Working Capital in C.L. GUPTA

8/13/2019 Working Capital in C.L. GUPTA

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INTRODUCTION


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income and statement. $ince the balance sheet and income statement are of limited interest the

annual report of the company are supplemented by a third statement the change in financial

position and by foot notes which e%plain and amplify the reported numerical data.

TYPES OF FINANCIAL STATEMENTS

(A) The Balance Sheet:-

"he balance sheet is called a fundamental accounting report. !t provides information about the

financial standing or position of affirm at given instant. "he balance sheet can be visualized,

as a snapshot of the financial status of company is a valid for only one day the reference day.

"he position of the firm on a preceding day is bound to be different.

"he balance sheet of a company indicates to management the financial status of a company

as on a given moment. From an analyst point of view a balance sheet is written representation

of the resources and liabilities of an individual partnership firm an association of a

corporation.

The contents o !alance sheet can !e "#$#"e" #nto th%ee "#$#s#ons

&Assets: -

Assets are valuable resources owned by a business, which are ac'uired at a measurable money

cost these are economic resources of a firm which provide economic benefits to the company.

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L#a!#l#t#es:-

)iabilities are claim of creditors against the enterprises arising out of past activities that are to

be satisfied by the disbursement of utilization of corporate resources. "hey are economic

obligation of the firm.

&O'ne%s e*#t+:-

"he owner*s e'uity is the owner*s current investment in the assets of company.

"he entire system of recording business transaction is based on accounting e'uation. "he

accounting e'uation is an accounting formula e%pressing e'uivalence of the two e%pressions

of assets and liabilities.

ACCOUNTIN, EUATION

(B) The Inco.e State.ent:-

"he balance sheet, as discussed above, is considered a very significant statement from the

view point of baners, and other lenders, because it indicates the firm*s financial position and

strength, as measured by its recourses and obligations, however, editors and financial analysis

have recently started paying more attention to the firm*s capacity as a measure of its financial

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strength. !ts income statement revels the firm*s capacity as a measure of its financial strength.

!ts income statement revels the earning potential of the firm.

An income statement is a financial statement summarizing the result of a company*s income

8profit9 maing activities for a specific time period. !t summarizes revenues and e%penses in a

manner that discloses whether a company*s activates in a particular fiscal period have resulted

in profit or a loss. "he income statement is a scoreboard of the firm*s performance during a

particular period of time. "he profit and loss account is the condensed and classified record

of the gains losses posing change in the owner*s interest in the business for a period of time.

"he income statement or the profit and loss account presents the summary of revenues,

e%penses and net income 8or net loss9 of a firm for a period of time. "hus, it serves as measure

of the firm*s profit ability. !t*s systematic array of the data of the revenues, revenues

deduction 8e%penses, revenues, revenue deductions, e%penses, losses, ta%es etc.9

et income and distribution or assignment of the net income to creditors and property

investors of a particular period.

(C) STATEMENT OF C/AN,E IN FINANCIAL POSITION

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PARTIES INTERESTED

According to the American institute of certified public accountants, financial statement

reflects, a combination a recorded facts, accounting convention and personal judgments and

the judgments and conventions applied, affect them materially.

Following are interested in financial statement?6

@redit, suppliers and others are having business with the company.

ebenture holders.

@redit institutions and bans.

Botential lenders and investors.

"rade unions and employees.

!mportant customers wishing to mae a long standing with the company.

+conomist and analyst.

Cembers of parliament, the public committee in respect in government companies.

"a%ation authorities.

/ther departments dealing with the industry in which the company engaged

cooperative.

"he company law board.

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FINANCIAL APPRAISAL

A company*s financial statement are intended to summarize the results of its operation and its

ending financial condition. "he information in the statement is studied and related to other

information by e%ternal users for several reasons. @urrent shareholders, for e%ample, are

concerned about there invested income, as well as the company*s overall profitability and

stability. $ome potential investors are invested in solid companies that are companies whose

financial statement indicate stable earnings and dividends with little growth in operations.

/ther prefers companies whose financial statement indicate rend for rapid growth in a

company*s short run solvency, its ability to pay current obligation as they become due. )ong6

term creditors are concerned about the safety of their interestD income and company*s ability

to continue earning cash flow to meet its financial commitments and these are only few of the

users, and uses of financial statements.

-ut the numerical data in the financial statement are 'uit calm. "hey cannot spea. Analytical

data are not ending in themselves, but they are meant to an end. Financial appraisal is an

attempt to determine the significance, and meaning of the financial statement data so that

forecast may be made of the prospects for future earnings, ability to pay interest, debt

maturities both current as well as long term profitability of a sound dividend policy. Financial

appraisal involves the assessment of firm*s past, present and anticipated future financial

condition.

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Financial appraisal is a scientific evaluation if the profitability and financial strength of a

business concern. !n fact financial appraisal and analysis of financial statement have nearly

the same meaning. Financial statement analysis is used for the purpose of financial appraisal.

Financial appraisal is the process of maing a scientific proper, critical and comparative

evaluation of the profitability and financial health of given concern through the application of

financial statement analysis. Financial statement analysis is a preliminary step towards the

evaluation of result dawn by the analysis or management accountant. Appraisal or evaluation

of such results is made thereafter. Financial appraisal begins where financial analysis ends,

and financial analysis starts where the summarization of financial data in the form of profit

and loss account and balance sheet ends, in the words of enney and mecmillan, financial

statement analysis attempts to unveil the meaning and significance of the items composed in

profit and loss account and balance sheet so as to assist the management in the formation of

sound operating financial policies. "he appraisal or analysis of financial statement spotlights

the significant facts and relationship concerning managerial performance, corporate

efficiency, financial strength or weaness and credit worthiness, that would have otherwise

been buries in the maze of details.

"he techni'ue of financial appraisals fre'uently applied to the study of accounting data with a

view to determining continuity or discontinuity of the operating policies and investment value

of business. +verybody interested in the affairs of the company is interested in finding answer

to the following searching 'uestion?6

Appraisal of financial statement alone can answer such 'ueries. !ts true that statement analysis

merely reveals what has taen place in the past, but past events given some indication of what

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may be e%pected in future unless some drastic changes tae place in business it. 0ill continue

to move in the same direction in the past.

Roy .A. Faulkeis very correct to say if a train is moving forward at a nown rate of speed, it

is reasonable to assume that it will continue to move at appro%imately the same rate unless

some obstacle interrupts its progress abruptly or the motive power is increased or decreased.

$imilarly it is a reasonable to assume that unless some realistic change tae places in the

places in the business, it will continue to move in the same general direction as indicated by

its comparative trends.

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NEED OF FINANCIAL APPRAISAL

"he need of financial appraisal varies accounting to type of users. For management is servers

as mean s of self evaluation as it is lie a report of its managerial sill and competence a

baner can judge the li'uidity position a creditor can plan buying and selling of hares of

concern on the basis of safety of principal and its capital appearances as wanted by the past

record of earning. A debenture holder of a concern can ascertain whether income is generates

sufficient margin to pay the interest H answers to different 'uestion are provided by financial

appraisal. -y using this techni'ue an economist can study the e%tent of concentration of

economic power and pitfalls in the financial policies pursued, while a planner can ascertain if

the patter of investment reveals the company*s position in relation to labor and its welfare,

legislation concerning licensing desirable in the socio economic interested may be based on

statement analysis.

"he management of current assets is similar to that of fi%ed assets in the sense that in both

case that a firm analyses their effects on its return and ris. "he management of fi%ed and

current assets, however, differs in three important ways? first, in managing fi%ed assets, time is

a very important factorD conse'uently, discounting and compounding techni'ues play a

significant role in capital budgeting and a minor one in the management of current assets.

$econd, the large holding of current assets, especially cash, strenghthens the firm*s li'uidity

position 8and reduces risiness9, but also reduces the overall profitability. "hus a ris6return

trade off is involved in holding current assets. "hird, levels of fi%ed as well as current assets

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depend upon e%pected sales, but it is only current assets which can be adjusted with sales

fluctuations in the short run. "hus, the firm has a greater degree of fle%ibility in managing

currents.

CONCEPTS OF 0OR1IN, CAPITAL

,ROSS 0OR1IN, CAPITAL:-

Iross woring capital refers to the firm*s investment in c*%%ent assets are the assets

which can be converted into cash within an accounting year and include cash , short6term

securities, debtors,8accounts receivable or boo debts9 bills receivable and stoc

8inventory9.

NET 0OR1IN, CAPITAL:-

!t*s refers to the difference between current assets and current liabilities. C*%%ent

l#a!#l#t#esare those claims of outsiders which are e%pected to mature for payments within

an accounting year and include creditors 8account payable9 , bills payable ,and outstanding

e%penses . et 0oring @apital can be positive or negative. A positive net woring

capital will arise when current assets e%ceed current liabilities .a negative net woring

capital occurs when current liabilities are in e%cess of current assets.

PERMANENT 0OR1IN, CAPITAL:-

0e now that the need of current assets arises because of the operating cycle. "he

operating cycle is a continuous process and, there for, the need for current assets is felt

constantly. -ut the magnitude of current assets needed is not always the sameD it increases

and decreases over time. =owever there is always a minimum level of current

assets which is continuously re'uired by a firm to carry on its business operations.

Bermanent or fi%ed, woring capital is the minimum level of current assets. it is permanent

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in the same way as the firm*s fi%ed assets are. epending upon the changes in production

and sales, the need for woring capital, over and above permanent woring capital, will

fluctuate. For e%ample e%tra inventory of finished goods will have to be minted to support

the pea period of sale, and investment in debtors 8receivable9 may also increase during

such periods. /n the other hand, investment in raw material, wor in process and finished

goods will fall if the maret is slac.

2ARIABLE OR FLUCTUATIN, 0OR1IN, CAPITAL:-

Jariable or fluctuating woring capital the e%tra woring capital needed to support the

changing production and sales activities of the firm. -oth inds of woring capital K

permanent or fluctuating 8temporary96are necessary6to facilitate production and sales

through the operating cycle. -ut the firm to meet li'uidity re'uirements that will last only

temporary woring capital. !n figure illustrates differences between permanent and

temporary woring capital. !t is shown that permanent woring capital is stable over time,

while temporary woring capital is fluctuating K some times increasing and sometimes

1#

Amount of

woringcapital 82s9

"emporary or

Fluctuating

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decreasing. =owever, the permanent woring capital need not be horizontal if the firm*s

re'uirement for permanent capital is increasing 8or decreasing9 over a period

FOCUSIN, ON MANA,EMENT OF CURRENT ASSETS

"he gross woring capital concept focuses attention on two aspects of current assets

management?

1. =ow to optimize investment in current assetsL

#. =ow should current assets be financedL

"he consideration of the level of investment in current assets should avoid two

danger points6excessive or inadequate investment in current assets. !nvestment in current

assets should be just ade'uate to the needs of the business firm. +%cessive investment in

current assets should be avoided because it impairs the firm*s profitability, as idle investment

earns nothing. /n the other hand, inade'uate amount of woring capital can threaten solvency

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Amount ofworingcapital 82s9

"emporary orFluctuating

Bermanent

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of the firms because of its inability to meet its current obligations. !t should be released that

the woring capital needs of the firm may be fluctuating with changing business activity. "his

may cause e%cess or shortage of woring capital fre'uently. "he management should be

prompt to initiate an action and correct imbalances.

Another aspect of the gross woring capital point to the need of arranging

funds to finance current assets. 0henever a need for woring capital funds arises due to the

increasing level of business activity or for any other reason. Financing arrangement should be

made 'uicly. $imilarly, if suddenly, some surplus funds arise they should not be allowed to

remain idle, but should be invested in short6 term securities. "hus, the financial manager

should have nowledge of the sources of woring capital funds as well as investment avenues

where idle funds may be temporarily invested.

FOCUSIN, ON LIUIDITY MANA,EMENT

et woring capital is a 'ualitative concept. it indicates the li'uidity position of the firm and

suggests the e%tent to which woring capital needs may be financed by permanent sources of

funds. @urrent assets should be sufficiently in e%cess of current liabilities to constitute a

margin or buffer for maturing obligations within the ordinary operating cycle of a business. !n

order to protect their interests, short term creditors always lie a company to maintain current

assets at a higher level than current liabilities. !t is a conventional rule to maintain the level of

current assets twice the level of current liabilities. =owever, the 'uality of current assets

should be considered in determining the level of current assets vis a viscurrent liabilities.

A wea li'uidity position poses a threat to the solvency of the company and maes it unsafe

and unsound. A negative woring capital means a negative li'uidity, and may prove to be

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harmful for the company*s reputation e%cessive li'uidity is also bad. it may be due to

mismanagement of current assets. "here for, prompt and timely action should be taen by

management to improve and correct the imbalances in the li'uidity position of the firm.

etworing capital concept also covers the e'uation of judicious mi% of long term and short

term funds for financing current assets. For every firm, there is a minimum amount of net

woring capital which is permanent. "herefore, a portion of the woring capital should be

financed with the permanent sources of funds such as e'uity share capital, debentures, long

term debt, performance share capital or retained earnings. Canagement must, therefore,

decide the e%tent to which current assets should be financed with e'uity capital andHor

borrowed capital.

!n summary, it may be emphasized that both gross and net concepts of woring capital are

e'ually important for the efficient management of woring capital. "here is no precise way to

determine the e%act amount of gross or net woring capital for any firm. "he data and

problems of each company should be analyzed to determine the amount of woring capital.

"here is no specific rule as to how current assets should be financed. !t is not feasible in

practice to finance current assets by short K term sources only. eeping in view the constraints

of the individual company, a judicious mi% of long and short term finances should be invested

in current assets. $ince current assets involve cost of funds, they should be put to productive

use.

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OPERATIN, AND CAS/ CON2ERSION CYCLE

"he need for woring capital to run the day6to6day business activities cannot be

overemphasized. 0e will hardily find a business firm which does not re'uire any amount of

woring capital. !ndeed, firms differ in their re'uirement of the woring capital.

0e now that a firm should aim at ma%imizing the wealth of its shareholders. !n its

+ndeavour to do so, a firm should earn sufficient return from its operations. +arning a steady

amount of profit re'uires successful sells activities. "he firm has to invest enough funds in

current assets for generating sales. @urrents assets are needed because sales do not convert

into cash instantaneously. "here is always an operating cycle involved in the conversion of

sales into case.

"here is a difference between current and fi%ed assets in terms of their li'uidity. A firm

re'uires many years to recover the initial investment in fi%ed assets such as plant and

machinery or land and building. /n the contrary, investment in current assets such as

inventories and debtors Maccount receivableN is realized during the firm*s operating cycle that

is usually less than a year.

0hat is an operating cycleL

/perating cycle is the time duration re'uired to convert sales, after the conversion of

resources into inventories, into cash. "he operating cycle of a manufacturing company involve

three phases?

Ac*#s#t#on o %eso*%cessuch as raw material, labor, power and fuel etc.

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Man*act*%e o the 3%o"*ctwhich includes conversion of raw material into wor6in6

progress into finished goods.

Sales o the 3%o"*cts either for cash or on credit. @redit sales create account

receivable for collection.

"hese phases affect cash flows, which most of the time, are neither synchronized because cash

outflows usually occur before cash inflows. @ash inflows are not certain because sales and

collections which give rise to cash inflows are difficult to forecast accurately. @ash outflows,

on the other hand, are relatively certain. "he firm is, therefore, re'uired to invest in current

assets for a smooth, uninterrupted functioning. !t needs to maintain li'uidity to purchase raw

materials and pay e%penses such as wages and salaries, other manufacturing, administrative

and selling e%penses and ta%es are there is hardly a matching between cash inflows and

outflow. @ash is also held to meet to any future e%igencies. $tocs of raw material and wor K

in6 process are ept to ensure smooth production and to guard against non6availability of raw

materials of other components. "he firms hold stoc of finished goods to meet the demand of

customers on continuous basis and sudden demand from some customers. ebtors 8Accounts

2eceivable9 are created because goods are sold on credit for mareting and competitive

reasons.

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Burchase Bayment @redit $ale@ollection

2C@B0!B@BFI@B

!nventory convention period 2eceivable conversion price

Iross operation cycle

Bayable et operating cycle

O3e%at#n4 C+cle o a .an*act*%#n4 #%.

"hus, a firm maes ade'uate investment in inventories, and debtors, for smooth, uninterrupted

production and sale.

=ow is the length of operating cycle determinedL

"he length operating cycle of a manufacturing firm is the sum of 8i9 inventory conversion

period 8!@B9 and 8ii9 debtors 82eceivable9 conversion period 8@B9. "he inventory conversion

period is the total time needed for producing and selling the product. "ypically, it includes? 8a9

raw material conversion period 8rmcp9 ,8b9wor6in6process conversion period 80!B@B9, and

8c9 finished goods conversion period 8FI@B9. "he debtors* conversion period is the time

re'uired to collect the outstanding amount from the customers. "he total of inventory

conversion period and debtors conversion period is referred to as gross operating cycle

8I/@9.

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!n practice, a firm may ac'uire resources 8 such as raw material9 on credit and temporarily

postpone payment of certain e%penses. Bayables, which the firm can defer, are spontaneous

sources of capital to finance investment in current assets,. "he creditors 8Bayables9 deferral

period 8@B9 is the length of time the firm is able to defer payments on various resource

purchases. "he difference between 8gross9 operating cycle and payables deferral period is net

operating cycle 8/@9. if depreciation is e%cluded from e%penses in the computation of

operating cycle, the net operating cycle also represents the cash conversion cycle8@@@9.it is

net time interval between cash collections sale of the product and cash payments fore

resources ac'uired by the firm. !t also represents the time interval over which additional

funds, called woring capital, should be obtained in order to carry out firm*s operations. "he

firm has to negotiate woring capital from sources such as commercial bans. "he negotiated

sources of woring capital financing are called non6spontaneous sources. !f net operating

cycle of a firm increases, it means further need for negotiated woring capital.

)et us illustrate the computation of the length of operating cycle. @onsider the statement of

cost of sales for a firm given in below6

State.ent o Cost o Sales

( Rs in lakh)

!"+CA@"4A)

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E /ther mfg. e%pences OQ O.

G "otal cost 87>;E9 .. O.

: /pening wor6in6process inventory O.. O.1

< @losing wor6in6process inventory Q O.11 @ost of production 8G:61 $elling administrtive and gen e%pences .. O.

1; cost of sales 8171>9 .. O.

"he firmRs data for sales and debtors and creditors are given below

Sales an" De!to%s

(Rs #n la5h)

!"+C

A@"4A)

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I/@ !@B @B QQ.. 819

In$ento%+ con$e%s#on 3e%#o"

0hat determines the inventory conversion periodL "he inventory conversion 8!@B9 is the sum

of raw material conversion period 82C@B9, wor6in6process conversion period 80!B@B9 and

finished goods conversion period 8FI@B9?

!@B 2C@B 0!B@B FI@B

66(7)

Ra' .ate%#al con$e%s#on 3e%#o" (RMCP):- "he raw material conversion period

82C@B9 is the average time period taen to convert material in to wor6in6process.

2C@B depends pm? 8a9 raw material consumption per day, and 8b9 raw material

inventory. 2aw material consumption per day is given by the number of days in the year

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Beriod M 2awmaterialconsumptionNH(; 1:.;8c9wor6in6process inventory (#> 7:G

8d9 0or6in6process inventory holding days ##d #>d

( Finished Ioods @onversion Beriod

8a9 @ost of goods sold& >,#; ::>

8d9Finished goods inventory holding days (Gd >7d

7 @ollection period

8a9 @redit sales 8at cost9&& ;,d (Gd

&epreciation is including.

&&All sales are assumed on credit.

Ta!le :-S*..e%+ o O3e%at#n4 C+cle Calc*lat#ons

(N*.!e% o Da+s)

Actual Projected

GROSS OPERATIG !"!#E

1 !nventory @onversion Beriod

8i9 2aw material ;G ;

8iii9 Finished goods (G 1#G >7 1(:

# ebtors @onversion Beriod 7( 7E( Iross operating cycle 81 #9 1E1 1G;

7 Bayment eferral period (> (G

+" /B+2A!I @5@)+ 8(679 1(; 17G

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0e note a significant change in the company*s policy for #7 days holding from (G days in the previous

year. /ne reason could be a conscious policy decision to avoid stoc out situations and carry

more finished goods inventory to e%pand sales. -ut this policy has a costD the company, in the

absence of a significant increase in payables 8creditors9 deferral period, will have to negotiate

higher woring capital funds, !n the case of the firm in our e%ample, its net operating cycle is

e%pected to increase from 1(; days to 17G days =ow does a company manage its inventories,

debtors and suppliers* creditL =ow can it reduce its operating cycleL

"he operating cycle concept as shown in Figure relates to a manufacturing firm. on6

manufacturing firms such as wholesalers and retailers will not have the manufacturing phase.

"hey will ac'uire stoc of finished goods and convert them into debtors 8receivable9 and

debtors into cash. Further, service and financial enterprises will not have inventory of goods

8cash will be their inventory9. "heir operating cycles will be the shortest. "hey need to ac'uire

cash, then lend 8create debtors9 and again convert lending into cash.

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#E

OB=ECTI2E OF T/E

STUDY


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OB=ECTI2E OF T/E TUDY

"o observe the systems, process, interactions in the organization.

"o study and analyze the woring capital management of @.). Iupta +%port.

"o study that how they use woring capital to solve day to day problems.

"o study about their /perating @ycle, cash conversion cycle, processing period.

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#:

SCOPE > IMPORTANCE


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SCOPE OF T/E STUDY

CONCEPTUAL :-( F#nanc#al Techn#*e: 0o%5#n4 Ca3#tal Rat#os)

"o prepare a report after analysis and interpretation of finding from balance sheet as well as

profit and loss account by applying various mathematical and financial tools and techni'ues.

FACTUAL :-( Anal+s#s o acts (%es*lts) "e%#$e" %o. the #nanc#al techn#*e

"he present earning capacity or profitability of the @.). I4B"A +OB/2"

)td

"he short6term li'uidity and long6term solvency.

"he financial stability of a business.

"o analyze different ratios so to judge the availability and

effective usage of woring capital.

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(1

LITERATURE RE2IE0


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LITERATURE RE2IE0

"he research done by Bass @.)., Bie 2.=., An overview of woring capital management

and corporate financing,81:G79 describes that over the past 7< years major theoretical

developments have occurred in the areas of longer6term investment and financial decision

maing. Cany of these new concepts and the related techni'ues are now being employed

successfully in industrial practice. -y contrast, far less attention has been paid to the area of

short6term finance, in particular that of woring capital management. $uch neglect might be

acceptable were woring capital considerations of relatively little importance to the firm, but

effective woring capital management has a crucial role to play in enhancing the profitability

and growth of the firm. !ndeed, e%perience shows that inade'uate planning and control of

woring capital is one of the more common causes of business failure.

"he research done by =errfeldt -., =ow to 4nderstand 0oring @apital Canagement

describes that@ash is ing66so say the money managers who share the responsibility of

running this countryRs businesses. And with bans demanding more from their prospective

borrowers, greater emphasis has been placed on those accountable for so6called woring

capital management. 0oring capital management refers to the management of current or

short6term assets and short6term liabilities. !n essence, the purpose of that function is to mae

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certain that the company has enough assets to operate its business. =ere are things you should

now about woring capital management.

"he research done by, $amilogluF9 an" emirgunes19? @"he +ffect of 0oring @apital

Canagement on Firm Brofitability? +vidence from "urey 8#


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"he research done by, =ardcastle P., 0oring @apital Canagement,8#


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receivable and operating performance. "he study further finds that maintaining control 8i.e.

lower amounts9 over levels of cash and securities, inventory, fi%ed assets, and accounts.

"he research done by, ubey 2., 0oring @apital Canagement6an +ffective "ool for

/rganisational $uccess 8#


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short6term liabilities. @omponents of short6term assets include inventories, loans and

advances, debtors, investments and cash and ban balances. $hort6term liabilities include

creditors, trade advances, borrowings and provisions. "he major emphasis is, however, on

short6term assets, since short6term liabilities arise in the conte%t of short6term assets. !t is

important that companies minimize ris by prudent woring capital management.

"he research done by, Caynard +. 2afuse, 0oring capital management? an urgent need to

refocus Canagement ecision, 81::;9 Argues that attempts to improve woring capital by

delaying payment to creditors is counter6productive to individuals and to the economy as a

whole. @laims that altering debtor and creditor levels for individual tiers within a value system

will rarely produce any net benefit.Broposes that stoc reduction generates system6wide

financial improvements and other important benefits.4rges those organizations seeing

concentrated woring capital reduction strategies to focus on stoc management strategies

based on lean supply6chain techni'ues.

"he research done by, "homas C. rueger, An Analysis of 0oring @apital Canagement

2esults Across !ndustries American Pournal of -usiness, 8#


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Coradabad is renowned for brass wor and has carved a niche for itself in the handicraft

industry through out the world. "he modern,attractive, and artistic brass ware, jewelry and

trophies made by silled artisans are the main crafts. "he attractive brass ware are e%ported to

countries lie 4$A, -ritain, @anada, Iermany and Ciddle +ast Asia. "here are about ;< Acres of land has been ac'uired to develop a ew !ndustrial Area for +%port

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/riented 4nits at Babara to ingarpur 2oad. "hus this is good opportunity for new

entrepreneurs to establish their projects.

BRASS INDUSTRY

2aw material used in the manufacture of brass utensils are called U$!))5U and UI4))5U in

the local jargon. U$!))5U and UI4))5U is the mi%ture of many metals namely6 @opper,

Tin, )ead, etc.8in a specified ratio9. All these metals mi%ed in a big pot called UI=A2!AU

and heated in a furnace. "he molten mi% is then poured into a mold of desired shape V

allowed to cool. First V foremost, the design of the utensil, to be made, is setched on a piece

of a paper followed by its wooden frame which is later on used to mae its metal prototype.

"his is nown as Caster piece.

"he e%pert artisans also nown as U=A))A!5AU prepares mould for the different brass

utensils. Colten metal is poured into these moulds, the utensils is then taen out for repair and

refurbished with utmost care. "hese brass utensils are then polished. !f needed, e%otic design

are made on these polished utensils. "hese utensils are then ready to be sold in the domestic

maret or are e%ported out to various countries.

-rass industry is developed as a small scale industry in Coradabad . 0orer have small

worshop in their houses.

Apart from brass, there are other handicraft industries in Coradabad ?

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Pewelry made out of bones and horns.

itchen ware

@ombs

0ooden stics

"he main center of this industry is in $ambhal, a tehsil of Coradabad district. "he attractive

goods generated by this small scale industry are in great demand in many countries. "here are

about 1>


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Animal Feed

@oal -rics

/il Cill, etc.

"hese small scale units provide jobs to about #G>7> people. "here are about 77 units of

Cedium and )arge $cale !ndustries, which includes istillery, $ugar Cills, Bulp V Baper,

Bharmaceutical V @hemical !ndustries etc. "hese industrial units provide jobs to about 7


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71

COMPANY PROFILE


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COMPANY PROFILE

C9L9 ,UPTA EPORT LTD9

C9L9 ,UPTA

0e are 11G6year6old company, in Coradabad, a city 1>< ms. From elhi. "hus have a great

e%perience in this field. 0e have our own infra6structure of 1,#


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19 !ndo Ierman @hamber of @ommerce.

#9 Cesses Franfurt Jenue Imb= V @o. g

(9 +%port Bromotion @ouncil for =andicrafts.

79 @hamber of !ndian !ndustries.

>9 +%port Bromotion -ureau.

;9 !ndia +%position Cart.

E9 Coradabad 0est !ndustries @hamber.

2ISION: - A 0orld @lass innovative , competitive and Brofitable +%port providing total

business solutions.

MISSION:-"o be the leading !ndian e%ports enterprises providing 3uality of products system

and service 1#s in the field of brass art ware, glass art ware, wooden art ware and other

potential areas .

BUSINESS MISSION:-"o maintain a trading position as supplies of 'uality Broducts ,

system and services in the field of @onversation , transmission , utilization and

conservation of art ware products in the area of handicrafts , wooden iron etc. 4tilizes

companies capabilities and resources e%pand business into allied areas and other priority

sectors of the economy.

2ALUES:-

a9 Ceeting commitments made to customer.

b9 Faster learning creativity and speed of response.

c9 2espect of dignity and potential of individual.

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d9 )oyalty and pride in the company.

e9 "eam playing.

f9 Teal to e%cel.

g9 !ntegrity and fairness of all matters.

COMPANY DETAILS

18 Km. Stone, Delhi road, Vill. i!ai, "oti#a$h%le Na&ar ' ())((1

Phone* +1-1-/0 1(/) till /), a2* +1-1-/0 1111, e-mail*

in3o45l&%$ta.5om

0e are 11G6year6old company, in Coradabad, a city 1>< ms. From elhi.

In%ast%*ct*%e

Factory )and Area? >< acres, @overed Area? 1,#


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*al#t+ O!ect#$e:

16"o provide products that meet customer re'uirements consistently.

#6 "o constantly improve 'uality through preventive action.

(6 "o evelop employees through continuous training in nowledge and sills.

76 "o +stablish and implement !$/ :


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DISPATC/

Conthly wood unit capacity K 1# K 1>< lacs per months.

7E


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IRON DI2ISION

FLO0 C/ART (Fo% I%on A%t 'a%es)

!2/ /2A 8$34A2+ 2/, 2/4 /F !FF+2+" $!T+$9

B=/$B=A"!I 8!"+C$ 2+34!2+ B+2 C/"=9

=@) 6


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B/0+2 61G< K 1>


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Average 'uantity per month as per anne%ure attached Average sale per month 1E< to

#1


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>#

PRODUCT PROFILE


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PRODUCT PROFILE

@.). I4B"A is the manufacturer and e%porter of -rass, Ilass, 0ood and wa% items.

@.).I4B"A is the largest e%port industry in Coradabad city. !t has the largest turnover

among all the e%port industries in Coradabad city. @.).I4B"A manufacture V e%port almost

items of everything. !t manufactures different types of candle stand, house hold utensils, coo

ware, bathroom fitting items.

@.).I4B"A also deals in Ilass. !t has a separate section of Ilass. !t manufactures V e%port

different inds of Ilass items. !t also has a separate section named Cosaic Ilass section. !n

this section different items of Ilass are manufactured. Cosaic is called the small pieces of

glassD these small pieces are fi%ed on different Ilass items as per customer re'uirement.

@ompany has a very wide range of the products that are manufacturing in the company.

Although the range of the products of the company is not fi% and it manufactures the products

according to the choice and the order of the customer. $ome of the products of the company

are6 =urricane, Jotive, $hefali Ilass, Jora @himney, Jas, Angle "ea )ight =older,

@hristmas tree, etc.

"he products of the company are not fi%ed. "hey remain changing. "he products of the

company depend upon the choice of the buyers. @ompany can*t manufacture products on its

>(


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own. "he company can only got mae the samples and show it to the buyer. !f the buyer lies

the sample then he will give the order to the company to manufacture the relevant product. $o

we can see that the products of the company are not fi%, company manufactures the products

as per the customer*s order or choice.

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A Ilimpse of our Broduct 2ange

>>


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>;


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>E


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>G


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@. ). Iupta +%ports )td. is an e%isting unit for manufacturers and e%port of -rass wares,

-rass art wares, Ilass wares and -rass fittings on @rystal, Ilass, 0ooden art wors,

!ron wares, Aluminium to foreign countries.

-rass Art 0ares, 0ooden Furniture, Aluminum 0ares, @rystal Ilass 0ares, itchenware

and fiting are the major item of e%port from !ndia.

>:


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OUR MANUFACTURIN, CAPABILITIES

1. -rass? !n house manufacturing and finishing in variety of finishes as polished brass,

ant'. -rass, bronze, silver plating, patinas etc.

!tems? Figurines, Fire fashion, "ableware, ecorative, @locs, @andle 6 stands, 0all

decor, -ath Accessories, 0indow "reatment, =ardware, $easonal, Iiftables, etc.

#. Aluminium? !n 6 house casting V finishing, mostly painted or polished finishes

!tems? Iarden Furniture, Iarden Animals, Carers, Blanters, Figurines, Botholders,

-irdbaths etc.

(. Ilass? 0e have @ontinous "an furnace with a capacity of #< tones per day to

mae mouth 6 blown glass, in cracle finish, frosted, seeded in clear V colored glass.

!tems? Costly combinations of Ilass with !ron, -rass, -ronze or $ilver plated bases for

-owls, -ath Accessories, @andle holders, )anterns, Billar holders, "umblers V

ecanters, Jases etc.

7. !ron? !n house facility to manufacture 0rought V @ast !ron items with in 6 house

tan Bhosphate 8rust treatment9, $pray Bainting, Bowder @oating and =and applied

finishes.

!tems? !ndoor Accent furniture 8@9, Iarden Furniture, -ases for Ilass Jases V

@andleholders, Fire Fashion, Billar candleholders, Armillaries, Botholders, etc.

>. 0ood? From $awing, $easoning, "reatment, Cachining, @arpentry, Finishing 8spray

paint V stain finishes9.

!tems? @olonial utch furniture, eo 6 @lassical furniture V es sets, @andle holders,

Billar holders, )anterns, Bhoto 6 frames, Finials for 0indows drapery rods, Bhoto frames

"rays, -owls etc.

;


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"he @ompany is a registered @ompany incorporated under @ompanies Act 1:>;.

"he main objects of the @ompany are ?6

"o e%port, imports, produce, manufacture, buy, sell distributeD

1. =andicrafts including handicraft products of copper, brass, bronze, bidri and bell

metal, wood carvings, artistic waling stics, articles of horn, bone and corc

shell, costume jewellery, imitation jewellery, hand paintings, papier mache items

and other handicrafts goods of every type and description.

#. -rass, iron, steel, brassware, ironware, hardware, copper, rubber and resin.

(. All inds of furniture and furniture items made from wood, brass, steel or any

other alloys and handicrafts upholstered or not.

7. All type of glassware, leveled and unleveled silvered sheet, curved of flat

laminated and safety glass, toughened glass, fibre glass, welding glass, silver

glass, colored glass, float flat glass, lead mirror, gold mirror, decorative glass,

ice K flowered glass, glass doors and fittings.

>. $ports cups, medals and sports goods of every type and description.

;. +. B. . $. and Ierman silverware and cutlery and other engineering goods of

every type and description.

E. 0oolen carpers, rugs, drug gets, woolens te%tiles and hosiery.

G. $tainless steel products of every type and description.

:. "o buy, sell, process, refine, covert and manufacture e%portable goods of every

description and type.

"he turnover of the @ompany had been around 1#< crores per year e%porting mostly

all parts of the world. "he production activities are carried out using most modern

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e'uipments in all the divisions i.e. Ilass, -rass, 0ood and !ron. "he @ompany wors

within @omplied norms as set by large !nternational buyers with special cognigence on

Bollution @ontrol $ystem and )abour )aws etc. "he jobs are carried out by a

professionally 'ualified team of +ngineers, C-As and @As engaged in respective

sections.

"he objectives of the company would not have been possible with out the prompt

support of the Iovernment and officials of controlling departments 8lie @entral

+%cise, Bolice, Administration and financial institutions etc.9

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;(

RESEARC/

MET/ODOLO,Y


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RESEARC/ MET/ODOLO,Y

2esearch Cethodology is a systematically solve the research problem. !t has many

dimensions and research methods constitute a part of the research methodology.

"hus when we tal about research methodology, we do not only tal of the research

methods but also consider the logic behind the methods. 0e use in conte%t of our research

study, so that research results are capable of being evaluated either by researcher himself

or by others.

"o effectively carry out in research, ! would use the following research process, which

consists of series of actions or steps.

Resea%ch co.3%#ses o the ollo'#n4 ste3s:-

1. Formulating the research Broblem.

#. 2esearch design V $ample esign.

(. Analysis of data gathered

7. ata analysis comparison

>. Iraphics and interpret

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1 FORMULATIN, T/E RESEARC/ PROBLEM

"his is the first step under which the problem is stated in general way and then ambiguities i.e.

understanding and rephrasing the problem thoroughly and rephrasing the same into a

meaningful terms from an analysis point of view.

"he research problem under the present project was to study data of various funds. For this

research process was to be formulated and the e%ecution of which would result in the desired

data.

79 PREPARIN, T/E RESEARC/ DESI,N

"he function of research design is to provide for the collection of relevant evidences with

minimal e%penditure of efforts, time and money.

Resea%ch Des#4n

"ype of research

$ample design

TYPE OF RESEARC/

"he type of research under present is an analytical research. !n analytical researchD we use

tactRs or information already available, and analyze these to mae a critical evaluation of

the material. =ence the same would be done.

!n this project ! had collected facts, data, and information.

SAMPLE DESI,N

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A sample design is a definite plan determined before any data is actually collected for

obtaining a sample. 2esearcher must select a sample design, which should be reliable and

appropriate for his report.

89 OBSER2ATIONAL DESI,N (COLLECTION OF DATA)

/bservational design relates to the condition under which the observations are to be made.

/bservational design in respect to research. "here are several ways of collecting the

appropriate data, which differ considerably in conte%t of money, time cost and other resources

at the disposal of the researcher.

Data can !e o!ta#ne" %o. t'o #.3o%tant so*%ces:

Brimary data

$econdary ata

P%#.a%+ "ata

Brimary data are the data that are collected afresh and for the first time. "hus happens to be in

character. Brimary data are collected by the following ways?6

a9 /bservation

b9 !nterview

c9 $chedule

d9 3uestionnaire

Secon"a%+ Data

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$econdary data are the data that are already collected and are only analyzed by

different sources these sources are as follows?6

"his study majority used the secondary data from the following sources?

@orporate Bublications

Canuals of the companies, Annual 2eports, Accounting statements etc.

-oos, journals, newspaper

"he secondary data collected from above sources is analyzed in the light of journal

of national repute, boos of national and international authors. !n addition to this internet

sources also helped the researcher to conclude the study

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;G

FINDIN,S > ANALYSIS


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FINDIN, AND ANALYSIS

ANALYSIS OF 0OR1IN, CAPITAL

Analysis of woring capital is an essential part of financial management. !f there is an

ade'uate amount of woring capital and it is utilized in the right manner, it is a great

achievement for the business. "he e%cess of woring capital causes financial stringency and

brings the business to a standstill.

2ealizing the impotence of woring capital in financial management the analysis of woring

capital becomes an essential phenomenon. !t facilitates the ade'uacy and management of

woring capital. "he management of woring capital provides a careful in'uiry into its

components so as to control the woring capital and to conserve it properly. !t helps in

determining the optimum level of woring capital in the firm. "he process of measurement

and analysis of woring capital is performed on the basis of financial statements of the

business enterprise for past few years.

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!n the present study the analysis of woring capital of @.). Iupta +%port. =as been made by

two techni'ues vis., trend analysis and ratio analysis.

0OR1IN, CAPITAL TREND ANALYSIS

"he woring capital trend analysis represents a picture of variation in current assets, current

liabilities and woring capital over a period of time. $uch an analysis enables us to study

upward and downward trend in current liabilities and its effect on the woring capital position.

"he trend analysis is a tool of financial appraisal where the changes in the factors are

compared with the base year assuming the base year as 1>G1:.>1 G(;7(:.#

E


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-A 1G;(#E:>.GG (>:(;(7G.1; #E#1G7;#.1;

)/A A AJA@+$ E1##11#.:#

+-"/2$ (


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RATIO ANALYSIS OF 0OR1IN, CAPITAL

"rend analysis shows the trend of current assets, current liabilities and woring capital only. !t

do not interpret the contribution of each item of woring capital in the trend, whereas, it can

be done easily by ratio analysis. "he ratio analysis of woring capital can be used by

management as a means of checing upon the efficiency in woring capital management of

the company. Following ratio haven used to analysis and interpret woring capital of

@.). I4B"A +OB/2".

@urrent ratio

3uic ratio

Absolute ratio

$toc or inventory ratio

0oring capital turnover ratio

E#


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CURRENTRATIO

@urrent ratio is one of the important ratios used in testing li'uidity of a concern. this is a good

measure of the ability of company to maintain solvency over a short run. "his is computed by

dividing the total current assets by the total current liabilities and is e%pressed as?

"he current assets of a firm represent those assets, which can be in the ordinary course of

business, converted into cash within one accounting year. "he current liabilities are defines as

obligation maturing within a short period 8usually one accounting year9. +%cess of current

assets over current liabilities is nown as woring capital and since these two 8current assets

and current liabilities9 are used in current ratio therefore, this ratio is also nown as woring

capital ratio.

0ith the help of this ratio the analyst can review the e%tent to which the company can covert

such liabilities with current assets. "he current ratio gives the analyst a general picture of the

ade'uacy of the woring capital of a company and ability of the company to meet its day6to6

day payment obligation. it liewise measures the margin of safety provided for paying

current debts in the event of a reduction in the values of current assets.

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"he current ratio is very useful as a measure of short terms debt prying ability but it is tricy

to interpret this ratio. +%perts are of the view that the value of current assets should be at least

double the amount if current liabilities.

0aler and -ough have the same view when they ay a good current ratio may mean a good

umbrella for creditors against the rainy days.-ut to the management it reflects bad financial

planning or presence of idle assets or over capitalization

IDLE CURRENT RATIO: 7:

!f this ratio is higher than standards than it is assumed

Jery good short Kterm li'uidityHsolvency.

+%cess stocs, bad debts and idle cash.

4nder trading

!f this ratio is lower than standards than it is assumed

4nsatisfactory short6term li'uidity.

$hortage of stocs, less credit sales, shortage of cash.

/ver trading

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CURRENT RATIO OF C9L9 ,UPTA EPORT LTD9 DURIN, 7 TO 7

5+A2@422+"

A$$+"$

@422+"

)!A-!)!"!+$@422+" 2A"!/

8A9 8-9 8@9 8-9H8@9

#


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UIC1 RATIO

"he solvency of a company is batter indicated by 'uic 2ato.the fundamental this 2atio is to

enable the financial management of a company to ascertain that would happen

!f current creditors press for immediate payment and either not

Bossible to push up the sales of closing or it id sold, a heavy loss is liely to be suffered. "his

problem arises because closing stoc is two steps away from the cash and their price more or

less uncertain according to maret demand.

"he term 'uic assets include all current assets e%cept inventories and prepaid e%penses. !t

shows the relationship of 'uic assets and current liabilities. "he 2atio is calculated as

following?

An indicator of a companyRs short6term li'uidity. "he 'uic ratio measures a companyRs ability

to meet its short6term obligations with its most li'uid assets. "he higher the 'uic

ratio, the better the position of the company.

Also nown as the Uacid6test ratioU or the U'uic assets ratioU.

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IDLE UIC1 RATIO :

INFERENCE:-

Although it is less idle ratio still it has increasing trend that shows "eva @ompany improving

condition of short term solvency of "eva @ompany.

UIC1 RATIO OF TE2A API INDIA LTD9 DURIN, 7 TO 7

5+A2

34!@

A$$+"$

@422+"

)!A-!)!"!+$ 34!@ 2A"!/

8A9 8-9 8@9 8-9H8@9

#


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3uic ratio for the year #


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"he table shown on the ne%t page reflects the absolute li'uidity ratio @.). I4B"A +OB/2"

)td.

ABSOLUTE LIUIDITY RATIO OF C9L9 ,UPTA EPORT LTD9 DURIN,

7 TO 7

5+A2A-$/)4"+ )!34!

A$$+"$

@422+"

)!A-!)!"!+$ A-$/)4"+ 2A"!/

8A9 8-9 8@9 8-9H8@9

##;7(:E##


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IN2ENTORY TURNO2ERRATIO

+very firm has to maintain a certain level of inventory of finished good so as to be able to

meet the re'uirements of the business. -ut the level of inventory should neither to be high not

to be low. !t to high inventory means higher carrying cost and higher ris of stocs becoming

obsolete whereas to low inventory may mean the loss of business opportunities. it is very

essential to eep sufficient stoc in business .

it is e%press in number of time . $toc turnover ratio or inventory turn over ratio indicates

the no. of times the stoc has been turned over during the period and evaluates the efficiency

with which a firm a able to manage its inventory. "his ratio indicates whether investment in

stoc is with in proper limit or not.

/I,/ER RATIO INDICATES:-

$toc is sold out fast.

$ame volume of sales from less stoc or more sales from

$ame stoc

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"oo high ratio shows stoc outs or over trading.

)ess woring capital re'uirement.

LO0ER RATIO RE2EALS:-

$toc a sold out at a slow speed.

$ame volume of sale for more stoc or less sale from same stoc.

Core woring capital re'uirement.

"oo low ratio show obsolete stoc or under trading.

Fo%.*la o stoc5 t*%n o$e% %at#o:-

"he ration is calculated by dividing the cost of goods sold by the amount of average stoc at

cost.

!nventory turnover2atio

!nventory turn over ratio measures the velocity of conversion of stoc in to sales. 4sually a

high inventory turnover H stoc velocity indicates efficient management of inventory because

more fre'uently the stoc are sold, the lesser amount of money is re'uired to finance the

inventory. )ow inventory turn over ration indicate inefficient management of inventory. in

low inventory turn over implies over investment in inventories, the business, poor 'uality of

goods, stoc accumulation, accumulation of absolute and slow moving good and low profit as

G1
http://en.wikipedia.org/wiki/Inventory_turnoverhttp://en.wikipedia.org/wiki/Inventory_turnover


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compared to total investment the inventory turn over ratio is also an inde% profitability where

a high ratio signifies more profit Xa low ratio signifies low profit some time a high inventories.

INFERENCE:-

As compared to year #


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0OR1IN, CAPITAL TURNO2ER

A measurement comparing the depletion of woring capital to the generation of sales over a

given period. "his provides some useful information as to how effectively a company is

using its woring capital to generate sales.

A company uses woring capital 8current assets 6 current liabilities9 to fund operations and

purchase inventory. "hese operations and inventory are then converted into sales revenue for

the company. "he woring capital turnover ratio is used to analyze the relationship between

the money used to fund operations and the sales generated from these operations. !n a general

sense, the higher the woring capital turnover, the better because it means that the company is

generating a lot of sales compared to the money it uses to fund the sales.

0OR1IN, CAPITAL RATIO OF C9L9 ,UPTA EPORT LTD9 DURIN,

7 TO 7

5+A2 +" $A)+$

0/2!I

@AB!"A)

@422+"

2A"!/

8A9 8-9 8@9 8-9H8@9

#


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INFERENCE?

!n spite of an increase in et 0oring @apital, the 0oring capital turnover ratio of @.).

I4B"A +OB/2" )td. got reduced to 1


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G>

CONCLUSION


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CONCLUSION

Financial analysis is analysis of financial statements of and enterprise. Financial statement

reorganized collection of data according to logical and constituent accounting procedures.

=ow ever financial statements in their traditional from giving historical data and information

are of little us to these who use them to draw certain conclusion.

Financial appraisal is scientific evaluation of profitability and financial strength of any

business concern. Financial appraisal techni'ues include ration analysis common size analysis

trend analysis, fund flow analysis etc. these techni'ues may be applied in the financial

appraisal of any entity and AB! !ndia )td. !s no e%ception to it.

PROFITABILITY

"he measurement of profitability is a tool of overall measurement of efficiency an overall

study profitability of @.). I4B"A +OB/2" )td. has been ade in relation to sales operating

assets capital employed and its net worth.

-y analysis the woring result i.e. Brofit and loss account of @.). I4B"A +OB/2" !t was

found that the net profit before interest and ta% of the @.). I4B"A +OB/2" is showing

increasing trends. "his is very good for @.). I4B"A +OB/2" "he increase in the profits is

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nearly #7W more then previous year the reason is good sales growth between years. For this

following suggestion should be considered.

Broper cost control is re'uired and cost control techni'ue should be adopted for it.

/perating e%penses, admn. +%penses should be specially considered to be reduced.

!nventory is the biggest items of balance sheet that must have demanded a large amount

of maintaining cost. $o efficient inventory management should be done. !nventory

should be reduced e%tent that would help to recover blocing money in inventory.

"he service staff should be given proper training and better environment for wor.

Broper advertisement and sales promotion is re'uired.

airy has to pay large fi% interest charged. =ence long term borrowing should be

reduced so that the earning are satisfactorily earmared with them.

0OR1IN, CAPITAL

!n the year #


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which indicates more li'uidity and hence more amount of woring capital. The

co.3an+ nee" to *%the% enhance the $al*e o %at#o9

3uic ratio for the year #


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turnover ratio further reduced to G.G times as compared to 1(.#7 times in the year

#


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:


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/nce you have calculated your assets and liabilities, subtracting the latter from the

former reveals the ownerRs e'uity, net worth or net assets. eep in mind these terms

are used interchangeably and can also be applied to oneRs personal finances. For

e%ample, if you have a home worth Y1G>,


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and turn your inventories as fast as possible and pay your payables as slowly as

possible without incurring any penalties.U

+stablish terms for your receivables and hold all your accounts to those terms. "his

way, you can establish cash flow e%pectations and be mindful of the amount of money

due to be collected within a given time frame. From there, you can plan future

spending, investing or borrowing. Although it varies by industry, the average days

payable is (


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TA1IN, STOC1 OF YOUR COMPANY: IN2ENTORY

Another trouble spot for entrepreneurs is inventory66how much to order and when to

order. epending on the type of business, a large portion of a companyRs assets can get

tied up in inventory, impacting cash flow and ultimately slowing down profitability.

5our goal should be to design policies that achieve optimal investment in inventory.

5ou accomplish this by determining the optimal level of inventory necessary to

minimize inventory6related costs. 4nfortunately, this is hard to do unless youRve been

in business long enough and have had enough steady activity t/ establish sales trends.

$ome accountants prescribe the economic order 'uantity 8+/39 method to determine

ideal inventory. !t determines the order size that minimizes the sum of your carrying

and ordering costs. -ut calculating an +/3 involves a complicated algebraic e'uation.

"hereRs also the inventory turnover e'uation, which helps you determine whether

youRre carrying the right level of inventory. Ienerally speaing, the inventory turnover

e'uation e'uals the cost of goods sold divided by inventory. "his formula tells you

how many times in a year you are turning over, or selling, inventory. =ere, higher

numbers are better because they mean youRre moving merchandise 'uicly.

@onversely, if your numbers are low, you may be carrying too much inventory. 0hatRs

considered high or low varies from industry to industry. Pames, for e%ample, says his

average turnover is seven days, but thatRs because his inventory is perishable. 5ou

should consult an accountant to learn the average rate in your maret.

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Formulas aside, $tu 0allace, a principal with Anderson, Faca and 0allace, an

accounting firm in 2ichmond, Jirginia, suggests watching inventory levels on a

'uarterly basis. -ramble agrees? U-e conservative with your inventory up front while

you get to now your business. -y watching my business over the years, ! can tell you

how well ! will do on an average Conday night versus a 0ednesday night.U

,ET 0IT/ T/E FLO0: CAS/ FLO0 ANALYSIS

-ased on the information from your balance sheet and income statement, an

accountant can prepare a statement of cash flows for your company. !t shows the

sources and use of cash, for e%ample, net borrowing under credit agreements, cash

used in investing activities, proceeds from long6term debt and dividends paid. !tRs a no6

brainer that tracing the flow of cash in and out of the business is fundamental to the

big picture. -ut 0augh and 0allace agree that unless you are adept with accounting

terms and practices, arranging a statement of cash flows is an area better left to your

@BA. !nstead Pames and 0augh offer some useful tips on other areas to watch.

!ndustry averages? !f you didnRt research them before opening shop, dUZyourself a favor

and find out what the business norms are in your industry. U+very industry has

different averages on things lie collection of receivables, payment terms on loans and

duration of sales cycles. "hese variables directly affect your cash flow and your ability

to satisfy debt,U says Pames. Ietting a handle on them can help you be prepared to ride

the highs and lows.

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+stablish a budget? ever mind eeping a running tab in your head. 5ou need to put

pen to paper and mae a plan. 0aughRs prescriptionL U+stablish goals, compare your

results against your goals and revise your goal as you go along.U "his activity, she

says, should be ongoing.

espite what high6priced accountants may say, accounting is an unscientific practice.

!t loos at historical trends in your business and by using IAAB formulas, offers

educated estimates on your financial fortitude. !tRs all you have to help you weather the

storms of the business world, so why not arm yourself with as much protection as

possibleL "hat doesnRt mean you should go out and enroll in the =arvard -usiness

$chool, but you must tae part on some level.

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:G

LIMITATIONS


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LIMITATIONS

1. "he report is based on secondary data.

#. "he current financial information was not made available by the company.

(. Assets on the balance sheet are always shown at the original purchase price

8historical cost9 even though the current value may be different.

7. $ome figures on the financial statements are based on subjective estimates

and assumptions. Canagement could possibly change net income by

changing these estimates.

>. "here are certain other items which are not reported in the balance sheet

even though the firm may consider them to be of considerable value.

::


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1


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BIBLIO,RAP/Y

Boo5: -

othari @.2. 2esearch Cethodology Jishwa Bublication $econd +dition

Caheshwari $.. Financial Accounting. JiasPu$lis%in&=ouse Bvt )td, fourth

+dition

Bandey !.C. Financial Canagement, JiasPu$lis%in&=ouse Bvt )td, ninth +dition

F#nanc#al "a#l#es.

+conomic "imes

-usiness $tandard

B*s#ness Ma4aH#nes

-usiness !ndia

-usiness 0orld

Othe%

Financial statement for the year ended #


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http?HHwww.clgupta6india.comH

1


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ANNEURE

BALANCE S/EET OF C9L9 ,UPTA EPORT

PERIOD ENDIN, 7-Dec- 7-Dec- 8-Dec-

Assets

@urrent Assets

@ash And @ash +'uivalents #,


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Total C*%%ent L#a!#l#t#es ?? ?;8? J?J?

)ong "erm ebt E,G>G,


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INCOME STATEMENT OF C9L9 ,UPTA EPORT

PERIOD ENDIN, 7-Dec- 7-Dec- 8-Dec-J

Total Re$en*e 8?J? 8?;? 7?8?@ost of 2evenue E,>G;,


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Breferred $toc And /ther Adjustments 6 6 6

Net Inco.e A33l#ca!le To Co..on Sha%es J7? ;87? ;77?

Working Capital in C.L. GUPTA

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