling for the
last three years from 2010-11 to 2012-13. The position of Quick ratio for the
past three years in the year 2010-11 was 1.08. It was increased to 2.38 in the
year 2011-12 and 2.87 in the year 2012-13.
GRAPH 4.10
Showing Quick Ratio
2010-11
2011-12
2012-13
0 0.5 1 1.5 2 2.5 3
Quick Ratio
Quick Ratio
INTERPRETATION:
From the above the analysis of Quick Ratio at Pro-B Tech Tooling indicates
that the utilization of Quick Ratio is good in the year 2010-11 the period is
recorded almost a positive trend for 2011-12 and 2012-13.
TABLE 4.11
Statement of quick ratio from 2010-2011 to 2012-2013(IN RUPEES)
YEAR
CASH AND
BANK
BALANCE
CURRENT
LIABILITIES
CASH
RATIO
2010-2011 100000 540811 0.18
2011-2012 140000 303250 0.46
2012-2013 240000 431400 0.55
ANALYSIS:
The above table represents cash ratio of Pro-B Tech Tooling for the
last five years from 2010-11 to 2012-13. . This means cash worth Rs. 1 are
adequate for liabilities worth Rs. 2. In the year 2010-11 the cash ratio is 0.18
and it is increased to 0.46 in the year 2011-12 and 0.55 in the year 2012-13
.GRAPH 4.11
Showing Cash Ratio
2010-11
2011-12
2012-13
0 0.1 0.2 0.3 0.4 0.5 0.6
Cash Ratio
Cash Ratio
INTERPRETATION:
From the above the Cash Ratio at Pro-B Tech Tooling indicates that the
utilization of Cash Ratio is not good in the year 0.18. But it showed positive
increase in next two year Cash ratio is very exact measure of liquidity. From
the point of view absolute liquidity ratio, a ratio of 1:2 or 0.5 considered as
on acceptable standard
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