Working Capital Analysisof

By:Supraneet Arya

PGDM I Year

Ajay Kumar Garg Institute of Management,Ghaziabad.

Contents1. Objective of the study2. Company Profile3. Financial Statements4. Table of Financial Ratios5. Calculations, pictorial representation and Analysis

of the Financial Ratios6. Conclusion

Objectives of the study

• To develop analytical skills required to interpret the information (explicit as well as implicit) provided by the financial statements and to measure the company’s performance during the past few years.

• To analysis the liquidity position of Reliance Communications on the basis of some important parameters of liquidity management like current ratio, quick ratio, current assets to total assets, inventory turnover ratio and debtors turnover ratio, turnover ratios.

• To analyze the behavior and trend of various current assets and current liability with the help of ratio analysis.

• In valuing and assessing the financial health of any company, various types of analyses are necessary to develop a competent report and conclusion, whether it is digging into the qualitative aspects of a company, or the quantitative.

Anil Dhirubhai Ambani Group - ADAG

Reliance Communications • Reliance Communications (formerly Reliance Infocomm) started laying 60,000

route kilometres of a pan-India fibre optic backbone.

• This backbone was commissioned on 28 December 2002, the auspicious occasion of Dhirubhai’s 70th birthday.

• Reliance Communications has a reliable, high-capacity, integrated (both wireless and wireline) and convergent (voice, data and video) digital network.

• It is capable of delivering a range of services spanning the entire infocomm (information and communication) value chain, including infrastructure and services — for enterprises as well as individuals, applications, and consulting.

Board Of Directors of ADAG

• Shri Anil D. Ambani - Chairman   Promoter, non-executive and non-independent Director  

• Prof. J Ramachandran  Independent Director  

• Shri S.P. Talwar   Independent Director  

• Shri Deepak Shourie   Independent Director  

• Shri A.K.Purwar  Independent Director

Calculations,Pictorial Representation

&Analysis of Financial Ratios

Current Ratio

Year Current Assets Current Liabilities Current Ratio

2005 Rs. 0.01 Cr. - 0

2006 Rs. 3154.71 Cr. Rs. 4.25 Cr. 742.28

2007 Rs. 9374.90 Cr. Rs. 10732.14 Cr. 0.87

2008 Rs. 7277.13 Cr. Rs. 11238.16 Cr. 0.64

2009 Rs. 16177.55 Cr. Rs. 9365.46 Cr. 1.72

2005 2006 2007 2008 2009

0

742.280000000001

0.870000000000003

0.640000000000003 1.72

Current RatioCurrent Ratio

Quick Ratio

Year Quick Assets Current Liabilities Quick Ratio

2005 - - -

2006 Rs. 3158.96 Cr. Rs. 4.25 Cr. 742.28

2007 Rs. 20107.04 Cr. Rs. 10,732.14 Cr. 1.87

2008 Rs. 18515.29 Cr. Rs. 11238.16 Cr. 1.64

2009 Rs. 25543.01 Cr. Rs. 9365.46 Cr. 2.72

2005 2006 2007 2008 20090

100200300400500600700800

0

742.280000000001

1.87 1.64 2.72

Quick Ratio

Quick Ratio

Debt-Equity Ratio

Year Total Debt Shareholders’

Equity

D/E Ratio

2005 - - 0

2006 - Rs. 15395.05 Cr. 0

2007 Rs. 14567.84 Cr. Rs. 20525.54 Cr. 0.71

2008 Rs. 20286.43 Cr. Rs. 24840.03 Cr. 0.82

2009 Rs. 30903.61 Cr. Rs. 51690.32 Cr. 0.60

20052006

20072008

2009

00

0.710000000000001

0.820000000000001

0.600000000000001

Debt Equity RatioDebt Equity Ratio

Current Asset to Total Assets Ratio

Year Current Assets Total Assets C.A to T.A

Ratio

2005 Rs. 0.01 Cr. Rs. 0.01 Cr. 1

2006 Rs. 3154.71 Cr. Rs. 15395.05 Cr. 0.20

2007 Rs. 9374.90 Cr. Rs. 35093.38 Cr. 0.26

2008 Rs. 7277.13 Cr. Rs. 45126.46 Cr. 0.16

2009 Rs. 16177.55 Cr. Rs. 82593.93 Cr. 0.19

20052006

20072008

2009

1

0.2 0.260.16 0.19

Current Assets to Total Assets Ratio Current Assets to Total Assets Ratio 1

Inventory Turnover Ratio

Year COGS/Net Sales

Avg.Inventory

InventoryTurnoverRatio

2005 - - 02006 - - 02007 Rs, 12756.30 Cr. Rs.98.51 Cr. 129.50

2008 Rs. 14792.05 Cr. Rs. 201.22 Cr. 73.51

2009 Rs. 15086.66 Cr. Rs. 253.14 Cr. 59.60

2005 2006 2007 2008 2009

0 0

129.5

73.51 59.6

Inventory Turnover RatioInventoryTurnover Ratio

Cash & Bank Balances to Current Assets Ratio

Year Cash & Bank Balances

CurrentAssets

Cash & BankBalance to CurrentAssets Ratio

2005 - - 02006 Rs. 0.05 Cr. Rs. 0.05 Cr. 12007 Rs.28.08 Cr. Rs. 928.70 Cr. 0.032008 Rs. 192.65 Cr. Rs. 1487.08 Cr. 0.132009 Rs. 534.89 Cr. Rs. 2270.25 Cr. 0.23

2005

2006

2007

2008

2009

0

1

0.03

0.13

0.23

Cash & Bank Balances to Current Asset RatioCash & Bank Balances to Current Asset Ratio

Debtors to Current Assets Ratio

Year Debtors Current Assets Debtors to Current AssetsRatio

2005 - - 0

2006 - Rs. 0.05 Cr. 0

2007 Rs. 802.11 Cr. Rs. 928.70 Cr. 0.86

2008 Rs. 1093.21 Cr. Rs. 1487.08 Cr. 0.73

2009 Rs. 1428.22 Cr. Rs. 2270.25 Cr. 0.65

2005 2006 2007 2008 2009

00.10.20.30.40.50.60.70.80.9 0.8600000000

000010.7300000000

00001

0.650000000000005

Debtors to Current Assets Ratio

Debtors to Current Assets Ratio

Inventories to Current Assets Ratio

Year Inventories Current Assets Inventories toCurrent Assets Ratio

2005 - - 0

2006 - Rs. 0.05 Cr. 0

2007 Rs.98.51 Cr. Rs. 928.70 Cr. 0.10

2008 Rs. 201.22 Cr. Rs. 1487.08 Cr. 0.13

2009 Rs. 253.14 Cr. Rs.2270.25 Cr. 0.11

20070.10

20080.13

20090.11

Inventories to Current Assets Ratio

Creditors to Current Liabilities Ratio

Year Creditors Current

Liabilities

Creditors to

Current

Liabilities

Ratio

2005 - - 0

2006 - Rs. 1.68 Cr. 0

2007 Rs. 14567.84 Cr. Rs.10732.14 Cr. 1.35

2008 Rs. 20286.43 Cr. Rs. 11238.16 Cr. 1.80

2009 Rs. 30903.61 Cr. Rs. 9365.46 Cr. 3.30

2005 2006 2007 2008 20090

0.5

1

1.5

2

2.5

3

3.5

Creditors to Current Liabilities Ratio

Debt to Total Assets Ratio

Year Total

Debts

Total

Assets

Debt to

Total Assets

Ratio

2005 - - 0

2006 - Rs. 15395.05 Cr. 0

2007 Rs. 14567.84 Cr. Rs. 35093.38 Cr. 0.41

2008 Rs. 20286.43 Cr. Rs. 45126.46 Cr. 0.45

2009 Rs. 30903.61 Cr. Rs. 82593.93 Cr. 0.37

20052006

20072008

2009

0

0

0.41 0.45

0.37

Debt to Total Assets RatioDebt to Total Assets Ratio

Table: Financial Ratios

Key Financial Ratios Mar’05 Mar’06 Mar’07 Mar’08 Mar’09

Current Ratio0 742.28 0.87 0.64 1.72

Quick Ratio0 742.28 1.87 1.64 2.72

Debt Equity Ratio0 - 0.71 0.82 0.60

Current Asset to Total Asset Ratio1 0.20 0.26 0.16 0.19

Inventory Turnover Ratio0 0 129.50 73.51 59.60

Cash & Bank Balances to Current Assets Ratio0 1 0.03 0.13 0.23

Debtors to Current Assets Ratio0 0 0.86 0.73 0.65

Inventories to Current Assets Ratio0 0 0.10 0.13 0.11

Creditors to Current Liabilities0 0 1.35 1.80 3.30

Debt to Total Assets Ratio0 0 0.41 0.45 0.37

Conclusion• Reliance Communications has a strong financial strength as its Current Ratio and

Quick Ratio in 2006 was the highest of ever which made company capable to discharge or meet its obligations effectively for its next years.

• The assets of the company in last five years mostly financed through shareholders’ due to low debt equity ratio.

• Current assets after 2005 were very less as compared to total assets of the company which results in unsatisfactory level of liquidity.

• Inventory turnover of the company for last five years was good. Cash and Bank Balances of the company were not adequate as against other current assets.

• The company had fewer debtors as compared to its creditors.

• So, the overall liquidity of the company is good and it meets its current or future obligations or liabilities effectively.

Thank You!