MAN[2]

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

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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

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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

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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

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“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

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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

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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)


Current assets:

Inventories

Sundry Debtors

Cash & Bank balances


LESS:


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




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


Current assets:

Inventories

Sundry Debtors



LESS:


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




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)


Current assets:

Inventories

Sundry Debtors



LESS:


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



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:

111

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.

112

113

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.

114

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.

115

116

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.

117

BIBLIOGRAPHY

Andre Fourcans1 and Thomas J. Hindelang 2, 1974, "Winter

Simulation Conference archive. Proceedings of the 7th conference

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Banerjee Bhabatosh, "Management of Working Capital Derivation

from a Case Study", The Management Accountant, Aug. 1974, Pg.

569.

Banerjee Bhabatosh, faculty of Business Studies, University of

Calcutta, "Working Capital Turnover and Turnover Ratios and

Cash Management", the management accounts, January 1979, pg.

22.

118

By S. Hassim, "Journal of Construction Engineering and

Management", Vol. 129, No. 4 July/ August 2003, pp. 369-374.

Kenhma Rao, N. and Ramachandran, N., "Working Capital

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Kevlin R. Smith, December 2004, "Earnings Management

Constraints And Market Reactions To Subsequent Earnings

Surprises", Eller College of Management, The University of

Arizona Tucson, AZ 85721.

Morris Lamberson, "The Response Of The Working Capital

Position Of Small Firms To Changes In The Business Cycle",

University of Central Arkansas. www.uni.com

Steven Mark Fazzari and Bruce Clayton Petersen, "Working

capital and fixed investment: new evidence on financing

constraints", www.uni.com.

Jain S.P & Narang K.L, Management Accounting, Kalyani

Publishers, New Delhi, 2000.

119

http://www.uni.com/

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Khan & Jain, Financial Management, Tata Mcgrew Hill, New

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www.pricol.com.

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MAN[2]

Documents

balance sheet

working capital

gross working

working capital

net working

acid test

working capital

companys absolute