A STUDY ON WORKING CAPITAL MANAGEMENT AND RATIO ANALYSIS DONE FOR BIOLOGICAL (E) LTD., HYDERABAD Under the guidance of Dr. Y. Subba Rayadu Assistant professor Department of Business Management Presented by: M.Hanumantha Reddy Enrolment No.- 0011406008
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STUDY ON WORKING CAPITAL MANAGEMENT AND RATIO ANALYSIS DONE AT BIOLOGICAL EVON LIMITED
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A STUDY ON WORKING CAPITAL MANAGEMENT AND RATIO ANALYSIS DONE FOR
BIOLOGICAL (E) LTD., HYDERABAD
Under the guidance of Dr. Y. Subba Rayadu Assistant professor Department of Business Management
Introduction Working Capital is the name given to the “short-
term” area of the balance sheet. These items are also referred to as circulating capital Working Capital includes the current assets and
current liabilities areas of the balance sheet. Working Capital can be called by its alternative name
“Net Current Assets. companies short time liquidity which leads to long term survival.
Definition
“ circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, as for example, from cash to inventories, inventories to receivables, receivable to cash” ……Genestenbreg
Company Profile Indian Bio-pharmaceutical industry. Labour and management
representatives are maintained in equal numbers by the government.
These board are chaired by government nominated members representing the public
Need and importance of the study Financial decision making.
Problems of stock-out.
Satisfactory level of working capital.
Objectives of the study To Study the Existing System of Working Capital Management 1. To determine the flow of revenue form current operations by taking into consideration of
working capital related ratios.2. To examine feasibility of present system of managing working capital.3. To analyze the financial performance of the company with reference to working capital.4. To give some suggestions to the management based on the information studied. 5. To study the existing system of working capital management in BIOLOGICAL (E) LTD.6. To know the liquidity position of the BIOLOGICAL (E) LTD.7. To know how the working capital is being financed.8. To know the various norms to be followed by BIOLOGICAL (E) LTD for inventories,
accounts receivable, investment debtors
SCOPE OF THE STUDY: The scope of the study is to know the working capital position in
Biological (E) Ltd., simultaneously it is also proposed to study the strength and weakness in the working capital. In this study I evaluated the data of Ratio analysis and cash management of Biological (E) Ltd. The study mainly focuses on BIOLOGICAL (E) LTD.
The study focuses on ratios to find profitability position of the BIOLOGICAL (E) LTD.
The study is confined to evaluation of the last five years annual reports only. The study mainly focuses on working capital management. The information obtained from the primary and secondary sources were
limited to BIOLOGICAL (E) LTD.
Methodology and database
The study of the management working capital is based on primary as well as
secondary data. The primary data was gathered through personal interaction with the senior
Finance Manager. The secondary data was collected from company’s annual report from 2006-2011
and also-
The Balance Sheet and P&L account statement of M/S. Biological (E) Ltd., for last five years.
Other information available in connection with the management of working capital. Publications & Text books in the connection with financial management written by
different author.
Company profile:Introduction: Dr. Vijay Kumar Datla is the Chairmen & Managing Director of Biological (E) Ltd., and holds over 97% of
the share along with his family members. exiting profit making company. commenced its operations in 1953.Alliances Established alliances with world-renowned pharmaceutical organizations such as Evan, Glaxo,Solvay,ICO
and Aventis Pasteur.Product profile enjoys a formidable presence in the fields of vaccines, anticoagulants, anti- infective and the respiratory
segment. (coscopin bethadoxin and bestozyme ) IN therapeutic segments.Shareholding and Net worth The promoters and associates hold 97.11% of the shares of the company. The book value per share is
Rs.2302 at historical cost as on 31.3.05 and a face value of Rs.100 each .
Company profile:New project- Expansion programme Give further impetus to its formulations and vaccines business the new vaccines proposed to be
BE developed is vaccine with the technical tie ups with national institute of public heath and the environment (RIVM), indian institute of science ( hepatitis B) and bio pharma (BE), indonesia (for measles).
Working on clinical trials for its combination vaccines. Be has decided to expand its vaccine manufacturing facilities further. As part of this exercise, BE
is setting up a state-of – art modern manufacturing unit at shapoorji pallonji biotech park private ltd., Thurkapalli village,shamirpet mandal, ranga reddy dist., Andhra pradesh at a cost of rupees 9500 lakhs.
Indian Pharmaceutical industry
An OverviewDomestic and External Trade: The Indian pharmaceutical industry is highly regulated. The Govt. controls prices of the
large number of bulk drugs and formulations. Profit margins in this trade vary widely in both domestic and export sales due to many factors.
Domestic Trade: More than 85% of the formulation produced in the country or sold in the domestic market. Exports: Over 60% of India’s bulk drug production is exported.Research & Development Research & Development is the key to the future of pharmaceutical industry. These R&D companies will also enjoy tax holiday for 10 years. A promotional research and
development fund of Rs. 150 Crores is set up by the Government to promote research and development in the pharmaceuticals sector
Indian Pharmaceutical industry
An OverviewDomestic and External Trade: The Indian pharmaceutical industry is highly regulated. The Govt. controls prices of the
large number of bulk drugs and formulations. Profit margins in this trade vary widely in both domestic and export sales due to many factors.
Domestic Trade: More than 85% of the formulation produced in the country or sold in the domestic market. Exports: Over 60% of India’s bulk drug production is exported.Research & Development Research & Development is the key to the future of pharmaceutical industry. These R&D companies will also enjoy tax holiday for 10 years. A promotional research and
development fund of Rs. 150 Crores is set up by the Government to promote research and development in the pharmaceuticals sector
DATA ANALYSIS Data analysis and interpretation
Increase DecreaseParticulars 2005-2006 2006- 2007 Working Capital
CREDITORS TURNOVER RATIOIt is determined by dividing the net credit purchases by average creditors out standing during the year. Thus, Creditors Turnover Ratio = Net Credit Purchases
Average Creditor
Operating profit ratio
Year EBIT SALES Ratio
2007-08 538 7478 0.07
2008-09 929 8896 0.10
2009-10 1101 10920 0.10
2010-11 2372 13900 0.17
2011-12 2290 14300 0.16
2012-13 2570 15600 0.16 Operating Profit ratio
(Rs in lakhs)
1. Operating Profit ratio = Earnings before interest taxes (EBIT) Sales
2. Operating Profit ratio = Earnings after interest and taxes (EAT)
Sales
NET PROFIT RATIOYear Net profit Sales Ratio
2007-08 43661738 1282249304 3.4
2008-09 2556025 1080691260 0.236
2009-10 5023614 656333117 0.765
2010-11 17862362 802603124 2.22
2011-12 54436812 960787055 5.6
2012-13 59285507 947947228 6.3
NET PROFIT RATIO Table:10
Findings and SUGGESSIONS FINDINGS On observing the changes in Working Capital from the years 2005 -06 to 2012-13, it has been noticed that except
for the years 2006-07and 2012-13 remaining all years, the working capital of the company was increasing year by year.
The current ratio reveals that the company can meet its short term obligations at any given point of time. Though the ratio of 2:1 is considered satisfactory, the survey revels that the company’s current ratio is above the standard as it was 3.20 in the year 2012-13.
It has been observed from the survey that quick ratio had been above the standard except for two years 2005-06 and 2007-08. In the year 2005-06 it was 0.74, it was 0.99 in the year 2007-08.from the 2009-10to2012-13 it was 1.01, 2.52, 1.59 and 1.68 respectively.
The inventory turnover ratio indicates that conversion of inventory into cash is very fast throughout the study. It has an increasing trend which is good for the company.
As per the debtors turnover ratio it is observed that the cash is collected rapidly from the debtors in the years 2010-11 and 2012-13 compared to the other years.
It has been observed that the creditors are paid rapidly in the year2010-11. In other preceding years the creditors are maintaining a steady payment period. It was at 5.19in the year 2010-11 and decreased to 1.1in the year 2012-13.
The operating profit ratio indicates that the operating profit has been constantly increasing year by year. It was at 0.07 in the year 2007-08 to 0.16 in the year2012-13
Suggestions The company has to utilise the idle funds i.e., the current ratio is 3.20; it has to take proper
measures in decreasing to 2:1. Nearly 50% of the inventory or the company remains in the form of raw material, which will
lead to high carrying cost and storage cost. So it should be reduced to avoid unnecessary costs. The company maintains high – level finished stock. This should be reduced for smooth cash flow cycle.
Cash from the debtors is not collected efficiently. Most of the funds are blocked with the debtors. To maintain an efficient cash cycle the debtors should be collected more accurately.
The creditors payment period should be delayed for some more days, in order to have good
management working capital. The company should concentrate on increasing the operating profit, will increase the net profit.