Final

A
SUMMER PROJECT REPORT
OF
“DUKE PLASTO TECHNIQUE PVT LTD”
ON
“WORKING CAPITAL MANAGEMENT & RATIO ANALYSIS”
Submitted
In the partial fulfillment of Degree of
Master of Business Administration
(MBA Agri Bussiness)
Semester-II
By
Akhil Patel (16)
Under the Guidance of:
Mr.Yashpal Jadeja
(Centre for Managment Studies)
Mr.Pradip Barot
(Duke Plasto Technique Pvt Ltd)
Submitted To:
Centre for Managment Studies
Ganpat University,
Kherva.
May-July, 2010
Duke Plasto Technique Pvt. Ltd.
2
3
CERTIFICATE BY THE GUIDE
This is certify that the contents of this report entitled “WORKIN CAPITAL AND
RATIO ANALYSIS” by Patel Akhil Pramod Bhai Roll No:16 submited to Centre
for Managment Studies MBA(Agri Business) for the Award of Master of Business
Administration (MBA Sem-II) is original research work carrid out by him/her/them
under my supervision.
This report has been not submitted either partly or fully to any other University or
Institute for award of any degree or diploma.
Mr.Yashpal Jadeja
Centre for Managment Studies,
Ganpat University.
Kerava.
Date :
Place :
4
CERTIFICATE BY THE MENTOR
This is certify that the contents of this report entitled “WORKIN CAPITAL AND
RATIO ANALYSIS” by Patel Akhil Pramod Bhai Roll No:16 submited to Centre
for Managment Studies MBA(Agri Business) for the Award of Master of Business
Administration (MBA Sem-II) is original research work carrid out by him/her/them
under my supervision.
This report has been not submitted either partly or fully to any other University or
Institute for award of any degree or diploma.
Mr. Nareshbhai Parmar
Account Head,
Duke plasto Technique Pvt. Ltd.
Palanpur.
Date :
Place :
5
CANDIDATE’S STATEMENT
I/We hereby declare that the work incorporated in this report entitled “WORKING
CAPITAL MANAGEMENT AND RATIO ANALYSIS in partial fulfillment of the
requirements for the Award of Master of Business Administration (MBA Sem-II) is
the outcome of original study under taken by me/us and it has not been submitted
earlier to any other University or Institution for the award of any Degree or Diploma.
Patel Akhil Pramod Bhai
DATE :
6
PREFACE
MBA program is a professional course. It requires knowledge of not only theoretical

but also requires practical knowledge. As a student of MBA such training is most
helpful for increasing the skill, ability and also capability of the student. Today the
world has become more competitive so struggle is more for human being to get the
job. The theoretical as well as practical knowledge require. Hence the study of
management is very important.
Industrial training makes student enough aware in terms of how, where, when, and up
to some extent theoretical and practical knowledge can be used to solve problems in
practical life.
Industrial training plays an important role to develop the practical view point of
student also making them aware about practical problems, opportunities and difficult
situation of industrial units.
I am studying in MBA in which I required to prepare project report. It was wonderful

experience during the summer training and I came to know that there is big gap
between theoretical and practical knowledge that I learnt in practically.
I have prepared the report of Duke Plato Technique Pvt. Ltd., my belief, ideas,
understanding, and observation. I have tried to comprise all the important information
in presenting report.
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ACKNOWLEDGEMENT
I am student of Centre for Management Studies, Ganpat University, Kherva. I has

take Industrial Training in Duke Plato Technique Pvt. Ltd. at Badarpura nearby
Palanpur.
When a good things comes to end, memories are left behind, in this regard, I am
indebted to respected Chairman Prabhubhai Patel, Managing Director P.P.Patel,
Marketing Manager S.N.Patel, Finance Director D.K.Patel and Purchase Director
R.P.Patel for giving me this wonderful opportunity to do a project in an organization.
I am highly obliged to Duke Plasto Technique Pvt. Ltd., Badarpura, where I have
done my summer training. I am thankful to Mr. Pradip Barot (HR Manager) and
Nareshbhai Parmar (Accounts head) for giving me permission for doing summer
training.
I am thankful to our Head and Dean Dr. Mahendra Sharma sir and I am also thankful
to my project guide Mr. Yashpal Jadeja Sir for giving me proper guidance for
successful summer training and preparing report. I am also thankful to all those
persons whose guidance and ideas have been so helpful in preparing the project
report.
8
CONTENTS
TITLE PAGE………………………………………………………………………i
CERTIFICATE BY THE GUIDE............................................................................ii
CERTIFICATE BY THE MENTOR.......................................................................iii
CANDIDATE’S STATEMENT…………………………………………………...iv
PREFACE…………………………………………………………………………..v
ACKNOWLEDGMENT…………………………………………………………...vi
TABLE OF CONTENTS…………………………………………………………..vii
LIST OF TABLES………………………………………………………………….ix
LIST OF GRAPHS…………………………………………………………………xi
1. INTRODUCTION..…………………………………………….…………………1
1.1 History of Company…..…………………………………….…………………1
1.2 Vision………………………………………………………………………….2
1.3 Mission………………………………………………………………………...2
1.4 Values………………………………………………………………………….2
1.5 Company Profile……………………………………………………………….3
1.6 Location chart …………………………………………………………………5
1.7 Organization Structure …………………………………………………...…...6
1.8 Certification……………………………..........................................................8
2. WORKING CAPITAL MANAGMENT………...…………………………..…....9
2.1 Introduction..…………………………………………………………………..9
2.2 Meaning...………………………………………………………………………10
2.3 Goals of Working Capital Management………………………………………..11
2.4 Working Capital Cycle…………………………………………………………
12
2.5 Advantage Of Adequate Working Capital……………………………………..14
2.6 Disadvantages of Redundant or Excessive Working Capital....…………....…..15
3. RECEIVABLE MANAGEMENT……..………………………………….………17
3.1 Introduction……………………………………………….……………....……17
3.2 Characteristics of Receivable Management………………………….……..….17
3.3 Credit Policy Variables………………………………………….…….….....…18
3.4 Benefits of Receivables…………………………………………………..….…19
4. INVENTORY MANAGEMENT ………...……………………………….…..….….20
4.1 Introduction ……………………..………………………………….…....…….20
4.2 Types Of Inventories…………………………………………………...………20
4.3 Need To Hold Inventories…………………………………………...................21
9
4.4 Objective Of Inventory Management………………………………..………...21

4.5 Process Of Inventory Planning And Control…………………………..……...22
4.6 Inventory Control Technique……………………………….….……….……..23
5. RATIO ANALYSIS …………………..……………….………………......………24
5.1 Introduction to Ratio Analysis…………………………………………….…24
5.2 Liquidity Ratio…………………………………………………………… …26
5.3 Leverage Ratios………………………………………………………… …..36
5.4 Activity Ratios……………………………………………………....….……49
5.5 Profitability Ratios………………………………………………….….…….70
6. FINDINGS ………….………………………………………………… ….……77
7. RECOMMENDATION………………………………………………… .…….78
8. LIMITATIONS OF THE ANALYSIS…………………………………. ..….....79
.
APPENDICES…...………………………………………………………………...I
Profit & Loss Account………………………………...……………………….I
Balance Sheet…………………………………………………………...……...II
Bibliography…………………………………………………………………...III
10
LIST OF TABLES
Table 5-2.1 Current assets…….…………………………………………………...27
Table 5-2.2 Current liabilities………………………………..…………………….27
Table 5-2.3 Current Ratio ………………........……………………….……..........28
Table5-2.4 Quick assets …………………….………………….……….………...30
Table 5-2.5 Quick liabilities …………………………………….…………………31
Table 5-2.6 Quick Ratio …………………………………………………..……….31
Table 5-2.7 Total Liquid Assets……………………………………………………33
Table 5-2.8 Current Liabilities……………………………..……………...……….33
Table5-2.9 Cash ratio………………………………………………………………34
Table 5-3.1 total debts……………………………………………………………..37
Table 5-3.2 capital Employed……………………………………………………..38
Table 5-3.3 Debt Ratio……………………………………………………………38
Table 5-3.4 Long-Term Debt…………………………………………………..…40
Table5-3.5 Shareholders Fund……………………………………………………41
Table 5-3.6 Debt-Equity Ratio………………………………………………....…41
Table 5-3.7 Capital Employed……………………………………………………43
Table 5-3.8 Net Worth……………………………………………………………44
Table 5-3.9 Capital Employed to Net worth Ratio……………………………….44
Table 5-3.10 Total Liabilities……………………………………………………..46
Table 5-3.11 Total Assets……………………………………………………...…47
Table 5-3.12 Total Liabilities to Total Assets Ratio……………………………..47
Table 5-4.1 Cost of Goods Sold (COGS)………………………………………..50
Table 5-4.2 Average Inventory…………………………………………………..51
Table 5-4.3 Inventory Turnover Ratio…………………………………………...51
Table5-4.4 Credit Sales…………………………………………………………..53
Table5-4.5 Average Debtors…………………………………………………..…53
Table5-4.6 Debtors Turnover Ratio………………………………….…………..54
Table 5-4.7 Sales……………………………………………………………....…56
Table 5-4.8 Net Assets…………………………………………………………...56
Table5-4.9 Assets Turnover Ratio…………………………………………….....57
Table 5-4.10 Total Assets Turnover Ratio………………………………………59
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Table 5-4.11 Total Assets (T.A.)……………………………………………..…59

Table5-4.12 Total Assets Turnover Ratio……………………………………....60
Table 5-4.13 Sales……………………………………………………………....62
Table 5-4.14 Net Fixed Assets………………………………………………….62
Table 5-4.15 Fixed Assets Turnover Ratio…………………………….……….63
Table 5-4.16 Current Assets Turnover………………………………………….65
Table 5-4.17 Net sales………………………………………………………..…67
Table 5-4.18 Working capital…………………………………………………..68
Table 5-4.19 Working Capital Turnover Ratio………………………………...68
Table 5-5.1 Gross Profit Ratio…………………………………………..……..71
Table 5-5.2 Net Profit Ratio…………………………………………………....73
Table 5-5.3 Return on Investment Ratio…………………………………….…75
LIST 0F FIGURES & GRAPHS
Chart 5-2.1 Current Ratio ………………………………………………….…..28
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Chart 5-2.2 Quick Ratio……………………………………………………..…32

Chart 5-2.3 Cash Ratio……….………………………………………………..34
Chart 5-3.1 Debt Ratio…………………………………………….…………..39
Chart 5-3.2 Debt Equity Ratio ……………………………………………......42
Chart 5-3.3 CE to NW Ratio………………………………………………….45
Chart 5-3.4 TL to TA Ratio……………………………..……………………48
Chart 5-4.1 Inventory Turnover Ratio………………………………………..52
Chart 5-4.2 Debtor Turnover Ratio………………………….……….............54
Chart 5-4.3 Assets Turnover Ratio…………………………………………...57
Chart 5-4.4 Total Assets Turnover Ratio…………………………………….60
Chart 5-4.5 Fixed Assets Turnover Ratio……………………………………63
Chart 5-4.6 Current Assets Turnover Ratio…………………………….……66
Chart 5-4.7 Working Capital Turnover Ratio………………………....…….69
Chart 5-5.1 Gross Profit Ratio……………………………………………....72
Chart 5-5.2 Net Profit Ratio…….…………………………………………..73
Chart 5-5.3 Return on Investment Ratio…………………………………...76
1. INTRODUCTION
1.1HISTORY
13
Duke is promoted and managed by Shri Prabhubhai Patel, Shri

S.N.Patel, Shri D.K.Patel, and Shri R.P.Patel. All the founders of Duke
are quality conscious. Technology serving the nation since 1989 by
providing quality pumping solution to pump industry.
India’s 2/3 population about 66% is mainly dependent on rain water.

Now rapid changing of modernization is experienced in ruler villages
are now days becoming changing its ground water.
It start up for catering in form of small submersible pumps repairing

workshop. Today’s company has sound financial position powerful
management skill and motivated staff. It is having production of
producing pumps sets per day company is square over 41000 sq.
Feet there strong building in 225000 sq. Feet land area.
Duke Plasto Technique Pvt. Ltd. synonymous for manufacturing

quality consistent and reliable products and as its name Duke itself
speaks king in pumping solution industries and winners of
national quality award in 2007 from government of India.
1.2VISION
14
To be eminent global brand providing complete, innovative,

invincible quality pumping paraphernalia under one roof.
1.3MISSION
We are committed to manufacture products complying with the best

quality standards of the world.
We strive to create an environment that nurtures youth and

nourishes the experienced.
On the bedrock of ethics, Duke is instituted by amalgamating the

best practices and technologies of the world.
1.4VALUES
The values that guide us are trust, ethics, integrity, discipline and
performance.
1.5 COMPANY PROFILE
15
Name of Company :
➢ Duke Plasto Technique Pvt. Ltd.
Location :
➢ Corporate Office :
401, 4th floor, Ankit Building,
Near Shilp, C.G.Road,
Navarangpura, Ahmedabad-09
Phone : +91 -79 -26405782
Fax : +91 – 79 – 26403428
➢ Works :
N.H.14, Deesa Highway,
Opp. Hotel Green Wood,
Badarpura, Palanpur – 385510
(N.Gujarat, India.)
Size of the Unit :
➢ Medium Scale Industry
Form of Organization :
➢ Partnership Firm
Name of the Product :
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1. Submersible Pumps
2. Motors
3. Monoblock Pumps
4. Centrifugal Pumps
5. Pressure Booster Pumps
Existing Management Body :
Designation
Name
➢ Managing Director Mr. P.P.Patel
➢ Executive Director Mr. S.N.Patel
➢ Executive Director Mr. D.K.Patel
➢ Executive Director Mr. R.P.Patel
➢ Bankers Bank of Baroda
➢ HR Manager Mr. P.M. Dalwadi
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1.6 Location chart
The Duke Plasto Technique is located on Deesa palanpur Highway and beside of
paper mills , these companies development good and fastly. They developed good
after omitting their partnership in Aroma Group. In the company ,there are two plant,
PVC pipes and Submersible Motors. Company Located in 225000 Sqt. big offices,
canteen, plant, godown etc..are having in this area.
1.7 ORGANIZATION STRUCTURE
18
Managing Director
S.N D.K L.P Patel R.P

Patel Patel Patel
(Producti
(Market (Financ on (Purcha
ingDire e se
Manager Manager HR
Finance Department
Department
Nareshbhai Cantee Securit Supervis

Parmar n y or
Accounts Head
Ex. Ex. Ex. Ex.

Accountants Accountants Accountants Accountants
Cash & Bank Sales Purchase Other Works
SUB. PVC Pips SUB. PVC Pips

Motors Marketing Motors Productio
Marketing Manager Productio n
Manager n Manager
Supervis Supervis Supervis Supervis
or or or or
Workers Workers Workers Workers
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Here , this graph represent the structure of the Company. Company have main
three department such as Production department of P.V.C. pipes and Submersible
motors, Finance department, Purchase department, Marketing Department and last
H.R. department. All the Department is controlled by Managing Director. All the
Department have their head such as marketing director, Purchase director, finance
director and Production director, but H.R. department handling H.R. manager. All
the department have their manager under controlling by their Directors. All
Department have their supervisor, they watching on workers and give direction,
but H.R. department have manager, assistant manager and computer operators.
This Department only hire employee and watch on their quarry.
1.8 CERTIFICATION
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Recognized by the Best Certification
1. Duke Plato Technique Pvt. Ltd. has received ISI certification for IS 4985 in
the year 1999.
2. Received ISI certification for ISI 12818, and ISO 9001:2000 from ABS in the
year 2000.
3. Approval from GWSSB, Gujarat in the year 2001.
4. Approval from UP Jal Nigam in the year 2002.
5. Approval from PHED, Rajasthan in the year 2003.
6. Supplied to UNISEF & WHO, South Africa in the year 2004.
7. Approval from Karnataka water Supply Board in the year 2005.
8. Received National Quality Award for Quality Product in 2006.
9. ISO 9001:2000 certification from TUV:SUD South Asia for quality

Management System in 2008.
10. CE certification from TUV:SUD for Outsource/Export to European Countries.
11. NSIC-CRISIL rating of “CRISIL SE28” for high Performance Capability

certification in year 2008.
12. Received ISI certification for IS 8034 in the year 2008.
13.Applied for BEE Star rating in the year 2008.
21
2. WORKING CAPITAL MANAGEMENT
2.1 Introduction
Working Capital management is a significant fact of financial management due to the

fact that it plays a pivotal role in keeping the wheels of a business enterprise running.
Working Capital management is concern with short term financial decisions have
been relatively neglected in the literature of finance. Shortage of funds for working
capital has caused many businesses to fail and in many cases, has recorded their
growth, Lack of efficient and effective utilization of working capital leads to earn low
rate of return on capital employed or even compels to sustain losses.
Working Capital to a company is like the blood of human body. It is the most vital
ingredient of a business. Working Capital management if carried out effectively,
efficiently and consistently, will assure the health of the organization.
An Executive function of Finance for taking Liquidity decisions. Signifies money

required for day-to-day operations of an organization. Business cannot run without
adequate working capital (WC). Requirements of WC may differ from organization to
organization.
2.2 Meaning
22
Working Capital management is the administration of the firm’s current assets and the
financing needed to support the current assets.
Current assets are those assets, which will be converted into cash within the current
accounting period or within the next year as a result of the ordinary operation of the
business. They are cash or nearly converted cash resources. These include Cash and
Bank Balances, Receivables, Inventory, Prepaid expenses, Short Term advances,
Temporary Investments. The value represented by these assets circulates among
several items. Cash is used to buy raw materials, to pay wages and to meet other
manufacturing expenses. Finished goods are produced further held as inventories and
when inventories are sold account receivables are created. Then the collection of
account receivables brings cash into the firm and the cycle starts again.
Cash
Inventories
Receivables
Circulation of Current
Assets
Current Liabilities are the debts of the firm that have to be paid during the current
accounting period or within a year. This includes creditors for goods purchased,
outstanding expenses, short term borrowing, advances received against sales, taxes
and dividends payable and other liabilities maturing within a year. Working Capital is
also known as circulation capital, fluctuating capital and revolving capital.
2.3 Goals of Working Capital Management
23
➢ Manage Firm’s Current Assets And Current Liabilities:

Main goal of WCM is to provide cash whenever there arise any liability. It is not easy
to convert fixed assets into cash quickly so current assets are used for WCM. If the
firm maintains very high level of current assets then it will not able to invest in fixed
asset, this will tend to high level of block up of cash in current assets and firm will not
be able to increase its wealth, this in turn can create problems at the time of
liquidation. If the firm will maintain low level of current assets then it will not able to
meet its current obligations. So to manage current asset according to the current
liabilities is very essential for any company.
➢ Maintain Level Of Working Capital:

Working Capital is important for any firm whether big or small. Working Capital
helps to maintain liquidity in the firm. Not only liquidity but also to pay day-to-day
expenses. If firm does not maintain a specific level of working capital, then it can
create problems for the firm. Sometimes due to lack of working capital even firm can
face solvency or bankruptcy.
➢ Trade Off Between Liquidity And Profitability:

One of the objectives of working capital management is balancing the “liquidity” and
“profitability” criteria while taking into consideration the attitude of management
towards risk.
2.4 Working Capital Cycle
24
Cash
Collection of Purchase of
Receivable Raw Material
Accounts Raw material
Receivable Inventory
Sales Issue of material

Finished Work in process
production
Goods
And incurring
expenses
Cash flows in a cycle into, around and out of a business. It is the business’s lifeblood
and every manager’s primary task to help keep it flowing and to use the cash flow to
generate profits. If a business is operating profitably, then it should, in theory,
generate cash surpluses. If it doesn’t generate surpluses, the business will eventually
run out of cash and expire. The faster a business expands the more cash it will need
for working capital and investment. The cheapest and best sources of cash exist as
working capital right within business. Good management of working capital will
generate cash, will help improve profits and reduce risks. Bear in mind that the cost of
providing credit to customers and holding stocks can represent a substantial
proportion of a firm’s total profits.
25
There are two elements in the business cycle that absorb cash-Inventory (stocks and
work-in-progress) and Receivables (debtors owing company’s money). The main
sources of cash are Payables (company’s creditors) and Equity and Loans.
Each component of working capital (namely inventory, receivables and payables) has
two dimensions TIME and MONEY. When it comes to managing working capital –
“TIME IS MONEY”. If company can get money to move faster around the cycle (e.g.
collect payments from debtors more quickly) or reduce the amount of money tied up
(e.g. reduce inventory levels relative to sales), the business will generate more cash or
it will need to borrow less money to fund working capital. As a consequence,
company could reduce the cost of bank interest or company will have additional free
money available to support additional sales growth or investment. Similarly, if
company can negotiate improved terms with suppliers e.g. get longer credit or an
increased credit limit, company effectively create free finance to help fund future
sales.
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2.5 Advantage Of Adequate Working Capital
• Solvency of the Business: Adequate working capital helps in maintaining the

solvency of the business by providing uninterrupted of production.
• Goodwill: Sufficient amount of working capital enables a firm to make

prompt payments and makes and maintain the goodwill.
• Easy loan: Adequate working capital leads to high solvency and credit
standing can arrange loans from banks and other on easy and favourable
terms.
• Cash Discount: Adequate working capital also enables a concern to avail cash
discounts on purchases and hence cost.
• Regular Supply of Raw Material: Sufficient working capital ensures regular

supply of raw material and continuous production.
• Regular payment of Salaries, wages and other day to day Commitments:

It leads to the satisfaction of the employees and raises the moral of its
employees, increases their efficiency, reduces wastage and costs and enhances
production and profits
• Exploitation of Favourable Market Conditions: If a firm is having adequate

working capital then it can exploit the favourable market condition such as
purchasing its requirements in bulk when the prices are lower and holding its
inventories for higher prices.
• Ability to Face Crises: A concern can face the situation during the
depression.
27
• Quick and Regular Return on Investments: Sufficient working capital

enables a concern to pay quick and regular of dividends to its investors and
gains confidence of the investors and can raise more funds in future.
• High Moral: Adequate working capital brings an environment of securities,

confidence, high morale which results in overall efficiency in a business.
2.6 Disadvantages of Redundant or Excessive Working

Capital
28
• Excessive working capital means ideal funds which earn no profit for the firm
and business cannot earn the required rate of return on its investments.
• Redundant working capital leads to unnecessary purchasing and accumulation

of inventories.
• Excessive working capital implies excessive debtors and defective credit

policy which causes higher incidence of bad debts.
• It may reduce the overall efficiency of the business.
• If a firm is having excessive working capital then the relation with banks and
other financial institution may not be maintained.
• Due to lower rate of return in investment, the values of shares may also fall.
• The redundant working capital gives rise to speculative transactions.
29
3. RECEIVABLE MANAGEMENT
3.1 Introduction
Accounts receivable are simply extensions of credit to the firm’s customers, allowing
them a reasonable period of time in which to pay for the goods. Most firms treat
account receivable as a marketing tool to promote sales and profit. The financial
officer must analyze how much the firm should invest in account receivable, for there
is always a temptation to extend too much credit in an effort to boost sales beyond the
point where the return on investment in account receivable is no longer as attractive as
the return on other investment opportunities. It is the financial officer’s responsibility
to guard against over investment in account receivable.
3.2 Characteristics of Receivable Management
1. Element Of Risk:
This should be carefully analyzed because cash sales are totally risk less but not
the credit sales as the cash payment is yet to be received.
2. Economic Value:
To, the buyer, the economic value in goods or services passes immediately at the
time of sale, while the seller expects an equivalent value to be received later on.
3. Futurity:
The buyer will make the cash payment for goods or services received by him in a
future period
30
3.3 Credit Policy Variables
• Credit Standards And Analysis:

Credit standards are the criteria which a firm follows in selecting customers for the
purpose of credit extension. The firm may have tight credit standards that are; it may
sell mostly on cash basis, and may extend credit only to the most reliable and
financially strong customers.
Credit Analysis influences the quality of the firm’s customers. There are two aspects
of the quality of customers: 1) the time taken by customers to repay credit obligation
and 2) the default rate.
• Credit Terms:
The stipulation under which the firm sells on credit to customers is called credit
terms. This stipulation includes (1) the credit period, and (2) the cash discount.
1. Credit Period: The length of time for which credit is extended to customers
is called credit period.
2. Cash Discount: A cash discount is a reduction in payment offered to
customers to induce them to repay credit obligations within a specified
period of time, which will be less than the normal credit period. Cash
discount terms indicate the rate of discount and the period for which it is
available.
• Collection Policy:
A collection policy is needed because all customers do not pay the firm’s bills in time.
Some customers efforts should, therefore, aim at accelerating collections from slow-
payers and reducing bad debt losses. A collection policy should ensure prompt and
regular collection. Prompt collection is needed for fast turnover of working capital,
keeping collection costs and bad-debts within limits and maintaining collection
efficiency
3.4 Benefits of Receivables
31
➢ Increase in Sales: Except a few monopolistic firms, most of the firms are
required to sell goods on credit, either because of trade customers or other
conditions. The sales can further be increased by liberalizing the credit terms. This
will attract more customers to the firm resulting in higher sales and growth of the
firm.
➢ Increase in Profits: Increase in sales will help the firm (I) to easily recover the
fixed expenses and attaining the break-even level and (ii) increase the operating
profit of the firm. In a normal situation, there is a positive relation between the
sales volume and the profit.
➢ Extra Profit: Sometimes, the firms make the credit sales at a price which is
higher than the usual cash selling price. This brings an opportunity to the firm to
make extra profit over and above the normal profit.
32
4. INVENTORY MANAGEMENT
4.1Introduction:
Inventories constitute the most significant part of current assets of a large majority of companies
in India. On an average, inventories are approximately 60% of current assets in public limited
companies in India. Because of the large size of inventories maintained by firms, a considerable
amount of funds is required to be committed to them. It, is therefore, absolutely imperative to
manage inventories effectively and efficiently in order to avoid unnecessary investment.
4.2Types Of Inventories
Inventories are the stock of the product a company is manufacturing for sale and components
that make up the product. The various forms in which inventories exist in a manufacturing
company are:
➢ Raw Materials: Raw materials are those basic inputs that are converted into finished product
through the manufacturing process. Raw material inventories are those units which have been
purchased and stored for future productions.
➢ Work-in-process: They are semi-manufactured products. They represent products that need
more work before they become finished product for sale.
➢ Finished Goods: Finished goods are completely manufactured products which are ready for
sale. Stocks of raw materials and work in process facilitate production, while stock of
finished goods is required for smooth marketing operations. Thus, inventory serves as a link
between the production and consumption of goods.
4.1Need To Hold Inventories
33
There are three general motives for holding inventories:
➢ Transaction Motive emphasis the need to maintain inventories to facilitate smooth

production and sales operations.
➢ Precautionary Motive necessitates holding of inventories to guard against the risk of
unpredictable changes in demand and supply forces and other factors.
➢ Speculative Motive influences the decision to increase or reduce inventory levels to take
advantage of price fluctuations.
4.4 Objective of Inventory Management
➢ To maintain a large size of inventories of raw material and work-in-

process for efficient and smooth production and of finished goods for
uninterrupted sales operations.
➢ To maintain a minimum investment in inventories to maximize
profitability.
➢ To ensure a continuous supply of raw materials to facilitate uninterrupted
production.
➢ To maintain sufficient stocks of raw materials in periods of short supply
and anticipate price changes.
➢ To maintain sufficient finished goods inventory for smooth sales
operation, and efficient customer service.
34
4.5 Process of Inventory Planning and Control
PPMC DEPARTMENT
PURCHASE DEPARTMENT
FACTORY PREMISES (WARE HOUSE)
TESTING
BATCH PRODUCTION
QUALITY ASSURANCE
QUALITY CONTROL
BOND ROOM
35
4.6 Inventory Control Technique
One of the major difficulty is operation is the large number of items stocked. It is not possible to
pay proper attention to all items at a time. Otherwise, it will prove counter-productive. Hence,
inventory control is to be exercised selectively. Depending upon the value, critically and usage
frequency of items, we may have to decide on an appropriate type of inventory control
technique. On the basis of these factors, inventory management may use the following selective
inventory control techniques.
I. ABC Analysis (Always Better Control)

II. HML Analysis (High, Medium and Low)
III. VED Analysis (Vital, Essential and Desirable)
IV. SDE Analysis (Scare, Difficult and Easy to obtain)
V. FSN Analysis (Fast, Slow and Non-moving)
VI. EOQ (Economic order quantity)
VII. Maximum-minimum limits
VIII. Material Requirement Planning (MRP)
IX. Just in time (JIT)
36
5. RATIO ANALYSIS
5.1 Introduction to Ratio Analysis
Financial ratio analysis is the calculation and comparison of ratios which are derived from the
information in a company’s financial statements. The level and historical trends of these ratios
can be used to make inferences about a company’s financial condition, its operations and
attractiveness as an investment.
The financial statements as prepared and presented annually are of little use for the guidance of
prospective investors, creditors and even management. If relationships between various related
items in these financial statements are established, they can provide useful clues to gauge
accurately the financial health and ability of business to make profit. This relationship between
two related items of financial statements is known as ratio. A ratio is thus, one number expressed
in terms of another. A ratio is expressed either as a proportion between two figures or in form of
percentage or as rates.
It is very interesting to know that the use of ratios has become popular during the last few years
only. Originally the bankers used the Current Ratio to judge the capacity of the borrowing
business enterprises to repay the loan and make regular interest payments. But today, it has
assumed such an importance that anybody connected with business turns to ratio for measuring
the financial strength and earning capacity of the business. A supplier of funds in the form of
share capital would like to analyze the accounts to ascertain its earning capacity and future
prospects. A banker or other creditor will measure the repaying capacity and financial strength
on the basis of financial ratios.
37
Only calculating ratio is of no use unless it is interpreted so as to be useful to management in

making policy decisions. Interpretation of ratios can be done either by comparing it with the
ideal/past ratios or by taking help of some related ratios or by comparing with the ratios of other
firms.
In short, business results and situations can understood properly only through ratios. Thus ratio
analysis is an important technique of financial analysis as it is a means of judging the financial
health of the company.
Thus, the integrated relationship of various functional ratios can be presented as

under:
✔ Liquidity Ratios
✔ Capital Structure\Leverage Ratios
✔ Activity Ratios
✔ Profitability Ratios
38
5.2 Liquidity Ratios
Liquidity ratios measure the ability of the firm to meet its current obligations. A firm should
ensure that it does not suffer from lack of liquidity, and also that it does not have excess
liquidity. The failure of a company to meet its obligations due to lack of lack of sufficient
liquidity, will result in poor creditworthiness, loss of creditors’ confidence, or even in legal
tangles resulting in the closure of the company. A very high degree of liquidity is also bad; idle
assets earn nothing. Therefore, it is necessary to strike a proper balance between high liquidity
and lack of liquidity.
5-2.1 Current Ratio:
Meaning & Objective:
Current ratio is also known as ‘Working Capital Ratio’ as it is a measure of working capital
available at a particular time. Current Ratio establishes relationship between current assets and
current liabilities. Current Ratio of the firm measures its short-term solvency, which indicates the
rupees of current assets available for each rupee of current liability. The current ratio represents a
margin of safety for creditors. It is generally believed that 2:1 ratio shows a comfortable working
capital position.
Formula:
39
Current Ratio=Current Assets/Current Liabilities
Current assets:
(Rs.)
2008- 2007- 2006- 2005- 2004-

Particulars
2009 08 07 06 05
1171219 9138695 173211 152989 133552

Inventories 97 6 24 39 65
1033514 9001045 389012 261367 243946

Debtors 81 4 80 34 03
2025951 640675 241336

Cash / bank balance 2249399 654352
5 5
1228692 1267065 363773 222751 349569

Loans / Adv. 5 1 4 2 8
2347866 196317 66266 460765 418999

Total Current Assets
354 460 893 50 18
Table 5-2.1 Current assets
Current liabilities:
(Rs.)
2007-2008 2004-
Particulars 2008-09 2006-07 2005-06
05
40
Liabilities & 9432538 1581249 193282

99489259 22984930
Provisions 8 5 89
Table 5-2.2 current liabilities
Current Ratio:
(Rs.)
2007-08 2005- 2004-

Particular 2008-09 2006-07
06 05
2347863 1963174 6626689 460765 418999

Current Assets
54 60 3 50 18
9432538 9948925 2298493 158124 193282

Current Liabilities
8 9 0 95 89
Ratio(Times) 2.48 1.97 2.88 2.91 2.17
Table 5-2.3 Current Ratio
Chart 5-2.1 Current Ratio
Analysis:
Here we can see that the current ratio is above 2:1. As per the current ratio, value of ratio should
be 2:1 which is standard ratio. Compared to previous year there is increase in current assets in
41
year 2009 . The current ratio of company is more than the ideal ratio. It means that company’s
liquidity position is sound. Its current assets are more than its current liabilities.
Recommendation: Company’s condition is good and there is need to

decrease the liability by using reserve and surplus if the functions are not
affected.
5-2.2 Quick Ratio:
42
Quick ratio establishes a relationship between quick assets and quick liabilities. This ratio used
to check whether the company has adequate cash or cash equivalent to meet its current obligation
without having to liquidate non-cash assets. From the current assets categories, inventory being
least liquid and it normally requires some time for realizing in to cash therefore it is excluded
while calculating quick ratio.
Formula:
Quick Ratio = Quick assets/ Total Quick Liabilities
Quick assets (Rs.)
2006- 2005- 2004-

2008-09 2007-08
Particulars 07 06 05
23478635 19631746 6626689 4607655 4189991

Total Current Assets
4 0 3 0 8
11712199 1732112 1529893 1335526

Inventories 91386956
7 4 9 5
11766435 10493050 4894576 3077761 2854465

Quick Assets
7 4 9 1 3
Table 5-2.4 Quick assets
43
Quick liabilities:
(Rs.)
2008- 2007- 2006- 2005- 2004-

Particulars
09 08 07 06 05
Total Quick 943253 994892 229849 158124 193282

Liabilities 88 59 30 95 89
Table 5-2.5 Quick liabilities
Quick Ratio:
(Rs.)
2008- 2007- 2006- 2005- 2004-

Particulars
2009 08 07 06 05
117664 104930 48945 30777 28544

Quick assets
357 504 769 611 653
Quick 943253 994892 22984 15812 19328
liabilities 88 59 930 495 289
Ratio(Times) 1.2 1.05 2.13 1.95 1.48
Table 5-2.6 Quick Ratio
44
Chart 5-2.2 Quick Ratio
Analysis:
Standard quick ratio is 1:1 & is considered to represent a satisfactory current

financial condition. The decrease in the quick ratio shows the weak liquidity
strength of the company. From the graph, we came to know that in the quick
ratio is less than 1 it means that our firm is not capable to pay all its current
liabilities. Here company’s condition is quiet good as its quick ratio is above
1:1.
Recommendation: company’s condition is quiet good and there is need to

decrease the liability by using reserve and surplus if the functions are not
affected.
5-2.3 Cash Ratio:
Cash Ratio establishes a relationship between liquid assets and current

liabilities. Cash is the most stringent measure of liquidity. It generally
measures the liquidity of the firm. A high ratio shows the high liquidity of the
45
firm. In other words we can also say that how much cash a company holds in
hand to pay its liabilities.
Formula: Cash + Marketable Securities/Current Liabilities
Total Liquid Assets:
(Rs.)
2008- 2007- 2006- 2005- 2004-

Particulars
09 08 07 06 05
202595 224939 640675 241336

Cash & Bank Bal. 654352
1 9 5 5
Table 5-2.7 Total Liquid Assets
Current Liabilities:
(Rs.)
Particular 2008-09 2004-

2007-08 2006-07 2005-06
s 05
9432538 9948925 2298493 1581249 193282

Provisions
8 9 0 5 89
Table 5-2.8 current Liabilities
Cash Ratio:
(Rs.)
2008- 2007- 2004-

Particulars 2006-07 2005-06
09 08 05
Cash & Bank 202595 224939 6406755 2413365 654352
46
Bal. 1 9
943253 994892 2298493 1581249 193282

Total C.L.
88 59 0 5 89
Ratio(Times) 0.021 0.023 0.279 0.153 0.034
Table5-2.9 cash ratio
Chart 5-2.3 cash ratio
Analysis:
From the data we can see cash ratio for the years 2004-05, 2005-06, 2006-07, 2007-08,2008-09
are 0.034, 0.153, 0.279, 0.023, 0.021 From the graph we can interpret that in 2006-07 cash ratio
is highest and in 2008-09 cash ratio is lowest. In 2006-07 cash ratio is highest because the
portion of cash is good.
Recommendation: Company should compare the growth rate and inventory rate. The inventory
is more than required for appropriate growth for the company.
47
5.3 Leverage Ratios
To judge the long-term financial position of the firm, financial leverage, or capital structure,
ratios are calculated. The ratios indicate mix of debt and owner’s equity in financing the firm’s
assets. The leverage ratios may be defined as financial ratios that throw light on the long-term
solvency of a firm as reflected in its ability to assure the long-term creditors with regard to
 Periodic payment of interest during the period of the loan.

 Repayment of principal on maturity or in predetermined installments at due dates.
Accordingly, there are two different, but mutually dependent and interrelated, types of leverage
ratios.
48
 Ratios that are based on the relationship between borrowed funds and owner’s capital. These
ratios are computed from balance sheet.
 Capital structure ratios, popularly called coverage ratios, are calculated from the profit and
loss account.
5-3.1 Debt Ratio:
Debt Ratio may be used to analyze the long-term solvency of a firm. The firm may be interested
in knowing the proportion of the interest-bearing debt (also called funded debt) in the capital
structure.
Formula: Total debt/Capital Employed
Capital employed = Share Holders’ Funds + Total Debt
Total Debts:
(Rs.)
49
2008-09 2006- 2004-

07 05
Secured 1279234 8240681 326734 2256475 185539

Loans 43 9 10 4 80
Unsecured 4806319 3996620 169865 1514317 101440

Loans 7 3 57 9 58
175986 122373 496599 377079 28698

Total Debts
640 022 67 33 038
Table 5-3.1 total debts
Capital Employed:
(Rs.)
2008- 2006- 2005- 2004-

Particulars 2007-08
09 07 06 05
Share Holders’ 310000 3247558 147313 128621 117432

funds 00 4 06 10 28
175986 1223730 496599 377079 286980

Total Debts
640 22 67 33 38
Capital 206986 154848 64391 50570 40441

Employed 640 606 273 043 266
Table 5-3.2 capital Employed
Debt Ratio:
50
(Rs.)
Particular 2008- 2007- 2004-

2006-07 2005-06
s 09 08 05
175986 122373 4965996 3770793 286980

TD
640 022 7 3 38
206986 154848 6439127 5057004 404412

CE
640 606 3 3 66
Ratio(Tim 0.850
0.790 0.771 0.746 0.710
es)
Table 5-3.3 Debt Ratio
Chart 5-3.1 Debt Ratio
Analysis:
The ratio is continuously increasing from 2005-06 to 2008-09 because

increase in CE more then total debt. The ratio is increasing from 0.746 to
0.850.
51
Recommendation: The forgone income of the company’s own assets

should be considered and than company should decide the level of debts. If
company can earn more than paid to debtor, than in that condition company
should go for higher debt ratio. Liquidity should be also considered in this
matter.
5-3.2 Debt-Equity Ratio:
The ratio establishes a relationship between long term debts and shareholders’ funds. It reflects
the relative claims of creditors and shareholders against the assets of the firm and in other terms
it indicates the relative proportion of debt and equity in financing the assets of the firm.
Formula: Long term Debt/Shareholders’ funds
Long-Term Debt:
(Rs.)
2008- 2007- 2004-

09 08 05
Secured 1279234 8240681 3267341 2256475 185539

Loans 43 9 0 4 80
52
Unsecured 4806319 3996620 1698655 1514317 101440

Loans 7 3 7 9 58
175986 122373 496599 377079 28698

Total
640 022 67 33 038
Table 5-3.4 Long-Term Debt
Shareholders Fund:
(Rs.)
Particular 2008- 2007- 2004-

2006-07 2005-06
s 09 08 05
Share 300000 314755 1373130 1186211 107432

Capital 0 84 6 0 28
Reserves
100000 100000 100000
and 1000000 1000000
0 0 0
Surplus
310000 324755 1473130 1286211 117432

Total
00 84 6 0 28
Table5-3.5 Shareholders Fund
Debt-Equity Ratio:
(Rs.)
Particulars 2008- 2007- 2006- 2005- 2004-
53
09 08 07 06 05
Total Long- 175986 122373 496599 377079 286980

term Debt 640 022 67 33 38
Total Share 310000 324755 147313 128621 117432

holders Fund 00 84 06 10 28
Ratio(Times) 5.68 3.77 3.37 2.93 2.44
Table 5-3.6 Debt-Equity Ratio
Chart5-3.2 Debt-Equity Ratio
Analysis:
This ratio shows the ratio of borrowed to owned funds of the company. From
the above chart it can be seen that over the five years the ratio has increase
from 3.13 to 5.68. This indicates that the amount of debt is increasing as compared to the
owner’s equity in the company.
Recommendation: The ratio should not be more than 1 due to decrease

the burden level. Company should try to decrease the level of debts as it can
affect the share prices as well as the wealth of share holders. Company
should try to keep the ratio around 1.
54
5-3.3 Capital Employed to Net worth Ratio:
There is yet another alternative way of expressing the basic relationship between debt and equity.
One may want to know: How much funds are being contributed together by lenders and owners
for each rupee of the owners’ contribution?
Formula: Capital Employed (C.E.)/Net worth (N.W.)
Capital Employed:
(Rs.)
2008- 2007- 2006- 2005- 2004-

Particulars
09 08 07 06 05
Share Holders’ 310000 324755 147313 128621 117432

funds 00 84 06 10 28
175986 122373 496599 377079 286980

Total Debts
640 022 67 33 38
206986 154848 64391 50570 40441

C.E.
640 606 273 043 266
Table 5-3.7 Capital Employed
55
Net Worth:
(Rs.)
2008- 2007- 2005- 2004-

Particulars 2006-07
09 08 06 05
300000 314755 1373130 1186211 107432

Share Capital
00 84 6 0 28
Reserves and 100000 100000 100000

1000000 1000000
Surplus 0 0 0
310000 324755 1473130 1286211 117432

Total
00 84 6 0 28
Table 5-3.8 Net Worth
Capital Employed to Net worth Ratio:
(Rs.)
Part 2004-
2008-09 2007-08 2006-07 2005-06
iculars 05
2069866 1548486 6439127 5057004 404412

C.E.
40 06 3 3 66
56
3100000 3247558 1473130 1286211 117432

NW
0 4 6 0 28
Ratio(Times
6.68 4.77 4.37 3.93 3.44
)
Table 5-3.9 Capital Employed to Net worth Ratio
Chart 5-3.3 Capital Employed to Net worth Ratio
Analysis:
From the above graph, we can say that in the company, total external contribution is increasing
year by year. The ratio increases after the year by year from 3.44 to 6.68 due to increase in C.E.
Recommendation: The ratio less than 1 is good for the company. So company should try to
decrease the liability. Company should use reserves and surplus rather than expanding liability. It
will reduce the ratio.
57
5-3.4 Total Liabilities to Total Assets Ratio:
Current liabilities are generally excluded from the computation of leverage ratios. One may like
to include them on the ground that they are important determinants of the firm’s financial risk
since they represent obligations and expert pressure on the firm and restrict its activities.
Formula: Total liabilities (TL)/ Total Assets (TA)
Total Liabilities:
(Rs.)
2008- 2007- 2004-

Particular 2006-07 2005-06
09 08 05
Current 943253 994892 2298493 1581249 193282

Liabilities 88 59 0 5 89
Secured 127923 824068 3267341 2256475 185539

Loans 443 19 0 4 80
Unsecured 480631 399662 1698655 1514317 101440

Loans 97 03 7 9 58
270312 221862 7264489 5352042 48026

Total
028 281 7 8 327
Table 5-3.10 Total Liabilities
58
Total Assets:
(Rs.)
2008- 2007- 2005- 2004-

Particular 2006-07
09 08 06 05
709914 535771 2110931 203059 178696

Fixed Assets
82 99 0 88 36
234786 196317 6626689 460765 418999

Current Assets
354 460 3 50 18
305777 249894 873762 66382 59769

Total
836 659 03 538 554
Table 5-3.11 Total Assets
Total Liabilities to Total Assets Ratio:
(Rs.)
2008-09 2006- 2004-

Particular 2007-08 2005-06
07 05
2703120 2218622 7264489 5352042 480263

TL
28 81 7 8 27
3057778 2498946 8737620 6638253 597695

TA
36 59 3 8 54
Ratio(Times
0.884 0.887 0.831 0.806 0.804
)
Table 5-3.12 Total Liabilities to Total Assets Ratio
59
Chart 5-3.4 Total Liabilities to Total Assets Ratio
Analysis:
The ratio is continuously increasing from 2004-05 to 2007-08, it was declining in the year 2008-
09. The ratio decreases in year 2008-09 because of the total liabilities decreases compare to total
assets. It is positive and good for the firm.
Recommendation: Company should try to reduce the ratio by increasing the current assets
portion, which will further help to the company to expand their business. Company should also
see whether the liquidity is affected or not.
5.4 Activity Ratios
Activity ratios are concerned with measuring the efficiency in asset management. Funds of
creditors and owners are invested in various assets to generate sales and profits. If the
management of assets is better, the amount of sales is large. Activity ratios are employed to
evaluate the efficiency with which the firm managers and utilizes its assets.
60
These ratios are also called efficiency ratios or asset utilization ratios. The efficiency with which
the assets are used would be reflected in the speed and rapidity with which assets are converted
into sales. The greater is the rate of turnover or conversion, the more efficient is the
utilization/management, other things being equal. For this reason, such ratios are designated as
turnover ratios. An activity ratio may, therefore, be defined as test of the relationship between
sales and the various assets of a firm.
Activity ratios, thus, involve a relationship between sales and assets. A proper balance between
sales and assets are generally reflects that assets are managed well.
5-4.1 Inventory Turnover Ratio:
61
Inventory turnover ratio reflects the efficiency of inventory management. It

indicates the number of times inventory is replaced during the year. The
higher ratio, efficient the management of inventory and vice versa in the
organization.
Formula: Cost of Goods sold/ Average inventory
Cost of Goods Sold (COGS):
(Rs.)
2008- 2007- 2006- 2004-

Particular 2005-06
09 08 07 05
2709724 1932721 1578227 1571711 863885

Sales
00 31 04 39 13
Gross 253117
7256850 7197696 3675383 3285812
Profit 7
263715 186074 154147 153885 838573

COGS
550 435 321 327 36
Table 5-4.1 Cost of Goods Sold (COGS)
Average Inventory:
(Rs.)
62
2005- 2004-
Particular 2008-09 2007-08 2006-07
06 05
(1510413 (1842910 621827 65882

Opening Stock 4370544
) ) 6 9
4687194 (1510413 (18429 62182

Closing Stock 4370544
8 ) 10) 76
Average 2268076 21876 3438

1430066 1263817
Inventory 8 83 553
Table 5-4.2 Average Inventory
Inventory Turnover Ratio:
(Rs.)
2004-
Particular 2008-09 2007-08 2006-07 2005-06
05
2637155 1860744 1541473 1538853 838573

COGS
50 35 21 27 36
Avg. 226807 143006 126381 218768 343855

Inventory 68 6 7 3 3
Ratio(Times) 11.63 130.12 121.97 70.34 24.39
Table 5-4.3 Inventory Turnover Ratio
63
Chart 5-4.1 Inventory Turnover Ratio
Analysis:
The inventory turnover ratio is decreasing in the year 2008-09 which indicates that its
performance in terms of generating cash flow is decreasing in this year because the companies’
cash flow has blocked in inventories. However, in 2007-08 the ratio increased by 130.12 times,
which is a positive sign
Recommendation: Company should compare the cogs with the net sales and try to reduce the
cost as it decreases the profits and net income for the company. Growth rate and inventory rate
should be also compared in order to decide the level of inventory.
5-4.2 Debtors Turnover Ratio:
Debtor’s turnover indicates the number of times debtor’s turnover each year. Generally, the
higher the value of debtor’s turnover, the more efficient is the management of credit.
Formula: Credit Sales/ Average Debtors
Credit Sales:
64
(Rs.)
2005- 2004-
Particulars 2008-09 2007-08 2006-07
06 05
27097240 19327213 157171 863885

Credit Sales 157822704
0 1 139 13
Table5-4.4 Credit Sales
Average Debtors:
(Rs.)
2008- 2007- 2006- 2004- 2003-

Particulars 2005-06
09 08 07 05 04
Opening 900104 389012 2613673 2439460 219376 114448

Debtors 54 80 4 3 65 95
Closing 103351 900104 3890128 2613673 243946 219376
Debtors 481 54 0 4 03 65
Average 966809 64455 325190 252656 23166 16691

Debtors 68 867 07 69 134 280
Table5-4.5 Average Debtors
Debtors Turnover Ratio:
(Rs.)
2008-09 2004-
Particular 2007-08 2006-07 2005-06
05
65
Credit 2709724 15717113 863885

193272131 157822704
Sales 00 9 13
Average 9668096 166912

32519007 25265669 23166134
Debtors 8 80
Ratio(Time
2.80 5.94 6.25 6.78 5.18
s)
Table5-4.6 Debtors Turnover Ratio
Chart5-4.2 Debtors Turnover Ratio
Analysis:
The debtor turn over ratio is 2.80 in current year which is lower then the
previous years. In 2004-05 it was 5.18 and next year it was 6.78 in 2005-06
and then in 2006-07 it again decreased and reached to 6.25 and than in
2007-08, it was 5.95. This indicates that credit management team’s
efficiency of the company is reducing. The reason behind this is the company
is following a strict collection or credit policy because as compared to
increase in sales, the increase in debtors is low.
Recommendation: Now-a-days the competition is tougher. Credit period

should be expanded to have more liquidity in business. More credit period
can provide the chance to grow for the company.
66
5-4.3 Assets Turnover Ratio:
Meaning & objective:
A firm’s ability to produce a large volume of sales for a given amount of net assets is the most
important aspect of its operating performance. Unutilized assets increase the firm’s need for
costly financing as well as expenses for maintenance and upkeep. The net assets turnover should
be interpreted cautiously.
Formula: Sales/ Net Assets
Sales:
(Rs.)
2008-09 2004-
Particulars 2007-08 2006-07 2005-06
05
67
27097240 19327213 15782270 1571711 863885

Net Sales
0 1 4 39 13
Table 5-4.7 Sales
Net Assets:
(Rs.)
2008- 2007- 2006- 2005- 2004-

Particulars
09 08 07 06 05
709914 535771 211093 203059 178696

Fixed Assets
82 99 10 88 36
Net Current 140460 968282 432819 302640 225716

Assets 967 02 63 55 30
211452 150405 643912 50570 40441

Net Assets
449 401 73 043 266
Table 5-4.8 Net Assets
Assets Turnover Ratio:
(Rs.)
2008-09 2004-
Particular 2007-08 2006-07 2005-06
05
2709724 19327213 15782270 1571711 863885

Sales
00 1 4 39 13
2114524 15040540 5057004 404412

Net Assets 64391273
49 1 3 66
Ratio(Times) 1.28 1.29 2.45 3.10 2.13
Table5-4.9 Assets Turnover Ratio
68
Chart 5-4.3 Assets Turnover Ratio
Analysis:
Asset turnover ratio for the year 2008-09 is 1.28 lower then the previous years due to increase in
net assets than sales of the firm and it is not good for the company. The ratios for the previous
years are 1.29, 2.45, 3.10 and 2.13 respectively for 2007-08, 2005-06, 2004-05 and 2003-04. Net
Assets Turnover Ratio is lower, so it is not favorable for the firm.
Recommendation: The ratio should be increase consecutively over the period of the years to
have better condition in the company. The sales should be more than net assets of the company.
69
5-4.4 Total Assets Turnover Ratio:
Meaning & objective:
Total assets turnover ratio indicates productivity ratio, which measures the output produced from
the given input deployed. Assets are inputs, which are deployed to generate production. Higher
the asset turnover ratio, the higher the efficiency or productivity use of inputs.
Formula: Sales/Total Assets
Sales:
(Rs.)
2008-09 2004-
Particulars 2007-08 2006-07 2005-06
05
27097240 19327213 1571711 863885

Sales 157822704
0 1 39 13
Table 5-4.10 Total Assets Turnover Ratio
Total Assets (T.A.):
(Rs.)
70
2008-09 2005- 2004-

06 05
203059 178696
Fixed Assets 70991482 53577199 21109310
88 36
23478635 19631746 460765 418999

Current Assets 66266893
4 0 50 18
3057778 2498946 663825 597695

Total 87376203
36 59 38 54
Table 5-4.11 Total Assets (T.A.)
Total Assets Turnover Ratio:
(Rs.)
2008-09 2004-
Particulars 2007-08 2006-07 2005-06
05
27097240 19327213 15782270 1571711 863885

Sales
0 1 4 39 13
30577783 24989465 6638253 597695

T.A. 87376203
6 9 8 54
Ratio(Times) 0.886 0.773 1.806 2.36 1.45
Table5-4.12 Total Assets Turnover Ratio
Chart 5-4.4 Total Assets Turnover Ratio
71
Analysis:
From the above graph, we can say that in the year 2004-05 the ratio is 1.45 while in the year
2005-06 it increase and reaches to 2.36 which is due to increase in firm’s sales than the total
assets while in year 2006-07 ratio decreases as compared to the year 2005-06 and reaches to
1.806 which is due to increase in total assets more than the sales. Generally the total assets
turnover ratio stand 1:1 is better. So the year 2008-09 our firm’s ratio is 0.886 means firms’ sales
of Rupees 0.886 for 1 Rupees Investment in fixed and current assets together.
Recommendation: company should try to increase consecutively over the period of the years to
have better condition in the company. The sales should be more than total assets of the company.
72
5-4.5 Fixed Assets Turnover Ratio:
Meaning and Objective:
Company's effectiveness in generating net sales revenue from investments back into the
company. However, the Fixed Asset Turnover ratio evaluates only the Net Property, Plant, and
Equipment investments. Manufacturing and other industries requiring major-investments will
often spend heavily on properties, manufacturing plants, and equipment to push them ahead of
the competition.
Formula: Sales/Net Fixed Assets
Sales:
(Rs.)
2008-09 2005- 2004-

06 05
27097240 19327213 15782270 157171 86388

Sales
0 1 4 139 513
Table 5-4.13 Sales
Net Fixed Assets:
(Rs.)
Particulars 2007-08 2006-07 2005-06 2004- 2003-
73
05 04
20305 17869
Fixed Assets 70991482 53577199 21109310
988 636
Table 5-4.14 Net Fixed Assets
Fixed Assets Turnover Ratio:
(Rs.)
2008-09 2005- 2004-

06 05
27097240 19327213 15782270 157171 863885

Sales
0 1 4 139 13
203059 178696
N.F.A. 70991482 53577199 21109310
88 36
Ratio(Times) 3.81 3.61 7.47 7.74 4.83
Table 5-4.15 Fixed Assets Turnover Ratio
Chart 5-4.5 Fixed Assets Turnover Ratio
Analysis:
The higher the Fixed Asset Turnover ratio, the more effective the company's investments in Net
Property, Plant, and Equipment have become. From the above graph we can say that in the year
74
2004-05 the ratio was 4.83 while in the year 2005-06 it increase and reaches to 7.74 which is due
to increase in firm’s net sales compared to net fixed assets while in year 2008-09 ratio decreases
compared to the year 2004-005 and reaches to 3.81. So our company’s fixed Assets turnover
isn’t favorable compared to the general fixed assets turnover ratio.
Recommendation: Ratio isn’t getting higher, which is bad for the company. Company should
keep growing sales along with remaining fixed assets.
5-4.6 Current Assets Turnover:
75
Current assets turnover ratio indicates productivity ratio, which measures the output, produced
from the given input employed. Current Assets are inputs, which can be converted in to cash
quickly. Higher the current assets turnover ratio, higher the liquidity of the firm.
Formula: Sales / Current Assets
Current Assets Turnover:
(Rs.)
2008-09 2004-
Particulars 2007-08 2006-07 2005-06
05
27097240 19327213 15782270 1571711 863885

Sales
0 1 4 39 13
23478635 19631746 4607655 418999

C.A. 66266893
4 0 0 18
Ratio(Times) 1.15 0.984 2.38 3.41 2.06
Table 5-4.16 Current Assets Turnover
76
Chart 5-4.6 Current Assets Turnover Ratio
Analysis:
From the above graph, we can say that in the year 2005-06 the ratio is 3.41 while in the year
2006-07 it decreases and reaches to 2.38 which is due to increase in firm’s current assets than
sales while in year 2007-08 it is again decreased and reaches to 0.984 and its increases in 2008-
09 which is due to decrease in current assets is less than the firms sales. So the current Assets
turnover is favorable for this year but in compare of year 2004-05 to 2006-07 it is unfavorable
for this year.
Recommendation: Ratio is decreasing which is not good for the company. Company should
find the reasons for decreasing the sales over the period of the year compare to increase in the
current assets. Company should keep growing sales.
5.4.7 Working Capital Turnover Ratio:
The Working Capital Turnover ratio measures the company's Net Sales from the Working
Capital generated. A company uses working capital (current assets - current liabilities) to fund
operations and purchase inventory. These operations and inventory are then converted into sales
revenue for the company. The working capital turnover ratio is used to analyze the relationship
between the money used to fund operations and the sales generated from these operations.
Formula: Net Sales/Working Capital
77
Working Capital = total current Assets –total current Liabilities
Net sales:
(Rs.)
2008-09 2005- 2004-

06 05
27097240 19327213 15782270 157171 86388

Sales
0 1 4 139 513
Table 5-4.17 Net sales
Working capital:
(Rs.)
2008-09 2005- 2004-

06 05
Total Current 19631746 460765 418999

234786354 66266893
Assets 0 50 18
Total Current 158124 193282

94325388 99489259 22984930
Liabilities 95 89
78
1404609 9682820 4328196 302640 225716

Working Capital
66 1 3 55 29
Table 5-4.18 Working capital
Working Capital Turnover Ratio:
(Rs.)
2008-09 2004-
Particulars 2007-08 2006-07 2005-06
05
27097240 19327213 15782270 1571711 863885

Sales
0 1 4 39 13
Working 14046096 3026405 225716

96828201 43281963
Capital 6 5 29
Ratio(Times) 1.92 1.99 3.65 5.19 3.82
Table 5-4.19 Working Capital Turnover Ratio
Chart 5-4.7 Working Capital Turnover Ratio
Analysis:
79
A high or increasing Working Capital Turnover is usually a positive sign, showing the company
is better able to generate sales from its Working Capital. Either the company has been able to
gain more Net Sales with the same or smaller amount of Working Capital, or it has been able to
reduce its Working Capital while being able to maintain its sales. But the ratio decrease year by
year, and 1.92 in year 2008-09.
Recommendation: The sale has increased in given period of time, but the working capital has
increased more than it in the period of four years. This shows mismanagement to some extent.
Marketing department as well as the financial department should take steps to increase the sales
and decrease the working capital.
5.5 Profitability Ratios
A company should earn profits to survive and grow over a long period of time. Profit is the
difference between revenues and expenses over a period of time. The financial manager should
continuously evaluate the efficiency of company in term of profits. The profitability ratio is
calculated to measure the operating efficiency of the company. Besides management of the
company, creditors and owners are also interested in the profitability of the firm. This is possible
only when the company earns enough profits.
Generally, two major types of profitability ratios are calculated:
Profitability in relation to sales.
Profitability in relation to investment.
80
5-5.1 Gross Profit Ratio:
The gross profit margin reflects the efficiency with which management produces each unit of
product. This ratio indicates the average spread between the cost of good sold and the sales
revenue.
Formula: Gross Profit * 100/Sales
Gross Profit Ratio:
(Rs.)
Particulars 2008-09 2007-08 2006-07 2005-06 2004-
81
05
253117
Gross Profit 7256850 7197696 3675383 3285812
7
27097240 19327213 15782270 1571711 863885

Sales
0 1 4 39 13
Ratio (%) 2.68 3.72 2.32 2.09 2.93
Table 5-5.1 Gross Profit Ratio
Chart 5-5.1 Gross Profit Ratio
Analysis:
Gross profit is the difference between sales and cost of good sold. Cost of good sold include
consumption, excise duty, process charges. From the above data we get Gross Profit of 2004-05,
2005-06, 2006-07, 2007-08, 2008-09 are 2.47, 2.09, 2.32, 3.72 and 2.93. In 2006-07 gross profit
ratio is increase from 2.09 to 2.32 In 2007-08, gross profit ratio is increase from 2.32 to 3.72. In
2008-09, gross profit ratio decrease from 3.72 to 2.93.
Recommendation: Company should work on cost cutting activity, lean production, either
increase the margins, if possible, or increase the overall sale by proper marketing strategy.
82
5-5.2 Net Profit Ratio:
It indicates the management’s ability to operate the business with sufficient success not only to
recover from revenues of the current period the cost of merchandise or services but also the
expenses of compensation to the owners for providing their capital at risk. This ratio shows that
the earnings left for shareholders as a percentage of net sales.
Formula: Net Profit * 100/Sales
Net Profit Ratio:
(Rs.)
2008-09 2005- 2004-

06 05
213117
N.P. 6093850 4887696 2875383 2685812
7
27097240 19327213 1571711 863885

Sales 157822704
0 1 39 13
Ratio (%) 2.25 2.53 1.82 1.71 2.47
Table 5-5.2 Net Profit Ratio
83
Chart 5-5.2 Net Profit Ratio
Analysis:
By looking the above graph we can say that in the year 2005-06 the ratio was 1.71% as
compared to 1.82 in the year 2006-07. It increase and reaches to 2.53 which is due to more
increase in profit after tax than the sales. There after ratio decrease to the 2.25 in 2008-09. A
high Net Profit Ratio is showing good indication of company’s efficiency at its business and the
company is also on the path of growth. For year 2008-09, ratio isn’t showing good indication of
company’s efficiency at its business.
Recommendation: This shows decrease in profit margins or increase in expenses to some

extent. Marketing department should take steps to increase the sales and the financial department
should try to increase the investing activity and decrease the costs in order to increase the net
profit.
5-5.3 Return on Investment Ratio:
Return on investment is a very good performance measure. Different companies calculate this
return with different formula and call it also with different name like return on invested capital,
Return on Capital Employed, Return on Net Assets etc.
Formula: PAT/Total Assets
Return on Investment Ratio:
(Rs.)
84
2008-09 2005- 2004-

06 05
268581 213117
PAT 6093850 4887696 2875383
2 7
30577783 24989465 663825 597695

T.A 87376203
6 9 38 54
Ratio (Times) 0.02 0.06 0.04 0.05 0.04
Table 5-5.3 Return on Investment Ratio
Chart 5-5.3 Return on Investment Ratio
Analysis:
From the above graph, we can interpret that in year 2004-05 the ratio was 0.04 times and which
was increased in year 2005-06 and reaches to 0.05 times. In year 2007-08 ratio was increased to
0.06 due to increase in sales and increase in total assets. But in 2008-09, the ratio was decreased
to 0.02
Recommendation: IN the year 2008-09, ratio decrease too much. This could be because of
expansion planning of the company or due to mismanagement to some extent.
6. Findings
85
• Current assets is 2.48 times from the Current liabilities in the current year .we see that
current assets is increasing constantly and quick assets is growing more than the other
year.
• In the year 2008-09 inventory turn over ratio is 11.63 Times. It is decrease from the last
year due to inventory increasing fast from the cost of goods sold.
• In the year 2008-09 cash ratio is 0.021 Times. It is decrease from the last year due to
stock increasing fast in the company.
• We seen that over the five years the debt-equity ratio has increase from 3.13 to 5.68.
This indicates that the amount of debt is increasing as compared to the owner’s equity in
the company which is not good for company because The ratio should not be more than
1 due to decrease the burden level.
86
7. Recommendations
Working Capital
The Company has high internal accruals. Hence it should not go for working
capital loan. It should try to reduce it inventory consumption period and
Debtors collection period. It should try to reduce it Current Asset.
Inventory Management
The Company should implement inventory management technique efficiently

as there working capital amount is mostly blocked in inventory. If inventory
holding is reduce there will be more Working Capital.
Receivable Management
The Company has to maintain against schedule in order to keep a proper

track of the receivables. This schedule helps in finding out the payment
which have gone beyond the credit limit. It would also help the management
in taking proper action to recover the payments.
87
6. LIMITATIONS OF THE ANALYSIS
• This financial analysis carried out does not consider the effect of the opportunity cost of money.
It ignores the present value and the future value of money.
• No information related to the effects of the external factors on the business conditions and the
company policy can be obtained through the analysis.
• The analysis carried out is based only on the past information. No one can successfully predict
the future conditions and strategies based on this data.
• The standards for comparison data of the other companies are not available easily. So an overall
view of the analysis cannot be brought about through this analysis,
• Moreover at times there exists a confusion to record some of the expenses or financial terms into
both different categories. So one cannot be 100% accurate in such analysis.
88
APPENDICES
Profit & and Loss A/C. for the year on 31st March 2005,
2006, 2007, 2008, 2009
PARTICULER 2004- 2005- 2006- 2007- 2008-

2005 2006 2007 2008 2009
INCOME
Sale 10026373 157171139 18270853 22443438 31066039
1 3 4 6
Less: Excise duty 13875218 24648872 24885829 31162253 39687996
86388513 157171139 15782270 19327213 27097240

4 1 0
Other income 1065194 2380195 1763160 6214059 3822242
Increase/Decrease Closing 6218276 -1842910 4370544 -1510413 46871948

stock
Total 93671983 15770842 1639564 1979757 3216665
4 08 77 90
EXEPENDITURE:
Purchase of Trading Goods 1935114 3666864 3828366 2710987 2023158
Raw Material Consumed 75883616 133453110 13656102 16130887 25836086

7 3 5
Manufacturing, Admin,& 9265843 11186520 12675077 13010170 29716134

Other Exp.
Selling & Distribution 2257659 2191301 3352381 4346171 11595611
Expenditure
Financial Charges 944362 2943213 2658766 8106989 10898472
89
Depreciation 854212 981604 1204508 1294892 1815501
Total 91500806 15442261 1602810 1907780 3144097

2 25 82 40
PROFIT BEFORE TAX 2531177 3285812 3675383 7197696 7256850
Income Tax Provision 400000 600000 750000 2260000 1030000
Fringe Benefit Tax 50000 50000 133000
800000 2310000 1163000
Profit for the Year 2131177 2685812 2875383 4887696 6093850

Transferred to Partners
Balance sheet as on 31st March 2005, 2006, 2007, 2008,

2009
90
PARTICULAR 2008- 2007- 2006- 2005- 2004-

2009 2008 2007 2006 2005
(I) SOURCE OF
FUND:
Share capital 30000000 31475584 13731306 11862110 10743228

Reserves &surplus 1000000 1000000 1000000 1000000 10000000
3100000 3247558 1473130 1286211 1174322

0 4 6 0 8
LOAN FUNDS:
Secured loans 12792344 82406819 32673410 22564754 18553980

3
Unsecured loans 48063197 39966203 16986557 15143179 10144058
Deferred payment 1306358
credit
1772929 1223730 4965996 3770793 2869803
98 22 7 3 8
Deferred tax liabilities 5344627
TOTAL 2136376 1548486 6439127 5057004 4044126
25 06 3 3 6
(II) APPLICATION
OF FUND
(A) Fixed assets
Gross block 82687977 61735839 27824134 25725920 22085060

Less: depreciation 11696495 8158640 6714824 5419932 4215424
Net block 7099148 5357719 2110931 2030598 1786963
2 9 0 8 6
S. capital W.I.P 4443205

(B)Current assets,
91
BIBILOGRAPHY
BOOKS:
• I. M. Pandey, “Financial Management

Ninth Edition, vikas publishing house Pvt. Ltd;
• Prasanna Chandra, Financial Management

TATA McGraw-Hill Publishing Company Ltd;
New Delhi.
WEBSITE:
• http//www.dukeplasto.com
• http//www.pumpindustry.com
92
93

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A

SUMMER PROJECT REPORT

“DUKE PLASTO TECHNIQUE PVT LTD”

“WORKING CAPITAL MANAGEMENT & RATIO ANALYSIS”

In the partial fulfillment of Degree of

Master of Business Administration

(MBA Agri Bussiness)

Akhil Patel (16)

Under the Guidance of:

(Centre for Managment Studies)

(Duke Plasto Technique Pvt Ltd)

Centre for Managment Studies

CERTIFICATE BY THE GUIDE

Centre for Managment Studies,

CERTIFICATE BY THE MENTOR

Mr. Nareshbhai Parmar

Duke plasto Technique Pvt. Ltd.

Patel Akhil Pramod Bhai

MBA program is a professional course. It requires knowledge of not only theoretical

I am studying in MBA in which I required to prepare project report. It was wonderful

I am student of Centre for Management Studies, Ganpat University, Kherva. I has

CERTIFICATE BY THE MENTOR.......................................................................iii

4.4 Objective Of Inventory Management………………………………..………...21

Table 5-4.11 Total Assets (T.A.)……………………………………………..…59

LIST 0F FIGURES & GRAPHS

Chart 5-2.1 Current Ratio ………………………………………………….…..28

Chart 5-2.2 Quick Ratio……………………………………………………..…32

Duke is promoted and managed by Shri Prabhubhai Patel, Shri

India’s 2/3 population about 66% is mainly dependent on rain water.

It start up for catering in form of small submersible pumps repairing

Duke Plasto Technique Pvt. Ltd. synonymous for manufacturing

To be eminent global brand providing complete, innovative,

We are committed to manufacture products complying with the best

We strive to create an environment that nurtures youth and

On the bedrock of ethics, Duke is instituted by amalgamating the

1.5 COMPANY PROFILE

➢ Duke Plasto Technique Pvt. Ltd.

Size of the Unit :

➢ Medium Scale Industry

Name of the Product :

Existing Management Body :

➢ Managing Director Mr. P.P.Patel

➢ Executive Director Mr. S.N.Patel

➢ Executive Director Mr. D.K.Patel

➢ Executive Director Mr. R.P.Patel

➢ Bankers Bank of Baroda

➢ HR Manager Mr. P.M. Dalwadi

1.6 Location chart

1.7 ORGANIZATION STRUCTURE

S.N D.K L.P Patel R.P

Nareshbhai Cantee Securit Supervis

Ex. Ex. Ex. Ex.

SUB. PVC Pips SUB. PVC Pips

Workers Workers Workers Workers

Recognized by the Best Certification

3. Approval from GWSSB, Gujarat in the year 2001.

4. Approval from UP Jal Nigam in the year 2002.

5. Approval from PHED, Rajasthan in the year 2003.

6. Supplied to UNISEF & WHO, South Africa in the year 2004.

7. Approval from Karnataka water Supply Board in the year 2005.

8. Received National Quality Award for Quality Product in 2006.

9. ISO 9001:2000 certification from TUV:SUD South Asia for quality

10. CE certification from TUV:SUD for Outsource/Export to European Countries.