Analysis of Working Capital Management at HLL Lifecare Ltd.

8/18/2019 Analysis of Working Capital Management at HLL Lifecare Ltd.

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Introduction

As a condom-manufacturing company, HLL Lifecare started small, but dreamed big.

That dream changed lives in ways unimaginable. Soon, HLL became the go-to brand for

various contraceptives. It was only a matter of time before diversification followed,

bettering the brand with healthcare products and services. After more than 30 years of

consistent quality performance, HLL Lifecare now takes on an even bigger

responsibility – the vaccine security of the nation. No wonder then, at HLL work is

about ‘innovating for healthy generations’, every day.

Industry Profile

The health care industry, or medical industry, is an aggregation of sectors within theeconomic system that provides goods and services to treat patients with curative ,

preventive , rehabilitative , and palliative care . The modern health care industry is

divided into many sectors and depends on interdisciplinary teams of trained

professionals and paraprofessional s to meet health needs of individuals and populations

The health care industry is one of the worlds largest and fastest-growing industries

Consuming over 10 percent of gross domestic product (GDP) of most developed

nations, health care can form an enormous part of a country's economy .

Health care in India

India has a universal health care system run by the constituent states and territories

of India. The Constitution charges every state with "raising the level of nutrition

and the standard of living of its people and the improvement of public health as

among its primary duties". The National Health Policy was endorsed by the

Parliament of India in 1983 and updated in 2002. Parallel to the public health

sector, and indeed more popular than it, is the private medical sector in India.

Both urban and rural Indian households tend to use the private medical

sector more frequently than the public sector, as reflected in surveys. India has a

life expectancy of 64/67 years (m/f), and an infant mortality rate of 61 per 1000

live births

http://en.wikipedia.org/wiki/Economic_systemhttp://en.wikipedia.org/wiki/Curative_carehttp://en.wikipedia.org/wiki/Preventive_medicinehttp://en.wikipedia.org/wiki/Physical_therapyhttp://en.wikipedia.org/wiki/Palliative_carehttp://en.wikipedia.org/wiki/Interdisciplinary_teamhttp://en.wikipedia.org/wiki/Paraprofessionalhttp://en.wikipedia.org/wiki/Paraprofessionalhttp://en.wikipedia.org/wiki/Interdisciplinary_teamhttp://en.wikipedia.org/wiki/Palliative_carehttp://en.wikipedia.org/wiki/Physical_therapyhttp://en.wikipedia.org/wiki/Preventive_medicinehttp://en.wikipedia.org/wiki/Curative_carehttp://en.wikipedia.org/wiki/Economic_system


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Company Profile

HLL Lifecare Limited (HLL) commenced its journey to serve the Nation in

the area of Health Care, on March 1, 1966, with its incorporation as a corporate

entity under the Ministry of Health and Family Welfare of the Government of

India. HLL was set up in the natural rubber rich state of Kerala, for the

production of male contraceptive sheaths for the National Family Planning

Programme. The company commenced its commercial operations on April 5,1969

at Peroorkada in Trivandrum. The plant was established in technical collaboration

with M/s Okamoto Industries Inc.Japan. Two most modern plants were added, one

at Thiruvananthapuram and the other at Belgaum in 1985.

The new condom plant inaugurated by the Union Minister for Health and Family

Welfare, Dr. Anbumani Ramadoss on 24 th November 2007 has added another

283 million pcs to the Peroorkada plant’s existing capacity. With this production

facility at Peroorkada has emerged as one of the largest single manufacturing

plants in the world for the production of condoms, with a capacity to produce over

1 Billion Condoms a year. With the addition of this capacity, HLL today has an

annual production capacity of 1.316 billion condoms

HLL i s today a multi-product, multi-unit organization addressing various public

health challenges facing humanity. On the path of rapid growth, HLL has set its

sights to be Rs 1000 crores company by the year 2010. HLL Lifecare Limited has

grown today into a multi -product, multi-unit organization addressing various

public health challenges faced by humanity. HLL Lifecare Limited has made a

turnover of Rs. 83294.11 lacs during the period 2012 -2013 and the profit during

that period accounts for Rs. 3007.47 lacs. HLL is today a Mini Ratna and upgraded

as a Schedule Central Public Sector Enterprise. The Peroorkada Factory itself

produces about 4.1 million pieces of condoms annually.

HLL Lifecare Limited is one of the company in the world manufacturing and

marketing the widest range of contraceptives. It is unique in providing a range

condoms including Female Condoms, Intra-Uterine Devices, Oral Contraceptive

Pills, Steroidal, Non-Steroidal of & Emergency Contraceptive Pills and TubalRings.


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The Peroorkada factory produces 4.1 million condoms daily making it one of the

world’s leading manufacturers of condoms accounting for nearly 10% of the global

production capacity.

HLL has been declared a Mini Ratna company by the Government of India and

upgraded as a Schedule B PSU . HLL has also made vast inroads in the commercial

segment too, with the growth in its market share from 0.1 percent at present. HLL’s

products are today exported to over 70 countries. HLL’s association with world

leaders include those with Okamoto of Japan; Finishing Enterprises, USA; Becton

and Dickinson, USA; Female Health Company, USA; Gambro BCT, Sweden;

Beijing Zizhupharma of China and Acumen Fund, USA.

HLL has today five state of the art manufacturing facilities-two at

Thiruvananthapuram (At Peroorkada and Akkulam) manufacturing Contraceptives

and Health Care products, at Kangala (near Belgaum) producing contraceptives

and women’s Health Pharma range, at Kochi in Special Economic Zone for

Female condoms, and at Manesar in Haryana for the production of In- Vitro

Diagnostic Kits. These Units have the ISO 9001, ISO 14001 -quality and

environmental management system Certifications. HLL’s Peroorkada Plant was

also awarded the OHSAS 18001 Certification for its efficient Occupational

Health and Safety Management System.

HLL is investing heavily in the area of Research and Development. It is setting up a

national centre for Research in the area of contraceptive products.

HLL is today the leading provider of contraceptive and health care products

for various public health programmes managed by international agencies like-UNFPA, Mission Pharma, PSI and IDA.HLL is partnering with the Government

of India in the National Rural Health Mission, Reproductive and Child Health

Project and the National AIDS Control Programme. HLL has the highest quality

certifications awarded by reputed international agencies. All its products have the

CE Mark, and its range of condoms have the US FDA 510K registration, the

KITE mark, SABS mark and the TBS.


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Manufacturing Plants

HLL commenced its commercial operations on April 5, 1969 at Peroorkada in

Thiruvananthapuram in the state of Kerala. HLL today has seven state-of-the-artmanufacturing plants which are Peroorkada in Thiruvananthapuram, Kerala for

contraceptives, Kanagala near Belgaum in Karnataka (1985) for contraceptives and

pharmaceutical products, Akkulam in Thiruvananthapuram, Kerala (1994) for hospital

products, Kakkanad in the Cochin Special Economic Zone, Kerala (2004) for female

condoms and male condoms (export), Manesar in Gurgaon, Haryana (2007) for rapid

in-vitro diagnostic test kits,Indore in Madhya Pradesh (2010) for pharma and women’s

healthcare products and Gajwel in Medak, Andhra Pradesh (2012) for condoms. All

these units have ISO 9001, ISO 14001 - quality and environmental management system

certifications. HLL’s Peroorkada, Akkulam and Kanagala plants have OHSAS 18001

certification for efficient occupational health and safety management system. The

testing laboratory for finished products at Peroorkada Factory has NABL accreditation

under ISO/EC 17025.

Peroorkada Factory, Thiruvananthapuram (PFT)

The manufacturing unit at Peroorkada, in Thiruvananthapuram district of Kerala was

set up in 1969 in technical collaboration with M/s Okamoto Industries Inc., Japan. The

plant has undergone continuous modernisation over the years and has an annual

production capacity of 1600 million pieces of condoms. The facility is equipped with

modern machines and equipment for production, inspection and quality testing,

conforming to GMP and meets international standards. The unit produces many variants

of condoms with different flavours and textures. Condoms manufactured in this facility

have product certifications such as CE, KITE, SABS, NF, CMD CAS and meets a range

of international quality specifications and standards such as: WHO 2003, 510K, ISO

4074:2002, SANS ISO 4074, ASTM D

3492 and GOST - 4645-81. The facility has certifications under ISO 9001:2008, ISO

14001:2004, ISO 13485:2003, OHSAS 18001:2007, WHO GMP and NABL as per ISO

17025:2005.


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Akkulam Factory, Thiruvananthapuram (AFT)

Akkulam Factory in Thiruvananthapuram district of Kerala is the state of the art facility

for manufacture of Blood Bags and other medical devices namely Surgical Sutures

(Absorbable & Non Absorbable), Intrauterine Devices (Copper T) and Mesh Implantfor Reinforcement of Connective tissue structure.

The above products are manufactured in class 10000 and class 100 Clean room facilities

maintained in a centrally air conditioned atmosphere. The products have C E

International Quality Certification and the manufacturing facility has been certified for

conformity with international quality standards-ISO 9001,WHO GMP, ISO 13485,

OHSAS 18001 and ISO 14001.

The annual production capacity of blood bags at the factory stood at 11.5 million pieces,

copper IUDs - 5.5 million pieces, surgical sutures - 1,25,000 dozens and tubal rings -

2.5 million pairs.

The products are exported to more than 20 countries. AFT has won awards for pollution

control, productivity and innovation.

Kanagala Factory, Belgaum (KFB)

The Kanagala plant in Belgaum in the state of Karnataka commenced operations with

the production of condoms in 1985 using Japanese technology. This unit underwent

diversification in 1992 with the tabletting facility for birth control pills - Mala-D/N and

the formulation and tabletting of Saheli (Centchroman) the indigenous, non-steroidal

once-a-week pill. The tabletting of Emergency Contraceptive pills started in 2003.

Commercial manufacturing of women healthcare products commenced in 2006. KFB

has also added a world-class hormonal/steroidal formulation plant – UNIPILL Block in

2012. The manufacturing unit has GMP and quality management systems (QMS) like

ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007 and ISO 13485:2003

Kakkanad Factory, Cochin (KFC)

HLL’s female condom manufacturing facility at Cochin Special Economic Zone,

Kakkanad in Kerala has been set up in technical collaboration with M/s. Female Health

Company (FHC), US. It is the second generation of female condoms made from


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Synthetic Nitrile latex, the product generically being termed FC2. The installed capacity

of the plant is 7 million pieces of FC2 per year. In addition, KFC has a fully automatic

testing and packing facility for male condoms with an annual capacity of 150 million.

This facility mainly caters to the export market. KFC has the ISO 9001:2008, ISO

13485:2003, CE Mark and WHO GMP certification for manufacturing female condoms

(FC2) certified by M/s DNV and ISO 9001:2008,ISO 13485:2003, CE Mark and WHO

GMP for male condom facility certified by M/S DNV.

KFC has also received the NF Mark certification from M/s LNE for male condom

facility and is also approved by many institutional buyers like IDA, Mission Pharma

and UNFPA for the supply of male condoms.

In addition to the product certification, KFC is also certified by M/s TUV, with ISO

18001:2007 and ISO 14001:2004 certifications for safety, health and environment

compliance.

Manesar Factory, Gurgaon (MFG)

HLL has its in-vitro immuno diagnostics kit manufacturing facility at Manesar in

Gurgaon. It has an installed capacity to manufacture 26 million rapid pregnancy test kits

per year. The unit commenced operations in November 2007. The unit manufactures

rapid test kits for detection of metabolic hormones such as human chorionic

gonadotropin (hCG) in urine and prognosis of diseases such as Dengue, Malaria

(different strains), Kala-azar (leishmaniasis), TB, Chikungunya and other infectious

diseases. The facility has Quality Management Systems like ISO 9001:2008, ISO 13485

and CE mark according to IVD 98/79/EC directive for pregnancy test cards for

professional use brands like Makesure, P-Test and Nishchay.

Pharma Factory, Indore (PFI)

Indore, the commercial capital of Madhya Pradesh opened its doors to a pharma

production facility in 2010. The facility manufactures a range of pharma products which

include formulations such as tablets, capsules and Oral Rehyderation Salt. PFI also

supplements the existing production facility of KFB in the area of women’s healthcare

products.


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Irapuram Factory, Cochin (IFC)

Irapuram Factory, Cochin (IFC) is located at the Rubber Park near Perumbavoor,

Kerala. IFC facility is the moulding hub for male and female condoms. The installed

capacity for male condom moulding is 240 mpcs/ year and for the female condoms is 25mpcs/year. The total constructed area in the 306 cents plot is 4650 square metre

Product Profile

HLL has an exhaustive assortment of products, from the popular brand of condoms

‘MOODS’ to the company’s natural products ‘Herbs &Berries’, an Ayurvedic products

range. Right through its journey from manufacturing contraceptives, many products

have continued to take shape at HLL. These include re-hydration salts, blood

transfusion equipment and wound care products, blood banking equipment, neo-natal

care equipment and, surgical and healthcare products. Each category caters to a different

segment of society, helping HLL make life a better experience.

Contraceptive Aids

Condoms

Copper-T’s

Oral contraceptive pills

Health Care Aids

Blood transfusion bags

Hydrophilic shunts

Surgical sutures

Surgical and examination gloves


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Social Marketing Products

Ferro plus – Iron and folic acid tablets

Jal jeevan oral rehydration salts

Plastid medicated plaster

Organisation Structure

HLL Lifecare Ltd. is governed by a Board of Directors. The CEO of the company is its

Chairman and Managing Director. The Managing Director is the operational head of the

company and he is supported by 3 executive directors (operational, technical and

finance). Each unit is headed by an Executive Director and is assisted by the General

Manager or Assistant General Manager. Different departments in each unit are headed

by a Manager or Deputy Manager.

Finance Department

1. Ledger section

Passing and settling of all freight advances of personal accident claims of

employees of bills related to electricity, water charges etc.

2. Party bills section

Deals with the service bill for rendering services such as phone, type writer etc.

3. Payroll, cash and computer section

Deals with salary computation and payment of salaries. HLL has got a wellintegrated MIS.

4. Internal audit section

Scrutiny of all purchase proposals, comparative statements, supply orders,

annual major complaints of all engineering equipments and all files off all

employees relating to annual increments, promotions, transfers etc.


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5. Costing section

Deals with preparation of quarterly financial reports, preparation of monthly

profitability statements, budget preparation etc.

6. Finalisation of accounts section

Performs the functions of assisting the statutory of government auditors in

connection with audit of accounts of HLL and preparing and assisting and

coordinating of all works connected with finalisation of accounts of HLL. The

financial statement of the company is prepared and compiled according to

Company’s Act 1956 every year.

Motto

Innovating for healthy generations

Vision

To be a globally respected organization, focusing on inclusiveness by providing affordable and

quality healthcare solutions through continuous innovation.

Mission

Provide quality products and services meeting international standards. Excellence through continual improvement by adoption of best technologies and

practices

Customers delight and value creation through innovation, research and

development, cost management and customer care. Focusing on human resource development to meet the need of challenging

business environment.

Be a socially committed corporate by maintaining highest standards of corporate

governance social responsibility.

Committed to well-being of mother earth and future generations through green

initiatives and promotion of sustainable development.


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Objectives

The company will strive to fulfill its vision/mission by

1. Attaining rapid growth and global levels of operations with high quality costcompetitiveness and be among the top three players in each main product category.

2. Create a culture of continuous innovation through R& D initiatives.

3. Strive to be the employer of choice in India with employee satisfaction levels ofover 90%.

4. Be recognized as the leading social organization in the field of Reproductive andWomen's Healthcare with commitment to the society - a partner of choice forimplementing all government and multilateral initiatives in these segments.

5. Focussing on capacity building, skill development and infrastructural developmentfor the benefit of the marginalized and under privileged sections for theirempowerment and inclusion in the economic mainstream.

6. To place emphasis on environmental friendly activities that brings out conservationof resources and waste management leading to top sustainable development.

Review of Literature

Maheshwari (1996) states that accounting ratios are relationship expressed in

mathematical terms between figures which are connected with each other in

some manner. Obviously no purpose will be served by comparing two sets of

figures which are not at all connected with each other. Moreover absolute

figures are unit for comparison.

Smith and Begemann (1997) emphasized that those who promoted working

capital theory shared that profitability and liquidity comprised the salient goals

of working capital management. The problem arose because the maximization of

the firm's returns could seriously threaten its liquidity, and the pursuit of

liquidity had a tendency to dilute returns.


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Shin and Soenen, (1998) highlighted that efficient Working Capital Management

was very important for creating value for the shareholders. The way working

capital was managed had a significant impact on both profitability and liquidity.

The relationship between the length of Net Trading Cycle, corporate profitability

and risk adjusted stock return was examined using correlation and regression

analysis, by industry and capital intensity. They found a strong negative

relationship between lengths of the firm’s net-trading Cycle and its profitability.

In addition, shorter net trade cycles were associated with higher risk adjusted

stock returns.

Khan (2000) conducted research based on listed Pakistani companies, named

“impact of working capital management” on the profitability of firms and

investigates a relation between working capital management and the corporate

profitability of the non-financial firm. The sample size taken was 30 firms.

These results showed a negative relationship between gross profits and the

number of days, inventories, accounts payable and cash conversion cycle.

Deloof( 2003) discussed that most firms had a large amount of cash invested in

working capital. It can therefore be expected that the way in which working

capital is managed will have a significant impact on profitability of those firms.

Using correlation and regression tests he found a significant negative

relationship between gross operating income and the number of days accounts

receivable, inventories and accounts payable of Belgian firms. On basis of these

results he suggested that managers could create value for their shareholders by

reducing the number of days’ accounts receivable and inventories to a

reasonable minimum. The negative relationship between accounts payable and

profitability is consistent with the view that less profitable firms wait longer to

pay their bills.

Eljelly (2004) elucidated that efficient liquidity management involves planning

and controlling current assets and current liabilities in such a manner that

eliminates the risk of inability to meet due short-term obligations and avoids


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excessive investment in these assets. The relation between profitability and

liquidity was examined, as measured by current ratio and cash gap (cash

conversion cycle) on a sample of joint stock companies in Saudi Arabia using

correlation and regression analysis. The study found that the cash conversion

cycle was of more importance as a measure of liquidity than the current ratio

that affects profitability. The size variable was found to have significant effect

on profitability at the industry level. The results were stable and had important

implications for liquidity management in various Saudi companies. First, it was

clear that there was a negative relationship between profitability and liquidity

indicators such as current ratio and cash gap in the Saudi sample examined.

Second, the study also revealed that there was great variation among industries

with respect to the significant measure of liquidity.

Aggarwal (2005) on his study on the topic “ratio analysis” shows that

profitability is the measure of the amount by which a company’s revenues

exceed its relevant expenses. Profitability ratios are used as base within the

organisation.

Thomas M (2005) studied distinct levels of working capital management

measures for different industries, which tend to be stable over time. Many

factors help to explain this discovery. The improving economy during the period

of the study may have resulted in some industries, while slowing turnover may

have been a signal of troubles ahead.

Afza and Nazir concluded that there is a negative relationship between the

profitability measures of firms and degree of aggressiveness on working capital

investment and financing policies. Their result indicates that the firms yield

negative returns if they follow an aggressive working capital policy by

investigating the relative relationship between the aggressive or conservative

working capital policies for 208 public limited companies listed at Karachi

Stock Exchange for a period of 1998-2005.


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Laura Greenberg in the paper “Liberating cash- Reducing working capital

levels” discusses that well-capitalized companies are positioned not only to

survive the financial crisis today, but also to emerge victorious and thrive when

skies turn blue again. Establishing and adhering to tight working capital

standards enables a firm to continue its operations with sufficient funds to both

satisfy maturing short-term debt and meet upcoming operational expenses.

Theoretical background

Working Capital Management

Capital required for a business can be classified under two main categories via,

1) Fixed Capital

2) Working Capital

Every business needs funds for two purposes for its establishment and to carry out its

day- to-day operations. Long terms funds are required to create production facilities

through purchase of fixed assets such as plant & machinery, land, building, furniture,

etc. Investments in these assets represent that part of firm’s capital which is blocked on

permanent or fixed basis and is called fixed capital. Funds are also needed for short-

term purposes for the purchase of raw material, payment of wages and other day – to-

day expenses etc.

These funds are known as working capital. In simple words, 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 & inventories. Funds, thus, invested

in current assts keep revolving fast and are being constantly converted in to cash and

this cash flows out again in exchange for other current assets. Hence, it is also known as

revolving or circulating capital or short term capital.


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It suggests the need of financing a part of working capital requirement out of

the permanent sources of funds.

Constituents of current assets

1. Cash in hand and cash at bank

2. Bills receivables

3. Sundry debtors

4. Short term loans and advances.

5. Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

In a narrow sense, the term working capital refers to the net working. Net working

capital is the excess of current assets over current liability, or, say:

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current assets exceeds the

current liabilities are more than the current assets. Current liabilities are those liabilities,


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which are intended to be paid in the ordinary course of business within a short period of

normally one accounting year out of the current assts or the income business.

Constituents of current liabilities

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation

6. Bills payable.

7. Sundry creditors.

Need for Working Capital

Working capital is needed for the following purposes:

For the purpose of raw material, components and spares. To pay wages and salaries To incur day-to-day expenses and overload costs such as office expenses. To meet the selling costs as packing, advertising, etc. To provide credit facilities to the customer.

To maintain the inventories of the raw material, work-in-progress, storesand spares and finished stock

Classification of Working Capital

Working capital may be classified in two ways:

On the basis of concept.

On the basis of time.


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On the basis of concept working capital can be classified as gross working capital and

net working capital. On the basis of time, working capital may be classified as:

Permanent or fixed working capital.

Temporary or variable working capital

Permanent or fixed working capital

Permanent or fixed working capital is minimum amount which is required to ensure

effective utilization of fixed facilities and for maintaining the circulation of current

assets. Every firm has to maintain a minimum level of raw material, workin-process,

finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of working is permanently blocked in

current assets. As the business grow the requirements of working capital also increases

due to increase in current assets.

Temporary or variable working capital

Temporary or variable working capital is the amount of working capital which is

required to meet the seasonal demands and some special exigencies. Variable working

capital can further be classified as seasonal working capital and special working capital.

The capital required to meet the seasonal need of the enterprise is called seasonal

working capital. Special working capital is that part of working capital which is

required to meet special exigencies such as launching of extensive marketing for

conducting research, etc.

Temporary working capital differs from permanent working capital in the sense that is

required for short periods and cannot be permanently employed gainfully in the

business.

Importance of Adequate Working Capital

1. Solvency of business

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production.


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2. Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill.

3. Easy loans

Adequate working capital leads to high solvency and credit standing can arrange

loans from banks and other on easy and favourable terms.

4. Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the purchases and hence reduces cost.

5. Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production.

6. Regular Payment of Salaries, Wages And Other Day to Day Commitments

It leads to the satisfaction of the employees and raises the morale of its employees,

increases their efficiency, reduces wastage and costs and enhances production and

profits.

7. Exploitation of Favourable Market Conditions

If a firm is having adequate working capital then it can exploit the favourable

market conditions such as purchasing its requirements in bulk when the prices are

lower and holdings its inventories for higher prices.

8. Ability to Face Crises

A concern can face the situation during the depression.


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9. Quick and Regular Return On Investments

Sufficient working capital enables a concern to pay quick and regular of dividends

to its investors and gains confidence of the investors and can raise more funds in

future.

10. High Morale

Adequate working capital brings an environment of securities, confidence, high

morale which results in overall efficiency in a business.

Excess or inadequate working capital

Every business concern should have adequate amount of working capital to run its

business operations. It should have neither redundant or excess working capital nor

inadequate nor shortages of working capital. Both excess as well as short working

capital positions are bad for any business. However, it is the inadequate working capital

which is more dangerous from the point of view of the firm

Disadvantages of Excessive or Redundant working capital

1. Excessive working capital means ideal funds which earn no profit for the firm and

business cannot earn the required rate of return on its investments.

2. It leads to unnecessary purchasing and accumulation of inventories.

3. Excessive working capital implies excessive debtors and defective credit policy

which causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks and other

financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may also fall.

7. The redundant working capital gives rise to speculative transactions.


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Disadvantages of inadequate working capital

1. It leads to excessive debtors.

2.

Spare funds are of no use and earn no profit.

3. Firm fails to maintain the relationship with the banks due to non requirement of

funds.

4. Leads to unnecessary purchasing.

Factors determining the working capital requirements

1. Nature of business

The requirements of working is very limited in public utility undertakings such as

electricity, water supply and railways because they offer cash sale only and supply

services not products, and no funds are tied up in inventories and receivables. On the

other hand the trading and financial firms requires less investment in fixed assets but

have to invest large amt. of working capital along with fixed investments.

2. Size of business

Greater the size of the business, greater is the requirement of working capital.

3. Production policy

If the policy is to keep production steady by accumulating inventories it will require

higher working capital.

4. Length of production cycle

The longer the manufacturing time the raw material and other supplies have to be

carried for a longer in the process with progressive increment of labour and service

costs before the final product is obtained. So working capital is directly proportional to

the length of the manufacturing process.


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5. Seasonal variations

Generally, during the busy season, a firm requires larger working capital than in slack

season.

6. Working capital cycle

The speed with which the working cycle completes one cycle determines the

requirements of working capital. Longer the cycle larger is the requirement of working

capital.

7. Credit policy

A concern that purchases its requirements on credit and sales its product / services on

cash requires lesser amt. of working capital and vice-versa.

8. Business cycle

In period of boom, when the business is prosperous, there is need for larger amt. of

working capital due to rise in sales, rise in prices, optimistic expansion of business, etc.

On the contrary in time of depression, the business contracts, sales decline, difficultiesare faced in collection from debtor and the firm may have a large amt. of working

capital.

9. Rate of growth of business

In faster growing concern, we shall require large amt. of working capital.

10. Price level changes

Changes in the price level also affect the working capital requirements. Generally rise in

prices leads to increase in working capital.


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Title

A study on working capital management of HLL Lifecare Ltd Thiruvananthapuram

Objectives of the study

Primary objective

To evaluate the liquidly position through various working capital related ratios.

Secondary objectives

1. To analyze the working capital management of the company.

2. To study how funds are being utilized in the short run

3. To make comparative study of changes in working capital for five years.

4. To render recommendations for the effective management of working capital.

Methodology

This research is a descriptive in nature. The sources of data are secondary. Data were

collected from:

Annual reports of the company Journals published by the company

Official website of the company


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23 | P a g e

Tools for analysis

Ratio analysis

Fund flow Cash flow Trend analysis

Period of study

1 month (June 2 to 30)

SWOT Analysis

Strength

1. Over 30 years experience in the manufacture of latex based products and a decade of

experience in polymer based products.2. It has various quality certificates from different countries and also ISO certification.

3. Good relationship between management and employees.

4. Support from government.

5. High reputation among consumers.

Weakness

1. Using more human resource increases the cost of production.

2. They do not market some brands directly.

3. Lack of advertisement.

4. Huge cost of production

5. High amount of scrap


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Opportunity

1. International orders

2.

Large area of operation facilities for expansion3. Scope for diversification of products

Threats

1. Competition from other countries

2. Fluctuating government policies

3. Promotional activities done by other brands capture the market

Limitations

1. Lack of time, the study was conducted only for a period of 1 month.

2. The study is conducted based on secondary data.

3. The study is confined to a period of 5 years.

4. Government and economic policies affecting the company are not taken into

consideration.

5. The study is based on past financial statements so it cannot be 100%

representative of future; it can just be a mere guidance for future course of

action.


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Liquidity Ratios

Liquidity refers to the ability of a firm to meet its current obligations as and when these

become due. The short-term obligations are met by realizing amounts from current,

floating or circulating assts. The current assets should either be liquid or near about

liquidity. These should be convertible in cash for paying obligations of short-term

nature. The sufficiency or insufficiency of current assets should be assessed by

comparing them with short-term liabilities. If current assets can pay off the current

liabilities then the liquidity position is satisfactory. On the other hand, if the current

liabilities cannot be met out of the current assets then the liquidity position is bad. To

measure the liquidity of a firm, the following ratios can be calculated:

1. Current ratio

2. Quick ratio

3. Absolute quick ratio

1. CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure of general liquidity and

its most widely used to make the analysis of short-term financial position or liquidity of

a firm. It is defined as the relation between current assets and current liabilities.

Table1.1

Year Current assets Current Liabilities Current ratio

2009-10 26,249.24 16,174.65 1.62

2010-11 39,539.13 21,472.04 1.84

2011-12 41,809.87 36,431.94 1.14

2012-13 77,846.85 59,888.90 1.29

2013-14 81,995.24 64,963.41 1.26


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Fig 1.1

Interpretation

A ratio of 2:1 is conside

years we can see that it

the ideal ratio. This depi

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2009-10 2

red ideal. If we see the current ratio of the c

has been decreasing. The current ratio of c

cts that company’s liquidity position is not v

010-11 2011-12 2012-13 2013-201

Current ratio

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mpany for last five

mpany is less than

ery sound.

4

Current ratio


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2. QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be

defined as the relationship between quick/liquid assets and current or liquid liabilities.

An asset is said to be liquid if it can be converted into cash with a short period without

loss of value. It measures the firms’ capacity to pay off current obligations immediately.

Table1.2

Year Quick assets Current Liabilities Quick ratio

2009-10 20,932.27 16,174.65 1.29

2010-11 33,797.36 21,472.04 1.57

2011-12 34,375.04 36,431.94 0.94

2012-13 67,328.94 59,888.90 1.12

2013-14 70,141.79 64,963.41 1.07


28/72

Fig 1.2

Interpretation

A high ratio is an indica

liabilities in time andliquidity position is not

more than ideal ratio. T

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2009-10

tion that the firm is liquid and has the abilit

n the other hand a low quick ratio represgood. The ideal quick ratio is 1:1. Comp

is shows company has no liquidity problem .

010-11 2011-12 2012-13 203-1

Quick ratio

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to meet its current

nts that the firm’sny’s quick ratio is

4

Quick ratio


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3. ABSOLUTE LIQUID RATIO

Although receivables, debtors and bills receivable are generally more liquid than

inventories, yet there may be doubts regarding their realization into cash immediately or

in time. So absolute liquid ratio should be calculated together with current ratio and acidtest ratio so as to exclude even receivables from the current assets and find out the

absolute liquid assets.

Table1.3

Year Absolute liquid assets Current Liabilities Absolute liquid

ratio

2009-10 4,200.58 16,174.65 0.25

2010-11 5,142.23 21,472.04 0.23

2011-12 1,436.80 36,431.94 0.03

2012-13 15,069.01 59,888.90 0.25

2013-14 14,849.73 64,963.41 0.22


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Activity ratios

Activity ratios are used to measure the relative efficiency of a firm based on its use of

its assets, leverage or other such balance sheet items. These ratios are important in

determining whether a company's management is doing a good enough job of

generating revenues, cash, etc. from its resources. Companies will typically try to turn

their production into cash or sales as fast as possible because this will generally lead to

higher revenues. Such ratios are frequently used when performing fundamental analysis

on different companies. Some important activity ratios are:

1. Inventory turnover ratio

2. Inventory holding period3. Debtors turnover ratio

4. Average collection period

5. Creditors turnover ratio

6. Average payment period

7. Current asset turnover ratio

8. Current asset holding period

9. Working capital turnover ratio

1. INVENTORY TURNOVER RATIO

Inventory turnover ratio measures the speed with which the stock is converted into

sales. Usually a high inventory ratio indicates an efficient management of inventory

because more frequently the stocks are sold ; the lesser amount of money is required to

finance the inventory. Whereas low inventory turnover ratio indicates the inefficient

management of inventory. A low inventory turnover implies over investment in

inventories, dull business, poor quality of goods, stock accumulations and slow moving

goods and low profits as compared to total investment.

http://www.accountingformanagement.org/inventory-turnover-ratio/http://www.accountingformanagement.org/receiveables-turnover-ratio/http://www.accountingformanagement.org/average-collection-period/http://www.accountingformanagement.org/accounts-payable-turnover-ratio/http://www.accountingformanagement.org/average-payment-period/http://www.accountingformanagement.org/asset-turnover-ratio/http://www.accountingformanagement.org/working-capital-turnover-ratio/http://www.accountingformanagement.org/inventory-turnover-ratio/http://www.accountingformanagement.org/inventory-turnover-ratio/http://www.accountingformanagement.org/working-capital-turnover-ratio/http://www.accountingformanagement.org/asset-turnover-ratio/http://www.accountingformanagement.org/average-payment-period/http://www.accountingformanagement.org/accounts-payable-turnover-ratio/http://www.accountingformanagement.org/average-collection-period/http://www.accountingformanagement.org/receiveables-turnover-ratio/http://www.accountingformanagement.org/inventory-turnover-ratio/


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Table 2.1

Year Sal

2009-10 44,3

2010-11 51,

2011-12 61,

2012-13 83,

2013-14 95,

Fig 2.1

Interpretation

This ratio shows how r

has reduced a little fro

management technique i

7.4

7.6

7.8

8

8.2

8.4

8.6

8.8

9

9.2

2009-10 2010

s Inventory I

45.08 5,316.97 8.

41.85 5,741.79 9.

85.92 7,434.83 8.

63.16 10,517.91 7.

21.01 11,853.46 8.

pidly the inventory is turning into receivab

the previous years. This shows that the c

s less efficient as compared previous years.

-11 2011-12 2012-13 2013-14

Inventory turnover ratio

In

32 | P a g e

ventory turnover ratio

.34

.04

.24

.98

.05

le through sales. It

mpany’s inventory

ventory turnover ratio


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2. INVENTORY

It denotes the shelf life

turnover ratio. Low inve

Table 2.2

Year Invent

2009-10 5,316.

2010-11 5,741.

2011-12 7,434.

2012-13 10,517

2013-14 11,853

Fig 2.2

Interpretation

During the year 2010-11

to hold the inventory. It

37

38

39

40

41

42

43

44

45

46

2009-10 2010

OLDING PERIOD

f inventory. It shares an inverse relationship

ntory holding period denotes better utilisatio

ry Sales Invento

7 44,345.08 43.16

9 51,941.85 39.79

3 61,285.92 43.67

.91 83,963.16 45.09

.46 95,421.01 44.72

only 39 days was required but now almost 4

has increased over the years

-11 2011-12 2012-13 2013-14

Inventory holding period

In

33 | P a g e

with inventory

n of inventory.

ry holding period

5 days are required

entory holding period


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3. DEBTORS TURNOVER RATIO

Trade debtors are expected to be converted into cash within a short period and are

included in current assets. So liquidity position of a concern also depends upon the

quality of trade debtors. Debtor’s velocity indicates the number of times the debtors are

turned over during a year. Generally higher the value of debtor’s turnover ratio the more

efficient is the management of debtors/sales or more liquid are the debtors. Whereas a

low debtors turnover ratio indicates poor management of debtors/sales and less liquid

debtors

Table 2.3

Year Net sales Sundry debtors Debtors turnover ratio

2009-10 44,173.47 11,777.01 3.75

2010-11 51,814.22 19,820.11 2.61

2011-12 61,133.31 24,424.70 2.50

2012-13 83,690.85 41,478.95 2.012013-14 94,857.97 44,526.61 2.13


35/72

Fig 2.3

Interpretation

This ratio indicates the

sales. The higher the v

turnover, the more effic

turnover ratio is decrea

debtors efficiency. Now

0

0.5

1

1.5

2

2.5

3

3.5

4

2009-10 201

speed with which debtors are being conver

alues or turnover into sales, the higher th

ent is the management of credit. But in the

ing year to year. This shows that compan

their credit policy become liberal as compar

-11 2011-12 2012-13 2013-14

Debtors turnover ratio

35 | P a g e

ed or turnover into

values of debtors

ompany the debtor

is not utilizing its

to previous years.

Debtors turnover ratio


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4. AVERAGE CO

The average collectionto collect payment for s

Table 2.4

Year Sun

2009-10 11,

2010-11 19,

2011-12 24,

2012-13 41,

2013-14 44,5

Fig 2.4

Interpretation

The average collection

the efficiency of collecti

company. In the firm avfirm has Liberal Credit

0

20

40

60

80

100

120

140

160

180

200

2009-10 2010-

LLECTION PERIOD

eriod shows the average number of days it tales to customers on credit.

dry debtors Net sales A

77.01 44,173.47 9

20.11 51,814.22 1

24.70 61,133.31 1

78.95 83,690.85 1

26.61 94,857.97 1

eriod measures the quality of debtors and it

on efforts. It also helps to analysis the credit

erage collection period increasing year to yeolicy.

11 2011-12 2012-13 2013-14

verage collection period

Avera

36 | P a g e

kes your business

vg. Collection period

5.97

7.70

3.83

78.42

8.98

elps in analyzing

policy adopted by

r. It shows that the

e collection perios


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5. CREDITORS TURNOVER RATIO

A short-term liquidity measure used to quantify the rate at which a company pays off its

suppliers. Accounts payable turnover ratio is calculated by taking the total purchases

made from suppliers and dividing it by the average accounts payable amount during the

same period. This measure shows investors how many times per period the company

pays its average payable amount.

Table 2.5

Year Purchases Sundry creditors Creditors turnover ratio

2009-10 11,157.86 6,097.12 1.83

2010-11 13,801.69 8,319.99 1.65

2011-12 12,971.02 7,937.38 1.63

2012-13 19,064.57 9,319.78 2.042013-14 19,482.63 11,488.50 1.69


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Fig 2.5

Interpretation

Creditors turnover ratiomeans prompt payment

may be a sign of delaye

0

0.5

1

1.5

2

2.5

2009-10 201

indicates the creditworthiness of the comto suppliers for the goods purchased on cr

payment.

-11 2011-12 2012-13 2013-14

Ceditors turnover ratio

38 | P a g e

pany. A high ratiodit and a low ratio

editors turnover ratio


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6. AVERAGE PAYMENT PERIOD

The average payment period shows the average number of days it takes your business to

make payment for purchases on credit. Average payment period means the average period taken by the company in making payments to its creditors. It is computed by

dividing the number of working days in a year by creditors turnover ratio.

Table 2.6

Year Sundry creditors Purchases Average payment period2009-10 6,097.12 11,157.86 196.71

2010-11 8,319.99 13,801.69 217.01

2011-12 7,937.38 12,971.02 220.29

2012-13 9,319.78 19,064.57 175.98

2013-14 11,488.50 19,482.63 212.28


40/72

Fig 2.6

Interpretation

A shorter payment pe

turnover ratio, average

company. But a very sh

taking full advantage of

0

50

100

150

200

250

2009-10

iod indicates prompt payments to credit

payment period also indicates the credi

rt payment period may be an indication that

the credit terms allowed by suppliers .

2010-11 2011-12 2012-13 2013-14

Average payment period

Av

40 | P a g e

rs. Like creditors

tworthiness of the

the company is not

erage payment period


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7. CURRENT AS

Current asset s turnover

It is calculated as net sal

Table 2.7

Year N

2009-10 44

2010-11 51

2011-12 61

2012-13 83

2013-14 94

Fig 2.7

Interpretation

It is an activity ratio t

company. The current a

0

0.20.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2009-10 2010-

ET TURNOVER RATIO

atio shows the relationship between net sale

es by current assets.

t sales Current assets Curre

,173.47 26,249.24 1.68

,814.22 39,539.13 1.31

,133.31 41,809.87 1.46

,690.85 77,846.85 1.07

,857.97 81,995.24 1.15

at measures the efficiency with which as

set turnover ratio has reduced during 2012-1

11 2011-12 2012-13 2013-14

urrent asset turnover ratio

Curre

41 | P a g e

and current assets.

t asset turnover ratio

sets are used by a

3.

nt asset turnover ratio

http://www.svtuition.org/2010/05/current-assets.htmlhttp://education.svtuition.org/2010/06/sale.htmlhttp://education.svtuition.org/2010/06/sale.htmlhttp://www.svtuition.org/2010/05/current-assets.html


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8. CURRENT AS

It indicates the number

current asset holding pe

Table 2.8

Year

2009-10

2010-11

2011-12

2012-13

2013-14

Fig 2.8

Interpretation

The holding period has i

get converted to cash

0

50

100

150

200

250

300

350

400

2009-10 2010

ET HOLDING PERIOD

f days the current assets take to get converte

iod denotes better utilisation of funds.

Current assets Net sales

6,249.24 44,173.47

9,539.13 51,814.22

1,809.87 61,133.31

77,846.85 83,690.85

1,995.24 94,857.97

ncreased during the last few years i.e. assets

11 2011-12 2012-13 2013-14

urrent asset holding period

Curre

42 | P a g e

d into cash. Shorter

Current asset

holding period

213.92

274.71

246.20

334.86

311.18

take more time to

t asset holding period


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9. WORKING CAPITAL TURNOVER RATIO

It is a measurement comparing the depletion of working capital to the generation of

sales over a given period. This provides some useful information as to how effectively a

company is using its working capital to generate sales.

Table 2.9

Year Net sales Working Capital Working capital

turnover ratio

2009-10 44,173.47 10,074.59 4.38

2010-11 51,814.22 18,067.09 2.86

2011-12 61,133.31 5,377.3 11.36

2012-13 83,690.85 17,957.95 4.66

2013-14 94,857.97 17,031.83 5.56


44/72

Fig 2.9

Interpretation

Generally, a high wo

inefficient utilization of

0

2

4

6

8

10

12

2009-10 2010-1

king capital turnover ratio is better. A l

working capital. It has been high only during

1 2011-12 2012-13 2013-14

orking capital turnover ratio

Workin

44 | P a g e

ow ratio indicates

2011-12,

capital turnover ratio


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Profitability ratios

1. Net profit ratio

The net profit percentage is the ratio of after-tax profits to net sales. It reveals the

remaining profit after all costs of production, administration, and financing have been

deducted from sales, and income taxes recognized. As such, it is one of the best

measures of the overall results of a firm, especially when combined with an evaluation

of how well it is using its working capital.

Table 3.1

Year Net profit Net sales Net profit ratio

2009-10 1,248.80 44,173.47 0.02

2010-11 1,692.52 51,814.22 1.17

2011-12 1,902.17 61,133.31 0.03

2012-13 3,004.24 83,690.85 0.03

2013-14 2,576.10 94,857.97 0.02


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Fig 3.1

Interpretation

It is used to measure the

steady for the company.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2009-10 2010

overall profitability of the business. It is gen

-11 2011-12 2012-13 2013-14

Net profit ratio

N

46 | P a g e

erally less and

t profit ratio


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Trend Analysis

It is a method of time series data analysis involving comparison of the same item over a

significantly long period to detect general pattern of a relationship between associated

factors or variables and project the firm’s future direction.

Table 4.1

1. Trend analysis of current assets

Year Current assets Trend

2009-10 26,249.24 100

2010-11 39,539.13 150.62

2011-12 41,809.87 159.28

2012-13 77,846.85 296.56

2013-14 81,995.24 312.37

Fig 4.1

Interpretation

The current assets of the company have been increasing over the year which is a goodsign.

0

50

100

150

200

250

300

350

2009-10 2010-11 2011-12 2012-13 2013-14

Current assets

Current assets


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2. Trend analysis of current liabilities

Table 4.2

Year Current Liabilities Trend2009-10 16,174.65 100

2010-11 21,472.04 132.75

2011-12 36,431.94 225.24

2012-13 59,888.90 370.26

2013-14 64,963.41 401.63

Fig 4.2

Interpretation

The current liabilities of the company have been rising over the years. The company has

to ensure that its current liabilities do not take over its current assets.

0

50

100

150

200

250

300

350

400

450

2009-10 2010-11 2011-12 2012-13 2013-14

Current liabilities

Current assets


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3. Trend analysis of inventories

Table 4.3

Year Inventory Trend2009-10 5,316.97 100

2010-11 5,741.79 107.98

2011-12 7,434.83 139.83

2012-13 10,517.91 197.81

2013-14 11,853.46 222.93

Fig 4.3

Interpretation

Inventories have been increasing over the years showing an upward trend, company hasto make sure that all of its capital doesn’t go into stocking up inventories.

0

50

100

150

200

250

2009-10 2010-11 2011-12 2012-13 2013-14

Inventories

Inventories


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4. Trend analysis of net sales

Table 4.4

Year Net sales Trend2009-10 44,173.47 100

2010-11 51,814.22 117.29

2011-12 61,133.31 138.39

2012-13 83,690.85 189.45

2013-14 94,857.97 214.73

Fig 4.4

Interpretation

The sales have been increasing steadily over the period which shows more sales meansmore revenue for the company.

0

50

100

150

200

250

2009-10 2010-11 2011-12 2012-13 2013-14

Net sales

Net sales


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5. Trend analysis of net profit

Table 4.5

Year Net profit Trend2009-10 1,248.80 100

2010-11 1,692.52 135.53

2011-12 1,902.17 152.31

2012-13 3,004.24 240.57

2013-14 2,576.10 206.28

Fig 4.5

Interpretation

The net profit was increasing steadily and it rose higher in 2012-2013 but then itshowed a decline in the next year 203-2014.

0

50

100

150

200

250

300

2009-10 2010-11 2011-12 2012-13 2013-14

Net profit

Net profit


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Working Capital Analysis

Working capital is that part of firm’s capital which is required for financing short –term

assets or current assets such as marketable securities, debtors, inventories, prepaid

expenses etc. Funds invested in current assets keep revolving and are being converted

into cash and these cash flows again in exchange for other current assets. Hence, it is

also known as revolving or circulating capital.

Table 5.1

Year Current assets Current Liabilities Working capital

2009-10 26,249.24 16,174.65 10,074.59

2010-11 39,539.13 21,472.04 18,067.09

2011-12 41,809.87 36,431.94 5,377.93

2012-13 77,846.85 59,888.90 17,957.95

2013-14 81,995.24 64,963.41 17,031.83


53/72

Fig 5.1

Interpretation

The working capital rewas comparatively low

current assets.

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

18,000.00

20,000.00

2009-10

ains steady except in the years 2009-10 ands there was an increase in current liabilities

2010-11 2011-12 2012-13 2013-14

Working capital

53 | P a g e

011-12 where itith respect to the

orking capital


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54 | P a g e

Relationship between profitability and Liquidity

The liquidity is essential for company existence. It principally has an effect on financialcosts reduction or growth, changes in the sales dynamic, as well as it influences oncompany risk level. The decisive significance of liquidity means that it is important for

company development and at the same time is one of the fundamental endogenousfactors which are responsible for company market position. The significance of liquidityto company performance might lead to the conclusion that it determines the profitabilitylevel of company.

Table 6.1

Year Net profit Working capital

2009-10 1,248.80 10,074.59

2010-11 1,692.52 18,067.09

2011-12 1,902.17 5,377.93

2012-13 3,004.24 17,957.95

2013-14 2,576.10 17,031.83

Fig 6.1

Interpretation

As the working capital is increases the net profit also rises this shows that the liquidityof the company affects its profitability. There has been a significant decline in theworking capital in the year 2011-2012 which also shows a dip in the profits.

0.002,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

18,000.0020,000.00

2009-10 2010-11 2011-12 2012-13 2013-14

Profitability

Liquidity


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55 | P a g e

Table 7.1

Cash Flow Statement for the year 2009-10

Particulars Amount (in lakhs)

CASH FLOW FROM OPERATING ACTIVITIES

Net profit 2,027.97

Depreciation and amortisation 1,305.17

Interest paid 756.05

Loss on sale of assets 1.53

Interest received (197.89)

Preliminary expenses written off 1.16

Operating Profit before Working Capital Changes 3,893.99

Changes in Working Capital

Decrease in Sundry Debtors 1,459.43

Increase in Other Receivables (1,531.51)

Decrease in Inventories 822.53

Decrease in Trade and Other Payables (875.60)

Cash Generated from Operations 3,768.84

Income Tax Paid 831.72

Net Cash from Operating Activities (A) 2,937.12

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (6,502.32)

Capital Work in Progress (3,311.12)

Proceeds from Sale of Fixed Assets 172.83

Interest received 197.89

Investments (278.72)

Net Cash from Investing Activities (B) (3,099.29)


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CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from Long Term Borrowings 86.92

Proceeds from Other Borrowings (379.14)

Interest paid (756.05)

Dividend Paid (155.35)

Dividend Tax Paid (26.40)

Net Cash from financing Activities (C) (1,230.03)

Net Increase/ (Decrease) in Cash & Cash Equivalents (A)+(B)+(C) (1,392.12)Cash and Cash Equivalents at Beginning of Period 5,592.72

Cash and Cash Equivalents at End of Period 4,200.60


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57 | P a g e

Table 7.2




Net profit 2,609.32


Interest paid 524.37

Profit on sale of assets (19.42)





Increase in Sundry Debtors (8,043.12)

Increase in Other Receivables (4,347.21)

Increase in Inventories (417.60) Increase in Trade and Other Payables 5,209.83

Cash Generated from Operations (3,137.21)

Income Tax Paid (802.09)

Net Cash from Operating Activities (A) (3,939.30)


Purchase of Fixed Assets 953.88






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Proceeds from Long Term Borrowings (285.18)

Proceeds from Other Borrowings 7,580.04




Net Cash from financing Activities (C) 6,497.85

Net Increase/ Decrease in Cash & Cash Equivalents (A)+(B)+(C) 466.30

Cash and Cash Equivalents at Beginning of Period 4,675.93



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Table 7.3




Net profit 2,904.50


Provision for impairment of fixed assets and intangibles 14.07




Finance costs 775.83




Increase in Short-term loans and advances (2,087.47)Increase in Inventories (1,693.04)

Decrease in Trade Payables (382.61)

Decrease in Long-term loans and advances 11.26

Increase in Other current assets (540.00)

Increase in Other current liabilities 1,046.22

Increase in Short-term provisions 113.18

Cash Generated from Operations (468.00)

Income Tax Paid (520.00)

Net Cash from Operating Activities (A) (988.00)


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Proceeds from Purchase of Fixed Assets (3,000.41)




Investments in bank 3,110.56

Net Cash from Investing Activities (B) (843.01)


Proceeds from Long Term Borrowings (320.83)

Proceeds from Other Borrowings (201.47)




Issue Proceeds of Share Application 2,800.00

Net Cash from financing Activities (C) 1,231.05 Net Increase/ Decrease in Cash & Cash Equivalents (A)+(B)+(C) (599.96)


Cash and Cash Equivalents at End of Period 519.10


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Table 7.4




Net profit 3,778.64


Profit on sale of fixed assets (0.51)




Finance costs 1,347.82




Increase in Short-term loans and advances (1,767.17)

Increase in Inventories (3,083.09)

Increase in Trade Payables 1,251.86

Increase in Long-term loans and advances (2,227.83)

Increase in Other current assets (867.43)

Increase in Other current liabilities 11,688.02

Increase in Short-term provisions 408.21


Income Tax Paid (1,049.28)



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Sale of Fixed Assets 4.70


Investment in Fixed Assets (6,410.31)


Investments in bank (12,708.65)

Changes in other non-current assets (112.52)



Proceeds from Long Term Borrowings 3,478.81


Interest paid (1,347.82)



Issue Proceeds of Share Application 15,000.00


Net Increase/ Decrease in Cash & Cash Equivalents (A)+(B)+(C) 923.57

Cash and Cash Equivalents at Beginning of Period 524.18



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Table 7.5




Net profit 3,623.79


Profit on sale of fixed assets (22.54)



Finance costs 1,799.57




Increase in Short-term loans and advances (1,200.47)

Increase in Inventories (1,335.55)

Increase in Trade Payables 2,168.72

Decrease in Long-term loans and advances 92.42

Decrease in Other current assets 1,649.88

Decrease in Other current liabilities (7,036.16)

Decrease in Short-term provisions (323.72)

(1,529.46)

Cash flow from extra ordinary items 1.15


Income Tax Paid (1,215.42)



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Sale of Fixed Assets 50.88


Investment in Fixed Assets (5,035.87)


Investments in bank 3,297.69

Changes in other non-current assets (10.22)

Investment (0.25)



Proceeds from Long Term Borrowings 3,258.58

Payment to Minority Interest 40.30


Interest paid (1,799.57)




Net Increase/ Decrease in Cash & Cash Equivalents (A)+(B)+(C) 3,078.41




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Table 7.6

Year Cash

operat

2009-10 2,937.2010-11 -3,93

2011-12 -988.

2012-13 -5,091

2013-14 -2,743

Fig 7.1

Interpretation

Only in 2009-10 the casshows that current liabilnegative during the past

purchases more will be tcomparatively better.

-30,000.00

-20,000.00

-10,000.00

0.00

10,000.00

20,000.00

30,000.00

2009-10

flow from

ing activities

Cash flow from

investing activities

12 -3,099.29.30 -2,092.25

0 -843.01

.66 -20,854.86

.73 -5,489.99

flow from operating activities shows a posities are more compared to the assets. The infive years but this is actually good for the cohe production. The cash flows from financin

2010-11 2011-12 2012-13 2013-14

Cashacti

Cashacti

Cashacti

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Cash flow from

financing activities

-1,230.036,497.85

1,231.05

26,870.09

11,312.13

tive graph. Thisestments are

mpany as moreg activities are

flow from operatingities

flow from investingities

flow from financingities


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Table 8.1

Schedule of changes in working capital for the year 2011

Particulars Financial year Effect on working capital

2009-10 2010-11 Increase Decrease

A) Current Assets

Cash and Bank balance 4,200.58 5,142.23 941.65

Sundry Debtors 11,777.01 19,820.11 8,043.10

Inventories 5,316.97 5,741.79 424.82

Other current assets 1,912.59 4,314.60 2,402.01

Loans and Advances 3,042.09 4,520.40 1,478.31 TOTAL 26,249.24 39,539.10

B) Current Liabilities

Current Liabilities 16,174.65 20,577.40 4,402.75

Provisions 739.60 894.64155.04

TOTAL 16,914.25 21,472.04 Net working capital 9,334.99 18,067.06

Increase in working capital 8,732.07 8,732.10

TOTAL 18,067.06 18,067.06 13,289.89 13,289.89


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Table 8.2




A) Current Assets

Cash and Bank balance 5,142.23 1,436.803,705.43

Sundry Debtors 19,820.11 24,424.70 4,604.59

Inventories 5,741.79 7,434.83 1,693.04

Other current assets 4,314.60 2,049.602,265.00

Loans and Advances 4,520.40 6,463.94 1,943.54

TOTAL 39,539.10 41809.87


Current Liabilities 13,523.96 13,200.32 323.64

Provisions 1,980.81 1,971.74 9.07

Short term borrowings 13,523.96 13,322.50 201.46

Sundry creditors 8,319.99 7,937.38 382.61

TOTAL 37,348.72 36,431.94

Net working capital 2,190.38 5,337.93


TOTAL 5,337.93 5,337.93 9,157.95 3,187.52


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Table 8.3




A) Current Assets

Cash and Bank balance 1,436.80 15,069.01 13,632.21

Sundry Debtors 24,424.70 41,478.95 17,054.25

Inventories 7,434.83 10,517.91 3,083.08

Other current assets 2,049.60 2,155.30 105.7


TOTAL 41809.87 77,846.85


Current Liabilities 13,200.32 24,749.9511,549.63

Provisions 1,971.74 2,305.61333.87

Short term borrowings 13,322.50 23,513.5610,191.06

Sundry creditors 7,937.38 9,319.781,382.4

TOTAL 36,431.94 59,888.90



TOTAL 17,957.95 17,957.95 7,7846.85 7,7846.85


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Table 8.4




A) Current Assets

Cash and Bank balance 15,069.01 14,849.73 219.28

Sundry Debtors 41,478.95 44,526.61 3,047.66

Inventories 10,517.91 11,853.46 1,335.55

Other current assets 2,155.30 505.42 1,649.88


TOTAL 77,846.85 81,995.24


Current Liabilities 24,749.95 18,253.53 6,496.42

Provisions 2,305.61 1,442.14 863.47

Short term borrowings 23,513.56 33,779.24 10,265.68

Sundry creditors 9,319.78 1,488.50 7,831.28

TOTAL 59,888.90 54,963.41



TOTAL 27,031.83 27,031.83 21,208.72 21,208.72


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Findings

1. Health care industry is one of the largest and fastest growing industries. Consuming

over 10% of GDP of most developed nations, healthcare can form an enormous part

of country’s economy.

2. In HLL Lifecare Ltd. Sundry debtors constituted major part of current assets and

sundry creditors form a major part of current liabilities.

3. There is huge investment in working capital at HLL Lifecare Ltd. As it have large

production cycles.

4. Aggressive policy of more profitability, more risk is followed which is an ideal

situation as far as the strategy for working capital financing is concerned.5. The current and quick ratio has decreased in the last year compared to the previous

years.

6. The absolute quick ratio is not that ideal so the company has to keep more liquid

cash for emergencies.

7. The company has to be more effective regarding its inventory management.

8. The company is liberal regarding its credit policy with debtors.

9. The creditors turnover ratio is satisfactory.

10. The current assets take an average of 300 days to get converted into cash.

11. The net profit margin is not very high.

12. Overall cash management of the company seems to be good as the company has

centralized collection procedures and surplus funds are invested in fixed deposits.


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Conclusion

Working capital management is a vital aspect of financial management as it deals with

short term investment. After analyzing various aspects of working capital management,

it can be concluded that overall working capital management of the company is quitegood over the period of last five years, on the basis of which we can say that working

capital is managed efficiently in HLL Lifecare Ltd.

The tools used for analyzing are ratio analysis, schedule of changes in working capital,

cash flows and trend analysis which help us in finding how effectively the working

capital have been used.

Suggestions

1. The overall financial management of the company is satisfactory except in the area

of liquidity. The management needs to maintain more liquid assets.

2. The volume of sales is high but comparatively profit is not so they can take some

steps to improve their revenues.

3. The company can reduce its average collection period so losses due to bad debts can

be reduced.

4. Instead of depositing all cash into fixed deposits it is better to invest in marketable

securities.


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Bibliography

Books

1. Pandey, I.M., Financial Management , New Delhi,Vikas Publishing House

Pvt Ltd.,2009

2. Krishnaswami, O.R. and Ranganatham, M., Methodology of Research in social sciences , Mumbai, Himalaya Publishing House,2014

Magazines1. Samanwaya , in-house magazine published by HLL Lifecare Ltd

Articles/ Journals

1. Impact of working capital management on profitability, European ScientificJournal January 2014 edition vol.10, No 1 ISSN: 1857 – 7881

2. The Relationship between Working Capital Management and Firm Performance, International Journal of Humanities and Social Science Vol. 2 No. 2 [Special Issue – January 2012]

Reports

1. Annual reports HLL Lifecare Ltd. 2010-112. Annual reports HLL Lifecare Ltd. 2011-123. Annual reports HLL Lifecare Ltd. 2012-134. Annual reports HLL Lifecare Ltd. 2013-14

Websites

1. www.lifecarehll.com2. www.investopedia.com/terms/w/workingcapitalmanagement.asp3. https://en.wikipedia.org/wiki/Working_capital 4. http://www.allprojectreports.com5. www.scrib.com
http://www.scrib.com/http://www.allprojectreports.com/http://www.investopedia.com/http://www.lifecarehll.com/

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Analysis of Working Capital Management at HLL Lifecare Ltd.

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