1.1 INTRODUCTION TO METRO TYRES LTD LUDHIANAMetro Group is a US $140 million conglomerate consisting of Metro Tyres Limited,

Metro International and Metro Ortem Limited. The Group has seven ISO 9001:2008

certified, state-of-the-art manufacturing facilities, producing tyres and tubes for

bicycles, motorcycles, scooters and three wheelers. Metro today has become a leader

in the industry, through expansion in related products and diversifying into lifestyle

and consumer durable products under the brand name 'Ortem'.

Technical collaboration with Germany's Continental AG, has greatly enhanced Metro

Group's position and today it is regarded as a company manufacturing superior quality

products. Gradually the company is increasing its volumes and venturing into

overseas markets where it is developing a niche for its products. Today the group has

a presence in more than 53 countries and is the largest exporter of bicycle tyres and

tubes from India. Under the aegis of Metro Ortem Limited, the group has diversified

into manufacturing a whole range of fans and other home appliances.

Today Ortem fans and sewing machines are household names. The group exports are

being handled by Metro International which is a government recognized trading

house.In Metro Group, quality is the result of a profound understanding of what it

takes to make state-of-the-art products for the ultimate customer, even if they are from

the world's most quality conscious markets like the European Union and USA. This

places Metro ahead of other brands in India.Metro Group has manufacturing capacity

close to 30 Million tyres and 30 Million tubes annually and it enjoys around 24%

market share in India. Currently, Metro Group employs over 4000 people who are its

greatest asset.

We aim to become a focused market leader providing excellent quality products and

services to our valued customers both in the domestic and international markets.

We believe in the power of people to achieve results and realize that people respond

to recognition and trust, from the opportunity to learn, the freedom to participate, and

the chance to develop personally and professionally.

We will strive to achieve prosperity and customer satisfaction through continual

improvement in product quality, competitive pricing and timely delivery.

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1.1.1 VISION & MISSION OF THE COMPANY

VISION

To become a significant player in the Indian Tyre and Appliances Industry with

International footprints.

MISSION

To build a truly professional, Customer Centric, Quality Conscious, Socially

responsible Organization by providing a platform of over four decades of business

experience, reputation, corporate strength and environment conducive for growth of

all.

GOAL

To maintain leadership position in Cycle Tyres/Tubes segment and to be a significant

player in Motorcycle/2-3 Wheeler Tyres and Tubes segment.

1.1.2 SOCIAL AND ENVIRONMENTAL INITIAVITIES

We have always strived to give back to the community by supporting worthy

initiatives. Metro Group's humane approach can be seen in all aspects of it's

corporate dealings. It believes in the importance of Corporate Social Responsibility,

and is engaged in community and social causes on labour and environment.

Recently, the Group has taken an initiative to support children suffering from Type 1

Diabetes by applying therapeutical yoga exercises, and a balanced diet plan.

Supervision and guidance is provided by experts and the results achieved are

monitored on a regular basis. Liberal financial assistance is being extended to

deserving cases.

Currently we are partnering with organizations such as Akshay Patra Foundation,

which initiated the mid day meal programme for underprivileged children.

Metro Group has been making conscious efforts in implementation of several

environment friendly technologies in manufacturing processes. The Company uses

some of the world's most advanced equipments for emission checks and controls.

3

1.2 INTRODUCTION TO WORKING CAPITAL MANAGEMENTWorking capital management has acquired great importance in recent times. The

brains in every organization is now days spending their previous time to resolve the

problems of working capital. Working capital is an integral part of the overall

financial management. The management of chart assets and chart team sources of

financing is working capital management.

Meaning of Working Capital The term' working capital' refers to the firm’s total current assets. It is also termed as

gross 'working capital' since the term' working capital' according to the surrounding

terminology is used for the difference of current assets and current liabilities. In case

the term working capital is used for current assets the term used for the excess of

current assets over current liberalities is networking capital.

1.2.1 Concepts of Working Capital

There are two concepts of working capital

(a) Balance sheet concept.

(b) Operating cycle or circular flow concept.

Balance Sheet Concept

There are two interpretations of working capital under the balance sheet concept.

(a) Gross working capital

(b) Net working capital

In the broad sense, the term working capital refers to the gross working capital and

represents the amount of funds invested in current assets. Thus, the gross working

capital is the capital invested in total current assets of the enterprise.

Current assets are those assets which in the ordinary course of business can be

converted into cash within a short period of normally one accounting year. Examples

of current assets are:

In a narrow sense, the term working capital refers to the net working capital. Net

working capital is the excess of current assets over current liabilities, or say:

Net Working Capital = Current Assets – Current Liabilities

4

Net working capital may be positive or negative .when the current assets exceed the

current liabilities the working capital is positive and the negative working capital

results when the current liabilities are more than the current assets. ( Current liabilities

are those liabilities which are included to be paid ordinary course of business within a

short period of normally one accounting year out of the current assets or the income

of the business examples of current liabilities are:

The gross working capital concept is financial or going concern concept whereas net

working capital is an accounting concept of working capital. These two concepts of

working capital are not exclusive; rather both have their own merits. The gross

concept is sometimes preferred to the net concept of working capital for the following

reasons:

1. It enables the enterprise to provide correct amount, of working capital at the right

time.

2. Every management is more interested in the total current assets with which it has to

operate than the sources from where it is made available.

3. The gross concept takes into consideration the fact that every increase in the funds

of the enterprise would increase its working capital.

4. The gross concept of working capital is more useful in determining the rate of

'return on investments in working capital.

The net working capital concept, however, is also important for the following reasons:

1. It is a qualitative concept which indicates the firm's ability to meet its operating

expenses and short-term liabilities.

2. It indicates the margin of protection available to the short-term creditors, i.e., the

excess of current assets over current liabilities.

3. It is an indicator of the financial soundness of an enterprise.

4. It suggests the need for financing a part of the working capital requirements out of

permanent sources of funds.

is the difference between the book value of the current assets and current liabilities.

5

1.2.2 Classification or Kinds of Working Capital

Working capital may be classified in two ways

(a) On the basis of concept.

(b) On the basis of time

On the basis of concept, working capital is classified as gross, working capital and net

working capital as discussed earlier.

This classification is important from the point of view of the financial manager. On

the basis of time working capital may be classified as:

Permanent or Fixed Working Capital:-Permanent or fixed working capital is the

minimum amount which is required to ensure effective utilization of fixed facilities

and for maintaining the circulation of current assets. There is always a minimum level

of current assets which is continuously required by the enterprise to carry out its

normal business operations. For example, every firm has to maintain a minimum

level of raw "materials, work-in-process, finished goods and cash balance. This

minimum level of current assets is- called; permanent or fixed working capital as this

part of capital is permanently blocked in current assets.

Temporary or Variable Working Capital: Temporary or variable working capital is

the amount of working capital which is required to meet the seasonal demands and

some special exigencies. Variable working capital can be further classified as seasonal

working capital and special, working capital. Most of the enterprises have to provide

additional working capital to meet the seasonal and special needs.

1.2.3 Importance or Advantages of Adequate Working Capital

Working capital is the life blood and nerve Centre of a business. Just as circulation of

blood is essential in the human body for maintaining life, working capital is very

essential to maintain the smooth running of a business. No business can run

successfully without an adequate amount of working capital. The main advantages of

maintaining adequate amount of working capital are as follows:

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

solvency, of the business by providing uninterrupted flow of production.

2 Goodwill: Sufficient working capital enables a business concern to make prompt

payments and helps in creating and maintaining goodwill.

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3. Easy Loans: A concern having adequate working capital, high solvency and good

credit standing can arrange loans from banks and others on easy and favorable terms.

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

discounts on the purchases and hence it reduces costs.

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

supply of raw materials and continuous production.

6. Regular Payment of Salaries, Wages And Other Day-To-Day Commitments: A

company which has ample working capital can make regular payment of salaries,

wages mid other day-to-day commitments which raises their morale of its employees,

increases their efficiency, reduces wastages and costs and enhances production and

profits.

7. Exploitation of Favorable Market Conditions: Only concerns with adequate

working capital can exploit favorable market conditions such as purchasing its

requirements in bulk when the prices are lower and by holding its inventories for

higher prices.

8. Ability to Lace Crisis. Adequate working capital enables a concern to face

business crisis in emergencies such as depression because during such periods,

generally, there is much pressure on working capital.

1.2.4 Excess or Inadequate Working Capital

Every business concern should have adequate working capital to run its business

operations. It should have neither redundant or excess working capital nor inadequate

nor shortage of working capital. Both excess as well as short working capital positions

are bad for any business. However, out of the two, it is the inadequacy of working

capital which is more dangerous from the point of view of the firm.

1.2.5 The Need or Objects of Working Capital

The need for working capital cannot be over emphasized. Every business needs some

amount of working capital. The need for working capital arises due to the time gap

between productions mid realization of, cash from sales. There is an operating cycle

involved in the sales band realization of cash. There are time gaps in purchase of raw

materials and production; production and sales; mid sales and realization of cash.

7

1.3 INTRODUCTION TO FINANCIAL STATEMENTS1.3.1. Ratio Analysis Approach

Ratio analysis is a technique of analysis and interpretation of financial statements. It is

a process of establishing and interpreting various ratios for helping in making certain

decisions.

Solvency Ratios which show the extent that debt is used in a company's capital

structure.

Liquidity Ratios which give a picture of a company's short term financial situation

or solvency.

Activity Ratio which use turnover measures to show how efficient a company is in its

operations and use of assets.

Profitability Ratios which use margin analysis and show the return on sales and

capital employed.

1.3.2 Cash Flow Statements

In financial accounting, a cash flow statement, also known as statement of cash flows,

is a financial statement that shows how changes in balance sheet accounts and income

affect cash and cash equivalents, and breaks the analysis down to operating, investing

and financing activities.

1.3.3 Balance Sheet

This is a statement of the assets, liabilities, and capital of a business or other

organization at a particular point in time, detailing the balance of income and

expenditure over the preceding period.

1.3.4 Profit and Loss account

This is an account in the books of an organization to which incomes and gains are

credited and expenses and losses debited, so as to show the net profit or loss over a

given period.

This is a financial statement showing a company's net profit or loss in a given period.

It summarizes the revenues, costs and expenses incurred during a specific period of

time, usually a fiscal quarter or year.

8

2. REVIEW OF LITERATUREVarious studies on Working Capital Management and Financial Statements had been

conducted in foreign countries. However, in Indian context, the number is quite few.

Depending on the various issues of working capital management and financial

statements, the review has been discussed in brief as follows:

Bollen (1999) conducted a study on Ratio Variables on which he found three

different uses of ratio variables in aggregate data analysis: (1) as measures of

theoretical concepts, (2) as a means-to control an extraneous factor, and (3) as a

correction for heteroscedasticity. In the use of ratios Indices of concepts, a

problem can arise if it is regressed on other Indices or variables that

contain a common component. For example, the relationship between two

per capita measures may be confounded with the common population

component in each variable. Regarding the second use of ratios, only under

exceptional conditions will ratio variables be a suitable means of controlling an

extraneous factor. Finally, the use of ratios to correct for heteroscedasticity is also

often misused. Only under special conditions will the common form

forgers soon with ratio va r i a b l e s c o r r ec t f o r he t e ro s ceda s t i c i t y .

A l t e rna t ive s t o r a t i o s fo r ea ch o f t he s e ca s e s a r e d i s cus se d and

evaluated

Cooper (2000conducted a study on Financial Intermediation on which he

observed that the quantitative behavior of business-cycle models in which the

intermediation process acts either as a source of fluctuations or as a propagator of real

shocks. In neither case do we find convincing evidence that the intermediation

process is an important element of aggregate fluctuations. For an

econom y d r ive n by in t e rmed i a t i on s hocks , cons umpt ion i s no t

sm oo the r t han ou tpu t , investment is negatively correlated with output,

variations in the capital stock are quite large, and interest rates are pro cyclical. The

model economy thus fails to match unconditional moments for t he U .S .

e conom y .

9

Adams (2000) conducted a research and examined that the systematic assessment of

working capital requirement in construction projects deals with the analysis of various

quantitative and qualitative factors in which information is subjective and based on

uncertainty. There exists an inherent difficulty in the classical approach to evaluate

the impact of qualitative factors for the assessment of working capital requirement.

Rafuse (2000) conducted a research and examined that working capital can be

improved by delaying payment to creditors is counter-productive to individuals and

to the economy as a whole. Claims that altering debtor and creditor levels for

individual tiers within a value system will rarely produce any net benefit. Proposes

that stock reduction generates system wide financial improvements and other

important benefits. Urges those organizations seeking concentrated working capital

reduction strategies to focus on stock management strategies based on “lean supply-

chain” techniques.

Anand (2001) states that most of the chief financial officer's (CFO) time is devoted

to working capital management. Still, a large number of business failures have been

attributed to an inability of financial managers to plan and control properly the current

assets and current liabilities of their respective firms. The objective

of working capital management of any firm is to mange the firm's inventory,

receivables and payables in order to achieve a balance between risk and return and

thereby contribute positively to the creation of a firm value. The present empirical

survey has been designed to identify some quantitative working capital benchmarks in

order to help Corporate India to mange its working capital more efficiently.

Iqbal (2001) conducted a study and examined that for increasing shareholder's wealth

a firm has to analyze the effect of fixed assets and current assets on its return and risk.

Working Capital Management is related with the Management of current assets. The

Management of current assets is different from fixed assets on the basis of the

following points i.e. Current assets are for short period while fixed assets are for more

than one Year.

10

Deloof (2003) investigated the relationship between working capital management and

corporate profitability on a sample of 1009 large Belgian non-financial firms for the

1992-1996 period. Trade credit policy and inventory policy are measured by number

of days accounts receivable, accounts payable and inventories, and the cash

conversion cycle is used as a comprehensive measure of working capital management.

The results suggest that managers can increase corporate profitability by reducing the

number of days accounts receivable and inventories. Less profitable firms wait longer

to pay their bills.

Howorth (2003) examined that Working capital management routines of a large

random simple of small companies in the UK are examined. Considerable variability

in the take-up of 11 working capital management routines was detected. Principal

components analysis and cluster analysis confirm the identification of four district

'types' of companies with regard to patterns of working capital management.

Malhotra (2007) conducted a study to develop quantitative benchmarks at the firm

and the industry level, so as to evaluate the working capital management performance

of Corporate India from time to time. An earlier attempt was made by Anand (2001)

based on the methodology designed by the CFO Europe and REL Consultancy Group

for the year 1996-97. In another attempt, Anand and Gupta (2003) experimented with

a number of parameters and different weights in the overall score to have a better

picture of working capital management performance of Corporate India.

Solano (2007) conducted research for the object of the research presented in this

paper is to provide empirical evidence on the effects of working capital management

on the profitability of a sample of small and medium-sized Spanish firms. The results,

which are robust to the presence of endogeneity, demonstrate that managers can

create value by reducing their inventories and the number of days for which their

accounts are outstanding. Moreover, shortening the cash conversion cycle also

improves the firm’s profitability. The aim is to ensure that the relationships found in

11

the analysis carried out are due to the effects of the cash conversion cycle on

corporate profitability and not vice versa.

3.1 Need of the Study

As it is mentioned earlier that the working capital management is important in all the

organization. Many studies had been done in this respect but proper calculation and

there effects are not properly considered. In this study various ratio`s (current ratio,

liquidity ratio, turnover ratio`s etc) has been calculated to find out the position of the

organization in respect to their current position. So, need of the study is to know the

current financial position of the organization.

3.2 Scope of the Study

The scope of study conducted i.e. Working Capital Management at JCT Textile

Mills Ltd., Phagwara for the year ended 2011,2012, 2013 and 2014, 2015.

3.3 Objectives of the Study

The study has been undertaken to achieve the following objectives.

1. To know the efficiency of JCT Textiles Mills Ltd. in managing working

capital.

2. To know the level and composition of current assets and current liabilities.

3. To calculate the liquidity position of the organization.

4. To identify the financial strengths & weakness of the company.

5. To understand the practical working of the finance.

6. To study the cash management and inventory management.

7. To understand how working capital contributes profit maximization.

8. To understand significance of working capital in the company.

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13

RESEARCH METHODOLOGY

Introduction and meaning Research is a careful investigation or inquiry especially through for new facts in

branch of knowledge. Market research specifies the information. Required to address

these issue design the method for collecting information’s manage and implements

the data collection process analysis and communicate the findings and their

implications

Research Problem is one which requires a researcher to find out their best solution for

giving problems that is to find out the course of action, the action, the objectives can

be obtained optimally in the context of given environment

4.1 Research Design

The current study was descriptive in nature.

4.1.1 Descriptive research:

The Research was a descriptive research as it was concerned with specific predictions,

with narration of facts and characteristics concerning individuals, groups or situations.

4.2 Data Collection

Primary & Secondary data has been used for the study.

4.2.1 Primary Data

Raw data is a term for data collected on source which has not been subjected to

processing or any other manipulation. (Primary data), it is also known as primary

data.

Primary Sources

In this project various sources was used in order to get the data . for this purpose p

1) Initial Permanent Working Capital

2) Net Income - Increased Profit

3) Temporary Working Capital - Short Term loan / OD, Delayed Payments to

Creditors and Increased Cash Collection

14

4.2.2 Secondary Data

The secondary data are those data which have already been collected by someone else

and which have already been passed through the statistical process. Magazines,

journals are used as source of secondary data.

Secondary Sources

In this project various sources was used in order to get the data. For this purpose

previous years annual reports, reports on working capital for research, analysis and

comparison of the data gathered was done. While doing this project, the data relating

to working capital, cash management, receivables management, inventory

management and short term financing was collected. A detailed study on the actual

working processes of the company is also done by timely studying the happenings at

the company.

4.2.2.1 Tools of Presentation and Analysis

To present and analyze the data, following tools were used in the study:

Tables: This was a tool used to present the data in tabular form.

Bar graphs: These tools were used for analysis of data or to analyze the data

properly.

4.3 Limitation of the Study

Due to constraints of time and resources, the study is likely to suffer from certain

limitations. Some of these are mentioned here under so that the findings of the

study may be understood in a proper perspective.

The limitations of the study were:

The research was carried out in a short period. Therefore the parameters were

selected accordingly so as to finish the work within the given time frame.

The information given by the organization might be biased they might not be

interested to give correct information.

The data given by the organization can be incorrect.

Some personal mistakes can be there while finding the ratio as human errors.

The data has been processed and analyzed so that findings can be communicated

and can be understood. The findings are presented in the best possible way.

15

16

5 ANALYSIS OF WORKING CAPITAL:

5.1 Current RatioCurrent ratio is the relationship between the current assets and current liabilities. This

ratio is also known as working capital ratio. It is a measure of general liquidity and is

most widely used to make the analysis of a short-term financial position.

Current Ratio = Current Assets

Current Liabilities

Years 2011 2012 2013 2014 2015

Current ratio 0.71 0.85 0.99 1.83 1.59

Table 5.1 Current Ratio of JCT Textiles Mills

Table 5.1 Current Ratio of JCT Textiles Mills

Source: Financial Analysis of JCT Textiles Mills of India, Page: 119, Column B

Analysis and Interpretation:

In current ratio:- rule of thumb is 2:1

In 2011:- current ratio is 0.71 It is not more than the expected rule of thumb. So the

position of the company is bad.

In 2012:- current ratio is 0.85. There is lit bit rise in comparison to 2011 in 2012.

17

In 2013:- current ratio is 0.99. There is continuously rising in the value of current

ratio.

In 2014:- current ratio is 1.83. As compare to last year this is the highest ratio. It

means the company is in good position.

In 2015:- current ratio is 1.59. There is decline in the ratio of company but company

still in the position. i.e above the rule of thumb. Company in good position.

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1.2 Liquid Ratio

Liquid ratio is also known as acid test ratio and quick ratio. It is a more rigorous test

of liquidity then the current ratio. The term ‘liquidity’ refers to the ability of a firm to

pay its short-term obligations as and when they become due. It is the relationship

between the quick assets and current liabilities.

Liquid Ratio = Liquid Assets

Current Liabilities

Table 5.2 Liquid Ratio of JCT Textiles Mills

Years 2011 2012 2013 2014 2015

Liquid ratio 0.68 0.80 0.95 1.80 1.44

Figure 5.2 Liquid Ratio of JCT Textiles Mills

Source: Financial Analysis of JCT Textiles Mills of India, Page: 130, Column A

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Analysis and Interpretation: liquid ratio :- Rule of thumb 1:1

In 2011 :- liquid position of the company is 0.68. It is less than the expected rule of

the thumb it means company is not in a position and ability to meet its current and

liquid liabilities in time.

In 2012:- there is rise in liquid position of the company. It means company is still

progress upward . this indicates good sign of the company.

In 2013:- after rise in liquid ratio in 2012 of the company. It means company is still

progress upward . This again indicates good sign of the company.

In 2014:- an expected , in this year the company increase their liquid ratio position.

This indicates growing sign of the company.

In 2015:- there is a decrease in liquid assets of the company in comparison to last year

i.e 2014. It may cause worry for the company but doesn’t meant that company not in

position to pay their liabilities still after the decrease in 2015 in comparison to 2014

company still in good position and above the expected rule of the thumb.

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5.3 Absolute Liquid Ratio

This ratio tells the relationship between the absolute liquid assets and current

liabilities. Debtors and bills receivables are more liquid than inventories. But cash

ratio involves only absolute liquid assets. Absolute liquid assets involve only cash and

bank and short term securities.

Absolute Ratio = Absolute Liquid Assets

Current Liabilities

Table 5.3 Absolute Liquid Ratio of JCT Textiles Mills

Years 2011 2012 2013 2014 2015

ABSOLUTE

LIQUID

RATIO

0.13 0.14 0.16 0.32 0.16

Figure 5.3 Absolute Liquid Ratio of JCT Textiles Mills

Source: Financial Analysis of JCT Textiles Mills of India, Page: 117, Column A

Analysis and Interpretation: In absolute liquid position :- rule of thumb 0.5:1

In 2011 :- the A.L.R is 0.13:1. It is quite unsatisfied as it is lower than the rule of

thumb.

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In 2012 :- the A.L.R is 0.14:1. It means that at the end of next years the A.L.R is lit

bit increase . this give good hope for the company.

In 2013 :- the A.L.R is 0.16:1. There is increase in 0.3% this indicates good sign foe

the company however it is lower than the accepted norm but by the end of 2014 the

A.L.R is rising in comparison to last two years.

In 2014 :- the A.L.R is 0.32:1 . It means by year and year ther is increase in A.L.R it

shows growing sign of the company but still it is unsatisafactory because it is below

than the acceptance norm.

In 2015 :- the A.L.R . after the increase in A.L.R ratio in 2011 there is huge decline

i.e { 0.32 -0.16 } it may too much worry for the company because it is not good sign

instant of increasing it is decline as a whole we can say that 0.32:1 is good A.L.R is

compartison to last five years as we know it is still quite unsatisfactory as it is much

liwer than the rule of thumb .

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5.4 Inventory Turnover Ratio

Inventory turnover ratio also known as stock velocity is normally calculated as

sales/average inventory or cost of goods sold/average inventory. It indicates whether

inventory has been efficiently used or not. It indicates no. of times the stock has been

turned over during the period.

Inventory turnover ratio = Total Net Sales

Average Inventory

Table 5.4 Inventory Turnover Ratio of JCT Textiles Mills

YEAR 2011 2012 2013 2014 2015

INVENTORY TURNOVER

RATIO

20.67 1.28 23.08 23.13 21.38

Table 5.4 Inventory Turnover Ratio of JCT Textiles Mills

Source: Financial Analysis of JCT Textiles Mills of India, Page: 129, Column E

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Analysis and Interpretation:

As in 2011 I.T.R is 20.67 and in 2012 there is a huge decrease in I.T.R i.e. 1.28, but in

in 2013 and 2014 the I.T.R. rises or jumps to 23.08 and 23.13. This year i.e it goes to

21.38 it means a small decrease in I.T.R. as compared to the last two years.

As a whole we can say that for last three years I.T.R is increasing. It is good sign.

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5.5 DEBTORS TURNOVER RATIO:

Debtor’s turnover ratio indicates the velocity of debt collection of firm. In simple

words, it indicates the number of times average debtors are turned over during a year.

Debtor turnover ratio = Total Net Sales

Average Debtors

Average Debtors = Opening Debtors + Closing Debtors

2

Table 5.5 Debtors Turnover Ratio of JCT Textiles Mills

YEAR 2011 2012 2013 2014 2015

DEBTORS

TURNOVER

RATIO

5.32 3.97 0.29 7.78 8.70

Figure 5.5 Debtors Turnover Ratio of JCT Textiles Mills

Source: Financial Analysis of JCT Textiles Mills of India, Page: 131, Column A

Analysis and Interpretation: As in 2011 D.T.R is 5.32 but in year 2012 it goes to

3.97 and in 2013, 2014, 2015 the D.T.R is 0.29, 7.78, and 8.7 respectively. There is

increase in debtor’s turnover ratio in last two years, this indicates there is efficient

management of debtors or in their other words, ther are more liquid debtors of

company.

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5.6 Working Capital Turnover Ratio

Working capital is directly related with the sales of the firm. Working capital turnover

ratio indicates the velocity of the utilization of the net working capital. This ratio

indicates the number of time the working capital is turned over in the course of a year.

Working Capital Turnover Ratio = Cost of Sales

Net Working Capital

Table 5.6 Working Capital Turnover Ratio of JCT Textiles Mills

YEAR 2011 2012 2013 2014 2015

Working Capital

Turnover Ratio

0.17 0.15 0.01 0.15 0.15

Figure 5.6 Working Capital Turnover Ratio of JCT Textiles Mills

Source: Financial Analysis of JCT Textiles Mills of India, Page: 125, Column B

26

Analysis and interpretation:-

In 2011 company working capital is 0.17. But in 2012 company working

capital is 0.15. In 2013 in comparison to last two year working capital is

decreases to 0.01. This is not a good sign. In 2014 working capital increases

0.15 times. It shows there is consistently rises in working capital year by

year. In 2015 working capital remains same i.e. 0.15.

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28

FINDINGS

After conducting the study on “Working Capital Management” the findings of the

study were:

JCT Textiles Mills follow the moderate policies of working capital. They enjoy

the benefits of both conservative and aggressive policy.

They are financing fixed working capital from long term sources and temporary

working capital from short term sources.

The optimum current ratio is 2:1 but JCT Textiles Mills is achieving 1.59 which is

unsatisfactory.

The absolute ratio is 0.16 which is quite unsatisfactory.

The liquid ratio has been increased.

The inventory turnover ratio has increased.

There is increase in debtor’s turnover ratio.

There is no increase in working capital turnover ratio in year 2015.

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30

7.1 Conclusion After the in depth study of working capital management in JCT Textiles Mills, it was

concluded that a good working capital management is that where the firm has

efficient funds to meet the requirements. There must not be inadequate or excessive

working capital because working capital management policies of a firm have a great

effect on its profitability, liquidity and structural health of the organization.

Inadequacy of working capital may lead a firm to insolvency and working capital

implies idle funds, which earns no profits to the business.

There were few researches which were conducted earlier on working capital

management and the research concluded that these research examined the systematic

assessment of working capital in constructing projects deals with the analysis of

various quantitative factors which are based on uncertainity. The scope of the study

was limited with in the organisation as the objective was to know the efficiency of

JCT Textiles Mills in managing their working capital.

The working capital of the company was very efficiently utilised as the company was

able to meet their current obligations out of the current assets of the organisation as

they made the payment to the concerned parties well on time. This showed that the

company was having ample amount of working capital and that showed that the

liquidity position of the company was very strong.

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7.2 Recommendations Management should make the proper use of inventory control techniques like

fixation of minimum, maximum and ordering levels for all the items for less

blockage of money.

The company should keep more cash for the liquidity position of the company.

Company makes very quick payment to the creditors. But it is not required to

make payment so early. So, it should make use of credit given by its creditors

by extending its payment period.

Its working capital turnover ratio is satisfactory and up to the mark. So, the

company needs to maintain that by making efficient utilization of working

capital.

The company is also required to reduce down the inventory conversion period

which helps the unit in reducing the cost also.

The investments of surplus funds are made by the corporate office and the unit

is not generally involved while taking decisions with regard to structure of

investment of surplus funds. The corporate office should involve the units so

as to better ascertain the future requirements of funds and accordingly the

investments are made in different securities.

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