1.1 Introduction to working capital:

Capital is what makes or breaks a business, and no business can run successfully without

enough capital to cover both short- and long-term needs. Maintaining sufficient levels of

short-term capital is a constantly ongoing challenge, and in today’s turbulent financial

markets and uncertain business climate external financing has become both harder and more

costly to obtain. Companies are therefore increasingly shifting away from traditional sources

of external financing and turning their eyes towards their own organizations for ways of

improving liquidity. One efficient but often overlooked way of doing so is to reduce the

amount of capital tied-up in operations, that is, to improve the working capital management

of the company.

1.2 Working capital:

The word working capital is made of two words (A) Working and (B) Capital. The word

working means day to day operations of the business and the word capital means monetary

value of all assets of the business. Working capital means the part of the total asset of the

business that change from one form to another form in the ordinary course of business

operations.

Working capital may be regarded as the life blood of a company. Working capital is of major

importance to internal and external analysis because of its close relationship with the current

day-to-day operations of a business. Every business needs funds for two purposes. Long term

funds are required to create production facility through purchase of fixed assets such as

plants, machinery, land and building & etc. short term funds are required for the purpose of

raw materials, payment of wages and other day-to-day expenses. It is nothing but the

difference between current asset and current liabilities.

1.3 Concepts of Working capital:

1) Balance sheet or Traditional concept

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2) Operating cycle concept

1.3.1 Balance sheet or Traditional concept

It shows the position of the firm at certain point of time. It is calculated on the basis of

balance sheet calculated on a specific date. In this method there are two types of working

capital:-

1) Gross working capital

2) Net working capital

Gross working capital:- It refers to the firm’s investment in current assets. The sum of

the assets is working capital of the business. The sum of the current assets is a quantitative

aspect of working capital. Which emphasizes more on quantity than its quality, but it fails to

reveal the true financial position of the firm because every increase in current liability will

decrease the gross working capital.

Net working capital:- It is the difference between the current assets and the current

liabilities or the excess of total current assets over the current liabilities.

I.e. Working Capital= Current Assets - Current Liabilities

The above formula includes three important balance sheet accounts which all have a direct

impact on the business, namely accounts receivable (A/R), accounts payable (A/P) and

inventory. These accounts are often referred to as the three areas of working capital.

● Accounts Receivable – Money owed to the company for products/services that have been

delivered to customers but not yet paid for.

● Inventory – The raw materials, work-in-progress goods and finished goods that are ready or

will be ready for sale. Inventory represents a key asset to most businesses as the turnover of

inventory is a primary source of revenue generation and subsequently earnings for the

shareholders/owners of the company.

● Accounts Payable – Money owed to suppliers for goods and services that the company has

purchased on credit.

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List of Current Assets and Current Liabilities:

Cash in hand / at bank

Bills Receivable

Sundry debtors

Investors / stock

Temporaryinvestment

Prepaid Expenses

Accrued incomes

Bills payable

Sundry Creditors

Outstanding expenses

Accrued expenses

Bank Over Draft

Short term Loans

1.3.2 Operating cycle concept

The duration or time required id completing the sequence of events right from purchase of

raw material for cash to the realization of sales in cash is called the operating cycle or

working capital cycle.

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Current Assets

Current Liability

1.4 Working Capital Cycle or Operating cycle:

All these require working capital. Working capital is thus like the lifeblood of a business. The

business will not be able to carry on day-to-day activities without the availability of adequate

Working capital. The diagram shown under;

Working capital cycle involves conversions and rotation of various constituents/components

of the working capital. Initially ‘cash’ is converted into raw materials. Subsequently, with the

usage of fixed assets resulting in value additions, the raw materials get converted into work in

process and then into finished goods. When sold on credit, the finished goods assume the

form of debtors who give the business cash on due date. Thus ‘cash’ assumes its original

form again at the end of one such working capital cycle but in the course it passes through

various other forms of current assets too. This is how various components of current assets

keep on changing their forms due to value addition. As a result, they rotate and business

operations continue. Thus, the working capital cycle involves rotation of various constituents

of the working capital.

1.5 Types of working capital:The operating cycle creates the need for current assets (working capital). However the need

does not come to an end after the cycle is completed to explain this continuing need of

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Working Capital

Permanent Working Capital

Variable Working Capital

Initial W.C.

Regular W.C.

Seasonal W.C.

Special W.C.

current assets a destination should be drawn between permanent and temporary working

capital.

Working capital can be put into two categories:

1) Fixed or permanent working capital

2) Fluctuating or temporary working capital

1.5.1 Permanent working capitalThe volume of investment in current assets can change over a period of time. But always

there is minimum level of current assets that must be kept in order to carry on the business.

This is the irreducible minimum amount needed for maintaining the operating cycle. It is the

investment in current assets. This is permanently locked up in the business and therefore

known as permanent working capital.

The permanent working capital refers to that part of the working capital which is necessary

for maintaining stock of raw material and finished goods at their normal level and for paying

wages and salaries regularly. It is minimum amount of current assets which is needed for the

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smooth running of business. In other words, permanent working capital is that which is

permanently locked up in current assets. Permanent working capital is off two kinds:

A. Initial working capital and

B. Regular working capital

Initial working capitalIn the initial period of its operation, a company must have enough money to pay certain

expenses. This amount will have to be supplied the owners themselves, because in the initial

years, credit facilities may not be available from creditors, bank do not grant loans or

overdrafts and credit-sales will have to be made.

Regular working capitalIt is the working capital required to continue the regular business operations. It is required

for maintaining regular stock of finished goods to meet the customers’ demands, to pay

regular business expenses etc. Regular working capital is the excess of current assets over

current liabilities. This part of the working capital needed for smooth operations of the

business.

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Temporary W.C.

Permanent W.C.

Time

W.C.

(Graph no. 1.1)

1.5.2 Temporary working capitalIt is the volume of working capital needed over and above the fixed working capital in order

to meet the unforeseen market changes and contingencies. In other words any amount over

and above the permanent working capital is variable or fluctuating working capital.

It is the part of the working capital which is needed to meet the seasonal demands and special

needs. This is called variable working capital because its amount varies according to the

extent of extra demand. Variable working capital is of two types

Seasonal working capital Some business enterprises require a larger amount of current assets during a particular

season. For instance sugar mills have to purchase sugarcane and employ more people to

process it during a particular season.

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Special working capital

Special working capital is that portion of temporary working capital which is needed for

special purposes. Like for processing a special order received from any particular client.

1.6 Components of working capital:

Cash and equivalents:- This most liquid form of working capital requires constant supervision. A good cash budgeting and forecasting system provides answers to key questions such as: Is the cash level adequate to meet current expenses as they come due? What is the timing relationship between cash inflow and outflow? When will peak cash needs occur? When and how much bank borrowing will be needed to meet any cash shortfalls? When will repayment be expected and will the cash flow cover it?

Accounts receivable: - Many businesses extend credit to their customers. If you do, is the amount of accounts receivable reasonable relative to sales? How rapidly are receivables being collected? Which customers are slow to pay and what should be done about them?

Inventory: - Inventory is often as much as 50 percent of a firm's current assets, so naturally it requires continual scrutiny. Is the inventory level reasonable compared with sales and the nature of your business? What's the rate of inventory turnover compared with other companies in your type of business?

Accounts payable: - Financing by suppliers is common in small business; it is one of the major sources of funds for entrepreneurs. Is the amount of money owed suppliers reasonable relative to what you purchase? What is your firm's payment policy doing to enhance or detract from your credit rating?

Accrued expenses and taxes payable: - These are obligations of your company at any given

time and represent a future outflow of cash.

1.7 Need for Working Capital:

Every running business needs working capital. Even a business which is fully equipped with

all types of fixed assets required is bound to collapse without

(i) Adequate supply of raw materials for processing;

(ii) Cash to pay for wages, power and other costs;

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(iii) Creating a stock of finished goods to feed the market demand regularly; and,

(iv) The ability to grant credit to its customers.

1.8 Determinants of Working Capital:

The working capital needs of a business are influenced by numerous factors. The important

ones are discussed in brief as given below:

i) Nature of Enterprise

The nature and the working capital requirements of an enterprise are interlinked. While a

manufacturing industry has a long cycle of operation of the working capital, the same would

be short in an enterprise involved in providing services. The amount required also varies as

per

the nature; an enterprise involved in production would require more working capital than a

service sector enterprise.

ii) Manufacturing/Production Policy

Each enterprise in the manufacturing sector has its own production policy, some follow the

policy of uniform production even if the demand varies from time to time, and others may

follow the principle of ‘demand-based production’ in which production is based on the

demand during that particular phase of time. Accordingly, the working capital requirements

vary for both of them.

iii) Volume of business

Generally, the size of the company has a direct relation with the working capital needs. Big

concerns have to keep higher working capital for investment in current assets and for paying

current liabilities.

iv) Terms of Credit

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A company purchasing all raw-materials for cash and selling on credit will be requiring more

amount of working capital. Contrary to this, if the enterprise is in a position to buy on credit

and sell it for cash, it will need less amount of working capital. The length of the period of

credit has a direct bearing on working capital. The essence of this is that the period which

elapses between the purchase of materials and sale of finished goods and receipts of sale

proceeds, will determine the requirements of working capital.

v) Seasonal Variations

There are some industries which either produce goods or make sales only seasonally. For

example, the sugar industry produces practically all the sugar between December and April

and the woollen textile industry makes its sales generally during winter.In both these cases

the needs of working capital will be very large, during few months {i.e., season). The

working capital requirements will gradually decrease as and when the sales are made.

vi) Operations

The requirement of working capital fluctuates for seasonal business. The working capital

needs of such businesses may increase considerably during the busy season and decrease

during the slack season. Ice creams and cold drinks have a great demand during summers,

while in winters the sales are negligible.

vii) Market Condition

If there is high competition in the chosen product category, then one shall need to offer sops

like credit, immediate delivery of goods etc. for which the working capital requirement will

be high. Otherwise, if there is no competition or less competition in the market then the

working capital requirements will be low.

viii) Availability of Raw Material

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If raw material is readily available then one need not maintain a large stock of the same,

thereby reducing the working capital investment in raw material stock. On the other hand, if

raw material is not readily available then a large inventory/stock needs to be maintained,

thereby calling for substantial investment in the same.

ix) Growth and Expansion

Growth and expansion in the volume of business results in enhancement of the working

capital requirement. As business grows and expands, it needs a larger amount of working

capital. Normally, the need for increased working capital funds precedes growth in business

activities.

x) Price Level Changes

Generally, rising price level requires a higher investment in the working capital. With

increasing prices, the same level of current assets needs enhanced investment.

xi) Manufacturing Cycle

The manufacturing cycle starts with the purchase of raw material and is completed with the

production of finished goods. If the manufacturing cycle involves a longer period, the need

for working capital would be more.

xii) Other Factors

In addition to the above mentioned considerations there are also a number of other factors

which affect the requirements of working capital. Some of them are given below.

Operating efficiency.

Management ability

Irregularities of supply.

Import policy.

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Asset structure.

1.9 Sources of working capital:

The company can choose to finance its current assets by (a) Long term sources (b) Short term

sources.

Issue of shares:

It is the primary and most important sources of regular or permanent working capital. Issuing

equity shares as it does not create and burden on the income of the concern.

Retained earnings:

Retained earnings accumulated profits are a permanent sources of regular working capital. It

creates not charge on future profits of the enterprises.

Issue of debentures:

It creates a fixed charge on future earnings of the company. Company is obliged to pay

interest.

Long term debt:

Company can raise fund from accepting public deposits, debts from financial institutions like

banks, corporations etc. the cost is higher than the other financial tools. Other sources sale of

idle fixed assets, securities received from employees and customers are examples of other

sources of finance.

Short term sources of temporary working capital:

Temporary working capital is required to meet the day to day business expenditures. The

variable working capital would finance from short term sources of funds. And only the period

needed.

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Some sources of temporary working capital are given below;

Commercial bank:

A commercial bank constitutes significant sources for short term or temporary working

capital this will be in the form of short term loans, cash credit, and overdraft and though

discounting the bills of exchanges.

Public deposits:

Most of the companies in recent years depend on these sources to meet their short term

working capital requirements ranging from six month to three years.

Various credits:

Trade credit, business credit papers and customer credit are other sources of short term

working capital. Credit from suppliers, advances from customers, bills of exchanges,

promissory notes, etc. helps to raise temporary working capital.

Reserves and other funds;

Various funds of the company like depreciation fund. Provision for tax and other provisions

kept with the company can be used as temporary working capital. The company should meet

its working capital needs through both long term and short term funds. It will be appropriate

to meet at least 2/3 of the permanent working capital equipment form long term sources,

whereas the variables working capital should be financed from short term sources.

1.10 Management of working capital:

Management of working capital is concerned with the problem that arises in attempting to

manage the current assets, current liabilities. The basic goal of working capital management

is to manage the current assets and current liabilities of a firm in such a way that a

satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as

both the situations are bad for any firm. There should be no shortage of funds and also no

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working capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a

firm has a great on its probability, liquidity and structural health of the organization. So

working capital management is three dimensional in nature as

1.     It concerned with the formulation of policies with regard to profitability, liquidity and

risk.

2.     It is concerned with the decision about the composition and level of current assets.

3.     It is concerned with the decision about the composition and level of current liabilities.

 

1.11 WORKING CAPITAL ANALYSIS:

As we know working capital is the life blood and the centre of a business. Adequate amount

of working capital is very much essential for the smooth running of the business. And the

most important part is the efficient management of working capital in right time. The

liquidity position of the firm is totally effected by the management of working capital. So, a

study of changes in the uses and sources of working capital is necessary to evaluate the

efficiency with which the working capital is employed in a business. This involves the need

of working capital analysis.

The analysis of working capital can be conducted through a number of devices, such as:

1.     Ratio analysis. 2.     Fund flow analysis. 3.     Budgeting.

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1.11.1 RATIO ANALYSIS:

A ratio is a simple arithmetical expression one number to another. The technique of ratio

analysis can be employed for measuring short-term liquidity or working capital position of a

firm. The following ratios can be calculated for these purposes:

Current ratio

Quick ratio

Absolute liquid ratio

Inventory turnover

Receivables turnover

Payable turnover ratio

Working capital turnover ratio

Working capital leverage

Ratio of current liabilities to tangible net worth

1.11.2 FUND FLOW ANALYSIS:

Fund flow analysis is a technical device designated to the study the source from which

additional funds were derived and the use to which these sources were put. The fund flow

analysis consists of:

Preparing schedule of changes of working capital

Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position (working capital)

business enterprise between beginning and ending of the financial dates.

1.11.3 Working capital budget:

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A budget is a financial and / or quantitative expression of business plans and polices to be

pursued in the future period time. Working capital budget as a part of the total budge ting

process of a business is prepared estimating future long term and short term working capital

needs and sources to finance them, and then comparing the budgeted figures with actual

performance for calculating the variances, if any, so that corrective actions may be taken in

future. He objective working capital budget is to ensure availability of funds as and needed,

and to ensure effective utilization of these resources. The successful implementation of

working capital budget involves the preparing of separate budget for each element of working

capital, such as, cash, inventories and receivables etc.

1.12 Disadvantages of excessive Working Capital:

Every business concern should have adequate working capital to run itsbusiness operations. It

should have neither redundant or excessive working capital nor inadequate nor shortage

of working capital. Both excessive as well as short working capital positions are bad for any

business.

1. Excessive working capital means idle funds which earn no profits for the business and

hence the business cannot earn a proper rate of return on its investments.

2. When there is redundant working capital, it may lead to unnecessary purchasing and

accumulation of inventories causing more chances of theft waste and losses. 

3. Excessive working capital implies excessive debtors and defective credit Policy which may

cause higher incidence of bad debts.

4. It may result into overall inefficiency in the organization.

5. When there is an excessive working capital relation with the banks and other financial

institutions may not be maintained.

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6. Due to low rate of return on investments the value of shares may also fall

1.13 Disadvantages of inadequate Working Capital:

1) A concern, which has inadequate working capital, cannot pay its short-term liabilities

in time. Thus it will loose its reputation and shall not be able to get good credit facilities.

2) The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies,

increases costs and reduces the profits of the business.

3) It becomes impossible to utilize efficiently the fixed assets due to non-availability of liquid

funds.

4) The rate of return on investments also falls with the shortage of working capital.

1.14 Objective of the study:

The key objectives of undertaking the study of working capital at RIL are listed below:

1. To study and analyse working capital management at Reliance Industries Ltd. which

includes

Inventory management

Receivable management

Cash management

by using the tools such as Ratio Analysis, Cash flow statement, Tables and graphs.

2. The aim is to learn how to manage working capital needs of the organization and to

learn the different ways through which theoretical learning is applied practically in the

organization.

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3. And to give a commentary on the efficiency of the working capital management of the

company.

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1.15 Need of the study:Today financial soundness and profitability of business enterprises largely depend upon the

working capital management by the firm. If there is shortage of working capital it affects the

day to day operations of the business firm, if there is excess of working capital, fund become

idle it also affects the financial soundness of the firm. In this perspective there is need to

manage the working capital effectively in any business.

The management of working capital helps us to maintain the working capital at a satisfactory

level by managing the working the current assets and current liabilities. It also helps to

maintain proper balance between profitability, risk and liquidity of the business significantly.

The question which strike the mind during reviewing various literatures is how RIL

managing its working capital. Hence study is undertaken to answer the above mentioned

question.

1.16 Scope of the study:

The scope of the study is identified after and during the study is conducted. For this particular

project the study of working capital is based on tools like:

Ratio analysis

Cash flow analysis

Graphs

And Tables

Further the study is based on last 3years Annual Reports of RIL.

1.17 Research Methodology:The process used to collect information and data for the purpose of making business decisions.

The methodology may include publication research, interviews, surveys and other

research techniques, and could include both present and historical information.

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Types of research methodology,

1. Descriptive

2. Exclusive

DESCRIPTIVE

Descriptive research does not fit neatly into the definition of either quantitative or qualitative

research methodologies, but instead it can utilize elements of both, often within the same

study. The term descriptive research refers to the type of research question, design, and data

analysis that will be applied to a given topic. Descriptive statistics tell what is, while

inferential statistics try to determine cause and effect.

EXCLUSIVE

Exclusive research enables to solve local and global aims of the company.

-To estimate the company share in the market (in terms of broadcasting volume and number

of projects in general and in various types and genres);

- To summarize the results of the company’s activities in the certain time period, to make

annual/semiannual/quarterly report;

RESEARCH ON WORKING CAPITAL:

The study will be based on the QUANTATIVE and QUALITATIVE approach of the working capital

management model at RIL needs a thorough study. With the help of RATIO ANALYSIS & TREND

ANALYSIS the result of the control mechanism can be summarized which will help in identifying the

effectiveness of the system under the preview. The data for the companies under analysis has been

taken from their respective websites of the companies. MICROSOFT EXCEL has been used as a tool

for different calculation purposes and developing the charts.

COLLECTION OF DATA

The data has been collected from the primary and secondary sources:

Primary data

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Department visit- discussion with the concerned person and interviewing officers in

accounts and finance sector.

Observation method.

Secondary data

Annual reports

Journals and magazines

Study of files and office documents Websites of RIL and other steel companies.

Tools for study

Ratio Analysis

1. Current ratio

2. Quick ratio

3. Working capital turnover ratio

4. Debtor turnover ratio

5. Creditor turnover ratio

6. Inventory turnover ratio

7. Liquidity ratio

8. Absolute liquidity ratio

Graph and chart interpretation

Cash flow Statement

1.18 Limitations of the study:

Various limitations of this particular project study are:

1. Factors like competitors analysis are not considered.

2. Industry analysis has also not performed in this particular study. However an industry

overview has been given in the study.

3. The information are mainly taken from the Final Accounts of the company and no

other source has been taken care of.

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4. No data has been collected from primary source.

5. The study is however limited to 3years.

6. As it is a study of financial report, it suffers from the basic limitations of accounting.

1.19 Time period of the study:

This particular project study is constrained to last three years that is FY 2104, FY 2013, FY

2012. However for the calculation of Cash Flow Statement figures of FY 2011 are also taken

into consideration.

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2.1 Literature Review:Many researchers have studied working capital from different views and in different

environments. The following ones were very interesting and useful for our research. Dong

and Su (2010) examined working capital management effects on firms’ profitability of listed

Vietnamese firms from 2006-2008. The authors find that, a significantly negative relationship

exists between profitability, measured as gross operating profit and the components of cash

conversion cycle (inventory days, and receivable days). Furthermore, the study also observes

a statistically significant positive association between profitability and accounts payable days.

These findings imply that increasing firms’ inventory and receivable days lead to a

decreasing profit while significant financial success can be attained with increased payable

days. Gill et al. (2010) also studied the relationship between working capital management and

profitability of 88 US firms listed on the New York Stock Exchange. Using data from 2005-

2007, the authors find no statistically significant relationship between average payable days

and profitability and also between average inventory days and firm profitability. Similarly,

they also observe no significant relationship between firm size and profitability but notice a

negative association between accounts receivable and profitability. This suggests that

managers can enhance the profitability of their firms by reducing the number of days for their

account receivables. In a related study, Karaduman (2010) investigated the impact of working

capital management practices on the profitability of 140 randomly selected companies listed

on the Istanbul Stock Exchange. Using data from 2005-2008, their findings indicate a

statistically significant negative association between firm profitability, measured as return on

assets on one hand and accounts receivable and inventory days on the other hand. The study

further reveals a significantly positive relationship between accounts payable days and firm

profitability. Thus, the study has reiterated the importance of effective and efficient working

capital management in ensuring firms’ profitability. Afza and Nazir (2009) investigated the

traditional relationship between working capital management policies and a firm’s

profitability for a sample of 204 nonfinancial firms listed on the Karachi Stock Exchange

(KSE). Using regression analysis technique and data from 1998-2005, the study relates a

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significantly negative relationship between the profitability of firms and degree of

aggressiveness of working capital investment and financing policies. The study further

indicates a significant difference among the working

capital requirements and financing policies across different industries. The authors suggest

that managers can create value if they adopt a conservative approach towards working capital

investment and working capital financing policies

In addition to the above, Falope and Ajilore (2009) examined the effects of working capital

management on the profitability of 50 quoted non-financial Nigerian firms. Using panel data

methodology and data from 1996-2005, the authors observe a significantly negative

relationship between net operating profit and working capital management variables, namely:

average collection Akoto 375 period, inventory days, and cash conversion cycle. However,

the study notices no significant variations in the effects of working capital management

between large and small firms. An important lesson therefore is that, prudent working capital

management is critical for the profitability of firms of all sizes. Mathuva (2009) examined the

influence of working capital management components on corporate profitability of 30

Kenyan listed firms. Using panel data methodology and data covering the period from 1993-

2008, the study finds a significantly negative relationship between accounts collection days

and profitability, a significantly positive association between inventory conversion period and

profitability and a significantly positive relationship between average payment days and

profitability. The findings of this study therefore confirm the traditional view of efficient

working capital management and its effects on profitability

(Eljelly, 2004) elucidated that efficient liquidity management involves planning and

controlling current assets and current liabilities in such a manner that eliminates the risk of

inability to meet due short-term obligations and avoids excessive investment in these assets.

The relation between profitability and liquidity was examined, as measured by current ratio

and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia

using correlation and regression analysis. The study found that the cash conversion cycle was

of more importance as a measure of liquidity than the current ratio that affects profitability.

The size variable was found to have significant effect on profitability at the industry level.

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The results were stable and had important implications for liquidity management in various

Saudi companies. First, it was clear that there was a negative relationship between

profitability and liquidity indicators such as current ratio and cash gap in the Saudi sample

examined. Second,

the study also revealed that there was great variation among industries with respect to the

significant measure of liquidity. (Deloof, 2003) discussed that most firms had a large amount

of cash invested in working capital. It can therefore be expected that the way in which

working capital is managed will have a significant impact on profitability of those firms.

Using correlation and regression tests he found a significant negative relationship between

gross operating income and the number of days accounts receivable, inventories and accounts

payable of Belgian firms. On basis of these results he suggested that managers could create

value for their shareholders by reducing the number of days’ accounts receivable and

inventories to a reasonable minimum. The negative relationship between accounts payable

and profitability is consistent with the view that less profitable firms wait longer to pay their

bills. (Ghosh and Maji, 2003) in this paper made an attempt to examine the efficiency of

working capital management of the Indian cement companies during 1992 – 1993 to 2001 –

2002. For measuring the efficiency of working capital management, performance, utilization,

and overall efficiency indices were calculated instead of using some common working capital

management ratios. Setting industry norms as target-efficiency levels of the individual firms,

this paper also tested the speed of achieving that target level of efficiency by an individual

firm during the period of study. Findings of the study indicated that the Indian Cement

Industry as a whole did not perform remarkably well during this period.

(Shin and Soenen, 1998) highlighted that efficient Working Capital Management (WCM)

was very important for creating value for the shareholders. The way working capital was

managed had a significant impact on both profitability and liquidity. The relationship

between the length of Net Trading Cycle, corporate profitability and risk adjusted stock

return was examined using correlation and regression analysis, by industry and capital

intensity. They found a strong negative relationship between lengths of the firm’s net trading.

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Cycle and its profitability. In addition, shorter net trade cycles were associated with higher

risk adjusted stock returns. (Smith and Begemann 1997) emphasized that those who

promoted working capital theory shared that profitability and liquidity comprised the salient

goals of working capital management. The problem arose because the maximization of the

firm's returns could seriously threaten its liquidity, and the pursuit of liquidity had a tendency

to dilute

returns. This article evaluated the association between traditional and alternative working

capital measures and return on investment (ROI), specifically in industrial firms listed on the

Johannesburg Stock Exchange (JSE). The problem under investigation was to establish

whether the more recently developed alternative working capital concepts showed improved

association with return on investment to that of traditional working capital ratios or not.

Results indicated that there were no significant differences amongst the years with respect to

the independent variables. The results of their\ stepwise regression corroborated that total

current liabilities divided by funds flow accounted for most of the variability in Return on

Investment (ROI). The statistical test results showed that a traditional working capital

leverage ratio, current liabilities divided by funds flow, displayed the greatest associations

with return on investment. Well known liquidity concepts such as the current and quick ratios

registered insignificant associations whilst only one of the newer working capital concepts,

the comprehensive liquidity index, indicated significant associations with return on

investment. All the above studies provide us a solid base and give us idea regarding working

capital management and its components. They also give us the results and conclusions of

those researches already conducted on the same area for different countries and environment

from different aspects. On basis of these researches done in different countries, we have

developed our own methodology for research.

26

3.1 Industry overview:

Reliance industry deals in many types of industries. The profile of all these industries are

given below.

3.1.1 Media and Entertainment industry:

The television industry continued to have a dynamic operating environment in 2015. Despite

the ongoing cable digitisation, increase in much awaited addressability and resultant

improvement in economics for multi system operators and broad casters continued to ivied

the industry in 2014, while subscription revenue from DTH continued at a fast clip. In 2016

the key things to watch will be the ability of MSOs to enforce channel packaging in Phase I

and Phase II cities and rollout of set-top-box in phase three areas.

Television advertising bounced back significantly on account of Bihar Election and improved

macroeconomic environment leading to companies increasing their add expenditure. E-

commerce emerged as a key sector driving growth, followed by mobile hand set companies,

while some of the traditional large advertisers such as FMCG and auto mobile also showed

renewed growth. The eco system for TV and advertisement expected to remain strong in

2016 on account of rebound in the India’s growth story.

The television industry in India estimated at INR475 in 2014 and is expected to grow at a

CAGR of 15.5% to reach INR975 billion in 2019. Subscription revenue growth at an

annualised growth rate of 16% is expected to outpace the advertising revenue growth at an

annualised growth rate of 14%, on account of improving monetisation due to improving

digitisation.

Table no. 3.1

Year Subscription

Revenue

Advertisement

Revenue2008 158 82

27

2009 165 882010 187 1032011 213 1162012 245 1252013 281 1362014E 320 1552015P 369 1752016P 433 1962017P 513 2262018P 595 2602019P 676 299

2008 2009 2010 2011 2012 2013 2014E 2015P 2016P 2017P 2018P 2019P0

200

400

600

800

1000

1200

Chart Title

Subscription Revenue Advertisement Revenue

(Graph no. 3.1)

From the above data it could be clearly estimated that the Television, Media and

Advertisement industry is going to do well in the coming years. And RIL as amongst the

major player in India in this segment can take a clear advantage.

28

3.1.2 Textile Industry:

Textile and Clothing Industry in Indian economy:

Textile and Clothing (T&C) Industry constitutes 4% of India’s GDP, 12% of

Industrial Production and 10.5% of total exports of goods.

Second largest employer after agriculture: Provides direct employment to over 35

Million people and indirect employment to 45 Million.

T&C production estimated at US $85 Billion in 2012: US $ 51 billion worth goods for

domestic market and US $ 34 billion for exports.

Potential for future growth:

Strong and diverse raw material base.

Strong presence in entire textile value chain - vertically and horizontally integrated –

from fibres to fashion.

Unique blend of tradition and technology.

Globally competitive spinning industry.

Flexible production systems and strong entrepreneurial skills in finished products.

Diverse design base.

Table no. 3.2

Units 2012 2017 2020Yarn Production

(Million Metric Tons)

4.8 7.2 9

Fabric Production

(Billion Square Meters)

61 112 150

Garment Production

(Billion Pieces)

10 17 20

29

1 2 30

20406080

100120140160

Chart Title

Yarn Production (Million Metric Tons)Fabric Production (Billion Square Meters)Garment Production (Billion Pieces)

(Graph no. 3.2)

Being a major player in this segment RIL with its both domestic and international brands can

take the advantage.

3.1.3 Retail Industry:

IntroductionThe Indian retail industry has emerged as one of the most dynamic and fast-paced industries

due to the entry of several new players. It accounts for over 10 per cent of the country’s

Gross Domestic Product (GDP) and around 8 per cent of the employment. India is the

world’s fifth-largest global destination in the retail space.

Market SizeThe Boston Consulting Group and Retailers Association of India published a report titled,

‘Retail 2020: Retrospect, Reinvent, Rewrite’, highlighting that India’s retail market is

expected to nearly double to US$ 1 trillion by 2020 from US$ 600 billion in 2015, driven by

income growth, urbanisation and attitudinal shifts.

30

The report adds that while the overall retail market is expected to grow at 12 per cent per

annum, modern trade would expand twice as fast at 20 per cent per annum and traditional

trade at 10 per cent.

Retail spending in the top seven Indian cities amounted to Rs 3.58 trillion (US$ 53.7 billion),

with organised retail penetration at 19 per cent as of 2014. Online retail is expected to be at

par with the physical stores in the next five years.

India is expected to become the world’s fastest growing e-commerce market, driven by robust

investment in the sector and rapid increase in the number of internet users. Various agencies

have high expectations about growth of Indian e-commerce markets. Indian e-commerce

sales are expected to reach US$ 55 billion by FY2018 from US$ 14 billion in FY2015.

Further, India's e-commerce market is expected to reach US$ 220 billion in terms of gross

merchandise value (GMV) and 530 million shoppers by 2025, led by faster speeds on reliable

telecom networks, faster adoption of online services and better variety as well as

convenience.

India’s direct selling industry increased 6.5 per cent in FY2014-15 to Rs 7,958 crore (US$

1.19 billion) and is expected to reach a size of Rs 23,654 crore (US$ 3.55 billion) by

FY2019-20, as per a joint report by India Direct Selling Association (IDSA) and PHD.

(Graph no. 3.3)

RIL with its wide spread retail chain possess the ability to explore the retail market in a broad

way.

31

3.1.4 Oil and Gas Exploration and Production Industry:IntroductionThe oil and gas sector is among the six core industries in India and plays a major role in

influencing decision making for all the other important sections of the economy.

In 1997–98, the New Exploration Licensing Policy (NELP) was envisaged to fill the ever-

increasing gap between India’s gas demand and supply. A recent report points out that the

Indian oil and gas industry is anticipated to be worth US$ 139.8 billion by 2015. India’s

economic growth is closely related to energy demand; therefore the need for oil and gas is

projected to grow more, thereby making the sector quite conducive for investment.

The Government of India has adopted several policies to fulfil the increasing demand. The

government has allowed 100 per cent foreign direct investment (FDI) in many segments of

the sector, including natural gas, petroleum products, and refineries, among others. Today, it

attracts both domestic and foreign investment, as attested by the presence of Reliance

Industries Ltd (RIL) and Cairn India.

Market SizeBacked by new oil fields, domestic oil output is anticipated to grow to 1 MBPD by FY16.

With India developing gas-fired power stations, consumption is up more than 160 per cent

since 1995. Gas consumption is likely to expand at a CAGR of 21 per cent during FY08–17.

Presently, domestic production accounts for more than three-quarters of the country’s total

gas consumption.

India increasingly relies on imported LNG; the country was the fifth-largest LNG importer in

2013, accounting for 5.5 per cent of global imports. India’s LNG imports are forecasted to

increase at a CAGR of 33 per cent during 2012–17. However, net imports of Natural Gas fell

from 13.14 BCM in 2012-13 to 13.03 BCM in 2013-14.

State-owned Oil and Natural Gas Corporation (ONGC) dominates the upstream segment

(exploration and production), accounting for approximately 68 per cent of the country’s total

oil output (FY14).

Indian Oil Corporation Limited (IOCL) operates 11,214 km network of crude, gas and

product pipelines, with a capacity of 1.6 MBPD of oil and 10 million metric standard cubic

metre per day (MMSCMD) of gas. This is around 30 per cent of the nation’s total pipeline

network. IOCL is the largest company, operating 10 out of 22 Indian refineries, with a

combined capacity of 1.3 MBPD.

32

(Graph no. 3.4)

With increasing demand for Oil and Gas in India, RIL has the opportunity to grow at a higher

rate.

3.1.5 Petrochemical Industry:"Petrochemicals sector is one of the fastest growing segments with a growth rate of 13%,

which is more than twice of growth of India's gross domestic product (GDP), and also the

global growth rate in petrochemical space which is stagnant at 6%."

The petrochemicals industry covers a wide range of products, including olefins, ethane and

propane, aromatic compounds such as benzene, toluene, intermediate petrochemicals, end

products, polymers, synthetic fibres, and synthetic rubber.

India consumes around 6.2 million tonnes of polymers, which represents approximately 3%

of global consumption of 200 million tonnes. To meet the surging demand, the domestic

petrochemical industry is preparing to spend more than $25bn.

ASSOCHAM secretary general D S Rawat said: "Huge investments made in the

petrochemical space bode well for the growth of this segment, there is a steadfast growth in

the production activity of the main petrochemicals.”

The Indian petrochemicals industry is estimated to reach $100bn by the end of this decade,

according to a study by the Associated Chambers of Commerce and Industry of India

(ASSOCHAM).Valued at around $40bn, the petrochemicals segment in the country is

currently growing at a compounded annual growth rate (CAGR) of around 14%.

33

In its study 'Indian Petrochemical Industry: An overview', the industry body said:

"Petrochemicals currently contribute about 30% to India's $120bn worth chemical industry,

which is likely to grow at a CAGR of 11% over next few years and touch $250bn by 2020.

With its diversified product category in petrochemical, RIL is the market leader in India.

3.1.6 Refining and Marketing:IntroductionThe oil and gas sector is among the six core industries in India and plays a major role in

influencing decision making for all the other important sections of the economy.

In 1997–98, the New Exploration Licensing Policy (NELP) was envisaged to fill the ever-

increasing gap between India’s gas demand and supply. A recent report points out that the

Indian oil and gas industry is anticipated to be worth US$ 139.8 billion by 2015. India’s

economic growth is closely related to energy demand; therefore the need for oil and gas is

projected to grow more, thereby making the sector quite conducive for investment.

Market SizeBacked by new oil fields, domestic oil output is anticipated to grow to 1 MBPD by FY16.

With India developing gas-fired power stations, consumption is up more than 160 per cent

since 1995. Gas consumption is likely to expand at a CAGR of 21 per cent during FY08–17.

Presently, domestic production accounts for more than three-quarters of the country’s total

gas consumption.

India increasingly relies on imported LNG; the country was the fifth-largest LNG importer in

2013, accounting for 5.5 per cent of global imports. India’s LNG imports are forecasted to

increase at a CAGR of 33 per cent during 2012–17. However, net imports of Natural Gas fell

from 13.14 BCM in 2012-13 to 13.03 BCM in 2013-14.

State-owned Oil and Natural Gas Corporation (ONGC) dominates the upstream segment

(exploration and production), accounting for approximately 68 per cent of the country’s total

oil output (FY14).

Indian Oil Corporation Limited (IOCL) operates 11,214 km network of crude, gas and

product pipelines, with a capacity of 1.6 MBPD of oil and 10 million metric standard cubic

metre per day (MMSCMD) of gas. This is around 30 per cent of the nation’s total pipeline

34

network. IOCL is the largest company, operating 10 out of 22 Indian refineries, with a

combined capacity of 1.3 MBPD.

Reliance being the world’s largest Oil and Gas refining company has a brighter outlook in

this developing economy.

3.1.7 Telecom Industry:IntroductionIndia is currently the world’s second-largest telecommunications market and has registered

strong growth in the past decade and half. The Indian mobile economy is growing rapidly and

will contribute substantially to India’s gross domestic product (GDP), according to report

prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group

(BCG).

The liberal and reformist policies of the Government of India have been instrumental along

with strong consumer demand in the rapid growth in the Indian telecom sector. The

government has enabled easy market access to telecom equipment and a fair and proactive

regulatory framework that has ensured availability of telecom services to consumer at

affordable prices. The deregulation of foreign direct investment (FDI) norms has made the

sector one of the fastest growing and a top five employment opportunity generator in the

country.

Market Size

Driven by strong adoption of data consumption on handheld devices, the total mobile services

market revenue in India is expected to touch US$ 37 billion in 2017, registering a Compound

Annual Growth Rate (CAGR) of 5.2 per cent between 2014 and 2017, according to research

firm IDC.

India's mobile subscriber base is expected to cross 500 million Subscribers by the end

of FY2015 from 453 million subscribers at the end of FY2014.

According to a study by GSMA, smartphones are expected to account for two out of

every three mobile connections globally by 2020 making India the fourth largest

smartphone market.

The broadband services user-base in India is expected to grow to 250 million

connections by 2017, according to GSMA.

35

India added the highest number of net mobile phone subscriptions of 13 million

during the third quarter of 2015.

International Data Corporation (IDC) predicts India to overtake US as the second-

largest smartphone market globally by 2017 and to maintain high growth rate over the

next few years as people switch to smartphones and gradually upgrade to 4G.

In spite of only 5 per cent increase in mobile connections in 2015, overall expenditure

on mobile services in India is expected to increase to US$ 21.4 billion in 2015, led by

15 per cent growth in data services expenditure, as per research firm Gartner.

With all these developments ahead RIL especially its JIO has got ample scope to grab the

telecom market, especially on the field of 4G services.

3.2 Company overview:

RIL is India’s largest private sector Company on key financial parameters. It is a significant

global player in the integrated energy value chain, and has a growing presence in retail and

digital services in India. Built on strong values, RIL is steadfastly rooted in the culture of

36

safety, integrity and commitment. RIL is dedicated to its vision of partnering India’s

economic growth and social wellbeing. RIL strives to be a product and service leader across

its industries, a great work-place and above all, to create value for its stakeholders and

society.

Businesses at a glance:1. Refining and Marketing

Owns and operates two of the world’s largest and most complex refineries with crude

processing capacity of 1.24 MBPD. The world’s largest refinery complex at Jamnagar

continued to operate at 110% operating rate processing 67.9 MMT of crude oil during

the year.

2. Petrochemical

Integrated petrochemicals player with Top 10 rankings in key products globally. The

operations of the new Polyester Filament Yarn (PFY) facility at Silvassa were

stabilized

and this strengthened our position as the global leader in production of polyester fibre

and yarn.

3. Oil & Gas

Interests in onshore and offshore exploration and production in India and significant

Presence in US shale.

4. Retail

Retail market leader in several segments with over 12.5 million sq. ft. of retail space

and having presence over 200 cities.

5. JIO Infocomm

Building a countrywide broadband next generation infrastructure to deliver digital

content, applications and services.

6. Media and Entertainment

Interests in television, digital content, filmed entertainment, digital commerce,

magazines, mobile content and allied businesses.

7. Textile

Spreading the brand across country and globe.

Key achievements:

37

India’s first private sector company to feature in Fortune Global 500 list of ‘World’s

Largest Corporations’, currently ranking 114th in terms of revenue and 155th in terms

of profit, and continues to be featured for the 11th consecutive year.

Ranks 194th in the Financial Times’ FT Global 500 2014 list of the world’s largest

companies.

RIL is India’s greenest and most environment-friendly company, ranking 185th

among the world’s largest 500 companies, according to Newsweek’s Green Rankings

2014.

2nd Largest Producer of polyester fibre/yarn, globally 5th Largest Producer of PTA,

globally 6th Largest Producer of PP, globally 7th Largest Producer of PX, globally.

The list of Board of Directors:1. Shri Mukesh D. Ambani - Chairman and Managing Director, Chairman: Finance

Committee

2. Smt. Nita M. Ambani - Non Executive, Non Independent Director

3. Shri P. M. S. Prasad - Executive Director, Member: Health, Safety and Environment

Committee, Risk Management Committee

4. Prof. Dipak C. Jain - Independent Director

5. Dr. Dharam Vir Kapur - Independent Director

6. Shri Mansingh L. Bhakta - Independent Director

7. Shri Nikhil R. Meswani - Executive Director

8. Shri Yogendra P. Trivedi - Independent Director Chairman: Audit Committee,

Stakeholders’ Relationship Committee, Corporate Social Responsibility and

Governance Committee

9. Shri Hital R. Meswani - Executive Director Chairman: Health, Safety and

Environment Committee

10. Prof. Ashok Misra - Independent Director

11. Dr. Raghunath A. Mashelkar - Independent Director, Independent Director

Chairman: Human Resources, Nomination and Remuneration Committee, Risk

Management Committee

12. Dr. Raghunath A. Mashelkar - Independent Director

13. Shri Pawan Kumar Kapil - Executive Director

38

3.2.1 Details about company Businesses:

Exploration and ProductionRIL’s upstream business comprises the complete chain of activity starting from exploration,

appraisal, development and production. Reliance entered the Exploration and Production

(E&P) business by becoming a 30% partner in an unincorporated joint venture with British

Gas and ONGC in the Panna Mukta and Mid and South Tapti blocks. Besides Panna Mukta

and Tapti (PMT) blocks, our domestic portfolio comprises of five conventional oil and gas

blocks in Krishna Godavari, Mahanadi, Cauvery Palar, Gujarat Saurashtra & Cambay Basin

and two Coal Bed Methane (CBM) blocks in Sohagpur East and West in Madhya Pradesh.

On the international front, Reliance has acquired two offshore blocks in Myanmar. In

the year 2010, Reliance entered into three Joint Ventures in the Marcellus and Eagle Ford

plays in the fast-growing US shale gas industry. Oil and gas is currently being produced from

our PMT blocks and KG D6 blocks in India and shale gas JVs in the US.

Operations

Conventional

In 2002, Reliance struck gas in the D1-D3 field of KG D6 block. RIL is producing natural

gas from the gas fields D1-D3 since April 1, 2009, and light crude oil from the D26 oil field

in KG D6 block, since September 17, 2008. Both projects have been commissioned in a

record time – the D1-D3 fields in about six and half years, and the D26 field in just a little

over two years - from discovery.

These fields rank amongst one of the largest green-field deep-water oil and gas production

facilities in the world. D1-D3 fields are the first and only deep-water producing fields in India

and remains among the most complex reservoirs in the world. Efforts are underway for

augmentation of production from existing KG D6 producing fields.

39

Coal Bed Methane

Development activities are underway in 2 CBM blocks (Sohagpur East and West) with first

gas being targeted in the current year. As part of CBM development program, Reliance is

drilling more than 200 wells and setting up two Gas Gathering Stations and 8 Water

Gathering Stations in Phase-I.

Reliance Gas Pipeline Limited (RGPL), one of the subsidiary of RIL is laying around 300

KM of natural gas pipeline from Shahdol in Madhya Pradesh to Phulpur in Uttar Pradesh to

transport gas from RIL’s CBM blocks.

US Shale Gas

Reliance’s upstream joint ventures in US Shale gas include a 45% working interest (WI)

partnership with Pioneer Natural Resources in the Eagle Ford shale play, a 40% WI

partnership with Chevron and a 60% WI partnership with Carrizo Oil & Gas in the Marcellus

Shale play.

These JVs have positioned Reliance as one of the leading players in the Marcellus and Eagle

Ford plays. Eagle Ford shale remains one of the most competitive liquid shale plays in the US

and Marcellus is among the most competitive gas play in US.

Refining and Marketing:

The Jamnagar manufacturing division is the world's largest refining hub. The entire refining

complex was built in a record time at globally competitive capital costs – in fact, at costs

much lower than comparable refineries around the world. Its scale, design, flexibility, level of

automation and degree of integration heralded the way refineries of the future would be built.

The speedy growth of the complex lies at the heart of India's transformation. It has

transformed India from being a net importer of petroleum products to a net exporter, thereby

ensuring the nation's energy security.

With crude processing capacity of 1.24 million Barrels per Stream Day (BPSD), the

Jamnagar refinery is a trendsetter and has won several awards, including the prestigious

40

'International Refiner Of The Year' award. It also enjoys the distinction of housing some of

the world's largest units, such as the Fluidised Catalytic Cracker (FCC), Coker, Alkylation,

Par xylene and Polypropylene plants.

Products

Our refinery at Jamnagar processes a wide variety of crude oils and produces a range of

petroleum products for exports as well as supply in the Indian market.

Table no. 3.3

Products Applications

Liquefied Petroleum Gas (LPG) Domestic and industrial fuel

Propylene Feedstock for polypropylene

Naphtha Feedstock for petrochemicals

Gasoline Transport fuel

Jet /Aviation Turbine Fuel Aviation fuel

Superior Kerosene Oil Domestic fuel

High-Speed Diesel Transport fuel

Sulphur Feedstock for fertilizers and pharmaceuticals

Petroleum Coke Fuel for power plants and cement plants

Petrochemicals:

Polymers

41

RIL offers a wide range of grades for diverse applications across sectors such as

packaging, agriculture, automotive, housing, healthcare, water and gas transportation,

and consumer durables. Products are also exported to more than 60 countries. Driving

their growth is the Polymer Research and Technology Centre (PRTC), which

addresses the diverse needs of RIL customers and facilitates value-added

performance.

Polyesters

RIL is the largest producer of polyester fibre and yarn in the world, with a capacity of

2.5 million tonnes per annum. Having invested significant amounts on R&D in the

polyester sector, our Reliance Technology Centre, Reliance Testing Centre and

Reliance Fibre Application Centre constantly develop and introduce innovative

products for the textile industry.

Fibre Intermediates

The Fibre Intermediates Sector at Reliance consists of the Purified Terephthalic Acid

(PTA), Ethylene Glycols (EG) & Ethylene Oxide (EO) businesses. RIL is amongst the

largest global producers of these products – 5th largest in PTA & 8th largest in EG. RIL

have the largest volume share in the domestic market for PTA and EG, and are the

only merchant supplier of EO in India. With their world scale plants and best-in-class

technology, we are the supplier of choice for our Indian customers.

Aromatics

Aromatics are cyclic unsaturated hydrocarbons containing one or more rings.

Aromatics is one of the major Petrochemical Sectors at Reliance Industries Ltd. with a

combined production capacity of 3.6 million metric tons.

Elastomers

42

Reliance produces synthetic rubber under the brand names Relflex and Reliance Sibur

Elastomers Pvt Ltd. Our elastomers are used across a variety of applications,

including tyres, footwear, sports goods, rollers and mechanical fenders etc.

Textiles:

RIL manufacturing division at Naroda houses one of the largest and most modern textile

complexes in the world, an achievement recognised by The World Bank. Through Vimal,

RIL brought in a new era in fabrics. Vimal became not only a flagship brand of Reliance, but

also one of the most trusted in brands the country. It is also the first major retail chain in the

country. RIL supply premium finished fabrics to prestigious brands and export to over 58

countries. RIL is also a major player in global automotive furnishing business.

Products

RIL’s textile division continues to maintain its technological edge in catering to the

requirements of the ever-evolving fashion industry. Their automotive furnishing consisting of

jacquard weaving, knitting and finishing line is one of the most sought after by auto

manufacturers. Various products of RIL are:

Fabrics

Apparel

Auto furnishing

43

Retail:

Reliance Retail is the retail initiative of the group and an epicentre of RIL consumer facing

businesses. It has in a short time forged strong and enduring bonds with millions of

consumers by providing them unlimited choice, outstanding value proposition, superior

quality and unmatched experience across all its retail stores.

Since its inception in 2006, Reliance Retail has grown to cater to millions of customers, and

thousands of farmers and vendors. Reliance Retail serves over 2.5 million customers every

week, and its loyalty programme, Reliance One, has the patronage of more than 6.75 million

customers. Their nationwide network of retail outlets delivers a world-class shopping

environment and unmatched customer experience powered by our state-of-the-art technology

and seamless supply-chain infrastructure.

Reliance Retail has adopted a multi-format strategy and operates convenience stores,

supermarkets, hypermarkets, wholesale cash & carry stores, and specialty stores and has

democratized access to all types of products and services across all segments for all Indian

consumers.

Reliance Retail has achieved the distinction of being the largest retailer in the country with

core format sectors attaining market leadership in their respective categories.  Reliance

Retail’s commitment to bettering lives has been embodied in its pursuit to make a difference

on social socio-economic issues in India. The initiative has brought millions of farmers and

small producers to the forefront of the retail revolution by partnering with them for growth.

44

Business houses

Value

Reliance Fresh

Reliance Super

Reliance Mart

Reliance Market

Speciality

Reliance digital

Digital Express

I store (for Apple products)

Reliance Trends

Reliance Jewels

Reliance Foot print

Reliance Living

Vimal Gifting

Joint ventures

Diesel

Quick silver

Roxy

Steve Madden

Pink

Super dry

Brooks Brothers

Dune London

45

Jio:

Home to the world’s second largest population of 1.2 billion, India is a young nation with

63% of its population under the age of 35 years. It has a fast growing digital audience with

800 million mobile connections and over 200 million internet users. Reliance thoroughly

believes in India’s potential to lead the world with its capabilities in innovation. Towards that

end, Reliance envisages creation of a digital revolution in India.

Reliance Jio aims to enable this transformation by creating not just a cutting-edge voice and

broadband network, but also a powerful ecosystem on which a range of rich digital services

will be enabled – a unique green-field opportunity.

3.2.2 SWOT Analysis of RIL:Table no. 3.4

SWOT

Strengths

1. India's one of the biggest players 

2. Strong brand name 

3. Excellent financial position

4. One of the few Indian companies to be featured in Forbes

5. Employs over 25,000 people

Weaknesses

1. Long term debt 

2. Legal issues

3. KG D6 gas controversy

4. Accusations of being favored by the government

Opportunities 1. Growing demand for petroleum products 

2. Buyout of competition

3. Improving standard of living of people (Retail sector)

46

4. Fast growing Telecom sector

Threats

1. Government regulations 

2. High Competition 

3. Environmental laws 

4. Economic instability

Competition

Competitors

1. Bharat Petroleum 

2. Hindustan Petroleum 

3. IOCL 

4. ONGC

5. Airtel

6. TATA telecom

7. Idea and other tele service providers

8. Future Group and other Retail chains

47

48

4.1 Data Analysis and Interpretation:Data analysis and interpretation is the process of assigning meaning to the collected

information and determining the conclusions, significance, and implications of the findings.

The steps involved in data analysis are a function of the type of information collected,

however, returning to the purpose of the assessment and the assessment questions will

provide a structure for the organization of the data and a focus for the analysis.

There are two types of Data analysis i.e.

Quantitative analysis

Qualitative analysis

Here for the study of working capital position of RIL mainly I have done Qualitative analysis

by using various statistical tools such as Ratios.

4.2 Financial Ratios:

Financial ratios are one of the most common tools of managerial decision making. A ratio is a

comparison of one number to another—mathematically, a simple division problem. Financial

ratios involve the comparison of various figures from the financial statements in order to gain

information about a company's performance. It is the interpretation, rather than the

calculation, that makes financial ratios a useful tool for business managers. Ratios may serve

as indicators, clues, or red flags regarding noteworthy relationships between variables used to

measure the firm's performance in terms of profitability, asset utilization, liquidity, leverage,

or market valuation.

There are many kinds of financial Ratios. Such as:

1. Profitability Ratio

2. Asset Utilization Ratio

3. Leverage Ratio

4. Liquidity Ratios

5. Market value Ratios

In this particular project our concentration is on Short term liquidity Ratio.

49

4.3 Use and Users of Ratio analysis:

There are basically two uses of financial ratio analysis:

To track individual firm performance over time,

And to make comparative judgments regarding firm performance.

Firm performance is evaluated using trend analysis—calculating individual ratios on a per-

period basis, and tracking their values over time. This analysis can be used to spot trends that

may be cause for concern, such as an increasing average collection period for outstanding

receivables or a decline in the firm's liquidity status. In this role, ratios serve as red flags for

troublesome issues, or as benchmarks for performance measurement.

Another common usage of ratios is to make relative performance comparisons. For example,

comparing a firm's profitability to that of a major competitor or observing how the firm

stacks up versus industry averages enables the user to form judgments concerning key areas

such as profitability or management effectiveness.

Users of financial ratios include parties both internal and external to the firm.

External users include security analysts, current and potential investors, creditors,

competitors, and other industry observers.

Internally, managers use ratio analysis to monitor performance and pinpoint strengths

and weaknesses from which specific goals, objectives, and policy initiatives may be

formed.

4.4 Calculation of various Ratios of RIL:

For this particular project study I have taken all the Working capital ratios and Short term

liquidity ratios. Those are calculated as follows:

50

4.4.1 Current Ratio:

The current ratio is a liquidity and efficiency that measures a firm's ability to pay off its short-

term liabilities with its current assets. The current ratio is an important measure of liquidity

because short-term liabilities are due within the next year.

The current ratio is calculated by dividing current assets by current liabilities. This ratio is

stated in numeric format rather than in decimal format. Here is the calculation:

Current assets include cash and those assets that can be converted into cash within a year,

such as marketable securities, debtors, inventories, loans and advances. All the obligations

maturing within a year are included in current liabilities.

Current liabilities include creditors, bills payable, accrued expenses, short term bank loan,

income tax liability and long-term debt maturing in the current year.

Significance It indicates the availability of current assets in rupees for every one rupee of current

liability. A ratio of greater than one means that the firm has more current assets than

current claims against them. In India, the conventional rule is to have a ratio of

1.33(internationally it is 2).

The current ratio represents the margin of safety for the creditors. The higher the

current ratio, the greater the margin of safety; the larger the amount of current assets

in relation to current liabilities, the more the firm’s ability to meet its current

obligations.

51

4.1 Table showing list of Current assets of RIL (In crore)

Current Assets 2014-15 2013-14 2012-13

Current Investment 50155 33370 28366

Inventories 36551 42932 42729

Trade Receivables 4661 10664 11880

Cash and Bank Balances 11571 36624 49547

Short Term Loan and Advances 12307 11277 10974

Other Current Assets 547 466 480

TOTAL 115792 135333 143976

4.2 Table showing list of Current liability of RIL (In crore)

Current Liability 2014-15 2013-14 2012-13

Short Term Borrowings 12914 22770 11511

Trade Payables 54470 57862 45787

Other Current Liabilities 19063 10767 21640

Short Term Provisions 4854 4167 4348

TOTAL 91301 95566 83286

4.3 Table showing Current Ratio of RIL

52

Particulars 2014-15 2013-14 2012-13

Current Assets 115792 135333 143976

Current Liability 91301 95566 83286

Current Ratio 1.268245 1.416121 1.728694

Net Working Capital 24491 39767 60690

(Graph no. 4.1)

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

1.26

8244

597

5400

1

1.41

6120

796

0990

3

1.72

8693

898

1341

4 Graph showing change in

Current Ratio

(Graph no.4.2)

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

2449

1 3976

7

6069

0

graph showing change in Net Working Capital

(Graph no.4.3)

53

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

1157

92 1353

33

1439

76

9130

1

9556

6

8328

6

graph showing comparision between CA & CL(IN crORE)

Current Assets Current Liability

Interpretation:

From the above Charts and Tables the following interpretation can be made:

1. The amount of Current assets is reducing year to year.

2. The amount of Current liability has increased in the year 2013-14 as compare to 2012-

13, and Current liability has reduced from 95566 to 91301 in the year 2014-15.

3. Hence showing an overall effect of decrease in amount of Net working Capital. Net

Working Capital in the year 2104-15 has reduced from 39767 to 24491.

4. That is why the Current Ratio has reduced from year to year.

5. The current ratio in the year 2014-15 which is 1.2682 is much lower than the key rule

of 2.

4.4.2 Acid test Ratio (Liquid/Quick Ratio):

This ratio establishes the relationship between quick or liquid assets and current liabilities.

The quick ratio or acid test ratio is a liquidity that measures the ability of a company to pay

its current liabilities when they come due with only quick assets. Quick assets are current

assets that can be converted to cash within 90 days or in the short-term. Cash, cash

equivalents, short-term investments or marketable securities, and current accounts receivable

are considered quick assets.

The quick ratio is often called the acid test ratio in reference to the historical use of acid to

test metals for gold by the early miners. If the metal passed the acid test, it was pure gold. If

metal failed the acid test by corroding from the acid, it was a base metal and of no value.

Formula

The quick ratio is calculated by adding cash, cash equivalents, short-term investments, and current receivables together then dividing them by current liabilities.

54

Significance Generally a quick ratio of 1:1 is considered to represent a satisfactory current

financial condition.

This test is more significant as compare to current ratio to fulfil the firm’s obligations.

This is a more critical evaluation of firm’s liquidity position.

4.4 Table showing calculation of Quick assets (in crore)

4.5 Table showing calculation of Quick Ratio of RIL (in crore)

2014-15 2013-14 2012-130

0.20.40.60.8

11.21.4

Graph showing change in Quick Ratio of RIL

55

Current Assets 2014-15 2013-14 2012-13

Current Investment 50155 33370 28366

Trade Receivables 4661 10664 11880

Cash and Bank Balances 11571 36624 49547

Short Term Loan and

Advances

12307 11277 10974

Other Current Assets 547 466 480

Quick assets (TOTAL) 79241 92401 101247

Particulars 2014-15 2013-14 2012-13

Quick Assets 79241 92401 101247

Current Liability 91301 95566 83286

Quick Ratio 0.867909 0.966882 1.215654

(Graph no.4.4)

Interpretation:

The above table and graph shows the following:

The amount of quick assets has shown continues downfall from the year 2012-13 to

2014-15.

Thus effecting on the quick Ratio. The Quick Ratio has been reduced from 1.2156 to

0.9668 in the year 2013-14 and from 0.9668 to 0.8679 in the year 2014-15.

As the company’s Quick Ratio has gone below the standard norm which is 1:1, the

company should stay cautious.

4.4.3 Cash Ratio (Absolute liquid):

It shows the relationship between absolute liquid or super quick current assets and liabilities.

Absolute liquid assets include cash, bank balances, and marketable securities. Since cash is

the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current

liabilities. Trade investments or marketable securities are equivalent of cash; therefore, they

may be included in the computation of cash ratio.

The cash ratio or cash coverage ratio is a liquidity ratio that measures a firm's ability to pay

off its current liabilities with only cash and cash equivalents. The cash ratio is much more

restrictive than the current ratio or quick ratio because no other current assets can be used to

pay off current debt--only cash.

Formula

The cash coverage ratio is calculated by adding cash and cash equivalents and dividing by the

total current liabilities of a company.

56

4.6 Table showing list of Absolute liquid Assets (in crore)

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

7924

1

9240

1

1012

47

Graph showing change in Quick Assets of RIL

(Graph no. 4.5)

4.7 Table showing calculation of Absolute Liquid Ratio (in crore)

57

Current Assets 2014-15 2013-14 2012-13

Cash and Bank Balances 11571 36624 49547

Short Term Loan and

Advances

12307 11277 10974

Absolute Liquid Assets 23878 47901 60521

Particulars 2014-15 2013-14 2012-13

Absolute Liquid Assets 23878 47901 60521

Current Liabilities 91301 95566 83286

Absolute Liquid Ratio 0.261531 0.501235 0.726665

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

0.26

1530

541

8341

53

0.50

1234

748

7600

19

0.72

6664

745

5754

87

Graph s howing change in abs olute L iquid Ratio of R IL

(Graph no. 4.6)

Interpretation:

From the above graph and table the followings can be found out:

1. The amount of Absolute Liqiued Assets has been reduced drastically over the years

and in the year 2014-15 it stands at 23878 crore.

2. Similarly the Absolute Liquid Ratio has been reduced from 0.7266 in the year 2012-

13 to 0.2615 in the year 2014-15.

Note: For the above calculation it has been assumed that Short term loans and

Advances are equal to Short term Securities\Deposits.

4.4.4 Inventory Turnover Ratio:

The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is

managed by comparing cost of goods sold with average inventory for a period. This measures

how many times average inventory is "turned" or sold during a period. In other words, it

measures how many times a company sold its total average inventory dollar amount during

the year. 

Inventory turnover is calculated by dividing the cost of goods sold by the average inventory.

This ratio indicates the efficiency of the firm in producing and selling its product, by

indicating the number of times the inventory has been converted into sales during the period.

58

Formula

The inventory turnover ratio is calculated by dividing the cost of goods sold for a period by

the average inventory for that period.

4.8 Table showing calculation of ITR of RIL (in crore)

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

8.57

3581

7722

028

6

9.36

7156

5823

420

2

5.41

2104

1126

531

4

Graph showing changes inInventory Turnover Ratio

(Graph no. 4.7)

59

Particulars 2014-15 2013-14 2012-13

Net sales 340727 401200 212923

Opening Inventory 42932 42729 35955

Closing Inventory 36551 42932 42729

Average Inventory 39741.5 42830.5 39342

Inventory Turnover Ratio 8.573582 9.367157 5.412104

Interpretation:

1. As compare to 2012-13, the ITR in 2013-14 has increased and as compare to 2013-14,

the ITR in the year 2014-15 has been marginally lowered. This shows the companies

action for improving the Inventory Turnover over the years.

2. This comes out as a good sign of the efficiency of the management in converting its

assets into sales. The ratio also implies continuous improvement in the operations of

the company.

4.4.5 Debtor Turnover Ratio:A Firm sells goods for cash and credit. Credit is used as a marketing tool by a no. of

companies. When the firm extends credits to its customers, debtors (accounts receivables) are

created. Debtors are convertible into cash over a short period of time, therefore included in

the current assets. Accounts receivable turnover is an efficiency ratio or activity ratio that

measures how many times a business can turn its accounts receivable into cash during a

period. In other words, the accounts receivable turnover ratio measures how many times a

business can collect its average accounts receivable during the year.

Debtor’s turnover is found by dividing credit sales by average debtors. Average debtors are

nothing but the average of the opening and closing balances of debtors.

Formula

Accounts receivable turnover is calculated by dividing net credit sales by the average

accounts receivable for that period.

4.9 Table showing calculation of DTR of RIL (in crore)

60

Particulars 2014-15 2013-14 2012-13

Net sales 340727 401200 212923

Opening Accounts

Receivables

10664 11880 18424

Closing Accounts

Receivables

4661 10664 11880

Average Accounts

Receivables

7662.5 11272 15152

Debtor Turnover Ratio 44.46682 35.5926 14.0524

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

44.4

6681

8923

327

9

35.5

9261

8878

637

3

14.0

5246

8321

013

7

Graph showing change in Debtor Turnover Ratio

(Graph no. 4.8)

Interpretation

1. As stated earlier, the higher the value of debtors turnover, the more efficient the

management of the company. And here as it is evident from the graph that the ratio is

rising with each successive year, it serves as a good sign for the management to look

after.

2. Also, this ratio must be seen in conjunction with the creditor’s turnover ratio. Being a

capital intensive company, to find out the true liquidity position.

4.4.6 Creditor Turnover Ratio:61

Creditor’s turnover ratio 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.

Net credit purchases consist of gross credit purchases minus purchase return.

When the information about credit purchases, opening and closing balances of trade creditors

is not available then the ratio is calculated by dividing total purchases by the closing balance

of trade creditors.

Formula

Accounts receivable turnover is calculated by dividing net credit sales by the average accounts receivable for that period.

Significance: A high creditor’s turnover ratio or a lower credit period ratio signifies that the creditors are

being paid promptly. This situation enhances the credit worthiness of the company. However

a very favourable ratio to this effect also shows that the business is not taking the full

advantage of the credit facilities allowed by the creditors. We can interpret this ratio in

exactly the same way as the Debtors Turnover Ratio.

4.10 Table showing calculation of CTR of RIL (in crore)Particulars 2014-15 2013-14 2012-13

Net sales 340727 401200 212923

Opening Trade Payables 57862 45787 40324

Closing Trade Payables 54470 57862 45787

Average trade Payables 56166 51824.5 43055.5

Creditor Turnover Ratio 6.066428 7.741512 4.945315

62

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

6.06

6428

0881

6722

7.74

1512

2191

2416

4.94

5314

7681

4809

graph showing change in Creditor Turnover Ratio

(Graph no. 4.9)

Interpretation1. As is evident, the company has tried to maintain a moderate creditors ratio so as to

avail the full advantage of the credit facility as well as to maintain its rapport with its

creditors. The ratio at the end of FY2014 stands at 6.0664 as compared to the debtors‟

turnover ratio of 44.4668 in the same financial year.

2. This can be considered as a good match up so as to maintain continues flow of raw

material at the same to not losing a good customer.

4.4.7 Working Capital Turnover Ratio:

Working capital turnover ratio is an activity ratio that measures dollars of revenue generated

per dollar of investment in working capital. Working capital is defined as the amount by

which current assets exceed current liabilities.

A higher working capital turnover ratio is better. It means that the company is utilizing its

working capital more efficiently i.e. generating more revenue using less investment.

63

Formula

Working Capital Turnover Ratio

=Total Sales

Average Working Capital

Working Capital = Current Assets − Current Liabilities

Average Working Capital

=Opening Working Capital + Closing Working Capital

2

4.11 Table showing calculation of Working capital turnover Ratio

(in crore)

64

Particulars 2014-15 2013-14 2012-13

Opening Net Working Capital 39767 60690 63456

Closing Net Working Capital 24491 39767 60690

Average Net Working Capital 32129 50228.5 62073

Total Sales 340727 401200 212923

Working Capital Turnover Ratio 10.60497 7.987497 3.430203

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

10.6

0497

7.98

7497

3.43

0203

graph showing change inWorking Capital Turnover Ratio

(Graph no. 4.10)

Interpretation:1. The above graph and table is showing a positive trend for the company. Working

capital Ratio is showing continues growth year on year.

2. It’s a positive trend for the company.

4.4.8 Current Asset to Total Assets:This ratio depicts the relationship between the current assets and the total assets. The total

assets of a company comprises of both net fixed assets and current assets.

Total Asset = Current Asset + Fixed Asset

Significance: As the working capital management of a company depends upon its current assets, it is of

great significance to know how much of the total assets are current. The level of current

assets helps us to keep our business afloat.

4.12 Table Showing Calculation of CA to TA of RIL (in crore)

65

Particulars 2014-15 2013-14 2012-13

Current Assets 115792 135333 143976

Total Assets 397785 367583 318511

Current Assets to Total

Assets

0.291092 0.36817 0.452028

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

0.29

1091

9215

153

92

0.36

8169

9099

251

05

0.45

2028

3443

899

9

graph showing change in Current Assets to Tota l Assets

(Graph no. 4.11)

Interpretation:

1. The more the portion of Current asset in Total asset the better the short term liquidity

position.

2. Here the portion of Current asset is consistently reducing, hence the management

should be cautious about it.

3. And the portion of 0.2910 in the FY2014 is not depicting a good position of Total

assets.

4.4.9 Working capital to Net worth ratio:

This ratio shows the relationship between Net Working Capital to Net Worth. This represents

the portion of working capital funded by Shareholders fund.

Working capital to Net worth ratio = Net working capital/Net worth

66

Particulars 2014-15 2013-14 2012-13

Net Working Capital 24491 39767 60690

Net Worth/Shareholders fund 216159 197074 179995

WC to Net worth 0.113301 0.201787 0.337176

4.13 Table showing calculation of WC to Net worth of RIL (in crore)

2 0 1 4 - 1 5 2 0 1 3 - 1 4 2 0 1 2 - 1 3

0.11

3300

8572

3934

7 0.20

1787

1459

4517

8

0.33

7176

0326

6757

4

graph showing WC to Net worth of ril

(Graph no. 4.12)

Interpretation

Similar to the previous ratio, WC to Net Worth ratio is used to represent the relationship

between the shareholder’s money and the Net Working capital. Similar to previous ratio, for

FY14 the ratio of 0.1133 shows that for each rupee of net worth, the company needs Re.

0.1133 of working capital. This gap will be met from bank borrowings and long term sources

of funds.

4.4.10 Cash flow statement of RIL:

RELIANCE INDUSTRIES LIMITED CASH FLOW STATEMENT ( in crore)

67

Particulars 2014-15 2014-13 2013-12A: CASH FLOW FROM OPERATING ACTIVITIES:

Net Profit Before Tax as per Profit and Loss Statement

29468 27818 26284

Adjusted for: Net Prior Year Adjustments - - 3 Write off of Investment ( 26,96,800) - 25 Loss on Sale / Discard of Assets (Net) 31 44 34 Depreciation / Amortisation and Depletion Expense

8488 8789 9465

Effect of Exchange Rate Change 1408 2739 1039 Net Gain on Sale of Investments (3046) (2348) (1658) Dividend Income (250) (91) (77) Interest Income (5414) (6472) (6245) Finance Costs 2367 3206 3036

3584 5892 5597Operating Profit before Working Capital

Changes33052 33710 31881

Adjusted for: Trade and Other Receivables 5462 413 5594 Inventories 6381 (203) (6086) Trade and Other Payables (3528) 14305 6274

8315 14515 5782Cash Generated from Operations 41367 48225 37663

Net prior period Adjustment - - (3) Taxes Paid (Net) (6082) (6065) (4665) Net Cash from Operating Activities 35285 42160 32995B: CASH FLOW FROM INVESTING ACTIVITIESPurchase of Fixed Assets (42720) (32456) (15994)Sale of Fixed Assets 86 57 33Purchase of Investments in Subsidiaries / Trusts

(11506) (22621) -

Redemption of Investments in Subsidiaries

169 7182 -

Purchase of Other Investments (655591) (755722) (479071)Sale / Redemption of Other Investments 643525 739929 481203Movement in Loans and Advances (133) (3911) (7546)Maturity of / (Investment in) Fixed Deposits

3400 (3400) -

Interest Income 6584 6838 6451Dividend Income 188 91 77Net Cash (Used in) Investing Activities 55998 64013 14797C: CASH FLOW FROM FINANCING

68

ACTIVITIESProceeds from Issue of Share Capital 226 183 12Share Application Money 17 17 25Buy back of equity share - - (3087)Proceeds from Long Term Borrowings 20310 20500 10262Repayment of Long Term Borrowings (4555) (19672) (10306)Short Term Borrowings (Net) (10302) 11648 1274Dividends Paid (including Dividend Distribution Tax)

(3268) (3093) (2924)

Interest Paid (3368) (4053) (3505)Net Cash (Used in) / Generated from Financing Activities

(940) 5530 8249

Net (Decrease) in Cash and Cash Equivalents

(21653) (16323) 9949

Opening Balance of Cash and Cash Equivalents

33224 49547 39598

Closing Balance of Cash and Cash Equivalents

11571 33224 49547

Interpretation:

From the above Cash flow statement of RIL involving the FY 2014, 2013 and 2012 we can find out the following things:

1. Most importantly the closing cash balance is reducing continuously.

2. The major reason that can be attributed to this is because the amount spent on

investing activities, particularly investment in subsidiaries is increasing.

3. The positive thing for the company is along with spending on long term investment,

the net proceed from operating activities, particularly sales receipt is increasing.

5.1 Summary of Findings:

1. THE TABLE NO.4.1

Shows the amount of Current Asset of RIL for the financial year 2012-13, 2013-

2014&2014-15. From that it is clear that the amount of Current asset is decreasing

over the years.

2. THE TABLE NO.4.2

69

Using this table we can find out the current liabilities of RIL for the financial year

2012-13, 2013-2014&2014-15. It shows that the Current liability has been marginally

reduced in the year 2014-15.

3. THE TABLE NO.4.3

From this table we can find the current ratio of RIL for the financial year 2014-15,

2013-14&2012-13. The current ratio is 1.268245, 1.416121 and 1.728694

respectively. It is showing a constant decrease over the years.

4. THE TABLE NO.4.4

Using this table we can find the quick assets of RIL for the financial year 2014-15,

2013-14&2012-13 which is reducing constantly.

5. THE TABLE NO.4.5

This shows the quick assets ratio of the RIL for the financial year 2014-15, 2013-

14&2012-13. The quick assets ratio is 0.867909, 0.966882, and 1.215654

respectively. It shows that the absolute liquid ratio is lowest for the FY 2014-15. It is

unfavourable for the company.

6. THE TABLE NO.4.6

It shows the list of absolute liquid ratio of the RIL for the financial year 2014-15,

2013-14&2012-13, which is reducing at an increasing rate.

7. THE TABLE NO.4.7

It shows the Debtor turnover ratio of RIL for the financial year 2014-15, 2013-

14&2012-13. The debtor turnover ratio is 0.261531, 0.501235, and 0.726665

respectively.

8. THE TABLE NO.4.8

From here we can find the Inventory turnover ratio of the co. for the financial year

2014-15, 2013-14&2012-13. The creditor turnover ratio is 8.573582, 9.367157 and

5.412104 respectively. It shows the high creditor turnover ratio is favourable for the

company.

9. THE TABLE NO.4.9

70

It shows the Debtor turnover ratio of the co. for the financial year 2014-15, 2013-

14&2012-13. The Debtor turnover ratio is 44.46682, 35.5926 and 14.0524

respectively. It shows the high debtor turnover ratio 44.046682 in the year 2014-15

which is favourable for the company.

10. THE TABLE NO.4.10

Here we find that, the CTR of the company for the financial year 2012-13, 2013-2014

&2014-15 which is 4.945315, 7.741512 and 6.066428 is showing an increasing trend over

the years.

11. THE TABLE NO.4.11

From this we can locate the Working capital turnover ratio which is 10.60497,

7.987497 and 3.430203 respectively for the year 2014-15, 2013-14 and 2012-13. The higher

WC ratio shows that the higher sales volume and lower WC has made the ratio look even

more attractive.

12. THE TABLE NO.4.12

It depicts the portion of CA to TA which is 0.291092, 0.36817 and 0.452028 respectively

for the year 2014-15, 2013-14 and 2012-13. It shows that the portion of CA to TA has been

reducing over the years, showing a negative trend for the company.

13. THE TABLE NO.4.13

Here can see the number of times working capital can be turned over by the net worth

of the firm. It is also showing decreasing trend from the FY 2012 to FY 2014.

5.2 Suggestion and recommendation:

71

The management of working capital plays a vital role in running of a successful business. So,

things should go with a proper understanding for managing cash, receivables. RIL is not

managing its working capital in a good manner, but still with undertaking some steps, the

short term liquidity position can be made good by its management.

1. The utilization of Current assets for acquiring net business ventures may be a good

strategic decision but it is not a good decision with regard to Short term liquidity

position.

2. Such kind of strategic investments should always be made by issuing of capital or

raising of debt unless there is sufficient cash available in the Balance sheet.

3. The amount of Current assets should be increased to ensure all the ratios are at

statutory requirement level.

4. However a good thing for the company is its Cash flow i.e. Net sales proceeds are

increasing over the years, making the turnover ratios look attractive.

5. Though the present collection system is near perfect, the company as due to the

increasing sales should adopt more effective measures so as to counter the threat of

bad debts.

6. The over purchasing function should be avoided as it could lead to liquidity

problems.

7. As a better option for making proper utilization of idle cash lying on the Balance

sheet, the investment of cash in marketable securities should be increased, as it is

very profitable for the company.

8. The company’s attempt to reduce Current liability is a well come step but again it

should be seen that these Current liabilities are not being paid off by using

company’s Short term assets.

5.3 Conclusion

72

After completing my research on working capital management in RIL, I can say that now I

understand working capital much better and in a practical way. This project helps me in

understanding the daily requirement in a manufacturing firm.

During my training period in RIL. I am able to know the importance of working capital in

any company especially if the concern is a big one. It enable the company to have regular

supply of raw material, regular payment of salary and wages, exploit the favourable market

conditions, have ability to face crisis and also make the good image of the company. In RIL

the working capital requirements are very high as production is continuous in the concern.

Working capital is also a major external source of capital for especially small and medium

sized firms. These firms have relatively limited access to capital markets and tend to

overcome this complication by short-term borrowing. Working capital position of such firms

is not only an internal firm-specific matter, but also an important indicator of risk for

creditors. Higher amount of working capital enables a firm to meet its short-term obligations

easier. This results increase in borrowing capability and decrease in default risk (and

consequential decrease in cost of capital and increase in firm value). So, it is possible to state

that efficiency in working capital management affects not only short-term financial

performance (profitability), but also long-term financial performance (firm value

maximization).

From the discussion in this research we can say that RIL manage its working capital

requirement in an effective and efficient manner. Its current assets are approx. twice of its

current liabilities which is the standard for any company and it means that the company

always have the sufficient amount of cash to meet any type of liability at any time.

73

6.1 Bibliography:

Websites

www.moneycontrol,com

www.INVSTOPEDIA.COM

www.ACCOUNTING EXPLANATION.COM

www.ACCOUNTING MANAGEMENT.COM

www.MY ACCOUNTING COURSE.COM

www.WIKIPIDIA.COM

www.rbi.org,gov

www.Scribe.com

Reference

Annual report 2013.14 and 2015

74

75