working capital, sujala pipes. 03 fin
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INTRODUCTION
The success of any organization is mainly dependent upon the four
functional areas of management, namely finance, production, marketing, and
personnel management. Finance is defined as a provision of money at the time
it is required. Therefore, every enterprise, whether it is big, medium or small
needs finance to carry on its operations and to achieve its goals.
Working capital may be regarded as the lifeblood of the business. A study
of working capital is so important because of its close relationship with the
current day-to-day operations of a business, such as for purchasing of raw
material, for meeting day to day expenditure on salaries, wages, rents,
advertising etc.,
Working capital is defined as excess of current assets over current liabilities.
Current assets are those assets, which will be converted into cash with in the
current accounting period or with in the next year as a result of the ordinary
operations of a business.
As pointed out by
“Ralph Kennedy and Steward Mc Muller”: Working capital is very
essential to maintain smooth running of a business. No business can run
successfully without an adequate amount of working capital.
The goal of working capital management is to manage the firm’s
current assets and current liabilities in such a way that a satisfactory level of
working capital is maintained.
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There is always an operating cycle involved in the conversion of sales
into cash. The firm should maintain a sound working capital position. It should
have adequate working capital to run its business operations. Both excessive as
well as inadequate working capital positions are dangerous from the firm’s
point of view. Excessive working capital means ideal funds, which earn no
profits for the firm.
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NEED FOR THE STUDY
Ø The study has great significant and provides benefits to various parties
whom directly or indirectly interact with the company.
Ø It is beneficial to management of the company by providing crystal clear
picture regarding important aspects like liquidity, leverage, activity and
profitability.
Ø The study is also beneficial to employees and offers motivation by
showing how actively they are contributing for company’s growth.
Ø The investors who are interested in investing in the company’s shares
will also get benefited by going through the study and can easily take a
decision whether to invest or not to invest in the company’s shares.
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OBJECTIVES OF THE STUDY
The present study Nandi Pipes Nandyal has been undertaken to evaluate the
working capital management of the organization by establishing the following
objectives.
1. To review the progress and organization efficiency of Nandi Pipes.
2. To find out the working capital position of the company through
financial ratios.
3. To know about cause of changes in working capital from time to time.
4. To find out the sources of working capital finance of the company.
5. To give suggestion to company for improvements of working capital
position.
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METHODOLOGY OF THE STUDY
DATA COLLECTION
The data collection of the study consists of two kinds of data.
Primary source of data:
This is first hand in nature, and is collected through.
o Officers of accounts sections.
o Executives and staff of finance and accounts department.
o Meeting with concerned people
o Personal observation.
Secondary data:
o Annual reports of SUJALA PIPES Pvt. Ltd.
o Financial management textbooks.
o Printed materials
o Journals & magazines.
o News papers
o Text books
o World Wide Web.
o Company maintained reports.
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SCOPE OF THE STUDY
The scope of study is limited to collecting the data published in the
reports of the company and opinions of the employees of the organization with
reference to the objective stated above and theoretical frame work of the data
with a view to suggest solutions to various problems relating to working capital
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LIMITATIONS OF THE STUDY
In spite of honest and sincere efforts, there are certain discrepancies and
inconsistencies.
The limitations are:
§ The study is restricted to limited period.
§ The firm refused to disclose some confidential information.
§ The company has restricted to give the information for
more than five years.
§ The study was conducted with the data available and the
analysis was made accordingly.
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PLASTIC PIPES INDUSTRY
INTRODUCTION
Plastic is a common name for polymers. Materials are made of long
strings of carbon and other elements. Each unit in a string is called a monomer
and is a chemical usually derived from oil.
The monomer is made into polymer by chain-linking reactions. This is
like making a daisy chain. Instead of flowers, carbon atoms are joined together.
The appearance of the daisy chain will be different you use different colored
flowers, and so will polymers.
There are many different types of plastics, depending on the starting
monomer selected, the length of polymer chains, and the type of modifying
compounds added. Each plastic has been developed for a special purpose.
PVC pipes poly vinyl chloride have become synonymous, with modern
living it is undoubtedly a product which has deeply penetrated into common
man’s life no wonder the industry has achieved remarkable capabilities and
manufacturing of machinery equipment sophistication.
This versatile materials with superior qualities such as light weight, easy
processing corrosion resistance, energy conservative, etc. many substitute to a
large estimate of many conventional and costly industrial materials like wood,
glass, metal and leather, etc. in the future the manifold applications of plastics
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in the field of automobiles, electronics, electrical, packaging and agricultural
gives its immense utility in PVC plastics.
At present as percent of total requirement of raw materials and most all
type of plastic machines required for the industry are not adequate available.
The present investment in all the three segments of industry namely production
of raw materials, expansion and diversification of raw materials.
On account of their inherent advantage in properties and versatile in
adoption and use, plastics have come to play vital of applications the world
over. In our country plastics are used in making essential consumer goods
which are daily use for common man. Such as baskets, carry bags, bottles,
pipes, pens, etc. they also have application in agriculture, building
construction, Water management resources, engineering and electronics.
PROSPECTS
The production of various plastics a raw material in the country is
expected to double by the end of seventh plan, the consumption of commodity
plastics including LDPE, HDPE, PP, PS & PVC is immense scope for the use
of plastics in agriculture, electronics, automobile, telecommunication and
irrigation and thus, the plastic industry is on the threshold of an explosive
growth.
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ROLE OF PLASTICS IN THE NATIONAL ECONOMY
Plastics are got perceived as just simple colorful household products in
the mind so common man. A dominant part of the plastics of the percent and
future their utilization in the areas Agriculture, forestry and water –
management.
Ø Automobile and transportation
Ø Electronics and telecommunications buildings, construction and
Ø Food processing and packaging
Ø Power and gas distributor.
We shall look at the data plastics and particularly their properties, which
are of use in practical working with plastic, are man made materials. The oldest
raw materials for producing plastic are carbon materials obtained from coal tar.
Today the majority of raw materials of raw materials are obtained from
petrochemical sources and they can be economically produced in large
quantities.
Please have changed our world day – by – day. They are becoming more
& more important. They owe their success to a whole series of advantages,
which they have over conventional materials such as,
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Ø LIGHT WEIGHT
Ø EXCELLENT MOULD ABILITY
Ø ATTRACTIVE COLORS
Ø LOW ENERGY REQUIREMENTS FOR CONVERSION
Ø LOW LABOUR
Ø LESS COST OF MANUFACTURING
Ø LOW MAINTENANCE
Ø HIGH STRENGTH OF MANUFACTURING
Ø CORROSION RESISTANT
Ø AESTHETICS WITHOUT SURFACE TREATMENT
Ø COMPATIBILITY WITH REINFORCING MATERIALS
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EMERGENCE OF PVC CONCEPT AND ITS
SOCIALIZATION
Growing domestic, agricultural and industrial requirements of the
modern world, the quest for a new substance, which could serve the needs and
wants of the today’s man, became irrepressible. Although metals were meeting
major chunk of the fabrication demands of the modern world, rework ability,
formability and weight constraints were real impediments. In light of this
situation, the substance called plastics, which has got all the desired
characteristics to serve the modern man, was discovered. This carbonaceous
substance with excellent rework ability and physical stability could replace
most of the earlier used metals, wood, etc.
Although acceptance and socialization of this new innovation was slow
it has shown a steady encroachment into the life of today’s man. Now plastics
are omnipresent and serving numerous fields. Agriculture, heavily modernized
communication sector, fiber equipment are only few applications among the
multifarious uses of the plastics.
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PVC PIPES AND ITS ECONOMIC ROLE
Chief occupation in India is agriculture. For the developing countries
like, India, modernization of the agriculture practices assumes pivotal place
improving the economic status and the processes of the modernization includes
usage of high productive, plastics that supplement to greater extent
manufacturing of tools required for new agricultural practices.
The usage of poly vinyl chloride pipes in agricultural fields, lessen water
seepage, which was predominant in earlier practices. With the services of
P.V.C pipes, water can be transported efficiently with lesser losses, from the
place of higher water potential to the lower water potential. Presently
revolutionary triad in management speaks much about drip irrigation, which
developed in Israel and is practiced by all agricultural based nations in the
world. Drip irrigation greatly uses P.V.C pipes as core tools of implementation
with the services of this sort, P.V.C pipes one way or other strength the hands
of country’s economy.
Apart from the referred uses, P.V.C pipes supplemented with fittings are
used in houses for electric connections, sewage connection and other domestic
purposes. Apart from these two applications, it has got wide applications even
in industrial sector. P.V.C pipes with much unique heat, chemical and physical
characteristics serve many industrial purposes. They are even positively used
as conduits for industrial gases. Even the characteristics of weight and low
price attract many more applications.
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Rigid P.V.C pipes have been manufactured in India from the sixties on
imported extrusion lines and there after indigenous plans were also available.
There were few pipe manufacturers up to 1978 – 1979 and large production
capacity was created during 1979 – 1983, when many extrusion line were
imported from Batten field, Cincinnati, krausmaffi etc. the government allowed
the imports of sophisticated and high output plans which were not available
indigenously.
It is essential for the company to carryout continuous research and
development to update technology, higher output, loss energy cost per Kg of
output, quality of products of etc.
POLY VINYL CHLORIDE (PVC)
Production of PVC pipes in 1961, against first production of PVC in the
world. In 1927 at present there are 6 units manufacture of PVC resins. PVC
pipes have been synonymous; with modern living it is undoubtedly a product,
which has deeply penetrated in to common man’s life. No wonder the industry
has achieved remarkable progress in the terms of supply of raw materials and
diversification of processing capabilities and manufacturing of machinery and
ancillary equipment sophistication. This versatile material with superior
qualities such as light weight easy processing corrosion resistance, energy
conservative, non taxis, etc may substitute to a large estimate of many
conventional and costly industrial materials like wood, glass, metal and leather,
etc in future the manifold applications of plastics in the field of automobiles,
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electronics, electrical, packaging and agriculture give its immense utility in
PVC plastics.
At present as percent of total requirement of raw material and almost all
type of plastic machines required for the industry are not adequate available,
the present investment in all the three segments of industry namely production
of raw materials, expansion & diversification of raw materials. Expansion and
diversification of processing capacities, manufacturing of processing
machinery, equipment is 1250crores and it provides employment at more than
8lakhs peoples.
Plastics have been subjected to leaves not only at the central level but
also the state and local government. These levels have effected in the price of
the plastic products adversely.
The per capita consumption of plastics is very low at 0.5Kg as against
the world average of 11Kgs. The per-capita consumption is 68Kgs in
FRANCE, 33Kgs in UK, and even in Asian countries like South Korea it is
8.5Kgs.
These PVC pipes are widely sued by the farmers their farming and
agriculture for water supply in their fields through PVC pipelines. The property
of UV stability is incorporated into other wise rigid PVC resin by mixing butyl
tin stabilizer. This property is important in tropical countries like ours were
high temperature fluctuations in the daily temperature are quite common. The
UV stabilizer prevents expansion and contradiction longitudinally in the pipes.
When expansion and contraction takes place in the pipes they bend. As a result
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the joints get loosened because they are fixed to walls with the help of the
clamps. This results in the subsequent leakage. This is prevented in PVC swr
pipes. In PVC swr products, fittings are of two types they are injection blow
molded and sealed ring cab fittings; the groups are inherent in the mould. In
seal ring cap fittings, the groove is formed when a seal ring cap is made to fit
over a plain-ended pipe coupling as well as rubber ring pipe coupling. It is a
multi purpose product.
Another variety of plastics that requires artificial manufacturing relates
to true engineering plastics, which is used as an alternative to or replacement of
metals in load needing applications. Modified P.P.O Nylon, Polycot,
Polycarbonates, and Polyester (PBT/PET) phendic are same of the plastics
materials following under the category of engineering plastics. Engineering
plastics are being increasingly used for various applications in automatic,
electronic, telecommunication and other industries. The plastics are classified
into two major classes.
The plastics are classified into two major classes.
• Thermo plastics
• Thermostats
The thermo plastics become sufficiently soft as the applications of heart.
The thermostats are the initial application of heart and pressure of heat and
pressure subjected to fire. But up on further application of heat pressure. They
cured to hard price, which cannot be resofted, the reheating.
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LDPE: LOW DENSITY POLY ETHYLENE
Production of LDPE was stated in the year in 1955 at present there are 3
units manufacturing LDPE with a total capacity of 1.15lakh tones. Products
targeted for LDPE by the end of 1999 are placed at 1.86lakh tones.
HDPE: High Density Poly Ethylene
Production of HDPE in India commenced in 1968, at present there is a
unit (play defines industries limited.) in India producing HDPE by the end of
1989-1990 was producing 1.25lakh tones.
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IMPORTANCE OF PIPES INDUSTRY
PVC products have found wide acceptance in India and abroad. PVC is
one of the most versatile plastics. It can be extruded, molded, calendared, or
thermoform into a multitude of furnished products. The PVC resin can be
formulated to give a wide range of propertied from hard, tough materials for
products as diverse as wires and insulation and sheathing and flooring.
We shall look at the basic data about plastics and particularly those
properties, which are of using practical working with plastics. Plastics are man
made materials, the oldest raw materials for producing plastics are
carbonaceous materials obtained from stagnant at around Rs.60-70crores per
annum double to Rs.129crores.The plastic industry as taken up the economy of
achieving an export target of Rs.7crores.
Major export markets for plastics related products are Australia,
Bangladesh, Canada, Egypt, Hong Kong, Hungary, Italy, Kuwait, Sri Lanka,
Federal Republic of Germany, Sweden, Taiwan, U.K., U.S.A., & Russia.
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PROSPECTS
The production of various plastics raw materials in the country is
expected to double by the end of the 2010. The consumption of the commodity
plastics including LDPE, HDPE, & PVC is immense scope for the use of
plastics in agriculture, electronics, automobiles, telecommunications &
irrigation & thus, the plastics industry on the threshold of the explosive growth.
UTILITIES OF PVC PRODUCTS:
PVC products cater to both interiors and exteriors.
Ø Interiors are as follows:
In interiors it can be used for
1. Floorings
2. Profile and cable trays
3. Wall covering
4. Modular office systems
5. House & furniture
Ø Exteriors are as follows
For exterior it can be used for
1. Doors & windows
2. Fencing partitions & paneling
3. Roofing & rain system
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The other external applications are:
§ In the field of irrigation
§ Portable water supplies and public water supplies
In the field of irrigation there are several methods to irrigate the fields.
There are major and minor irrigation projects apart from the individual sources
like wells, tube wells, & bore wells. Major irrigation projects will have canals
and lift irrigation schemes etc. like pipelines; cement and GGI pipes were
conventional methods of irrigation in the lift irrigation schemes. Now a days
PVC pipes replaced the conventional pipes and they constitute almost 90% in
this respect.
Drip irrigation has become a wide concept in agricultural sector
especially in the field of horticulture, commercial cropping and green and poly
houses. The drip irrigation concept is becoming more popular with its
advantages like high yield, water conservation, less labour cost, fewer
fertilizers, less pest management cost, less power cost and many more. The
demand for this concept is increasing at a pace of 30% to 40% per annum.
Agriculture, a sunrise industry in India economy is essentially on PVC
for the seawater suction and pumping to their aqua ponds. They are using
pipelines of 4-5 kg of 10-16 diapipes.
The state and central governments are using these pipelines for the
public water supply schemes. The state government of A.P is using PVC pipes
for the irrigation water supplies for the past few years. The state govt. is
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providing pipes through APSIDC (Andhra Pradesh state irrigation development
schemes). These pipes can be sued for the main distributors, sub-distributors
and individual connections.
TECHINICAL DETAILS ABOUT P.V.C.PIPES:
1. P.V.C. resin (poly vinyl chloride)
2. D.B.L.S. (die basic lead sulphate)
3. T.B.L.S. (tri basic lead sulphate)
4. L.S. (lead steric)
5. C.S. (calcium steric)
6. STEARIC ACID
7. HYDRO CARBON
8. CALCIUM CARBONATE (ca ca3)
9. TITANIC DIOXIDE
MANUFACTURING PROCESS
Hot forward extrusion is employed for the manufacture of P.V.C. pipes
resign with weighted amounts of other ingredients, which are carried to the hot
chambers. The high temperature of hot chamber melts ingredients and contents
and then given forward transit to hallow pipes of required dimension. As the
pipe comes out of the hot chamber, cool water jet is directed towards it to cool
the pipe immediately. Pipes of desired length are cut with the aid of stop and
power hacksaw. Production is made in various sizes ranging from 1/2’’ to 10”
according to usage.
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REINFORCED PLASTICS
Although plastics have high strength to weight ratio, they are not as
strong as metals and deform permanently under load. They cannot bear
extremely high or low temperature like metals and other materials such as
refractory bricks. Modern invention of glass of carbon black as reinforcing
fillers has a way for making high strength beating plastics and replace steel.
ALLOYS
Physical mixture of two or more polymer is termed as alloys. Physical
blending of two polymers is needed because every polymer has certain set of
good properties. Design of a special product, which should have specific set of
properties, may not be obtained if it is made only from one polymer. By
blending two polymers we can get the required combination of properties. For
example, polystyrene is highly amorphous and rigid but has low impact
strength. It is blended with a rubbery material, product will be of high strength,
and shall also have high impact properties.
Thus by allowing wide range of products can be made, although alloys
are physical mixture of polymers. Sometimes hydrogen bonds are formed
between some special ionic groups with hydrogen atom of the carbon chain.
Such a bond is very useful in alloy formation because it impacts processing
flexibility with and use of cross-linked products.
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PVC POLY VINYL CHLORIDE
Production of PVC started in 1961, against first production of PVC in
the world, 1927. At present there six units manufacture of PVC resins. The
total installed capacity comes to 1.7lakhs tones. The production target of PVC
by the end of 1989-1990 is placed of 2.33lakhs tones.
POLYSTYRENE
Polystyrene was first manufactured in India in May 1987. The
production target of polystyrene by end of 1989-1990 is set out to 29,000
tones.
POLY PROPYLENE
The first production of polypropylene in India commenced in 1978. The
end of 1993-1994 achieves the production target of 36,000 tones.
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EXPORT OF PLASTICS GOOD
Plastics have excellent potentialities. Our country is equipped with all
kind of processing machinery and skilled labor and undoable, and extra to
boost export, finished plastics products, which yield rich dividend.
Today India exports plastic products to as many as 80 countries all over
the world. The exports, which are stagnant at ground, rest 60 to70 cores per
annum double to 129 creators. The plastic industry has taken up the challenge
of achieving an export target of Rs.17cores.
Major – export markets for plastic products and linoleum are Australia,
Bangladesh, Canada, Egypt, Hong Kong, Italy, Kuwait, Federal Republic of
Germany, Sri Lanka, Sweden, Taiwan, U.K., U.S.A., and Russia.
With view to boosting the export, the plastics and linoleum’s export
promotion council has urged the government to reduce import duty of plastics
raw materials, supply indigenous raw materials at international prices, fix duty,
draw backs on weighted average basis and charge freight rate on plastic
products on weight basis instead of volume basis.
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PROBLEMS
Raw material is always being a problem to be recorded with the plastics
industry. The situation was slightly improved and is expected to charge
considerably by commissioning the major petrol chemical project in the
pipeline by the year 1990, the Maharastra gas cracker complex. Haldia petrol
chemical & reliance petrol chemicals together with the expansion of existing
giants will go a long way to mitigate the long problems. By the terminal year
the plan the install capacity is targeted are almost 8lakh tones.
The step rise in the way material as the result of imposition of duties and
taxed poses another problem to the plastic industry. On account of this
domestic price of finished goods are higher than the rest of world. Apart from
this the administrated prices for basic raw materials have not been
implemented with a balanced view to accommodating the interest of both
consumers and manufacturers. And chloride 85% of the polymers it made from
naphtha feedstock. Hence the pricing naphtha by the government has a
cascading effect.
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COMPANY PROFILE
Rayalaseema, an economically backward area in Andhra Pradesh, was
rarefied region for industries. A dynamic entrepreneur Sri.S.P.Y. Reddy who
is basically a mechanical engineer started a unit at Nandyal, which
manufactures black pipes in 1977. The determination and hard work of
Sri.S.P.Y.Reddy helped him to overcome the problems.
Later the company started manufacturing of PVC pipes, which
terminated the manufacturing of black pipes. This resulted in the formation of
a private limited called “NANDI PIPES PVT.LTD.” with Sri. S.P.Y. Reddy as
the managing director
GROWTH
Nandi Pipes Pvt Ltd. is commissioned with the objectives of catering to
the agricultural needs of the region. In earlier days, tools used for water flow
were very ineffective with high percentage of loses. To counter this drawback
P.V.C. pipes were favorably welcomed. This has been the mission of Nandi
pipes Pvt. Ltd., the major irritants in agricultural practice like lack of rainfall,
ground water lifting. Water transport within the fields has provided
magnificent thrust to P.V.C. Pipes market. These factors helped Nandi pipes
ltd., to record an excellent growth since 1977 onwards. Quality is the
dominating factor in the growth of sales. Well-equipped laboratory and quality
control office looks after the quality. The department people are always
striving to improve the quality.
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The company has now only improved the brand name but is also
undertaking takeovers of the competitor’s brands. In 1977 the company took
over the Sagar brand. The manufacturing plant of Sagar brand was at Medak
district. The Nandi pipes has not stopped with that victory, the company has
taken over another main competitors brand i.e., monarch in 1999. The
manufacturing plant of monarch plant lies in East Godavari District.
The threats of the old companies are turned to opportunities to the
company by its excellent management. After the change of management the
brand image of these brands has improved. At present Nandi Pipes Pvt. Ltd.,
stands in the market leader position. The only major competitor to the company
is Sudhakar Pipes, Maharaja Pipes. The only backdrop to it is the competition
from local brands
As the majority of customers belong to farmer, they consider price above
quality. The company has to create awareness of the company’s quality
standards to them.
M\S Somali Pipes Private Limited, which is now the premier company
in the Nandi group, was started with a capital of Rest 10lakh in the year 1988
Nandi group has group in the size and emerged as the leading industrial group
in Andhra Pradesh in the past 18 years. It has made rapid strides in its growth
and been maintaining its fair name for its quality and standard products
throughout south India and in the other states. Most of the products enjoy ISI
and ISO recognition.
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VISION AND MISSION
Vision
To serve people through providing good quality products at reasonable
cost.
Mission
Ø To achieve company’s growth innovation and development of resources
to meet organizational goals.
Ø To provide products and services of best value possible to customers,
thereby gaining their respects.
TECHNICAL INFORMATION
ITL rigid PVC pipes are manufactured in accordance with Indian
standards specification 4985:1998 and other international specification. The
company also manufactures special ranges of commercial pipes under different
ranges to satisfy the customer requirements. ITL PVC pipes are normally
manufactured in uniform length of 6 meters with plain ends both the sides also
with self-socked one side. Varied length can be manufactured according to the
customer requirements. Integrated Thermoplastics Limited is manufacturing
rigid PVC pipes from 20mm to 400mm in conformity to ISI 4985: 2000 and
other international specification.
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QUALITY CONTROL ASSURANCE
Integrated Thermoplastics Limited is having well equipped quality
testing machines in their labs as per the ISI standards for testing of all diameter
and gets excellent result. We at ITL pipes are proud to say that we follow
world – class QCM (Quality Control Management) techniques is our quality
control lab to achieve the best quality. Stringent quality control tests are
regularly conducted to ensure top quality production of PVC products.
MAINTENANCE AND SERVICE
This company is better equipped with excellent workshop to provide
maintenance and service of machinery in electrical, mechanical, and civil lines
all the time. We assure service at any time to enable our equipment and
machinery to perform efficiently, thus reducing production down time.
EXPLORING NEW HORIZONS: EXPORTS
Integrated Thermoplastics Limited is trying hard in exploring their
products like rigid PVC pipes of water, electrical conduits, and SWR pies to
Middle East, Europe, Africa, and other Asian countries. Taking an example
our esteemed overseas customers, we are proud to say that we are associate
with “CEYLON ELECTRICITY BOARD – SRILANKA” supplying electrical
conduits to there project requirements.
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GENERATING EMPLOYMENT
The integrated Thermoplastics Limited has the work force of more than
400 workers working at our manufacturing plant located at Manoharbad
Village, Toopran Mandal, and Medak District. In this way the company
generates employment to several people.
DYNAMIC WORK FORCE
The dynamic work force is the strong base for the success of the
company. The administrative as well as the technical staff are well qualified
and skilled. The company follows the specialization of work, which helps the
company to assign the right job to right person.
The technical staff at the manufacturing units is well versed in the field of
production, which generates new innovative ideas and concepts. All the
workers are dedicated to work and responsible for their job work done.
DISTRIBUTION NETWORK
One of the most important parts of the company’s effective functioning
in the competitive market is its distribution network. The company has its own
dealer’s network with a number of nearly more than 100 dealers through out
the state.
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The company has its own vehicles for transportation, which helps the
sales department to cater the needs of the customers at the right time at the
right place.
REGIONS COVERED IN INDIA
Andhra Pradesh
Southern States of Karnataka,
Goa,
Pondicherry,
Maharastra,
Orissa,
Kerala,
Gujarat,
Chattisgarh, &
Thailand. Are in ambit of Nandi groups
There has been expansion of product base from him alone PVC pipes and
presently the group’s products include follows
PRODUCT LINE
UPVC potable water pipes,
UPVC SWR pipes,
UPVC blue sensing pipes,
Submersible pipes,
Rigid Electrical conduits,
HDPE pipes,
Garden pipes,
Suction pipes,
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Water tanks Agricultural & SWR fittings,
Drip Irrigation equipment,
Cement, Milk products, Mineral water, Solvent Cement & Plastics.
This group also has successfully into trading business and been
maintaining Super Bazaar departmental stores and Hardware at the group’s
principal place, Nandyal.
The group had over 200 transport vehicles and heavy earth moving
equipment facilitating easy and planning to expand its business further and is
poise to touch the Rs1000crores mark annual turn – over in the next 4-5 years.
The group has floated a public company of ethanol and industrial
Alcohol with a capital of Rs14500 liters per day using maize and other agro
products as raw materials at the New Industries Estates, Nandyal at a capital
outlay of Rs156crores. The company is confident of commissioning the
project as early as possible.
SIZES
Various sizes ranging from ½” to 10” are offered to customers. Even pipes
with different gauges and sizes are manufactured to suit specific conditions.
PACKING
Packing plays less important role in the products like PVC pipes because
the hollow space inside can be utilized. For the purpose of cubic space
utilization in trucks while transport, organization is adopting the technique like
pipe in pipe
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WARRANTIES
No written warranties are given to customers except an assurance that
the product is reliable.
PAYMENT PERIOD
For Mandy brand the company adopts zero credit policy and goods are
not delivered unless cash remittances are made. For Monarch and Sagar
brands credit is entitled up to a week. The difference between these brines is
due to brand image.
CHANNELS OF DISTRIBUTION
Mandy pipes Pvt.Ltd. has got zero level, one level channels distribution
for Monarch and Sagar,
MANUFACTURER CUSTOMER
MANUFACTURER DEALER CUSTOMER
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Nandi pipes Pvt. Ltd. Has an extensive network of 300 dealers in Andhra
Pradesh who are directly serviced by company sales force and 500 dealers in
South India.
TRANSPORTATION
Transportation of Nandi pipes Pvt. Ltd. is very admirable. This unique
strength of the organization enables the delivery system to be efficient. This
even helps the dealers to reduce inventory levels to the minimum. Thus dealers
are also supplemented with the dealers to reduce inventory levels to the
minimum. Thus dealers are also supplemented with the benefit of the lower
tied – up capital in the form of inventory.
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GENERAL INFORMATION ABOUT THE COMPANY
The company is equipped with sophisticated laboratory to carry on the
tests to ascertain outgoing quality level of the pipes. Nandi pipes have got ISI
Trademark, which speaks for itself for the quality of the pipes. Numbers of
statistics quality control techniques are applied to sustain the quality level of
the product.
Managers at the company are dynamic and well qualified. Supervisory staff or
intermediate managerial staff is adept in tackling their area though not highly
qualified. Most of the skilled or unskilled labours are duty minded. Company
E.S.I. (Employment State Insurance) and provident fund facilitates to all its
employees. Uniqueness of workers of Nandi pipes Pvt. Ltd. Is their non-
indulgence in trade union activities.
As the company is located in the industrial estate of Nandyal, it is
facilitated with good communication networks, which includes telex, fax
machine and Internet. Company has also got the Electronic Data Processing.
The company’s major strength is considered to be transportation
vehicles. Huge investment is made on transportation vehicles; a unique cash
outflow justifies itself by providing good reputation for the company through
improved customer service.
36
ORGANIZATIONAL CHART
CHAIRMAN
MANAGING DIRECTOR
GM(FINANCE) GM(PRODUCTION) GM(MARKETING) GM (ENGINEERING)
ACCOUNTS PRODUCTION MARKETING HR MANAGER
FOREMAN MANAGER MANAGER
MANAGER
CLERKS SUPERVISORS EXECUTIVES EXECUTIVES
MECHANICS OPERATORS
37
FINANCIAL DEPARTMENT
Though initially the company approached the external sources of
financial aid, now the financial status of the company is very sound and is
being run only with self financial excepting for loans taken on hypothecation of
machinery and stock from SBI, Nandyal.
The financial manager with the help of accounts and other clerks of the
department head the financial department. The company follows cash & carries
policy for Nandi brand. The products are not delivered until the cash is paid
and financial department with the help of marketing department looks after
these transactions.
MARKETING DEPARTMENT
Marketing manager who reports to the executive Director, an Assistant
marketing Manager who reports to the Marketing Manager and 20 salesmen
headed by 30 sales representatives who are headed by an Assistant Marketing
Manager, heads the marketing department.
Marketing mix and advertising particulars of Nandi pipes Pvt. Ltd. Indicate the
department’s effectiveness of the Marketing Department in the organization.
38
PERSONNEL DEPARTMENT
The personnel department consist the details of the executives and
workers of the organization. The organization is formed with Sri.S.P.Y.Reddy
as the managing director and executive director. Two Marketing Managers,
financial manager, a public relations officer and a quality control officer all of
whom report to the Executive Director. Other than Executives there are 1000
works in the all organization.
A panel consisting of Managing Director, Executive Director and Manger of
the concerned departments makes the recruitment and selection of personnel.
Apart from the attractive salaries, the company provides health card facility
etc.
PURCHASING DEPARTMENT
The perplexing situation that is confronted by the manufactures of the
PVC pipes is scarcity of resin. Though the Government of India has taken
various steps to improve supply conditions of PVC resin, the Indian
manufacturers could meet only 50% of demand and remaining 50% is met
from imports.
The major petrochemical companies are:
Ø Sri Ram Vinyl Ltd.
Ø Chem. – plast Ltd
Ø Reliance perto Chemicals
Ø National Organic Chemical Industries Ltd.Indian perto
Chemical industries Ltd.
39
INTRODUCTION TO FINANCE
Finance is a specialized, functional field under the general classification
of business administration. The term “Finance” can be defined as the
management of the flows of money through as organization whether it is a
corporation, bank, Govt., agency; etc. Finance concerns itself with the actual
flows of money, as well as any claims against money. As a business discipline,
finance can be differentiated from accounting and economics. Accounting is
concerned with the recording, reporting and measuring of business transaction,
where as finance uses the information provided by the accounting system to
make decision to help organizations to achieve their objectives. Economies are
concerned with analyzing the allocation of resources in a society. It studies
transactions, among people involving in a society. It studies transaction, among
people involving goods and services with or without the exchange of money.
Individual businesses are face problems dealing with the acquisition of funds to
carry on their activities and with the determination of optimum methods of
employing funds. In competitive market place, businessman must actively
manage their funds to achieve their goals. The financial tools help the
management.
Determine which sources offer the lowest cost of funds and which activities
will provide the greatest return on invested capital. A successful business
manager for enterprise uses a goal oriented financial structure.
The financial manager performs certain tasks that help to achieve its
operating objective. The important goals of financial management are:
Ø Wealth maximization of shareholders.
Ø Liquidity.
Ø Profitability of the firm.
40
FUNCTIONS OF FINANCIAL MANAGEMENT
Although it may be difficult to separate the finance functions from
production, marketing and other functions, yet the functions themselves can be
readily identified. The functions of raising funds, investing in assets and
distributing returns earned from assets, shareholders respectively known as
financing, investment and dividend decision. While performing these
functions, a firm attempts to balance cash inflows and cash outflows. This is
called liquidity decision and we add it to the list of important finance decisions
or functions.
Ø Investment or long-term asset mix decision.
Ø Financing or capital mix decision
Ø Dividend or profit allocation decision.
Ø Liquidity or short term asset mix decision.
A firm performs finance functions simultaneously and continuously in the
normal course of the business. They do not necessarily occur in a sequence.
Finance function call for skillful planning, control and exception of a firm’s
activities. Let us note that outset that share holders are made better off by a
finance decision, which increase value of their shares. Thus while performing
the finance functions, the financial manager should strive to maximize the
market value of shares.
41
INVESTMENT DECISION
Investment decision or capital budgeting involves the decision of
allocation of capital or commitment of funds to long-term assets, which would
yield, benefits in future. Its one very significant aspect is the task of measuring
the prospective profitability of new investments. Future benefits are difficult
future; capital budgeting decision involves risk. Investment proposals should,
therefore be evaluated in terms of both expected return and risk, besides the
decision to commit funds in new investment proposal; capital budgeting also
involves decision of recommitting funds when an asset becomes less
productive or non profitable.
FINANCING DECISION
Financing decision is the second important function to be performed by
the financial manager. Broadly, he must decide when, where and how to
acquire funds to meet the firm’s investment needs, the central issue before him
is to determine the proportion of equity and debt. The mix of debt and equity is
known as the firm’s capital structure. The financial manager must strive to
obtain the best financing mix or the optimum capital structure for this firm.
DIVIDEND DECISION
Dividend decision is the third major financial decision. The financial
manager must decide whether the firm should distribute of all profits, or retain
them, or distribute a portion and retain the balance. Like the Debt policy, the
42
dividend policy should be determined in terms of its impact on the shareholders
value. The optimum dividend policy is one, which maximizes the market value
of the firm’s shares. Thus, if shareholders are not in different to the firm’s
dividend policy, the financial manager must determine the optimum dividend-
pay out ratio.
LIQUIDITY DECISION
Current assets management, which affects a firm’s liquidity, is yet
another important finances function, in addition to the management of long-
term assets. Current assets should be managed efficiently for safeguarding the
firm.
Against the dangers of insolvency, investment in current asset affects
firm’s profitability, liquidity and risk. A conflict exists between profitability
and liquidity while managing current assets. If the firm does not invest
sufficient funds in current assets, it may become illiquid. But it would lose
profitability, as idle current assets would not earn anything. Thus, a proper
trade-off must be achieved between profitability and liquidity. In order to
ensure that neither insufficient nor unnecessary funds are invested in current
assets, the financial manager should develop sound techniques of managing
current assets and make sure that funds would be made available.
43
WORKING CAPITAL MANAGEMENT
INTRODUCTION
Every business needs funds for two purposes for its establishment and to
carry out its day-to-day operations. Working capital refers to that part of the
firm’s capital, which is required for financing short term or current assets such
as cash, marketable securities, debtors and inventories.
The goal of working capital management is to manage the firm’s current
assets and current liabilities in such a way that a satisfactory level of working
capital is maintained. Working capital is the difference between the inflow and
outflow of funds. Net cash inflow defines as the excess of current liabilities
over current assets. Working capital is also revolving or circulating capital or
short-term capital.
DEFINITIONS
“Working capital is defined as the difference between current assets and
current liabilities”. -I.M.PANDEY
“Working capital is the amount of funds necessary to cover the cost of
operating the enterprise”. –SHUBIN
“Circulating capital means current assets of a company that are changed in the
ordinary course of business from one form to another as for example, cash to
inventories, inventories to B/R, B/R to cash. Working capital is also called as
revolving and short-term capital”. _ GENESTEN BERG
44
OPERATING CYCLE CONCEPT
A company operating cycle typically consists of three primary activities
purchasing resources, producing the product and distributing (selling) the
product. These activities create funds flows that are both unsynchronized and
uncertain. They are uncertain because future sales and costs, which generate
the respective receipts and disbursement, cannot be forecasted with complete
accuracy. If the firm is to maintain liquidity and function properly it has to
invest funds in various short-term assets (working capital) during this cycle. It
has to maintain a cash balance to pay the bills as they come due. In addition,
the company must invest in inventories to fill customer orders promptly and
finally the company invests in accounts receivables to extend to its customers.
RAW MATERIALS → WORK-IN-PROGRESS → FINISHEDGOODS
→ SALES → DEBTORS → CASH → RAW MATERIALS
The operating cycle is equal to the length of the inventory and receivables
conversion periods.
OPERATING CYCLE
Inventory conversion period + Receivables conversion period.
The inventory conversion period is the length of time required to produce and
sell the products it is defined as follows.
Inventory conversion period = Average inventory cost of sales / 365.
The receivable conversion period or average collection period represents
the length of time required to collect the sales receipts it is calculated as
follows.
45
Receivables conversion period = Account receivable
Account receivable = Annual Credit sales / 365.
The payables deferred period is of the time the firm is able to differ payment
on its various resource purchases
(For example materials, wages, and taxes) equation is used to calculate the
payables deferral period.
Payables deferral period = A/C’s payable + salaries, benefits and
payroll &taxes payable.
(Cost of sales + selling general and administration. expenses) / 365
Finally, the cash conversion cycle represents the net time interval
between the collections of cash receipts from product sales and the cash
payments for the companies various receipts purchases. It is calculated as
follows cash conversion cycle operating cycle-payables deferral period.
DEBTORS
SALES FINISHED GOODS
CASH RAW MATERIA
WORK-IN-PROGRESS
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TYPES OF WORKING CAPITAL
• Gross working capital.
• Net working capital.
Gross working capital
It is the broad sense the term working capital refers to the gross working
capital and represents the amount of funds invested in the current assets. Thus,
the gross working capital is the capita; invested in total current assets of the
enterprise which in the ordinary course of business can be converted into cash
within a short period of time.
Gross working capital = total current assets.
Net working capital
This refers to the difference between current assets and current
liabilities. Net working capital can be either positive or negative. A positive
net working will arise when current assets exceed current liabilities. A negative
working capital occurs when current liabilities are in excess of current assets.
Net working capital = Total of current assets – Total of current Liabilities.
MEASURING THE WORKING CAPITAL
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. However, it must also be noted that working capital is a means
to run the business smoothly and profitably, and not an end. Thus, concept of
47
working capital has its own importance in a going concern. The analysis of
working capital can be conducted through a number of devices, such as
Ø Ratio Analysis.
Ø Funds flow analysis.
Ø Capital Budgeting.
LIST OF CURRENT ASSETS AND CURRENT LIABILITIES:
Current Assets:
Ø Cash in hand.
Ø Cash at bank.
Ø Bills receivables
Ø Sundry debtors
Ø Stock.
Ø Prepaid expenses.
Ø Accrued income.
Ø Short-term investment.
Current Liabilities:
Ø Bills payable.
Ø Sundry creditors.
Ø Accrued expenses.
Ø Short term loans.
Ø Dividends payable.
Ø Bank overdraft.
Ø Provision taxation.
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OBJECTIVES 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 production and realization of cash from sales.
Ø For the purchase of raw materials, components and spares.
Ø To pay wages and salaries.
Ø To incur day-to-day expenses and overheads costs such as fuel, power
and office expenses, etc.
Ø To meet the selling costs as packing, advertising, etc.
Ø To provide credit facilities to the customers.
Ø To maintain the inventories of raw materials, work-in-progress, store and
spares and finished stock.
SOURCE OF WORKING CAPITAL
There are two sources of working capital they are:
Permanent or Fixed working capital
The fixed proportion of working capital should be generally financed from the
fixed capital sources like:
Ø Shares, debentures
Ø Public deposits.
Ø Plugging back of profits.
Ø Loans from financed institutions.
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Temporary or Variable working capital
Variable or temporary working capital requirements of a concern may be
met from the short-term sources of capital like:
Ø Commercial bankers.
Ø Indigenous bankers.
Ø Trade creditors.
Ø Advances.
Ø Accrued expenses
Ø Commercial papers.
Ø Accounts receivables.
USES OF WORKING CAPITAL
Ø Losses from business operations.
Ø Purchases on non-current assets.
Ø Redemption of debentures and / or preference shares.
50
CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified in two ways:
Ø On the basis of concept,
Ø On the basis of time,
ON THE BASIS OF CONCEPT
• Gross working capital.
• Net working capital
ON THE BASIS OF TIME
A. Permanent or Fixed working capital.
Regular Working Capital.
Reserve working capital.
B. Temporary or Variable working capital.
Seasonal working capital.
Special working capital.
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DETERMINANTS OF WORKING CAPITAL
Nature of size of business
These kinds of institutions require limited working capital to produce goods
and services. (Ex: public utility organization)
Ø These are the institutions, which require of working capital turnover.
(Ex: trading concerns)
Ø This kind of institutions issues shares into orders to moderate the capital
(Ex: manufacturing concern.)
Manufacturing cycle
The manufacturing comprises as a purchase and use of raw materials and
the production of finished goods, larger will be the firm’s working capital
requirements.
Firms’ credit policy
The credit policy of the firm affects the working capital by influencing
the level of debtors. The credit terms to be granted to customers may depend
upon the norms of the industry to which the firm belongs.
Price level changes
The increasing shifts in price level make functions of financial manager
difficult. He should anticipate the effect of price level changes on working
capital.
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REQUIREMENTS OF THE FIRM
1. Operating efficiency
The operating efficiency of the firm relates to the optimum utilization of
resources at minimum cost. The firm will be effectively contributing in keeping
the working capital investment at a lower level; it is efficient in controlling
operating cost and utilizing current assets.
2. Earning capacity and dividend policy
Earning capacity more in quality and monopoly conditions operates high
working capital; high profits in it have required influencing dividend policy.
3. Rate of stock turnover
Stock turnover depends upon size and growth business expansion. If
small size organization requires little working capital, if it is larger size
requires high working capital.
4. Business Cycle
In case of boom requires low capital, in case of depression requires high
capital. In 1991 India’s position in market level will face inflation.
Estimating working capital needs
The most appropriate method of calculating the working capital needs of
a firm is the concept of operating cycle. However we shall illustrate here three
approaches, which have been successfully applied in practice.
53
Current assets holding period
To estimate the working capital requirements on the basis of average
holding period of current assets and relating them to cost based on the
companies experience in the previous years. This method is essentially based
on operating cycle concept.
Ratio of sales
To estimate working capital requirements as ratio of sales on the
assumption that current assets change with sales.
Rate of fixed investment
To estimate working capital requirements as percentage of fixed
investments.
Financing of working capital
The current assets of the firm are supported by spontaneous current
liabilities (trade creditors and provisions others etc) short-term bank financing
and long-term sources of finance (mainly debentures and equity) the working
capital policy of the firm has to decide between two alternatives.
Ø Current asset financing policy.
Ø Conservative Aggressive current assets financing policy.
A conservative current assets financing policy relies less on short term bank
financing and more on long-term sources such as debentures and internal
sources like reserves and surpluses. The highly conservative policy may seek to
replace even long-term debt by equity.
An aggressive current asset financing policy relies on short-term bank finance
and seeks to reduce dependence on long-term financing.
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The consequence of those policies is that the conservative current asset
financing policy reduces the risk of the firm from being unable to repay or
replace its short-term debt periodically. But it may result in enhanced cost of
financing as the long-term sources finances debt and equity have an associated
with them. An aggressive current asset financing on the other hand may have
opposite effects; it exposes the firm to higher of risk but minimizes the average
cost financing.
The working capital policy adopted by a firm can be broadly
conservative, moderate or aggressive with conservative or aggressive current
asset financing policy. The choice of overall working capital policy depends on
the risk disposition of the management.
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ADEQUACY OF WORKING CAPITAL
Working capital should be adequate for the following reasons,
Ø It protects the business from the adverse effects of shrinkage in the value
of current assets.
Ø It is possible to pay all the current obligations promptly and to take
advantage of cash discounts.
Ø It ensures to greater extent the maintenance of a company’s credit
standings & provides for such emergencies like strike floods etc.
Ø It permits the carrying of inventories at a level that would enable a
business to serve satisfactory.
Ø It enables a company to extend factorable credit terms to customers.
Ø It enables a company to operate its business more efficiently become
there is no delay in obtaining materials etc, business of credit difficulties.
Ø It enabled a business firm to withstand in periods of depression
smoothly.
Ø There may be operating losses or decreased retained earnings.
Ø There may be excessive non-operating or extraordinary loses.
Ø The management may fail to obtain funds from other sources for purpose
of extension.
Ø There may be an unwise dividend policy.
Ø Current funds may be invested in non-current assets.
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DANGER OF INADEQUATE WORKING CAPITAL
Ø It is not possible for it to utilize production facilities fully for want of
working capital.
Ø A company may not be able to take advantage of cash discount facilities.
Ø A company may not be able to take advantage of profitable business
opportunities.
Ø The modernization of equipment and even routine repairs and maintains
facilities may be difficult to administer
Ø A company will not be able to pay its dividend because of the non-
availability of funds.
Ø A company cannot afford to increase its credit sales and may have to
restrict its activity to cash sales.
Ø A company may have to borrow funds at excessive rate of interest.
Ø Its low liquidity may head to low profitability in the same way as low
profitability leads to low liquidity.
Ø Low liquidity would positively threaten the solvency of the business.
Ø A company is considered illiquid where it is unable to pay its debts on
maturity.
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DANGERS OF EXCESSIVE WORKING CAPITAL
Ø Too much working capital is dangerous as too little of it. Excessive
working capital raises the following problems.
Ø A company may be tempted to over trade and lose heavily.
Ø A company may keep very big inventories and tie up its funds
unnecessarily.
Ø There may be an imbalance between liquidity and profitability.
Ø A company may enjoy high liquidity and at the some time suffer from
low profitability.
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ISSUES IN WORKING CAPITAL MANAGEMENT
The financial manager must determine the levels and composition of current
assets. He must see that right resources are tapped to finance the current assets
and current liabilities are paid in time. There are many aspects of working
capital management can be which make it an important function of financial
manager.
Ø Time
Ø Investment
Ø Criticality
Ø Growth
Time
Working capital management requires much of the financial manager’s time.
Investment
Working capital management requires the large portion of total investments in
assets
Criticality
Working capital management has great significance for all firms but it is very
critical for small firms.
Growth
The need for working capital is directly related to the firm’s growth.
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RATIO ANALYSIS
One of the techniques of analysis of financial statements is to calculate
ratios. Ratio is a numerical or arithmetic relationship between two figures. It is
expressed when one figure is divided by another.
Absolute figures are valuable but they standing alone convey no meaning
unless compared with another. Accounting ratios show inter-relationships,
which exist among various accounting data. When relationships among various
accounting data supplied by financial statements are worked out, they are
known as accounting ratios.
DEFINITION OF RATIO
According to Webster “A Ratio shows the relationship between two or
more things”, the relationship between two accounting figures, expressed
mathematically, is known as “financial Ratio”
NATURE OF RATIO ANALYSIS
A Ratio is known as “the indicated quotient of two mathematical
expressions”. Ratio analysis is a powerful tool of financial analysis. In
financial analysis, a ratio is used as a benchmark for evaluating the financial
position and performance of firm. The absolute accounting figures reported in
the financial statements do not provide a meaningful understanding of the
performance and financial position of a firm. An accounting figure conveys
meaning when it is related to some other relevant information.
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Ratio help to summaries large quantities of financial data and make
quantitative judgment about the firm’s financial performance for example,
consider current ratio. It is calculated by dividing current asset by current
liabilities; the ratio indicates a relationship- a qualified judgment- to be formed
about the firm’s ability to meet its current obligations. It measured about the
firm’s liquidity. The greater the ratio, the greater the firms liquidity and vice
verse. The point to note is that a ratio reflecting a quantitative relationship
helps to form a quantitative judgment-such is the nature of all financial ratios.
SIGNIFICANCE OF RATIO ANALYSIS
Ratios are significant both in vertical and horizontal analysis. The
vertical analysis, ratios help the analyst to form a judgment whether
performance of the corporation at a point of time is good, questionable or poor.
Likewise, use of ratios in horizontal analysis indicates whether the financial
condition of the corporation is improving or deteriorating and whether the cost,
profitability or efficiency is showing and upward or downward trend analysis
of ratio involves two types of comparisons.
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CLASSIFICATION OF RATIOS
Ratios may be classified in a number of ways keeping in view the
particular purpose. Several ratios calculated from the accounting data, label
grouped into various classes according to the financial activity or function to be
evaluated. The parties, which generally undertake financial analysis, are short
and long-term creditors, owners and management.
Ø Profitability ratios.
Ø Coverage ratios.
Ø Turnover ratios.
Ø Financial ratios.
Ø Leverage ratios.
The most common ratios are,
CURRENT RATIO
This ratio is most widely used ratio. It is the ratio of current assets to
current liabilities. It shows a firm’s ability to cover its current liabilities with its
current assets. It is expressed as follows:
Current ratio=current assets/current liabilities
Generally 2:1 is considered ideal for concern i.e. current assets should be
twice of the current liabilities. If the ratio is less than two, difficulty may be
experienced in the payment of current liabilities and day-to-day operations of
62
the business may suffer. If the ratio is higher than two, it is very comfortable
for the creditors but for the concern, it is indicator of idle funds and a lack of
enthusiasm for work.
QUICK RATIO
This ratio establishes a relation ship between quick or liquid assets and
current liabilities and current assets is liquid if it can be converted into cash
immediately or reasonably soon without a loss of value. Cash is the most liquid
asset other assets, which are considered to be relatives liquid and included in
quick assets, are book debts marketable securities. Inventories are considered
to be less liquid. Dividing the total of the quick assets by total current liabilities
forms the quick ratio.
Quick ratio = current assets - (inventories+prepaid
expenses)/current liabilities
1:1 ratio is considered ideal ratio for a concern because it is wise to keep the
liquid assets at least equal to the liquid liabilities at all times.
CASH RATIO
Since cash is the most liquid asset, a financial analyst may examine cash
ratio and its equivalent to current liabilities. Trade investment or marketable
securities are equivalent of cash; therefore, they may be included in the
computation of cash ratio.
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Cash + Marketable security Cash Ratio = ------------------------------------------------ Current liabilities.
INVENTORY TURNOVER RATIO
This ratio indicates the efficiency of the firm in selling its product. It is
calculated by dividing the cost of goods sold by the average inventory. The
higher the ratio, the more efficient the marketing of inventories and vice versa.
Inventory turnover ratio = sales/inventory
NET WORKING CAPITAL RATIO
The difference between current assets and current Liabilities is called
Net working capital. Networking capital is used as a measure of a firm’s
liquidity. Net working capital measures the firm’s potential reserving of funds.
It can be related assets or capital employed.
Networking Capital Networking ratio = ------------------------------- Net Asset. RECEIVABLES TURNOVER RATIO
Receivables (or) debtors constitute an important constitute of current
assets and therefore the quality of receivables to a great extent determines the
firm’s liquidity.
Receivables turnover ratio=sales/receivables
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THE FOLLOWING TABLE IS A STATEMENT SHOWING NET
WORKING CAPITAL OF THE SUJALA PIPES FOR THE YEAR
2005 & 2006
ASSETS 2005 2006 INCREASE DECREASE
Inventory 3065.56 3443.01 377.45 -
Debtors 6238.55 5564.41 - 674.14
Cash & Bank balance 1031.21 1747.02 715.81 -
Loans & Advances 885.29 881.26 - 4.03
Total Current Assets 11220.61 11635.7
LIABILITIES
Current Liabilities 3373.80 2716.03 657.77 -
Provision 156.37 499.89 - 343.52
Total Current Liabilities 3530.17 3215.92
Working Capital
(CA – CL)
7690.44 8419.78
Increase in Working
Capital
729.34 - 729.34
NET WORKING
CAPITAL
8419.78 8419.78 1751.03 1751.03
INTERPRETATION
Inventory and cash & bank balance has been increased in 2005. Debtors
and loans & advance have been decreased. Current liabilities have been
decrease. Finally there is increase in working capital.
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THE FOLLOWING TABLE IS A STATEMENT SHOWING NET
WORKING CAPITAL OF SUJALA PIPES FOR THE
YEAR 2006 & 2007
PARTICULARS 2006 2007 INCREASE DECREASE
ASSETS
Inventory 3443.01 3316.98 - 126.03
Debtors 5564.41 6581.79 1017.38 -
Cash & Bank balance 1747.02 1208.69 - 538.33
Loans & Advances 881.26 945.47 64.21 -
Total Current Assets 11635.7 12052.93
LIABILITIES
Current Liabilities 2716.03 3862.57 - 1146.54
Provision 499.89 385.72 114.17 -
Total Current Liabilities 3215.92 4248.29
Working Capital (CA – CL) 8419.78 7804.64
Decrease in Working Capital - 615.14 615.14
NET WORKING CAPITAL 8419.78 8419.78 1810.9 1810.9
INTERPRETATION
There is decrease in inventory and cash & bank balances, where debtors
and loans & advances have been increased therefore current liabilities have
increased. Finally there is decrease in working capital.
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THE FOLLOWING TABLE IS A STATEMENT SHOWING NET
WORKING CAPITAL OF THE SUJALA PIPES FOR THE
YEAR 2007 & 2008
PARTICULARS 2007 2008 INCREASE DECREASE
ASSETS
Inventory 3316.98 5318.73 2001.75 -
Debtors 6581.79 11502.3 4920.51 -
Cash & Bank balance 1208.69 1238.7 30.01 -
Loans & Advances 945.47 1090.38 144.91 -
total current assets 12052.93 19150.11
LIABILITIES
Current Liabilities 3862.57 5671.67 - 1809.1
Provision 385.72 484.67 98.95
Total Current Liabilities 4248.29 6156.34
Working Capital (CA – CL) 7804.64 12993.77
Increase in Working Capital 5189.13 - 5189.13
NET WORKING CAPITAL 12993.77 12993.77 7097.18 7097.18
INTERPRETATION
The current assets have been increased in the year of 2007 .The current
liabilities have been increased. The working capital position has been
increased when compared to previous table. Finally there is increase in
working capital.
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THE FOLLOWING TABLE IS A STATEMENT SHOWING NET
WORKING CAPITAL OF SUJALA PIPES FOR THE
YEAR 2008& 2009
PARTICULARS 2008 2009 INCREASE DECREASE
ASSETS
Inventory 5318.73 6767.92 1449.19 -
Debtors 11502.3 13834.34 2332.04 -
Cash & Bank balance 1238.7 2471.74 1233.04 -
Loans & Advances 1090.38 1902.97 812.59 -
total current assets 19150.11 24976.97
LIABILITIES
Current Liabilities 5671.67 6491.81 - 820.14
Provision 484.67 7232.30 - 6747.63
Total Current Liabilities 6156.34 13724.11
Working Capital (CA – CL) 12993.77 11252.86
Decrease in Working Capital - 1740.91 1740.91 -
NET WORKING CAPITAL 12993.77 12993.77 7567.77 7567.77
INTERPRETATION
The current assets and current liabilities have been increased in 2008
than 2007 so there are fewer requirements for source of working capital hence
there is decrease in working capital.
68
CURRENT RATIO
Current Ratio = Current Assets
Current Liabilities
0
0.5
1
1.5
2
2.5
3
3.5
4
2005 2006 2007 2008 2009
Current Ratio
Interpretation
There is fluctuation in year by year. By 2008 it has reduced from 3.18
to 1. 82. In 2005 is best as the whole.
YEAR CURRENT
ASSETS
CURRENT
LIABILITIES
CURRENT RATIO
2005 11220.61 3530.17 3.18:1
2006 11635.7 3215.92 3.62:1
2007 12052.93 4248.29 2.84:1
2008 19150.11 6156.34 3.11:1
2009 24976.97 13724.11 1.82:1
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QUICK RATIO
Quick Ratio = Current Assets - Inventory
Current Liabilities
YEAR QUICK RATIO
2005 2.31:1
2006 2.55:1
2007 2.06:1
2008 2.25:1
2009 1.33:1
0
0.5
1
1.5
2
2.5
3
2005 2006 2007 2008 2009
QUICK RATIO
Interpretation
Quick ratio establishes relationship between quick assets & current
liabilities. It is found that the company is maintaining the quick ratio more
than 1 for last five years.
Generally quick ratio is in the form of 1:1
70
NET WORKING CAPITAL
Net Working Capital = Current Assets – Current Liabilities
0
2000
4000
6000
8000
10000
12000
14000
2005 2006 2007 2008 2009
QUICK RATIO
Interpretation
The net working capital shows the result positively. The net working
capital has been increased slowly and decreased at the end of 2008. At the end
of 2008, SUJALA PIPES net working capital was 11252.86 where current
assets are more than current liabilities.
YEAR NET WORKING CAPITAL
2005 7690.44
2006 8419.78
2007 7806.64
2008 12993.77
2009 11252.86
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INVENTORY TURNOVER RATIO:
Inventory Turnover Ratio = Sales / Inventory
4.7
4.8
4.9
5
5.1
5.2
5.3
5.4
5.5
2005 2006 2007 2008 2009
Inventory Turnover
Interpretation:
The inventory turnover ratio is showing positive results. In inventory
turnover it is reflecting growth stage.
Year Sales Inventory InventoryTurnover
Ratio
2005 15213.49 3065.56 4.97
2006 17760.69 3443.01 5.19
2007 17111.34 3316.98 5.16
2008 28598.66 5318.73 5.38
2009 37092.11 6767.92 5.48
72
DEBTORS TURNOVER RATIO:
Debtors Turnover Ratio = Sales / Debtors
0
0.5
1
1.5
2
2.5
3
3.5
2005 2006 2007 2008 2009
Debtors tunoverRatio
Interpretation
Debtors Turnover Ratio has been increased from 2.44 to 2.68 in the
last five years. The ratio was very high during the year of 2005.
YEAR Sales Debtors Debtors Turnover
Ratio
2004 15213.49 6238.55 2.44
2005 17760.69 5564.41 3.19
2006 17111.34 6581.79 2.60
2007 28598.66 11502.3 2.49
2008 37092.11 13834.34 2.68
73
Cash Management:
Cash is the most important factor in financial management. It is also the most
important current assets for the operation of the business. Every activity in an
enterprise revolves round the cash. Since cash is limited in every enterprise and it
cannot be raised as and when required. It is therefore, desirable that available cash
must be management properly.
Cash is the most liquid asset, is of vital importance to the daily operations of
the business. While the proportion of corporate assets held in the form of cash is
very small often in between 1% to 3%, its efficiency management is crucial to the
solvency of the business because in a very important sense cash is the focal point of
hand in business. In view of its importance, it is generally referred to as the lifeblood
of a business enterprise.
Meaning of Cash:
The term ‘cash’ is used in two senses. In a narrower sense it includes coins.
Currency not, cheques, bank drafts held by a firm with it and the demand deposits
held by it in banks. In a broader sense it also includes near cash assets such
marketable securities and time deposits with bank.
Here are two main reasons for a firm hold cash:
1. To me needs of day-to-day transactions.
2. To protect the firm against uncertainties characterizing its cash flows.
While cash serves these functions, it is can idle resource which has an
opportunity cost. The liquidity provided by cash holding is at the expense of profits
sacrificed by foregoing alternative opportunities. Hence, the finance manager should
carefully plan and control cash.
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Objectives of Cash Management:
There are two basic objectives of cash management.
1. To meet the cash disbursement need as per the payment schedule i.e. the first
basic objective of cash management is to meet the payments schedule. In
other words the firm should have sufficient cash to meet the various
requirements of the firm at different period of time.
2. The second basic objective of cash management is to minimize the amount
locked up as cash balances. In the process of minimizing the cash balances,
the finance manager is confronted with two conflicting aspects. A higher cash
balance ensures proper payment will all its advantages. But this will result in
a large balance of cash in failure of the firm to meet the payment schedule.
Motives for holding cash:
Cash is the most liquid asset, but it does not earn any substantial return for the
business. Nobody earns any income on the cash balance or currently being
maintained however some interest income may be earned on short-term deposits but
still everybody and every firm maintain some cash balance. The three motives of
holding cash are
• Transaction motive
• Precautionary motive
• Speculative motive
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• Transaction motive: Business firms as well as individuals keep cash because they require it for
meeting demand for cash flow arising out of day-to-day transactions.
• Precautionary motive: It is the need to hold cash to meet contingencies in the future. It provides a
cushion (or) buffer to withstand some unexpected emergency.
The precautionary amount of cash depends upon the predictability of cash flows.
• Speculative motive: The Speculative motive relates to the holding of cash for investing in profit
making opportunities us and when they arise. The opportunity to make profit
may arise when the security process change.
Cash Management Basic Problems: The problems associated with the cash management are:
1. Control ‘0’ level of cash:
Level of cash can be fixed by taking into account the following considerations:
• Predictable discrepancies through the technique of cash budget.
• Unpredictable discrepancies.
• Sources of funds-external as well as internal
• Relations with banks.
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2. Controlling inflow of Cash: It is necessary to check the fraudulent diversion of cash receipts and to collect
the receipts speedily. Fraudulent diversion can be controlled by internal check
system. Speedily collection of receipts may be arranged through.
• Lock box system and
• Regional offices of the company.
3. Controlling outflow of Cash: Controlling of outflow of cash is equally important. For this purpose,
centralized payments, avoidance of early payments, float and accruals should be
taken recourse.
4. Investment of Surplus Cash: Investment of surplus cash available with the company depends upon the
discretion of the executive of the company. Investment made on Temporary basis
and on Permanent basis. In taking investment decisions.
Following points are usually given weightage.
Ø Security
Ø Liquidity
Ø Yield
Ø Maturity
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Advantages of Ample Cash Funds:
Firms having ample cash reserves may derive the following advantages:
• A shield for technical inefficiency.
• Maintenance of goodwill.
• Availing of cash discount.
• Good bank – relations.
• Exploitation of business opportunities.
• Encouragement to new investment.
• Increase in efficiency.
• Overcoming abnormal financial situations.
Factors of Cash Management:
The following are the four factors of cash management
1. Cash Planning:
Cash inflows and outflows should be planned to project ash surplus or deficit
for each period of planning period. “Cash planning is a technique to plan for and
control the use of cash”. Cash plans are very crucial in developing the overall plans
of the firm. Cash planning may be done on daily, weekly or monthly basis. Cash
budget is prepared for this purpose.
78
2. Managing the Cash Flows:
The flow of cash should be properly managed for efficient use of cash. The
cash inflows should be accelerated while, as far as possible decelerating the cash
outflows.
3. Optimum Cash Level:
The firm should decide about the appropriate level of cash balance. The cost
of excess cash and danger of cash deficiency should be matched to determine the
optimum level of cash balances.
4. Investment Surplus Cash:
The surplus cash balance should be properly invested to earn profits. The firm
should decide about the division of such cash balance between bond deposits,
marketable securities and corporate lending.
Tool of Cash Planning:
These include methods, which establish the future level in a firm.
1. Net Cash Forecast:
Forecast of net cash means forecast of cash inflows and outflows for a given
period. There are two methods of forecasting cash position.
• Cash flow method, which plots out, estimated receipts and payments.
• Adjusted earning method, on the basis of estimate inflow of cash, expenditure
or cash inflow is planned.
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2. Cash Budget: Cash budget is the second toll of cash planning. It is a systematic forecast of
cash requirements i.e., forecast or cash inflows and outflows and thus shows the
probable surplus or deficiency of cash.
In forecasting the cash flow, policies regarding other functions such as sales,
production, marketing, personnel etc. are taken into consideration.
Method of Preparing Cash Budget: 1. Receipt and payments method: Cash budget is divided in two parts showing cash receipts and cash payments.
Total cash receipts are estimated taking into account the cash received from business
operations, from non-estimated likewise, in preparing cash budget total receipts are
added to and disbursements deducted from the opening cash balance.
• Profit and loss adjustment method.
• Balance sheet method.
2. Forecasting on Overall Working Capital Position: Forecast of the overall working capital position is also an important tool of
cash planning. Working capital analysis forecast the value of current assets and
current liabilities to know the cash position of business.
Inventory Management:
Inventories constitute the most significant part of current assets of a large
majority of companies in India. The term inventory refers to the stock pile of the
product. The assets which firms store as inventory are:
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• Raw materials:
Inputs that are converted into finished products through manufacturing process.
• Work in progress:
Semi finished products that require more work before they are for sale.
• Finished goods:
Goods which are completely manufactured products and/or ready for sale.
Need to hold inventories:
There are three general motives for holding inventories
• The Transaction Motive:
Which emphasis the need to maintain inventories to facilitate smooth production
and sales operation.
• The Precaution Motive:
Which necessitates holding of inventories to guard against the risk of
unpredictable changes in demand and supply forces and other factors.
• The Speculative Motive:
Which influences the decision to increase or reduce inventory level to take
advantage of price fluctuation.
81
Receivable Management:
Account receivable constitutes a significance portion of the total current assets
of the business. They are direct consequences of “trade credit”. Which has become
as essential marketing tool in modern business.
Meaning of Receivable:
Receivable are asset accounts representing amounts owned to the firm as a
result of sale of goods or services in the ordinary course of business.
Meaning of Receivables Management:
It may be define as the process of making decision relating to the investment
of fund on this aspect, which will result in maximizing the overall return on the
investment of the firm.
The problem of management of receivables is basically a problem of
balancing profitability and liquidity. Soft credit terms are attraction for higher sales
and hence longer the time a company allows its customers to pay, resulting in greater
sales as higher profits. However, on the other hand the longer the period of credit,
the greater the risk, greater the level of debt and greater the strain on the liquidity of
the company.
Characteristics of Maintaining Receivables:
• Expansion of Sales
• Increased Profit
• Financing Receivables
• Administrative Expenses
• Cost of Collection
• Bad debt
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SUMMARY
Proper allocation of funds in current asset is necessary to increase the
productivity and to achieve the target sales.
Working capital is needed for its day-to-day workings in business
without any breakouts. In Sujala Pipes the working capital position is good.
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FINDINGS
Ø In financial year 2006, the firm is satisfactory regarding the position of
working capital.
Ø Working capital management of SUJALA PIPES is increased in every
year.
Ø The current ratio is more than one in five financial years, so current
assets are high compared to current liabilities.
Ø Debtor turnover ratio was in the peak during the year 2005 due to high
sales and decreased debtors in the year 2005.
Ø Profit of SUJALA PIPES is increasing it indicate that company is
working with high performance and better management.
Ø The company overall financial performance both in long run and short
run is adequate and acceptable.
84
SUGGESTIONS
Ø As the firms networking capital increase or decrease in relation to sales
value. There is need to concentrate on control over current assets and
current liabilities.
Ø In SUJALA PIPES, net working capital shows increasing trend.
Ø The company overall financial performance both in long and short run is
acceptable
Ø Current ratio of the company has been fluctuating this is due to change
in liability.
85
BIBLOGRAPHY
REFERENCE AUTHORS FINANCIAL MANAGEMENT I.M.PANDEY FINANCIAL MANAGEMENT PRASANNA CHANDRA RESEARCH METHODOLOGY R.C.KOTHARI WEBSITES: WWW.NANDIPIPES.COM WWW.SUJALAPIPES.COM
86
BALANCE SHEET OF SUJALA PIPES PRIVATE LIMITED AS ON 31ST MARCH
Particulars 2005 2006 2007 2008 2009 sources
Share holders funds Share capital 2007.23 2007.23 2007.23 2007.23 2007.23 Reserves & surplus 6993.56 7726.03 8177.41 9672.46 16822.61
Loan funds Secured loans 5087.87 5704.15 4964.5 9283.23 11852.69 Unsecured loans 944.73 1245.34 1328.17 1938.13 2153.81
Deferred tax Deferred income tax 244.5 314 478.45 671.08 766.22
TOTAL 15277.89 16996.75 16955.76 23572.13 33605.56 Application of funds Fixed assets 8021.77 9517.98 10980.26 12693.18 16157.47 (-)depreciation 1675.53 2095.11 2575.47 3138.53 3803.59 Net fixed assets 6346.24 7422.87 8404.79 9554.65 12353.88 Capital works in progress
690.78 807.29 502.4 763.53 1812.94
Current assets, loans & advances
Inventory 3065.56 3443.01 3316.98 5318.73 6767.92 Debtors 6238.55 5564.41 6581.79 11562.3 13834.34 Cash & Bank 1031.21 1747.02 1208.69 1238.7 2471.74 Loans & advances 885.29 881.26 945.47 1090.38 1902.97
TOTAL 11220.61 11635.7 12052.93 19210.11 24976.97 (-)Current liabilities
& Provisions
Current Liabilities 3373.8 2716.03 3862.57 5671.67 6491.81 Provisions 156.37 499.89 385.72 484.67 732.3
TOTAL 3530.17 3215.92 4248.29 6156.34 7224.11 Net Current Assets 7690.44 8419.78 7804.64 13053.77 17752.85 Welfare revenue expenses
212.04 159.98 107.91 55.85 -
TOTAL 15277.89 16996.76 16955.76 23572.16 33805.58
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