Working capital management

Chapter 1Introduction to Topic

1.1. INTRODUCTION

Working capital, also known as "WC", is a financial metric which represents operating

liquidity available to a business. Along with fixed assets such as plant and equipment,

working capital is considered a part of operating capital. It is calculated as current

assets minus current liabilities. If current assets are less than current liabilities, an entity

has a working capital deficiency, also called a working capital deficit. Net working

capital is working capital minus cash (which is a current asset) and minus interest

bearing liabilities (i.e. short term debt). It is a derivation of working capital, that is

commonly used in valuation techniques such as DCFs (Discounted cash flows).

Working Capital = Current Assets − Current Liabilities

A company can be endowed with assets and profitability but short of liquidity if its assets

cannot readily be converted into cash. Positive working capital is required to ensure that

a firm is able to continue its operations and that it has sufficient funds to satisfy both

maturing short-term debt and upcoming operational expenses. The management of

working capital involves managing inventories, accounts receivable and payable and

cash.

Decisions relating to working capital and short term financing are referred to as working

capital management. These involve managing the relationship between a firm's short-

term assets and its short-term liabilities. The goal of working capital management is to

ensure that the firm is able to continue its operations and that it has sufficient cash flow

to satisfy both maturing short-term debt and upcoming operational expenses.

Decision criteria

By definition, working capital management entails short term decisions - generally,

relating to the next one year period - which are "reversible". These decisions are

therefore not taken on the same basis as Capital Investment Decisions (NPV or related,

as above) rather they will be based on cash flows and / or profitability.

• One measure of cash flow is provided by the cash conversion cycle - the net

number of days from the outlay of cash for raw material to receiving payment

from the customer. As a management tool, this metric makes explicit the inter-

relatedness of decisions relating to inventories, accounts receivable and payable,

and cash. Because this number effectively corresponds to the time that the firm's

cash is tied up in operations and unavailable for other activities, management

generally aims at a low net count.

• In this context, the most useful measure of profitability is Return on capital

(ROC). The result is shown as a percentage, determined by dividing relevant

income for the 12 months by capital employed; Return on equity (ROE) shows

this result for the firm's shareholders. Firm value is enhanced when, and if, the

return on capital, which results from working capital management, exceeds the

cost of capital, which results from capital investment decisions as above. ROC

measures are therefore useful as a management tool, in that they link short-term

policy with long-term decision making. See Economic value added (EVA).

Management of working capital

Guided by the above criteria, management will use a combination of policies and

techniques for the management of working capital. These policies aim at managing the

current assets (generally cash and cash equivalents, inventories and debtors) and the

short term financing, such that cash flows and returns are acceptable.

• Cash management . Identify the cash balance which allows for the business to

meet day to day expenses, but reduces cash holding costs.

• Inventory management. Identify the level of inventory which allows for

uninterrupted production but reduces the investment in raw materials - and

minimizes reordering costs - and hence increases cash flow; see Supply chain

management; Just In Time (JIT); Economic order quantity (EOQ); Economic

production quantity

• Debtors management. Identify the appropriate credit policy, i.e. credit terms

which will attract customers, such that any impact on cash flows and the cash

conversion cycle will be offset by increased revenue and hence Return on

Capital (or vice versa); see Discounts and allowances.

• Short term financing. Identify the appropriate source of financing, given the

cash conversion cycle: the inventory is ideally financed by credit granted by the

supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to

"convert debtors to cash" through "factoring".

KINDS OF WORKING CAPITAL 

 Source: www.ushamartin.com     

Composition of Working Capital :  

Current Assets: Current Liabilities:

1. Stock of Inventory:

    Raw Material, Work in Progress,

    Finished Goods.

1. Accounts Payable:

    Sundry Creditors, Bills Payable.

2. Accounts Receivable:

    Sundry Debtors, Bills Receivable.

2. Short-term borrowings.

3. Short-term loans & advances. 3. Outstanding Expenses

4. Short-term investments. 4. Provision for Taxation or Tax

    Payable.

5. Prepaid expenses. 5. Dividends Payable.

6. Accrued or Outstanding Income. 6. Short-term dues to employees.

7. Cash in Hand. 7. Bank Overdraft.

8. Cash at Bank. 8. Minority Interest.

1.2. OBJECTIVE OF THE STUDY

The objective of the Thesis is to study the different components of current assets and

liabilities and the extent of funds tied up in each the trend of changes of each

component to find out the relationship between working capital and profitability To find

out the impact of Working Capital on Economic Value Addition to the stake holder 

1. To set up the required fund for running the operating activities of the

    firm.

2. To forecast the required amount of gross & net working capital with

    individual breakup of the components.

3. To fix up the optimum level of working capital & to change the same

    according to the need of the situation.

4. To take care for maintaining the liquidity position of the firm up to the     desired level.

5. To increase the profitability of the firm by striking a balance between

liquidity&profitability. 

 1.3. IMPORTANCE OF THE STUDY

The importance working capital in any business can hardly be over-emphasized. To run

a business smoothly & efficiently, it is essential to have an adequate amount of working

capital. Followings are the advantages that a business firm gets for having adequate

amount of working capital or the working capital facilitates a business in the following

way: 

1. Constant supply of raw material. 

2. Constant supply of saleable product. 

3. Regular payment of operating expenses. 

4. Provide adequate solvency to the business. 

5. Opportunity of getting loans. 

6. Increase in Goodwill. 

7. Possibility of getting cash discount. 

8. Helps the business to solving the crisis situations. 

9. Exploitation of favorable market conditions. 

10. Increase in efficiency & productivity. 

11. Increase in profitability. 

12. Regular payment of Dividend. 

13. Research & development. 

14. High morale of employees.    

It is also to be noted that excess of working capital is a vice for a firm like inadequacy of

working capital. Excess working capital blocks huge amount capital in a firm which

remains idle for longer period & gives no return to the business.

  1.5 METHODOLOGY   OF THE STUDY

1.5.1. TYPE OF RESEARCH 

This thesis “A Study on Working Capital Management & Profitability Analysis of

Usha Martin Ltd” is an analytical research.

Analytical Research is defined as the research in which, researcher has to use facts or

information already available, and analyze these to make a critical evaluation of the

facts, figures, data or material. 

The thesis includes finding of primary data and secondary data. It includes surveys and

fact-finding enquiries. So, the project basically covers description of state of affairs, as it

exists at present. Here in this case, the researcher does not have control over the

variables. Here, the job done as a researcher is to use the facts and information already

available. The research is done with the aid of the annual reports, the company

database textbooks and the observation and interaction being the only source of

primary data whatever is used. The same set of information is analyzed to make the

critical evaluation of the material. 

With the given nature of research this is an analytical type of research wherein the

analysis of the existing set of affairs are used to arrive the effect of working capital

management on the return and profitability of the company. 

1.5.2. INSTRUMENTATION TECHNIQUES  

The techniques used for the collections of the financial statements, data and other

information as follows. The primary data were collected by interaction and observation.

The secondary data were collected from the published annual reports, budgeted

manuals and the audited balance sheet and profit and loss account, database of    the

company. 

1.5.3. ACTUAL COLLECTION OF DATA 

The thesis makes use of both the primary as well as secondary data.

Primary data were collected by observation and interaction. In the course of time, the

finance manager and his executives, the purchase manager and his executives and the

store manager and his executives provided very appreciable co-operation during the

interaction.

As for the secondary data, the various published materials were used along with the

database. The annual reports, fact-sheets, budgeted manuals and the audited balance

sheet and profit and loss account, accounting and financial database of the company. 

1.5.4. TOOLS USED FOR ANALYSIS OF DATA 

The data were analyzed using the following financial tools and techniques

· Ratio analysis

· ABC analysis

· Statement of changes in working capital 

1.5.5. OTHER SOFTWARE USED FOR DATA ANALYSIS 

The application software used for the typing of data, analysis of data, and presentations

of different charts, tables, graphs etc is Microsoft Word and Excel. MS Excel made a

very handy tool for the analysis of the data. It was rigorously made use of during the

calculation and comparisons among the data, graphical and tabular presentation,

calculation of various ratios, their analysis

1.6. LIMITATION OF THE STUDY

• The analysis is limited to just 4 years. The study conducted deals only with

impact of working capital on profitability without taking into consideration the risk

I involved.

• The study conducted throws light only on the impact of working capital on a

minuscule part of strategic management namely EVA.

• The figures and facts claimed in the annual reports and in other forms are taken

a

.              

Chapter -2Literature Review

REVIEW OF LITERATURE

Sam D'Costa wrote an article “Working Capital – a Tool to Judge your Company’s

Efficiency” on the subject of

The most repeated maxim amongst financial managers is "Cash is the lifeblood of

business". A business owner always look that his cash flow to business is smooth and

use it for generating profit. When a business is running smoothly and taking in profit,

then it will undoubtedly have cash surpluses. If your business does not have cash

surplus, expect to go out of the business.

1. Cash Flow forecasting is what working capital management is all about. Your forecast

should include factors like fluctuating market cycles, unforeseen events, loss of

customers and your competitor's strategy. Also, unforeseen demands and its effect on

your business all need to be factored in.

2. There is nothing wrong with putting together a contingency plans just in case of

unexpected events. It's true that market leaders manage uncertainty much better than in

years past, but you really should have risk management procedures for your company

as insurance.

Steve Bush wrote an article “Commercial Loans and Working Capital Financing

Special Reports” on the subject of

A prudent approach to working capital management is becoming more difficult for most

commercial borrowers. Commercial loans have always been more complicated than

realized by most business owners. Recent financing difficulties involving commercial

mortgages, SBA loans and business cash advances have added significantly to the

complexity of the entire commercial lending process.

This article will provide a brief overview describing some of the business financing

resources which should be thoroughly evaluated by commercial borrowers as part of

their prudent approach to successful working capital funding. All of the recommended

sources are free and available online. Business owners should contact the author

directly or use one of the leading internet search engines to locate the most appropriate

sites.

Jamie Liddell wrote a article “Making the Link Between P2P and Working Capital

to Create a Robust Governance Framework” on the subjectof

How changes made to cope with adversity can prove advantageous in other areas of

the organization. One of the lesser-trumpeted consequences of the credit crunch has

been a renewed (and some might say long overdue) attention paid to working capital

management: with liquidity the watchword organizations have been scrambling to

release potentially significant sums tied up in their P2P and O2C processes, with every

saving going some distance to staving off a potentially business-critical shortage of

cash. But while the short-term benefits of such new-found C-level interest in such

processes can be summed up by the bottom line, longer-term the ramifications could be

a lot more profound – and positive – thanks to the enhanced governance frameworks

resulting from companies' increased attention to detail.

Stephen Bush wrote a article “Commercial Loan Help for Avoiding Problem

Working Capital Lenders” on the subject of

Avoiding critical problems is vital for a small business owner seeking help with

commercial loans. Successful working capital management especially requires that

problem lenders be avoided for business loans and commercial mortgage financing.

One of the most serious commercial loan situations is a small business commercial

lender that causes problems for their commercial borrowers on a repeating basis.

Commercial borrowers should be prepared to avoid certain problematic commercial

lenders unless alternative working capital loan options are impossible.

This article will not name specific lenders to avoid. However, we will describe the

importance of avoiding "problem commercial lenders". Key examples will be provided to

illustrate why prudent commercial borrowers should be prepared to avoid a wide variety

of existing commercial lenders when seeking viable commercial mortgage and small

business financing strategies.

Suzanne wrote a article “Working Capital: the Life Blood of Business” on the subject of

Successful business thrives on smooth cash flow. This is no jargon but a simple truth oft

repeated and realized by the financial managers around. The top priority of any small

business is to stay solvent and ensure the availability of adequate working capital. This

capital is utilized for the payment of rent, payroll, and other operating costs as is

involved in the various stages of production and services. Irrespective of the success of

any business, there is always a possibility of scarcity of funds on account of some

unexpected circumstances. Herein arises the need for securing adequate fund to

manage all your business obligations and provide enough financial security for the

future as well.

Lack of adequate expendable cash makes it difficult for an organization to meet day-to-

day expenses. Since businesses always run the risk of unexpected expenses, it

becomes even more important to secure some fund in order to avoid unpleasant

circumstances

Stephen Bush wrote an article “Working Capital Financing Success with Realistic Choices”

on the subject of Being realistic when seeking new working capital financing and

commercial loans should be a key goal for all commercial borrowers. Business owners

should be prepared to encounter stark changes impacting most business financing and

working capital loans. Although it is very likely that either the terms or kind of financing

will be different from previous commercial financing arrangements, with proper

preparation most business owners will still be able to obtain new financing despite these

new and difficult challenges.

In view of volatile conditions which have recently impacted credit markets, this will not

be a simple task. The extensive misinformation and confusion that there has been about

business financing and working capital availability illustrates a common example of the

problem. One of the most difficult challenges for commercial borrowers is obtaining

more accurate information about what is realistically possible.

Terry H. Hill wrote an article “Making Your Working Capital Work” on the subject of

The more rapidly that your business expands, the greater the need for working capital

becomes.  If you have insufficient working capital – the money necessary to keep your

business

Functioning – your enterprise is doomed to fail.  Many businesses, that are profitable

on-paper, are forced to "close their doors" due to their inability to meet short-term debts

when they come due.  However, by implementing sound working capital management

strategies, your enterprise can flourish; in other words, your assets are working for you! 

At one time or another, most businesses have the need to borrow money in order to

finance their growth.  The ability to obtain a loan is based on the credit worthiness of a

business. The two major factors that determine credit worthiness are the existence and

extent of collateral and the liquidity of the business.  Your company's balance sheet is

used to assess both of these factors.   On your balance sheet, working capital

represents the difference between current assets and current liabilities — the capital

that you currently have to finance operations.

Stephen Bush wrote a article “Avoid Key Credit Card Processing and Working

Capital Mistakes” the subject of

Although it will not be easy, avoiding key credit card processing and business cash

advance mistakes is likely to eliminate business finance problems that often have

disastrous consequences. The use of proper precautions is likely to produce improved

working capital management results.

In our experience, the potential difficulties involving factors discussed below are more

serious and common than most business owners expect. While we will not be

addressing all possible merchant cash advance and working capital loan mistakes in

this article, we will include several of the most severe issues to anticipate.

The immediate impact is a sudden influx of inexperienced residential mortgage brokers

and lenders attempting to provide working capital management advice for credit card

processing and business cash advance services. As we have written about extensively,

business financing is infinitely more complex than residential financing.

GAUTAM KOPPALA wrote a article “Working Capital from Pome by Gautam Koppala”

on the subject of

The management of short-term assets, also known as working capital assets, is a very,

very important management function. As we will see, mismanagement of these assets,

particularly inventories and accounts receivable, can consume resources that would

otherwise be used to support and strengthen the business. It is important to recognize

that management of these assets is a comprehensive function. One cannot focus on

only one of these asset categories at a time.

We will also see that there is a direct relationship between the management of short-

term assets and the management of short-term liabilities. As we noted earlier, financial

transactions that affect one part of the Balance Sheet ultimately affect another part,

because the Balance Sheet always balances. Understanding the other side of the

Balance Sheet effect helps us understand the impact of management actions

Steve Bush wrote a article “Working Capital Loans and How to Avoid Fake

Articles” on the subject of

In a recent commercial loan report, we described the increasing use of fake articles

about working capital loans on a variety of internet sites. In our prior AEX Commercial

Financing article, we provided two practical strategies to avoid the publishers of fictitious

information concerning commercial mortgages and other business financing. To avoid

repetition, please contact us directly regarding recommendations which were previously

discussed. In the current report we will provide more detailed suggestions for avoiding

this growing problem.

The use of reputable publication sites is an effective and important way to avoid fake

articles about business cash advances and commercial real estate loans. Such sites will

employ their best efforts to eliminate articles for which the author does not have

ownership rights. These responsible and high-quality sites will require review of articles

by a human editor prior to publication

Steve Selengut wrote an article “Investment Performance Analysis Using the

Working Capital Asset Allocation Model”2008 on the subject of

The use of Issue Breadth and 52-week High/Low statistics for navigating the sea of

uncertainty, and Peak-to-Peak interest rate and market cycle analysis are much more

useful as performance expectation barometers than the DJIA was ever meant to be.

When did it become vogue to think of Investment Portfolios as sprinters in a twelve-

month race with a nebulous array of indices and averages? Why are the Masters of the

Universe rolling on the floor in laughter? They can visualize your annual performance

agitation ritual producing fee generating transactions in all conceivable directions. An

unhappy investor is Wall Street's best friend, and by emphasizing short-term results in a

super bowlesque environment, they guarantee that the vast majority of investors will be

unhappy about something, all of the time.

Your portfolio should be as unique as you are, and I contend that a portfolio of individual

securities rather than a shopping cart full of one-size-fits-all consumer products is much

easier to understand and to manage. You just need to focus on two longer-range

objectives: (1) Growing productive Working Capital, and (2) Increasing Base Income.

Neither objective is directly related to the market averages, interest rate movements, or

the calendar year.

Alfred Anderson wrote an article “Manage Working Capital With Cash Advance” 2006 on

the subject of

The success of an organization depends on how effectively its working capital is

managed. Day to day operational expenses pertaining to advertising, salaries, rent etc.

needs to be met on a regular basis and thus proper management of working capital is

essential. Managing working capital typically refers to strategies being implemented to

maintain the requisite amount of operating liquidity on a day to day basis. This involves

management of a company’s short term assets and liabilities to ensure sufficient cash

flow to satisfy short term debt and other operational expenses.

Working capital decisions are short term which is based on cash flows and profitability

of a business. Hence measurement and estimation of the profitability is vital. Cash flows

can be measured with the help of cash conversion cycle i.e. the time required to convert

raw materials into finished products which is then converted into sales.

Michael Koslow wrote a book “Your Success: It’s All About Working Capital Strategy” on

the subject of

This area of finance allows companies to obtain working capital for their business by

releasing liquidity tied up in assets. Asset-based lending is growing faster than general

lending because it is generally less risky, according to Paul Hancock, a managing

director in asset-based lending at JPMorgan, as told to The Financial Times.

"Both the securitization and traditional leveraged loan markets have been significantly

less active, and businesses are increasingly considering alternatives for their funding

needs," Hancock says. "In times of economic uncertainty and earnings volatility,

companies can sometimes find it easier to manage their finances with their balance

sheet rather than earnings or cash flow covenants."

James Leong wrote a book “Managing Working Capital” on the subject of

Accounting defines working capital as Current Assets less Current Liabilities. It is also

known as Net Current Assets. Current assets are those which are considered liquid and

are convertible or expected to be realizable in cash within a period of 12 months from

the date of the financial report. Common examples include cash, inventories, accounts

receivables, prepayments and marketable securities. Current liabilities are those which

are expected to be repaid within a period of 12 months. Examples include bank

overdraft, short term borrowings, accounts payables and accrued expenses.

Operationally, working capital indicates the ability of the company to finance its current

operations and to meet obligations when they mature. It measures the companys ability

to pay daily bills from a liquidity

standpoint.

Peter Kennedy wrote a article “Government bond Markets: Shaw Capital

Management February Newsletter” on the subject of

Shaw Capital Management Korea February Newsletter: There was always the risk that

the funding requirements resulting from recent policies, and particularly from the

measures to counter the latest recession, would prove to be a massive burden for the

global bond markets, and this has now proved to be the case. The Dubai government

appears to have been rescued by help from Abu Dhabi; but it is still not clear whether

there will be help for Greece and other periphery countries of the euro-zone that are in

difficulties, and doubts have also been expressed about countries outside the euro-

zone, including the UK, if central banks do not implement "exit strategies" carefully, and

credible plans to reduce the massive fiscal deficits are not introduced fairly quickly.

 Capital Management Korea February Newsletter: Debt issuance rose to over $2 trillion

in 2009 to finance this deficit, and to replace maturing bonds; and the latest decision to

take advantage of the unexpected windfall from the repayment of bank bail-out funds

that are no longer needed to provide new resources for job creation is a clear indication

that there are no plans to take early action to reduce the deficit.

 Marciano Guerrero wrote a article “Working Capital And Current Ratio - 2 Useful

Measures Of Liquidity And Solvency” on the subject of

The Balance Sheet is one of the four required financial statements that accountants

prepare for business owners and managers. This statement shows the assets, liabilities,

and the owner's equity (capital).

The balance sheet is a reflection of the Accounting Equation (Assets = Liabilities +

Owner's Equity). The accounting equation is a simple-minded equality. It informs the

reader of the balance sheet to whom the assets (left side of the equation) belong: the

creditors (liabilities) and the owner (owner's equity).

So, in all businesses, the two parties that can claim ownership of the assets are

creditors and the owner. And in the case of a corporation 'the owner' will be many and

are called shareholders.

Stan Prokop wrote a article “How Does My DSO Affect Cash Flow and Working

Capital” on the subject of

Most business owners and financial managers know the importance of their investment

in accounts receivable.   The method by which the largest corporations in the world, and

a small company measure collection activity, is called DSO, or ‘Collection Period ‘. DSO

stands for DAILY SALES OUTSTANDING

Business owners can calculate this number very quickly, and we recommend it be done

regularly, typically monthly, quarterly, and certainly annually.  It’s a great business

measurement of your success, and lenders also focus in on this number also.

We point out that the DSO calculation is a reflection of one point in time – that’s why it is

important to monitor the overall trend of DSO on a longer term basis. Naturally all good

businesses age their receivables, so they know how old they are and focus on past due

accounts.  

Jeff Bross wrote an article “Accounts Receivable Factoring Can Be A Powerful

Working Capital Tool” on the subject of

The way factoring receivables works is the factoring company (factor), provides cash for

your invoices after you invoice your customers.  Many factoring companies use the term

purchase your receivables, but in reality they are really just advancing funds against

your receivables as the primary collateral for the transaction.  True no recourse factoring

is not very common these days as most companies that need factoring do not want a

factor calling customers for collections and payments.  So if the factor sets your

discount fee at 2.5%, the factor keeps 2.5% of the invoice total as their fee for providing

the funds immediately.  Most factoring companies will advance 80% to 90% of the total

up front, and then provide your business the remaining amount 20% to 10%, less your

discount fee, once the invoice is paid by your customer.

You are normally given up to 90 days for payment to arrive and if the payment does not

arrive the factor will come back you for collection.  It's important to keep in mind that

today's factoring is mostly full recourse so you will need to manage the relationship with

your customers and make sure payments still arrive within a reasonable time period. 

DR.R.SRINIVASAN wrote a article “WORKING CAPITAL FINANCING –BOON TO

BUSINESS” on the subject of

It is widely accepted that every successful business must have a strong working capital

position. It is in this context; an attempt was made to explain the concept and various

determinative factors influencing net current assets below:

Gross working capital refers to working capital as the total of current assets. That is to

say, Gross working capital = Total current assets.

Net working capital refers to working capital as excess of current assets over current

liabilities. In other words net working capital refers to current assets financed by long

term funds or capital employed of the business.

 Accordingly, Net working capital = Current assets – Current liabilities

The net working capital position of the firm is an imperative contemplation, as this will

determine the firm’s profitability and risk. Here the profitability refers to profits after

expenses and risk refers to the probability that a firm will become technically insolvent

where it will be unable to meet obligations when they become due for payment.

Steve Jones wrote an article “Finance for Working Capital - Bank Overdrafts”2004on the

subject of

This is the most common form of finance used to fund working capital and the one with

which most business owners are familiar. This is where the bank account is allowed to

go overdrawn up to a pre-agreed limit.

Overdrafts are straightforward to arrange and are provided by most banks. The limit will

be set at a figure appropriate for the business and at a level where the bank considers

the risk to be acceptable. The actual amount available will therefore vary significantly

from business to business. Security may or may not be required A rapidly expanding

business could easily out grow its overdraft facility and find itself constantly close to the

agreed borrowing limit. As there will always be a finite amount of money

that a lender can provide, this in itself may be a restricting factor in the growth of the

business. In this situation it will be necessary to consider and explore other types of

finance.

Stan Prokop wrote a article “How Do Banks Exert Control And Influence On

Business Loan And Working Capital Facilities “2010-06-17 on the subject of

This is because when a customer has to service the additional non- bank debt they

might be unable to service the banks loans.  Banks have very well known and published

cash flow ration and they want to ensure their customers can meet these rations on the

bank debt. Naturally if a bank feels comfortable with a customer growth and cash flow

profits they are much more likely to approve a third party financing .  If they aren’t

comfortable they may ask the company to at lease temporarily defer bonuses,

dividends, or, in the case of a public company, a stock repurchase.

Bankers of course usually know the company very well, as a relationship and financial

history has developed over the years.  They will often want to have input into the

company’s growth direction in an effort to ensure the customer is not going down a path

that in their opinion, might lead to liquidity loss or profitability loss

Jackie Johnson wrote a article “How Accounts Receivable Factoring Can Solve

Your Working Capital Issues”2008 on the subject of

The beauty of using this cash flow tool comes in the simplicity of it all. They purchase an

invoice from you at a rate that is discounted from the true invoice value. This discount

allows them to make a profit when the original customer settles the invoice, which is

their motivation for engaging in the transaction. The benefit for selling the invoice comes

in receiving the money immediately, which can negate any potential difficulty that may

be arising from a lack of cash flow. Again, using the skills and knowledge of companies

who perform accounts receivable factoring services can ensure the liquidity of many

firms, even in the most troublesome of times.

The firm who sells the invoice may be the one who benefits the most but it is clear that

the factor is doing a great level of business too. If they have enough cash to cater for

their own short term needs as well as having money left over, it makes sense to have

this excess money working for them. The guaranteed profit that arises from the discount

applied to the invoice rate ensures the firm will receive more money in the future, which

can help a business plan ahead.

Jason Hulott wrote a article “Short term Business Loans: Feasible way to raise

working capital”2005on the subject of

With assist of short term business loans people can avail easy case for any of their

business and other purposes. It may include anything like pay off salary & wages of

employees, business promotional expenses, purchasing a land for office premises,

paying due taxes, buying new machinery, and advertisement expenses, office interior

expenses etc. There is no restriction over the usage of loan amount.

These loans are unsecured in nature that avails you money in the ranges of £1000 to

£25000 for the term period of 1 to 10 years. You may have complete freedom to select

the amount range as per your convenience and repaying capability. You can avail this

loan facility at any stage of your business. But, keep in mind that never make delays in

payment as it cause high penalty charges. Plus, timely repayment of money can also

assist you in strengthen your financial position.

Terry Cartwright wrote a article “Cash Flow Management of Debtors And

Creditors In A Credit Crunch” on the subject of

The objective is to obtain payment from customers as fast as possible improving cash

flow and minimizing the risk of bad debts and not being paid at all.

Payment terms offered to customers should be clearly stated and fixed as standard

accounting figures according to the amount of funding the business is prepared to offer

its clients. Because that is exactly what credit terms to customers is, free cash funding

in exchange for eventual sales income.

Consideration should be given to using a cash discount system to encourage sales

invoices to be paid faster. In some businesses it would be appropriate to obtain up front

deposits and scheduled payments. Review this practise to obtain a greater proportion of

payments faster to improve liquidity.

American Journal of Business on An Analysis of Working Capital Management

Results across Industries

Firms are able to reduce financing costs and/or increase the funds available for

expansion by minimizing the amount of funds tied up in current assets. We provide

insights into the performance of surveyed firms across key components of working

capital management by using the CFO magazines annual Working Capital Management

Survey. We discover that significant differences exist between industries in working

capital measures across time. In addition, we discover that these measures for working

capital change significantly within industries across time.

The IUP Journal of Accounting Research and Audit Practices on Inventory and

working capital Management: An Empirical Analysis

The working capital management refers to the management of working capital, or

precisely to the management of current assets. A firm’s working capital consists of its

investments in current assets, which includes short-term assets—cash and bank

balance, inventories, receivable and marketable securities. Therefore, the working

capital management refers to the management of the levels of all these individual

current assets. On the other hand, inventory, which is one of the important elements of

current assets, reflects the investment of a firm’s fund. Hence, it is necessary to

efficiently manage inventories in order to avoid unnecessary investments. A firm, which

neglects the management of inventories, will have to face serious problems relating to

long-term profitability and may fail to survive. With the help of better inventory

management, a firm can reduce the levels of inventories to a considerable degree e.g.,

10 to 20% without any adverse effect on production and sales.

European Financial Management, on International working capital practices in the

UK

A new order depletes that inventory significantly. Although payments from Medicare and

other carriers may lag, expenses including loan repayment, must be paid and inventory

replenished. However, additional credit is not available until the existing line has been

repaid. Consequently, unless you have established a credit line sufficient to meet the

cash flow requirements you might need in the future, loans won’t work because they do

not fluctuate with your revenue cycle or expand with your growth

Journal of International Business Studies on An International Study of

Management Perceptions of the working capital Process

Working capital literature is rather limited and the process of managing short‐term

resources is not understood well by he academicians. In contrast the corporate

managers are continuously involved in the working capital decision-making process, but

their perspective is limited to the practice of their firm. In order to fill this gap in the

working capital literature, a study of management perceptions of the working capital

process was undertaken. A survey was used to collect the information from the sample

of marketing, production, and financial executives in large corporations in Belgium,

France, India and United States. The study intercepts management ranking of working

capital objectives and indicates the need to improve finacial planning models to include

explicitly short–run objectives; further, predictability of cash inflows and outflows is

examined and the potential factors affecting the predictability are evaluated

Studies in Agricultural Economics on The interpretation of ccc and its elements,

working capital management

Those literary sources, which are about the interpretation of the working capital in a

context with the financing strategies of the companies, about the related financial

indices, and the counting methodological questions of all these, could not be called

poor, nor unified. The deficiency of defining the concepts that give the theoretical basis

and their vocational tenability, the controversial interpretation and the unclearness of the

related methodological questions creates several problems. The problematic concepts

are working capital net working capital, the circulation of current assets and working

capital management etc. The root of the problems could be found on the other hand in

the unclearness of the theoretical contexts, in the deficiency and vocational tenability of

the defining of the related concepts and categories. We define the concepts of working

capital, net working capital based on the results of our several years of research work.

30Journal of Business Finance & Accounting on Does working capital

Management Affect Profitability of Belgian Firms

The relation between working capital management and corporate profitablity is

investigated for a sample of 1,009 large Belgian non-financial firms for the 1992-1996

period. Trade credit policy and inventory policy are measured by number of days

accounts receivable, accounts payable and inventories, and the cash conversion cycle

is used as a comprehensive measure of working capital management. The results

suggest that managers can increase corporate profitability by reducing the number of

days accounts receivable and inventories. Less profitable firms wait longer to pay their

bills.

31Policy Research working Paper Series on Why liberalization alone has not

improved agricultural productivity in Zambia: the role of asset ownership and

working capital constraints

The authors use a large panel data set from Zambia to examine factors that could

explain the relatively lackluster performance of the country's agricultural sector after

liberalization. Zambia's liberalization significantly opened the economy but failed to alter

the structure of production or helps realize efficiency gains. They reach two main

conclusions. First, not owning productive assets (in Zambia, draft animals and

implements) limits improvements in agricultural productivity and household welfare.

Owning oxen increases income directly, allows farmers to till their fields efficiently when

rain is delayed, increases the area cultivated, and improves access to credit and

fertilizer markets. Second, the authors reject the hypothesis that the application of

fertilizer is unprofitable because of high input prices. Rather, fertilizer use appears to

have declined because of constraints on supplies, which government intervention

exacerbated instead of alleviating.

32PR NEWSWIRE , Published a article on the subject of Equity Indexed

Annuities have a place in many people's retirement accounts. Unfortunately, they

aren't as well known as variable or fixed annuities and customers and sales reps often

overlook them because of lack of awareness. Equity indexed annuities provide a

method of fighting inflation, participating in the market and still remaining risk free.

Equity indexed annuities are a blend of the fixed annuity and the variable annuity. They

offer a base interest rate the company guarantees regardless of market conditions. In

this way, they're much like the fixed annuity. They also track a specific equity index,

such as the S&P 500, and give a percentage of the growth to the policyholder if the

market increases. The percentage varies from policy to policy.

There are difference in the percentage you receive and differences in caps. A cap on the

percentage is the highest amount the policyholder gets regardless of the market

conditions. Sometimes caps are as low as 8 to 10 percent

PR Newswire published a article . on the subject of Ten papers present recent

research in the field of financial planning and forecasting. Journal of Economic

Literature.

An Empirical Examination of The Intraday Return Volatility Process (S.

Rahman, K.P. Ang). The Valuation of New Product Introduction Under Uncertain

Competition: A Real Option Approach (S.-S. Chen, et al.). Earnings, Dividends,

and Equity Value of Multinational Firms (A. Riah-Belkaoui). Benford's Law and

Its Application in Financial Fraud Detection (K. Kumar, S. Bhattacharya).

Estimation of the Degree of Integration in the U.S. Maturity Rates Using Semi

parametric Techniques (L. Gil-Alana). On Country-Fund Price Behavior-An

Empirical Analysis of Co integrating Factors (T. Chiang, D. Kim). Strategic

Capital Budgeting: the Abandonment Option with Political Risk (E. Clark). Time

Series Model Complexity and Firm Valuation: the Case of AR1 Firms Versus

Non-AR1 Firms (B.-H. Bao, D.-H. Bao). Debt Covenant Violation and the Value

Relevance of Accounting Information (W. Cready, et al.). What's Next: Merger in

the Lebanese Banking Sector (A. Charbaji).

PR Newswire published a article on the subject of Usually owning to the fact that

the debtor has a regular and consistent job, you as the judgment recovery specialist

can garnish the wages relatively quickly, in such a way that the debtor is able to

sustain his lifestyle at the same time is able to pay the judgment amount, provided that

there no other garnishments with a higher priority than yours, levied on him. However,

there is a high possibility of the debtor quitting his job, right after he is served with the

wage garnishment notice. If, in case, this happens its back to square one for you, as

judgment recovery professional.

Generally, debtors or defendants who fend for themselves and have a home based

business; it becomes excessively harder for the judgment recovery specialist to

recover the judgment owed. When such a case arises, special tools like an

assignment order of third party levies are used by the judgment recovery specialist.

These will be discussed at length in other articles on judgment recovery, once I am

done with them.

Infiniti Research Limited, published a article on the subject of

The reputed Las Vegas financial planners can perform proper analysis and make proper

recommendations on every major asset class. They not only make recommendations

depending on the bonds and stocks but also on several other aspects. These planners

include the natural resources, commodities, currencies and real estates. The

experienced planners know how these investments would be taxed. They can

determine the way in which they are to be used within investment portfolio for achieving

the long term as well as the short term goal of their clients.

A person who wants to get the best wealth management should contact a private wealth

manager than contacting the retail brokerage firms. The private wealth management

firms have a financial team and make sure that all investments have a proper

consistency. They provide the planning through the account of his lawyer or his client.

These firms coordinate all wealth of a person as they consider coordinated approach as

the best approach for financial services.

Decision Resources, , Pages: 23 publised a article on the subject of

The Federal Reserve can control interest rates by expanding or contracting the quantity

of money. It can control the financial markets with its “Open Market Operations.” It can

create new money to increase its member's bank reserves at any time. It can negotiate

with foreign banks on monetary policies without congressional approval or knowledge.

And it can do all of this with virtually no oversight by any elected representative of the

people. Even the Government Accounting Office responsible for auditing all government

agencies, has no auditing authority over the Federal Reserve, a private corporation not

a government agency

Without the ability to judge the cost of capital by the true market value of interest rates,

determined by the availability of savings for investing and future consumption, no free

market can correctly judge its financial health. These false signals along with

government regulations are what create booms and busts in our economy, not free

market actions.

Espicom Business Intelligence Ltd, May , published a article on the subject of

The core idea of retirement planning is to save enough money for your old age days

and a smart investment plan made by a financial consultant will also be able to

ensure that your old age is the golden period of your life financially. Property is one

of the biggest assets you can have financially and making good money out of

investments and savings is possible by employing independent broker dealers that

can guide you to converting your property into an investment that delivers high

returns. Investing in the right insurance policies can also save your money efficiently

especially in areas like auto insurance or health insurance where without a good

insurance a lot of your money might get spent for the smallest hiccups in your

personal health.

Wealth is the one language that everyone understands across the world and

maintaining this wealth is essential if you want yourself to have an open

communication with a good life.

Report from the India Press Release brought to you by the Hindustan Times

MUMBAI, India, -

The Bombay Stock Exchange of India made the following corporate announcement:

Ranbaxy Laboratories Ltd., has informed BSE that Basics GmbH (Basics) based in

Leverkusen Germany, a wholly owned subsidiary of the Company on February 13,

2007, has announced that the Company's products has been selected by 16 Allgemeine

Ortskrankenkassen (AOK), Germany's largest General Local Health Insurance, for

listing. Basics/Ranbaxy is the only Indian Company in the AOK list. This new

agreement, listing specific products, is the first of its kind.

The Star (South Africa) published a article on the subject of In 1933, by Executive

Order of the President (FDR), all Americans were required to surrender their gold to the

government. This took away our right to trade in the most respected of all possible

commodities used to secure value in our economic exchanges. Not only did government

confiscate our gold, they also prohibited redemption of U.S. Dollars for gold by any

American. Of course, the international bankers were still allowed to exchange dollars for

gold. Now you know where our gold went. FDR pulled the plug on value-backed money

for American enterprise, dooming free market capitalism to a slow and painful death.

In 1971, President Nixon reneged on the “Breton Woods Accord” removing the

international gold redemption for the U.S. dollar. Unfortunately, it was too late. It is

probable that the international bankers already own most of what was our country's

gold. No longer would our dollars be backed by anything other than our central bankers

and government's “Good Faith.” No free market can exist without the right to exchange

productive value for productive value.

Ankit Agarwal on January published a article in Finance Friday on the subject

of

Its a new year and a economically promising one at that. However, the stock markets

have been playing a see-saw ride for some time now with no major fluctuations.Sectoral

Investing has lost its flavor for some time now but analyzing a particular sector still helps

one shortlist the stocks to invest in. Recently, we had covered a discussion on the IT

Sector’s position in the Stock Market. One other sector that looks set for some real

action is the HealthCare sector. The Health Care sector picked up some real peace

during the last year after March where the BSE HealthCare dropped to its maximum

low(CY 09) and from then on, it has been only an uphill journey. A look at the charts of

the BSE Healthcare index is a good indicator of the good run the Healthcare based

stocks have had in the Indian Stock Markets.

Cheng F. Lee November Wrote a book “Advances in financial planning and

forecasting, Volume 11” on the subject of

This paper presents a comprehensive analysis of the distributional and time-series

properties of intraday returns. The purpose is to determine whether a GARCH model

that allows for time variance in a process can adequately represent intraday return

volatility.

This paper investigates how a stochastic competition process in a two-factor real option

model could affect the value of future product development opportunities. Our results

also indicate that product development opportunities are more valuable

This paper develops and tests a valuation model, whose main prediction is that equity

value is a function of earnings, dividends and book value, where the function depends

on the relative level of multi nationality.

This paper has discussed Bedford’s law, which explains that the leading (first or

leftmost) digit in a series of natural numbers is not evenly distributed among the digits 1

to 9. The main purpose of this study actually seeks to explore a new methodological

approach to data mining that can be of some real practical value; especially to the

auditors and forensic accountants in detecting financial frauds.

Alice C. Lee, John C. Lee, Cheng F. Lee Wrote a book “Financial analysis,

planning & forecasting: theory and application” on the subject of

Based on the authors' extensive teaching, research and business experiences, this

book reviews, discusses and integrates both theoretical and practical aspects of

financial planning and forecasting. The book is divided into six parts: Information and

Methodology for Financial Analysis, Alternative Finance Theories and Their Application,

Capital Budgeting and Leasing Decisions, Corporate Policies and Their

Interrelationships, Short-term Financial Decisions, Financial Planning and Forecasting,

and Overview. The theories used in this book are pre-Modigliani Miller Theorem,

Modigliani Miller Theorem, Capital Asset Pricing Model and Arbitrage Pricing Theory,

and Option Pricing Theory. The interrelationships among these theories are carefully

analyzed. Meaningful real-world examples of using these theories are discussed step-

by-step, with relevant data and methodology.

Sue Nugus Wrote a book “Financial planning using Excel: forecasting

planning and budgeting techniques”on the subject of

This book covers all aspects of budget preparation, from designing and creating a

budgetary control system, consolidating data and working with spreadsheets.

Now fully updated to include the latest version of Excel, Excel 2007 and for easy

budgeting now with access to an online resource of worked examples and spreadsheet

templates. The book shows how things are done in Excel 2003 and Excel 2007 to ease

transition from the previous version to the new version. Now in full colour throughout to

aid quick understanding through numerous color screen shots.

For those who use Excel on a daily basis in budget planning, this book is a must. It

contains a wealth of practical examples, tips, new techniques all designed to help

quickly exploit and master Excel to its full advantage and therefore use spreadsheets for

more effective management accounting in your firm.

Chapter 3Company profile 

Of usha martin

COMPANY PROFILE 

3.1. EXECUTIVE SUMMARY 

Started in 1961 in Ranchi, Jharkhand as a wire, rope manufacturing company, today the

Usha Martin Group is an Rs.3000 Crore conglomerate with a global presence.  The

group has set new standards in the manufacture of wire rope, bright bars, steel wires,

specialty wires, wire ropes, strand, conveyor cord, wire drawing and cable machinery. 

With continuous growth in both the domestic and international markets, Usha Martin,

the Group’s flagship company has emerged as India’s largest and the world’s second

largest steel wire rope manufacturer.  

 For Usha Martin, the path to sustainable growth was long; the management constantly

tried out innovative business practices.  With initiative to diversify the customer base by

venturing into the international markets, moving up the value chain and fully integrating

its business process to maximize stakeholder value.

In 1979, the company set up a steel plant with wire rod rolling mill at Jamshedpur, to

benefit from business integration. This ensured a steady supply of steel for the

manufacture of value added products. Today, the Jamshedpur unit has a truly integrated

specialty steel manufacturing facility of 400,000 MT per annum.  Out of which, about

50% is consumed internally by its plant in Ranchi, Hoshiarpur & Bangkok, producing

steel wire, steel strand, steel cords, bright bar and steel wire ropes.  All its

manufacturing facilities are ISO 9000 certified and the steel plant was India’s first to

receive the TPM Excellence Award from JIPM, Japan. 

With local success come global aspirations. Currently, the company has overseas

manufacturing operations in Thailand, UK, USA and Dubai. Besides a vast network of

distribution centres and marketing offices spread across the globe to support an ever

growing worldwide customer base. The company exports over 60% of the wire rope

output and about 20% of the total wire rods produced.

Usha Martin’s future plans are focused on its operation in Jharkhand – a state rich in

mineral resources. Future priorities include product mix enrichment, cost reduction and

infrastructural improvements. Already flourishing in its recent foray into mining

operations, the company is planning to invest in its iron ore and coal mines, sinter plant,

pellet plant, power plants, while also enhancing its steel  

making and value added products capacity with an investment of Rs.2,100 crore.  What

set Usha Martin apart is its unwavering commitment to social responsibility. For over

three decades the company has invested ample man-hours and capital on community

development projects for integrated prosperity in rural Jharkhand, through a CSR arm,

Krishi Gram Vikas Kendra (KGVK).

This NGO undertakes various development initiatives, following a model of Total Village

Management (TVM). Focusing on key areas like Watershed development, agricultural

productivity, better health practices and education, empowering women and

encouraging micro enterprise. In recognition to its effort Usha Martin has been awarded

the prestigious TERI Award for Corporate Social Responsibility in 2006.

Today Usha Martin is the only company globally having an integrated model on the

upstream, beginning with iron ore and coal mining, power generationand going down to

deep sea oil and gas exploration, providing anchoring and mooring solutions. 

3.2. HISTORICAL BACKGROUND:

Mr. B.K. Jhawar, the Chairman, established Usha Martin Limited in 1960 with the Wire

Ropes Plant, Ranchi. The firm was initially called Usha Martin Black as it started with

collaboration between M/S Martin Black, Scotland and Usha Automobile & Engineering

Pvt. Ltd., Calcutta in 1960. 

1960 - The Company was incorporated as Usha Martin Black (Wire Ropes) limited

having its wire rope plant at Ranchi. The name was changed to Usha Martin Black Ltd.

in 1979 and further changed to Usha Martin Industries Ltd. (UMIL) in 1983.

1965 - UMIL promoted Usha Ismal Ltd. (UIL) in collaboration with CCL Systems Ltd of

UK for the manufacture of fittings and accessories, equipment for pre-stressed concrete

system, wire ropes and wire ropes splicing equipment at Ranchi. UIL merged with UMIL

in 1990 and became a division of the company.

1969- It backed Usha Breco Ltd. To design, construct and erect Ropeways.

1971 - UMIL promoted Usha Alloy Steels Limited (UASL) for the manufacture of billets

at Jamshedpur. UASL merged with UMIL in 1988.

1975 - UASL acquired an ongoing rolling mill at Agra.

1975 - UMIL set up its Machinery Division at Bangalore for the manufacture of Wire

Drawing and allied machines in technical collaboration with Marshall Richards Barcro

Limited (MRB) of UK.

The collaboration with Martin Black broke up in 1975 and the company was hence

called Usha Martin Industries. 

The company set up an electrical furnace steel plant at Jamshedpur in 1973, followed

by a rod mill in 1976.

1979 - In order to obtain steady supply of wire rods for its wire rope plant, UASL set up

a Wire Rod Rolling Mill at Jamshedpur.

1980- It promoted Usha Siam Steel Industries Ltd, Thailand to produce wire, wire ropes

& auto control cables. It set special products division to produce Hi-Tech Wire Cables.

1987- UMIL, along with Bihar State Electronics Development Corporation, promoted

Usha Beltron Ltd. (UBL) in collaboration with AEG KABEL of Germany for the

manufacture of Jelly Filled Telephone Cables.

1994- It set up Software Division to provide IT Solution for communication application

and Usha Martin Ltd, a distribution center at Glasgow, UK.

1997 - UMIL merged with UBL w.e.f 1st October 1997.

1999- Usha Martin Ltd. Merged with Usha Beltron Group and was renamed as Wire and

Wire Rope Division within which following six companies are included: JFTC-Ranchi,

Wire And Wire Rope Division - Ranchi, Usha Ismal Division – Ranchi, Usha Alloys &

Steel –Jamshedpur, Usha Machinery Division – Bangalore and Rod-Mill Division – Agra

2000 - Acquisition of specialty wire rope manufacturing plant in UK “BruntonShaw”. 

2000 - Commissioning of 25 MW thermal power plants for captive consumption. 

2001 – Commissioning of 2nd SMS to enhance capacity and produce quality specialty

steel.

2003 - Usha Beltron Ltd Changed its name to “Usha Martin Limited (UML). UML created

Fine Cord Plasticized coated Fine wires, household wire, Polymer coated wire, Fine

Ropes & Bright Bars manufacturing facilities in Tatisilwai- Ranchi 

3.3. Achievements  

• UML is the 2nd largest wire and rope manufacturer in the world and has the

largest variety in South East Asia.

• It is multi product, diversified engineering conglomerate with 10 production

units in India,1 in Thailand,1 in UK and 1 in Dubai.

• It is saving valuable foreign exchange by exporting by exporting its

products to 42 countries like USA, Africa and Middle East, conforming to

the strictest product quality standards.

• It got the ISO 9000 Certification by BVQI in 1994.

• ICICI (BCB) did the business process re-engineering in 1996 and line

system was set up to enhance performance.

• With the modern concepts like TPM, value engineering, QC, suggestions

scheme, customer satisfaction and human resource development, UML is

trying to reach unparalleled heights.

• UML is serving through a leading daily “Prabhat Khabar”, Krishi Gram

Vikas Kendra, Usha Martin Technical Institute.

HEAD OFFICE:

Usha Martin Limited

Mangal Kalash, 3rd floor

2-A Shakespeare Sarani

KOLKATA-71 

      PLANT LOCATION:

Usha Martin Limited

Wire Ropes & Specialty Products Division

Tatisilwai, Ranchi,

Jharkhand- 835103

3.4. VISION:      

• In our chosen business, we shall retain market leadership in India and shall be

globally competitive through customer orientation and excellence in quality,

innovation and technology. 

MISSION     

• Enriching lives

We will do our best to provide quality product and services, which will improve the

lifestyle of our users.

• Quality is our first priority

We aim to achieve customer satisfaction by providing quality products. No sale is good

sale unless it fulfills our customer expectations.

• Our word is our bound

Our dealers are our partners. We endeavor to practice this golden rule in all our

relations with others. 

• Integrity is our commitment

The conduct of our company’s affairs must be pursued in a manner that command

respect for honesty and integrity.

TPM POLICY:

• It is our policy to induce change in all employees by delegation, empowerment

and motivation to achieve total participation towards zero accident, zero defects

and zero failure.

3.5. TRADE PROFILE

Business Excellence

UML is the 2nd largest wire and rope manufacturer in the world and has the largest

variety in South East Asia. It is multi product, diversified engineering conglomerate with

10 production units in India, 1 in Thailand, 1 in UK and 1 in Dubai. It is saving valuable

foreign exchange by exporting its products to 42 countries like USA, Africa and Middle

East, conforming to the strictest product quality standards. It got the ISO 9000

Certification by BVQI in 1994.ICICI (BCB) did the business process re-engineering in

1996 and line system was set up to enhance performance. With the modern concepts

like TPM, value engineering, QC, suggestions scheme, customer satisfaction and

human resource development, UML is trying to reach unparalleled heights. UML is

serving through a leading daily “Prabhat Khabar”, Krishi Gram Vikas Kendra, Usha

Martin Technical Institute.

Areas of business   

Group companies:

• Usha Siam Steel Industries Public Company Ltd., Thailand (USSIL)

• European Management & Marine Corporation Ltd., Aberdeen, UK (EMM)

• Brunton Shaw Ltd., Nottinghamshire, UK (BSRL)

• Usha Martin Cables Ltd., Silvasa, Bangalore, India (UCL)

Distribution centers:

UM International Ltd. at Glasgow, Houston, Johannesburg, Copenhagen and Dubai UM

Singapore Ltd.  

Services:

• Usha Breco Ltd. (Usha Martin Industries & British Ropeway Engineering Ltd.)

• Usha Martin Ventures Ltd.

Steel division

A backward integration initiative, the Usha Alloys & Steels Division (UASD) at

Jamshedpur is one of the largest amongst secondary steel manufacturers of specialty

steel long products in India. With ISO 9002 certified facilities, UASD has pioneered the

unique process of steel making through mini blast furnace-arc furnace route, which

ensures superior quality of steel at a lower cost. UASD serves a range of industries like

automobile, general engineering, fasteners, railways, defense and power.

Machinery division

This ISO 9001 unit was set up in 1974 at Bangalore to manufacture Wire Drawing and

allied machines. Over the years, the division has added a wide range of Wire, Wire

Rope and Cable machinery to its product range and is now the leader in this field in

India. The division started with technical collaboration with M/s Marshall Richards

Barcro of UK and subsequently has collaborated with internationally reputed firms like

De-Angeli Industries SPA, Italy, Stolberger Maschinenfabrik, Germany, Hi-Draw

Machinery Ltd, UK and Redaelli Techna Meccanica, Italy. A facility in Ranchi has also

been created for manufacturing machines required for Wire Drawing and Stranding

Applications. 

Usha Ismal Division

This unit, having manufacturing unit in Ranchi (Eastern India), is the leader in the field

of pre-stressing equipment & accessories and also executes pre-stressing job on

turnkey basis. Besides, it provides services for jointing of reinforcement bars by

mechanical splicing. All major civil contractors of National Highway Authority of India,

Indian Railways and PWD are regular users of these products and services. It also

offers hydraulic presses & accessories for manufacturing mechanically spliced wire rope

slings, machines for proof load testing of wire rope slings, and die-less hand operated

hydraulic crimping tools. These products find wide application with Steel Plants, Port

Trusts, Oil Sector, Heavy Engineering Industry, Electricity Boards, Electrical Contractors

and Factories etc.

Cables Division under UM Cables

The Cable Division of Usha Martin Limited has emerged as a leading manufacturer of

jelly-filled underground & fiber optic telecommunication cables in India. The

sophisticated manufacturing facilities are located in Silbasa. The company integrates

technology from KABEL RHEYDT (formerly AEG KABLE), GERMANY, a member of

Alcatel Group - is rated as one of the most efficient plants in the country and a

benchmark in the industry. The Plant includes computer - controlled critical equipments,

imported from International Leaders in cable technology.

Wire and Wire Ropes Division 

The ISO 9001-certified 100,000 MT / annum-manufacturing facilities at Ranchi (Eastern

India) is 2nd largest producer of ropes in the world. Since its inception, the division has

continuously developed and expanded its range of product offerings and is considered a

pioneer in certain classes of products in India. Steel wire ropes manufactured by the

division find wide applications in oil exploration, mining, elevators, Crane, fishing,

construction, load transportation and general engineering sectors. It find varied use in

different parts of the world  known for their excellent quality, long life and low

maintenance, and are the preferred choice of customers across nations. Ropes, ranging

from 2 mm to 100 mm diameter find varied applications. The wide ranges of products

are used in underground mining, surface mining, mooring, onshore and offshore drilling,

fishing, elevators, cranes, aerial haulage and track installations besides various general

engineering applications. Pre-stretched ropes, locked coil wire ropes and spiral strands

made in Usha Martin are used in suspension bridges, antenna masts etc.

Backed by a strong international distribution network our ropes have found a place in

different corners of the world.

Sources of Raw Materials

Raw materials      sources

Steel Wire Rod (90% - 96%)   UMIL, Jamshedpur 

Steel Wire Rod (4% - 10%)   Imported from Germany, Japan, etc. 

Fibre Core      M/s. Chotanagpur Wire Rope 

Other Raw material (Zinc)   M/s. Hindustan Zinc & Other

Supplies 25% & balance is Reported 

Finished Products 

Rope- General engineering rope, Flattened strand, Elevator rope, Non-     rotating rope,

finished rope, Mining rope, Hyplex rope, Locked coil winding, Track rope.

Wire- Auto spoke, Cycle spoke, PC Strand, Rolling shutter, ACSR, PC wire Indexed &

plain. 

Fine Cord

Usha Martin, extended vast experience in rope making technology towards

manufacturing of Fine Cords. Usha Martin Fine Cords find application as the inner

element for the Automotive Control Cables and also in boring applications and as Pull

Cord cables for laying of Television cables.

Size range

The size range for overall diameter of finished cords is 1.20mm to 6.00mm. 

Low relaxation prestressed concrete (LRPC) Strands 

In keeping with the demands of the international market, we have introduced Low

Relaxation Prestressed   Concrete (LRPC) Strands for the construction industry in 2001.

A steel member that is prestressed and embedded in concrete loses the initially applied

stress exponentially with the passage of time. The single most important factor

attributing to this loss in stress relaxation property of the steel itself. By treating the steel

through a thermo mechanical process known as stabilizing, the propensity of the

steel to "relax” under a stressed condition is controlled to a great extent. Some of the

main advantages that our customers derive by using low relaxation strands

are listed below

* Up to 10% reduction in steel requirement possible

* Reduction in concrete requirement due to reduced size of structural members 

* Hot stretch process used during the manufacture of LRPC strands produces a nearly

straight strand, thereby eliminating necessity for extra post straightening treatment.

* Saving in number of anchorages, ducts, sheathings, wedges  and  labour resulting   in

overall reduction of project cost

Applications 

Pre-stressed concrete girders for road, river & railway bridges and flyovers, pre-

stressed concrete domes, slabs, silos, hangars, aqua ducts, viaducts & railway

sleepers.

Patenting & Galvanizing facility

* 50ft electrically fired furnace with inline cleaning, coating, galvanizing

facilities.  

* 30ft propane fired LeFour furnace with inline cleaning, coating, and

galvanizing facilities.  

* 30ft propane fired rod DSW patenting furnace  

* Galvanizing plants of different capacities  

* Stress relieving facilities for wires and strands  

* Annealing furnaces (bell type)  

* Vacuuann ealing furnace  

* PLC driven automatic pickling plant  

* manually operated pickling plant

Quality & Testing

Wires and Strands hold a premier position in the domestic market and are also exported

to different part of the world. Used for different purposes across a gamut of industries,

our wires and strands are continuously put through rigorous and demanding conditions.

To ensure that our offerings match the international standards, we have set high internal

quality standards. Plant located at Ranchi has been awarded ISO 9001 due to our

emphasis on maintaining global quality standards.

  Wires confirm to various specifications such as  

* IS Specifications

* JIS Specifications  

* British Specifications 

* ASTM Specifications 

* DIN Specifications

Aerial Ropes

UML is the undisputed leaders in the domestic Aerial Rope sector. Their product

offerings include Aerial haulage ropes, material handling ropes, rope for passenger

ropeways and other track ropes. Ropes are renowned for their low maintenance, long

life, excellent quality and strength.

Size range

The size range generally preferred for such ropes is  

* 19mm to 38mm5

Steel cord for conveyor belts

Conveyor belts - one of the most popular means for bulk material handling - finds

widespread application in mines, cement and coal industries, ports & terminals, power

stations etc. When reinforced with steel cord these belts last longer, allow higher

operating speeds and offer better shock and rupture resistance than conventional fiber

reinforced belts. In addition, very low elongation and absence of creep, makes steel

cord the ideal reinforcement for long haul, high strength belts (from 500 to 2000 N per

mm of belt width).

In March 2003, the US $ 300 million Usha Martin Group, entered into a Joint Venture

with Gustav Wolf, Germany for production of Steel Cords for Conveyor Belts at a

special facility set-up adjacent to the main Wire & Wire Rope plant at Ranchi and known

as Gustav Wolf Specialty Cords Limited. Gustav Wolf, Germany is one of the global

pioneers in producing Steel Cord for Conveyor belts with decades of experience behind

them and with all major Conveyor Belt manufacturers on their customer list.

Through effective synergy of years of conveyor belt experience of Gustav Wolf with rope

making expertise of Usha Martin, we have become the pioneer and the only producer of

Steel Cords for Conveyor Belts in this country. With state-of-art machinery and latest

technology from Gustav Wolf, our cords provide an optimized high tensile yet flexible

reinforcement to the Conveyor Belts and enables reliable and high capacity Conveyor

Systems to be used. Our flexibility to supply in ready-to-fit spools as well as in giant

master spools, gives our customers the option to procure in exact lengths, thus reducing

operational cost and downtime.  

 Major customers of Usha Martin

Eastern Region—

      a. Indian Ropeway & Corporation Ltd.

      b. OTIS India Ltd.

      c. Philips India Ltd.

      d. SAIL

      e. HEC, Ranchi

      f. TISCO, Jamshedpur 

      g. MCL, Talchar

      i. CCL, Ranchi

Western Region-

• ONGC

• Jindal Strips Ltd.

• Essar Steels, Surat

• Reliance Infrastructure.

• Nuclear Power Corporation of India, Tarapur

• Western Coal Fields

Northern Region—

• BHEL Panipat

• Hindustan Copper Ltd. 

• Maruti Udyog Ltd.

• Hindustan Electronics Ltd.

Southern Region—

• L&T Ltd.

• KONE Elevator, Chennai

• Johnson Lifts Pvt. Ltd., Chennai

• KEC International Ltd., Amateur

• United Marine Traders.

3.6. COMPETITORS  

DOMESTIC –

Fort Williams, Kolkata

TATA SSL, Mumbai

Bharat Wire Ropes, Maharashtra

South Indian Wire Ropes, Maharashtra

JCT Ltd., Punjab

Naveen Wire Ropes, Pathankot

Orient Wire Ropes, Indore

Asian Wire Ropes, A.P.

GLOBAL—

KISSWIRE, Korea

Austria draught, Austria

Caser, Germany

John Shaw, England

Redaelli, Ital

Bridan, Ger  

3.7. BOARD OF DIRECTORS  

Mr. B.K Jhawar – Chairman 

Mr. Prashant Jhawar – Vice Chairman 

Mr. Brij Kr. Jhawar – Director 

Mr. U.V. Rao – Director 

Mr. N.J. Jhaveri -- Director 

Mr. A.K. Chaudhuri – Director 

Mr. Suresh Neotia – Director 

Mr. Ashok Basu – Director 

Mr. Sudhir Dole – ICICI nominee director 

Mr. Rajeev Jhawar – Managing Director 

Dr. P. Bhattacharya – Jt. Managing Director 

3.8.   GOVERNMENT POLICIES  

RELATED ACTS: 

Factories Act (1948) 

Objectives:  

The Factories Act provides for the health, safety, welfare, service conditions and other

aspects of workers in factories. The Act is enforced by the State Government who frame

rules that ensure that local conditions are reflected in enforcement.  

The Act as amended in 1987 also regulates the safeguards to be adopted for the use

and handling of hazardous substances.

 Applicability:  

The Factories Act extends to whole of India and is applicable to all 'factories'

including government factories.

It applies to all factories employing more than 10 people and working with the aid of

power or employing 20 people and working without the aid of power. Factory however

does not include a mine

Covered under the mines Act, 1952, a mobile unit of the armed forces, a railway shed or

a hotel, restaurant or eating place. The act covers all workers employed in the factory

premises or precincts directly or through an agency including a contractor, involved in

any manufacture  

 Minimum Wages Act (1948)

Object of the Act- to Provide for fixing minimum rates of wages in certain Employment.

The object of the Act is to ensure the welfare of the workers in a competitive market by

fixing the minimum rates of wages in certain employments.

Article 39 states that the State shall, in particular, direct its policy towards securing (a)

that the citizen, men and women equally shall have the right to an adequate livelihood

and (b) that there is equal pay for equal work for both men and women. 

Article 43 states that the State shall endeavour, by suitable legislation or economic

organisation or in any other way, to give all workers, agricultural, industrial or otherwise,

work, a living wage, conditions of work ensuring a decent standard of life and full

enjoyment of leisure, and social and cultural opportunities. 

Employees’ Provident Fund Act (1952) 

The Employees’ Provident Fund and Provision Fund and Miscellaneous Provision Act,

1952 provides for institution of compulsory provident funds for employees in Factories

and other establishment. The purpose is to make some provisions for the future of the

industrial worker after he retires or for his dependents in case of his early death. It

applies to all factories and other establishment of any notified industry if the number of

employees is 20 or more than 20. 

Under this scheme, a stipulated amount {12%(current)} is deducted from the employees’

salary & contributed towards the fund. This amount is decided by the government. The

employer also contributes an equal amount to the fund. 

Employees’ State Insurance Act (1948) 

The Government of India passed ‘Employees’ State Insurance Act, at April 1948. It was

designed to provide cash benefits in the case of Sickness, Maternity and Employment

Injury, payment in the form of pension of dependents of workers who dies, the family

gets employment injury and medical benefits.  

 Contribution periods and benefit period: 

Workers, covered under the ESI Act, are required to pay contribution towards the

scheme on a monthly basis contribution period means a six-month time span from 1

April to 30 October and 1 November to 31 March. Thus, in a financial year there are two

contribution periods of six months duration. Cash benefits under the scheme are

generally linked with contribution paid. The benefit period starts their months after the

closure of a contribution period. 

Contribution period corresponding benefit period: 

1 April to 30 September       1 January to 30 June of the following year

1 October to 31 march         18 July to 31 December 

Registration: 

Simultaneously with his or her entry into employment in a covered factory or

establishment, an employee is required to fill in a declaration form. The employee is

then allotted a registration number, which distinguishes and identifies the person for the

purposes of the scheme. A person is registered once and only upon his entry in

insurable employment. But recent SC’s judgment in Balakrishna v ESIC has held that a

worker covered under the act would be entitled to benefit from the date of his

employment and not from the date of registration after contribution by the employer. 

Bonus Act (1975) 

It is a part of profit linked with productivity given annually to the employees. Every

employee receiving wages up to Rs.3500/month

is entitled to bonus every accounting year. Every factory wherein 10 or more persons

are employed with the aid of power or an establishment in which 20 or more persons

are employed without the aid of power on any day during an accounting year. 

Minimum Bonus   -- 8.33% of wage.

Maximum Bonus  -- 20% of wage / Rs.7200 

3.9. Social Commitment through Krishi Gram Vikas Kendra 

Management commitment and support since 1977 

"in every village where hunger persists, human being must be empowered to discover. 

Their own vision expresses their own leadership, create their own solutions and work

together to achieve their own success" 

 KGVK Activities 

• augmenting water resources through watershed management 

• sustainable income generation through cottage industries & live     stock management 

• capacity building through "agivika research & training center" 

• health & family welfare programmes  

• women empowerment thru "swashakti" programme 

KGVK projects 

In partnership with grass root civic society, corporate and government 

• India canada environment facility (icef) project - for water        resources conservation

& conjunctive utilization for environmental restoration (project cost rs 10.0 cr)

• ICICI - cini project - for primary health services at the grass root level project cost rs.

2.0 cr)

• project with us aid along with cepda - for training barefoot workers in villages for

making them 1st point of contact in village health services

• Projects with govt of India for water shed, women empowerment, education etc.

• Total projects worth Rs.18 cr in hand  

Chapter 4: Data analysis

And Interpretation

4.1GENERAL INDICATORS  

COMPONENTS OF CURRENT ASSETS 

Current assets means assets that will either be used up or converted into cash within a

year's time or normal operating cycle of the business whichever is longer. They include

cash and bank balances, marketable securities, inventory of raw materials, semi-

finished and finished goods, debtors, bills receivables and pre-paid expenses. 

TABLE 4.1.1: COMPONENTS OF CURRENT ASSETS

current assets 2004-05 2005-06 2006-07 2007-08

Inventories 2840534 2621667 3390551 5324181

Sundry debtors 2513970 1982492 2269104 2563505

cash and bank balance 389655 517489 370805 463607

other current assets 195738 225640 260942 340486

Loans and advance 2108995 1648665 2119931 4024216

Total current assets 8048892 6995953 8411333 12715995

increase/decrease in CA   -1052939 1415380 4304662

(%)increase/decrease in CA   -13.08% 20.23% 51.17%

 Source: www.econpapers.repec.org.com

 COMPONENTS OF CURRENT LIABILITIES 

Current liabilities are those liabilities or obligations, which are expected to mature in the

next twelve months. They include short-term loans and advances, accounts payable /

sundry creditors, provision for taxation, outstanding expenses and dividend payable.  

TABLE4.1.2: CURRENT LIABILITIES

Particulars Amount in (Rs)

  2004-05 2005-06 2006-07 2007-08

Sundry creditors 1431326 1701248 1940128 5175146

Advances from customers 74406 70772 95418 106193

Unclaimed dividends 2982 2797 2983 3152

Others Liabilities 2894347 1994670 2574014 3325085

Provisions 176380 210109 262565 381723

Total Current Liabilities 4579441 3979596 4875108 8991299

Increase/Decrease in CL - (599845) 895512 4116191

(%)Increase/Decrease in CL   _ 22.50% 84%

 Source:www.econpapers.repec.org.com

NET WORKING CAPITAL 

Net working capital (NWC) represents the excess of current assets over current

liabilities. The greater the amount of net working capital, the greater the liquidity of the

firm. However, the problem of net working capital as the measure of liquidity is that the

change in net working capital does not necessarily reflect the change in liquidity of the

firm 

TABLE 4.1.3:  NET   OPERATING   CYCLE

NET WORKING CAPITAL

Particulars Amount (Rs)

  2004-05 2005-06 2006-07 2007-08

Total CA 8048892 6995953 8411333 12715995

Total CL 4598033 3979596 4875108 8991299

Net Working Capital(NWC) 3450859 3016357 3536225 3724696

Increase/Decrease  in NWC - (434502) 519868 188471

(%)increase/decrease in NWC - (12.59)% 17.20% 5.32%

 Significance: 

Working capital during 2006 was negative but as on 2007 it has increased upto 17.20%

but again there was drastically fall during 2008 i.e.5.32% the reason of this fall was

increase in current  liability was twice of increase in current assets.

 OPERATING CYCLE 

The operating cycle represents the time taken for cash spent on raw materials to come

back to the business in the form of cash from collection of sale proceeds. 

In case of a manufacturing firm, the following are the sequence of events, which is

termed as operating cycle of the manufacturing firm.

.Conversion of cash into raw materials

Conversion of raw materials in WIP

Conversion of WIP into finished goods

Conversion of finished goods into Accounts receivables

Conversion of accounts receivables into cash

.The term cash or operating cycle contains the length of time necessary to complete the

following cycle events:

Conversion of cash into inventory

Conversion of inventory into receivable

Conversion of receivable into cash 

TABLE 4.1.4: NET OPERATING CYCLE 

PARTCULARS 2005-06 2006-07 2007-08

Raw material conversion period 46 52 107

Work in progress conversion period 18 24 24

Finished goods conversion period 84 112 123

Debtors conversion period 52 52 50

Operating Cycle 200 240 304

Payable deferral period / Credit Period* 119 113 207

Net Operating Cycle (in days) 81 127 97

.Credit Period: This includes advances from customers. The company as a conscious

decision on policy solicits for advances for all the special orders to take care of the cost

of the materials to be procured.

  Source: www.themanagementor.com

4.2.LIQUIDITY ANALYSIS  

CURRENT RATIO: 

The current ratio is an indicator of the firm's commitment to meet its short-term

liabilities. The current ratio is an index of the concern's financial stability since it shows

the extent of working capital, which is the amount by which the current assets exceed

the current liabilities. A very high current ratio would indicate inadequate employment of

funds while a poor current ratio is a danger signal to the management. It shows that

business is trading beyond its resources. 

CURRENT RATIO -This ratio tells about the relationship between current assets and current liabilities of a business .The formula for calculating the ratio is:  

                  CURRENT RATIO =      CURRENT ASSETS 

CURRENT LIABILITIES

Current assets include those assets which can be converted into cash within a year’s

time and current liabilities include those liabilities which are repayable in a year’s time.

Current Asset

Item having a life of one year or less, or the normal Operating Cycle of the business,

whichever is greater. For example, if a construction company's operating cycle is three

years because it is engaged in long-term construction activities, it would show as

current assets items having up to a three-year life. However, in almost all cases, the

one-year cutoff is used. Examples of current assets are cash, marketable securities,

inventory, and prepaid expenses. 

Current Assets = Cash in hand + cash at bank + B/R + short term

investments(marketable securities) + debtors + (debtors-provision) + stock (stock of

finished goods + stocks of raw material + work in progress) + prepaid expenses.  

Current Liabilities = Bank overdraft + B/P + creditors + provision for taxation +

proposed dividends + unclaimed dividends + outstanding expenses + loans payable

within a year. 

TABLE4.2.1: CURRENT RATIO 

Particulars   YEAR

   2004-

052005-06 2006-07 2007-08

Current Assets          

Inventories  284053

42621667 3390551 5324181

Sundry Debtors  251397

01982492 2269104 2563505

Cash &Bank

Balance  389655 517489 370805 463607

Other Current

Assets  195738 225640 260942 340486

Loans& Advances  210899

51648665 2119931 4024216

Total (a)804889

26995953 8411333 12715995

Current

Liabilities         

Liabilities  442165

33769487 4612543 8609576

Provisions   176380 210109 262565 381723

Total (b)459803

33979596 4875108 8991299

Current Ratio(a/

b)1.75 1.76 1.73 1.41

Significance: 

This ratio is used to assess the firm’s ability to meet its short term liabilities on time.

According to accounting principle, a current ratio of 2:1 is supposed to be an ideal ratio.

It means that current assets of a business should, at least, be twice of its current

liabilities. The higher the ratio, the better it is, because the firm will be able to pay its

current liabilities more easily. The reason of assuming 2:1 as the ideal ratio is that the

current assets include such assets as stock, debtors etc., from which full amount cannot

be realized in case of need. Hence, even if half the amount is realized from the current

assets on time, the firm can still meet its current liabilities in full. 

Status of Current ratio of UML - With the help of graph and the available data of

Usha Martin Ltd we can see that the ratio of 1.75:1 was stagnant for two consecutive

financial year and during 4th financial year i.e. during 2007-08 the current ratio fall to

1.41:1 .The reason of fall in current ratio is because of increase in current liabilities

during this financial period we can see that the current assets has also increase but the

increase in creditors as well as other liability the current ratio decrease .Thus during

slow down of market also the company’s current ratio was positive .During 2008 the

debtors, loans and advances increases but the increase in current liabilities was approx.

double of 2007. 

QUICK RATIO 

Quick ratio is a refinement over current ratio as it shows the instant ability to meet the

current liabilities. Liquid assets means all the current assets less inventories, sticky

debts, etc., i.e. such assets as can be ‘quickly’ converted into cash. The general norm

for a healthy quick ratio is 1:1. This ratio is also known as acid-test ratio. 

Quick ratio indicates whether the firm is in position to pay its current liabilities within a

month or immediately. As such, the quick ratio is calculated by dividing liquid assets

(quick current ratio) by current liabilities:- 

Quick Ratio or Acid Test Ratio =          liquid assets

                                                          Current liabilities 

‘Liquid assets’ means those which will yield cash very shortly. All current assets except

stock and prepaid expenses are include in liquid assets. Stock is excluded from liquid

assets because it has to be sold before it can be converted into cash. Prepaid expenses

too are excluded from the list of liquid assets because they are not expected to be

converted into cash. Liquid assets thus include cash, debtors, bills receivable and short

term securities. 

TABLE 4.2.2: QUICK RATIO                      

Particulars   Year

    2004-05 2005-06 2006-07 2007-08

Liquid assets          

Sundry Debtors   2513970 1982492 2269104 2563505

Cash &Bank Balance   389655 517489 370805 463607

Other Current Assets   195738 225640 260942 340486

Loans& Advances   2108995 1648665 2119931 4024216

Total (a) 5208358 4374286 5020782 7391814

Current Liabilities          

Liabilities   4421653 3769487 4612543 8609576

Provisions   176380 210109 262565 381723

Total (b) 4598033 3979596 4875108 8991299

quick ratio (a/b)   1.13 1.10 1.03 0.82

Significance :  

An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. The idea

is that for every rupee of current liabilities, there should at least be one rupee of liquid

assets. This ratio is a better test of short term financial position of the company than the

current ratio, as it considers only those assets which can be easily and readily

converted into cash. Stock is not included in liquid assets as it may take a lot of time

before it is converted into cash.  

The liquidity of Usha Martin

The liquidity of Usha Martin is favorable but during 2007-08 the ratio is in a dangerous

situation as we can see that the quick ratio is0.82:1 that means the company is unable

to meet its liability at a very short period and the reason is that during this financial year

the demand of the product decreased and therefore the amount of inventorywas quiet

high and so the company was unable to meet its short term liability at a very short

period. 

4.3. ACTIVIT RATIOS

WORKING CAPITAL TURN OVER RATIO: 

This ratio indicates whether or not working capital has been effectively utilized in making

sales. If a firm makes higher volume of sales with relatively small amount of working

capital, it is an indicator of the operating efficiency of the company.  

WORKING CAPITAL TURNOVER RATIO-This ratio shows therelationship between

sales and working capital. This ratio shows the number of times the working capital

results in sales. 

      Working capital turnover ratio=             Net Sales

                                                     Net Working Capital  

        TABLE 4.3.1: WORKING CAPITAL TURNOVER

RATIO   

PARTICULARS YEAR

  2004-05 2005-06 2006-07 2007-08

NET SALES   (A) 11898717 12352083 14086047 16558987

CURRENT  ASSETS  (a) 8048892 6995953 8411333 12715995

CURRENT LIABILITIES  (b) 4598033 3979596 4875108 8991299

NET WORKING CAPITAL (a-b)

(B)3450859 3016357 3536225 3724696

W.CTURNOVER RATIO  (A/B) 3.44:1 4.09:1 3.98:1 4.44:1

Significance: 

This ratio is of particular importance in non-manufacturing concerns where current

assets play a major role in generating sales. In other words it shows the number of

times working capital has been rotated in producing sales. A high working capital

turnover ratio shows efficient use of working capital and quick turnover of current assets

like stocks and debtors. A low turnover indicates under utilization of working capital.

However, a very high turnover ratio of working capital is also dangerous, as it sign of

over- trading, i.e., doing business with too little working capital.  

Status of working capital turnover ratio of UML- during 2004-05 the turnover was

3.44:1 but in 2005-06 it increases upto 4.09:1 which was the good significance and

again it declines to 3.98:1 and rises up to 4.44:1. Since all the 4 years it keeps on

fluctuating but overall the ratio was satisfactory because if it would increase further it

would lead to overtrading, so it is advisable to reduce the working capital turnover ratio

or to maintain at this level. It means that the product in which UML deals is a high

quality product. The customers are highly satisfied as a result; the net sales have

increased so much 

 DEBTORS TURN OVER RATIO 

The average collection period indicates the number of days of credit being given to a

company’s customers. The ratio indicates the extent to which the debts have been

collected in time. An increase in the period will result in greater blockage of funds in

debtors.  Debtors collection period measures the quality of debtors since it measures

the rapidity or the slowness with which money is collected from them It reduces the

chances of bad debts. A longer collection period implies too liberal and inefficient credit

collection performance.  However, in order to measure a firm’s credit and collection

efficiency, its average should be compared with the average of the industry. It should be

neither too liberal nor too restrictive. A restrictive policy will result in lower sales, which

will reduce profits.

It is difficult to provide a standard collection period of debtors. It depends upon the

nature of the industry, seasonal character of the business and credit policies of the firm.

In general, the amount of receivables should not exceed 3-4 months’ credit sales. 

Debtors turnover ratio-this ratio indicates the relationship between credit sales and

average debtors during the year :-  

Debtors turnover ratio =              Net credit sales

                                        Average debtors + average B/R 

Bills receivable are added in debtors for the purpose of calculation of this ratio. Average

debtors are calculated by adding the debtors and B/R at the beginning of a period as

well as at the end of the period and by dividing the total by 2. while calculating this ratio,

provision for bad and doubtful debts is not deducted from total debtors, so that it may

not give a false impression that debtors are collected quickly.

If the amount of credit sales is not given in the question, the ratio may be calculated by

taking the figure of total sales.  

TABLE 4.3.2: DEBTORS TURNOVER RATIO 

PARTICULARS YEAR

  2004-05 2005-06 2006-07 2007-08

CREDIT SALES          (A) 11898717 12352083 14086047 16558987

OPENING DEBTORS 1785495 2513970 1982492 2269104

CLOSING DEBTORS 2513970 1982492 2269104 2563505

TOTAL DEBTORS       (B) 4299465 4496462 4251596 4832609

AVERAGE DEBTORS    (B/2)    (C) 2149733 2248231 2125798 2416305

DEBTORS TURNOVER RATIO (A/C) 5.53:! 5.49:1 6.62:1 6.85:1

Significance: 

This ratio indicates the speed with which the amount is collected from debtors. The

higher the ratio, the better it is, since it indicates that amount from debtors is being

collected more quickly. A lower debtor turnover ratio will indicate the inefficient credit

sales policy of the management .It is difficult to setup a standard for this ratio. It

depends upon the policy of management and the nature of industry. 

Status of UML- At UML all the sales are done on credit basis and not on cash, whether

the days may be of 1 week or 1 month or more than that. The higher the ratio, the better

the position. Money is being quickly recovered from the debtors. The higher the ratio the

more quickly the money being recovered. The ratio in case of UML is very higher i.e. the

company is in very good position, and the ratio keeps on increasing from 2004-05 to

2007-08. 

AVERAGE COLLECTION PERIOD  

Debtors turnover ratio can also be converted into numbers of days within which the

cash is collected from debtors and bills receivable. It is calculated as under:  

Average collection period =          Days in a year

                                           Debtors turnover ratio   

TABLE 4.3.3:AVERAGE COLLECTION PERIOD

Particulars YEAR

  2004-05 2005-06 2006-07 2007-08

DAYS IN A YEAR                    (A) 365 365 365 365

DEBTORS TURNOVERRATIO  (B) 5.53 5.49 6.62 6.85

ACP         (A/B) 66. 66. 55. 53.

Significance 

Increase in this ratio indicates the excessive blockage of funds with debtors which

increase the chances of bad debts. But precaution is needed while interpreting a very

short collection period because of very low collection period may imply a firm

conservative policy to sales on credit or its unavailability to allow credit to its customers

and thereby loosing sales and profit. 

Status of ACP at UML- Debtor collection period should not be more than 90 days. The

average collection period of Usha Martin is very satisfactory. The ACP is around 45 to

90 days for domestic debtors and around 120 to 180 days for overseas debtors, thus it

keeps on fluctuating as per the demand of the market. Since four consecutive years we

can see that average collection period has fallen which is good for the company. 

CREDITORS TURNOVER RATIO  

INTRODUCTION  

The creditors turnover ratio indicates the speed with which the payments for credit

purchases are made to the creditors. It indicates the promptness or otherwise in making

payment of credit purchases. A higher ‘creditors turnover ratio’ or a ‘lower credit period

enjoyed ratio’ signifies that the creditors are being paid promptly, thus enhancing the

credit worthiness of the company. However, a very favorable ratio to this effect also

shows that the business is not taking full advantage of credit facilities, which can be al

owed by creditors. 

TABLE 4.3.4: CREDITORS TURNOVER RATIO 

Particulars   Year    

  2004-05 2005-06 2006-07 2007-08

Net Credit Purchase   (A) 5293162 5260313 5831363 7497996

Opening creditors       (a) 1558367 1431326 1701248 2449171

Closing Creditors        (b) 1431326 1701248 2449171 3177594

Total creditors            (B) 2989693 3132574 4150419 5626765

Average creditors (B/2)  ( C ) 1494847 1566287 2075210 2813383

Creditors Turnover Ratio  (A/C) 3.54 3.35 2.81 2.66

  Creditors turnover ratio- This ratio indicates the relationship between credit purchases and

average creditors and bills payable during the year. 

   Creditors turnover ratio =          Net credit purchases

                             Average creditors + Average bills payable. 

SIGNIFICANCE 

This ratio indicates the speed with which the amount is being paid to creditors. The

higher the ratio, the better it is, since it will indicate that the creditor is being paid more

quickly which increases the credit worthiness of the firm. 

Status of UML- The creditors turnover ratio was quiet good for first two assessment year

but then it gradually decreases. This means that the credit worthiness of Usha martin

has decreased. 

TABLE 4.3.5: AVERAGE PAYMENT PERIOD 

PAYMENT PERIOD   Year    

  2004-05 2005-06 2006-07 2007-08

Creditors Turnover Ratio  (A) 3.54 3.35 2.81 2.66

Days in a year      (B) 365 365 365 365

average payment period (B/A) 103. 109 130 137

  significance 

Average Payment Period: Payables turnover ratio could be converted into average

payment period which indicates the period which is normally taken by the firm to make

payment to its creditors. It is calculated as follows :-

          Average payment period =              365days

                                                        Creditors turnover ratio 

Status of average payment period- the average payment period of Usha Martin Ltd is

usually more than 100 days 

CURRENT ASSETS TURNOVER RATIO

The current assets turnover ratio gives the relationship between a company’s sales and

current assets. A decrease in this ratio is a good indication of the performance of the

company. It shows the ability of the company to realize the cash from debtors as well as

the less amount of money blocked in inventories.

TABLE 4.3.6: CURRENT ASSETS TURNOVER RATIO

Particulars Year

  2004-05 2005-06 2006-07 2007-08

NET SALES   (A) 11898717 12352083 14086047 16558987

CURRENT ASSETS  (B) 8048892 6995953 8411333 12715995

CURRENT ASSETS TURNOVER RATIO (A/B) 1.47:1 1.76:1 1.67:1 1.30:1

  SIGNIFICANCE 

The table shows that the ratio has increased in 2006 indicating high sales. The ratio has

decreased in the year 2008 from 1.76 to 1.30. indicating the good performance of the company.

It shows the ability of the company to realize the cash from debtors as well as the less amount

of money blocked in inventories. 

FIXED ASSET TURNOVER RATIO 

The fixed assets turnover ratio underlines the relationship between a company’s sales

and fixed assets. The higher it is the better.  

TABLE 4.3.7: FIXED ASSET TURNOVER  RATIO 

PARTICULARS     YEAR  

    2004-05 2005-06 2006-07

NET SALES           (A)   11898717 12352083 14086047

FIXED ASSETS     (B)   8937758 9542787 10970665

FIXED ASSETS

TURNOVER RATIO 

(A/B)

1.33:! 1.29:1 1.28:1 1.14:1

Fixed assets turnover ratio =          Net sales

                                                     Net fixed assets 

Net fixed assets                  = fixed assets – depreciation 

SIGNIFICANCE 

this ratio is of particular importance in manufacturing concerns where the investment in

fixed assets is quite high. This ratio reveals how efficiently the fixed assets are being

utilized. Compared with the previous year, if there is increase in this ratio, it will indicate

that there is better utilization of fixed assets. If there is a fall in this ratio, it will show that

fixed assets have not been utilized properly. 

Status of fixed assets turnover of UML- As with the help of table and graph we can see

that the turnover ratio of fixed assets is decreasing continuously from 1.33 to 1.14 which

shows that the fixed assets has not been utilized economically. 

4.4. LEVERAGE ANALYSIS  

DEBT TO EQUITY RATIO

The debt – equity ratio is a very important ratio which highlights a company’s capital

structure in a nutshell.  This ratio is determined to ascertain the soundness of the long –

term financial policies of the company.  It also reveals the relation between long-term

debt and proprietors’ fund of the concern. It shows the efficiency of the management in

financial planning. The ratio also indicates the extent to which the firm depends upon

outsiders for its existence.The ratio provides a margin of safety to the creditors. It tells

the owners the extent to which they can gain the benefits or maintain control with a

limited investment.  Indian financial institutions usually permit a debt-equity of 2:1.  A

very high debt –equity ratio is not desirable because it entails correspondingly heavy

interest payment and loan repayment commitments.Debt Equity Ratio-: This ratio

expresses the relationship between the long term debt and shareholders’ funds. It

indicates the proportion of funds which are acquired by long term borrowings in

comparison to shareholders funds. This ratio is calculated to ascertain the soundness of

the long term financial policies of the firm.  

Debt Equity Ratio =    Debt       or        Long term loans

                                  Equity    Shareholder’s funds or net worth 

Long term loans :- these refers to long term liabilities which mature after one year.

These include debentures, mortgage loan, bank loan, loan from financial institutions and

public deposits etc. 

Shareholder’s fund :- these include equity share capital, preference share capital,

securities  premium, general reserve, capital reserve, other reserves and credit balance

of profit and loss account. However, accumulated losses and fictitious assets remaining

to be written off like preliminary expenses, underwriting commission, share issue

expenses etc. should be deducted.

TABLE 4.4.1: DEBT EQUITY RATIO 

DEBT EQUITY RATIO

Particulars. YEAR

  2004-05 2005-06 2006-07   2007-08

LONG TERM LOAN          

secured loans 7661952 6717748 7441398   8670608

unsecured loans 597349 158367 52340   761414

net deferred tax liability 1076817 1335064 1434331   1467708

TOTAL                    (A) 9336118 8211179 8928069   10899730

SHARE HOLDERS FUNDS          

Capital 185801 221920 240045   250920

equity warrants 0 88740 33278   334950

Reserves and surplus 4321939 5605048 6936730   8404090

TOTAL                    (B) 4507740 5915708 7210053   8989960

DEBT EQUITY RATIO      (A/B) 2.07:1 1.38:1 1.23:1   1.21:1

SIGNIFICANCE 

This ratio is calculated to assess the ability of the firm to meet its long term liabilities.

Generally, debt equity ratio of 2:1 is considered safe. If the debt equity ratio is more than

that, it shows a rather risky financial position from the long term point of view, as it

indicates that more and more funds invested in the business are provided by long term

lenders. A high debt equity ratio is a danger signal for long term lenders.  

The lower this ratio the better it is for long term lenders because they are more secure

in that case .Lower than 2:1 debt equity ratio provides sufficient protection to long term

lenders. 

Status of debt equity ratio of UML-During 2004-05 the ratio was quiet favorable i.e.

2.07:1 but after that keeps on falling and the lender of the company was quiet safe but

this means that the company is unable to use borrowed fund or raise fund for further

expansion. The company should raise the loan from outsource to expand and which

also gives benefit to the company. 

DEBT TO CAPITAL EMPLOYED 

Debt to capital employed ratio indicates the proportion of total debt, including both short-

term and long-term in the total capital employed. It is necessary to keep a watch on this

ratio so that the company does not end up in an over leveraged situation, which in

extreme cases leads to bankruptcy. 

TABLE 4.4.2: DEBT TO CAPITAL EMPLOYED

PARTICULARS   YEAR    

  2004-05 2005-06 2006-07 2007-08

Secured loans 7661952 6717748 7441398 8670608

unsecured loans 597349 158367 52340 761414

net deferred taxliability 1076817 1335064 1434331 1467708

TOTAL     debt               (A) 9336118 8211179 8928069 10899730

capital employed              (B) 13843858 14126887 16138122 19889690

DEBT TO CAPITAL EMPLOYED  

(A/B)

0.67:1 0.58:1 0.55:1 0.54:1

SIGNIFICANCE 

With the help of graph and table we can see that the debt to capital employed is

decreasing which is a good sign for the company. During 2004-05 the ratio was 0.67

which has come down to 0.54 that means the proportion of debt has been increased. 

 INTEREST COVERAGE RATIO 

The interest coverage ratio indicates the number of times the company’s profits before

interest and taxes cover the liability interest. The higher the cover, the better it is for the

company’s lenders.

TABLE 4.4.3: INTEREST COVERAGE RATIO

PARTICULARS   YEAR    

  2004-05 2005-06 2006-07 2007-08

OPERATING PROFIT 582759 1007385 1383960 2007127

DEPRICIATION 702040 5879443 6551753 7209382

EBIT+DEPRICIATION    (A) 1284799 6886828 7935713 9216509

INTEREST      (B) 704511 730603 713016 803752

INTEREST COVERAGE RATIO  (A/B) 1.82:1 9.42:1 11.12:1 11.46:1

 SIGNIFICANCE 

A very high ratio indicates that the firm is conservative in using debt and a very low ratio

indicates excessive use of debt. Interest cover indicates how many times a company

can cover its current interest. an  interest cover of more than 7 times is consider as safe

and 2 times as reasonable by financial institution. 

Status of ICR of UML- By seeing the graph and table we can conclude that the ICR is

increasing and recently it is in a better condition.  

PROPRIETARY RATIO 

Proprietary ratio: - This ratio indicates the proportion of total assets funded by owners

or shareholders. It is calculated as under:-            

Proprietary ratio: -      Equity           or         shareholder’s fund

                Total assets                       total assets 

TABLE 4.4.4: PROPRIETARY RATIO 

PARTICULAR

S

YEAR

  2004-05 2005-06   2006-07   2007-08

SHARE HOLDERS FUND              

Capital 185801 221920   240045   250920  

equity warrants 0 88740   33278   334950  

Reserves and surplus 4321939 5605048   6936730   8404090  

TOTAL                    (A) 4507740 5915708   7210053   8989960  

TOTAL ASSETS              

fixed assets 8937758 9542787   10970665   14490841  

current assets, loans &advances 8048892 6995953   8411333   12715995  

Investment 1395403 1525755   1600805   1658014  

TOTAL                     (B) 18382053 18064495   20982803   28864850  

PROPRIETORY RATIO  (A/B) 0.24:1 0.32:1   0.34:1   0.31:1  

SIGNIFICANCE 

A higher proprietary ratio is generally treated an indicator of sound financial position

from long term point of view, because it means that a large proportion of total assets is

provided by equity and hence, the firm is less dependent on external sources of finance.

On the contrary, a low proprietary ratio is a danger signal for long term lenders as it

indicates a lower margin of safety available to them. The lower the ratio, the less

secured are long term loans and they face the risk of losing their money. 

Status of Proprietary Ratio of UML: The Proprietary Ratio as we can see has increased

during 2005-06 &2006-07 but again in 2007-08 it has fallen down thus by seeing the

ratios it is said that less than 50%of assets are funded by equity which indicates that the

long term financial position of the company is sound. But the ratio should Be more than

50% so that the financial position should be improved.  

 4.5.   PROFITABILITY RATIO  

OPERATING PROFIT MARGIN RATIO 

The operating profit margin shows the return on sales. This is one of the very key

factors, which indicates the operating efficiency and earning capacity of the

organization. From the business perspective the return on sales should be at least twice

the interest rate prevailing.  

TABLE 4.5.1: OPERATING PROFIT MARGIN RATIO

PARTICULAR YEAR

  2004-05 2005-06 2006-07 2007-08

operating profit   (A) 582759 1007385 1383960 2007127

Net sales            (B) 11898717 12352083 14086047 16558987

Operating profit margin ratio (A/B)*100 4.89% 8.15% 9.82% 12.12%

 SIGNIFICANCE 

The operating profit margin ratio of UML is increasing as the turnover of the company

has increased since few years and with this increase the operating profit has also

increased and so we can say that the company is performing well. 

COST STRUCTURE RATIO 

The long-term prospects of a business in the competitive environment and globalization

of the economy mainly depends on the cost structure of the organization. The main cost

drivers of a business can be grouped as follows:

* Materials

* Labour

* Manufacturing and other expenses

* Depreciation

* Interest

The materials and manufacturing expenses are generally variable with the volume of

the business whereas the labour and depreciation are generally fixed in nature. The

ratio of variable and fixed expenses has due impact in the prospects of the business

especially when there is recession or slow down in the economy. 

The cost structure of USHA MARTIN LTD is given below:

TABLE 4.5.2: COST STRUCTURE 

PARTICULARS YEAR

  2005-06 2006-07 2007-08

MATERIAL COST 5250697 5816061 7478027

LABOUR COST 6333088 754186 815680

MANUFACTURING & OTHER EXPENSE 2506236 2953634 3183187

DEPRICIATION 5879443 6551753 7209382

INTEREST 730603 713016 803752

PROFIT AFTER TAX 1052753 1428764 2463563

SALES AND INCOME 12412724 14229308 16715388

TABLE 4.5.3: COST STRUCTURE EXPRESSED AS A PERCENTAGE OF    SALES & INCOME

PARTICULARS YEAR

  2005-06 2006-07 2007-08

MATERIAL COST 42.30092 40.87381 44.73738

LABOUR COST 51.02094 5.30023 4.879815

MANUFACTURING & OTHER EXPENSE 20.19086 20.7574 19.04345

DEPRICIATION 47.36626 46.04407 43.13021

INTEREST 5.88592 5.010897 4.808456

PROFIT AFTER TAX 8.481241 10.04099 14.73829

 SIGNIFICANCE: 

The increase in material cost percentage to the sales has had an impact on the

profitability of the company. Actions to bring down the same by improving sales

realization, procurement cost reduction and inventory write down due to obsolescence

are required. The labour cost of 23% is also high as compared to general engineering

industry norms of about 15%. Restructuring of the organization and achieving

substantial growth are the ultimate solutions in bringing down the labour cost. 

 RETURN ON INVESTMENT (ROI) 

 The return on capital invested is a concept that measures the profit, which a firm earns

on investing a unit of capital. It is desirable to ascertain this periodically. It indicates the

percentage of return on the total capital employed in the business.

The profit being the net result of all operations, the return on capital expresses all

efficiencies or inefficiencies of a business collectively and thus, is a dependable

measure for judging its overall efficiency or inefficiency. On this basis, there can be

comparison of one company with another and one industry with another.  

TABLE 4.5.4: RETURN ON INVESTMENT

PARTICULARS YEARS

  2004-05 2005-06 2006-07 2007-08

OPERATING PROFIT   (A) 582759 1007385 1383960 2007127

capital employed       (B) 13843858 14126887 16138122 19889690

ROI          (A/B)*100 4.20% 7.13% 8.57% 10.09%

 SIGNIFICANCE: 

Profit is the overall objective of a business enterprise, this ratio is a barometer of the

overall the performance of the enterprise. it measure how efficiently the capital

employed in the business is use. Furthermore the ratio can be used to judge the

borrowing policies of the enterprise.

Status of UML: With the help of graph we can see that the ROI of UML is increasing

that means the investment is cultivate. The ratio is increased from 4.20 to 10.09 since

last 4 financial years.  

RETURN ON CAPITAL EMPLOYED (ROCE) 

Return on Capital Employed (ROCE) is another way of finding the return on

investments. Here the profits are related to the total capital employed. Here the term

capital employed refers to the long-term funds supplied by the creditors and owners of

the firm. Thus the capital employed basis provides a test of profitability related to the

sources of long-term funds. The higher the ratio the more efficient is the use of capital

employed. The return on capital when calculated using earnings before interest and tax,

would show whether the company's borrowing policy was wise economically and

whether the capital had been employed fruitfully. The business can survive only when

the return on capital employed is more than the cost of capital employed in the

business. 

4.5.6: RETURN ON CAPITAL EMPLOYED (ROCE

Particulars

  2005-06 2006-07 2007-08 2008-09  

PREOFIT AFTER TAX   (A) 408734 649641 1014760 1448327  

CAPITAL EMPLOYED  (B) 13843858 14126887 16138122 19889690  

AVG CAPITAL EMPLOYED (B/2) 6921929 7063444 8069061 9944845  

ROCE              (A/C)*100 5.90% 9.19% 12.57% 14.56%  

SIGNIFICANCE 

As ROCE is a test of profitability so an increasing ROCE from 5.9 to 14.56 shows an

efficient use of capital employed. ROCE is a better and more consistent way to find the

return on capital employed when compared to return on investment 

.EARNING PER SHARE

EPS is the one of the most important ratios which measures the net profit earned per

share. EPS is one of the major factors affecting the dividend policies of the firm and the

market prices of the company. Growth in EPS is more relevant for pricing of share from

absolute share. 

   TABLE 4.5.7 EARNING PER SHARE

EARNING PER SHARE        

PARTICULARS   YEAR    

  2004-05 2005-06 2006-07 2007-08

PAT (A) 408734 649641 1014760 1448327

NO. OF EQUITY SHARES(B) 37160 44384 48009 250920

EARNING PER SHARE(A/B) 10.99 14.63 21.13 5.77

SIGNIFICANCE

This ratio is helpful in determination of the market price of the equity share of the

company .The ratio is also helpful in estimating the capacity of the company to declare

dividend on equity shares. 

Status of UML- The EPS of UML was that in the initial year that is during 2004 to 2007 it

showed a steady growth which indicate a good track of profitability and later in the year

2008 the value is minimized as the market price of the share has declined. 

PRICE EARNING RATIO 

P/E Ratio reflects the markets assessment of the future earning potential of the

company. A ratio reflects high earning potential and a low ratio reflects a low earning

potential .The ratio reflects the market confidents on the companys equity . 

                      P/E RATIO =MARKET PRICE PER SHARE

      EARNING PER SHARE.   

 TABLE 4.5.8:- PRICE EARNING RATIO

  PARTICULARS   YEAR

    2004-05 2005-06 2006-07 2007-08

  MARKET PRICE PER SHARE(A) 5 5 5 1

  EARNING PER RATIO   (B) 10.99 14.63 21.13 5.77

  PRICE EARNING RATIO  (A/B) 0.45 0.34 0.23 0.17

SIGNIFICANCE

This ratio indicates how many times is the market price of the share in comparision to its

earning .it measures whether the market price of a share is high or low. 

STATUS OF UML-The P/E ratio of the UML is declining throughout the consecutive

years. This indicates that an investor is prepared to pay a very minimum amount per

rupee of earning.It is also influenced by the company track record and dividend

distribution policy. 

ECONOMIC VALUE ADDED (EVA) 

Economic Value Added (EVA) analysis is a technique of value-based management. It

measures the profitability of a company after taking into account the cost of capital

including equity. It is the post-tax return on capital employed (adjusted for the tax shield

on debt) minus the cost of capital employed. In other words, EVA is a residual income

after charging the company for the cost of capital provided by lenders and shareholders.

It represents the value added to the shareholders wealth by generating operating profits

in excess of cost of capital employed in the business. EVA is a measure of total factor of

productivity. EVA compels the managers to focus more critically and objectively on the

return they are achieving for investors. Economic Value Added is the financial

performance measure that comes closely than any other to capturing the true economic

profit of an enterprise.

ECONOMIC VALUE ADDED

  Year

PARTICULARS 2004-05 2005-06 2006-07 2007-08

profit after tax 408734 649641 1014760 1448327

Cost of Capital  is 12% 0.12 0.12 0.12 0.12

CAPITAL 4507740 5915708 7210053 8989960

EVA -132195 -60244 149553.6 369531.8

  SIGNIFICANCE 

The table and the graph shows that the year 2005,& 2006 has a negative economic

value added which indicates that there is value destruction since these years rather

than value creation when compared to 2008. The reason for this can be attributed to

several factors. Thus using EVA, one of the new techniques when compared to the

outdated ROI, gives a better picture of the performance and the efficiency of the

company. The investments made in the year will be fruitful in the coming years. The

synergy created due to the takeover will definitely create a good and high value to the

stakeholders in thnear future itself. 

4.6. INVENTORY MANAGEMENT

 Inventories constitute the most significant part of the current assets of a large majority

of companies in India. On an average, inventories are approximately 40% of current

assets, 50-60% of Working capital and 20-30% of sales. Inventory management

involves a tight ropewalk between two conflicting goals – not to have too high an

inventory level, and not to have one, which is too low. An undertaking neglecting the

management of inventories will be jeopardizing its long run profitability and fail

ultimately. The reduction in excessive inventories carries a favourable impact on the

company’s profitability. The various forms of inventories existing in manufacturing

companies are raw materials; work in process and finished goods. The levels to be

maintained in these three depend on the nature of business. The general motives for

holding inventories are: 

--1.The transaction motive, which emphasizes the need to maintain inventories to

facilitate smooth production and sales operation.

--2.The precautionary motive, which necessitates holding of inventories to guard against

the risk of unpredictable changes in demand and supply forces and other factors.

--3.The speculative motive, which influences the decision to increase or reduce

inventory levels to take advantage of price fluctuations.

The objectives of inventory management can be broadly classified into operative and

financial objectives. Operating objectives aims at avoiding production bottlenecks by

providing continuous supply of all types of materials, promotion of manufacturing

efficiency and prompt execution of their orders to ensure better services to customers.

The financial objectives of inventory management includes effecting economy in

purchasing through economic order quantity and taking advantage of favourable

markets, maintaining optimum level of investment in inventories etc. 

The various inventory control techniques used are – 

1) ABC Analysis

2) Operating cycle

3) Economic order quantity

4) Reorder point & Reorder quantity. 

 TABLE 4.6.1: COMPONENTS OF INVENTORY

PARTICULARS YEAR

  2004-05 2005-06 2006-07 2007-08

RAW MATERIAL 902570 684127 1365680 2670938

WORK IN PROGRESS 265158 380396 825762 987157

FINISHED GOOD 683797 875075 2171755 2676349

TOTAL 1851525 1939598 4363197 6334444

 Source: · www.themanagementor.com

INVENTORY TURNOVER RATIO (ITR): 

This ratio reveals the effectiveness of a company's inventory management.

Higher sales turnover with relatively lower inventory is a desirable situation. Thisratio

shows the number of times the inventory is being replaced during the year.

So, higher the ratio the better it is as it indicates efficient inventory management 

TABLE 4.6.2: INVENTORY TURNOVER RATIO 

Particulars   year    

  2004-05 2005-06 2006-07 2007-08

opening inventory 2283107 2840534 2621667 3390551

closing inventory 2840534 2621667 3390551 5324181

average inventory   (A) 2561821 2731101 3006109 4357366

NET SALES   (B) 11898717 12352083 14086047 16558987

Inventory turnover ratio  (B/A) 4.644633 4.522749 4.685807 3.800229

Inventory holding period (365/ITR) 78. 81 78 96

ABC Analysis:(ALWAYS BETTER CONTROL ANALYSIS) 

In this technique the items of inventory are classified according to value of usage the

higher value items have lower safety stock because the cost of production is very high

in respect of higher value items .the lower value carry higher safety stock. ABC Analysis

divides the total inventory list into 3 classes A, B, C using the rupee volume as follows : 

A—Constitutes the most important class of inventories so far as the proportion in the

total value of inventory .It consists of approximately 15%ofthe total items , accounts for

80%of the total material usage  

B—constitutes an intermediate position which constitutes approximately 35% of the total

items accounts for approximately 15% of the total material consumption. 

C—Items in class C are quiet negligible it consist remaining 50%item accounting only

5% of the monetary value of total material usage. 

TABLE 4.6.3: ABC ANALYSIS

Sl

No.

Material

Code

Bearing

No.

Units % of

total

Cumulative Unit

Price

Total

Cost

% of

Total

Cumulative

1. 400012313 62022Z 267 36 36 65 17355 20 20

2. 400012536 6314 11 1 37 2214 24354 29 49

3. 400011003 EE3 90 12 49 133 11970 14 63

4. 400012021 6004 83 11 60 89 7387 9 72

5. 400012311 6202 170 23 83 53 9010 11 83

6. 400013004 61804 21 3 86 285 5985 7 90

7 400012012 6002Z 60 8 94 70 4200 5 95

8. 400012033 60062Z 20 3 97 143 2860 3 98

9. 400012316 6203 20 3 100 66 1320 2 100

Total     742       84441    

 ECONOMIC ORDER QUANTITY (EOQ) 

The economic order quantity is that inventory level which minimizes the total of ordering

and carrying cost .The EOQ of inventory which occurs at a point where the total cost is

minimum.

Following formula can be used to determine EOQ: 

EOQ = Q =√2*A*O/C 

Where, A= annual requirements.

             O=per order cost.

              C=per unit carrying cost.

Economic order level of inventory represents maximum operating profits. The value of

the firm will be maximizing when the marginal rate of return of investment in inventory is

equal to the marginal cost of funds. The inventory level at which the firm places order to

replenish is called ‘Reorder point”. It depends on lead time, usage rate, safety stock.

The firm should strike a trade off between the marginal rate of return and marginal cost

of fund to determine the level of safety stock. 

ORDERING COST: 

The term ordering cost is used in case of raw materials (or supplies) and includes the

entire cost of acquiring raw materials. They include cost incurred in the following

activities:

• requisitioning

• purchase ordering

• transporting

• receiving

• inspecting

• storing

Ordering cost increases in proportion to the number of orders placed. 

CARRYING COST: 

Cost incurred for maintaining a given level of inventory is called carrying cost.The

carrying cost includes:

• warehousing

• handling

• clerical and staff

• insurance

• deterioration and obsolescence

• t

•

• axes

4.6.4.ECONOMIC ORDER QUANTITY

M.C. BEARING

NO.

A.C. P.C.p.u T.C. O.C. C.C. EOQ No.of

orders

400012313 62022Z 2414 69 166566 68.79 8328.3 28 86

400012536 6314 83 2310 191730 2265.86 9586.5 28 3

400011003 EE3 724 155 112220 173 5611 32 23

400012021 6004 563 93 52359 94.87 2617.95 29 19

400012311 6202 873 57 49761 57.21 2488.05 28 31

400013004 61804 170 285 48450 285 2422.5 28 6

400012012 6002Z 120 80 9600 79.66 480 28 4

400012033 60062Z 94 143 13442 153 672.1 30 3

400012316 6203 160 69 11040 69 552 28 6

 Where, 

M.C.-MATERIAL CODE

A.C.-ANNUAL CONSUMPTION

P.C.- PURCHASE COST PER UNIT

T.C.- TOTAL COST

O.C.- ORDERING COST

C.C.- CARRYING COST 

REORDER POINT & REORDER QUANTITY: 

INTRODACTION

The reorder point is that inventory level at which an order should be placed to replenish

the inventory. For determining the re-order point under certainty one should know: 

(a)Lead time

(b)Average usage and

(c)Safety stock  

TABLE 4.6.5: CALCULATION OF REORDER POINT AND REORDER QUANTITY

Sl

no.

Material

code

Bearing

no.

Class Safety

Stock

Lead

Time

Annual

consumption

Reorder

Point

Reorder

Quantity

1 400012313 62022Z A 200 10 2400 2200 2200

2 400012536 6314 A 8 10 96 88 88

3 400011003 EE3 A 60 10 720 660 7920

4 400012021 6004 B 55 15 660 880 3520

5 400012311 6202 B 113 15 1356 1808 7232

6 400013004 61804 B 14 15 168 224 896

7 400012012 6002Z C 45 10 540 495 5940

8 400012033 60062Z C 15 10 180 165 1980

9 400012316 6203 C 15 10 180 165 1980

FORMULA: 

ANNUAL CONSUMPTION =SAFETY STOCK * 12 

REORDER POINT= (AVERAGE CONSUMPTION*LEAD TIME)      

        +SAFETYSTOCK 

REORDER QUANTITY=REORDER POINT*NO.OF MONTHS 

For class A- 1month

For class B- 4months

For class C-12months 

4.7.ACCOUNTS RECEIVABLE MANAGEMENT.   

Accounts receivables constitute a significant portion of the total current assets of the

business next after inventories. They are a direct consequence of ‘trade credit’, which

has become an essential marketing tool in modern business. While the extension of

credit is essential for sales promotion, credit sales result in accounts receivables with all

their attendant risks. When a firm sells goods for cash, payments are received

immediately and, therefore, no receivables are created. However, when a firm sells

goods or services on credit, the payments are postponed to future dates and

receivables are created. Usually, the credit sales are made on an open account, which

means that no formal acknowledgements of debt obligations are taken from buyers.

The only documents evidencing the same are a purchase order, shipping invoice or

even a billing statement. The policy of open account sales facilitates business

transactions and reduces to a great extent the paper work required in connection with

credit sales. Receivables are asset accounts representing amounts owed to the firm as

a result of sale of goods / services in the ordinary course of business. Receivables are

the result of extension of credit facility to the customers. The objective of such a facility

is to allow the customers as reasonable period of time in which they can pay for the

goods purchased by them. Receivables are a direct result of credit sale. Credit sale is

resorted to by a firm to push up its sales, which ultimately result in pushing up the

profits earned by the firm. At the same time selling goods on credit results in blocking of

funds in accounts receivables. Additional funds are, therefore, required for the operation

needs of the business, which involve extra costs in terms of interest. Moreover,

increase in receivables also increases chances of bad debts. Thus creation of accounts

receivables is beneficial as well as dangerous. The finance manager has to follow a

policy which uses cash funds as economically as possible in extending receivables

without adversely affecting the chances of increasing sales and making more profits.

Thus the objective of receivables management is to promote sales and profits until that

point is reached where the return on investment in further funding of receivables is less

than the cost of funds raised to finance that additional credit (i.e. cost of capital).

There are many factors, which influence the magnitude, the accounts receivables in a

company like cyclical influences, seasonal sales, and competitive credit terms 

SIGNIFICANCE 

  The lower the collection period, better is the collection policy of the company.From this

point the year 2008 is the best, which has the lowest collection period compared to the

other years. It shows that the company is following the new credit policy drafted strictly

to lower its collection period.

However, for the payment period, longer the period is the better for the company.The

payment period has remained best in 2005 followed by the year 2008. 

Chapter 5Conclusion, Findings

& Recommendations

5.1. CONCLUSION

The working capital of Usha Martin Ltd. Is quiet favourable which means that the

company is able to convert the cash immediately. The liquidity of the firm is closed to

standard ratio which shows that the company is able to meet its current liability. The

profitability of the company shows a drastic decline in EPS due to lowering of share

price.The better inventory policy helps the company to withstand during the recession

period . 

a) The liquidity of Usha Martin is favorable but during 2007-08 the ratio is in a

dangerous situation as (Referred to table NO.1) that the quick ratio is 0.82:1 that means

the company is unable to meet its liability at a very short period .Hence the company

should increase the demand to meet its short term liability at a very short period.

b) Status of working capital turnover ratio of UML- during 2004-05 the turnover was

3.44:1 but in 2005-06 it increases upto 4.09:1 which was the good significance and

again it declines to 3.98:1 and rises upto 4.44:1. since all the 4 years it keeps on

fluctuating but overall the ratio was satisfactory because if it would increase further it

would lead to overtrading, so it is advisable to reduce the working capital turnover ratio

or to maintain at this level.

c) At UML all the sales are done on credit basis and not on cash, whether the days may

be of 1 week or 1 month or more than that. . The ratio in case of UML is very higher i.e.

the company is in very good position and is recovering cash very quickly from the

debtors.The ratio keeps on increasing from 5.53 to 6.85.

d) The average collection period of Usha Martin is very satisfactory. The ACP is around

45 to 90 days for domestic debtors and around 120 to 180 days for overseas

debtors .Since four consecutive years we can see that average collection period has

fallen which is good for the company.

e) During 2004-05 the ratio was quiet favorable i.e. 2.07:1 but after that keeps on falling

and the lender of the company was quiet safe but this means that the company is

unable to use borrowed fund or raise fund for further expansion. The company should

raise the loan from outsource to expand and which also gives benefit to the company. 

f) the Proprietary Ratio as we can see has increased during 2005-06 &2006-07 but

again in 2007-08 it has fallen down thus by seeing the ratios it is said that less than

50%of assets are funded by equity which indicates that the long term financial position

of the company is sound. But the ratio should Be more than 50% so that the financial

position should be improve

5.2. FINDING

The Usha martin is concern is the 2nd largest wire and rope manufacturer in the world

and has the largest variety in South East Asia. It is multi product, diversified engineering

conglomerate with 10 production units in India, 1 in Thailand, 1 in UK and 1 in Dubai. It

is saving valuable foreign exchange by exporting its products to 42 countries like USA,

Africa and Middle East, conforming to the strictest product quality standards. It got the

ISO 9000 Certification by BVQI in 1994.ICICI (BCB) did the business process re-

engineering in 1996 and line system was set up to enhance performance. With the

modern concepts like TPM, value engineering, QC, suggestions scheme, customer

satisfaction and human resource development, UML is trying to reach unparalleled

heights. UML is serving through a leading daily “Prabhat Khabar”, Krishi Gram Vikas

Kendra, Usha Martin Technical Institute

• Working capital during 2006 was negative but as on 2007 it has increased upto

17.20% but again there was drastically fall during 2008 i.e.5.32% the reason of

this fall was increase in current  liability was twice of increase in current assets.

• Usha Martin Ltd we can see that the ratio of 1.75:1 was stagnant for two

consecutive financial year and during 4th financial year i.e. during 2007-08 the

current ratio fall to 1.41:1 .The reason of fall in current ratio is because of

increase in current liabilities during this financial period we can see that the

current assets has also increase but the increase in creditors as well as other

liability the current ratio decrease .Thus during slow down of market also the

company’s current ratio was positive .During 2008 the debtors, loans and

advances increases but the increase in current liabilities was approx. double of

2007

• The liquidity of Usha Martin is favorable but during 2007-08 the ratio is in a

dangerous situation as we can see that the quick ratio is0.82:1 that means the

company is unable to meet its liability at a very short period and the reason is

that during this financial year the demand of the product decreased and therefore

the amount of inventory was quiet high and so the company was unable to meet

its short term liability at a very short period 

• Status of working capital turnover ratio of UML during 2004-05 the turnover was

3.44:1 but in 2005-06 it increases upto 4.09:1 which was the good significance

and again it declines to 3.98:1 and rises up to 4.44:1. Since all the 4 years it

keeps on fluctuating but overall the ratio was satisfactory because if it would

increase further it would lead to overtrading, so it is advisable to reduce the

working capital turnover ratio or to maintain at this level. It means that the

product in which UML deals is a high quality product. The customers are highly

satisfied as a result; the net sales have increased so much 

• Debtor collection period should not be more than 90 days. The average collection

period of Usha Martin is very satisfactory. The ACP is around 45 to 90 days for

domestic debtors and around 120 to 180 days for overseas debtors, thus it keeps

on fluctuating as per the demand of the market. Since four consecutive years we

can see that average collection period has fallen which is good for the company. 

• The creditors turnover ratio was quiet good for first two assessment year but then

it gradually decreases. This means that the credit worthiness of Usha martin has

decreased. 

• Status of debt equity ratio of UML-During 2004-05 the ratio was quiet favorable

i.e. 2.07:1 but after that keeps on falling and the lender of the company was quiet

safe but this means that the company is unable to use borrowed fund or raise

fund for further expansion. The company should raise the loan from outsource to

expand and which also gives benefit to the company. 

• Status of Proprietary Ratio of UML: The Proprietary Ratio as we can see has

increased during 2005-06 &2006-07 but again in 2007-08 it has fallen down thus

by seeing the ratios it is said that less than 50%of assets are funded by equity

which indicates that the long term financial position of the company is sound. But

the ratio should Be more than 50% so that the financial position should be

improved. 

 With the help of graph we can see that the ROI of UML is increasing that means

the investment is cultivate. The ratio is increased from 4.20 to 10.09 since last 4

financial years

The Earning per share of UML was that in the initial year that is during 2004 to 2007 it

showed a steady growth which indicate a good track of profitability and later in the year

2008 the value is minimized as the market price of the share has declined.  

5.3. RECOMMENDATIONS

1) The research is conducted with the data of past three years. However, better insight

could be obtained if the research is conducted with the data for more number of years. 

2) The impact of short-term capital management on long-term value of the firm can be

evaluated. 

3) The various sources of working capital financing can be evaluated. 

4) The various techniques of inventory management can be evaluated. 

5) The cost-benefit analysis of different credit policy and credit terms can be evaluated.

. 

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REFERENCE BOOKS

· Cost & Management accounting by Ravi M. Kishore

· Financial Management by Prassana Chandra (Fifth Edition)

· Financial Management by M.Y Khan & P. K Jain (Third Edition

· Financial Management by I.M Pandey

· Financial management by Brigham & Houston   

· Strategic Financial Management by G P Jakhotiya

· Working Capital Management by Harshavardhan

WEBSITES    

· www.ushamartin.com

· www.google.com

· www.themanagementor.com

· www.eva.com