123

CHAPTER-1

OBJECTIVE OF

THE STUDY

1.1 OBJECTIVE OF THE STUDY

To study the sources and uses of the working capital.

To study the liquidity position through various working capital related ratios.

To study the working capital components such as receivables accounts,

Cash management, Inventory management.

To make suggestions based on the finding of the study.

CHAPTER-2

INTRODUCTION

CHAPTER-2

2.1 BACKGROUND OF STUDY

"Cash is the lifeblood of business" is an often repeated maxim amongst financial managers.

Working capital management refers to the management of current or short-term assets and short-

term liabilities. Components of short-term assets include inventories, loans and advances,

debtors, investments and cash and bank balances. Short-term liabilities include creditors, trade

advances, borrowings and provisions. The major emphasis is, however, on short-term assets,

since short-term liabilities arise in the context of short-term assets. It is important that companies

minimize risk by prudent working capital management. This project deals with the study about

“Working Capital Management” in GDX PVT. LTD .There are numerous aspects of working

capital management that makes it an important topic for the study.

The management of assets in any organization is an essential part of overall management. The

enterprise, at the time of formation attaches great importance to fixed assets management, as a

part of investment decision-making.

However, in the overall day-to-day financial management, after the initial investment, the

management gives more importance to managing working capital. If we look at any financial

statement it will be evident that the investment in fixed assets remains more or less static but the

working capital is constantly changing.

A healthy working capital position is the sine-qua-non of a successful business. This is reflected

in adequate inventories, lowest level of debtors, minimum utilization of bank facilities for

working capital, etc. thus the study of working capital management occupies an important place

in financial management.

2.2 INTRODUCTION OF WORKING CAPITAL

Working capital means the funds (i.e.; capital) available and used for day to day operations (i.e.;

working) of an enterprise. It consists broadly of that portion of assets of a business which are

used in or related to its current operations. It refers to funds which are used during an accounting

period to generate a current income of a type which is consistent with major purpose of a firm

existence.

In Accounting:

2.3 OBJECTIVES OF WORKING CAPITAL MANAGEMENT

Effective management of working capital is means of accomplishing the firm’s goal of adequate

liquidity. It is concerned with the administration of current assets and current liabilities. It has the

main following objectives-

1. To maximize profit of the firm.

2. To help in timely payment of bills.

3. To maintain sufficient current assets.

4. To ensure adequate liquidity of the firms.

5. It protects the solvency of the firm.

6. To discharge current liabilities.

7. To increase the value of the firm.

8. To minimize the risk of business.

2.4 NEED FOR THE WORKING CAPITAL

The need for working capital arises due to the time gap between production and realization of

cash from sales. Working capital is must for every business for purchasing raw-materials, semi

finished goods, stores & spares etc and the following purposes.

1. To purchase raw materials, spare parts and other component.

A manufacturing firm needs raw-materials and other components parts for the purpose of

converting them in to final products, for this purpose it requires working capital. Trading

concern requires less working capital.

2. To meet over head expenses.

Working capital is required to meet recurring over head expenses such as cost

of fuel, power, office expenses and other manufacturing expenses.

3. To hold finished and spare parts etc.

Stock represents current asset. A firm that can afford to maintain stock of required

finished goods, work in progress & spares in required quantities can operate successfully.

So for that adequate quantity of working capital is required.

4. To pay selling & distribution expenses

Working capital is required to pay selling & distribution expenses. It includes cost of

packing, commission etc.

5. Working capital is required for repairs & maintenance both machinery as well as factory

buildings.

6. Working capital is required to pay wages, salaries and other charges.

7. It is helpful in maintain uncertainties involved in business field.

2.4 WORKING CAPITAL MANAGEMENT

Working Capital Management refers to management of current assets and current liabilities. The

major thrust of course is on the management of current assets .This is understandable because

current liabilities arise in the context of current assets. Working Capital Management is a

significant fact of financial management. Its Importance stems from two reasons:-

Investment in current assets represents a substantial portion of total investment.

Investment in current assets and the level of current liabilities have to be geared quickly to

change in sales. To be sure, fixed asset investment and long term financing are responsive to

variation in sales. However, this relationship is not as close and direct as it is in the case of

working capital components.

Working capital management involves management of different components of working capital

such as cash, inventories, accounts receivables, creditors etc. A brief description follows

regarding various issues involves in the management if each of the above components of

working capital.

2.5 IMPORTANCE OF WORKING CAPITAL

1. Solvency of the business: Adequate working capital helps in maintaining the solvency of

the business by providing uninterrupted of production.

2. Goodwill: Sufficient amount of working capital enables a firm to make prompt

payments and makes and maintain the goodwill.

3. Easy loans: Adequate working capital leads to high solvency and credit standing can

arrange loans from banks and other on easy and favorable terms.

4. Cash discounts: Adequate working capital also enables a concern to avail cash

discounts on the purchases and hence reduces cost.

5. Regular Supply of Raw Material: Sufficient working capital ensures regular supply of

raw material and continuous production.

6. Regular payment of salaries, wages and other day to day commitments: It leads to

the satisfaction of the employees and raises the morale of its employees, increases their

efficiency, reduces wastage and costs and enhances production and profits.

7. Exploitation of favourable market conditions: If a firm is having adequate working

capital then it can exploit the favourable market conditions such as purchasing its

requirements in bulk when the prices are lower and holdings its inventories for higher

prices.

8. Ability to Face Crises: A concern can face the situation during the depression.

9. 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.

10. High morale: Adequate working capital brings an environment of securities, confidence,

high morale which results in overall efficiency in a business.

2.6 DETERMINANTS OF WORKING CAPITAL REQUIREMENTS

In order to determine the amount of working capital needed by the firm a number of factors have

to be considered by finance manager. These factors are explained below.

1. Nature of Business:

The Nature of the business effects the working capital requirements to a great extent. For

instance public utilities like railways, electric companies, etc. need very little working

capital because they need not hold large inventories and their operations are mostly on

cash basis, but in case of manufacturing firms and trading firms, the requirement of

working capital is sufficiently large as they have to invest substantially in inventories

and accounts receivables .

2. Production Policies:

The production policies also determine the Working capital requirement. Through the

production schedule i.e. the plan for production, production process etc.

3. Credit Policy:

The credit policy relating to sales and affects the working capital. The credit policy influence the

requirement of working capital in two ways:

1. Through credit terms granted by the firm to its customers/buyers.

2. Credit terms available to the firm from its creditors.

The credit terms granted to customers have a bearing on the Magnitude of Working capital by

determining the level of book debts. The credit sales results is higher book debts (re available)

higher book debt means more Working capital.

On the other hand, if liberal credit terms are available from the suppliers of goods [Trade

creditors], the need for working capital is less. The working capital requirements of business are,

thus, affected by the terms of purchase and sale, and the role given to credit by a company in its

dealings with Creditors and Debtors.

4. Changes in Technology:

Technology used in manufacturing process is mainly determined need of working capital.

Modernize technology needs low working capital, where as old and traditional technology needs

greater working capital.

5. Size of the Business Unit:

The size of the business unit is also important factor in influencing the working capital needs of a

firm. Large Scale Industries requires huge amount of working capital compared to Small scale

Industries.

6. Growth and Expansion:

The growth in volume and growth in working capital go hand in hand, however, the change may

not be proportionate and the increased need for working capital is felt right from the initial stages

of growth.

7. Dividend Policy:

Another appropriation of profits which has a bearing on working capital is dividend payment.

Payment of dividend utilizes cash while retaining profits acts as a source as working capital Thus

working capital gets affected by dividend policies. .

8. Supply Conditions:

If supply of raw material and spares is timely and adequate, the firm can get by with a

comparatively low inventory level. If supply is scarce and unpredictable or available during

particular seasons, the firm will have to obtain raw material when it is available. It is essential to

keep larger stocks increasing working capital requirements.

9. Market Conditions:

The level of competition existing in the market also influences working capital requirement.

When competition is high, the company should have enough inventories of finished goods to

meet a certain level of demand. Otherwise, customers are highly likely to switch over to

competitor’s products. It thus has greater working capital needs. When competition is low, but

WORKING CAPITAL

On The Basis of Concepts

On The Basis of Time

Gross Working Capital

Net Working Capital

Permanent / Fixed Working Capital

Temporary / Fluctuating Working Capital

Initial Working Capital

Regular WorkingCapital

Seasonal Working Capital

Special Working Capital

demand for the product is high, the firm can afford to have a smaller inventory and would

consequently require lesser working capital. But this factor has not applied in these technological

and competitive days

2.6 CLASSIFICATION OF WORKING CAPITAL

On The Basis of Concepts

1) Gross Working Capital

Gross working capital is the amount of funds invested in various components of current assets.

Current assets are those assets which are easily / immediately converted into cash within a short

period of time say, an accounting year. Current assets includes Cash in hand and cash at bank,

Inventories, Bills receivables, Sundry debtors, short term loans and advances.

2) Net Working Capital

This is the difference between current assets and current liabilities. Current liabilities are those

that are expected to mature within an accounting year and include creditors, bills payable and

outstanding expenses.

II. On The Basis of Time

1) Permanent / Fixed Working Capital

Permanent or fixed working capital is minimum amount which is required to ensure effective

utilization of fixed facilities and for maintaining the circulation of current assets. Every firm

has to maintain a minimum level of raw material, work- in-process, finished goods and cash

balance. This minimum level of current assts is called permanent or fixed working capital as

this part of working is permanently blocked in current assets. As the business grow the

requirements of working capital also increases due to increase in current assets.

a) Initial working capital

At its inception and during the formative period of its operations a company must have

enough cash fund to meet its obligations. The need for initial working capital is for every

company to consolidate its position.

b) Regular working capital

Regular working capital refers to the minimum amount of liquid capital required to keep

up the circulation of the capital from the cash inventories to accounts receivable and from

account receivables to back again cash. It consists of adequate cash balance on hand and at

bank, adequate stock of raw materials and finished goods and amount of receivables.

RAW MATERIALS

WORK-IN-PROGRESSFINISHED STOCK

DEBTORS

CASH

2) Temporary / Fluctuating Working Capital

Temporary / Fluctuating working capital is the working capital needed to meet seasonal as

well as unforeseen requirements. It may be divided into two types.

a) Seasonal Working Capital

There are many lines of business where the volume of operations are different and

hence the amount of working capital vary with the seasons. The capital required to

meet the seasonal needs of the enterprise is known as seasonal Working capital.

b) Special Working Capital

The Capital required to meet any special operations such as experiments with new

products or new techniques of production and making interior advertising campaign

etc, are also known as special Working Capital.

2.7 OPERATING CYCLE OF WORKING CAPITAL:

The working capital cycle reserves to the length of time between the firm paying cash for

materials etc., this working capital also known as operating cycle. Working capital cycle or

operating cycle indicates the length or time between companies paying for materials entering

into stock and receiving the cash from sales of finished goods. The operating cycle (Working

Capital) consists of the following events. Which continues throughout the life of business?

Conversion of cash into raw materials.

Conversion of raw materials into work in progress.

Conversion of work in progress into finished stock.

Conversion of finished stock into accounts receivables(Debtors)through sale and

Conversion of account receivables into cash.

2.8 COMPONENTS OF WORKING CAPITAL

(a) Management of cash

The term cash with reference to cash management is used in low senses. In a narrower sense it

includes coins, currency notes, cheques, bank draft held by a company with it and the demands

deposits held by it in banks. In the broader sense it includes “near cash assets” such as

marketable securities and time deposits with banks.

A distinguishing feature of cash as an asset, irrespective of the firm in which it is held, is that it

does not earn any substantial return for the business. In spite of this fact cash is held by the firm

with the following motives.

Transaction motive

A firm enters into variety of business transaction resulting in both inflows and outflows. In order

to meet the business obligation in such situation, it is necessary to maintain adequate cash

balance.

Precautionary motive

A firm keeps cash balance to meet unexpected cash needs arising out of unexpected

contingencies such as floods, strikes presentation of bills for payment earlier than the expected

date, sharp increase in the price of raw material etc.

Speculative motive

A firm keeps cash to take advantage of unexpected opportunities, typically outside the normal

course of the business. For e.g. the firm may make some profit by buying securities when their

prices all on account of tight money condition etc.

Compensation motive

Banks provide certain services to their clients free of charge. They therefore usually require

clients to keep minimum cash balance with them, which helps them to earn interest and thus

compensate them for the free services so provided.

Objective of cash management

There are two objectives of cash management.

1. To meet cash disbursements needs as per the payment schedule.

2. To minimize the amount locked up as cash balance.

3. As a matte of fact both the objectives are mutually contradictory and therefore it is

challenging task for the finance manager to reconcile them and to have the best in this

process. It calls in for maintaining optimum cash balance.

(b) Debtors

Account receivables management is also an important aspect of working capital management.

Accounts receivables represent the extension of credit on an open account by the company to its

customer. These receivables constitute a major portion of the company to its customer. These

receivables one-third pare of current assets in India and near about 11-15% of the total assets.

The problem of receivables management is basically the problem of balancing the profitability

and liquidity. The basic goal of receivables management is to maximize the value of the firm by

achieving a trade off between liquidity and profitability. The level of investment in accounts

receivables is dependent upon two factors general and specific. General factors are external

while factors are internal factors.

1) General factors

These are those, which are common to all firms. They include the type and the nature of

business, anticipated volumes of sales operations, interest rates, industry norms etc.

2) Specific factor

Volumes of credit sales are the most important factor affecting credit. If other things

remain as before, the level of accounts receivables vary directly to the level of credit

sales.

If the term of sales of the company is such that no credit sale is allowed than item will

altogether not appear in the balance sheet.

In seasonal type of business the amount of credit sales is high during the season, so the

amount of receivables is consequently high during the peak seasons.

The credit policy of the company is having a liberal policy than the amount of

receivables will go be large.

Optimum Credit Policy

The term credit policy refers to those decision variables that influence the amount of trade credit

i.e. the investment in receivables are affected to a large extent by the general economic

condition, industry norms, pace of technological changes, competition etc. But the policy

decision also has a great impact on it. The credit policy provides the guidelines for determining

whether to extent credit to customer (and customers as a whole) and how much credit to extent.

Therefore it is very important for the company to design the credit policy very cautiously

keeping in mind both the aspects of liquidity and profitability.

Benefits Of Credit Extenton

The company’s credit standards define the minimum criteria for the extension of credit to the

customers. The extension of credit increases the sales of the company. And, if the cost of the

investment does not increase at a greater rate, the increase sales revenue will certainly increases

the profits of the company. As a result, the market value of the company’s share would rise.

Hence the benefits of credit extensions are define in terms increased profit of the company.

Cost Of Credit Extension

The second aspect of an optimum credit policy is the considered of costs associated with it. The

cost likely to be incurred in granting credit is bad debt losses production and selling costs ,

administrative expenses, cash discounts and opportunity costs of the funds. A liberal credit

policy an increase these costs while a tight policy reduces their amounts.

Cost Benefits Trade-Off

A sound and successful credit policy will be determined at trade off point between costs and

benefits. The major consideration in costs liquidity and opportunity costs while the benefits are

expressed in increased profits of the sales. Hence, an optimum credit policy will be determined

by the trade-off between liquidity and profitability.

A firm becomes less liquid and more risky as it relaxes its credit policy. But profitability

increases as the credit becomes more and more liberal. Hence, an optimum credit policy should

occur where is trade off between liquidity and profitability as shown in the following figure.

Profitability Curve

Cost &

Benefits Liquidity Curve

Tight < credit policy………..> liberal

(C) Inventory Management

The term inventory management is used to two ways-unit control and value control. Production

and purchases officials use this word in terms of unit control where as in accounting this work is

used in terms of value control as investment in inventory represents in many cases, one of the

largest asset of the business enterprise particularly those engaged in manufacturing, wholesale

trade and retail trade. Sometimes the cost of material used in production surpasses the wages and

production overheads. Hence, the proper management and control of the capital invested in the

inventory should be the prime responsibility of accounting departments because the resources

invested in inventory are not earning a return for the company. Rather, on though other hand,

they are costing the firm money both in terms of capital costs being incurred and loss of

opportunity income that is being forgone.

Need for holding inventories

I. Holding of inventories helps a company is having the following benefits: Avoiding the

losses of sales since the company does not lose its customers on account of non-supply

of goods in time.

II. The variable cost associated with individual orders etc. can be typing, checking,

approving and mailing the orders rather than numerous small ones.

III. Maintenance of large inventories helps the company in reducing the set-up cost

associated with each production run. Moreover, adequate inventories project against

shortage and delay.

2.9 ESTIMATION OF CURRENT ASSETS

1. Raw Material Inventory:

The Investment in Raw Material can be computed with the help of the following formula:-

Budgeted Cost of Raw Average Inventory

Production x Material(s) x Holding Period

( In units ) per unit (months/days)

12 months / 52 weeks / 365days

2. Work-in-progress (W/P) Inventory:

The relevant cost of determine work in process inventory are the proportionate share of cost of

raw material and conversion costs (labors and Manufacturing over Head cost excluding

depreciation) In case, full until of raw material is required in the beginning the unit cost of work

is process would be higher, i.e., cost of full unit + 50% of conversion cost compared to the raw

material requirement. Throughout the production Cycle, working process is normally equivalent

to 50% of total cost of production. Symbolically,

Budgeted Estimated work- Average Time Span

Production x in-progress cost x of work-in-progress

( In units ) per unit inventory (months/days)


3. Finished Goods Inventory:

Working capital required to finance the finished goods inventory is given by factors

summed up as follows:-

Budgeted Cost of Goods Produced Finished Goods

Production x per unit (excluding x Holding Period

( in units ) depreciation) (months/days)


4. Debtors:

The working capital tied up in debtor should be estimated in relation to total cost price

(excluding depreciation) symbolically,

Budgeted Cost of Sales per Average Debt

Production x unit excluding x Collection Period

( In units ) depreciation (months/days)


5. Cash and Bank Balances:

Apart from Working Capital needs for Financing Inventories and Debtors, Firms also

find it useful to have such minimum cash Balances with them. It is difficult to lay down the exact

procedure of determining such an amount. This would primarily be based on the motives of

holding cash balances of the business firm, attitude of management towards risk, the access to

the borrowing sources in times of need and past experience.

ESTIMATION OF CURRENT LIABILITIES

The Working Capital needs of business firms are lower to the extent that such needs are met

through the Current Liabilities(other than Bank Credit) arising in the ordinary course of business.

The Important Current Liabilities in this context are Trade-Creditors, Wages and Overheads:-

1. Trade Creditors:

The Funding of Working Capital from Trade Creditors can be computed with the help of the

following formula:-

Budgeted Yearly Raw Material Credit Period

Production x Cost x Allowed by creditors



Note:- Proportional adjustment should be made to cash purchases of Raw Materials.

2. Direct Wages:

The Funding of Working Capital from Direct Wages can be computed with the help of the

following formula:-

Budgeted Yearly Direct Labor Average Time-lag in

Production x Cost x Payment of wages

(In units) per unit (months/days)

12 months / 52 weeks / 365dayss

Note:- The average Credit Period for the payment of wages approximates to half-a-month in the

case of monthly wage payment. The first days monthly wages are paid on the 30 th of the month,

extending credit for 29 days, the second day’s wages are, again, paid on the 30 th day, extending

credit for 28 days, and so on. Average credit period approximates to half-a-month.

3. Overheads (other than Depreciation and Amortization):

The Funding of Working Capital from Overheads can be computed with the help of the

following formula:-

Budgeted Yearly Overhead Average Time-lag in

Production x Cost x Payment of overheads



Note:- The amount of Overheads may be separately calculated for different types of Overheads.

In the case of Selling Overheads, the relevant item would be sales volume instead of Production

Volume.

FORMAT FOR DETERMINATION OF WORKING CAPITAL:

SL.NO PARTICULARSAMOUNT

1

2.

ESTIMATION OF CURRENT ASSETS

1) Minimum desired cash and Bank balances. xxx

2) Inventories

Raw material xxx

Work-in-progress xxx

Finished stock xxx

3) Debtors xxx

Total Current Assets

ESTIMATION OF CURRENT LIABILITIES

1) Creditors xxx

2) Wages xxx

3) Overheads xxx

Total current liabilities

NET WORKING CAPITAL

XXX

XXX

(Total Current assets – Total Current liabilities)

Add : Margin for contingency net

Working capital requirement

XXX

XX

XXXX

CHAPTER-3

COMPANY PROFILE

CHAPTER-3

3.1 COMPANY PROFILE

The GDX group is a pioneer and leading Security and Detective Services provider in

India capable of providing a total security and investigation services to its varied

clientele like Government, Semi-Government Undertakings, Banks, Industrial

Houses, Multi-National Companies, Private Organizations like Hospitals, Factories,

Academic Institutes, Residences and Foreign Missions.

The company is incorporated under the Companies Act, 1956 with its Head Quarters

at Delhi. Apart from the company’s permanent staff, it has the services of experts on

retainer ship as advisors and consultants in Business and Commercial Security,

Industrial Security, Detection, Personnel Management and Finance

To serve and support the requirements of the client all in house resources of are

combined and put together to successfully achieve the objectives of the

assignment. The reason we stand tall from our competitors is that we are equipped

with high tech equipments and have the flexibility to deliver a high level of

professional services through our qualified work force.

We endeavor to provide the best services by closely monitoring, and supervising each

security personnel deployed by us. Our mobile operations teams carry out site visits

and random inspections on daily basis. We pay to our security personnel the best

wages along with statutory benefits which in turn helps us attract the best manpower

in the sector.

The GDX GROUP CONSISTS OF THE FOLLOWING COMPANIES:

*Guardex Security Services

* Gdx Detectives Pvt Ltd

* Gdx Facility & Management Services Pvt Ltd

3.2 VISION

To be the most trusted name in security services

To be the preferred employer in the industry

To be a catalyst for growth and excellence of the business in India.

3.3 MISSION

Achieving superior and consistent results.

Creating a conducive environment to hone and retain talent.

Providing customer delight.

Institutionalizing system-approach in all aspects of functioning.

Upholding highest standards of ethical values at all times.

3.4 VALUES

Integrity

Commitment

Passion

3.5 SERVICES OF GDX

Security Services

Facility Management Services

Investigation Services

3.6 SWOT ANALYSIS

STRENGTHS

Strong management

Brand name

Customer loyalty

Innovative culture

Latest technology

WEAKNESS

Role conflict among employees

Increasing number of competitors

Less funds for investment

OPPORTUNITIES

Online booking system

Market expansion

24*7 hrs available

Professionally trained manpower

THREATS

Maintain quality services

Increase number of competitor

3.7 ESTEEMED CLIENTS OF GDX GROUP

House Incas Xebec Design and Facility

India Digital PGT Components Ltd

IIHMR Lake Forest Wines

Whirlpool Jindal group

Lazeez Affairs Nanglamal Sugar Complex

Delphi automotive pvt ltd Phillips india pvt ltd

Masoom Plamade Urban Pind

Thakral Computers Pragati Fabrication Pvt Ltd

Vega Corporate W H Brady

3.8 CERTIFICATION AND INDUSTRY AFFILIATION

3.9 GEOGRAPHICAL REACH

Operations in 15 states across the country

Branch Offices :

Ahmedabad, Noida, Chandigarh, Mumbai,

Gurgaon, Faridabad, Meerut, Jaipur, Kolkata,

Jammu & Kashmir, Chhattisgarh , Haridwar,

Indore, Kolkata,, Greater Noida, Firozabad,

Luck now, Jaipur, Bangalore, Hyderabad,

Chennai.

35 Satellite Offices

24 x 7 control rooms in all branches with

dedicated patrol vans for inspections

Corporate Office in New Delhi

CHAPTER-4

RESEARCH

METHODOLOGY

CHAPTER-4

4.1 INTRODUCTION:

Research methodology is a way to systematically solve the research problem. It May be

understood as a science of studying now research is done systematically. In that various steps,

those are generally adopted by a researcher in studying his problem along with the logic behind

them. “The procedures by which researcher go about their work of describing, explaining and

predicting phenomenon are called methodology”.

4.2 TYPE OF RESEARCH:

This project “A Study on Working Capital Management of GDX GROUP PRIVATE LTD”

is considered as an analytical research.

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

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

figures, data or material.

4.3 SOURCE OF RESEARCH DATA:

There are mainly two through which the data required for the research is collected.

Primary data: the primary data is that data which is collected fresh or first hand, and for first

time which is original in nature. In this study the primary data has been collected from personal

interaction with finance manager i.e., ms. Niharika Sharma and other staff members.

Secondary data: The secondary data are those which have already collected and stored.

Secondary data easily get those secondary data from records, annual reports of the company etc.

It will save the time, money and efforts to collect the data.

The major source of data for this project was collected through annual reports, profit and loss

account of 5 year period from 2006-2010 & some more information collected from internet and

text sources.

4.4 SAMPLING DESIGN

Sampling unit : Financial Statements.

Sampling Size : Last four years financial statements.

Tool Used for calculations: - MS-Excel.

4.5 TOOLS USED FOR ANALYSIS OF DATA

The data were analyzed using the following financial tools. They are

Ratio analysis.

Statement of changes in working capital.

4.6 LIMITATIONS OF THE STUDY

The study duration is short.

The analysis is limited to just four years of data study (from year 2011 to year 2014) for

financial analysis.

Limited interaction with the concerned heads due to their busy schedule.

CHAPTER-5

DATA ANALYSIS

CHAPTER-5

DATA ANALYSIS

5.1 WORKING CAPITAL POSITION ANALYSIS IN GDX GROUP PVT

LIMITED

Net working Capital ( Current Assets – Current Liabilities)

(Rs.in lacks)

YEAR 31.03.11

CURRENT ASSETS

Inventories 180.26

Sundry Debtors 114.33

Cash And Bank 10.81

Other Current Assets 6.67

Loans & Advances 21.44

TOTAL CURRENT ASSESTS 333.51

LESS:-

CURRENT LIABILITIES

AND PROVISIONS

Short term borrowing 94.54 Sundry creditors 159.49 Advanced received 25.30

Provisions 21.56

Installments of term loan 14.66

Other current liabilities 16.82

TOTAL CURRENT LIABILITIES 332.37

NET WORKING CAPITAL 1.14

31.03.12 31.03.13

291.13 653.95

390.84 219.79

34.30 28.22

28.08 21.99

78.74 83.92

823.09 1008.67

336.70 315.76 256.33 305.99

18.16 59.88

59.05 64.05

21.11 72.00

29.36 70.34

720.71 888.02

102.38 120.65

GRAPH-1

2011 2012 20090

50

100

150

1.14

102.38120.65

YEAR

AM

OU

NT

(IN

LA

CK

S)

INTERPRETATION

If we analysis the three years working capital position of the company, we find out that company

has sufficient working capital to meets its short term liability, it is good indicator for the

company but in 2012, working capital is increased by 101.24 lacs which shows that a sufficient

amount has been blocked in working capital which could be used for some other more beneficial

purpose.

5.2 INVENTORY ANALYSIS

Inventory means stock of three things :-

1. Raw materials

2. Semi finished goods.

3. Finished goods.

POSITION OF INVENTORY IN GDX PVT LTD. (Rs. in lacks)

YEAR 31.03.11 31.03.12 31.03.13Stores, Spare Parts etc. 10.10 .87 25.57 Stock In trade- Finished Goods 37.04 26.93 41.76 Raw Materials 78.74 184.53 340.08 Material under process 54.38 78.80 246.54

180.26 291.13 653.95

INTERPRETATION:

By analyzing the 3 years data, We are looking increasing pattern in inventories. We can see that

inventories are increased from 180.26 lacs to 291 lacs in the year 2012 and in the year 2012 it is

increased from 291 lacs to 653 lacs. By seeing this pattern we can say that the company is

managing the inventory according to the sale. Company have a great demand for the pump in the

year 2012 that is biggest reason for increase in inventories.

5.3 SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and fall under

current assets. Debtors will arise only when credit sales are made.

(Rs.in lacks)

YEAR 31.03.11 31.03.12 31.03.13

Sundry Debtors 114.33 390.84 219.79 Total 114.33 390.84 219.79

2011 2012 20130

100200300400500600700

YEAR

AMOUNT (IN LACKS)

GRAPH-2

GRAPH-3

2011 2012 2013

0

50

100

150

200

250

300

350

400

YEAR

AMOUNT ( IN LACKS)

INTERPRETATION

In the table and figure we see that there is rise in the debtors in the year 2012 and decrease in the

year 2013. A simple logic is that debtors increase only when sales increase and decrease if sales

decrease. In the year 2012, sales is increased by 72.30% and decreased by 19.24% in the year

2013.

We can say that it is a good sign as well as negative also. Company policy of debtors is very

good but a risk of bad debts is always present in high debtors. when sales is increasing with a

great speed the profit also increases. If company decreases the Debtors they can use the money in

many investment plans.

5.4 CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset an vital current assets, it is an important component of

working capital. In a narrow sense, cash includes notes, bank draft, cheque etc while in a broader

sense it includes near cash assets such as marketable securities and time deposits with bank.

Position of Cash and Bank Balance

YEAR 31.03.11 31.03.12 31.03.13

Cash Balance in hand 1.45 27.30 2.90

Bank Balance-

With Scheduled Banks 9.36 7.00 26.12

10.81 34.30 29.02

2011 2012 201305

101520253035

YEAR

AMOUNT ( IN LACKS )

INTERPRETATION

If we analyze the above table and chart we find that it follows a uneven pattern. In the year 2011

it had maintained a low amount of cash and bank balance. But in the year 2012, cash and the

bank balances has increased from 10.81 lacs to 34.30 lacs which is not a good sign for the

company because it shows that company is not using its cash for beneficial activities. Although,

in the year 2013, cash has reduced from 34.30 lacs to 29.02 lacs but this is very good sign for

company because they are not holding the cash in hand but using the cash for better projects, but

still it is not conducive. From the other point of view, company will not face the problem of

liquidity as company is maintaining the cash balance

5.5 LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties, company, employees

for a specific period of time and in return they will be liable to make timely repayment of that

amount in addition to interest on that loan.

Position of Other Loans & Advances

YEAR 31.03.11 31.03.12 31.03.13

Advances to suppliers 10.91 39.69 44.62

Advances 10.53 39.05 39.30

GRAPH-4

Deposits 6.67 28.08 21.99

28.11 106.82 105.91

INTERPRETATION:-

If we analyze the table and the chart we can see that it follows an increasing trend which is a

good sign for the company. We can see that from the year 2011 to 2012 it increased more than

triple. We can see that the increase of 28.11% and 106.82% in 11-12 and 12-13 respectively

from previous year. The increasing pattern shows that company is giving advances for the

expansion of plants and machinery which is good sign for better production of pumps and other

goods. Although company’s cash is blocked but this is good that company is doing

modernization of plants In time to compete with other competitors in market.

5.6 CURRENT LIABILITIES ANALYSIS

Current liabilities are any liabilities that are incurred by the firm on a short term basis.

Position of Other Current Liabilities

YEAR 31.03.11 31.03.12 31.03.13

Sundry Creditors 159.49 256.33 305.99

Bank Loan 94.54 336.70 315.76

Advance Received 25.30 18.16 59.88

2011 2012 20130

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AMOUNT ( IN LACKS )

GRAPH-5

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600

800

1000

AMOUNT ( IN LACKS )

2011 2012 2013

YEAR

Provisions for taxes 21.56 59.05 64.05

Other Liabilities 16.82 29.36 70.34

Total 332.37 720.71 888.02

INTERPRETATION

If we analyze the above table then we can see that it follow an uneven trend. The important

component of current liabilities is sundry creditors and other liabilities. In 2011 it was only

332.37 but it was increase in both the years i.e. 720.71 and 888.02 respectively. This is liability

for company so this should be less.. High current liabilities indicate that company is using credit

facilities by creditors.

5.7 SUNDRY CREDITORS ANALYSIS

Creditors or an account payable is an important component of working capital and fall under

current liability. Creditors will arise only when credit purchases are made.

Position of Sundry Creditors

(Rs.in lacks)

YEAR 31.03.11 31.03.12 31.03.13

Sundry Creditors 159.49 256.33 305.99

GRAPH-6

Total 159.49 256.33 305.99

2011 2012 20130

50100150200250300350

YEAR

AMOUNT ( IN LACKS)

INTERPRETATION

In the table and figure we see that there is continuous rise in the creditors in the company in the

successive years. A simple logic is that creditors increase only when purchases increase and if

purchase increases on credit it is not good sign for growth. This is liability for company so this

should be less. when company have minimum liabilities it creates a better goodwill in market.

High current liabilities indicate that company is using credit facilities by creditors.

5.8 BANK LOANS AND ADVANCES ANALYSIS

(Rs.in lacks)

YEAR 31.03.11 31.03.12 31.03.13

Bank Loan 94.54 336.70 315.76

Advances from the customers 25.30 18.16 59.88

Total 122.84 354.86 375.64

GRAPH-7

2011 2012 20130

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200

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350

400

YEAR

AMOUNT ( IN LACKS )

INTERPRETATION

If we analyze the table and the chart we can see that it follows an increasing trend which is not a

good sign for the company. We can see that from the year 2011 to 2012 it increased more than

double. The increasing pattern shows that company is taking loan for the expansion of plants and

machinery which is not a good sign because company depends on the external source. On the

other hand, company has reduced the bank loan in 2013 and increase in advances received from

the customer, this is good sign for company.

5.9 PROVISIONS ANALYSIS

Position of Other Provisions

(Rs.in lacks)

YEAR 31.03.07 31.03.08 31.03.09

Provision for Taxes 21.56 59.05 64.05

Total 21.56 59.05 64.05

--------------- ---------------- ------------

GRAPH-8

2011 2012 20130

10

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60

70

YEAR

AMOUNT ( IN LACKS )

INTERPRETATION

From the above table we can see that provision shows an increasing trend and the huge amount is

being kept in these provisions. Though the profits of the company are increased income tax is

also increased which is good that company is creating goodwill in market by paying income tax

in time. Although company is paying more income tax but also they are earning more. Other

provisions are also for the benefit of employees and public. This is good sign for Company

growth.

2. RATIO ANALYSIS

A) Working Capital Ratio

FORMULA

INVENTORY + RECIVEABLE - PAYABLE

WORKING CAPITAL RATIO= -------------------------------------------------------------

(AS % OF SALES) SALES

GRAPH-9

YEAR 31.03.11 31.03.12 31.03.13

WORKING CAPITAL RATIO 18 32 53

2011 2012 20130

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YEAR

AS

%

INTERPRETATION

This ratio indicates whether the investments in current assets or net current assets have been

properly utilized. In order words it shows the relationship between sales and working capital.

Higher the ratio lower is the investment in working capital and higher is the profitability. But too

high ratio indicates over trading. This ratio is an important indicator about the working capital

position. Now if we analyze the three years data, we find that it follows an increasing trend

which means that its investment in working capital is lower and the company is utilizing more of

its profit. But we find that ratio is increasing at a very fast rate which is not a good sign for the

company and the company is required to look into these matters closely.

(B) Current Ratio

FORMULA

TOTAL CURRENT ASSETS

CURRENT RATIO= --------------------------------------------

TOTAL CURRENT LIABILITIES

YEAR 31.03.11 31.03.12 31.03.13

CURRENT RATIO 1.00 1.14 1.14

GRAPH-10

2011 2012 2013

0.9

0.95

1

1.05

1.1

1.15

1.2

YAER

INTERPRETATION

This ratio reflects the financial stability of the enterprise. The standard of the normal ratio is 2:1

but in most of companies standard is taken according to Tandon Committee which is taken as

1.33:1.Now if we analyze the three years data it can be predicted that it holds a stable position all

through out period but it is seen that it holds a low position than the standard one and the

company is required to improve its position.

(C) QUICK RATIO

FORMULA

TOTAL CURRENT ASSETS - INVENTORIES

QUICK RATIO= -----------------------------------------------------------------

TOTAL CURRENT LIABILITIES

YEAR 31.03.11 31.03.12 31.03.13

QUICK RATIO 0.46 0.74 0.40

GRAPH-11

2011 2012 20130

0.10.20.30.40.50.60.70.8

YEAR

INTERPRETATION

It is the ratio between quick liquid assets and quick liabilities. The normal value for such ratio is

taken to be 1:1. It is used as an assessment tool for testing the liquidity position of the firm. It

indicates the relationship between strictly liquid assets whose realizable value is almost certain

on one hand and strictly liquid liabilities on the other hand. Liquid assets comprise all current

assets minus stock. By analyzing the three years data it can be said that its position was weak in

the year 2011 but it improved significantly in the next year and again it is declined during the

2013. It is to be said that it does not meet with the standard but in the year 2012 it was very close

to the standard and it can be said that its liquidity position is not good & stable.

(D) CURRENT ASSETS TO FIXED ASSETS RATIO

FORMULA

CURRENT ASSETS

CA TO FA RATIO = -----------------------------

FIXED ASSETS

YEAR 31.03.11 31.03.12 31.03.13

GRAPH-12

CATO FA RATIO 1.65 2.93 3.21

2011 2012 20130

0.51

1.52

2.53

3.5

YEAR

DA

YS

INTERPRETATION

Assuming a constant level of fixed assets, a higher CA/FA ratio indicates a conservative current

assets policy and a lower CA/FA ratio means an aggressive current assets policy assuming other

factors to be constant. A conservative policy i.e. higher CA/FA ratio implies greater liquidity and

lower risk; while an aggressive policy i.e. lower CA/FA ratio indicates higher risk and poor

liquidity. Now if we analyze the three year data we find the CA TO FA Ratio in increasing

pattern, so we can say that company is following the conservative policy to finance its short term

capital requirement.

(E) INVENTORY TURNOVER RATIO

FORMULA

AVERAGE STOCK

STOCK TURN OVER RATIO ( IN DAYS )= --------------------------------------- * 365

COST OF GOODS SOLD

YEAR 31.03.11 31.03.12 31.03.13

GRAPH-13

INVENTORY TURNOVER RATIO 104 79 227

2011 2012 20130

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DA

YS

INTERPRETATION

This ratio tells the story by which stock is converted into sales. A high stock turnover ratio

reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned

over or sold during the year. If a firm maintains a minimum stock level in order to maximize

sales by quick rotation of inventory and the holding cost of inventory will be minimum. A low

stock turn over ratio reveals undesirable accumulation of obsolete stock.

By analyzing the three year data it seen that it follows an uneven trend. We see that it is reduced

to 79 from the 104 days in 2012 and in 2013 it is increased by 148 days, Which is not a good

indicator for the company. Company should have to reduce the inventory conversion period in

order to reduce the cost.

(F) RECEIVABLE RATIO

FORMULA

DEBTORS

RECEIVABLE RATIO = ---------------- * 365

SALES

GRAPH-14

YEAR 31.03.11 31.03.12 31.03.13

RECEIVABLE RATIO (IN DAYS) 54 70 104

2011 2012 20130

20

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YEAR

DA

YS

INTERPRETATION

Generally a low debtors turnover ratio implies that it considered congenial for the business as it

implies better cash flow. The ratio indicates the time at which the debts are collected on an

average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter

collection period which indicates prompt payment made by the customer. Now if we analyze the

three year data we can say that it holds a good position while receiving its money from its

debtors. The ratios are in an decreasing trend, which implies that recovery position is not good

company and Company have to reduce the receivable period.

(G) PAYABLE RATIO

FORMULA

CREDITORS

PAYABLE RATIO= ----------------------------- * 365

COST OF SALES

GRAPH-15

YEAR 31.03.11 31.03.12 31.03.13

PAYABLE RATIO (IN DAYS) 92 69 135

2011 2012 20130

20406080

100120140160

YEAR

DA

YS

INTERPRETATION

Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers

throughout the year. Generally a low creditors turnover ratio implies favorable since the firm

enjoys lengthy credit period. Now if we analyze the three years data we find that in the year 2012

the ratio was very high which means that its position of creditors that year was not good, but in

the 2013 it is seen that it has followed a decreasing trend which is very good sign for the

company. So we can say it enjoys a very good credit facility from the suppliers.

3. OPERATING CYCLE

Formula = Inventory Conversion Period + Receivable Conversion Period – Deferral Period

Calculation of Operating Cycle:- ( All Figures in Days)

Particulars 2011-12 2012-13 2013-14

GRAPH-16

ICP 104 79 227

RCP 54 70 104

Gross Operating Cycle

158 149 431

DP 92 69 135

Net OP 66 80 296

2011-12 2012-13 2013-140

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YEAR

Day

s

INTERPRETATION

When a company has lower d/e ratio, it means that company is utilizing its own funds and

reserves rather than taking loans from outsiders. Company have a uneven trend in d/e ratio. In

the year 2011 it was 1.02 but in the year 2012 it is declined to .55 so we can say that now

company is using more its fund as compare to previous year, but still the ratio is high. Company

have to reduce the ratio.

GRAPH-17

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