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Faculty Guide
Prof. Naresh Shah
CONTENT
y Objectives of study
y Methodology & limitation of Study
y Overview of company
y Working capital theory
y working capital requirement of Elecon
y Ratios
y Operating Cycle
y Suggestions and Findings
y Bibliography
 OJECTIVES OF THE STUDY
( To evaluate the financial performance of the company in
context of Working capital.

( To analyze the working capital performance of the

company for the last five years that is 2004-05 to 2008-09.

( To estimate the working capital requirement of Elecon.

( To study the operating and cash cycle of the company.

 METHEDOLOGY
K Primary Data :
In the project primary data was collected by
consulting various executives of the company.

K Secondary Data :
Study is mainly based on the
secondary data, which are collected from the books,
records, journals and profiles of the organization and 5
years annual reports of the company.
LIMITATION OF STUDY
: Limited data

: Limited period

: Limited area
INTRODUCTION OF COMPANY
: From a modest start of design and manufacture of
Elevators and Conveyors from which incidentally, the
company derives its corporate identity. viz. "Elecon".

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 BUSINESS PORTFOLIO
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From elevators, conveyors and gears to material handling
plants. For over 5 decades, Elecon has supplied hi-tech equipment to core
sectors such as steel, fertilizer, cement, coal, lignite and iron are mines,
power stations and port mechanization in India and abroad.

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Driven by excellence since 1951, Elecon is Asia·s largest gear
manufacturing company enjoying a significant presence in India and abroad.
Elecon is the supplier of choice to core sectors like Sugar, Cement,
Chemical, Fertilizer, Steel, Plastic Extrusion and Rubber.

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ELECON take the opportunity to help the world in
reducing the Global Warming by providing the solution to generate the
GREEN POWER by harnessing energy through renewables, mainly through
Wind.
 WORKING CAPITAL
y Working capital is the amount of capital that a business has
available to meet the day to- day cash requirements of its
operations, or more specially, for financing the conversion of
raw material into finished goods, which the company sells for
payment.
y In simple words, working capital refers to that part of
the firm·s capital, which is required for financing short-term
or current assets such as cash, marketable securities, debtors
and inventories.
DETERMINENT OF WORKING
CAPITAL
:Nature of Industry
:Size of Business
:Manufacturing Cycle
:Production Policy
:Volume of Sales
:Terms of purchase & Sales Business Cycle
:Growth and Expansion
:Supply of Raw Materials
:Price Level changes
:Operating Efficiency
:Profit Margin
:Profit Appropriation
:Capital Structure
 NEED FOR WORKING CAPITAL

: For the purchase of raw material.

: To pay wages & salaries.
: To incur day to day expenses and overhead costs.
: To meet selling costs.
: To provide credit facilities to the customer.
: To maintain the inventories of raw material, work in
progress, stores and spares and finished stock.
IMPORTANCE OR ADVANTAGES OF
ADEQUATE WC
WC::-
: Maintains solvency of business.
: Helps in creating & maintaining goodwill.
: Helps in arranging loans from banks & others on easy
and favorable terms.
: Ensures regular supply of raw materials.
: Regular payment of salaries, wages & other day to day
commitment.
: Enables a concern to face business crisis.
 WORKING CAPITAL
REQUIREMENT OF ELECON
Working capital is the funding that a
company needs to support its accounts receivable and
inventory, and is offset by the amount of funding it
obtains from its suppliers through accounts payable.

PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05

CURRENT @
 
 
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CURRENT 
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LIABILITIES
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WORKING
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 INTERPRETATION
: After analysis the 5 year data we can say that the Working
Capital requirement is increasing year by year. We are looking
increasing pattern in working capital.
: The company is managing working capital very precisely
as we know that Elecon Engineering is high working capital
oriented organization.
: The sale is increasing year by year which results into increase
in debtors and cash which ultimately results into increase in
working capital requirement.
: Elecon is getting new order at regular interval as it gives
importance to quality.
: Investment in the current asset is also increasing with
increase in the span. On the other hand there is also
increase in the current liabilities. We can say that
current assets and current liabilities go hand in hand.
: Elecon is using short term loans from bank to finance
working capital.
: Elecon is also utilizing spontaneous finance.
 CURRENT RATIO
This ratio explains the relationship between current
assets and current liabilities of a business.

      
 

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CURRENT 2.33 2.31 2.38 2.00 2.32
RATIO
y A conventional rule is that a current ratio of 2:1 or
more is considered satisfactory.
y The current ratio of Elecon is more than 2:1.So it is
sufficient and good for Elecon.
y Elecon has more current asset then current liabilities
claim so unit is able to meet current obligation in full
and it can be said that its liquidity position is sound.
y The current ratio is more than 2 due to higher level of
inventory.
 QUICK RATIO
Quick ratio is a more rigorous test of liquidity than
current ratio. Quick ratio may be defined as the
relationship between quick/liquid assets and current or
liquid liabilities.

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·UICK 1.41 1.63 1.77 1.28 0.97
RATIO
y Generally quick ² ratio of 1:1 is considered to represent
a satisfactory to current financial condition and this
ratio is sufficient.
y Elecon has ability to pay its current claim quickly.
y So, Elecon has sufficient current assets which can easily
convert into the cash immediately.
y By exclusion of stock from current assets leads to
drastic change in quick ratio.
 ABSOLUTE LIQUID RATIO
To know the absolute liquidity of the company
absolute liquid ratio is calculated.

ABSOLUTE LI·UID RATIO = ABSOLUTE LI·UID ASSETS

CURRENT LIABILITES

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   100,845.90 80,963.70 60,871.21 43,341.26 36,780.06

 

       

 


 

  
1.4

1.35

1.3

1.25
liquid ratio

1.2

1.15

1.1
2008-09 2007-08 2006-07 2005-06 2004-05

y The ideal ratio is 0.5:1

y Elecon is having absolute liquidity which is good sign
y In the last year the ratio has been increased to 1. 36
y Elecon has ability to pay its current claim quickly.
y So, Elecon has sufficient current assets which can easily
convert into the cash immediately.
 INVENTORY TURNOVER RATIO
Inventory turnover ratio measures the speed with which the
stock is converted into sales. Usually a high inventory ratio indicates an
efficient management of inventory because more frequently the stocks are
sold; the lesser amount of money is required to finance the inventory.

INVENTORY TURNOVER RATIO = COST OF GOOD SOLD

AVERAGE INVENTORY

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inventory turnover ratio

0
2008-09 2007-08 2006-07 2005-06 2004-05

y This ratios shows how rapidly the inventory is turning

into receivable through sales.
y In 2006-07 the company has high inventory turnover
ratio but in 2007-08 and 2008-09 it has reduced.
y This shows that the company·s inventory management
technique is very much efficient as it converts the stock
into finished goods more than 4 times in a year.
 DEBTORS TURNOVER RATIO
Debtor·s velocity indicates the number of times the
debtors are turned over during a year. Generally higher the
value of debtor·s turnover ratio the more efficient is the
management of debtors/sales or more liquid are the debtors
DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)
AVERAGE DEBTORS

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3 debtors turnover ratio

0
2008-09 2007-08 2006-07 2005-06 2004-05

y There is uneven trend we can observe in debtors turnover ratio

y This ratio indicates the speed with which debtors are being converted
or turnover into sales. The higher the values or turnover into sales.
y The higher the values of debtors turnover, the more efficient is the
management of credit.
y But in the company the debtor turnover ratio is decreasing year to
year. This shows that company is not utilizing its debtors efficiency.
y Now their credit policy becomes liberal as compare to previous years.
 CREDITORS TURNOVER RATIO
It indicates the number of times sundry creditors have been
paid during a year. It is calculated to judge the requirements of
cash for paying sundry creditors. It is calculated by dividing the
net credit purchases by average creditors.

  

 

 

 



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2.5

1.5
creditors turnover ratio
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0.5

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2008-09 2007-08 2006-07 2005-06 2004-05

y Higher the payable period lower the working capital

requirement, but on the other hand it may affect the prestige
of the firm so the company has to frame creditors policy in
such manner.
y The creditors ratio is improving as compare to the last years.
y This situation enhances the credit worthiness of the
company.
y Elecon is maintaining good relationship with the creditors .
 OPERATING CYCLE
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OPERATING CYCLE PERIODS
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2008-09 2007-08
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'%&° 71 45
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$&° 222 218
6+&° 376 325
#° 135 145
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 SUGGESTIONS & FINDINGS
y Company·s main strength is its employees and company is properly
taking care of that by providing safety working conditions, canteen
facilities etc

y Elecon is investing more and more money in subsidiary companies

for its faster growth.

y Company·s working capital us enough to maintain company·s sales

and other operations easily. Due to high goodwill the company is
not getting any problem in getting short term finance.

y Elecon is continuously trying to maximize the wealth of share

holders.
 Conti««.
y Company gives 75% of dividend since last two years, instead
of giving 75% dividend the company should give 60 to 65%
and reinvest the balance amount in financing the working
capital.

y Company is targeting to increase foreign exchange

transactions and also trying to avoid hedging risk.

y Company should try to utilize cheap source of finance for

financing working capital requirements.
BIBILOGRAPHY
y http://elecon.nlihost.com/investors-
relations_details.php?type=fs
y http://elecon.nlihost.com/page_details.php?id=31&level1
_id=33
y http://www.netmba.com/finance/financial/ratios
y Annual Reports of Elecon Engineering Ltd of last 5 years