INTRODUCTION

INTRODUCTION
INTRODUCTION TO FINANCIAL ANALYSIS

PRELUDE:Financial accounting involves recording transaction and preparing report and financial statement that can be used by management, owners, creditor, government agencies and other to understand what is happening in the business or nonprofit organization. Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.

CONCEPT OF FINANCIAL STATEMENTS

Financial statement are major means employed by firm to present their financial situation to stoc holders creditors and the public a financial statement is a collection of data organized accounting to logical and consistent accounting procedure. !ts purpose is to convey an understanding of some financial aspects of a business firm. "he and product of financial accounting is financial statement consisting of the balance sheet, profit and loss accounting and statement changes in financial position.

Financial statements are major means employed by a firm to present their financial situation to stoc holders, creditors and the general public. Accounting reports on the result of operation and the current status of a business enterprise by a financial statement. "he balance sheet and #

income and statement. $ince the balance sheet and income statement are of limited interest the annual report of the company are supplemented by a third statement the change in financial position and by foot notes which e%plain and amplify the reported numerical data.

TYPES OF FINANCIAL STATEMENTS

(A) The Balance Sheet:"he balance sheet is called a fundamental accounting report. !t provides information about the financial standing or position of affirm at given instant. "he balance sheet can be visualized, as a snapshot of the financial status of company is a valid for only one day the reference day. "he position of the firm on a preceding day is bound to be different.

"he balance sheet of a company indicates to management the financial status of a company as on a given moment. From an analyst point of view a balance sheet is written representation of the resources and liabilities of an individual partnership firm an association of a corporation. The contents o !alance sheet can !e "#$#"e" #nto th%ee "#$#s#ons &Assets: Assets are valuable resources owned by a business, which are ac'uired at a measurable money cost these are economic resources of a firm which provide economic benefits to the company.

L#a!#l#t#es:)iabilities are claim of creditors against the enterprises arising out of past activities that are to be satisfied by the disbursement of utilization of corporate resources. "hey are economic obligation of the firm. &O'ne%(s e)*#t+:"he owner*s e'uity is the owner*s current investment in the assets of company. "he entire system of recording business transaction is based on accounting e'uation. "he accounting e'uation is an accounting formula e%pressing e'uivalence of the two e%pressions of assets and liabilities.

ACCOUNTIN, E-UATION

A$$+"$

, /2

)!A-!)!"!+$ . /01+2*$ +34!"5

/01+2$ +34!"5

, /2

A$$+"$ 6 )!-!)!"!+$

)!-!)!"!+$

A$$+"$ 6 /01+2*$ +34!"5

(B) The Inco.e State.ent:"he balance sheet, as discussed above, is considered a very significant statement from the view point of ban ers, and other lenders, because it indicates the firm*s financial position and strength, as measured by its recourses and obligations, however, editors and financial analysis have recently started paying more attention to the firm*s capacity as a measure of its financial 7

strength. !ts income statement revels the firm*s capacity as a measure of its financial strength. !ts income statement revels the earning potential of the firm. An income statement is a financial statement summarizing the result of a company*s income 8profit9 ma ing activities for a specific time period. !t summarizes revenues and e%penses in a manner that discloses whether a company*s activates in a particular fiscal period have resulted in profit or a loss. "he income statement is a scoreboard of the firm*s performance during a particular period of time. "he profit and loss account is the condensed and classified record of the gains losses posing change in the owner*s interest in the business for a period of time. "he income statement or the profit and loss account presents the summary of revenues, e%penses and net income 8or net loss9 of a firm for a period of time. "hus, it serves as measure of the firm*s profit ability. !t*s systematic array of the data of the revenues, revenues deduction 8e%penses, revenues, revenue deductions, e%penses, losses, ta%es etc.9 1et income and distribution or assignment of the net income to creditors and property investors of a particular period. (C) STATEMENT OF C/AN,E IN FINANCIAL POSITION 4ntil 1:;<, the income statement and the balance sheet constituted the major financial statement. =owever, management traditionally made use of a wide variety of statement and reports in apprising internal company performance. /ne popular report for management*s internal use was called the statement of changes in final position. From such a report, management could e%tract valuable information about where wor ing capital and cash come from and how they were used. !f these past events could be projected in future, management would have a useful tool for budgeting. "oday, the statement of changes of financial position represents third financial position represents a third financial statement.

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PARTIES INTERESTED

According to the American institute of certified public accountants, financial statement reflects, a combination a recorded facts, accounting convention and personal judgments and the judgments and conventions applied, affect them materially. Following are interested in financial statement?6 @redit, suppliers and others are having business with the company. Aebenture holders. @redit institutions and ban s. Botential lenders and investors. "rade unions and employees. !mportant customers wishing to ma e a long standing with the company. +conomist and analyst. Cembers of parliament, the public committee in respect in government companies. "a%ation authorities. /ther departments dealing with the industry in which the company engaged cooperative. "he company law board.

FINANCIAL APPRAISAL

A company*s financial statement are intended to summarize the results of its operation and its ending financial condition. "he information in the statement is studied and related to other information by e%ternal users for several reasons. @urrent shareholders, for e%ample, are concerned about there invested income, as well as the company*s overall profitability and stability. $ome potential investors are invested in solid companies that are companies whose financial statement indicate stable earnings and dividends with little growth in operations. /ther prefers companies whose financial statement indicate rend for rapid growth in a company*s short run solvency, its ability to pay current obligation as they become due. )ong6 term creditors are concerned about the safety of their interestD income and company*s ability to continue earning cash flow to meet its financial commitments and these are only few of the users, and uses of financial statements.

-ut the numerical data in the financial statement are 'uit calm. "hey cannot spea . Analytical data are not ending in themselves, but they are meant to an end. Financial appraisal is an attempt to determine the significance, and meaning of the financial statement data so that forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities both current as well as long term profitability of a sound dividend policy. Financial appraisal involves the assessment of firm*s past, present and anticipated future financial condition.

Financial appraisal is a scientific evaluation if the profitability and financial strength of a business concern. !n fact financial appraisal and analysis of financial statement have nearly the same meaning. Financial statement analysis is used for the purpose of financial appraisal. Financial appraisal is the process of ma ing a scientific proper, critical and comparative evaluation of the profitability and financial health of given concern through the application of financial statement analysis. Financial statement analysis is a preliminary step towards the evaluation of result dawn by the analysis or management accountant. Appraisal or evaluation of such results is made thereafter. Financial appraisal begins where financial analysis ends, and financial analysis starts where the summarization of financial data in the form of profit and loss account and balance sheet ends, in the words of Fenney and mecmillan, financial statement analysis attempts to unveil the meaning and significance of the items composed in profit and loss account and balance sheet so as to assist the management in the formation of sound operating financial policies. "he appraisal or analysis of financial statement spotlights the significant facts and relationship concerning managerial performance, corporate efficiency, financial strength or wea ness and credit worthiness, that would have otherwise been buries in the maze of details. "he techni'ue of financial appraisals fre'uently applied to the study of accounting data with a view to determining continuity or discontinuity of the operating policies and investment value of business. +verybody interested in the affairs of the company is interested in finding answer to the following searching 'uestion?6 Appraisal of financial statement alone can answer such 'ueries. !ts true that statement analysis merely reveals what has ta en place in the past, but past events given some indication of what

may be e%pected in future unless some drastic changes ta e place in business it. 0ill continue to move in the same direction in the past.

Roy .A. Faulke is very correct to say if a train is moving forward at a nown rate of speed, it is reasonable to assume that it will continue to move at appro%imately the same rate unless some obstacle interrupts its progress abruptly or the motive power is increased or decreased. $imilarly it is a reasonable to assume that unless some realistic change ta e places in the places in the business, it will continue to move in the same general direction as indicated by its comparative trends.

NEED OF FINANCIAL APPRAISAL "he need of financial appraisal varies accounting to type of users. For management is servers as mean s of self evaluation as it is li e a report of its managerial s ill and competence a ban er can judge the li'uidity position a creditor can plan buying and selling of hares of concern on the basis of safety of principal and its capital appearances as wanted by the past record of earning. A debenture holder of a concern can ascertain whether income is generates sufficient margin to pay the interest H answers to different 'uestion are provided by financial appraisal. -y using this techni'ue an economist can study the e%tent of concentration of economic power and pitfalls in the financial policies pursued, while a planner can ascertain if the patter of investment reveals the company*s position in relation to labor and its welfare, legislation concerning licensing desirable in the socio economic interested may be based on statement analysis. "he management of current assets is similar to that of fi%ed assets in the sense that in both case that a firm analyses their effects on its return and ris . "he management of fi%ed and current assets, however, differs in three important ways? first, in managing fi%ed assets, time is a very important factorD conse'uently, discounting and compounding techni'ues play a significant role in capital budgeting and a minor one in the management of current assets. $econd, the large holding of current assets, especially cash, strenghthens the firm*s li'uidity position 8and reduces ris iness9, but also reduces the overall profitability. "hus a ris 6return trade off is involved in holding current assets. "hird, levels of fi%ed as well as current assets

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depend upon e%pected sales, but it is only current assets which can be adjusted with sales fluctuations in the short run. "hus, the firm has a greater degree of fle%ibility in managing currents. CONCEPTS OF 0OR1IN, CAPITAL ,ROSS 0OR1IN, CAPITAL:Iross wor ing capital refers to the firm*s investment in c*%%ent assets are the assets which can be converted into cash within an accounting year and include cash , short6term securities, debtors,8accounts receivable or boo 8inventory9. NET 0OR1IN, CAPITAL:!t*s refers to the difference between current assets and current liabilities. C*%%ent l#a!#l#t#es are those claims of outsiders which are e%pected to mature for payments within an accounting year and include creditors 8account payable9 , bills payable ,and outstanding e%penses . 1et 0or ing @apital can be positive or negative. A positive net wor ing capital will arise when current assets e%ceed current liabilities .a negative net wor ing capital occurs when current liabilities are in e%cess of current assets. PERMANENT 0OR1IN, CAPITAL:0e now that the need of current assets arises because of the operating cycle. "he debts9 bills receivable and stoc

operating cycle is a continuous process and, there for, the need for current assets is felt constantly. -ut the magnitude of current assets needed is not always the sameD it increases and decreases over time. =owever there is always a minimum level of current assets which is continuously re'uired by a firm to carry on its business operations. Bermanent or fi%ed, wor ing capital is the minimum level of current assets. it is permanent

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in the same way as the firm*s fi%ed assets are. Aepending upon the changes in production and sales, the need for wor ing capital, over and above permanent wor ing capital, will fluctuate. For e%ample e%tra inventory of finished goods will have to be minted to support the pea period of sale, and investment in debtors 8receivable9 may also increase during such periods. /n the other hand, investment in raw material, wor in process and finished goods will fall if the mar et is slac .

Amount of wor ing capital 82s9

"emporary or Fluctuating

"ime

2ARIABLE OR FLUCTUATIN, 0OR1IN, CAPITAL:Jariable or fluctuating wor ing capital the e%tra wor ing capital needed to support the changing production and sales activities of the firm. -oth inds of wor ing capital K permanent or fluctuating 8temporary96are necessary6to facilitate production and sales through the operating cycle. -ut the firm to meet li'uidity re'uirements that will last only temporary wor ing capital. !n figure illustrates differences between permanent and temporary wor ing capital. !t is shown that permanent wor ing capital is stable over time, while temporary wor ing capital is fluctuating K some times increasing and sometimes

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decreasing. =owever, the permanent wor ing capital need not be horizontal if the firm*s re'uirement for permanent capital is increasing 8or decreasing9 over a period

"emporary or Fluctuating Amount of wor ing capital 82s9 Bermanent

"ime

FOCUSIN, ON MANA,EMENT OF CURRENT ASSETS

"he gross wor ing capital concept focuses attention on two aspects of current assets management? 1. =ow to optimize investment in current assetsL #. =ow should current assets be financedL "he consideration of the level of investment in current assets should avoid two danger points6 excessive or inadequate investment in current assets. !nvestment in current assets should be just ade'uate to the needs of the business firm. +%cessive investment in current assets should be avoided because it impairs the firm*s profitability, as idle investment earns nothing. /n the other hand, inade'uate amount of wor ing capital can threaten solvency

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of the firms because of its inability to meet its current obligations. !t should be released that the wor ing capital needs of the firm may be fluctuating with changing business activity. "his may cause e%cess or shortage of wor ing capital fre'uently. "he management should be prompt to initiate an action and correct imbalances. Another aspect of the gross wor ing capital point to the need of arranging funds to finance current assets. 0henever a need for wor ing capital funds arises due to the increasing level of business activity or for any other reason. Financing arrangement should be made 'uic ly. $imilarly, if suddenly, some surplus funds arise they should not be allowed to remain idle, but should be invested in short6 term securities. "hus, the financial manager should have nowledge of the sources of wor ing capital funds as well as investment avenues where idle funds may be temporarily invested.

FOCUSIN, ON LI-UIDITY MANA,EMENT 1et wor ing capital is a 'ualitative concept. it indicates the li'uidity position of the firm and suggests the e%tent to which wor ing capital needs may be financed by permanent sources of funds. @urrent assets should be sufficiently in e%cess of current liabilities to constitute a margin or buffer for maturing obligations within the ordinary operating cycle of a business. !n order to protect their interests, short term creditors always li e a company to maintain current assets at a higher level than current liabilities. !t is a conventional rule to maintain the level of current assets twice the level of current liabilities. =owever, the 'uality of current assets should be considered in determining the level of current assets vis a vis current liabilities. A wea li'uidity position poses a threat to the solvency of the company and ma es it unsafe and unsound. A negative wor ing capital means a negative li'uidity, and may prove to be

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harmful for the company*s reputation e%cessive li'uidity is also bad. it may be due to mismanagement of current assets. "here for, prompt and timely action should be ta en by management to improve and correct the imbalances in the li'uidity position of the firm. 1etwor ing capital concept also covers the e'uation of judicious mi% of long term and short term funds for financing current assets. For every firm, there is a minimum amount of net wor ing capital which is permanent. "herefore, a portion of the wor ing capital should be financed with the permanent sources of funds such as e'uity share capital, debentures, long term debt, performance share capital or retained earnings. Canagement must, therefore, decide the e%tent to which current assets should be financed with e'uity capital andHor borrowed capital. !n summary, it may be emphasized that both gross and net concepts of wor ing capital are e'ually important for the efficient management of wor ing capital. "here is no precise way to determine the e%act amount of gross or net wor ing capital for any firm. "he data and problems of each company should be analyzed to determine the amount of wor ing capital. "here is no specific rule as to how current assets should be financed. !t is not feasible in practice to finance current assets by short K term sources only. Feeping in view the constraints of the individual company, a judicious mi% of long and short term finances should be invested in current assets. $ince current assets involve cost of funds, they should be put to productive use.

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OPERATIN, AND CAS/ CON2ERSION CYCLE "he need for wor ing capital to run the day6to6day business activities cannot be overemphasized. 0e will hardily find a business firm which does not re'uire any amount of wor ing capital. !ndeed, firms differ in their re'uirement of the wor ing capital. 0e now that a firm should aim at ma%imizing the wealth of its shareholders. !n its

+ndeavour to do so, a firm should earn sufficient return from its operations. +arning a steady amount of profit re'uires successful sells activities. "he firm has to invest enough funds in current assets for generating sales. @urrents assets are needed because sales do not convert into cash instantaneously. "here is always an operating cycle involved in the conversion of sales into case. "here is a difference between current and fi%ed assets in terms of their li'uidity. A firm re'uires many years to recover the initial investment in fi%ed assets such as plant and machinery or land and building. /n the contrary, investment in current assets such as inventories and debtors Maccount receivableN is realized during the firm*s operating cycle that is usually less than a year. 0hat is an operating cycleL /perating cycle is the time duration re'uired to convert sales, after the conversion of resources into inventories, into cash. "he operating cycle of a manufacturing company involve three phases? Ac)*#s#t#on o %eso*%ces such as raw material, labor, power and fuel etc.

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Man* act*%e o the 3%o"*ct which includes conversion of raw material into wor 6in6 progress into finished goods.

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

"hese phases affect cash flows, which most of the time, are neither synchronized because cash outflows usually occur before cash inflows. @ash inflows are not certain because sales and collections which give rise to cash inflows are difficult to forecast accurately. @ash outflows, on the other hand, are relatively certain. "he firm is, therefore, re'uired to invest in current assets for a smooth, uninterrupted functioning. !t needs to maintain li'uidity to purchase raw materials and pay e%penses such as wages and salaries, other manufacturing, administrative and selling e%penses and ta%es are there is hardly a matching between cash inflows and outflow. @ash is also held to meet to any future e%igencies. $toc s of raw material and wor K in6 process are ept to ensure smooth production and to guard against non6availability of raw materials of other components. "he firms hold stoc of finished goods to meet the demand of customers on continuous basis and sudden demand from some customers. Aebtors 8Accounts 2eceivable9 are created because goods are sold on credit for mar eting and competitive reasons.

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Burchase @ollection 2C@B.0!B@B.FI@B !nventory convention period Iross operation cycle Bayable

Bayment

@redit $ale

2eceivable conversion price

1et operating cycle O3e%at#n4 C+cle o a .an* act*%#n4 #%.

"hus, a firm ma es ade'uate investment in inventories, and debtors, for smooth, uninterrupted production and sale. =ow is the length of operating cycle determinedL "he length operating cycle of a manufacturing firm is the sum of 8i9 inventory conversion period 8!@B9 and 8ii9 debtors 82eceivable9 conversion period 8A@B9. "he inventory conversion period is the total time needed for producing and selling the product. "ypically, it includes? 8a9 raw material conversion period 8rmcp9 ,8b9wor 6in6process conversion period 80!B@B9, and 8c9 finished goods conversion period 8FI@B9. "he debtors* conversion period is the time re'uired to collect the outstanding amount from the customers. "he total of inventory conversion period and debtors conversion period is referred to as gross operating cycle 8I/@9.

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!n practice, a firm may ac'uire resources 8 such as raw material9 on credit and temporarily postpone payment of certain e%penses. Bayables, which the firm can defer, are spontaneous sources of capital to finance investment in current assets,. "he creditors 8Bayables9 deferral period 8@AB9 is the length of time the firm is able to defer payments on various resource purchases. "he difference between 8gross9 operating cycle and payables deferral period is net operating cycle 81/@9. if depreciation is e%cluded from e%penses in the computation of operating cycle, the net operating cycle also represents the cash conversion cycle8@@@9.it is net time interval between cash collections sale of the product and cash payments fore resources ac'uired by the firm. !t also represents the time interval over which additional funds, called wor ing capital, should be obtained in order to carry out firm*s operations. "he firm has to negotiate wor ing capital from sources such as commercial ban s. "he negotiated sources of wor ing capital financing are called non6spontaneous sources. !f net operating cycle of a firm increases, it means further need for negotiated wor ing capital. )et us illustrate the computation of the length of operating cycle. @onsider the statement of cost of sales for a firm given in below6 State.ent o Cost o Sales ( Rs in lakh) A@"4A) #<O1 O1 O# O( O7 O> O.. B2/P+@"+A #<O# O. .. .. O. O. O.

!"+C

1 # ( 7 > ;

Burchase of raw material /pening raw material inventory @loseing raw material inventory 2aw material consumed 81.#6(9 Airect labour Aepriciation

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E G : 1 < 1 1 1 # 1 ( 1 7 1 > 1 ;

/ther mfg. e%pences "otal cost 87.>.;.E9 /pening wor 6in6process inventory @losing wor 6in6process inventory @ost of production 8G.:61<9 /pening finished goods inventory @losing finished goods inventory @ost of goods sold 811.1#61(9 $elling administrtive and gen e%pences cost of sales 817.1>9

OQ .. O.. Q .. .. .. .. .. ..

O. O. O. O. O. O. O. O. O. O.

"he firmRs data for sales and debtors and creditors are given below Sales an" De!to%s (Rs #n la5h) A@"4A) #<O1 O O. .. .. O. B2/P+@"+A #<O# 5 5. .. .. ..

!"+C $ales 8@redit9 /pening balance of debtors @losing balance of debtors opening balance of creditors closing balance of creditors

,%oss o3e%at#n4 c+cle (,OC) "he firm*s gross operating cycle 8I/@9 can be determined as inventory conversion period 8!@B9 plus debtors conversion period 8A@B9."hus, I/@ is given as follows? Iross operating
, !nventory . @onversion period Aebtors

@onversion period

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I/@ , !@B . A@B

QQ.. 819

In$ento%+ con$e%s#on 3e%#o" 0hat determines the inventory conversion periodL "he inventory conversion 8!@B9 is the sum of raw material conversion period 82C@B9, wor 6in6process conversion period 80!B@B9 and finished goods conversion period 8FI@B9?

!@B , 2C@B .0!B@B .FI@B 66(7)

Ra' .ate%#al con$e%s#on 3e%#o" (RMCP):- "he raw material conversion period 82C@B9 is the average time period ta en to convert material in to wor 6in6process. 2C@B depends pm? 8a9 raw material consumption per day, and 8b9 raw material inventory. 2aw material consumption per day is given by the number of days in the year 8say, (;<9. "he raw material conversion period is obtained when raw material inventory is divided by raw material consumption per day. $imilar calculations can be made for other inventories, debtors and creditors. "he following formula can be used?

2aw material 2aw material @onversion !nventory , #1

Beriod

2awmaterial consumptionNH(;< 2C@ 2C@&(;< , (;< 2C@ 66(8)

2C@B , 2C! S

0o%5-#n-3%ocess con$e%s#on 3e%#o" (0IPCP):- 0or 6in6process conversion period 80!B@B9 is the average time ta en to complete the semi6finished or wor 6in6process. !t is given by the following formula? 0or 6in6process !nventory , M@ost of productionNH(;<

0or 6in6process @onversion Beriod

0!B@B

@/B 0!B!

0!B! &(;< , (;< @/B

6699(:)

F#n#she" 4oo"s con$e%s#on 3e%#o" (F,CP):6 Finished goods conversion period 8FI@B9 is the average time ta en to sell the finished goods. FI@B can be calculated as follows? Finished goods !nventory

Finished goods @onversion , Beriod M@ost of goods soldNH(;< @I! FI!&(;<

##

FI@B , FI! S (;< De!to%s (%ece#$a!le) con$e%s#on 3e%#o" (DCP)

, @I$

6699(;)

Aebtors conversion period 8A@B9 is the average time ta en to convert debtors into cash. A@B represent the average collection period. !t is calculated as follows?

Aebtors @onversion , Beriod 8A@B9

Aebtors&(;< , Q8;9 @reditor salesH(;< @reditor sales

Aebtor

C%e"#to%s (3a+a!les) "e e%%al 3e%#o" (CDP) @reditors 8payables9 deferral period 8@AB9 is the average time ta en by the firm in paying its suppliers 8creditors9. @AB is given as follows? @reditors @reditors Aeferral , Beriod @redit purchasesH(;< @redit&(;< , @redit purchases Q8E9

Cash Con$e%s#on o% Net O3e%at#n4 C+cle 1et operating cycle 81/@9 is the difference between gross operating cycle and payables deferral period. Iross @reditors 1et operating , /perating , deferral @ycle @ycle period 1/@ , I/@ 6 @AB QQ 8G9 #(

1et operating cycle is also referred to as cash conversion cycle. $ome people argue that depreciation and profit should be e%cluded in the computation of cash conversion cycle since the firm*s concern is with cash flow associated with conversion at contrary view is that a firm has to ultimately recover total costs should include depreciation, and even the profits. Also, in using the above6mentioned formulae, average figures for the period may be used. For e%ample, "able shows detained calculations of the components of a firm*s operating cycle. "able provides the summary of calculations. Auring #<O1 the daily raw material consumption was 2s 1#.1 la h and the company held an ending raw material inventory of 2sG#E la h. !f we assume that this is the average inventory held by the company, the raw material consumption the projected raw material conversion period is ;< days. "his has happened because both consumption 82s 1;.> la h per day9 and level of inventory 82s :G; la h9 have increased, but the consumption rate has increased9 by (;.7 percent9. "hus, the raw material conversion period has declined by G days. 2aw materials are the result of daily raw material consumption and total raw material consumption and total raw material consumption and total raw material consumption during a period given the company*s production targets. "hus, raw material inventory is controlled through control over purchases and production. 0e can similarly interpret other calculations in table below

Ta!le:-O3e%at#n4 C+cle Calc*lat#on (/+3othet#cal E<a.3le) 8 2s. !n la h9 !tem 1 2aw Caterials @onversion Beriod 8a9 2aw material consumption 8b9 2aw material consumption per day Actual 1:O1 7,(7: 1#.1 Brojected 1:O# >,:(# 1;.>

#7

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8c9 raw material inventory 8d9 2aw material inventory holding days 0or 6in6process @onversion Beriod 8a9cost of production& 8b9cost of production per day 8c9wor 6in6process inventory 8d9 0or 6in6process inventory holding days Finished Ioods @onversion Beriod 8a9 @ost of goods sold& 8b9 @ost of goods sold per day 8c9 Finished goods inventory 8d9Finished goods inventory holding days @ollection period 8a9 @redit sales 8at cost9&& 8b9 sales per day 8c9 debtor 8d9 debtors outstanding days @reditors Aeferral Beriod 8a9 @redit purchases 8b9 purchase per day 8c9 creditors 8d9 @reditors outstanding day &Aepreciation is including. &&All sales are assumed on credit.

G#E ;Gd >,#1# 17.> (#> ##d >,<<( 1(.: >#; (Gd ;,<GE 1;.: E(> 7(d 7,;>( 1#.: 7>7 (>d

:G; ;<d E,<>1 1:.; 7:G #>d ;,>G# 1G.( ::> >7d G,<<; ##.# 1,<7< 7Ed ;,<:1 1;.: ;7# (Gd

Ta!le :-S*..e%+ o O3e%at#n4 C+cle Calc*lat#ons (N*.!e% o Da+s) Actual 1 GROSS OPERATI G !"!#E !nventory @onversion Beriod 8i9 2aw material 8ii9 0or 6 in6 process 8iii9 Finished goods Aebtors @onversion Beriod Iross operating cycle 81 . #9 Bayment Aeferral period 1+" /B+2A!1I @5@)+ 8(679 Projected

# ( 7

;G ## (G 1#G 7( 1E1 (> 1(;

;< #> >7

1(: 7E 1G; (G 17G

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0e note a significant change in the company*s policy for #<O# with regard to finished goods inventory. !t is e%pected to increase to >7 days holding from (G days in the previous year. /ne reason could be a conscious policy decision to avoid stoc out situations and carry more finished goods inventory to e%pand sales. -ut this policy has a costD the company, in the absence of a significant increase in payables 8creditors9 deferral period, will have to negotiate higher wor ing capital funds, !n the case of the firm in our e%ample, its net operating cycle is e%pected to increase from 1(; days to 17G days =ow does a company manage its inventories, debtors and suppliers* creditL =ow can it reduce its operating cycleL "he operating cycle concept as shown in Figure relates to a manufacturing firm. 1on6 manufacturing firms such as wholesalers and retailers will not have the manufacturing phase. "hey will ac'uire stoc of finished goods and convert them into debtors 8receivable9 and debtors into cash. Further, service and financial enterprises will not have inventory of goods 8cash will be their inventory9. "heir operating cycles will be the shortest. "hey need to ac'uire cash, then lend 8create debtors9 and again convert lending into cash.

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OB=ECTI2E OF T/E STUDY

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OB=ECTI2E OF T/E TUDY

"o observe the systems, process, interactions in the organization. "o study and analyze the wor ing capital management of @.). Iupta +%port. "o study that how they use wor ing capital to solve day to day problems. "o study about their /perating @ycle, cash conversion cycle, processing period.

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SCOPE > IMPORTANCE

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SCOPE OF T/E STUDY

CONCEPTUAL :-( F#nanc#al Techn#)*e: 0o%5#n4 Ca3#tal Rat#os) "o prepare a report after analysis and interpretation of finding from balance sheet as well as profit and loss account by applying various mathematical and financial tools and techni'ues.

FACTUAL :-( Anal+s#s o acts (%es*lts) "e%#$e" %o. the #nanc#al techn#)*e "he present earning capacity or profitability of the @.). I4B"A +OB/2" )td "he short6term li'uidity and long6term solvency. "he financial stability of a business. "o analyze different ratios so to judge the availability and effective usage of wor ing capital.

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LITERATURE RE2IE0

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LITERATURE RE2IE0

"he research done by Bass @.)., Bi e 2.=., An overview of wor ing capital management and corporate financing,81:G79 describes that over the past 7< years major theoretical developments have occurred in the areas of longer6term investment and financial decision ma ing. Cany of these new concepts and the related techni'ues are now being employed successfully in industrial practice. -y contrast, far less attention has been paid to the area of short6term finance, in particular that of wor ing capital management. $uch neglect might be acceptable were wor ing capital considerations of relatively little importance to the firm, but effective wor ing capital management has a crucial role to play in enhancing the profitability and growth of the firm. !ndeed, e%perience shows that inade'uate planning and control of wor ing capital is one of the more common causes of business failure. "he research done by =errfeldt -., =ow to 4nderstand 0or ing @apital Canagement describes that@ash is ing66so say the money managers who share the responsibility of running this countryRs businesses. And with ban s demanding more from their prospective borrowers, greater emphasis has been placed on those accountable for so6called wor ing capital management. 0or ing capital management refers to the management of current or short6term assets and short6term liabilities. !n essence, the purpose of that function is to ma e (#

certain that the company has enough assets to operate its business. =ere are things you should now about wor ing capital management.

"he research done by, $amiloglu F9 an" Aemirgunes 19? @"he +ffect of 0or ing @apital Canagement on Firm Brofitability? +vidence from "ur ey 8#<<G9 describes that the effect of wor ing capital management on firm profitability. !n accordance with this aim, to consider statistically significant relationships between firm profitability and the components of cash conversion cycle at length, a sample consisting of !stanbul $toc +%change 8!$+9 listed manufacturing firms for the period of 1::G6#<<E has been analysed under a multiple regression model. +mpirical findings of the study show that accounts receivables period, inventory period and leverage affect firm profitability negativelyD while growth 8in sales9 affects firm profitability positively. "he research done by, Appuhami, 2anjith - A, "he !mpact of FirmsR @apital +%penditure on 0or ing @apital Canagement? An +mpirical $tudy across !ndustries in "hailand , !nternational Canagement 2eview,8#<<G9, "he purpose of this research is to investigate the impact of firmsR capital e%penditure on their wor ing capital management. "he author used the data colleted from listed companies in the "hailand $toc +%change. "he study used $hulman and @o%Rs 81:G>9 1et )i'uidity -alance and 0or ing @apital 2e'uirement as a pro%y for wor ing capital measurement and developed multiple regression models. "he empirical research found that firmsR capital e%penditure has a significant impact on wor ing capital management. "he study also found that the firmsR operating cash flow, which was recognized as a control variable, has a significant relationship with wor ing capital management.

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"he research done by, =ardcastle P., 0or ing @apital Canagement,8#<<E9 describes that 0or ing capital, sometimes called gross wor ing capital, simply refers to the firmRs total current assets 8the short6term ones9, cash, mar etable securities, accounts receivable, and inventory. 0hile long6term financial analysis primarily concerns strategic planning, wor ing capital management deals with day6to6day operations. -y ma ing sure that production lines do not stop due to lac of raw materials, that inventories do not build up because production continues unchanged when sales dip, that customers pay on time and that enough cash is on hand to ma e payments when they are due. /bviously without good wor ing capital management, no firm can be efficient and profitable. "he research done by, "hachappilly I., 0or ing @apital Canagement Canages Flow of Funds,8#<<:9 describes that 0or ing capital is the cash needed to carry on operations

during the cash conversion cycle, i.e. the days from paying for raw materials to collecting cash from customers. 2aw materials and operating supplies must be bought and stored to ensure uninterrupted production. 0ages, salaries, utility charges and other incidentals must be paid for converting the materials into finished products. @ustomers must be allowed a credit period that is standard in the business. /nly at the end of this cycle does cash flow in again. "he research done by, -eneda, 1ancyD Thang, 5ilei, 0or ing @apital Canagement, Irowth and Berformance of 1ew Bublic @ompanies, C%e"#t > F#nanc#al Mana4e.ent Re$#e'? (7AAB) e%amining impact of wor ing capital management on the operating performance and growth of new public companies. "he study also sheds light on the relationship of wor ing capital with debt level, firm ris , and industry. 4sing a sample of initial public offerings 8!B/Rs9, the study finds a significant positive association between higher levels of accounts

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receivable and operating performance. "he study further finds that maintaining control 8i.e. lower amounts9 over levels of cash and securities, inventory, fi%ed assets, and accounts. "he research done by, Aubey 2., 0or ing @apital Canagement6an +ffective "ool for /rganisational $uccess 8#<<G9 describes that "he wor ing capital in a firm generally arises out of four basic factors li e sales volume,technological changes,seasonal , cyclical changes and policies of the firm."he strenghth of the firm is dependent on the wor ing capital as discussed earlier but this wor ing capital is inteslf dependent on the level of sales volume of the firm."he firm re'uires current assets to support and maintain operational or functional activities.-y current assets we mean the assets which can be converted readily into cash say within a year such as receivables,inventories and li'uid cash.!f the level of sales is stable and towards growth the level of cash,receivables and stoc will also be on the high. "he research done by, McCl*%e B9? @0or ing @apital 0or s describes that @ash is the lifeline of a company. !f this lifeline deteriorates, so does the companyRs ability to fund operations, reinvest and meet capital re'uirements and payments. 4nderstanding a companyRs cash flow health is essential to ma ing investment decisions. A good way to judge a companyRs cash flow prospects is to loo at its wor ing capital management 80@C9. @ash is ing, especially at a time when fund raising is harder than ever. )etting it slip away is an oversight that investors should not forgive. Analyzing a companyRs wor ing capital can provide e%cellent insight into how well a company handles its cash, and whether it is li ely to have any on hand to fund growth and contribute to shareholder value. "he research done by, Iass A., =ow "o !mprove 0or ing @apital Canagement 8#<<;9 U@ash is the lifeblood of businessU is an often repeated ma%im amongst financial managers. 0or ing capital management refers to the management of current or short6term assets and

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short6term liabilities. @omponents of short6term assets include inventories, loans and advances, debtors, investments and cash and ban balances. $hort6term liabilities include creditors, trade advances, borrowings and provisions. "he major emphasis is, however, on short6term assets, since short6term liabilities arise in the conte%t of short6term assets. !t is important that companies minimize ris by prudent wor ing capital management. "he research done by, Caynard +. 2afuse, 0or ing capital management? an urgent need to refocus Canagement Aecision, 81::;9 Argues that attempts to improve wor ing capital by delaying payment to creditors is counter6productive to individuals and to the economy as a whole. @laims that altering debtor and creditor levels for individual tiers within a value system will rarely produce any net benefit.Broposes that stoc reduction generates system6wide

financial improvements and other important benefits.4rges those organizations see ing concentrated wor ing capital reduction strategies to focus on stoc management strategies based on lean supply6chain techni'ues. "he research done by, "homas C. Frueger, An Analysis of 0or ing @apital Canagement 2esults Across !ndustries American Pournal of -usiness, 8#<<>9 found distinct levels of 0@C measures for different industries, which tend to be stable over time. Cany factors help to e%plain this discovery. "he improving economy during the period of the study may have resulted in improved turnover in some industries, while slowing turnover may have been a signal of troubles ahead. /ur results should be interpreted cautiously. /ur study ta es places over a short time frame during a generally improving mar et. !n addition, the survey suffers from survivorship bias K only the top firms within each industry are ran ed each year and the composition of those firms within the industry can change annually.

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Coradabad is renowned for brass wor and has carved a niche for itself in the handicraft industry through out the world. "he modern,attractive, and artistic brass ware, jewelry and trophies made by s illed artisans are the main crafts. "he attractive brass ware are e%ported to countries li e 4$A, -ritain, @anada, Iermany and Ciddle +ast Asia. "here are about ;<< e%port units and ><<< industries in the district. Coradabad e%ports goods worth 2s. ##<< crore every year. 2ecently other products li e !ron $heet Cetalwares, Aluminium Artwor s and IlasswareRs have also been included as per need of the foreign -uyers. Centha is also e%ported in several crores from Coradabad. "hese products are very popular in foreign mar et and are being e%ported in thousand of crores every year. Aue to increase of e%ports and popularity in foreign specially in +urope, America, !taly and other countries, a large 1o. of e%porters are establishing their units and started their e%port. /ut of the seven industrial corridors declared by the $tate Iovt. in !ndustrial Bolicy 1:::6#<<#, Coradabad is one of them. "he Iovernment is investing a lot of money to improve infrastructural facilities to promote the !ndustrial activities at Coradabad li e #7 hours 416interrupted power supply, construction of -y6pass, Broposal for widening and ma ing 7 lane Aelhi6Coradabad 2oad. About 7>< Acres of land has been ac'uired to develop a 1ew !ndustrial Area for +%port

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/riented 4nits at Ba bara to Aingarpur 2oad. "hus this is good opportunity for new entrepreneurs to establish their projects.

BRASS INDUSTRY
2aw material used in the manufacture of brass utensils are called U$!))5U and UI4))5U in the local jargon. U$!))5U and UI4))5U is the mi%ture of many metals namely6 @opper, Tin , )ead, etc.8in a specified ratio9. All these metals mi%ed in a big pot called UI=A2!AU and heated in a furnace. "he molten mi% is then poured into a mold of desired shape V allowed to cool. First V foremost, the design of the utensil, to be made, is s etched on a piece of a paper followed by its wooden frame which is later on used to ma e its metal prototype. "his is nown as Caster piece. "he e%pert artisans also nown as UA=A))A!5AU prepares mould for the different brass utensils. Colten metal is poured into these moulds, the utensils is then ta en out for repair and refurbished with utmost care. "hese brass utensils are then polished. !f needed, e%otic design are made on these polished utensils. "hese utensils are then ready to be sold in the domestic mar et or are e%ported out to various countries. -rass industry is developed as a small scale industry in Coradabad . 0or er have small wor shop in their houses. Apart from brass, there are other handicraft industries in Coradabad ?

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Pewelry made out of bones and horns. Fitchen ware @ombs 0ooden stic s

"he main center of this industry is in $ambhal, a tehsil of Coradabad district. "he attractive goods generated by this small scale industry are in great demand in many countries. "here are about 1><< families involved in the production of these items, which provide job to about ><<< people. Brinting Brinting on cloths is done at many places in the district, but "ha urdwara, Fanth and Amroha are the main centers. Aistrict administration has established a =andicraft @orporation depot in "ha urdwara. Aesign for printing on cloth is provided by this depot to these cloth merchants. "he final prepared product in then ta en over by the corporation. "here are about ;<<< people involved in the profession. Coradabad district apart from brass and handicraft industries, there are about E1G# other small scale industrial units. Brominent among these are 6

Centha oil. 2ice Cills $ugar Cills @ement and -uilding material Agricultural !nstruments

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Animal Feed @oal -ric s /il Cill, etc.

"hese small scale units provide jobs to about #G>7> people. "here are about 77 units of Cedium and )arge $cale !ndustries, which includes Aistillery, $ugar Cills, Bulp V Baper, Bharmaceutical V @hemical !ndustries etc. "hese industrial units provide jobs to about 7<<<< people.

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COMPANY PROFILE

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COMPANY PROFILE
C9L9 ,UPTA ECPORT LTD9
C9L9 ,UPTA 0e are 11G6year6old company, in Coradabad, a city 1>< ms. From Aelhi. "hus have a great e%perience in this field. 0e have our own infra6structure of 1,#<<,<<< s'.ft areas with large number of veteran, professionals, technical staff V more than #<<< s illed labors, the company combined with design, matr%ing, machinery process V as semblance in one continuous line. O*% co.3an+ ollo's the 3%#nc#3le o hono%#n4 the cont%act? 5ee3#n4 the !est c%e"#t > #%st )*al#t+9 @.).I4B"A is nown as a reputed +%port =ouse in !ndia, specializing in various areas of product development. "he company offering for various products all sorts of =andicrafts items. /ur items are with the latest trends of !nternational Car et and well appreciated. @.).I4B"A is fully prepared to cover the continuing from -rass, +.B.1.$, 0rought !ron, @opper, Aluminum, $.$teel, 0ooden V -one =andicrafts, specialize in =ome V /ffice Aecoration, @hristmas Aecoration, Iarden Accessories, -athroom Accessories, Fitchen 0ares, =otel 0ares, 1autical, @ostume Pewellery, =ome Furnishings V /ther =ousehold product Broud Cembers of?6 7#

19 !ndo Ierman @hamber of @ommerce. #9 Cesses Fran furt Jenue Imb= V @o. Fg (9 +%port Bromotion @ouncil for =andicrafts. 79 @hamber of !ndian !ndustries. >9 +%port Bromotion -ureau. ;9 !ndia +%position Cart. E9 Coradabad 0est !ndustries @hamber. 2ISION: - A 0orld @lass innovative , competitive and Brofitable +%port providing total business solutions.

MISSION:-"o be the leading !ndian e%ports enterprises providing 3uality of products system and service 1#s in the field of brass art ware, glass art ware, wooden art ware and other potential areas . BUSINESS MISSION:-"o maintain a trading position as supplies of 'uality Broducts , system and services in the field of @onversation , transmission , utilization and

conservation of art ware products in the area of handicrafts , wooden iron etc. 4tilizes companies capabilities and resources e%pand business into allied areas and other priority sectors of the economy.

2ALUES:a9 b9 c9 Ceeting commitments made to customer. Faster learning creativity and speed of response. 2espect of dignity and potential of individual.

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)oyalty and pride in the company. "eam playing. Teal to e%cel. !ntegrity and fairness of all matters.

COMPANY DETAILS 18 Km. Stone, Delhi road, Vill. i!ai, "oti#a$h%le Na&ar ' ())((1 Phone* +,1-.,1-/0. 1(/) till /), 1a2* +,1-.,1-/0. 1111, e-mail* in3o45l&%$ta.5om 0e are 11G6year6old company, in Coradabad, a city 1>< ms. From Aelhi. In %ast%*ct*%e Factory )and Area? >< acres, @overed Area? 1,#<<,<<< s'.ft !n6house +lectricity Ieneration? ;.< C0 2esidential @omple% within factory premises for @raftsmen A tas force of #<<<. direct V indirect $ome of our major clients are? Bottery -arn, ! ea, "arget $tores, @rate V -arrel, 2estoration =ardware, @ost Blus 0orld Car et, Car s V $pencer, -ecara =istorical @ollections, $chubert Jaria, Bete Jan 2oon etc. So.e o o*% .aDo% cl#ents a%e? Bottery -arn, ! ea, "arget $tores, @rate V -arrel, 2estoration =ardware, @ost Blus 0orld Car et, Car s V $pencer, -ecara =istorical @ollections, $chubert Jaria, Bete Jan 2oon etc.

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-*al#t+ O!Dect#$e: 16 "o provide products that meet customer re'uirements consistently. #6 "o constantly improve 'uality through preventive action. (6 "o Aevelop employees through continuous training in nowledge and s ills.

76 "o +stablish and implement !$/ :<<1? #<<< 'uality management system. -*al#t+ Pol#c+ > O!Dect#$es- De #n#t#on: "he 'uality policy and objectives of the company have been defined by the management in conformity with the corporate objective and changing customer need V e%pectation. "he company personnel shall be made aware of the implication of 'uality policy through training to ensure that is understood V implemented?

MANUFACTURIN, PROCESS 0OODEN ART0ARES "imber is purchased in the shape of longs. "he logs are cut into logs of desire sizes in the lowing section. "hese pieces are ponperty treated in a poncess treatment process. "he treated timber is sent to machine shop for suitable sizes H machined pieces. "hereafter such pieces are ta en in the fabrication section for conversion into re'uired designs. "here fabricated pieces are sent to the finishing department for final finish. "here after these final finished pieces are chec ed as per specifications and sent to are chec ed as per specifications and sent to pac ing department where there are pac ed for dispatches. Conthly company use about 1<,<<< 1G<<< curt of wood for monthly sale to the tune of 1>< to 1E> lac s.

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0OOD DI2ISION FLO0 C/ART (Fo% 0oo"en A%t 'a%es) LO, YARD SA0IN,

TREATMENT PROCESS

SEASONINN,

MAC/ININ,

FABRICATION

FINIS/IN,

PAC1IN,

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DISPATC/ Conthly wood unit capacity K 1#<<< @u. Ft. Appro%. And Conthly $ale 1><61E> )ac s F#4*%e-:9E

IRON ART0ARES $'uare and round rods of different sizes purchased from the mar et. "here are cut into proper sizes and after conversion into the different designs they are sent for phosphate for phosphating =@), caustic soda, Bhosphating chemicals can calcite powders are mainly used. After Bhosphating these pieces are sent to the electroplating powder coating department for finishing. "he raw materials used are 1ic el @hloride, 1ic el $ulphate, 1ic el salt, 666 , -oric Acid V +po%y powders. As per re'uirements. "hese finished items are suitably pac ed for e%port. "he august $ale of such show pieces is 1(> K 1>< lac s per months.

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IRON DI2ISION FLO0 C/ART (Fo% I%on A%t 'a%es) !2/1 F/2A 8$34A2+ 2/A, 2/41A /F A!FF+2+1" $!T+$9

B=/$B=A"!1I 8!"+C$ 2+34!2+A B+2 C/1"=9 =@) =#$/7 @A4$"!@ $/AA B=/$B=A"!1I $/)4@A"!/1 @A)@!A+ B/0A+2 +)+@"2/B)A"!1I 8!"+C 2+34!2+A B+2 C/1"=9 1!@F)+ @=)/2!A+ 1!@F)+ $4)B=A"+ $4)B=42!@ A@!A 1!@F)+ $A)" -/2!@ A@!A 61<< FI$ 6#<< FI$ 6#< FI$ 6#<< FI$ 6>< FI$ 6<.7 "/1$ 6><< )"2$. 6><< FI$ 6 1<<< )"2$. 61<<< FI$

B/0+2 @/A"!1I 8 !"+C$ 2+34!2+A B+2 C/1"= 9

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B/0A+2 A!+$+) !2/1 K BA@F!1I

61G<<6#<<< FI$ 6(E><67<<< FI$

Average sale per month 1(> to 1>< lac s F#4*%e-:97

,LASS > CRYSTAL ART0ARES Ilass tan furnace is a conventional melting furnace for glass articles li e tableware*s

of different shapes V designs, bottles, tumblers etc. "his is and +ng 6 Fired regenerative furnace with four wor ing K ways 8 with a distributor in between9 of which three are currently under operation. "he meter is fired for melting and refining

purpose whereas the distributors is for conditioning and refining purpose. "he wor ing ways and the distributors are fired by Bropane Ias for a better control of "emperature. "he major ingredients li e 3uartz, $oda Ash, and @alcite etc. and the minor ingredients

li e Botassium 1itrate, $odium $ulphate etc. Are mi%ed in appropriate proportion in a Ban K "ype mi%ture. "he mi% and the bro en glass 8technically termed as cullet9 received from various inspection points and process rejection are put into the trolleys. "hese trolleys are lifted to the Furnace "opper by a hoist and thus charged periodically with the help of a vibrator and a mechanical pusher into the furnace through the dog house 8 i.e. entry point 9 to maintain a constant molten glass level inside the furnace. "he melting at about 17>< K 1><< @ is very comple% set of reactions. As the temperature is increased variety of Bhysico K @hemical reactions occur li e +vaporation is increased variety of Bhysico 6 @hemical reactions occur li e +vaporation of free

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water, Formation of loss of gaseous constituents, formation of li'uid phases where all major constituents are transferred into comple% silicates. "his molten form of glass is refined in the distributors as stated above at 1#>< 6 1#;< @ and distributed to different wor ing ways. Couth blowers collect the glass from the wor ing bay by a pipe and then blow in the mould to attain full size V shape of the article. 0hile blowing with pipe precautions are ta en that the surface is uniform and polished. Coulds have a coating or red lead V carbon to avoid metal contact. $ome items are pressed machine. "he blown and pressed items are 'uic ly transferred to a chamber called Annealign. )ehr for removing the stresses and strains developed in these articles during the process. "his is called Annealing and the temperature is maintained at about >(< @ 8 fired by =.$.A. 9 in the Annealing zone. "he e%it of the )ehr is ept at ambient temperature.

"he articles are inspected for physicals defects and then transferred to wire cutting where the e%tra glass is cut off with the help of electrically heated filaments. "he edges are grounded in a grinding wheel itched if re'uired before sending to the pac ing department. For colored glasses the raw materials and cullets are mi%ed in tray are charged into the open pot and heated at a temperature of around 17<< @ by Bropane Ias. "he melting of this mi%ture ta es about si%teen hours and then it is cooled to the wor ing temperature which ta es another two hours. "he blowing process starts which is similar to that of tan furnace products. 2est of the process is also following the same

process as described earlier. SENT TO PAC1IN, DEPARTMENT

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Average 'uantity per month as per anne%ure attached Average sale per month 1E< to #<< lac s. BRASS ART0ARES -rass scrap, copper V lin purchased from the fact are the major raw materials. "here

are melted in crucibles and converted in the form of !ngots. "here !ngots are further melted in the small crucibles and pocered in the moulds by the process of sand coating. "hese caste products are cleaned and machined with various tools and machines and are smoothened. "here are converted into proper shapes and site and welding is done if re'uired. "here moulds are polished to remove particles left after send casting. "here pieces are painted H electroplated as per the re'uirement and sent to the pac ing department where after proper chec ing and cleaning these are suitably pac ed for e%port.

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PRODUCT PROFILE

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PRODUCT PROFILE
@.). I4B"A is the manufacturer and e%porter of -rass, Ilass, 0ood and wa% items. @.).I4B"A is the largest e%port industry in Coradabad city. !t has the largest turnover among all the e%port industries in Coradabad city. @.).I4B"A manufacture V e%port almost items of everything. !t manufactures different types of candle stand, house hold utensils, coo ware, bathroom fitting items. @.).I4B"A also deals in Ilass. !t has a separate section of Ilass. !t manufactures V e%port different inds of Ilass items. !t also has a separate section named Cosaic Ilass section. !n this section different items of Ilass are manufactured. Cosaic is called the small pieces of glassD these small pieces are fi%ed on different Ilass items as per customer re'uirement. @ompany has a very wide range of the products that are manufacturing in the company. Although the range of the products of the company is not fi% and it manufactures the products according to the choice and the order of the customer. $ome of the products of the company are6 =urricane, Jotive, $hefali Ilass, Jor a @himney, Jas, Angle "ea )ight =older, @hristmas tree, etc. "he products of the company are not fi%ed. "hey remain changing. "he products of the company depend upon the choice of the buyers. @ompany can*t manufacture products on its

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own. "he company can only got ma e the samples and show it to the buyer. !f the buyer li es the sample then he will give the order to the company to manufacture the relevant product. $o we can see that the products of the company are not fi%, company manufactures the products as per the customer*s order or choice.

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A Ilimpse of our Broduct 2ange

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@. ). Iupta +%ports )td. is an e%isting unit for manufacturers and e%port of -rass wares, -rass art wares, Ilass wares and -rass fittings on @rystal, Ilass, 0ooden art wor s, !ron wares, Aluminium to foreign countries. -rass Art 0ares, 0ooden Furniture, Aluminum 0ares, @rystal Ilass 0ares, and fiting are the major item of e%port from !ndia. >: itchenware

OUR MANUFACTURIN, CAPABILITIES 1. -rass? !n house manufacturing and finishing in variety of finishes as polished brass, ant'. -rass, bronze, silver plating, patinas etc. !tems? Figurines, Fire fashion, "ableware, Aecorative, @loc s, @andle 6 stands, 0all decor, -ath Accessories, 0indow "reatment, =ardware, $easonal, Iiftables, etc. #. Aluminium? !n 6 house casting V finishing, mostly painted or polished finishes !tems? Iarden Furniture, Iarden Animals, Car ers, Blanters, Figurines, Botholders, -irdbaths etc. (. Ilass? 0e have @ontinous "an furnace with a capacity of #< tones per day to

ma e mouth 6 blown glass, in crac le finish, frosted, seeded in clear V colored glass. !tems? Costly combinations of Ilass with !ron, -rass, -ronze or $ilver plated bases for -owls, -ath Accessories, @andle holders, )anterns, Billar holders, "umblers V Aecanters, Jases etc. 7. !ron? !n house facility to manufacture 0rought V @ast !ron items with in 6 house tan Bhosphate 8rust treatment9, $pray Bainting, Bowder @oating and =and applied

finishes. !tems? !ndoor Accent furniture 8@FA9, Iarden Furniture, -ases for Ilass Jases V @andleholders, Fire Fashion, Billar candleholders, Armillaries, Botholders, etc. >. 0ood? From $awing, $easoning, "reatment, Cachining, @arpentry, Finishing 8spray paint V stain finishes9. !tems? @olonial Autch furniture, 1eo 6 @lassical furniture V Aes sets, @andle holders,

Billar holders, )anterns, Bhoto 6 frames, Finials for 0indows drapery rods, Bhoto frames "rays, -owls etc.

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"he @ompany is a registered @ompany incorporated under @ompanies Act 1:>;. "he main objects of the @ompany are ?6 "o e%port, imports, produce, manufacture, buy, sell distributeD 1. =andicrafts including handicraft products of copper, brass, bronze, bidri and bell metal, wood carvings, artistic wal ing stic s, articles of horn, bone and corc shell, costume jewellery, imitation jewellery, hand paintings, papier mache items and other handicrafts goods of every type and description. #. -rass, iron, steel, brassware, ironware, hardware, copper, rubber and resin. (. All inds of furniture and furniture items made from wood, brass, steel or any

other alloys and handicrafts upholstered or not. 7. All type of glassware, leveled and unleveled silvered sheet, curved of flat laminated and safety glass, toughened glass, fibre glass, welding glass, silver glass, colored glass, float flat glass, lead mirror, gold mirror, decorative glass, ice K flowered glass, glass doors and fittings. >. $ports cups, medals and sports goods of every type and description. ;. +. B. 1. $. and Ierman silverware and cutlery and other engineering goods of every type and description. E. 0oolen carpers, rugs, drug gets, woolens te%tiles and hosiery. G. $tainless steel products of every type and description. :. "o buy, sell, process, refine, covert and manufacture e%portable goods of every description and type. "he turnover of the @ompany had been around 1#< crores per year e%porting mostly all parts of the world. "he production activities are carried out using most modern

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e'uipments in all the divisions i.e. Ilass, -rass, 0ood and !ron. "he @ompany wor s within @omplied norms as set by large !nternational buyers with special cognigence on Bollution @ontrol $ystem and )abour )aws etc. "he jobs are carried out by a professionally 'ualified team of +ngineers, C-As and @As engaged in respective sections. "he objectives of the company would not have been possible with out the prompt support of the Iovernment and officials of controlling departments 8li e @entral +%cise, Bolice, Administration and financial institutions etc.9

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RESEARC/ MET/ODOLO,Y

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RESEARC/ MET/ODOLO,Y

2esearch Cethodology is a systematically solve the research problem. !t has many dimensions and research methods constitute a part of the research methodology.

"hus when we tal about research methodology, we do not only tal of the research methods but also consider the logic behind the methods. 0e use in conte%t of our research study, so that research results are capable of being evaluated either by researcher himself or by others.

"o effectively carry out in research, ! would use the following research process, which consists of series of actions or steps. Resea%ch co.3%#ses o the ollo'#n4 ste3s:1. Formulating the research Broblem. #. 2esearch design V $ample Aesign. (. Analysis of data gathered 7. Aata analysis comparison >. Iraphics and interpret

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1 FORMULATIN, T/E RESEARC/ PROBLEM "his is the first step under which the problem is stated in general way and then ambiguities i.e. understanding and rephrasing the problem thoroughly and rephrasing the same into a meaningful terms from an analysis point of view. "he research problem under the present project was to study data of various funds. For this research process was to be formulated and the e%ecution of which would result in the desired data. 79 PREPARIN, T/E RESEARC/ DESI,N "he function of research design is to provide for the collection of relevant evidences with minimal e%penditure of efforts, time and money. Resea%ch Des#4n "ype of research $ample design TYPE OF RESEARC/ "he type of research under present is an analytical research. !n analytical researchD we use tactRs or information already available, and analyze these to ma e a critical evaluation of the material. =ence the same would be done. !n this project ! had collected facts, data, and information. SAMPLE DESI,N ;>

A sample design is a definite plan determined before any data is actually collected for obtaining a sample. 2esearcher must select a sample design, which should be reliable and appropriate for his report.

89 OBSER2ATIONAL DESI,N (COLLECTION OF DATA) /bservational design relates to the condition under which the observations are to be made. /bservational design in respect to research. "here are several ways of collecting the appropriate data, which differ considerably in conte%t of money, time cost and other resources at the disposal of the researcher. Data can !e o!ta#ne" %o. t'o #.3o%tant so*%ces: Brimary data $econdary Aata P%#.a%+ "ata Brimary data are the data that are collected afresh and for the first time. "hus happens to be in character. Brimary data are collected by the following ways?6 a9 b9 c9 d9 /bservation !nterview $chedule 3uestionnaire Secon"a%+ Data

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$econdary data are the data that are already collected and are only analyzed by different sources these sources are as follows?6 "his study majority used the secondary data from the following sources? @orporate Bublications Canuals of the companies, Annual 2eports, Accounting statements etc. -oo s, journals, newspaper "he secondary data collected from above sources is analyzed in the light of journal of national repute, boo s of national and international authors. !n addition to this internet sources also helped the researcher to conclude the study

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FINDIN,S > ANALYSIS

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FINDIN, AND ANALYSIS

ANALYSIS OF 0OR1IN, CAPITAL Analysis of wor ing capital is an essential part of financial management. !f there is an ade'uate amount of wor ing capital and it is utilized in the right manner, it is a great achievement for the business. "he e%cess of wor ing capital causes financial stringency and brings the business to a standstill.

2ealizing the impotence of wor ing capital in financial management the analysis of wor ing capital becomes an essential phenomenon. !t facilitates the ade'uacy and management of wor ing capital. "he management of wor ing capital provides a careful in'uiry into its components so as to control the wor ing capital and to conserve it properly. !t helps in determining the optimum level of wor ing capital in the firm. "he process of measurement and analysis of wor ing capital is performed on the basis of financial statements of the business enterprise for past few years.

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!n the present study the analysis of wor ing capital of @.). Iupta +%port. =as been made by two techni'ues vis., trend analysis and ratio analysis.

0OR1IN, CAPITAL TREND ANALYSIS

"he wor ing capital trend analysis represents a picture of variation in current assets, current liabilities and wor ing capital over a period of time. $uch an analysis enables us to study upward and downward trend in current liabilities and its effect on the wor ing capital position. "he trend analysis is a tool of financial appraisal where the changes in the factors are compared with the base year assuming the base year as 1<<. !n the present study a statement K showing trend of wor ing capital as well as its structure has been made. !t is it scientific and important study because each component of wor ing capital has got the relationship of causes and effects. Following table below shows the structure and trend of wor ing capital of @.). I4B"A +OB/2" during the period under review.

STRUCTURE AND TREND OF 0OR1IN, CAPITAL OF C9L9 ,UPTA ECPORT LTD9 7AAB TO7AEE PERTICULAR CURRENT ASSETS @A$= 7AAB-7AAF (##(G:.#7 E< 7AAF-7AEA G>>G1:.>1 7AEA-7AEE G(;7(:.#

-A1F )/A1 A1A AAJA1@+$ A+-"/2$ $"/@F TOTAL (A) CURRENT LIABILITIES @422+1" )!A-!)!"!+$ A1A B2/J!$!/1$ TOTAL (B) NET 0OR1IN, CAPITAL (A-B) In e%ence

1G;(#E:>.GG E1##<G<:.GG (<<G<>1:E.E (EE>G<#7(.E E;G>;17(;.7

(>:(;(7G.1; G7G(;7EE.;> (11<#EE;<.; 7#E(#E(G7.G G>::G(E:<.E

#E#1G7;#.1; EE11>11#.:# (>;>G<<<<.7 7;><7G>E(.> :#;E:G>GG.#

>#;7(:E## >#;7(:E## #7#1#1E17.7

>1#:><E><.E >1#:><E><.E (7E<((<7<

77#<<:;7G.G 77#<<:;7G.G 7G7EGG:(:.7

@urrent Assets increase to #<.>:W in the year of #<1<6#<11 as @ompare to in the year #<<G6#<<:.

@urrent )iabilities in the year #<1<6#<11 got decreased by 1;.<7W As compared to the year #<<G6#<<:.

!n the year #<<:6#<1< the growth in wor ing capital was 7(.((W

As compare to the year #<<G6#<<: similarly wor ing capital in the year #<1<6#<11 has grown to 1<<.<(W as compared to the wor ing capital in the year #<<G6#<<: The anal+s#s sho's the e ect#$e an" e #c#ent .ana4e.ent o 'o%5#n4 ca3#tal !+ the C9L9 ,UPTA ECPORT Lt"9

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RATIO ANALYSIS OF 0OR1IN, CAPITAL

"rend analysis shows the trend of current assets, current liabilities and wor ing capital only. !t do not interpret the contribution of each item of wor ing capital in the trend, whereas, it can be done easily by ratio analysis. "he ratio analysis of wor ing capital can be used by management as a means of chec ing upon the efficiency in wor ing capital management of the company. Following ratio haven used to analysis and interpret wor ing capital of @.). I4B"A +OB/2".

@urrent ratio 3uic ratio Absolute ratio $toc or inventory ratio 0or ing capital turnover ratio

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CURRENTRATIO

@urrent ratio is one of the important ratios used in testing li'uidity of a concern. this is a good measure of the ability of company to maintain solvency over a short run. "his is computed by dividing the total current assets by the total current liabilities and is e%pressed as?

"he current assets of a firm represent those assets, which can be in the ordinary course of business, converted into cash within one accounting year. "he current liabilities are defines as obligation maturing within a short period 8usually one accounting year9. +%cess of current assets over current liabilities is nown as wor ing capital and since these two 8current assets and current liabilities9 are used in current ratio therefore, this ratio is also nown as wor ing capital ratio.

0ith the help of this ratio the analyst can review the e%tent to which the company can covert such liabilities with current assets. "he current ratio gives the analyst a general picture of the ade'uacy of the wor ing capital of a company and ability of the company to meet its day6to6 day payment obligation. it li ewise measures the margin of safety provided for paying current debts in the event of a reduction in the values of current assets.

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"he current ratio is very useful as a measure of short terms debt prying ability but it is tric y to interpret this ratio. +%perts are of the view that the value of current assets should be at least double the amount if current liabilities.

0al er and -ough have the same view when they ay a good current ratio may mean a good umbrella for creditors against the rainy days.-ut to the management it reflects bad financial planning or presence of idle assets or over capitalization

IDLE CURRENT RATIO: 7:E !f this ratio is higher than standards than it is assumed Jery good short Kterm li'uidityHsolvency. +%cess stoc s, bad debts and idle cash. 4nder trading !f this ratio is lower than standards than it is assumed 4nsatisfactory short6term li'uidity. $hortage of stoc s, less credit sales, shortage of cash. /ver trading

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CURRENT RATIO OF C9L9 ,UPTA ECPORT LTD9 DURIN, 7AAB TO 7AEE @422+1" 5+A2 A$$+"$ 8A9 #<<G6#<<: #<<:6#<1< #<1<6#<11 INFERENCE:"his table reveals that current ratio has increased that is ma ing improvements in its short term solvency. !t is because of increase in current assets as compared to current liabilities. $till this is lower than standard current assets ratio that shows a little bit unsatisfactory li'uidity position of the company. "he @urrent 2atio for the year #<1<6#<11 has ta en the Jalue of #.<1?1, which is very satisfactory and as per the standard re'uired 8#?19."he current ratio of #.<1?1 indicates, that for every 2s 1 of current liability the company 2s # of current assets, which indicates more li'uidity and hence more amount of wor ing capital. 8-9 E;G>;17(;.7 G>::G(E:<.E :#;E:G>GG.# )!A-!)!"!+$ 8@9 >#;7(:E## >1#:><E><.E 77#<<:;7G.G 8-9H8@9 1.7; 1.;G #.<1 @422+1" @422+1" 2A"!/

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-UIC1 RATIO

"he solvency of a company is batter indicated by 'uic 2ato.the fundamental this 2atio is to enable the financial management of a company to ascertain that would happen !f current creditors press for immediate payment and either not Bossible to push up the sales of closing or it id sold, a heavy loss is li ely to be suffered. "his problem arises because closing stoc is two steps away from the cash and their price more or less uncertain according to mar et demand.

"he term 'uic assets include all current assets e%cept inventories and prepaid e%penses. !t shows the relationship of 'uic following? assets and current liabilities. "he 2atio is calculated as

An indicator of a companyRs short6term li'uidity. "he 'uic ratio measures a companyRs ability to meet its short6term obligations with its most li'uid assets. "he higher the 'uic ratio, the better the position of the company. Also nown as the Uacid6test ratioU or the U'uic assets ratioU.

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-UIC1 RATIO OF TE2A API INDIA LTD9 DURIN, 34!@F 5+A2 8A9 #<<G6#<<: #<<:6#<1< #<1<6#<11 A$$+"$ 8-9 (:<:G11:#.E 7(#;>;7<>.: 7;1E><<17.E @422+1" )!A-!)!"!+$ 8@9 >#;7(:E## >1#:><E><.E 77#<<:;7G.G

7AAB TO 7AEE

34!@F 2A"!/ 8-9H8@9 <.E7 <.G7 1.<7

IDLE -UIC1 RATIO E:E

INFERENCE:Although it is less idle ratio still it has increasing trend that shows "eva @ompany improving condition of short term solvency of "eva @ompany.

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3uic ratio for the year #<1<611 is above the ideal standard. !t is 1.<7?1, which indicates that for every 2e1 of current liability the company has 2s 1.<7 of current assets, hence the company is in sound position in terms of wor ing capital position.

ABSOLUTE LI-UDITY RATIO

"he absolute li'uid ratio between absolute li'uid assets and current liabilities is calculated by dividing the li'uid assets and current liabilities. +%pressed in formula, the ratio is?

@ash . Car etable $ecurities , Absolute )i'uidity 2atio @urrent )iabilities

"he term li'uid assets include cash ban

balance and mar etable securities, if current

liabilities are to pay at once, only balance of @ash and mar etable securities will be utilized. "herefore, to measure the absolute li'uidity of a business, this ratio is calculated.

IDLE RATIO: A9;: E "he idea behind the norm id that if all creditors for demand for payment, at least ><W of their claim should be satisfied at once.

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

ABSOLUTE LI-UIDITY RATIO OF C9L9 ,UPTA ECPORT LTD9 DURIN, 7AAB TO 7AEE A-$/)4"+ )!34!A 5+A2 8A9 #<<G6#<<: #<<:6#<1< #<1<6#<11 A$$+"$ 8-9 1G:>>1G>.1# (;E:#1;E.;E #G<>7:<1.(; )!A-!)!"!+$ 8@9 >#;7(:E## >1#:><E><.E 77#<<:;7G.G A-$/)4"+ 2A"!/ 8-9H8@9 <.<7 <.<E <.<; @422+1"

INFERENCE "his ratio is very below from idle ratio. !t is ma ing insecure creditors claim but it is getting increasing trend. !t is needed to maintain this trend. 2atios for all the above mentioned years right from #<<G up to #<11 are close to the standard. For year #<1<611 the ratio is well above the standard, which indicates the healthy picture of the company in terms of availability of wor ing capital 8'uic assets9 in order to meet current liabilities.

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IN2ENTORY TURNO2ER RATIO

+very firm has to maintain a certain level of inventory of finished good so as to be able to meet the re'uirements of the business. -ut the level of inventory should neither to be high not to be low. !t to high inventory means higher carrying cost and higher ris of stoc s becoming obsolete whereas to low inventory may mean the loss of business opportunities. it is very essential to eep sufficient stoc in business . it is e%press in number of time . $toc turnover ratio or inventory turn over ratio indicates the no. of times the stoc has been turned over during the period and evaluates the efficiency with which a firm a able to manage its inventory. "his ratio indicates whether investment in stoc is with in proper limit or not.

/I,/ER RATIO INDICATES:-

$toc

is sold out fast. or more sales from

$ame volume of sales from less stoc

$ame stoc

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 "oo high ratio shows stoc )ess wor

outs or over trading.

ing capital re'uirement.

LO0ER RATIO RE2EALS:-

$toc

a sold out at a slow speed. or less sale from same stoc .

$ame volume of sale for more stoc Core wor

ing capital re'uirement.

"oo low ratio show obsolete stoc

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

or under trading.

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

!nventory turnover 2atio ,

!nventory turn over ratio measures the velocity of conversion of stoc in to sales. 4sually a high inventory turnover H stoc velocity indicates efficient management of inventory because more fre'uently the stoc are sold, the lesser amount of money is re'uired to finance the inventory. )ow inventory turn over ration indicate inefficient management of inventory. in low inventory turn over implies over investment in inventories, the business, poor 'uality of goods, stoc accumulation, accumulation of absolute and slow moving good and low profit as G1

compared to total investment the inventory turn over ratio is also an inde% profitability where a high ratio signifies more profit Xa low ratio signifies low profit some time a high inventories.

IN2ENTORY TURNO2ER RATIO OF C9L9 ,UPTA ECPORT DURIN, 7AAB TO 7AEE @/$" /F AJ+2AI+ !1J+1"/25 !1J+1"/25 5+A2 I//A $/)A !1J+1"/25 "421/J+28"!C+$9 "421/J+28AA5$9 8A9 8-9 8@9 8A9 , 8-9H8@9 8+9, (;>HA #<<G6#<<: #:>><E;<(1 (EE>G<#7(.E E.G( 7;.;7 #<<:6#<1< (><1<17(>< 7#E(#E(G7.G G.1: 77.>> #<1<6#<11 (::>1<7;71 7;><7G>E(.> G.>: 7#.7:

INFERENCE:As compared to year #<<G6#<<:, in the year #<<:61<, the inventory turnover increased to G.1: times. $imilarly, in the year #<1<611 it increased to G.>: times, which indicates that the times ta en in converting raw material into finished product and finally selling it got reduced considerably and hence indicates 'uic release of wor ing capital

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0OR1IN, CAPITAL TURNO2ER

A measurement comparing the depletion of wor ing capital to the generation of sales over a given period. "his provides some useful information as to how effectively a company is using its wor ing capital to generate sales. A company uses wor ing capital 8current assets 6 current liabilities9 to fund operations and purchase inventory. "hese operations and inventory are then converted into sales revenue for the company. "he wor ing capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. !n a general sense, the higher the wor ing capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

0OR1IN, CAPITAL RATIO OF C9L9 ,UPTA ECPORT LTD9 DURIN, 7AAB TO 7AEE 0/2F!1I 5+A2 8A9 #<<G6#<<: #<<:6#<1< #<1<6#<11 1+" $A)+$ 8-9 (#<E>1<(17 (E7EG<><(1 7#;;17(:;> @AB!"A) 8@9 #7#1#1E17.7 (7E<((<7< 7G7EGG:(:.7 @422+1" 2A"!/ 8-9H8@9 1(.#7 1<.G G.G

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INFERENCE? !n spite of an increase in 1et 0or ing @apital, the 0or ing capital turnover ratio of @.). I4B"A +OB/2" )td. got reduced to 1<.G times in the year #<<:6 #<1<, as compared to the year #<<G6<:. $imilarly, in the year #<1<611, the wor ing capital turnover ratio further reduced to G.G times as compared to 1(.#7 times in the year #<<G6<:. "he reduction in wor ing capital turnover ratio is on account of massive growth in net wor ing capital as compared to a slight growth in the sales of the company.

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CONCLUSION

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CONCLUSION

Financial analysis is analysis of financial statements of and enterprise. Financial statement reorganized collection of data according to logical and constituent accounting procedures. =ow ever financial statements in their traditional from giving historical data and information are of little us to these who use them to draw certain conclusion.

Financial appraisal is scientific evaluation of profitability and financial strength of any business concern. Financial appraisal techni'ues include ration analysis common size analysis trend analysis, fund flow analysis etc. these techni'ues may be applied in the financial appraisal of any entity and AB! !ndia )td. !s no e%ception to it.

PROFITABILITY

"he measurement of profitability is a tool of overall measurement of efficiency an overall study profitability of @.). I4B"A +OB/2" )td. has been Aade in relation to sales operating assets capital employed and its net worth. -y analysis the wor ing result i.e. Brofit and loss account of @.). I4B"A +OB/2" !t was found that the net profit before interest and ta% of the @.). I4B"A +OB/2" is showing increasing trends. "his is very good for @.). I4B"A +OB/2" "he increase in the profits is

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nearly #7W more then previous year the reason is good sales growth between years. For this following suggestion should be considered. Broper cost control is re'uired and cost control techni'ue should be adopted for it. /perating e%penses, admn. +%penses should be specially considered to be reduced. !nventory is the biggest items of balance sheet that must have demanded a large amount of maintaining cost. $o efficient inventory management should be done. !nventory should be reduced e%tent that would help to recover bloc ing money in inventory. "he service staff should be given proper training and better environment for wor . Broper advertisement and sales promotion is re'uired. Aairy has to pay large fi% interest charged. =ence long term borrowing should be reduced so that the earning are satisfactorily earmar ed with them.

0OR1IN, CAPITAL !n the year #<<;6#<<E the growth in wor ing capital was 7(.((WAs compare to the

year #<<>6#<<; similarly wor ing capital in the year #<<E6#<<G has grown to 1<<.<(W as compared to the wor ing capital in the year #<<>6#<<;. The .ana4e.ent sho*l" ollo' the sa.e t%en" #n nea% *t*%e too so to ha$e cons#"e%a!le a33%ec#at#on #n 'o%5#n4 ca3#tal e$e%+ +ea%9 "he @urrent 2atio for the year #<<E6#<<G has ta en the Jalue of #.<1?1, which is very satisfactory and as per the standard re'uired 8#?19."he current ratio of #.<1?1

indicates, that for every 2s 1 of current liability the company 2s # of current assets,

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which indicates more li'uidity and hence more amount of wor ing capital. The co.3an+ nee" to *%the% enhance the $al*e o %at#o9

3uic ratio for the year #<<G6<: is above the ideal standard 81?19. !t is 1.<7?1, which indicates that for every 2e1 of current liability the company has 2s 1.<7 of current assets, hence the company is in sound position in terms of wor ing capital position. It 'o*l" !e !ette% o% the co.3an+ # #n nea% *t*%e #t co*l" *%the% enhance the $al*e o the %at#o

Absolute 'uic ratio for the years right from #<<> up to #<<G are close to the standard. For year #<<E6<G, the ratio is well above the standard 8<.>?19, which indicates the healthy picture of the company in terms of availability of wor ing capital 8'uic assets9 in order to meet current liabilities. The sa.e 3os#t#on sho*l" !e s*sta#ne" #n nea% *t*%e too9

As compared to year #<<>6#<<;, in the year #<<;6<E, the inventory turnover increased to G.1: times. $imilarly, in the year #<<E6<G it increased to G.>: times, which indicates that the times ta en in converting raw material into finished product and finally selling it got reduced considerably and hence indicates 'uic release of wor ing capital. In nea% *t*%e #t 'o*l" !e .o%e 3%o #ta!le o% the co.3an+? # the $al*e o %at#o 4ets #nc%ease" to EE- E:G9 !n spite of an increase in 1et 0or ing @apital, the 0or ing capital turnover ratio of @.). I4B"A +OB/2" )td. got reduced to 1<.G times in the year #<<;6 #<<E, as compared to the year #<<>6<E. $imilarly, in the year #<<E6<G, the wor ing capital

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turnover ratio further reduced to G.G times as compared to 1(.#7 times in the year #<<>6<;. "he reduction in wor ing capital turnover ratio is on account of massive growth in net wor ing capital as compared to a slight growth in the sales of the company. The $al*e o %at#o co*l" !e !ette% #n nea% *t*%e ? # the 4%o'th #n sales .atches '#th the 4%o'th #n net 'o%5#n4 ca3#tal9

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SU,,ESTIONS

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SU,,ESTIONS

1EEPIN, TRAC1 OF CAS/: T/E FINANCIAL STATEMENT !n business, your goal is to ma e money. !n business accounting, your goal is to compile a financial statement that eeps trac of it all. 5ou may thin you only need to eep trac of day6to6day activities in order to measure profits, but thereRs no way to accurately trac all the money flowing in and out of your business in your head. Coney is best trac ed in a financial statement, a report that contains all the information you and an accountant or ban er need to assess your companyRs financial health. !tRs prepared in a prescribed format, including a balance sheet, income statement, statement of cash flows and a statement of retained earnings. Cany business owners delegate the compilation and maintenance of this information to accountants66 and thatRs fine. !n fact, itRs recommended if you can afford it. -ut that doesnRt absolve you of the responsibility to understand what these documents mean to the health of business. Carjorie 0augh, a @BA in $eaford, 1ew 5or , cautions business owners against turning over 1<<W of the accounting responsibility to a third party. U! advise my clients to get involved with their financial management,U says 0augh. After all, ma ing decisions about which areas to scale bac , when to hire new people and which

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new ventures to pursue is still your job and you canRt do it effectively unless you have an accurate reading of your companyRs financial well6being. BALANCIN, YOUR BUD,ET: T/E BALANCE S/EET "he first document in the financial statement is the balance sheet. )enders and business appraisers loo at the balance sheet to see how much your business is worth and how easily it can be li'uidated in the event a debt falls into arrears. -y definition, itRs a snapshot of your companyRs financial position at a particular point in time. !t shows what you have 8assets9 versus what you owe 8liabilities9, and ultimately, your e'uity in the business or net worth. 4nderstanding what items 'ualify as assets or liabilities is sometimes tric y. Assets are typically bro en into UcurrentU and Unoncurrent.U -oth list items that are cash or will be converted into cash. @urrent assets can be converted to cash within 1# months, and noncurrent assets, beyond 1# months. @urrent assets include accounts receivable, inventory and prepaid e%penses. 1oncurrent assets include utility deposits, deferred income ta%es, property and e'uipment, less depreciation costs. Pust li e with assets, liabilities are listed as UcurrentU and Unoncurrent.U "he difference is that many liabilities fit both categories. !f, for e%ample, you too out a Y1><,<<< loan, payable over 1< years, the entire debt is not counted as a current liability. "en percent66or Y1>,<<< plus interest66is listed as a current liability on each yearRs balance sheet, leaving the remainder as a future or non current liability. $ome current liabilities include payroll ta%es, accrued e%penses, deferred income and accounts payable.

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/nce you have calculated your assets and liabilities, subtracting the latter from the former reveals the ownerRs e'uity, net worth or net assets. Feep in mind these terms are used interchangeably and can also be applied to oneRs personal finances. For e%ample, if you have a home worth Y1G>,<<<, a car worth Y1>,<<< and cash and investments worth Y(>,<<<, what is your net worthL !f you say Y#(>,<<<, your math is right but your answer is wrong. -efore calculating your net worth, you have to deduct liabilities, such as the balances on the mortgage and car loan, Y:G,<<<. "hat brings your net worth to Y1(E,<<<. !n other words, if you li'uidated your assets and paid your debts, thatRs how much you should have left. 2emember, the value of a firm in li'uidation will not necessarily e'uate to your e%act net worth.

T/E BILL COLLECTOR COMET/: ACCOUNTS RECEI2ABLE 1aturally you want positive rather than negative net assets. =owever, many young companies start off at a loss because they donRt build enough e'uity up front. @reate a positive net worth from the beginning. "his will prevent a negative e'uity situation from persisting as the company grows. Accounts receivable are directly connected to debt and e'uity. !f you donRt have money coming in, youRll have to burrow, thereby increasing your debt to stay afloat. For that reason, monitoring receivables is high on @harles =. Pames !!!Rs list of things to watch. Pames is president and @+/ of @.=. Pames and $ons =oldings !nc., 81o. E( on the -+ !1A4$"2!A)H$+2J!@+ 1<< list9, a Y(< million food processing, wholesale food distributor in the @ity of !ndustry, @alifornia. U5ou want to collect your receivables

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and turn your inventories as fast as possible and pay your payables as slowly as possible without incurring any penalties.U +stablish terms for your receivables and hold all your accounts to those terms. "his way, you can establish cash flow e%pectations and be mindful of the amount of money due to be collected within a given time frame. From there, you can plan future spending, investing or borrowing. Although it varies by industry, the average days payable is (<6;< days. =enry =olly, founder and president of =empstead "ransportation $ervice, a (#6year6 old family6owned business in =empstead, 1ew 5or , admits in the earlier years, U0e didnRt eep a close eye on receivables MbecauseN we were so busy trying to get business and handle what we had that we would lose trac of what was due.U !n addition, =olly says, many African American business owners have a familial mode of operation, where handsha es seal deals and itRs not unusual for payment terms to be e%tended almost indefinitely. UAoing business that way will cripple you,U warns 0augh. U!f youRre not collecting the money thatRs due to you, thereRs no way youRre going to survive.U "o shorten your days payable, put payment terms in writing on all sales contracts. Ca e sure customers have their own copy. @onsider attaching late fees to encourage receiving payments on time. And be prepared to contact debtors and follow through when payments are overdue.

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TA1IN, STOC1 OF YOUR COMPANY: IN2ENTORY Another trouble spot for entrepreneurs is inventory66how much to order and when to order. Aepending on the type of business, a large portion of a companyRs assets can get tied up in inventory, impacting cash flow and ultimately slowing down profitability. 5our goal should be to design policies that achieve optimal investment in inventory. 5ou accomplish this by determining the optimal level of inventory necessary to minimize inventory6related costs. 4nfortunately, this is hard to do unless youRve been in business long enough and have had enough steady activity t/ establish sales trends. $ome accountants prescribe the economic order 'uantity 8+/39 method to determine ideal inventory. !t determines the order size that minimizes the sum of your carrying and ordering costs. -ut calculating an +/3 involves a complicated algebraic e'uation. "hereRs also the inventory turnover e'uation, which helps you determine whether youRre carrying the right level of inventory. Ienerally spea ing, the inventory turnover e'uation e'uals the cost of goods sold divided by inventory. "his formula tells you how many times in a year you are turning over, or selling, inventory. =ere, higher numbers are better because they mean youRre moving merchandise 'uic ly. @onversely, if your numbers are low, you may be carrying too much inventory. 0hatRs considered high or low varies from industry to industry. Pames, for e%ample, says his average turnover is seven days, but thatRs because his inventory is perishable. 5ou should consult an accountant to learn the average rate in your mar et.

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Formulas aside, $tu 0allace, a principal with Anderson, Fac a and 0allace, an accounting firm in 2ichmond, Jirginia, suggests watching inventory levels on a 'uarterly basis. -ramble agrees? U-e conservative with your inventory up front while you get to now your business. -y watching my business over the years, ! can tell you how well ! will do on an average Conday night versus a 0ednesday night.U

,ET 0IT/ T/E FLO0: CAS/ FLO0 ANALYSIS -ased on the information from your balance sheet and income statement, an accountant can prepare a statement of cash flows for your company. !t shows the sources and use of cash, for e%ample, net borrowing under credit agreements, cash used in investing activities, proceeds from long6term debt and dividends paid. !tRs a no6 brainer that trac ing the flow of cash in and out of the business is fundamental to the big picture. -ut 0augh and 0allace agree that unless you are adept with accounting terms and practices, arranging a statement of cash flows is an area better left to your @BA. !nstead Pames and 0augh offer some useful tips on other areas to watch. !ndustry averages? !f you didnRt research them before opening shop, dUZyourself a favor and find out what the business norms are in your industry. U+very industry has different averages on things li e collection of receivables, payment terms on loans and duration of sales cycles. "hese variables directly affect your cash flow and your ability to satisfy debt,U says Pames. Ietting a handle on them can help you be prepared to ride the highs and lows.

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+stablish a budget? 1ever mind eeping a running tab in your head. 5ou need to put pen to paper and ma e a plan. 0aughRs prescriptionL U+stablish goals, compare your results against your goals and revise your goal as you go along.U "his activity, she says, should be ongoing.

Aespite what high6priced accountants may say, accounting is an unscientific practice. !t loo s at historical trends in your business and by using IAAB formulas, offers educated estimates on your financial fortitude. !tRs all you have to help you weather the storms of the business world, so why not arm yourself with as much protection as possibleL "hat doesnRt mean you should go out and enroll in the =arvard -usiness $chool, but you must ta e part on some level.

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LIMITATIONS

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LIMITATIONS

1. "he report is based on secondary data. #. "he current financial information was not made available by the company. (. Assets on the balance sheet are always shown at the original purchase price 8historical cost9 even though the current value may be different. 7. $ome figures on the financial statements are based on subjective estimates and assumptions. Canagement could possibly change net income by changing these estimates. >. "here are certain other items which are not reported in the balance sheet even though the firm may consider them to be of considerable value.

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BIBLIO,RAP/Y

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BIBLIO,RAP/Y

Boo5: Fothari @.2. 2esearch Cethodology Jishwa Bublication $econd +dition Caheshwari $.1. Financial Accounting. Ji as Pu$lis%in& =ouse Bvt )td, fourth +dition Bandey !.C. Financial Canagement, Ji as Pu$lis%in& =ouse Bvt )td, ninth +dition

F#nanc#al "a#l#es.
+conomic "imes -usiness $tandard

B*s#ness Ma4aH#nes
-usiness !ndia -usiness 0orld

Othe%

Financial statement for the year ended #<1<611 as obtained from @.). I4B"A
+OB/2"

Annual62eport #<1<611 of @.). I4B"A +OB/2"

0e!s#tes

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http?HHwww.clgupta6india.comH

ANNECURE

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ANNECURE
BALANCE S/EET OF C9L9 ,UPTA ECPORT PERIOD ENDIN, 7I-Dec-AF Assets @urrent Assets #,<;7,<<< #1(,<<< 7,;G(,<<< #,>##,<<< 1,(#7,<<< EA?BAJ?AAA (,::G,<<< 11,;;(,<<< >,1#7,<<< 1,G;<,<<< 6 #,(#7,<<< #1:,<<< 8;?FF:?AAA 7F-Dec-AB 8A-Dec-AI

@ash And @ash +'uivalents $hort "erm !nvestments 1et 2eceivables !nventory /ther @urrent Assets

:1<,<<< 1,>E1,<<< 7,(G:,<<< #,#:<,<<< ::1,<<< EA?E;E?AAA 7,7E>,<<< 11,##G,<<< >,1;:,<<< #,<77,<<< 6 1,(>;,<<< #<>,<<< 8:?J7B?AAA

1,;>1,<<< 1,1E1,<<< (,E#>,<<< 1,:#;,<<< ;>E,<<< F?E8A?AAA (,G(:,<<< :,;GE,<<< 7,>:7,<<< 1,G7:,<<< 6 >::,<<< #(#,<<< 7F?F8A?AAA

Total C*%%ent Assets )ong "erm !nvestments Broperty Blant and +'uipment Ioodwill !ntangible Assets Accumulated Amortization /ther Assets Aeferred )ong "erm Asset @harges Total Assets

L#a!#l#t#es @urrent )iabilities Accounts Bayable ;,7:7,<<< $hortH@urrent )ong "erm Aebt (;:,<<< /ther @urrent )iabilities 1,:#7,<<<

;,#<:,<<< 6 1,>77,<<<

>,#E1,<<< #E7,<<< 1,(1>,<<<

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Total C*%%ent L#a!#l#t#es )ong "erm Aebt /ther )iabilities Aeferred )ong "erm )iability @harges Cinority !nterest 1egative Ioodwill Total L#a!#l#t#es

B?IBI?AAA E,G>G,<<< E,<1E,<<< ##;,<<< 6 6 78?BBB?AAA

I?I;8?AAA 7,#<(,<<< 7,E:#,<<< ;7;,<<< 6 6 EI?8F:?AAA

J?BJA?AAA #,>><,<<< 7,;#7,<<< >#G,<<< 6 6 E:?:B8?AAA

Stoc5hol"e%sK E)*#t+ Cisc $toc s /ptions 0arrants 6 2edeemable Breferred $toc 8:E,<<<9 Breferred $toc 6 @ommon $toc (<,<<< 2etained +arnings (<,;(G,<<< "reasury $toc 817,1##,<<<9 @apital $urplus (>1,<<< /ther $toc holder +'uity 87,;:7,<<<9 Total Stoc5hol"e% E)*#t+ Net Tan4#!le Assets E7?7A8?AAA L;?7EF?AAA

6 6 71,<<< (<,<<< #G,1G7,<<< 81<,>1:,<<<9 7><,<<< 8:>#,<<<9 EI?78:?AAA LEA?A7E?AAA

8E:,<<<9 6 6 (<,<<< #7,G(E,<<< 8E,E>G,<<<9 >G7,<<< 8#,#7;,<<<9 E;?::I?AAA LF?AA:?AAA

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INCOME STATEMENT OF C9L9 ,UPTA ECPORT PERIOD ENDIN, Total Re$en*e @ost of 2evenue ,%oss P%o #t 7I-Dec-AB 7F-Dec-AI 8A-Dec-AJ E8?IFJ?AAA E8?;FE?AAA E7?I8A?AAA E,>G;,<<< E,(E<,<<< ;,G1<,<<< J?7EA?AAA /perating +%penses 2esearch Aevelopment $elling Ieneral and Administrative 1on 2ecurring /thers "otal /perating +%penses 6 >,17:,<<< 71#,<<< 6 6 6 >,1><,<<< 6 6 6 6 7,:<(,<<< 6 6 6 J?77E?AAA ;?F7A?AAA

O3e%at#n4 Inco.e o% Loss

J:F?AAA

E?AIE?AAA

E?AEI?AAA

!ncome from @ontinuing /perations "otal /ther !ncomeH+%penses 1et 8#>,<<<9 +arnings -efore !nterest And "a%es >;7,<<< !nterest +%pense #:<,<<< !ncome -efore "a% #E7,<<< !ncome "a% +%pense 11#,<<< Cinority !nterest 8;<,<<<9 1et !ncome From @ontinuing /ps 1;#,<<<

;,<<< :G(,<<< #E7,<<< E<:,<<< 1EE,<<< 8:7,<<<9 >(#,<<<

811,<<<9 :7E,<<< #;;,<<< ;G1,<<< 1>:,<<< 8>:,<<<9 >##,<<<

1on6recurring +vents Aiscontinued /perations +%traordinary !tems +ffect /f Accounting @hanges /ther !tems

6 6 6 6

6 6 6 6

6 6 6 6

Net Inco.e

EJ7?AAA

;87?AAA

;77?AAA

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Breferred $toc And /ther Adjustments Net Inco.e A33l#ca!le To Co..on Sha%es

6 LEJ7?AAA

6 L;87?AAA

6 L;77?AAA

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