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Dr. V. CHINNIAH, M.Com., M.B.A., M.Phil., B.L., Ph.D.,
1
Professor,
Department of Management Studies,
Madurai Kamaraj University,
Madurai 6
CERTIFICATE
This is to certify that the dissertation entitled “A
STUDY ON THE WORKING CAPITAL MANAGEMENT AT
MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE”
submitted by Mr. N. DINAKARAN, I year MBA is a record of
research work carried out by her for the degree of Master of
Philosophy, under my guidance. The subject of the dissertation is her
original work and it has not previously formed the basis for the award
of any degree, diploma, associateship, and any other similar titles of
any university or institution. The dissertation represents entirely an
independent work on the part of the candidate.
Place: Madurai-21 (DrV.CHINNIAH)
Date:
2
N. DINAKARAN,
Department of Management Studies,
Madurai Kamaraj University,
Madurai – 625 021.
DECLARATION
I hereby declare that the dissertation is entitled “A
STUDY ON THE WORKING CAPITAL MANAGEMENT AT
MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE”
for the degree of Master of Philosophy, is my original work and done
under the supervision of Dr. V. CHINNIAH, M.Com., M.B.A.,
M.Phil., B.L., Ph.D., Professor, Department of Management Studies,
Madurai Kamaraj University, Madurai and that it has not previously
formed the basis for the award of any degree, diploma, fellowship or
other similar titles of any university or institution.
Station : Madurai-21 (N.DINAKARAN)
Date:
ACKNOWLEDGEMENT
3
First I would like to thank God and my beloved parents and
the members of my family, for their blessings and prayers in making
this dissertation a success.
I owe a deep of sense of gratitude to my esteemed guide
Dr. V. Chinniah, M.Com., M.B.A., M.Phil., B.L., Ph.D., Professor,
Department of Management Studies, Madurai Kamaraj University,
Madurai. His help in correcting the drafts and clarifying the doubts
are greatly appreciated with deep sense of gratitude.
I wish to express my sincere thanks to Dr.C. Chandran,
M.B.A., Ph.D., Professor and Head of the Department of
Management Studies, Madurai Kamaraj University for his
encouragement and support and also for permitting me to do research
work in the Department of Management Studies.
I am very thankful to Dr. N. Sethuraman – Founder
Chairman, Dr. V. N. Rajasekaran – Medical Director and Dr. N.
Krishnamoorthy – Academic Director of MMHRC for permitting
me to undergo summer project in their organization.
4
I am also thankful to all the staffs of the Finance
department of MMHRC for helping me to complete summer project
in their organization.
I wish to express my thanks to my classmates & my friends
who have co-operated with me to complete this project.
CONTENTS
5
Page No
Acknowledgement i
List of Tables ii
Chapter
1. Introduction and Design of the Study
1.1 Introduction
1.2 Scope of the Study
1.3 Objectives of the Study
1.4 Methodology
1.5 Collection of Data
1.6 Limitation of the Study
1.7 Chapter Scheme
1 -25
II. An Overview of Laptops
2.1Introduction
2.2 History of the Organisation
2.3 Objective of MMHRC
2.4 S.R.Trust
2.5 Quality and Policy
2.6Location and Layout
26 – 43
6
2.7 Organisation Principles
2.8 Future Plans
2.9 Departments In MMHRC
2.10 Recognition Awards and Acceleration
2.11 Social Activities
2.12 Summary
III. The Analysis and Interpretation
3.1 Introduction
3.2 Gross Working Capital to Total Assets Ratio
3.3 Net Working Capital to Current liability Ratio
3.4 Gross Working Capital to Sales
3.5 Working Capital Turnover Ratio
3.6 Gross Profit Ratio
3.7 Net Profit Ratio
3.8 Current Ratio
3.9 Quick Ratio
3.10 Absolute Liquid Ratio
3.11 Debtors Turnover Ratio
3.12 Average Collection Period
3.13 Creditors Turnover Ratio
3.14 Cash as Percentage of Current Assets
3.15 Statement Of Changes In Working Capital
43 – 100
7
3.16 Trend Analysis
3.17 Summary
IV. Summary of Findings, Suggestions and Conclusion
4.1 Introduction
4.2 Summary of Findings
4.3 Suggestions
4.4 Conclusion
100 – 112
Bibliography
8
LIST OF TABLES
Table Content Page No.
3.1 Gross Working Capital to Total Assets Ratio 48
3.2 Net Working Capital to Current liability Ratio 51
3.3 Gross Working Capital to Sales 54
3.4 Working Capital Turnover Ratio 57
3.5 Gross Profit Ratio 62
3.6 Net Profit Ratio 64
3.7 Current Ratio 67
3.8 Quick Ratio 70
3.9 Absolute Liquid Ratio 74
3.10 Debtors Turnover Ratio 77
3.11 Average Collection Period 80
3.12 Creditors Turnover Ratio 84
9
3.13 Cash as Percentage of Current Assets 87
l3.14 Statement Of Changes In Working Capital 87
3.15 Trend Analysis 95
10
List of Graphs
Grap
h
Content Page No.
3.1 Gross Working Capital to Total Assets Ratio 49
3.2 Net Working Capital to Current liability Ratio 52
3.3 Gross Working Capital to Sales 55
3.4 Working Capital Turnover Ratio 58
3.5 Gross Profit Ratio 63
3.6 Net Profit Ratio 65
3.7 Current Ratio 68
3.8 Quick Ratio 71
3.9 Absolute Liquid Ratio 75
3.10 Debtors Turnover Ratio 78
3.11 Average Collection Period 81
3.12 Creditors Turnover Ratio 85
11
3.13 Cash as Percentage of Current Assets 88
3.14 Statement Of Changes In Working Capital 89
3.15 Trend Analysis 96
12
CHAPTER-I
INTRODUCTION & DESIGN
OF THE STUDY
13
CHAPTER – I
INTRODUCTION AND DESIGN OF THE STUDY
1.1 INTRODUCTION TO THE STUDY
In the present scenario business expands in a rapid pace with
the changing needs. Business plays a vital role in the capital
formation of the country and considered as lifeblood for growing
economy. So it is very important to manage business effectively and
efficiently.
There are two vital aspects of corporate business i.e. liquidity
and profitability. These two aspects are important to judge the
solvency position of a company. Hence to be watched carefully and
dealt with, the sustained decrease in value of money and also due to
scarcity, high investment factors should be decided carefully.
The company has to maintain an optimal level of liquidity to run
the business on a continuous basis without any interruptions. Working
capital acts as the backbone to meet the day-to-day requirements of the
14
company. The concept of working capital is used in two major ways is
considered to be lifeblood of business i.e., Gross working capital and
the Net working capital. The consideration of the level of investment
should be neither excessive nor inadequate in current assets. Hence,
prompt and timely action should be taken by the management to
improve and correct the imbalances in the liquidity position of the
firm. Likewise, Inventories constitute the most significant part of
current assets. Therefore, a company should maintain adequate stock
of material for a continuous supply to its factory, which can be done by
maintaining an optimal level and prudent control over it.
Cash management is concerned with managing of cash in flows
into and out of the firm. Cash planning and control over the use of
cash, protects the financial condition of the firm. When the firm
grants trade credit and creates accounts receivable, which would be
collected in the future. Thus, it represents an extension of credit to
customers and sale of goods on credit is an essential part of the
modern competitive economic system. Hence the management should
weigh the benefits as well as cost to determine the goal of receivables
management.
15
The present study is being conducted in MEENAKSHI
MISSON HOSPITAL of the working capital management for five
years from 2006-2007to 2010- 2011.
The working capital is an important element, which has to be
managed efficiently for smooth functioning of the organization.
Concept of working capital
There are two concepts of working capital, gross and net
working capital.
Gross working capital refers to the total of all current assets
of the business.
Net working capital refers to the different between the current
assets and current liabilities it can be positive or negative.
A positive networking capital will arise when current assets
exceeds current liabilities.
16
A negative net working capital occurs when current liabilities
are in excess of current assets.
NEED FOR WORKING CAPITAL
The need for working capital is, to run the day-to-day business
activities and cannot be over emphasized. We will hardly find a
business firm, which does not require any amount of working capital
in deed. Firm differs in their requirements of the working capital.
A firm should aim of maximizing the wealth to its
shareholders. Earning a steady amount of profit requires successful
sales activity. The firm has to invest enough funds in current assets
for enumerating sales. Current assets are needed because sales do not
connect into cash instantaneously. There is always an operating cycle
involved in the conversion of sales into cash.
OPERATING CYCLE:
Operating cycle is the time duration required to convert sales,
after the conversion of resources into inventories, into cash. The
operating cycle of a manufacturing company involves three phases.
17
Acquisition of resource such as raw material, labour,
power, and fuel etc.
Manufacturing of the product, which includes conversion
of raw material into work-in-progress into finished
goods.
Sales of the product either for cash or on credit. Credit
sales create account receivable for collection.
Cash
Debtors Raw materials
18
Sales Work in
Process
Cash
ESTIMATION WORKING CAPITAL NEEDS
The most Appropriate method of calculating the working
capital needs of a firm is the concept of operating cycle. There are
also three other approaches to calculate working capital needs.
Current Assets Holding Period
To estimate to working capital requirement on the basis on
average holding period of current assets and relating them to costs
based on company’s experience in the previous years. This method is
essentially based on the operating cycle concepts.
Ratio of Sales
To estimate the working capital requirement as a ratio of sales
on the assumption that current assets change with sales.
19
Ratio of Fixed Investment
To estimate the working capital requirements as a percentage
of fixed investment.
INTRODUCTION TO THE VARIABLE
In the business, the word working capital means excess of
current assets over liabilities. In other words, it is the circulation of
capital in one form or another during the day-to-day operations of the
business.
The working capital is defin`ed as stock of material, stores, fuel,
semi-finished goods including work in progress and finished and by
products, cash in hand and bank and algebraic sum of sundry
creditors.
Definition
Working capital is the amount invested in the working or
current assets within the business. It is called circulating capital or
revolving capital.
20
Working capital stands for that part of the capital, which is
required for the financial or working or current needs of the company.
In the words of Prof. Kuchhal “The working capital as one of
the conditioning factors in the long run operations of a firm that is
often inclined to treat an issue of short run analysis and decision
making.
In the words of Gestemberg “Circulating capital means current
assets that are changed in the ordinary course of business from one
from to another.
21
1.2 SCOPE OF THE STUDY
Working capital is that part of capital, which makes a business,
run on a continuous basis without any interruption. The working of
MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE
shows that a positive Net working capital during the period of study.
The barometer MEENAKSHI MISSION HOSPITAL &
RESEARCH CENTRE to measure the effectiveness of managing
the working capital of is MEENAKSHI MISSION HOSPITAL &
RESEARCH CENTRE the evaluation of the past performance and
analyzing the financial statements using accounting and statistical
tools. The study touched all important constituents of working capital
such as cash, receivables, and inventory, thus the study
would give a brief description of the performance of MEENAKSHI
MISSION HOSPITAL & RESEARCH CENTRE and suggesting
to improve its performance.
22
1.3. OBJECTIVES OF THE STUDY
The objective of the present study is given below.
Primary Objective
To study the working capital management of MEENAKSHI
MISSION HOSPITAL & RESEARCH CENTRE.
Secondary Objectives
1. To attain the above primary objective, the following secondary
objectives were framed.
2. To examine the liquidity position of the company.
3. To examine the profitability position of the company.
4. To evaluate the performance of inventory, receivables and
cash management of the company.
5. To analyze the changes in working capital and trend of
working capital.
6. To forecast sales and gross working capital for the years
2012,2013,2014,2015 and 2016.
23
7. To suggest suitable steps for better utilization of working
capital.
1.4. METHODOLOGY OF THE STUDY
Research Design
As the study is aimed at estimating the working capital
management precisely the research design adopted here is based on
the analytical method.
Analytical Research Design:
Analytical research design is the design where the researcher
has used the facts or information already available and analysed these
to make a critical evaluation.
Period of the study
The period of the study started from the financial year 2006-
2007 to 2010-2011. For this purpose the sample data is taken from
five years audited report.
Sources of data
24
The analysis of the working capital necessitates accurate and
reliable data. Therefore the sources for collecting the data include
both primary and secondary data.
Primary data
The information collected is mainly based on the personal
discussion with the financial executives.
Secondary data
Secondary data is mainly collected from annual reports and
other official records of the company.
TOOLS USED:
The data collected from various sources were analysed by ratio
analysis, and statement showing changes in working capital.
ACCOUNTING TOOL:
Ratio analysis
The ratio analysis is a accounting tool used to analyse the
liquidity position and relationship between two numeric terms.
25
STATEMENT SHOWING CHANGES:
Statement of changes in working capital is prepared to show
the changes in the working capital between two balance sheet dates.
REGRESSION ANALYSIS:
Regression analysis has been used to project sales and gross
working capital for the years 2007-2008 to 20012-2013.
26
1.5. LIMITATIONS OF THE STUDY
The following were the limitations of the present study
MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE.
1. The present study has mainly focused attention on Working
Capital Management of. If sufficient time and other resources
were available, the study could have been more elaborate. In
that case interviews and other discussions could have been
made in a much elaborate manner.
2. The study is limited for the period of five years (2006-2007 to
2009-2010) mainly based on secondary data such as published
annual reports of the company. If it shows any deviations from
the actual, the results of the study will be affected.
3. Final reports of the year 2010-2011 are not yet published so,
that years analysis is not done.
27
1.6. SCHEME OF THE REPORT
The first chapter deals with the introduction to the study,
objectives of the study, methodology of the study, scope of the
study and limitations of the study undertaken.
The Second chapter deals with the Back Ground of the study.
The Third chapter deals with the analysis and interpretations to
analyse the short-term financial position of the firm with the help of
the various tools like,
Accounting tool
Ratio analysis
Statement of changes in working capital
The fourth chapter deals with the findings made based on the
analysis and the interpretations made and suggestions were given
based on the study.
Finally a brief conclusion is given.
28
CHAPTER-II
BACKGROUND OF THE STUDY
AREA
29
CHAPTER-II
INTRODUCTION
SR trust is a non-profit organization registered under Indian
trust act on May 9, 1985. MMHRC, 15 years back it was “Madurai
Surgical Clinic” - a 20 bedded hospital horsed in a rented building at
Munichalai road, Madurai, with 2 departments’ urology and general
surgery.
Now it is a 650 bedded multi - special hospital health care
centre that located 7 km away from the city of Madurai.
MMHRC was launched into the health sphere of Madurai and
Tamilnadu in the year 1990. The hospital started with financial aid
from various funding agencies and banks as SBI, ICICI, IDBI and
other world bodies and voluntary organization. This hospital offers
medical facilities to all people without any caste, creed or religion.
30
In the multi-special territory care and research centre more than
40% of the outpatient and 20% of the inpatients are given treatment
free of charge and more than 75 general ward patients are given free
nutritious food three times a day.
Mr. Lal Beer, American Christian missionary taught Dr. N.
Sethuraman, founder president, SR trust sense of ethics, ideas, and
values to develop into a moral person in life.
Thiru.Manickkavasagam a missionary, his teacher and mentor
inspired and motivated him to become an eminent doctor and to
establish SR trust into a full fledged service organization.
AFFILIATED ORGANIZATION
MADURAI KAMARAJ UNIVERSITY
INDIAN MEDICAL ASSOCIATION
MEDICAL CARE OF INDIA
NATIONAL BOARD OF EXAMINATION
OBJECTIVES OF MMHRC
MISSION
“World class care within everybody’s reaches”
VISION
31
“NO MAN IS POOR TO AFFORD FIRST GRADE
MEDICAL TREATMENT”
VALUES
Care
Compassion
Commitment
Charity
Empathy
Quality service
QUALITY POLICY
MMHRC, in pursuit of excellences, is committed to comply
with applicable requirements for developing and providing world
class health care at an affordable cost.
The MMHRC foster an environment in which every person is
motivated to continually improve the efficiency and effectiveness in
the management of health care services.
In fulfilling the objectives of the hospital, 46 medical
departments were established under one roof to cater to the patients
for all the diseases. It has full line of state of the equipment for
precise diagnosis and renowned specialist medical and paramedical
32
personnel who have an envious track record to provide best of health
service.
ISO 9001
The aspiration for internal reorganization for its quality
MMHRC tried for ISO 9001 certificate and has reached the goal. It is
now ISO 9001:2000 certified hospital. It got the recognition in
November 2001. It has also successfully passed the review meeting.
BC Roy award to Dr. N. S. Sethuraman founder chairman in
1988 by the president of India for socio medical services.
S.R TRUST
It is a public charitable non profit organization formed by Dr.
N.Sethuraman (Socio medical activist)
BOARD OF TRUSTEES
Dr.N.Sethuraman founder president
Dr.Mrs.Rajam sethuraman executive director
Dr.S.Gurushankar vice chairman
Dr.S.Ramesh vice president
Mrs.Archanakarthick trustee (ICTCI Nominee)
And other family members
Mr.A.K.Amarnath (charted accountant)-Trust Auditor
33
LOCATION AND LAYOUT:
MMHRC has a main and annex building with 6 floors each.
Each of the floors has a distribution of various departments or wards.
Main Building
Level 1
Obstetric and gynecology pediatric op, NICU training and
development, Meenakshi limp fitting centre human capital
development physiotherapy and rehabilitation, CSSD, telephone
exchange pharmacy store, ICTC, PPTCT, family counseling centre.
Level 2
Out patient department 1 and 2 quality service
department, Orthopedics, MHC, admission office, insurance
department, corporate department, billing, MRD, reception and
imaging science, pharmacy 1 and 11,24hours.
Level 3
IRCU Post Operation ward 1 and 2, medical ward, nephrology
ward, dialyses, dietary department.
Level 4
Urology ward, Main operation theatre, Gastroenterology
Level 5
Neurosurgery ward, Smile train OT, Canteen and special rooms
34
Level 6
Administrative wing, Internal auditing, doctors’ quarters,
resource and development, Tele medicines, Video conference hall,
Conference hall and management class rooms.
2nd level ramp
Anthology
3rd level ramp
Nursing superintendent room
4th level ramp
Cardio Catheterization Laboratory
5th level ramp
Guest room
ANNEX BUILDING
Level 1
Material department, Eye OP, Oncology OP, Family
counseling, Optical shop.
Level 2
Nuclear medicine department OT
Level 3
Radiation therapy ward, Special room
Level 4
35
Blood bank, Histopathology, Microbiology, Mother Therasa
special ward
Level 5
Radiation therapy ward, Special room
Level 6
Cardiology and Orthopedics ward
RAMP POSITION
Level 1 Ramp
House keeping department
Level 2 Ramp
Assisted reproduction technology laboratory
Level 3 Ramp
Eye ward
Level 4 Ramp
Cardiology ICO
Level 5 Ramp
Library, Smile train, Photography room, Class rooms
PRINCIPLES
The principles followed by MMHRC staff members are the
listed below.
36
Start and continue the day with smiling approach.
Respect others.
Enthusiastic behavior
Utilizing talents for the improvement of our organization.
COMMITTEES
Following are the committees that are formed in the hospital.
Patient delight committee
Management effectiveness committee
Cost control committee
Innovation committee
Total quality service committee
FUTURE PLAN
To increase the bed strength level up to 1000.
To increase the customer satisfaction level from 90%-98%
To decrease customer complaints from 1%-0.05%
To install stem cell preservation.
To start
Hospice home
Cosmetic surgery unit
Eye bank
Burns war
37
Artificial kidney transplant services
Chain of laboratory and pharmacy centers in and around
Madurai.
To install
PET scan
64 slice CT scan
Stem cell preservation
Treatment planning system for Oncology patients.
Linear accelerator for Oncology patients.
QUALITY
MMHRC joined the corporate drive for TQM, six years age,
although staffs have been practicing quality implicitly right from the
beginning. The fundamentals of TQM reengineering competitive
edge, customer behavior tangibles the intangibles. Promotional
strategies, HR and many more of such constituent of the present day
strategic management are familiar to MMHRC staffs.
DEPARTMENTS OF MMHRC
There are three major departments in the hospital based on the
activities/services rendered.
1. Medical department
2. Emergency department
38
3. Administrative department
MEDICAL DEPARTMENT
There medical departments established in MMHRC and they
are following
a. Anesthesiology
b. Andrology
c. Audio logy and speech therapy
d. Cardiology
e. Cardiothoracic surgery
f. Dental and oral surgery
g. Dermatology and venerealogy
h. ENT surgery
i. Medical and surgical gastroenterology
j. General medicine
k. Hematology and blood bank
l. Imaging science
m. Oncology (Medical, Surgical, Radiation and Psycho-
Oncology)
n. Neurology
o. Nephrology (Kidney transplant and dialysis)
p. Neuro sciences
39
q. Ophthalmology
r. Orthopedics
s. Obstetrics and Gynecology
t. Physical medicine and Rehabilitation
u. Pathology
v. Psychiatry
w. Pediatrics
x. Radiation therapy
y. Surgery
z. Urology
EMERGENCY SERVICES
Accident and trauma care unit
Intensive medical care unit
Intensive coronary unit
Intensive neonatal care unit
Intensive therapeutic care unit
Neuro intensive care unit
Blood bank
ADMINISTRATIVE DEPARTMENTS
a. Bio medical engineering
b. Communication
40
c. Human capital development
d. Finance
e. Information system
f. Laboratory
g. Library
h. Marketing
i. Materials
j. Pharmacy
k. Physiotherapy
l. Reception
m. Catering and diabetics
n. Counseling
o. House keeping
p. ISO and Academic office
q. Internal Auditing
r. Laundry
s. Maruthuvamalar Magazine
t. Medical records
u. Nursing
v. Photography
w. Quality service
41
x. Resource and development
y. Security
z. Technical services
aa. Training and development
bb.Technical civil engineering
cc. Technical vehicle
dd.Technical and innovation
SPECIALITY CLINIC AND SUPER SPECIALITY SERVICES
a. Allergy and Asthma clinic
b. Diabetic clinic
c. Pain clinic
d. Impotence and infertility clinic
e. STD/HIV/AIOS clinic
f. Therapeutic endoscopy
PREVENTIVE MEASURES AT MMHRC
a. Master health check up
b. Executive master health check up
c. Senior citizens health check up
d. Health check up for children
e. Pre marriage check up
f. Comprehensive health check up
42
g. Comprehensive diabetic check up
h. Cancer screening check up
i. Routine health check up
j. Pre employment check up
RECOGNITION/AWARDS/ACCREDITATION
a. Golden peacock National quality award in 1999.
b. B.C. Roy Award to Dr. N. Sethuraman, founder
chairman in 1998 by the president of India.
c. Certified as ISO9001:2001 by TUV West Germany.
d. International quality circle Award for excellence Demo
presentations.
e. Vocational excellence Award by Rotary International.
f. Two of the MMHRC publications Meenakshi
Maruthuvamalar and MMJ are recognized and approved
by UNESCO-ISSN.
g. Kidney transplantation approved by director of Medical
and rural health services, government of Tamilnadu.
h. To admit and treat Medico legal cases i.e.
Accident/Suicide/Poison.
i. Approved hospital for treating state/central government
employees and their dependant family members.
43
j. Authorized “Regional blood bank”
SOCIAL ACTIVITIES
a. Family planning
b. Blindness control
c. HIV/AIDS control
d. Polio eradication
FEEDBACK SOLUTIONS
Feedbacks are important tool to measure our service rendered.
It provides us with recognition, support guidance for positive and
negative perception. The ward secretaries administer a prescribed
format when the patient is discharged after their stay at MMHRC.
Quality service department analyzes and interprets customer
complaints and speedy remedial actions are the quality parameters set
for these departments.
THANK YOU BOARD
The abbreviation given by the patients are posted in a wall
named “Thank you wall” which motivates our Meenakshi Mission
and feel extremely happy when their good work were expressed with
a token of thanks and photographs.
44
KAIZEN DAY
Kaizen is a Japanese concept meaning “Continuous
improvement”. Quality service department takes all initiatives to
organize the “Kaizen day” once in every 4 months.
The main reason for the Kaizen day is to celebrate the quality
failures through well enacted role plays which are a powerful tool to
prevent such happenings in the future various awards are given like
extra mile, best employee and SPARK master award.
ACADEMIC STATUS
As an educational institution MMHRC is affiliated with the
following institutions.
National Board of Examinations to conduct DMB courses in
Urology, Surgical Gastroenterology, Nephrology, General medicine,
Family medicine, General surgery, Anesthesiology, Radiology,
Obstetrics and Gynecology, Orthopedics surgery.
Medical council of India to train medical graduates for
compulsory Rotary Internship and senior house surgeons.
Indian medical association to conduct diploma in medical
laboratory technology (DMLT).
Madurai Kamaraj University to conduct job oriented regular
courses for
45
PGDTQM- P. G. Dip in Total Quality Management in
hospitals
PGDMRM- P. G. Dip in Medical Records Management
P. G. Dip in Micro Credit Management
P. G. Dip in Fund Raising Management
Mother Terasa Women’s University to conduct regular classes
B.SC Laboratory Technology
B.SC Applied Microbiology
B.SC Applied Bio Chemistry
B.B.M Hospital Administration
PUBLICATIONS
MMHRC publishes the following monthly and occasional
magazines.
Muthuvamalar- widely circulated allopathic magazine
published by MMHRC.
MMJ Medical Journal published by Meenakshi IMA Branch
for the allopathic doctors.
MMHRC News letter carries information to public about the
services, achievements and activities of the hospital.
46
Red Ribbon news letter a publication of the STD/HIV/AIDS
Information Technology Centre for Red Ribbon Club members.
COMSORT News letter Bulletin (Consortium of Service
Organization of Tamilnadu) supported by MMHRC.
Hemophilia News letter- News letter of the hemophilia club.
“Kasakkum Inippu”- Diabetic society MMHRC.
47
CHAPTER-III
ANALYSIS & INTERPRETATION
CHAPTER - III
ANALYSIS AND INTERPRETATION
48
Intoduction:
RATIO ANALYSIS
Ratio analysis is a powerful tool of financial analysis. A ratio is
defined as the “Relationship between two or more variables”. In
financial analysis a ratio is used as a benchmark for evaluating the
financial position and performance of the firm. The absolute
accounting figures reported in the financial statement do not provide a
meaningful understanding of the performance and financial position
of the firm. The relationship between two accounting figures
expressed mathematically is known as a financial ratio. The ratio
reveals the firm’s ability to meet its current obligations. It measures
the firm’s liquidity. The greater the ratios increase the firm’s liquidity
position and vice-versa. The ratio indicates the quantitative
relationship, which can be, in turn, used to make a qualitative
judgement.
The ratio helps in analysing the financial information to
indicate the operating financial efficiency and growth of the firm. The
major importance of ratio analysis is
49
1) The ability of the firm to meet current obligation
2) The extent to which the firm has used its long-term solvency by
borrowing funds.
3) The efficiency with which the firm utilising its assets in
generating sales revenue.
4) The overall operating efficiency and performance of the firm.
Financial statements are very useful in giving various
indicators; if it helps the techniques properly known as ratio analysis
is restored to. The American Institute of Certified Public Accounts
states the nature of financial statements as “Financial Statements are
prepared for the purpose of presenting a periodical review or reports
on progress by the management and deal with the status of investment
in the business and the results achieved during the period under
review they reflect a combination of recorded acts accounting
principles and personal judgment”
GROSS WORKING CAPITAL TO TOTAL ASSETS RATIO
50
The working capital to total assets ratio reveals the relationship
between the working capital and the total assets. Higher the ratio
better will be the position of the company to utilize funds for
productive purpose.
Gross Working Capital
Working capital to total assets = ------------------------------
Total Assets
TABLE NO. 1
GROSS WORKING CAPITAL TO TOTAL ASSETS RATIO
51
(Rs. In millions)
Year
Gross Working
Capital Total Assets Ratios
2005-2006 158.29 641.56 0.23
2006-2007 172.43 760.53 0.22
2007-2008 192.48 834.91 0.24
2008-2009 209.32 937.15 0.19
2009-2010 218.41 1199.3 0.22
Interpretation
The working capital to total assets ratio of the company shows
a fluctuating trend. The ratio is high during the period 2007-2008
with0.24 due to increase in current assets. The ratio is low during the
period 2008-2009 with 0.19 due to increase in the total assets of the
company. The average ratio is 0.22 This implies that the company
utilizes the funds in a better way.
52
EXHIBIT NO. 1
2005-2006 2006-2007 2007-2008 2008-2009 2009-20100
0.05
0.1
0.15
0.2
0.25
0.3
Series1
53
NETWORKING CAPITAL TO CURRENT LIABILITIES
RATIO
The net working capital to current liabilities reveals the
relationship between the net working capital and the current
liabilities. Lower the ratio better will be the position of the company.
Net Working Capital to current liabilities =
Networking capitalCurrent Liabilities
Net working capital= Current Assets –Current Liabilities
54
TABLE NO. 2
NETWORKING CAPITAL TO CURRENT LIABILITIES
RATIO
(Rs. In millions)
YearNet Working
Capital
Current
LiabilitiesRatios
2005-2006 111.73 46.56 2.3
2006-2007 121.16 51.22 2.3
2007-2008 133.44 58.96 2.2
2008-2009 143.64 65.68 2.1
2009-2010 148.99 78.42 1.8
Interpretation
The ratio of net working capital to current liabilities is high
during the period2005-2007which stood at 2.3 due to decrease in
55
current liabilities. The ratio is low during the period 2006-2007 with
1.8 due to increase in current liabilities. The average ratio is 2.14. The
decreasing trend in the ratio shows a favorable position to the
company.
EXHIBIT NO.2
GRAPH
2005-2006 2006-2007 2007-2008 2008-2009 2009-20100
0.5
1
1.5
2
2.5
Series1
56
GROSS WORKING CAPITAL TO SALES
Gross working capital to sales indicates the amount of working
capital employed per rupee of sales. It also indicates the efficiently
with which current asset turn into sales. A lower ratio implies more
efficient use of funds.
Gross Working Capital
Gross working capital to sales = ---------------------------------
Sales
57
TABLE NO. 3
GROSS WORKING CAPITAL TO SALES
(Rs. In millions)
YearGross Working
CapitalSales Ratio
2005-2006 158.29 678.34 0.23
2006-2007 172.43 737.48 0.23
2007-2008 192.48 798.73 0.24
2008-2009 203.32 854.82 0.24
2009-2010 218.41 880.91 0.25
58
Interpretation
From the table it is interpreted that gross working capital to
sales shows standard trend. The ratio was high during the period
2009-2010 with 0.25 due to increase in gross working capital after
that the ratio shows a decreasing trend and it is minimum during the
period 2007-2008 due to increase in sales. This indicates a better
performance of the company.
EXHIBIT NO.3
59
2005-2006 2006-2007 2007-2008 2008-2009 2009-20100.224
0.226
0.228
0.23
0.232
0.234
0.236
0.238
0.24
0.242
Series1
WORKING CAPITAL TURN OVER RATIO
The working capital turn over ratio indicates the velocity of the
utilization of net working capital. This ratio measures the efficiency
with which the working capital has been utilized by the firm. Higher
the ratio better will the position of the company.
Working capital turn over ratio =
Total SalesNetworking Capital
Net Working Capital= Current Assets =Current Liabilities
60
TABLE NO.4
WORKING CAPITAL TURN OVER RATIO
(Rs. In millions)
YearTotal Sales
Net Working
CapitalRatios
2005-2006 678.34 111.73 6.2
2006-2007 737.48 121.16 6.1
2007-2008 798.73 133.44 5.9
2008-2009 854.82 143.64 6.0
2009-2010 880.91 142.99 6.3
Interpretation
The working capital turnover ratio shows a fluctuating trend.
The ratio is high during the period 2009-2010, which was 4.29 due to
61
increase in sales. The ratio is low during the period 2007-2008, which
was 5.9 due to decrease in its sales. The average ratio is 6.1. This
indicates that the company has efficient control over the working
capital in recent years.
EXHIBIT NO.4
Years 2010-2011 2011-2012 2012-2013 2013-20140
200
400
600
800
1000
1200
1400
1600
1800
2000
Series1
GROSS PROFIT RATIO
This ratio measures the relation ship of gross profit to net
62
sales and is usually presented in percentage.
Gross Profit
Gross Profit Ratio = -------------------- X 100
Net Sales
Gross Profit = Sales – Cost of goods Sold.
Cost of goods sold = Material + Labour + all direct expenses.
TABLE NO. 6
GROSS PROFIT RATIO
(Rs. In millions)
Year Gross Profit Net sales Ratios
2006-2007 311.8 678.34 45.9
63
2007-2008 338.7 737.48 52.7
2008-2009 360.2 798.73 47.0
2009-2010 391.7 854.82 47.9
2010-2011 412.5 880.91 46.3
Interpretation
The gross profit ratio is high during the period 2007-2008 with
52.7. The ratio is less during the year 2006-2007 with 45.9 due to
proportional decrease in gross profit. The average ratio is 47.96
EXHIBIT NO.6
64
2006-2007 2007-2008 2008-2009 2009-2010 2010-201142
44
46
48
50
52
54
Series1
NET PROFIT RATIO
Net profit ratio establishes a relationship between net
profit (after tax) and processing charges (sales) and indicates the
efficiency of the management. This ratio is the overall measure of a
firm’s profitability.
Net Profit (after tax)
Net Profit Ratio = -------------------------- x 100
Net Sales
65
TABLE NO. 7
NET PROFIT RATIO
(Rs. In millions)
Year
Net Profit
(After tax) Net Sales Ratio
2005-2006 88.27 678.34 13.01
2006-2007 95.43 737.48 12.09
2007-2008 104.55 798.73 13.08
2008-2009 112.88 854.82 13.2
66
2009-2010 120.05 880.91 13.6
Interpretation
The net profit ratio shows a Increasing trend. The ratio was
high during the period 2007-2008 with 13.08 due to increase in
net profit. The ratio is minimum during the period 2006-2007 with
12.09 due to decrease in net profit. The average ratio is 12.99.
This ratio shows that the company is in a good position and
indicates the better efficiency of the management.
EXHIBIT NO.7
67
2005-2006 2006-2007 2007-2008 2008-2009 2009-201011
11.5
12
12.5
13
13.5
14
Series1
CURRENT RATIO
The current ratio computed by dividing the current assets by
the current liabilities. The current ratio indicated the company
capability to meet the current debt. As a general ratio is considered as
a norm of solvency, a low ratio is an indicator that a company may
force some difficulty in meeting its current obligations. The standard
norm is 2:1.
Current ratio =
Current AssetsCurrent Liabilities
68
TABLE NO.8
CURRENT RATIO
(Rs. In millions)
Year Current Assets
Current
Liabilities Ratio
2005-2006 158.2 56.5 2.8
2006-2007 172.4 59.2 2.9
2007-2008 192.4 65.8 2.9
2008-2009 209.3 75.2 2.7
2009-2010 201.8 75.4 2.6
Interpretation
In this table, current ratio shows a fluctuating trend. The ratio is
high at 2.91 during the period 2001-2002 due to increase in current
assets. The ratio is lower at 2.6 during the period 2009 – 2010 due to
69
increase in current liabilities. The average ratio is 2.78. In the
previous year they have fixed to the standard norm of 2:1. This
implies that the company is in a good position.
EXHIBIT NO.8
2005-2006 2006-2007 2007-2008 2008-2009 2009-20102.45
2.5
2.55
2.6
2.65
2.7
2.75
2.8
2.85
2.9
2.95
Series1
QUICK RATIO
Quick ratio is also known as Acid test ratio or liquidity ratio, is
a more rigorous test of liquidity than the current ratio. The term
70
liquidity refers to the ability of a firm to pay its short term obligation
and as when they become due. The word liquidity denotes the ability
of the company to convert current assets into cash during the normal
course of business and to have a regular and uninterrupted flow of
cash to meet outside current stringent measures of liquidity. Then
current ratio includes inventories which are least liquid form of
current assets are excluded from the ratio. The standard norm is 1:1.
Quick ratio =
Liquid AssetsCurrent Liabilities
Quick Assets=Current Assets- (Stock + Prepaid Expenses)
TABLE NO. 9
QUICK RATIO
71
(Rs. In millions)
Year Liquid Assets
Current
Liabilities Ratio
2005-2006 141.39 56.5 2.1
2006-2007 154.33 59.2 2.3
2007-2008 172.78 65.8 2.6
2008-2009 187.52 75.2 2.4
2009-2010 197.51 75.4 2.6
Interpretation
Usually a high acid test ratio is an indication that the firm is
liquid and has the ability to meet its current liabilities in time and vice
versa. In the above table, the liquid ratio is high at 2.6 during the
periods 2009-2010 and 2007 – 2008 due to increase in liquid assets.
The ratio is low at 1.2 during 2005– 2006 due to increase in liabilities.
The average ratio is 2.2. The ratio is above the standard norms, so the
liquidity position of the firm is satisfactory.
72
EXHIBIT NO.9
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
0
0.5
1
1.5
2
2.5
3
Series1
73
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. Hence company
authorities are of the opinion that absolute liquid ratio should also be
calculated together with current ratio and acid test ratio so as to
exclude even receivables from the current assets and find out the
absolute liquid assets. Absolute liquid assets include cash in hand and
bank marketable securities or temporary investments. The acceptable
norm for this ratio is 50% or 1:2.
Absolute liquid ratio =
Absolute Liquid AssetsCurrent Liabilities
Absolute Liquid Assets = Cash In hand + Bank and Short term
marketable securities + Temporary Investments
74
TABLE NO.10
ABSOLUTE LIQUID RATIO
(Rs. In millions)
Year Absolute Assets
Current
Liabilities Ratio
2000-2001 44.6 56.5 0.7
2001-2002 51.6 59.2 0.8
2002-2003 64.4 65.8 0.97
2003-2004 73.8 75.2 0.98
2004-2005 86.2 75.4 1.1
Interpretation
In this table, the absolute liquid ratio of the company shows a
Increasing trend. The ratio is higher during the period 2009-2010 with
1.1 It is less in the year 2005-2006 as 0.7 due to increase in current
liabilities. The average ratio is 0.91. From the above table it is
inferred that the company’s absolute liquidity is satisfactory. Hence
the company maintaining good cash position.
75
EXHIBIT NO.10
2000-2001 2001-2002 2002-2003 2003-2004 2004-20050
0.2
0.4
0.6
0.8
1
1.2
Series1
76
RECEIVABLES MANAGEMENT
It is another important component of current assets. It involves
analysis of the following:
1 Involves risk
2 Based on economic value
3 Implies futurity
77
Objectives
1 To obtain optimal volume of sales
2 To maintain an optimum level of investment in inventories
3 To keep down average collection period
4 To increase the profits
5 To increase the capacity to face competition
DEBTORS TURNOVER RATIO
There must be a sound credit and collection policies to have an
efficient receivable management. The length of the credit period
directly affects the volume of investment in receivable and indirectly
the net worth of the company. The purpose of receivable turnover
ratio is to measure the liquidity of the receivable. Since the debtors
constitute the major element of the total current assets, the solvency
depends upon the reliable value of receivable. The account receivable
turnover ratio is the comparison of the size of uncollected amount
from customers where the ratio is high indicating an unfavorable state
of receivables management.
78
Debtors turnover ratio =
Total SalesDebtors
Hint: It is considered that 100 % of the sales made by the company is
in the form of credit sales.
TABLE NO.13
DEBTORS TURNOVER RATIO
(Rs. In millions)
Year Net sales Turnover Ratios
2005-2006 678.34 98.9 6.8
2006-2007 737.48 102.2 7.2
2007-2008 798.73 107.8 7.4
2008-2009 854.82 115.1 7.4
2009-2010 880.91 112.7 7.8
Interpretation
The debtor’s turnover ratio of the company is in a Increasing
trend. The ratio is high during the period 2009–20010 with 7.8 due to
increase in the credit sales. The ratio is low during the period 2005-
79
2006 with 6.89 due to decrease in debtors. The average ratio is 7.32.
This indicates that the increasing trend is not favorable to the
company. So, the company should take steps to reduce the debtors.
EXHIBIT NO.13
2005-2006 2006-2007 2007-2008 2008-2009 2009-20106.2
6.4
6.6
6.8
7
7.2
7.4
7.6
7.8
Ratios
Ratios
80
AVERAGE COLLECTION PERIOD
The average collection period indicates the average time it
takes to convert receivable into cash. Too low and average collection
period may reflect and excessively restrictive credit policy and
suggest the need for relaxing credit standard for the acceptable
collection period may indicates an excessively liner credit policy
leading to a larger number of receivable being post due some being
uncollected.
No of Working Days
Average collection period = ---------------------------
Debtor’s turnover ratio
81
TABLE NO.14
AVERAGE COLLECTION PERIOD
(Rs. In millions)
Year
No. of Working
Days
Debtors
Turnover Ratio
Average
Collection
Period (Days)
2005-2006 312 6.8 45.8
2006-2007 312 7.2 43.3
2007-2008 312 7.4 42.1
2008-2009 312 7.4 42.1
2009-2010 312 7.8 40
82
Interpretation
The average collection period shows a fluctuating trend. The
period is high during 2005-2006 with 46 days due to decrease in
turnover and lower during the years 2009-2010 with 40 days. The
average collection period is 43 days. The above table indicates that
the company should frame good collection policies to reduce the
collection period.
EXHIBIT NO.14
83
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
37383940414243444546
Average Collection Period (Days)
Average Collection Period (Days)
CREDITORS TURN OVER RATIO
In the course of business operations, a firm has to make credit
purchases and incur short-term liabilities. A supplier of goods will be
interested in finding out how much time the firm is likely to take in
repaying its trade creditors. This ratio indicates the velocity with
which the creditors are turned over in relation to purchases.
84
Net credit purchases
Creditors turn over ratio = ----------------------------
Average trade creditors
Hint: Company’s opinion towards credit purchases is
Total purchases – Import purchases.
TABLE NO.15
CREDITORS TURNOVER RATIO
(Rs. In millions)
Year
Net Credit
Purchases
Average
Creditors Times
85
2005-2006 21.4 20.8 1.02
2006-2007 25.6 24.4 1.04
2007-2008 29.3 27.9 1.05
2008-2009 31.4 30.1 1.04
2009-2010 32.5 31.7 1.02
Interpretation
The creditors turn over ratio is in a fluctuating trend. It is
higher in the year 2007-2008 with 1.05 due to increase in credit
purchases. It is less during the year 2009-2010 with 1.02 due to
decrease in credit purchases. The average ratio is 1.03. From the
above table it is inferred that the company’s creditors turnover ratio is
satisfactory
86
EXHIBIT NO.15
2005-2006 2006-2007 2007-2008 2008-2009 2009-20101
1.0051.01
1.0151.02
1.0251.03
1.0351.04
1.0451.05
Times
Times
CASH MANAGEMENT
Cash is an important component of current assets. It is a
common denominator to which all current assets can be reduced.
87
Objectives
To meet the payments
To minimize funds committed to cash balance
Motives
Transaction motive
This refers to holding of cash to meet routine cash
requirements to finance the transaction, which a firm carries on in the
ordinary course of business.
Speculative motive
This refers to the desire of a firm to take advantage of
opportunities which present themselves at unexpected moments and
which are typically outside the normal course of business.
Precautionary motive
In addition to the non-synchronization of anticipated cash
inflows and outflows in the ordinary course of business, a firm may
have to pay cash for purpose, which cannot be predicted.
88
CASH AS PERCENTAGE OF CURRENT ASSETS
The ratio of cash in current assets provided an index of
operations and used correctly helps to determine the minimum level
of cash, monthly control of cash and historical records, give some
indication of trends and increase level of cash in current assets. This
could be a reduction in the credit given by the company’s suppliers or
by too high a cash balance. The first may be unavoidable the second
is not the ratio, which can only given an indication of a potential
problems, further analysis is required.
Percentage of current assets =
Cash Balance at the EndCurrent Assets x 100
89
TABLE NO.17
CASH AS PERCENTAGE OF CURRENT ASSETS
(Rs. In lakhs)
Year
Cash Balance at the
End Current Assets Ratio
2005-2006 12.1 158.2 7.6
2006-2007 12.9 172.4 7.4
2007-2008 13.7 192.4 7.1
2008-2009 14.8 209.3 7.0
2009-2010 15.4 201.8 7.6
Interpretation
Cash as a percentage of current assets shows a fluctuating
trend. It is high during 2005-2006 with 7.6 and low during 2008–
2009 with 7.0 due to decrease in cash balance. The average ratio is
7.32This indicates that the company should maintain the cash balance
to meet its short-term obligations.
90
EXHIBIT NO.17
2006-2007 2007-2008 2008-2009 2009-20106.7
6.8
6.9
7
7.1
7.2
7.3
7.4
7.5
7.6
Series1
91
STATEMENT OF CHANGES IN WORKING CAPITAL
Working capital means the excess of current assets over current
liabilities. Statement of changes in working capital is prepared to
show the changes in the working capital between the two balance
sheet dates. This statement is prepared with the help of current assets
and current liabilities derived from two balance sheets.
The changes in the amount of any current assets over the
current liabilities in the current balance sheet as compared to that of
the previous balance sheets either results in increase or decrease in
working capital. The difference is recorded for each individual
current assets and current liabilities and other information is not of
any use for preparing this statement.
92
TABLE NO.18
(In millions)
PARTICULARS 2005-2006 2006-2007 INCREASE DECREASE %
Current assets:
Inventories
Sundry Debtors
Cash & Bank balance
Total Current Assets
LESS:
Current Liabilities:
Total Current Liabilities
NET WORKING
CAPITAL (CA-CL)
16.9
98.92
42.47
158.2
46.5
111.7
18.1
102.21
51.69
172.0
51.2
121.2
1.2
3.2
9.2
0.47
9.5
7.1%
3.2%
21%
1.0%
8.5%
93
NET INCREASE IN
WORKING CAPITAL
3.6
3.2
121.2 121.2 13.6 13.6
Interpretation
By analyzing the current assets and the current liabilities of the
company for the years 2005-2006 and 2006-2007, the net working
capital shows a net increase of 3.2 %. The current assets like
inventories and sundry debtors have increased and the current
liabilities have decreased there by increasing the net working capital.
94
TABLE NO.19
(In millions)
PARTICULARS 2006-2007 2007-2008 INCREASE DECREASE %
Current assets:
Inventories
Sundry Debtors
Cash & Bank balances
Total Current Assets
LESS:
Current Liabilities:
Current Liabilities
NET WORKING
CAPITAL (CA-CL)
18.1
102.2
51.6
172.0
51.2
121.2
12.2
19.7
107.84
70.92
198.4
65.8
133.44
1.6
5.6
19.23
14.6
5.4
8.8%
5.4%
37%
28%
95
NET INCREASE IN
WORKING CAPITAL 6.43
5.3
133.44 133.44 26.43 26.43
Interpretation
By analyzing the current assets and the current liabilities of the
company for the years 1998-1999 and 1999-2000, the net working
capital shows a net increase of 18.40 %. The current assets like
inventories, sundry debtors and cash and bank balances have
increased. The current liabilities show a increase. So it is clear that
the firm have sufficient cash and adequate working capital to meet the
day-to-day requirements.
96
TABLE NO.20
PARTICULARS 2007-2008 2008-2009 INCREASE DECREASE %
Current assets:
Inventories
Sundry Debtors
Cash & Bank balances
Total Current Assets
LESS:
Current Liabilities:
Current Liabilities
NET WORKING
CAPITAL (CA-CL)
19.7
107.84
70.92
198.4
65.8
133.4
21.8
115.1
73.84
209.3
65.6
143.7
2.1
7.3
2.9
0.2
10.6%
6.7%
4.0%
0.3%
97
NET INCREASE IN
WORKING CAPITAL
10.3
12.5
143.7 143.7 12.5 12.5
Interpretation
By analyzing the current assets and the current liabilities of the
company for the years 1999-2000 and 2000-2001, the net working
capital shows a net increase of 58.16 %. The current assets like
sundry debtors, inventories and loans and advances have increased.
The current liabilities have increased there by the need for working
capital has decreased.
98
TABLE NO.21
(Rs. In millions)
PARTICULARS 2008-2009 2009-2010 INCREASE DECREASE %
Current assets:
Inventories
Sundry Debtors
Cash & Bank balances
Total Current Assets
LESS:
Current Liabilities:
Current Liabilities
21.8
115.1
73.84
209.3
65.6
20.9
112.7
86.2
219.8
75.4
12.36
0.9
2.4
9.8
4.1%
2.0%
16.7%
14.9%
99
NET WORKING
CAPITAL (CA-CL)
NET DECREASE IN
WORKING CAPITAL
143.7 142.99
0.74
143.7 143.7 13.1 13.1
Interpretation
By analyzing the current assets and the current liabilities of the
company for the years 2000-2001 and 2001-2002, the net working
capital shows a net decrease of 1.22 %. The current assets like loans
and advances have decreased despite the increase in cash and bank
balances and the current liabilities and provisions have decreased. So
it is clear that the firm have excessive cash balance in the company
and the need for working capital in reduced by 1.22 %.
100
REGRESSION ANALYSIS
TABLE NO. 32
PROJECTION OF SALES
(Rs. in millions)
Year X Y XY X2
1998-1999 -3 678.34 -2035.02 9
1999-2000 -2 737.48 -1474.96 4
2000-2001 -1 798.73 -798.73 1
2001-2002 0 854.82 0 0
2002-2003 1 880.91 880.91 1
Y = Sales
Estimation
101
Y = a + bx
a = ∑ Y
n = 790.056
b =
∑ XY
∑ X2 = 228.52
TABLE NO. 33
(Rs. in millions)
Years Sales
2010-2011 1109.43
2011-2012 1337.52
2012-2013 1566.04
2013-2014 1794.56
2014-2015 2023.08
Interpretation
102
From the above table Sales for the company based on the
prevailing trends is projected to increase in the future years 2010-2011
to 2014-2015.
EXHIBIT NO. 19
103
2010-2011 2011-2012 2012-2013 2013-2014 2014-20150
500
1000
1500
2000
2500
Sales
Sales
104
TABLE NO. 33
PROJECTION OF GROSS WORKING CAPITAL
(Rs. in millions)
Year X Y XY X2
2005-2006 -3 158.29 -155.29 9
2006-2007 -2 172.43 -344.86 4
2007-2008 -1 192.48 -192.48 1
2008-2009 0 203.32 0 0
2009-2010 1 218.41 218.41 1
Y = Gross working capital
Estimation
Y = a + bx
a = ∑ Y
n = 188.98
105
b =
∑ XY
∑ X2 = 31.6
TABLE NO. 35
(Rs. in millions)
Years GROSS WORKING CAPITAL
2010-2011 250.01
2011-2012 281.6
2012-2013 313.21
2013-2014 344.81
2014-2015 376.41
Interpretation
From the above table Gross working capital of the company
based on the prevailing trends is projected to increase in the future
years 2010-2011 to 2010-2015.
106
EXHIBIT NO. 20
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
0
50
100
150
200
250
300
350
400
GROSS WORKING CAPITAL
GROSS WORKING CAPITAL
107
CHAPTER-IV
SUMMARY OF FINDINGS,
SUGGESTIONS & CONCLUSION
108
5.1 FINDINGS
109
Findings based on ratio analysis:
1. The gross working capital to total assets ratio shows a fluctuating
trend. It is clear that the gross working capital increases with sales.
2. The net working capital shows a increasing trend. The ratio has
decreased in the recent years. It seems that the daily working capital
maintenance is good.
3. Gross working capital to sales shows an fluctuating trend which
indicate that the company is using its working capital efficiently.
4. Working capital turnover ratio indicates that the company has
efficient control over the working capital turnover in recent years.
5. The Gross profit ratio shows a decreasing trend. It is due to increase
in the manufacturing cost.
6. The Net profit shows an increasing trend. It shows that the company
is in a good position and indicates the better efficiency of the
management.
7. The Current ratio of the company shows a decreasing trend, but it
has fixed to the standard norms, which indicates that the company is
110
able to meet its current obligations and its liquidity position is
excellent.
8. The Quick ratio shows a fluctuating trend. But the ratio is above
standard norms. This shows that the firm is liquid and has the ability
to meet its current obligations in time.
9. Absolute liquid ratio of the company shows a fluctuating trend. The
ratio is highly less than the standard norms. It shows that the
company’s absolute liquidity is unsatisfactory. Hence the company
should increase its cash position.
10.Debtor turnover ratio shows an increasing trend indicating the
company’s efficient control over the debtors.
11.The average collection period indicates an average of 43 days for
collecting debts.
12.Creditors turnover ratio is satisfactory proving a good purchase
policy.
13.Cash as percentage of current assets ratio indicates that the company
has very high cash percentage and it also shows a increasing t trend.
Findings based on working capital analysis:
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14.The schedule of changes in working capital shows that there is an
continuous increase in the Net working capital of the company .
This shows that the company is maintaining higher working capital
to meet the increasing expenses.
Findings based on regression analysis:
15.Sales for the company based on the prevailing trends are projected
to increase for the future years 2010-2011 to2011-2015.
16.Gross working capital of the company based on the prevailing
trends is projected to increase for the future years 2010-2011 to
2011-2015.
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5.2 SUGGESTIONS
In the present study, researcher has given the following
suggestion based on the findings to improve the working capital
management of the company.
1. Company can speed up the collection by framing good
collection policies.
2. The firm has to maintain the cash and bank balances to meet its
short-term obligations.
3. As the firm has a small margin to cover interest rates and
income tax, it should try to reduce the operating cost.
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4. The firm’s working capital shows mostly an increasing trend,
hence the company should try to monitor the needs to maintain
a good working capital position.
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CONCLUSION
The premier instruments and controls limited are financially
sound and the performance of the company over the five years from
1997-1998 to 2005-2010 though there were some fluctuations. By
analyzing the data using accounting ratios, working capital changes,
and correlation and regressions analysis it is concluded that liquidity
position of the company is satisfactory. The working capital is
showing a increasing trend for the period under study.
The net profit of the company is increasing which shows a
better profitability position. By reducing its operating cost it could
further increase its profitability.
It is concluded that the company has to concentrate on its cash
balance to improve its working capital position.
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