Trends in Working Capital Management Project Final

1.1 INTRODUCTION

The working capital meets the short-term financial requirements of a business

enterprise. It is a trading capital, not retained in the business in a particular form for

longer than a year. The money invested in it changes form and substance during the

normal course of business operations. The need for maintaining an adequate working

capital can hardly be questioned. Just as circulation of blood is very necessary in the

human body to maintain life, the flow of funds is very necessary to maintain business.

If it becomes weak, the business can hardly prosper and survive. Working capital

starvation is generally credited as a major cause if not the major cause of small

business failure in many developed and developing countries (Rafuse, 1996). The

success of a firm depends ultimately, on its ability to generate cash receipts in excess

of disbursements. The cash flow problems of many small businesses are exacerbated

by poor financial management and in particular the lack of planning cash

requirements (Jarvis et al, 1996).

The Management of Working Capital

While the performance levels of small businesses have traditionally been

attributed to general managerial factors such as manufacturing, marketing and

operations, working capital management may have a consequent impact on small

business survival and growth (Kargar and Blumenthal, 1994). The management of

working capital is important to the financial health of businesses of all sizes. The

amounts invested in working capital are often high in proportion to the total assets

employed and so it is vital that these amounts are used in an efficient and effective

way. However, there is evidence that small businesses are not very good at managing

their working capital. Given that many small businesses suffer from

undercapitalisation, the importance of exerting tight control over working capital

investment is difficult to overstate.

A firm can be very profitable, but if this is not translated into cash from operations

within the same operating cycle, the firm would need to borrow to support its

continued working capital needs. Thus, the twin objectives of profitability and

liquidity must be synchronised and one should not impinge on the other for long.

APGCCS, Rajampet Page 1

Investments in current assets are inevitable to ensure delivery of goods or services to

the ultimate customers and a proper management of

same should give the desired impact on either profitability or liquidity. If resources

are blocked at the different stage of the supply chain, this will prolong the cash

operating cycle. Although this might increase profitability (due to increase sales), it

may also adversely affect

the profitability if the costs tied up in working capital exceed the benefits of holding

more inventory and/or granting more trade credit to customers.

Another component of working capital is accounts payable, but it is different in the

sense that it does not consume resources; instead it is often used as a short term source

of finance. Thus it helps firms to reduce its cash operating cycle, but it has an implicit

cost where discount is offered for early settlement of invoices.

MEANING OF WORKING CAPITAL

Ordinarily, the term “working capital” stands for that part of the capital, which

is required for the financing of working or current needs of the company. Working

capital is the lifetime of every concern. Whether it is manufacturing or non-

manufacturing one without adequate working capital, there can be no progress in the

industry.

Inadequate working capital means shortage of raw materials, labor etc., resulting in

partial current assets less current liabilities-has no economic meaning in the sense of

implying some type of normative behavior. According to this line of reasoning, it is

largely an accounting artifact. Working capital management, then, is a misnomer.

The working capital of the firm is not managed. The term describes a category of

management decisions affects specific types of current assets and current liabilities. In

turn, those decisions should be rooted in the overall Valuation


DEFINITIONS

According to Weston and Brigham

”Working capital refers to a firm’s investment in short term

assets- cash, short term securities, accounts receivables and inventories”.

- Weston and Brigham

According to Hoagland

“Working capital is descriptive of that capital which is not

fixed. But the more common use of the working capital is to consider it as the

difference between the book value of the current assets and the current liabilities.

-HOAGLAND

Composition of Working Capital:

1.Current Assets:a. Inventories Raw Materials

Work in progressFinished goodsStores and sparesMiscellaneous Goods

b. Receivables Trade debtorsLoans and advancesOther debtor balances

c. Marketable securities Govt securitiesSemi-Government securitiesShares, Debenture, etc.,

d. Cash and bank balance Cash in HandCash At BankCash in Transit

2.Current Liabilities:

a. Sundry creditors Interest accused on loanAdvances received from customsShort term loans from banksTrade dues and other liabilitiesDeposits from public, etc.,


1.2INDUSTRY PROFILE

Over view Indian Automobile Industry

Starting its journey from the day when the first car rolled on the streets of

Mumbai in 1898, the Indian automobile industry has demonstrated a phenomenal

growth to this day. Today, the Indian automobile industry presents a galaxy of

varieties and models meeting all possible expectations and globally established

industry standards. Some of the leading names echoing in the Indian automobile

industry include Maruti Suzuki, Tata Motors, Mahindra and Mahindra, Hyundai

Motors, Hero Honda and Hindustan Motors in addition to a number of others.

During the early stages of its development, Indian automobile industry

heavily depended on foreign technologies. However, over the years, the

manufacturers in India have started using their own technology evolved in the native

soil. The thriving market place in the country has attracted a number of automobile

manufacturers including some of the reputed global leaders to set their foot in the soil

looking forward to enhance their profile and prospects to new heights. Following a

temporary setback on account of the global economic recession, the Indian

automobile market has once again picked up a remarkable momentum witnessing a

buoyant sale for the first time in its history in the month of September 2009.

The automobile sector of India is the seventh largest in the world. In a year, the

country manufactures about 2.6 million cars making up an identifiable chunk in the

world’s annual production of about 73 million cars in a year. The country is the

largest manufacturer of motorcycles and the fifth largest producer of commercial

vehicles. Industry experts have visualized an unbelievably huge increase in these

figures over the immediate future. The figures published by the Asia Economic

Institute indicate that the Indian automobile sector is set to emerge as the global leader

by 2012. In the year 2009, India rose to be the fourth largest exporter of automobiles

following Japan, South Korea and Thailand. Experts state that in the year 2050, India

will top the car volumes of all the nations of the world with about 611 million cars

running on its roads.


At present, about 75 percent of India’s automobile industry is made up by small

cars, with the figure ranking the nation on top of any other country on the globe. Over

the next two or three years, the country is expecting the arrival of more than a dozen

new brands making compact car models.

Recently, the automotive giants of India including General Motors (GM),

Volkswagen, Honda, and Hyundai, have declared significant expansion plans. On

account of its huge market potential, a very low base of car ownership in the country

estimated at about 25 per 1,000 people, and a rapidly surging economy, the nation is

firmly set on its way to become an outsourcing platform for a number of global auto

companies. Some of the upcoming cars in the India soil comprise Maruti A-Star

(Suzuki), Maruti Splash (Suzuki), VW Up and VW Polo (Volkswagen), Bajaj small

car (Bajai Auto), Jazz (Honda) and Cobalt, Aveo (GM) in addition to several others.

History of the Automobile industry in India

The economic liberalization that dawned in India in the year 1991 has succeeded

in bringing about a sustained growth in the automotive production sector triggered by

enhanced competitiveness and relaxed restrictions prevailing in the Indian soil. A

number of Indian automobile manufacturers including Tata Motors, Maruti Suzuki

and Mahindra and Mahindra, have dramatically expanded both their domestic and

international operations. The country’s active economic growth has paved a solid road

to the further expansion of its domestic automobile market. This segment has in fact

invited a huge amount of India-specific investment by a number of multinational

automobile manufacturers. As a significant milestone in its progress, the monthly

sales of passenger cars in India exceeded 100,000 units in February 2009.

The beginnings of automotive industry in India can be traced during 1940s. After

the nation became independent in the year 1947, the Indian Government and the

private sector launched their efforts to establish an automotive component

manufacturing industry to meet the needs of the automobile industry. The growth of

this segment was however not so encouraging in the initial stage and through the

1950s and 1960s on account of nationalization combined with the license raj that was

hampering the private sector in the country. However, the period that followed 1970s,

witnessed a sizeable growth contributed by tractors, scooters and commercial


vehicles. Even till those days, cars were something of a sort of a major luxury.

Eventually, the country saw the entry of Japanese manufacturers establishing Maruti

Udyog. During the period that followed, several foreign based companies started joint

ventures with Indian companies.

During 1980s, several Japanese manufacturers started joint-ventures for

manufacturing motorcycles and light commercial-vehicles. During this time, that the

Indian government selected Suzuki for a joint-venture to produce small cars.

Following the economic liberalization in 1991 and the weakening of the license raj,

several Indian and multi-national car companies launched their operations on the soil.

After this, automotive component and automobile manufacturing growth remarkably

speed-up to meet the demands of domestic and export needs.

Experts have an opinion that during the early stages the policies and the

treatment by the Indian government were not favorable to the development of the

automobile industry. However, the liberalization policy and various tax reliefs

announced by the Indian government over the recent past have pronounced a

significantly encouraging impact on this industry segment. Estimates reveal that

owing to several boosting factors, Indian automobile industry has been growing at a

pace of about 18% per year. Therefore, global automobile giants like Volvo, General

Motors and Ford have started looking at India as a prospective hot destination to

establish and expand their operations.

Like many other nations India’s highly developed transportation system has

played a very important role in the development of the country’s economy over the

past to this day. One can say that the automobile industry in the country has occupied

a solid space in the platform of Indian economy. Empowered by its present growth,

today the automobile industry in the country can produce a diverse range of vehicles

under three broad categories namely cars, two-wheelers and heavy vehicles.

Exports of Automobile Industry

Today, India is among the world’s largest producers of small cars. The New

York Times has rated India as a very strong engineering base with an incomparable

expertise in the arena of manufacturing a number of low-cost, fuel-efficient cars has


encouraged the expansion plans of the manufacturing facilities of a number of

automobile leaders like Hyundai Motors, Nissan, Toyota, Volkswagen and Suzuki.

On 22 February 2010, Hyundai motors exported its 10,00,000th car, the feat

which was achieved by the firm in just over 10 years. Hyundai Motors is the largest

passenger car exporter and the second largest car manufacturer in the country. In the

similar lines, General Motors has announced its plans to export not less than 50,000

cars made in India by the year 2011. In yet another proposal, Ford Motors is to setup a

manufacturing facility costing about US$500 million in India with an annual capacity

of 250,000 cars. The firm has stated that the facility will play a major part in its

strategic plan to make India a hub for its global production business. In yet another

significant move, Fiat motors has stated that it will source a big volume of auto

components from India worth about US$1 billion. In the year 2009, India overtook

China by emerging as the fourth largest exporter of cars in Asia.

Various Segments of the Indian Automobile Industry

Motor cycles manufacture makes up the major share in the two-wheeler segment

of the Indian automobile industry. About 50% of the motor cycles are manufactured

by Hero Honda. While Honda manufactures about 46% of the scooters, TVS produces

82% of the mopeds running on the Indian roads.

About 40% of the three-wheelers manufactured in India are used for

transporting goods with Piaggio manufacturing 40% of the vehicles sold in the Indian

market. On the other hand, Bajaj has emerged as the leader in manufacturing three-

wheelers used for passenger transport. The firm produces about 68% percent of the

three wheelers used for passenger transport in India. The Indian passenger vehicle

segment is dominated by cars which make up about 80% of it. Maruti Suzuki

manufactures about 52% of passenger cars while the firm enjoys a complete

monopoly in the manufacture of multi-purpose vehicles. In the utility vehicles

segment Mahindra makes up a 42% share.

Tata Motors is the leader in the Indian commercial vehicles market while it holds

more than 60% share. Tata Motors also enjoys the credit of being the world’s fifth

largest manufacturer of medium and heavy commercial vehicles.


Potential of Indian Automobile Industry

There is a very stiff competition in the automobile industry segment in India.

This has helped many to realize their dreams of driving the most luxurious cars.

During the recent past, a number of overseas companies have started grabbing a big

chunk of the market share in both domestic and export sales. Every new day dawns in

India with some new launches by active players in the Indian automobile arena. By

introducing some low cost cars, the industry had made it possible for common men to

buy cars for their personal use. With some innovative strategies and by adopting some

alternative remedial measures, the Indian automobile industry has successfully come

unaffected out of the global financial crisis.

While the automobile industry in India is the ninth largest in the world, the

country emerged as the fourth largest automobiles exporter on the globe following

Japan, South Korea and Thailand, in the year 2009. Over and above, a number of

automobile manufacturers based in India have expanded their operations around the

globe also giving way for a number of reputed MNCs to enthusiastically invest in the

Indian automobile sector.

Nissan Motors has revealed its prospective plans to export 250,000 vehicles

produced in its India plant by the year 2011. General Motors has also come up with

similar plans.

During the current fiscal year, the Indian automobile industry rode high on the

resurgence of consumer demand in the country as a result of the Government’s fiscal

stimulus and attractively low interest rates. As a result the total turnover of the

domestic automobile industry increased by about 27 per cent.

A reply produced in the Lok Sabha recently has quoted data from the Society of

Indian Automobile Manufacturers and has revealed that the total turnover of the

Indian automobile Industry in April-February 2009-10 was 1,62,708.77 crore.

This is a remarkable achievement compared with the total revenue of Rs

1,28,384.53 crore reported during the same period of last fiscal year. Specifically, the

segment of commercial vehicles witnessed the biggest jump in revenues by 31 per


cent by reporting Rs 38,845.09 crore. During the same period, the passenger vehicle

segment in the country witnessed a growth of 27 per cent over the last fiscal year by

reporting a total revenue of Rs 76,545.96 crores. These figures imply a highly

prospective road lying immediately ahead of the Indian automobile industry.

Predictions made by Ernst and Young have estimated that the Indian

passenger car market will have a growth rate of about 12 percent per annum over the

next five years to reach the production of 3.75 million units by the year 2014. The

analysts have further stated that the industry’s turnover will touch $155 billion by

2016. This achievement will succeed in consolidating India’s position as the seventh

largest automobiles manufacturer on the globe, eventually surging forth to become the

third largest by the year 2030 behind China and the US.

The Automotive Mission Plan launched by the Indian government has

envisaged that the country will emerge as the seventh largest car maker on the globe

thereby contributing more than 10 percent to the nation’s $1.2-trillion economy.

Further, industry experts believe that the nation will soon establish its stand

as an automobile hub exporting about 2.75 million units and selling about a million

units to be operated on the domestic roads.


Over view Indian Cement Industry

Cement Industry in India is on a roll at the moment. Driven by a booming real

estate sector, global demand and increased activity in infrastructure development such

as state and national highways, the cement industry has witnessed tremendous growth.

The origins of Indian cement industry can be traced back to 1914 when the

first unit was set-up at Porbandar with a capacity of 1000 tones. Today cement

industry comprises of 125 large cement plants and more than 300 mini cement plants.

The Cement Corporation of India, which is a Central Public Sector Undertaking, has

10 units. There are 10 large cement plants owned by various State Governments.

Cement industry in India has also made tremendous strides in technological up

gradation and assimilation of latest technology. Presently, 93 per cent of the total

capacity in the industry is based on modern and environment-friendly dry process

technology.

The induction of advanced technology has helped the industry immensely to

conserve energy and fuel and to save materials substantially. Indian cement industry

has also acquired technical capability to produce different types of cement like

Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast

Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement,

Sulphate Resisting Portland Cement, White Cement etc. Some of the major clusters of

cement industry in India are: Satan (Madhya Pradesh), Chandrapur (Maharashtra),

Gulbarga (Karnataka), Yerranguntla (Andhra Pradesh), Nalgonda (Andhra Pradesh),

Bilaspur (Chattisgarh), and Chandoria (Rajasthan).

Cement industry in India is currently going through a consolidation phase.

Some examples of consolidation in the Indian cement industry are: Gujarat Ambuja

taking a stake of 14 per cent in ACC, and taking over DLF Cements and Modi

Cement; ACC taking over IDCOL; India Cement taking over Raasi Cement and Sri

Vishnu Cement; and Grasim's acquisition of the cement business of L&T, Indian

Rayon's cement division, and Sri Digvijay Cements. Foreign cement companies are

also picking up stakes in large Indian cement companies. Swiss cement major Holcim

has picked up 14.8 per cent of the promoters' stake in Gujarat Ambuja Cements


(GACL). Holcim's acquisition has led to the emergence of two major groups in the

Indian cement industry, the Holcim-ACC-Gujarat Ambuja Cements combine and the

Aditya Birla group through Grasim Industries and Ultratech Cement. Lafarge, the

French cement major has acquired the cement plants of Raymond and Tisco. Italy

based Italcementi has acquired a stake in the K.K. Birla promoted Zuari Industries'

cement plant in Andhra Pradesh, and German cement company Heidelberg Cement

has entered into an equal joint-venture agreement with S P Lohia Group.

Issues concerning Cement Industry

High Transportation Cost is affecting the competitiveness of the cement

industry. Freight accounts for 17% of the production cost. Road is the

preferred mode for transportation for distances less than 250km. However,

industry is heavily dependent on roads for longer distances too as the railway

infrastructure is not adequate.

Cement industry is highly capital intensive industry and nearly 55-60% of the

inputs are controlled by the government.

There is regional imbalance in the distribution of cement industry. Limestone

availability in pockets has led to uneven capacity additions.

Coal availability and quality is also affecting the production.

The Indian Cement industry is the second largest cement producer in the world,

with an installed capacity of 144 million tonnes. The industry has undergone rapid

technological up gradation and vibrant growth during the last two decades, and some

of the plants can be compared in every respect with the best operating plants in the

world. The industry is highly energy intensive and the energy bill in some of the

plants is as high as 60% of cement manufacturing cost. Although the newer plants are

equipped with the latest state-of-the-art equipment, there exists substantial scope for

reduction in energy consumption in many of the older plants adopting various energy

conservation measures.

The Indian cement industry is a mixture of mini and large capacity cement

plants, ranging in unit capacity per kiln as low as 10 tpd to as high as 7500 tpd.

Majority of the production of cement in the country (94% ) is by large plants, which

are defined as plants having capacity of more than 600 tpd. At present there are 124


large rotary kiln plants in the country. The Ordinary Portland Cement (OPC) enjoys

the major share (56%) of the total cement production in India followed by Portland

Pozzolana Cement (PPC) and Portland Slag Cement (PSC). A positive trend towards

the increased use of blended cement can be seen with the share of blended cement

increasing to 43%. There is regional imbalance in cement production in India due to

the limitations posed by raw material and fuel sources. Most of the cements plants in

India are located in proximity to the raw material sources, exploiting the natural

resources to the full extent. The southern region is the most cement rich region while

other regions have almost same cement production capacity. The Indian cement

industry is about 90 years old and its main sources of energy are thermal and

electrical energy. The thermal energy is generally obtained from coal, and the

electrical energy is obtained either from grid or captive power plants of the individual

manufacturing units.

Salient features of Indian cement industry

Indian cement industry is the second largest in the world with an installed

capacity of 135 MTPA. It accounts for nearly 6% of the world production.

There are 124 large plants and around 365 mini plants. The industry presents

a mixed picture with many new plants that employ state-of-the-art dry process

technology and a few old wet process plants having wet process kilns.

Production from large plants (with capacity above 1 MTPA) account for

85% of the total production.

The cement industry has achieved significant progress in terms of reducing

the overall energy intensity.

Dry process plants that the weighted average thermal energy consumption was

734 kCal/kg clinker, and weighted average electrical energy consumption was

89 kWh/tone of cement. The best energy consumption are 692 kCal/kg .

clinker and 66 kWh/ton of cement.

Quantitative details:

The energy intensity of the all the dry process plants (cost of energy as

percentage of total production cost of packed cement) varies from 29 to 61%. This is

observed to vary with the vintage of the plant, the technology employed by the plants


and the type of cement produced. Specific thermal and electrical energy consumption

for the plants ranges between 692 – 879 kCal/kg. of clinker and 66 – 127 kWh/ton of

cement produced (product mix) respectively. The specific electrical energy also

includes the energy consumed in packing, plant utilities and plant lighting. The

reasons for wide range in specific energy consumption can be mainly attributed to the

differing equipment configuration employed in different sections of the plants by

various cement plants. For example, plants employing ball mills for grinding have

reported higher specific electrical energy consumption as compared to plants having

vertical roller mills. In addition, other factors like the plant capacity, its capacity

utilisation, vintage, product mix, process control system, maintenance aspects, raw

material characteristics and above all the management’s attitude and operational

practices of plant personnel are also important. Besides, various external parameters

like quality of coal, raw materials and power supply have their own repercussions.

A large number of plants have put in vertical roller mills for raw meal

section. The balls mills are still operating in the clinker grinding and coal milling

sections in some of the plants. Some of the newer plants have installed roller press

and vertical roller mills in the clinker grinding section as well. Comparison of energy

performance of Indian cement industry with other countries reveals that there exists

scope for improving the energy performance of the Indian cement industry. The best

reported (as per CMA data) energy performance figures in the world re 65 kWh/t of

cement and 650 kCal/kg of clinker whereas the best in India is 19 kWh/t of cement

and 665 kCal/kg of clinker. This clearly bring out the fact that although we have some

of the best plants in the world in terms of energy performance, there are many plants

where there exists scope for reducing energy consumption.

Cement Industry in India is on a roll at the moment. Driven by a booming

real estate sector, global demand and increased activity in infrastructure development

such as state and national highways, the cement industry has witnessed tremendous

growth. Production capacity has gone up and top cement companies of the world are

vying to enter the Indian market, thereby sparking off a spate of mergers and

acquisitions. Indian cement industry is currently ranked second in the world. The

origins of Indian cement industry can be traced back to 1914 when the first unit was

set-up at Porbandar with a capacity of 1000 tones. Today cement industry comprises


of 125 large cement plants and more than 300 mini cement plants. The Cement

Corporation of India, which is a Central Public Sector Undertaking, has 10 units.

There are 10 large cement plants owned by various State Governments. Cement

industry in India has also made tremendous strides in technological up gradation and

assimilation of latest technology. Presently, 93 per cent of the total capacity in the

industry is based on modern and environment-friendly dry process technology. The

induction of advanced technology has helped the industry immensely to conserve

energy and fuel and to save materials substantially. Indian cement industry has also

acquired technical capability to produce different types of cement like Ordinary

Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace

Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate

Resisting Portland Cement, White Cement etc. Some of the major clusters of cement

industry in India are: Satna (Madhya Pradesh), Chandrapur (Maharashtra), Gulbarga

(Karnataka), Yerranguntla (Andhra Pradesh), Nalgonda (AndhraPradesh),

Bilaspur(Chattisgarh), and Chandoria(Rajasthan).

Cement industry in India is currently going through a consolidation phase. Some

examples of consolidation in the Indian cement industry are: Gujarat Ambuja taking a

stake of 14 per cent in ACC, and taking over DLF Cements and Modi Cement; ACC

taking over IDCOL; India Cement taking over Raasi Cement and Sri Vishnu Cement;

and Grasim's acquisition of the cement business of L&T, Indian Rayon's cement

division, and Sri Digvijay Cements. Foreign cement companies are also picking up

stakes in large Indian cement companies. Swiss cement major Holcim has picked up

14.8 per cent of the promoters' stake in Gujarat Ambuja Cements (GACL). Holcim's

acquisition has led to the emergence of two major groups in the Indian cement

industry, the Holcim-ACC-Gujarat Ambuja Cements combine and the Aditya Birla

group through Grasim Industries and Ultratech Cement. Lafarge, the French cement

major has acquired the cement plants of Raymond and Tisco. Italy based Italcementi

has acquired a stake in the K.K. Birla promoted Zuari Industries' cement plant in

Andhra Pradesh, and German cement company Heidelberg Cement has entered into

an equal joint-venture agreement with S P Lohia Group controlled. Indo-

RamaCement.


Issues concerning Cement Industry

High Transportation Cost is affecting the competitiveness of the cement

industry. Freight accounts for 17% of the production cost. Road is the

preferred mode for transportation for distances less than 250km. However,

industry is heavily dependent on roads for longer distances too as the railway

infrastructure is not adequate.

Cement industry is highly capital intensive industry and nearly 55-60% of the

inputs are controlled by the government.

There is regional imbalance in the distribution of cement industry. Limestone

availability in pockets has led to uneven capacity additions.

Coal availability and quality is also affecting the production.


Over view of Telecom industry in India

The Indian Telecommunications network is the third largest in the world and the

second largest among the emerging economies of Asia. Today, it is the fastest

growing market in the world. The telecommunication sector continued to register

significant success during the year and has emerged as one of the key sectors

responsible for India’s resurgent India’s economic growth.

Growth

This rapid growth has been possible due to various proactive and positive

decisions of the Government and contribution of both by the public and the private

sector. The rapid strides in the telecom sector have been facilitated by liberal policies

of the Government that provide easy market access for telecom equipment and a fair

regulatory framework for offering telecom services to the Indian consumers at

affordable prices.

Wire line Vs Wireless

It has also undergone a substantial change in terms of mobile versus fixed

phones and public versus private participation. The preference for use of wireless

phones has also been predominant in the sector. Participation of the private entities in

the telecom sector is rapidly increasing rate there by presenting the enormous growth

opportunities. There is a clear distinction between the Global Satellite Mobile

Communication (GSM) and Code Division Multiple Access (CDMA) technologies

used and the graph below shows the divide between the two.

Segment wise Status

Wire line Services With increasing penetration of the wireless services, the

wireline services in the country is becoming stagnant. On the other hand, Broadband

demand has picked up and promises to stabilize fixed line growth.


GSM Sector

In terms of the Global System for Mobile Communication (GSM) subscriber

base this now places India third after China and Russia. China had 401.7 million GSM

subscribers

CDMA Services

CDMA technology was introduced in India as a limited mobility solution. The

introduction of CDMA services has created competition, lowered tariffs and offered

many citizens access to communication services for the first time.

Internet Services

Internet services were launched in India on August 15, 1995. In November

1998 the government opened up the sector to private operators. A liberal licensing

regime was put in place to increase Internet penetration across the country. The

growth of IP telephony or grey market is also a serious concern. Government loses

revenue, while unlicensed operation by certain operators violates the law and depletes

licensed operators market share. New services like IP-TV and IP-Telephony are

becoming popular with the demand likely to increase in coming years. The scope of

services under existing ISP license conditions are unclear.

Manufacture of Telecom Equipment

Rising demand for a wide range of telecom equipment, particularly in the area

of mobile telecommunication, has provided excellent opportunities to domestic and

foreign investors in the manufacturing sector. The last two years saw many renowned

telecom companies setting up their manufacturing base in India. Ericsson has set up

GSM Radio Base Station manufacturing facility in Jaipur. Elcoteq has set up handset

manufacturing facilities in Bangalore. Nokia set up its manufacturing plant in

Chennai. LG Electronics set up plant of manufacturing GSM mobile phones near

Pune. The Government has already set up Telecom Equipment and Services Export

Promotion.

Forum and Telecom Testing and Security Certification Centre (TETC). A large

number of companies like Alcatel, Cisco have also shown interest in setting up their


R&D centres in India. With above initiatives India is expected to be a manufacturing

hub for the telecom equipment.

Opportunities

The telecom sector has been one of the fastest growing sectors in the Indian

economy in the past 4 years. This has been witnessed due to strong competition that

has brought down tariffs as well as simplification of policy environment that has

promoted healthy competition among various players.. The mobile sector alone has

been growing rapidly and has emerged as the fastest growing market in the whole

worlds. Currently of a size nearing 70 million (GSM and CDMA), this sector is

expected to reach a size of nearly 200 million subscribers by financial year 2008. The

government has eased the rules regarding inter circle and intra circle mergers. This

has led to a slew of mergers and acquisitions in the recent past. Also as the sector is

moving closer to maturity, further consolidation is a reality and this will lead to the

survival of more profitable players in this segment In order to further promote the use

of Internet in the country the government is taking proactive steps to develop this

sector with the help of the various players in this segment.

For this purpose, the use of broadband technology is being mooted and this

will go a long way in improving the productivity of the Indian economy as well as

turn out to be the next big opportunity for telecom companies after the mobile

communications segment Non-voice services and VAS are the gold mines. The big

takeoff is expected with the rollout of 3G services in early 2007, once the spectrum

issues are sorted out. Internet users base fast reaching near the English speaking

population base. Local language and content required for further growth Infrastructure

equipment cost is down to a fraction of what prevailed just a few years ago. Operators

can plan better expansion plan now Increased viability for the operators to expand to

semi-urban and rural markets, hence, accelerate growth further It’s not without reason

that India is tipped to be the world’s third-larges economy by 2050! No wonder if it

happens much earlier Investors can look to capture the gains of the Indian telecom

boom and diversify their operations outside developed economies that are marked by

saturated telecom markets and lower GDP growth rates. At a time when global

telecom majors are struggling to cope with their losses and the rollout of 3G

networks, which has been a non-starter for close to a year now; India, with its

telecom.


Over view of Indian pharmaceutical industry

The Indian Pharmaceutical Industry currently tops the chart amongst India 's

science-based industries with wide ranging capabilities in the complex field of drug

manufacture and technology. The Indian Pharmaceutical Industry ranks very high

amongst all third world countries, in terms of technology, quality and the vast range

of medicines that are manufactured.

The Pharmaceutical industry has grown from mere US$ 0.3 billion

turnover in 1980 to about US$ 21.73 billion in 2009-10. The country now ranks 3 rd

in terms of volume of production (10 per cent of global share) an 14 th largest by

value (1.5 per cent of global share). One reason for lower value share is the lowest

cost of drugs in India ranging from 5 per cent to 50 per cent less as compared to

developed countries. Indian pharmaceutical industry growth has been fuelled by

exports and its products are exported to a large number of countries with a sizeable

share in the advanced regulated markets of the US and Western Europe .

Many Indian companies maintain highest standards in Purity, Stability and

International Safety, Health and Environmental (SHE) protection in production and

supply of bulk drugs even to some innovator companies. This speaks of the high

quality standards maintained by a large number of Indian Pharma companies as these

bulk actives are used by the buyer companies in manufacture of dosage forms which

are again subjected to stringent assessment by various regulatory authorities in the

importing countries. More of Indian companies are now seeking regulatory approvals

in USA in specialized segments like Anti-infectives, Cardiovasculars, CNS group.

Along with Brazil & PR China, India has carved a niche for itself by being a top

generic Pharma player.

Increasing number of Indian pharmaceutical companies have been getting

international regulatory approvals for their plants from agencies like USFDA (USA),

MHRA (UK), TGA (Australia), MCC (South Africa), Health Canada etc. India has

the largest number of USFDA-approved plants for generic manufacture. Considering

that the pharmaceutical industry involves sophisticated technology and stringent

"Good Manufacturing Practice (GMP) requirements, major share of Indian Pharma

exports going to highly developed western countries bears testimony to not only the


excellent quality of Indian pharmaceuticals but also its price competitiveness. More

than 50 per cent share of exports is by way of dosage forms. Indian companies are

now seeking more Abbreviated New Drug Approvals (ANDAs) in USA in specialized

segments like anti-infective, cardio vascular and central nervous system groups.

Exports

India currently exports drug intermediates, Active Pharmaceutical Ingredients

(APIs), Finished Dosage Formulations (FDFs), Bio-Pharmaceuticals, Clinical

Services to various parts 0f the world. The domestic Pharma Industry has recently

achieved some historic milestones through a leadership position and global presence

as a world class cost effective generic drugs' manufacturer of AIDS medicines. Many

Indian companies are part of an agreement where major AIDS drugs based on

Lamivudine, Stavudine, Zidovudine, Nevirapine will be supplied to Mozambique,

Rwanda, South Africa and Tanzania which have about 33 per cent of all people living

with AIDS in Africa. Yet another US Scheme envisages sourcing Anti Retrovirals

from some Indian companies whose products are already US FDA approved.


2.1Need of the study

A firm is required to maintain a balance between liquidity and profitability

while conducting its day to day operations. Liquidity is a precondition to ensure that

firms are able to meet its short-term obligations and its continued flow can be

guaranteed from a profitable venture. The importance of cash as an indicator of

continuing financial health should not be surprising in view of its crucial role within

the business. This requires that business must be run both efficiently and profitably. In

the process, an asset-liability mismatch may occur which may increase firm’s

profitability in the short run but at a risk of its insolvency. Begin their working

capital sections with a discussion of the risk and return tradeoffs inherent in

alternative working capital policies. Thus, the manager of a business entity is in a

dilemma of achieving desired trade off between liquidity and profitability in order to

maximize the value of a firm.

2.2 Objectives

To analyse the trend in working capital needs of the firms and to examine the

causes for any significant differences between the industries.

To examine the impact of return on total assets on working capital

management.

2.3 SOURCE OF DATA

Thus the empirical study is based on a sample of 25 small manufacturing

companies. The data has been collected from the financial statements of the sample

firms having a legal entity and have filed their annual return to the Registrar of

Companies. The sample was drawn from the directory of Small Medium Industrial

Development Organisation (SMIDO), a database for registered manufacturing firms

operating in diverse activities and for which data was available for a 5 years’ period,

covering the accounting period2007-08 to 2010-11.The companies qualified for the

above two conditions are further grouped into industries based on

the classification as listed in the 2007 directory. Thus the data set covers 25 firms

from five industry subsectors: auto mobiles, cements, two wheelers Telecomm and


Chemicals furniture. This has given a balanced panel data set of 25 firm-year

observations for a sample of 25 firms.

2.4 SAMPLE DATA:

The annual reports collected from the internet of select non-financial

industries are named as Automobiles Industry ,Cement Industry ,Two Wheeler

Industry, Pharmaceutical Industry, Telecom communication Industry under that

the select sample companies are:

AUTOMOBILES INDUSTRY

1.Setco Automotive Ltd2.Autoline Industries Ltd3.Steel Strips Wheels Ltd4.Kar Mobiles Ltd5.Wheels India Ltd

CEMENT INDUSTRY

1.Kesoram Industries Ltd2.NCL Industries Ltd3. OCL India Ltd4.J. K. Cement Limited 5.JK Lakshmi Cement Ltd

TELECOMM:1.Hathway Bhawani Cabletel & Datacom Ltd2. Delton Cables Ltd3.Mahanagar Telephone Nigam Ltd 4.Tulip Telecom Ltd 5.Hartron Communications Ltd

CHEMICALS 1.Balaji Amines Ltd2.Aarti Industries Ltd3.Aditya Birla Chemicals (India) Ltd 4.Aban Offshore Ltd5. Lime Chemicals Ltd


TWO WHEELERS1.Bajaj Auto Ltd2.TVS Motor Company Ltd3.Hero MotoCorp Ltd.4.Mahindra & Mahindra Ltd5.Maruti Suzuki India Ltd

2.5 PERIOD OF STUDY:

The period of the study is 2007-2008 to 2010-2011

2.6 TOOLS OF ANALYSIS:

The tools of analysis is divided into two types which are :

1. Financial tools

2. Statistical tools.

1. FINANCIAL TOOLS:

Financial Tools which used for the study are:

Ratios of Working Capital

Operating profit margin

(OPM) : =PBIT

SALES

Return on total assets

(ROTA) : =PBIT

TOTAL ASSETS

Assets turnover

(A_TURN) : =SALES

TOTAL ASSETS

Capital Gearing


(GEAR) : =TOTAL DEBTTOTAL ASETS

Current Ratio

(CR) : =C URRENT ASSETS

CURRENT LIABILITES

Quick Assets Ratio

(QAR) : =CURRENT ASSETS−STOCK

CURRENT LIABILITIES

Current assets to Total assets

(CA/TA) : =CURRENT ASSETS

TOTAL ASSETS

Current liabilities to Total assets

(CL/TA) : =CURRENT LIABILITES

TOTAL ASSETS

Total detors to Current assets

(TD/CA) : =TRADEDETORS

CURRENT ASSTES

2. Statistical tools.

REGRESSION ANALYSIS

ROTA = ∝ + β1 sales + β2 gear + β3 cata + β4 clta + β5 turnca


Table 1: Profitability Liquidity and operation efficiency of Select Auto Mobiles Industries during the year 2007-08 to 2010-11.

Name of the Company OPMROT

AA_TUR

NGEA

RCR QAR

CATA

CL/TA

Setco Automotive Ltd 45.16 0.28 1.63 1.04 3.12 3.12 0.65 0.068Steel Strips Wheels Ltd 13.92 0.14 1.14 1.13 1.67 1.67 0.36 0.51Autoline Industries Ltd 3.76 0.14 0.87 0.9 1.62 1.62 0.36 0.44Kar Mobiles Ltd 4.67 0.14 1.59 0.66 1.83 1.83 0.7 0.7Wheels India Ltd 2.79 0.13 1.7 0.7 1.53 1.53 0.56 0.51Mean 14.06 0.17 1.39 0.89 1.95 1.95 0.53 0.45Standard Deviation 17.95 0.06 0.36 0.21 0.66 0.66 0.16 0.23

Source: Data collected from annual reports of select Automobiles industry.

Interpretation:

Operating Profit Margin

From table 1, it is observed that the Operating Profit Margin of Secto

Automotive Ltd is high (45.16%) because the operating profit of the company is

increased year after year. The Mean operating profit Margin is 14.06% with Standard

Deviation of 17.95 %. Out of the five companies only one company Secto

Automotive Ltd Operating Profit Margin value is more than the Mean value. So, the

Secto Automotive Ltd performance is good during the study period.

Return on Total Assets

The Return On Total Assets of Secto Automotive Ltd is high (0.28%) when

compared to the other companies. The Mean of Return on Total Assets is 0.17 with

Standard Deviation of 0.06% out of the five company’s only one company Secto

Automotive Ltd Rota on Total Assets value is more than the Mean value. So, the

Secto Automotive Ltd performance is good.

Assets Turnover Ratio

The Assets turnover of Secto Automotive Ltd is high (1.63%) because the

total assets of the company in increased year by year. The Mean Assets turnover is

1.39 with Standard Deviation of 0.36 %.out of the five company’s only one company

Secto Automotive Ltd Assets turnover value is more than the Mean value. So, the

Secto Automotive Ltd performance is good during the study period.


Gearing Ratio

The Gear Ratio of steel strips is high (1.13%) when compared other companies.

The Mean of Gear Ratio is 0.89 with Standard Deviation of 0.21%. Only one company

Steel Strips performance is good during the study period.

Current ratio

The Current Ratio of Secto Automotive Ltd is high (3.12) when compared to the

other companies because of increasing of the Current Ratio increased year by year. The

Mean Current Ratio is 1.95 with the Standard Deviation of 0.66%. Out of five companies

only one company secto Automotive Ltd Current Ratio value is more than the Mean

value. So the secto Automotive Ltd performance is good during the study period.

Quick Assets Ratio

The Quick Assets Ratio of Secto Automotive Ltd is high (3.12) when compared

to the other companies. Because of increasing of the Quick Assets Ratio is increased year

by year. The Mean Quick Assets Ratio is 1.95 with the Standard Deviation of 0.66%. Out

of five companies only one com Quick Assets Ratio value is more than the Mean value

so, the Secto Automotive Ltd performance is good during study period.

Current Assets to Total Assets

The Kar Mobile Ltd Current Asset to Total Assets value is high (0.7) when

compare the other companies. The Mean of Current Assets Total Assets is 0.53 with the

Standard Deviation of 0.16%. Out of five companies only one company kar mobiles Ltd

Current Assets to Total Assets value is more than the Mean value. So, the Kar Mobile Ltd

performance is good.

Current liabilities toTotal Assets

The Kar Mobile Ltd Current liabilities to Total Assets high (0.7) when compared to the other companies. The Mean of Current liabilities to Total Assets is 0.45 with Standard Deviation of 0.23 out of five company’s only one company Kar Mobiles Ltd Current liabilities Total Assets value more than Mean value. So, the Kar Mobile Ltd performance is good during the study period.


Table 2: Profitability Liquidity and operation efficiency of select Cement

Industries during the year 2007-08 to 2010-11.

Name of the CompanyOPM

ROTA

A_TURN

GEAR

CR QARCAT

ACL/TA

Kesoram Industries Ltd 10.04 0.17 1.09 0.88 1.59 1.59 0.45 0.29

NCL Industries Ltd 3.96 0.18 0.67 0.89 1.31 1.31 0.34 0.26

OCL India Ltd 4.26 0.21 0.88 1.05 1.72 1.72 0.46 0.28

J. K. Cement Limited 5.3 0.2 0.95 0.83 1.61 1.61 0.41 0.25JK Lakshmi Cement Ltd

4.2 0.2 0.74 0.96 1.77 1.77 0.4 0.4

Mean 5.55 0.19 0.87 0.92 1.60 1.60 0.41 0.30

Standard Deviation 2.56 0.02 0.17 0.09 0.18 0.18 0.05 0.06Source: Data collected from annual reports of select Cement industry.

Interpretation:


From table 2: it is observed that the operating profit margin of Kesoram

Industries Ltd is high 10.4% because of the operating profit of the company increase

year of after year. The Mean of operating profit margin is operating profit value more

than the Mean value. So Kesoram Industries Ltd performance is good during the study

period.

Return on Total assets:

The Return on Total assets of Kesoram Industries Ltd is low when compared

to all the companies that is 0.17. There is fluctuation in the select companies the Mean

of Return on Total assets is 0.19. It is more than the Return on Total assets of

Kesoram Industries Ltd the Standard Deviation of Kesoram Industries Ltd is 0.02 it

the low when compare to the Standard Deviation the Ocl India Ltd, J.K Cement Ltd,

JK Lakshmi Cement Ltd maintain the more return on total assets compare to the Mean

value the companies good in performance during the study period.

Assets turnover ratio:

The Kesoram Industries Ltd maintain the Assets turnover ratio is high 1.09.

The Mean of Assets turnover ratio is 0.87. The Standard Deviation of Assets turnover

ratio is 0.17.the Assets turnover ratio value is more than the Mean of the companies

out of the five companies only one company maintain Assets turnover ratio above the

1.1%. So, Kesoram Industries Ltd good during the study period.


Gearing Ratio:

The Gearing Ratio value Kesoram Industries Ltd is 0.88 it is low when

compared to the all the companies. Ocl India Ltd maintain1.05 it is the high value

when compared. The Mean of Kesoram Industries Ltd is 0.92 Standard Deviation is

0.09%.out of the five companies only the Ocl India Ltd the Gearing ratio value is

more than the Mean value. So the Ocl India Ltd performance is good during the study

period.

Current Ratio:

The Current Ratio value all the selected five companies is below the Standard

Deviation norms of 2:1 the Mean of the companies is 1.60, Standard Deviation is

0.18%.out of five companies JK lakshmi Ltd current ratio is 1.77, it is the high when

compared to the Mean of the companies. So all the companies need maintain the

liquidity portion according to the stranded norms to meet the obligations and smooth

running.

Quick Assets Ratio:

The Quick Assets Ratio value JK lakshmi Ltd was high 1.77:1 when compared

to the others. The Mean of the Quick Assets Ratio is 1.60:1, Standard Deviation is

0.18%. The JK lakshmi Ltd maintain the high Quick Assets Ratio when compared to

its Mean. So, all the companies maintain the good liquidity and performance is good

during the study period.

Current assets total assets:

The Ocl India Ltd the Current assets total assets is high that is 0.46 when

compared to the other companies. The Mean of Current assets total assets is 0.41,

Standard Deviation is 0.05% the Ncl industries Ltd it is only one the Current assets

total assets value is good percentage so the company’s performance is good.


Current liabilities total assets:

The Current liabilities total assets of JK lakshmi Ltd is high 0.4 the Mean of

Current liabilities total assets is 0.41 Standard Deviation is 0.05%.out of the five

companies only one company JK lakshmi Ltd maintain the Current liabilities total

assets value more than the Mean value. So the JK lakshmi Ltd performance is good

study period.


Table 3: Profitability Liquidity and operation efficiency of select Telecomm

communication Industries during the year 2007-08 to 2010-11.


ROTA

A_TURN

GEAR

CRQAR

CATA

CL/TA

Hathway Bhawani Cabletel & Datacom Ltd

45.61 0.08 1.2 0.48 0.88 0.88 0.48 0.55

Delton Cables Ltd 13.29 0.12 1.54 0.6 2.19 2.19 0.88 0.4Mahanagar Telephone Nigam Ltd

3.76 -0.01 0.18 0.49 1.08 1.08 0.6 0.58

Tulip Telecom Ltd 4.67 0.23 1.1 1.02 5.41 5.41 0.53 0.12Hartron Communications Ltd

2.79 0.12 0.26 0.88 2.33 2.33 0.22 0.12

Mean 14.02 0.11 0.86 0.69 2.38 2.38 0.54 0.35

Standard Deviation 18.15 0.09 0.60 0.24 1.81 1.81 0.24 0.22Source: Data collected from annual reports of select Telecommunication industry.

Interpretation: Operating profit margin:

From table 3: it observed that the operating profit margin of Hathway

Bhawani Cabletel & Datcom Ltd is (45.16%) it is more when compared to others.

Because of the increase operating profit margin the Mean operating profit margin is

14.02% and Standard Deviation is 18.15 the company Hathway Bhawani Cabletel &

Datcom Ltd operating profit margin value is more than Mean value. So, Hathway

Bhawani Cabletel & Datcom Ltd performance is good during the period of study.

Return on total assets:

The Return on total assets of Tulip Telecom Ltd is high 0.23 when compared

to the other companies. The Mean Return on total assets is 0.11 with Standard

Deviation of 0.09 % out of the five company’s only one company Tulip Telecom Ltd

performance is good Return on total assets value is more than the Mean value. So, the

Tulip Telecom Ltd performance is good.


The Assets turnover ratio of Delton Cables Ltd is high 1.54 because it is

increased year by year. The Mean of Assets turnover ratio is 0.86, with Standard

Deviation of 0.60% out of the five company’s. Only one company Delton Cables Ltd

Assets turnover ratio value is more than the Mean value. So, the Delton Cables Ltd



Gearing ratio:

The Gearing ratio Tulip Telecom Ltd is high 1.02, when compared to the other

companies. The Mean of Gearing ratio is 0.69 with Standard Deviation 0.24%. Only

one company Tulip Telecom Ltd Gearing ratio value more than the Mean value. So,

Tulip Telecom Ltd performance is good during the study period.

Current ratio:

It is observed that the Current ratio of Tulip Telecom Ltd is high 5.41 when

compared to the other companies. Because of increase of the Current ratio is increase

year by year. The Mean of Current ratio is 2.38 with the Standard Deviation of 1.81%.

Out of five company’s only one company Tulip Telecom Ltd Current ratio is more

than the Mean value. So, the Tulip Telecom Ltd performance is good in during the

study period.

Quick Assets Ratio:

It is observed that the Quick Assets Ratio of Tulip Telecom Ltd is high 5.41.

When compared to the other companies. Because of increase in their value year by

year. The Mean of Quick Assets Ratio is 2.38 with the Standard Deviation of 1.81%.

Out of five company’s only one company Tulip Telecom Ltd Quick Assets Ratio

value is more than the Mean value. So, the Tulip Telecom Ltd performance is good


Current assets to total assets:

It is observed that the Delton Cables Ltd Current assets to total assets value is

high 0.88 when compared to the other companies. The Mean of Current assets total

assets is 0.54 with the Standard Deviation of 0.24% other of five company’s only one

company Delton Cables Ltd Current assets to total assets value is more than the Mean

value. So, the Delton Cables Ltd performance is good during the study period.


Current liabilities to total assets:

It is observed that the Mahanagar Telephone nigam Ltd Current liabilities to

total assets value is high 0.58 when compared to the other company’s only one

company Mahanagar Telephone nigam Ltd Current liabilities to total assets value

more than the Mean value. So, the Mahanagar Telephone nigam Ltd performance is

good during the study period.


Table 4: Profitability Liquidity and operation efficiency of select Chemical Industries during the year 2007-08 to 2010-11.


ROTA

A_TURN

GEAR

CRQAR

CATA

CL/TA

Balaji Amines Ltd

6.48 0.18 51.2 0.81 2.11 2.11 0.57 0.27

Aarti Industries Ltd 7.28 0.16 1.16 0.8 2.64 2.64 0.66 0.25Aditya Birla Chemicals (India) Ltd

2.59 0.19 0.47 0.42 1.64 1.64 0.38 0.73

Aban Offshore Ltd 1.61 0.33 0.52 2.14 4.13 4.13 0.66 0.18

Lime Chemicals Ltd -5.08 -7.2 1.28 0.5 1.08 1.08 0.5 0.56

Mean 2.58 -1.27 10.93 0.93 2.32 2.32 0.55 0.40

Standard Deviation 4.92 3.32 22.52 0.70 1.16 1.16 0.12 0.24Source: Data collected from annual reports of select Chemical industry.

Interpretation:


From table 4: it is observed that the operating profit margin of Balaji Amines Ltd

is 6.48, it is moderate when compared to other, because of the increase in operating

profit the Mean operating profit margin is 2.58% and Standard Deviation 4.92. The

company Balaji Amines Ltd operating profit margin value I s more than the value. So

Balaji Amines Ltd performance is good during the study period

Return on Total Assets:

The Return on Total Assets Aban offshare Ltd ids 0.33 high when compare to

other companies. There is fluctuations in the select companies the Mean of the Return

on Total Assets is negative that is (-1.27) with Standard Deviation of 3.32 out of the

five companies only one Aban offshare Ltd maintain 0.33% ROTI performance . The

Return on Total Assets Aban offshare Ltd ids 0.33 high when compare to other

companies. There is fluctuations in the select companies the Mean of the Return on

Total Assets is negative that is (-1.27) with Standard Deviation of 3.32

Assets Turnover Ratio:

The assets turnover Ratio of Balaji Amines Ltd is 5.12, it is high when compared

to other companies. The Mean of The assets turnover Ratio of Balaji Amines Ltd is

5.12, it is high when compared to other companies annual turnover is 10.28 and


Standard Deviation is 22.52 the company Balaji Amines Ltd annual turnover is more

than value. So balaji Amines Ltd performance is high good.

Gearing ratio:

It is observed that the Gearing ratio value of Aban offshore Ltd is 2.14 it is high

when compared to companies all companies lime chemical Ltd maintain 0.5 it is very

low when compare to the all the Mean of value of Gearing ratio is 0.93and Standard

Deviation is 0.70.out of five companies only one company aban offshore maintain the

Gearing Ratio value is more than the Mean value. So, the abon offshore Ltd

performance is good during the study period.

Current ratio:

The Current ratio is Abon offshore Ltd is 4.13, it is high compared to all the

companies. The Mean of Current ratio is 2.32 and Standard Deviation is 1.16.out of

five company’s only one company maintain the Current ratio is more than the Mean

value.

Quick asset Ratio:

The Quick asset Ratio is Abon offshore Ltd is 4.13, it is high compared to all the

companies. The Mean of Quick asset Ratio is 2.32 and Standard Deviation is 1.16.

The Abon offshore Ltd maintained high Quick asset Ratio when compared to it is

Mean show all the companies maintain the good liquidity and the performance is

good during the study period.

Current Assets to Total Assets:

The Aarti Industries Ltd & Aban off shore Ltd maintained the same Current Assets to Total Assets ratio i.e. 0.66, it is when compared to all the companies. The Mean of Current Assets to Total Assets is 0.55 & Standard deviation is 0.12. Both Aarti Industries Ltd & Aban off shore Ltd maintained high Current Assets to Total Assets when compared to its Mean. So, these companies performance is during the study period.


Current Liabilities to Total Assets: The Current Liabilities Total Assets value of Aditya Birla chemicals Ltd is 0.73, it

is high when compared to the all companies. The Mean Current Liabilities to Total

Assets is 0.40 & Standard deviation is 0.24%. Aditya Birla chemicals maintained high

Current Liabilities Total Assets when compared to its Mean.


Table 5: Profitability Liquidity and operation efficiency of Two Wheelers Industries during the year 2007-08 to 2010-11.

Name of the Company

OPM ROTA A_TURN GEAR CR QAR CATA CL/TA

Bajaj Auto Ltd 6.59 0.38 2.38 0.98 0.83 0.83 0.68 0.83TVS Motor Company Ltd

34.01 0.08 2.19 0.86 1.1 1.1 0.51 0.46

Hero MotoCorp Ltd

7.21 0.59 4.28 1.16 0.42 0.42 0.44 3.02

Mahindra & Mahindra Ltd

8.33 0.26 2.07 1.22 1.1 1.1 0.7 0.65

Maruti Suzuki India Ltd

8.88 0.3 2.6 1.19 1.3 1.3 0.51 0.39

Mean 13.00 0.32 2.70 1.08 0.95 0.95 0.57 1.07Standard Deviation 11.78 0.19 0.90 0.16 0.34 0.34 0.12 1.10

Source: Data collected from annual reports of select Two Wheelers industry.

Interpretation:

Operating Profit Margin

From the above table5: it is observed that the operating profit margin of the

Bajaj is 6.59, it is less value when compared to others because of the decrease in the

operating profit. The main operating profit margin is 13.00 & standard deviation is

11.78 company Bajaj operating profit margin value is less than the Mean value. So,

Bajaj ltd performance is poor during the study period.

Return on Total assets:

The maruthi Suzuki and hero Moto corp ltd is high (0.59) when compared to

the other companies the return on total assets is 0.32 with the standard deviation of

0.19 present out of five companies only one company hero Moto corp. return on total

assets value is more than Mean value. So, the hero Moto corp ltd performance is good



The hero Moto corp is 2.70 ltd is high (4.28) when compared to all companies

the Mean of hero Moto corp is 2.70 with the slandered deviation of 0.90 present. The

assets turnover ratio value is more than the Mean of the companies out of the five

companies out of five company’s only one company maintain assets turnover ratio is

high. So, the performance of hero Moto corp ltd is good during the study period.


Gearing Ratio:

The Gearing Ratio of Mahindra & Mahindra ltd is high (1.22) when compared

to the other companies. The Mean of gear is 1.08 with the slandered deviation of

0.16% only one company Mahindra & Mahindra ltd gear value is more than the study

period

Current ratio:

The current ratio of maruthi Suzuki ltd is high (1.3) when compared to the

other companies. The Mean of the current ratio is 0.95 & standard deviation is 0.34.

Here Bajaj auto ltd, Mahindra & Mahindra ltd and maruthi Suzuki maintained the

current ratio value is high when compared to its Mean value. So, these companies


Quick assets ratio:

The quick assets ratio of maruthi Suzuki ltd is high i.e., 1.3 when compared to

all companies. The Mean of the quick assets ratio is 0.95 & standard deviation is

0.34%. Here Bajaj auto ltd, Mahindra & Mahindra ltd & maruthi Suzuki maintained

the quick assets ratio value is high when compared to its Mean value. So, these

companies performance is well during the study period.

Current assets to total assets:

The current assets to total assets ratio of Bajaj auto ltd is high i.e., 0.7 when

compared to all companies. The Mean of the current assets to total assets is 0.57 &

standard deviation is 0.12. The Bajaj auto ltd maintained the current assets to total

assets value is high when compared to its Mean value. So, these companies


Current liabilities to total assets:

The current liabilities to current assets of hero motor corporation is high i.e.,

3.02 when compared to all companies. The Mean value of current liabilities to current

assets is 1.07 & standard deviation is 1.10. Here motor corp maintained the current

liabilities to current assets value is high when compared to its Mean value. So, the

motor corporation performance is good during the study period.


Table6 : Five years Mean and Standard Deviations for the variables

INDUSTRIES

VARIABLES ALL(N=25) AM(N=5) CM(N=5) TC(N=5) CH(N=5) TW(N=5)

A_TURN 0.67

(0.04)

1.38

(0.13)

0.86

(0.12)

0.85

(0.17)

10.92

(0.15)

2.70

(0.48)SD

OPM 1.76

(1.41)

9.07

(1.27)

5.55

(2.86)

14.02

(16.85)

2.58

(9.03)

13

(5.48)SD

GEAR 0.18

(0.03)

0.88

(0.10)

0.92

(0.10)

0.69

(0.07)

0.93

(0.32)

1.08

(0.24)SD

CR 0.35:1

(0.18)

1.95:1

(0.29)

1.6:1

(0.3)

2.37:1

(1.21)

2.32:1

(2.69)

0.95:1

(0.15)SD

QAR 0.35

(0.18)

1.95

(0.29)

1.6

(0.3)

2.37

(1.21)

2.32

(2.69)

0.95

(0.15)SD

CA/TA 0.10

(0.06)

0.52

(0.04)

0.41

(0.05)

0.54

(0.12)

0.55

(1)

0.56

(0.29)SD

CL/TA 0.096

(0.05)

0.28

(0.04)

0.29

(0.05)

0.35

(0.05)

0.42

(0.12)

1.07

(1)SD

TD/CA 0.42

(0.18)

1.55

(0.41)

3.32

(2.67)

1.84

(0.47)

1.96

(0.71)

1.97

(0.47)SD

ROTA 0.023

(0.28)

0.17

(0.03)

0.19

(0.06)

0.09

(0.04)

1.26

(6.95)

0.32

(0.01)SD

CATA 0.096

(0.01)

0.52

(0.05)

0.41

(0.07)

0.38

(0.08)

0.55

(0.21)

0.56

(0.06)

SD

NOTE:The variables are defined as in Appendix

The Standard Deviations is given in parentheses.

Table - 1:FIVE Year Means and Standard Deviations for the Variables

The industries are Automobiles (AU); Cements (CM); Telecomm (TC); Chemicals (CS) and Two

wheelers (TW).


Assets Turnover Ratio:

Chemical Industry Assets Turnover Ratio Mean value during the study period is high

(10.92) with Standard Deviation of 0.15% followed by Two Wheeler, Automobile,

Cement, Telecom communication. The Mean Assets Turnover Ratio of all companies

is 0.67 with 0.04% standard deviation.

Operating profit margin:

Chemical Industry operating profit margin ratio Mean value during the study period is

high (14.02) with Standard Deviation of 16.85% followed by Two Wheeler,

Automobile, Cement, Chemicals. The mean Operating profit margin of all companies

is 1.76 with 1.41% Standard Deviation.

Gearing Ratio:

Chemical Industry gearing ratio mean value during the study period is high (1.08)

with standard deviation of 0.24% followed by Chemicals, Cement, Automobile,

Telecom communication. The Mean Gearing Ratio of all companies is 0.18 with

0.03% Standard Deviation.

Current Ratio:

Chemical Industry Current Ratio Mean value during the study period is high (2.32)

with Standard Deviation of 1.21% followed by Chemicals, Automobile, Cement,

Telecom communication. The Mean Current Ratio of All companies is 0.35with


Quick Assets Ratio:

Chemicals Industry Quick Assets Ratio Mean value during the study period is high

(2.37) with Standard Deviation of 1.21% followed by Chemicals, Automobile,

Cement, Two Wheeler. The Mean Quick Assets Ratio of all companies is 0.35 with




Chemical industry Current Assets to Total Assets Mean value during the study period

is high (0.56) with Standard Deviation of 0.29% followed by Chemicals, Telecom,

Automobile, Cement. The Mean Current Assets to Total Assets of All companies is

0.10 with 0.06% Standard Deviation.

Current Liabilities Total Assets:

Chemical industry Current Liabilities Total Asset Mean value during the study period

is high (1.07) with Standard Deviation of 1% followed by Chemicals, Telecom,

Cement, Automobile. The mean Current Liabilities Total Asset of All companies is

0.096 with 0.05% Standard Deviation.

Total Detors to Current Assets:

Chemical industry Total Detors to Current Assets Mean value during the study period

is high (3.32) with Standard Deviation of 2.67% followed by Two Wheeler,

Chemicals, Telecom, Automobile. The Mean Total Detors to Current Assets of All

companies is 0.42 with 0.18% Standard Deviation.

Return on Total Assets:

Chemical industry Return on Total Assets Mean value during the study period is high

(1.26) with Standard Deviation of 6.95% followed by Two Wheeler, Cement,

Automobile, Telecom. The Mean Return on Total Assets of All companies is 0.23

with 0.28% Standard Deviation.

Current Assets Total Assets:

Chemical industry Current Assets Total Assets Mean value during the study period is

high (0.56) with Standard Deviation of 0.06% followed by Chemicals, Automobile,

Cement, Telecom. The mean Current Assets Total Assets of All companies is 0.096

with 0.01% Standard Deviation.


Table 7: Components of Current Assets and Liquidity Ratios

IndustryCR QAR TD/CA CA/TA CL/TA

2007 2011 2007 2011 2007 2011 2007 2011 2007 2011

AM 2.24:11.71:

12.24 1.17 1.5 1.85 0.57 0.5 0.26 0.30

CM 1.76:11.50:

11.76 1.5 2.05 2.61 0.44 0.33 0.30 0.23

CH 2.02:16.24:

12.02 6.24 2.44 0.93 0.49 0.63 0.31 0.35

TL 2.54:11.99:

12.54 1.99 13.7 2.25 0.57 0.47 0.32 0.33

TW 1.04:10.85:

11.04 0.85 1.92 1.90 0.58 0.56 0.60 2.80

Current Ratio:

The Mean Current Ratio of Automobile, Cement, Telecom, Two Wheeler is decreased

during the study period. Only one Industry Chemicals mean Current Ratio is

increased with 2.02:1 in the year 2007-08 to 6.24:1 in the year 2010-11.

Quick Assets Ratio:

The mean Quick Assets Ratio of Automobile, Cement, Telecomm, Two Wheeler is

decreased during the study period. Only one Industry Chemicals Mean Current Ratio

is increased with 2.02:1 in the year 2007-08 to 6.24:1 in the year 2010-11.

Total Detors to Current Assets:

The mean Total Detors to Current Assets of Automobile, Chemicals, Telecomm

communication, Two Wheeler is decreased during the study period. Only one


Industry Chemicals Mean Current Ratio is increased with 2.05:1 in the year 2007-08

to 2.61:1 in the year 2010-11.


The Mean Current Assets to Total Assets of Automobile, Cement, Telecomm

communication, Two Wheeler is decreased during the study period. Only one industry

Chemicals Mean Current Ratio is increased with 0.49:1 in the year 2007-08 to 0.63:1

in the year 2010-11.

Current Liabilities Total Assets:

The mean Current Liabilities Total Assets of Automobile, Cement, Chemicals,

Telecomm communication is decreased during the study period. Only one industry

Chemicals mean Current Ratio is increased with 0.60:1 in the year 2007-08 to 2.80:1

in the year 2010-11.


Table: 8 Coefficient Correlation Between Variables

Return on

total assets

Operating profit

margin

Assets turnover

Gearing

Current assets total

assets

Stock current assets

Trade detors current assets

Current liabilities

total assets

Retun On TotalAssets 1 -.711 .997** .284 .335 .304 -.120 .042

Operating profit margin 1 -.662 -.220 .375 -.277 -.386 .423

Assets turnover 1 .260 .404 .324 -.193 .062

Gearing 1 .050 -.806 .162 .707Currentassets total assets 1 .110 -.883* .493

Stock assets total assets 1 -.274 -.767

Trade detor current assets

1 -.171

Current liabilities total assets

1

* Indicate significant at 5% level

** Indicate significant at 1% level

Interpretation:

From table 8, it is observed that Return on Total Assets and Assets Turnover Ratio id

s significant at both 5% and 1% of significance. Current Assets to total Assets and Trade

Debtors to Current Assets is negatively correlated at 5% level of significance. Trade Debtors to

Current Assets is nothing negative relationship with all select variables and the relationship is

insignificant.


Model Summary

Model R R Square Adjusted R

Square

Std. Error of the

Estimate

1 .435a .189 .140 5.89957

a. Predictors: (Constant), Current liabilities total assets, Trade detors

current assets, Assets turnover, Operating profit margin, Stock current

assets, Gearing, Current assets total assets

ANOVAa

Model Sum of Squares df Mean Square F Sig.

1

Regression 948.397 7 135.485 3.893 .001b

Residual 4072.181 117 34.805

Total 5020.578 124

a. Dependent Variable: Return on total assets

b. Predictors: (Constant), Current liabilities total assets, Trade detors current assets, Assets

turnover, Operating profit margin, Stock current assets, Gearing, Current assets total assets

Coefficientsa

Model Unstandardized Coefficients Standardized

Coefficients

t Sig.

B Std. Error Beta

1

(Constant) -1.715 2.315 -.741 .460

Operating profit margin .149 .029 .439 5.190 .000

Assets turnover .019 .054 .029 .348 .728

Gearing .994 1.393 .063 .713 .477

Current assets total assests -2.120 3.574 -.057 -.593 .554

Stock current assets .132 .239 .049 .551 .583

Trade detors current assets .056 .235 .023 .239 .811

Current liabilites total assets .114 .531 .018 .214 .831

a. Dependent Variable: Return on total assets


Table 9 : Regression Analysis of Performance Measures and working capital

Variables ROA

Operating profit margin .439 5.190*

Assets turnover .029 .348

Gearing .063 .713

Current assets total assets -.057 -.593

Stock current assets .049 .551

Trade detors current

assets.023 .239

Current liabilities total

assets.018 .214

F – value 3.893*

N 25

R – value .435

Interpretation:

From table 9: It is observed that F-value is significant at 5% level of

significance. So, the model is good fit. In all the select performance measures of

working capital, only one variable (Operating Profit Margin) is significantly affecting

the performance of Return on Total Asset.


Findings:

In Automobile sector it is found that only one company Setco Automobiles

performance with reference to Operating Profit Margin, Return On Total Assets,

Current Ratio, And Quick Asset Ratio is good. Kar mobiles and Setco Automobiles

performance is good to Asset turnover ratio and Steel strips performance is good

under Gearing Ratio. Under Current Assets to Total Assets both Setco Automobiles

Ltd and Wheels India Ltd Performance is good.

In Cement Sector it is found that only one company Kesoram Industries Ltd

performance with reference to Operating Profit Margin, Asset Turnover Ratio ,and

Current Assets To Total Assets, is good. OCL India Ltd Return On Total Assets,

Gearing Ratio performance is good, J.K cement ltd Asset Turnover Ratio and

J.K.Lakshmi performance is good under Gearing Ratio, Current Ratio, Quick Asset

Turn Ratio.

In Telecomm Communication Sector it is found that only one company Hathway

Bhawani Cabletel and Datacom ltd performance with reference to Operating Profit

Margin, Liabilities and Total Assets, is good. Tulip telecom ltd performance is Good

Asset Turnover Ratio, Gearing Ratio, Current Asset Ratio And Quick Asset Ratio and

Delton cables ltd performance is good under Asset Turnover Ratio, Return On Total

Assets And Current Assets To Total Assets. Under Current Assets To Total Assets

And Current Liabilities To Total Assets Mahanagar Telephone Nigam ltd


In Chemical industries it is found that only one company Aarti Industries Ltd.

performance with reference to Operating Profit Margin, Current Asset Ratio, And

Quick Asset Ratio And Current Assets to Total Assets is good. Balaji Amines

Operating Profit Margin, Asset Turnover Ratio And Current Assets To Total Assets

Performance Is Good To Operating Profit Margin, Return On Total Assets And

Current Liabilities To Total Assets performance is good in Aditya Birla Chemical

India Ltd.


In Two Wheelers Industry sector it is found that only one company TVS Motors

company performance with reference To Operating Profit Margin, Current Ratio, And

Quick Asset Ratio is good. Hero motocrop ltd performance is good to Return on Total

Asset and Current Assets to Total Assets and Bajaj auto ltd performance is good

under Return On Total Asset, Asset Turnover Ratio, Gearing Ratio, Current

Liabilities To Total Assets And Current Assets To Total Assets. Under gearing ratio

Mahindra & Mahindra ltd performance is good.


SUGGESTIONS:

1. Steel strips wheels ltd and wheels India ltd both companies performance is

very low with reference to Return On Total Assets And Current Assets To Total

Assets. Therefore the company should concentrate on PBIT and Current Assets, So

that their Return on Total Assets and Current Assets to Total Assets would increase.

2. NCL industries ltd and J.K.cement ltd both companies performance is very

low with reference to Assets Turnover Ratio and Gearing Ratio. Therefore the

company should concentrate on Assets Turnover Ratio and Gearing Ratio, so that

their Assets Turnover Ratio and Gearing Ratio performance would increase.

3. Mahanagar Telephone Nigam ltd and Tulip telecom ltd both companies is very

low with reference to Return On Total Assets And Current Liabilities To Total

Assets. Therefore the company should concentrate on PBIT and Current Liabilities

So that Their Return on Total Assets and Current Assets to Total Assets would

increase.

4. Lime chemicals ltd and Aban Offshore ltd both companies is very low with

reference to Gearing Ratio and Current Assets To Total Assets. Therefore the

company should concentrate on Total Debt and Current Assets so that their Gearing

Ratio and Current Assets to Total Assets would increase.

5. Bajajauto Ltd and Heromotocrop ltd both companies is very low with

reference to Operating Profit Margin And Return on Total Assets. Therefore the

company should concentrate on PBIT and Return on Total Assets so, that their PBIT

and Return On Total Assets would increase.


CONCLUSION

The different analyses have identified critical management practices and are

expected to assist managers in identifying areas where they might improve the

financial performance of their operation. The results have provided owner-managers

with information regarding the basic financial management practices used by their

peers and their peers attitudes toward these practices. The working capital needs of an

organization change over time as does its internal cash generation rate. As such, the

small firms should ensure a good synchronization of its assets and liabilities.

This study has shown that the Chemical and Two Wheeler industry has been able to

achieve high scores on the various components of working capital and this has

positively impact on its profitability. On this premise this industry may be referred as

the ‘hidden champions’ and could thus be used as best practice among the select

manufacturing companies.

.


Trends in Working Capital Management Project Final

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