project on wcap

7/31/2019 Project on Wcap

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ACKNOWLEDGEMENT

Success can never be attained without proper guidance.

Nothing concrete can be achieved without an optional combination of inspiration and

aspiration. No work can be accomplished without taking the guidance of the important critiquesfor the ingenious intellectual that helps transforms a product into a quality product.

This work is synergic product of many minds. This began as a part of project semester ofmy MBA program, so I would like to thank University of Pune for providing me an opportunity

to undertake project as a subject for practical fulfillment of MBA course. I would like to express

gratitude towards director Mr. Rayate and Prof. D.D. Walke, the project guide for valuable

guidance.

I am thankful to the staff members of Asia Automotive LTD. particularly Mr. Anand for

their valuable guidance during various phases of the project. I am also thankful to Mr. H.B.

Shirode ( finance & account Manager ), Mr. S.D. Deshpande. I am also indebted to number ofprofessionals, colleagues and other who have directly and indirectly contributed time and talent

even through anonymously in accomplishing this task.

I am grateful for the inspiration; encouragement and wisdom of many resourcepeople who helped me to bring this report into life. Thus the project has been alearning experience and has helped me to understand practical aspect of subject.


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SELECTION OF THE TOPIC :

Working capital is the life blood of the business. Every organization needs

working capital for its effective and efficient working .But, the main considering of every

organization is the effective management of working capital.

As the world is changing, competition and speed has become the part and parcel

of the working. Every work done in the organization has invoice processing system

covers both the things, that are no wastage of time and resources.

With all these consideration in the mind, Asia Automotive Ltd decides to use the

working capital in the systematic way.


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OBJECTIVE OF THE PROJECT :

As per the MBA curriculum at the end of the first year, all students are required

to undergo a summer training programme of 60 days. This summer training is an integral

part of the MBA course and in successful completion is a pre-requisite for the fulfillment

of the graduate degree in management.

1. The main objective of the project is to gain the practical knowledge and

to know the organization working culture.

2. To know the working capital performance of the Asia Automotive Ltd.

Over the last four year (2003-2006).

3. To examine the financial performance of the Asia Automotive by doing the

practical work in the company.

4. To draw the observation and conclusions based on the study and suggest

the suitable measures to over come the problems as well as to meet the goal

of the organization .


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METHODOLOGY OF STUDY :

Project means the method of preparing project. In other words project methodology

is the way of preparing the project, and presenting the project report, the work

should be systematic and done in proper order as good work gives good results.

Further the data collected to preparethe projectmust be relevant.

A) PRIMARY DATA :

Mr. H. B. Shirode is the finance and account manager of the company after the

discussion with him all the figures of balance sheet and primary data was collected.

Working capital related information collected from the other members of finance and

account department like Mr. K.K. Joshi and Mr. S. D. deshpande

Discussion with the IT Department to know the working capital analysis operation in IT

department.

B) SECONDARY DATA :

Secondary data is very important data which is provided by the organization. The

needed and essential information is collected from.

Annual Report of the Asia Automotive Ltd. 2003-2006.

Balance sheet of Asia Automotive Ltd. 2003-2006.

Web-site of the company.

The main aim of the project is to study and analyse the working capital of Asia

Automotive Ltd. By covering the four years financial data supplied from the

companys financial account.

LIMITATIONS:


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Even if the project report is prepared by considering the various aspects as possible,

there are some areas that are not considered which limit the report and the study to a

certain extent. The limits are given below :

The time frame considered is very limited. In the time period of two months

analysis of the trends of the entire company is comparatively not possible.

The data used for analysis is not first hand. The use of secondary data may lead

to the variations in the result if valued in the values in the data get changed

ultimately the reliability of secondary data limits the project analysis.

The report includes the fundamental analysis but does not includes technical

analysis hence study is limited by considering only fundamental factors so

conclusion attended may vary if technical factors are considered.

UTILITY OF THE STUDY :


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The study of an organization is one of the most important and

easiest way to realizes the physical environment of an organization.

Through these study we can understand how the financial operation

undertake by the company. It also helps to know how the organization faces

the financial problems and how they solve their problem by collecting the

capital from various sources of funds.

It gives the deep information about the company.It gives the

through knowledge of the corporate world before doing the professional job

in any organization. One can apply the knowledge through the project

surveys and to study the problems faced by the company.

Through these study we can develop our communication skill,

thinking power, awareness about the current affairs of the corporate world.

It improves our knowledge and ultimately the confidence level will goes

on increase so that we can easily do the job in future in any organization .

PROFILE OF ASIA AUTOMOTIVE LTD.


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ASIA AUTOMOTIVE LTD. Is today Indias leading manufacturing of resistance

welding products and copper alloy castings and forgings. The companys resistance

welding material and electrodes, marketed under the RESWELD name, have found Wide

acceptance in the automotive industry and in the manufacturing of bicycles, steel

furniture, drums and containers,

And welded wire mesh. Castings and forgings manufactured by ASIA AUTOMOTIVE

are used throughout India for critical applications in the automotive, electrical, railway

and defense industries.

ORIGINE :

Asia AUTOMOTIVE is the product of the entrepreneurial energy that promoted Gabriel

India limited, purolator India limited and perfect circle victor limited among others-all

dynamic Indian companies that have distinguished themselves in the countrys

automotive ancillary industry by virtue of their innovative approach, progressive outlook

and capacity for achieving sustained results.

Gabriel is Indias best known manufacturer of shock absorbers and engine bearings;

perfect circle victor a leading manufacturer of piston rings and gaskets; and purolator, the

largest manufacturer of the filters in the country.

ASIA AUTOMOTIVEs association with these companies gives the company an

additional edge that is unique in the engineering and automotive industry in India.

PLANT & FACILITIES

ASIA AUTOMOTIVES manufacturing facility, covering a production area of 13,000sq

ft, is located in Nashik, about 120 kms from Bombay. Modern and up-to-date, the plant

has a support infrastructure of laboratory and testing facilities; tools and die shops ; and

non-ferrous metal casting, forging and extruding capabilities.

Updating of processes, addition of new equipment and expansion of plant and facilities are

carried out on a continuous basis to match the companys development al plans.

COLLABORATIONS :


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ASIA AUTOMOTIVES technological edge is derived from its

collaborators :

Originally P.R. Mallory and co., U.S.A., pioneers in resistance welding the world

over, and subsequently Johnson matthey metals ltd. Of U.K. Johnson matthey are

world leaders in the field of resistance welding, with over 53 years experience in

this field.

One of the worlds most highly diversified groups, Johnson mattheys

product range includes specialized engineering materials. Precious metals such as

gold, silver, and platinum, and sophisticated powder metallurgy products.

Headquartered in London, Johnson matthey has more than 49 subsidiaries

and associate companies in most of the worlds leading industrial countries. The

company achieved a sales turnover of 1375 million 1984.

ASIA AUTOMOTIVE LTD ,NASHIK

Quality policy


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We , employees at Asia Automotive Ltd . are committed to

manufacture and supply welding products in copper alloys to meet

customers requirements by meeting specifications and delivery

expectations at optimum cost.

This shall be achieved by

Continual improvement in all areas of operation to satisfy

customers.

Reduction in operating cost with specific measurable objectives.

Involvement and participation of all employees.

COMMUNICATION AND FEEDBACK:

This policy is explained to all employees during various

training conducted.

This policy is displayed at various places in the company.

Quality objectives derived from quality policy are

received in every management review meeting

EXECUTIVE SUMMRY

1) COMPANY NAME & ADDRESS

Asia Automotive ltd.


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C-7 NICE; MIDC Area,

Satpur, Nashik-422 007.

2) CHAIRMAN

Shri. S.C.Anand

3) BOARD OF DIRECTORS

Shri. K.D.Kapoor

Shri.E.S.

4) AUDITOR

Shri.Sahni Mehra

5) BANKERS

IDBI Bank ltd.

ICICI B Bank ltd.

Central Bank Of India

Canara Bank

6) SIZE OF THE COMPANY

Small Scale Industry

7)NUMBER OF THE EMPLOYEES

The total number of the employees in the company are 40.

8)TOTAL SHIFTS

There are two shifts in the company .

First Shift - 7a.m. to 3.30p.m.

Second Shift - 3.30p.m. to 12p.m.

10)REGISTERED OFFICE

ASIA AUTOMOTIVE LTD.

115, Dr.Annie Besant Road,

Behind Poonam Chamber,

Worli, Mumbi-400 018.


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ORGANISATION CHART

BOARD OF DIRECTORS

ANALYSIS OF WORKING CAPITAL

MR SUDEEP C ANAND(CHAIRMAN)

MR.K.D.KAPOOR MR.E.S.ASOKAN

MR. SUDEEP C ANAND

(EXECUTIVE DIRECTOR)

MR.A.M.BHOSALE

(PRODUCTION MANAG)

MR.H.B.SHIRODE

(ACC.&FIN.MANAGER)

MR.K.K.JOSHI

(ACCOUNT OFFICER)

MR.S.S.DESHPANDE

(FINANCE OFFICER)


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3.1) INTRODUCTION

The working capital is classified into Gross Working capital

and Net working Capital . Gross working capital; usually

referred to as Working Capital that represents investment

in current assets such as Marketable Securities, inventories &

Bills Receivable, etc . current assets are those assets, which are

normally Converted into cash within one year.

The term Net Working Capital represents the

difference between current account & current liabilities . Current

Liabilities are those claims of outsiders, which are expected to

mature for payment within one year. Current liabilities include

creditors, bills payable, bank overdraft, outstanding expenses ,

etc .The net working can be positive or negative. When currentasset exceed Current liabilities, the net working capital

becomes positive and when current liabilities exceed Current

assets, the net Working capital becomes negative.

NET WORKING CAPITAL = CURRENT ASSET

CURRENT LIABILITIES.

3.2) DEFINATION, MEANING

Working capital is defined as Difference between assets and liabilities.


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It measures how many liquid assets are available for a business

To use for growth opportunities . A lack of working capital can really hold a

business back from reaching their full potential . There are many

different ways to obtain capital for your business .

Working capital includes micro loans put out by the small

businesses administration (SBA),credit card receipt advances ,account

receivable factoring , business credit cards ,cell and leaseback , and a

standard business bank loan . it is important that you are always

conscious about building your business credit scores as you obtain

more capital . It is important to separate your personal credit from

your business credit . you can do this by obtaining financing that

reports to the small business financial exchange .

It is the part of capital which is required for the daily working of

the business . working capital is also called as circulating capital

.Circulating capital means current assets of a company that changed

in the ordinary course of business from one into another as for the

example from cash to inventories to receivables , and receivables into

cash .

Working capital can easily be converted into hard has when

Ever required ; it changes with the volume output of business

.working capital is essential for maintaining the financial position of

the organization .

A positive changes in working capital indicates that the

business has either increased current assets (that is received cash, or

other current assets) or has decreased current liabilities , for example

Has paid of some short-term creditors .

3.3 ) CONCEPTS OF WORKING CAPITAL

1) GROSS WORKING CAPITAL :

It refers to the firms investments in current assets i.e. mainly

Stock , cash .


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2) NET WORKING CAPITAL :

It is the difference between current liabilities . if the current

assets exceeds the current liabilities , it is a positive one .

3) NEGATIVE WOKING CAPITAL :

This situation occurs when the current liabilities exceed the

current assets. It is an indication of crisis to the firm.

4) FIXED WORKING CAPITAL :

Every firm is required to maintain a minimum balance of

Cash, inventory, etc . in order to meet the business need,

requirements even in the slack season . This part of the current

assets is called as permanent working capital .It will be a sound

policy, if this is financial by long - term source of finance.

VARIABLE WORKING CAPITAL

Amount of

Working capital

Fixed working capital

Period

5) VARIABLE WORKING CAPITAL :

Net working capital minus fixed working capital will be the

variable working capital . It is also called as fluctuating

working capital .It varies with seasonal requirements and scale

of operation in a business.


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3.4) NATURE OF WORKING CAPITAL

The nature of working capital is described with the help

Of Nature of operating cycle of the firm .The process of cash

or operation cycle starts when a firm uses cash to purchase the


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raw material and pay for other manufacturing cost to produce

goods .These goods are carried as inventory for some time till

they are sold . When good are sold , either cash is received or

accounts receivable are created. Accounts receivables are collected

from debtors, this brig cash into the firms.

Thus the cash cycle is complete and a new process of a

cash cycle starts over again. These processes are described as

circulating nature of current assets .The speed of the circulation of

working capital or the turnover of current asset is an indicators of

the degree of efficiency of the management.

The faster the turnover, the higher the degree of efficiency.

The goal of working capita management is to manage the

firms current assets and liabilities in such a way that a satisfactorylevel of working capital is maintained. This is so because a firm

can not maintain a satisfactory level of working capital, it is like to

become insolvent and even be forced into bankruptcy. The current

asset should be large enough to cover its current liabilities in order

to ensure a reasonable margin of safety. The interaction between

current asset and current liabilities is therefore the main theme of

the theory of working capital management.

NEED AND DETERMINANT OF WORKING CAPITAL


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The need of working capital required for running day - today

Business activity which cannot be over emphasized . Working

Capital is needed till a firm gets cash on sale of finished product. It

Depends on two factors

1. Manufacturing cycle-its the time required for converting the

raw material into finished product.

2. Credit policy - it is credit period give to customers and credit

Period allowed by creditors.

Thus, the sum total of this times is called a operating cycle,

and it consist of following six steps :

Conversion of cash into raw material

Conversion of raw material into work-in-progress

Conversion work-in-progress into finish products

Time for sale of finished goods-cash sales and credit sales credit

Period allowed by creditors for credit purchase of raw material

and inventory.

CHART FOR WORKING CAPITAL CYCLE


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In case of trading concern, the operating cycle will be :

Cash Stock Debtors Cash

In case of financial concern the operating cycle will be :

Cash Debtors Cash only

3.6) ADVANTAGES OF WORKING CAPITAL :

Debtors & BillsReceivable Sales

Finished

products

Cash

Raw

materi

Work in

progress


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Adequate working capital enables a firm to avail cash discount facilities

offered to it by the supplier as the amount of cash discount reduces the cost ofpurchase.

Adequate working capital enables a firm to make prompt payment ,

which creates and maintain good will.

It facilitates to meet situation of crisis and emergencies and enables

business to withstand periods of depression smoothly.

Adequate working capital helps in increasing profits as purchasing

requirements in bulks when prices are lower and holding its inventories for higher .

Sufficient amount of working capital helps in research programmers,

innovations and technical development .

Adequate working capital enable a concern to pay regular dividends toits investors , which gains confidence in minds of investors , and this situation rates

a favorable market to raise additional funds in the future .

Adequate working capital creates an environment of security,confidence, high morale, etc. and creates over all efficiency in business.

3.7) PROBLEMS FACED BY INADEQUATE WORKING CAPITAL :

In case of adequate working capital, firm may not be able to take advantage of

cash discount.


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It make not be able to take advantage of profitable business opportunities .

It may fail to dividend because of non-availability of funds .

Short-term liabilities can not be paid because of inadequate working capital,which leads to borrow funds at exorbitant rates of intrest.

Fixed assets can not effectively and efficiently be utilized on account of lackof sufficient working capital.

It low liquidity position may lead to liquidation of firm thus it may lose itsreputation therefore a firm may not be able to get credit facilities.

DETERMINANTS OF WORKING CAPITAL:

1. Nature of Business:


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The nature of a business concern has got a bearing on its

working capital requirements. In certain types of enterprises

public utilities and railways current capital requirement when

compared to fixed capital the requirement of working capital

is small while in manufacturing concerns, a larger amount

working capital is needed.

2. Manufacturing Cycle :

The quantum of working capital needed is influenced by the

length of the manufacturing cycle. Manufacturing process

always involves a time lag between the time when the raw

materials are fed into the production line and finishedproducts are finally turned out by it. The length of the period

of manufacture in turn depends on the nature of the product

as well as production, technology used by a concern.

3. Economies of scale :

The need for working capital is significantly determined by the

economies of the scale of operation of a business enterprise. In

very small companies a large amount of working capital is

needed due to high overhead charges, high buying and selling

costs and less efficient technical equipments.

4) Business Fluctuations :

The need for the working capital increases during the periods of

inflation and depression and declines during other periods of


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trade cycled. During the boom period, the manufactures would

like to produce more of finished products for sale in a buoyant

market. This necessitates them maintaining huge stocks of raw

material, which in turn demand a larger amount of working capital.

5) Rapidity of Turnover :

There is a high degree of inverse co-relation between the

quantum of working capital and the velocity with which the

sale are affected. When a company has to carry on a large slow

moving stock, it needs a larger working capital as against

another whose turnover is rapid.

6) Terms of Purchase and sale :

As a result of extension of liberal credit by certain companies, a

large amount of working capital gets locked up in sundry

debtors and bills receivable. When the credit terms extended by

a company to its customers are for longer periods than what is

extended to it by its suppliers, a larger working capital is

needed and vice-versa.

7) Fluctuation in supply :

Certain companies have to procure and maintain huge stocks of raw

materials due to their irregular supply throughout the year. This is

applicable especially to manufacturing concerns requiring an

unusual type of raw material which can be procured form limited

sources separated by long geographical distances.

8) Current assets :

If company follows conservative assets policy, it will operate with

a high level of current assets relative to its sales volume. It has to


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carry large stocks of material, inventories and finished goods, offer

liberal terms of credit to customers and carry a large amount of

cash to meet its current expenditure , all of which in turn demand a

larger working capital.

3.4) ADVANTAGES OF WORKING CAPITAL


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Adequate working capital enables a firm to avail cash

discount facilities offered to it by the supplier as the amount of cash

discount reduces the cost of purchase.

Adequate working capital enables a firm to make promptpayment , which creates and maintain good will.

It facilitates to meet situation of crisis and emergencies and

enables business to withstand periods of depression smoothly.

Adequate working capital helps in increasing profits as

purchasing requirements in bulks when prices are lower and holding

its inventories for higher .

Sufficient amount of working capital helps in research

programmers, innovations and technical development .

Adequate working capital enable a concern to pay regular

dividends to its investors , which gains confidence in minds of

investors , and this situation rates a favorable market to raise

additional funds in the future .

Adequate working capital creates an environment of

security, confidence, high morale, etc. and creates over all efficiencyin business.

3.7) ESTIMATES OF WORKING CAPITAL:

The most ticklish problem that is faced by business man

is the determination of the amount of working capital required


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at a particular level business operation. A working capital

forecast is prepared for this purpose involving some

calculations after taking into consideration all the aspects of

business activity.

The following items are usually include in the calculation of

working capital requirements.

1) Total costs incurred on materials, wages and overheads as

from cost records

2) Time lag during which raw material are remained in stock before

they are issue for productive purposes.

3) Duration of the production cycle-longer the duration of the cycle,

larger will be the working capital required.

4) Length of the scale cycle indicating the duration of time duringwhich business concerns having seasonal sales of goods, stocks have

to be maintained throughout the rest of the year and the working

capital requirement will be very high.

5) Time allowed to debtors. If longer periods of credit allowed to the

customers by a company without the same being extended to it by its

suppliers, a larger working capital will be needed.

6) The period of credit extended by creditors. When a longer period of

credit is extended to its customers, working capital requirements will

be considerably reduced.

7) Time lag involved in the payment of wages andthe overheads.


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3.8) PROBLEMS FACED BY INADEQUATE WORKING CAPITAL :

In case of adequate working capital, firm may not be able to take advantage of

cash discount.

It make not be able to take advantage of profitable business opportunities .

It may fail to dividend because of non-availability of funds .

Short-term liabilities can not be paid because of inadequate working capital,which leads to borrow funds at exorbitant rates of interest.

Fixed assets can not effectively and efficiently be utilized on account of lackof sufficient working capital.

It low liquidity position may lead to liquidation of firm thus it may lose itsreputation therefore a firm may not be able to get credit facilities.


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WORING CAPITAL ANALYSIS WITH RATIO

INTRODUCTION

The financial statement of a business firm includes :1) Trading account.

2) Profit and loss account.

3) Balance sheet.

The financial statement provides a summarized view of the Financial

position and operations of the firm therefore much can be learnt about a firm

from a careful examination of its financial statement as invaluable document /

performance reports. The analysis of financial statement is thus an important

aid to financial analysis. This is necessary to find out the realistic picture of the

business. This is also necessary to analyze the business from various angles like

liquidity, profitability , solvency , etc.

MEANING :

Ratio analysis is widely used tool of financial analysis. It is defined as the

strength systematic use of ratio to interpret the financial statement so that the

strength and weakness of a firm and current financial position can be

determined.

The ratios reveals the relationship in more meaning full way so as to enable usto draw conclusions from them .They enable analyst to draw convulsions

regarding financial operations.


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4.2) CALCULATION OF RATIOS

A) LIQUIDITY RATIO :

1) Net working capital :

Net working capital is the difference between current assets and

current liabilities. It shows the liquidity of the firm, greater the

amount of NWC, greater is the liquidity of the firm. The net

working capital can be positive or negative. If current assets

exceed current liabilities, the difference is positive net working

capital and when current liabilities exceed current assets, the

difference is negative working capital. Inadequate working capital

is the sign of financial problem for a firm.

Net Working Capital = Current Assets Current liabilities

Year Current

Assets

Current

Liabilities

Net working

capital

2002-2003 53,17,876 69,42,745 -16,24,869

2003-2004 76,24,110 87,94,808 -11,70,698

2004-2005 80,72,375 82,16,245 -1,43,870

2005-2006 84,30,112 76,36,441 7,93,671


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Chart Showing Changing Net Working Capital Of Year 2002 - 2006

-2000000

-1500000

-1000000

-500000

0

500000

1000000

2002-03 2003-04 2004-05 2005-06

Net Working Capital

COMMENS :

The net working capital of the firm indicate improvement in each

year. In 2003 year the net working Capital was negative but, in

each year goes on decreasing and in 2006 year the net working

capital is positive. It shows that the Asia Automotive has asufficient net working capital to meet the claims of creditors and

day to day needs of business.

2) CURRENT RATIO :


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The current ratio is the ratio of total current assets to current

liabilities. The current ratio indicates the firms ability to pay its

current liabilities . By using this ratio the extent of the

soundness of current financial position of an undertaking

and the degree of safety provided to the creditors. Grater the

current ratio the larger amount of rupee available to the firm per

rupee of current liabilities.

Current Ratio = Current Assets

Current Liabilities

Year

CA / CL Current Ratio

2002-2003 53,17,876 / 69,42,745

0.77

2003-2004 76,24,110 / 87,94,808 0.87

2004-2005 80,72,375 / 82,16,245 0.98

2005-2006 84,30,112 / 76,36,441 1.10


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0

0.2

0.4

0.6

0.8

1

1.2

2002-03 2003-04 2004-05 2005-06

Current Ratio

COMMENTS :

The current ratio of a firm measures its short-term solvency, its

ability to meet short term obligations. The higher the current

ratio that is more than 2:1 indicates the sound solvency

position, the more is the firms ability to meet current

obligation and the greater is the safety of funds of short term

creditors and lower ratio that is less than 2:1 indicates

inadequate working capital.

Asia Automotive indicates its improved current ratio. In each

year the current ratio of the firm goes on increase .It shows that

in the future company can achieve more than 2:1 current ratio.

There fore it is able to the company to meet its obligation and

for the creditors the firm is less risky.


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3) Quick Ratio :

Quick ratio also called as Acid test ratio. The quick ratio is a

fairly stringent measures of liquidity. It is based on those current

assets which are highly liquid inventories are excluded from the

numerator of this ratio because inventories are deemed to be the least

liquid component of current assets. Quick ratio can be calculate by

dividing the quick assets by current liabilities. Quick ratio is a

liquidity ratio or 1:1 ratio this ratio indicates liquid financial position

of an enterprise.

Quick Assets

Quick Ratio =

Current Liabilities

Year QA/CL Quick

Ratio

2002-2003 46,62,662 / 69,42,745 0.67

2003-2004 59,50,490 / 87,94,808 0.68

2004-2005 66,36,583 / 82,16,245 0.80

2005-2006 76,94,077 / 76,36,441 1.00


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0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2002-03 2003-04 2004-05 2005-06

Quick Ratio

COMMENTS :

Acid Test or Quick ratio indicates the firm ability to convert its

current assets quickly into cash in order to meet its current

liabilities. If the ratio is higher that is more than 1:1 ratio it shows

the good position of the company and the lower ratio indicates

financial difficulty of the company.

Above graph indicate that the quick ratio is not equal or more

than 1:1 ratio. But in each year the quick ratio of the company

shows some improvement. So that we can conclude that very

soon company has a sound financial position.


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B) TURNOVER RATIO :

1) Inventory Turnover Ratio :

The inventory turnover ratio or stock turnover ratio measures

how fast the inventories is moving through the firm and generating

sales. This ratio can be calculated as cost of good sold by average

inventory. The inventory turnover reflects the efficiency of

inventory management. The higher the ratio, the more efficient the

management of inventories and vice versa. A high inventory

turnover may be caused by a low level of inventory which may

result in frequent stock outs and loss of sales and customer

goodwill. This ratio measures the number of times stock is

replaced during the year.

Cost of goods sold

Inventory Turnover Ratio =

Average inventory

Year

COGS / AVG INV Inventory Turnover Ratio

2002-2003 49,11,297 / 5,90,143 8.32

2003-2004 69,86,362 / 11,64,417 5.99

2004-2005 88,80,174 / 15,54,706 5.71

2005-2006 90,18,205 / 10,85,914 8.30


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0

1

2

3

4

5

6

7

8

9

2002-03 2003-04 2004-05 2005-06

InventoryTurnover ratio

COMMENTS :

The inventory turnover ratio measures how quickly inventory is sold. It is

test of efficient inventory management. A high inventory turnover ratio is

better than a low ratio.

Asia Automotive companys inventory turnover ratio was good in the year

2003 but in the year 2004-05 was less. Again in 2006 the ratio shows

improvement .The company has to maintain the ratio in decreasing order.


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2) Debtors Turnover Ratio :

This is ratio shows how many times sundry debtors (account

receivable) turnover during the year. It is calculated as net

credit sales by average debtors . if the figure for net credit

sales is not available, one may have to make do with the net

sales figure. The higher the debtors turnover the grater the

efficiency of credit management. This ratio indicates how

quickly the receivable or debtors are converted into cash.

Net Credit Sales

Debtors Turnover Ratio =

Average Debtors

Average Debtors = opening Debtors + Closing Debtors / 2

Year

NCS / Avg. Debtors Debtors Turnover Ratio

2002-2003 141,47,123 / 3063641 4.62

2003-2004 180,68,771 / 3798407 4.75

2004-2005 221,50,623 / 4707596 4.70

2005-2006 219,59,644 / 5571166

3.94


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0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2002-03 2003-04 2004-05 2005-06

Debtors Turnover Ratio

COMMENTS :

Debtors turnover ratio measures how rapidly debts are collected. Higher

ratio is indicative of shorter time lag between credit sales and cash

collection. A low ratio shows that debts are not collected rapidly.

Asia Automotive company has a satisfactory debtors turnover ratio.

which indicates that there is the shorter time lag between credit sales

and cash collection. Only in the year 2006 the ratio is low which

indicate that the company has given the more period to the debtors of

the company.


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3) Debt Collection Period :

The higher the ratio, lower is the collection period. While lower ratio

indicates high collection period. The actual collection period can be

compared with stated credit terms of the company. If it is longer than those

terms, then this indicates some inefficiency in the procedure for collection

debt. The debt collection period which is shorter than the credit period

allowed by the firm needs to be interpreted carefully. it may mean

efficiency of credit management or excessive conservatism in credit

granting that may result in the loss of some desirable sales.

Debt Collection Period = 365 days / debtors turn over ratio

Year 365 / DTR Debt. Collection period

2002-03 365 / 4.62 79

2003-04 365 / 4.75 77

2004-05 365 / 4.70 78

2005-06 365 / 3.94 92


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0

10

20

30

40

50

60

70

80

90

100

2002-03 2003-04 2004-05 2005-06

Debt collection period

COMMENTS :

The average collection period, which is shorter than the

credit period allowed by the firm, needs to be analyzed

carefully.

Asia Automotive indicates more debt collection period it isnecessary to decrease its collection period.


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4) Working Capital Turnover Ratio :

This ratio is also called as Investment Turnover Ratio.

Working Capital Turnover Ratio computed by dividing sales by

Net Working Capital or by dividing cost of good sold by working

capital. The indication given by this ratio is the number of times

working capital is turned around in particular period. This ratio

helps to measures the efficiency of the utilization of net working

capital. If any increases in sale is contemplated working capital

should be adequate.

Sales

Working Capital Turnover Ratio =

Working Capital

Year Sales / working capital Working Capital Turnover

Ratio

2002-03 141,47,123 / -16,24,869 -8.71

2003-04 180,68,771 / -11,70,698 -15.43

2004-05 212,50,623 / -1,43,870 -147.71

2005-06 219,59,644 / 7,93,671 27.67


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-160

-140

-120

-100

-80

-60

-40

-20

0

20

40

2002-03 2003-04 2004-05 2005-06

Working Capital Turnover Ratio

COMMENTS :

The higher ratio the better is the utilization of the working capital as

well as lower the investment in working capital.

Asia Automotive working capital turnover ratio shows the

improvement in each year. Initially in the 2003 year the ratio wasnegative, but in 2004 and 2005 it goes on increasing and finally in the

2006 year there is thepositive ratio these is the good indication of the

ratio .The firm should give the proper attention towards the utilization of

working capital.


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5) Current Asset Turnover Ratio :

The asset turnover ratio however measures the efficiency of the firm in

managing and utilizing its assets. This ratio is computed by dividing the sales

by current assets. The grater the turnover ratio, the more efficient is the

management and utilization of assets and lower the turnover ratio, shows

under utilization of assets. An analysis of this ratio over a period of time

reflects working capital management of a firm.

Sales

Current Asset Turnover Ratio =

Current Assets

Year Sales / Current Assets Current Asset Turnover Ratio

2002-03 141,47,123 / 53,17,876 2.66

2003-04 180,68,771 / 76,24,110 2.36

2004-05 221,50,623 / 80,72,375 2.75

2005-06 2,19,59,644 / 84,30,112 2.60


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2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2002-03 2003-04 2004-05 2005-06

Current Assets Turnover Ratio

COMMENTS :

Current asset turnover ratio indicates the firms efficiency inutilization of its assets . The greater the ratio which indicates

there is the efficient management and maximum utilization of

the assets. If the ratio is lower it indicates under utilization of

the assets.

Asia Automotive current asset turnover ratio is not constantly

goes on increasing, the ratio is fluctuate in all four year. There

fore Asia Automotive has to increase its current asset turnover

ratio, which is seen to be decreasing. The firm should carefully

utilize its assets in order to increase the efficiency of the firm.


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6) Creditors Turnover Ratio :

This ratio is computed as net credit purchase divide by average

creditors .The creditor turnover ratio indicates the actual payment behavior

of the customer - organization. If the creditors turnover ratio of a customer

is larger than the receivable turnover ratio then it is beneficial for the

organization. If the ratio is registering a falling trend, it is likely that there

has been a slow down in the collection of accounts receivable of the

customer which will be reflected by a falling receivable turnover ratio.

Net Credit Purchase

Creditors Turnover Ratio =

Average Creditors

Year

Net Credit Purchase / Avg. Creditors

Ratio

2002-03

1,22,062 / 48,39,357

0.03

2003-04

1,77,448 / 56,83,848

0.03

2004-05

2,31,237 / 64,41,311

0.04

2005-06

1,77,478 / 60,44,033 0.02


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0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

2002-03 2003-04 2004-05 2005-06

Creditors Turnover Ratio

COMMENTS :

The high creditors turnover ratio indicates that account are to

be settled rapidly, and the low ratio reflects liberal credit terms

granted by suppliers. The credit turnover ratio is an important

tool of analysis a firm can reduce its requirement of current

assets by relying on suppliers credit.

The company has a low ratio which indicates the liberal creditterms of the company are granted by the supplier. Only in the

year 2004 the ratio was high which indicate that the account of

the Asia Automotive is settled rapidly.


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PROFITABILITY RATIO :

A) NET PROFIT RATIO :

This ratio indicates the earning left for shareholder as a percentage of

sale of net sale. It measures the overall efficiency of production,

administration, selling, financing pricing, and tax management. Jointly

considered, the gross and bet profit margin ratios provide a valuable

understanding of the cost and profit structure of the firm and enable the

analyst to identify the sources of business efficiency. Net profit ratio is

computed by dividing net profit ratio by sales.

Net profit

Net Profit Ratio =

Sales

Year Net profit / Sales Net Profit Ratio

2002-03 4,84,624 / 141,47,123 3.4 %

2003-04 5,28,926 / 180,68,771 2.9 %

2004-05 8,85,466 / 221,50,623 3.9 %

2005-06 8,01,956 / 219,59,644 3.6%


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0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

2002-03 2003-04 2004-05 2005-06

Net Profit Ratio

COMMENTS :

The net profit ratio is a measures of overall profitability and is very

useful to the proprietor and investors in judging the prospects of return on

their investments.

The above graph indicate that the net profit ratio of the company is high

this is the good sign which mean that the company has high return ontheir investments and the company is in good position.


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B) Gross Profit Ratio :

Gross profit ratio is defined as the difference between net sales and cost of

good sold. This ratio shows the margin left after the meeting

manufacturing costs. It measures the efficiency of production as well as

pricing. To analyze the factors underlying the variation in gross profit

margin the proportion of various element of cost to sales is studied. The

gross profit ratio is computed by dividing gross profit by sales

Gross profit

Gross Profit Ratio =

Sales

Year

Gross Profit / Sales

Ratio

2002-03

9235826 / 14147123 65 %

2003-04

11082409 / 18068771

61 %

2004-05

13270449 / 22150623

60 %

2005-06

12941439 / 21959644 59 %


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56%

57%

58%

59%

60%

61%

62%

63%

64%

65%

2002-03 2003-04 2004-05 2005-06

Gross Profit Ratio

COMMENTS :

Higher ratio indicates higher profitability and lower ratio indicates

lower profitability and unfavorable mark up policy.

The above graph indicate that the gross profit ratio of the firm goes on

decreasing . The low ratio is not the good indication. The firm mustgive attention to increase its gross profit and its profitability.

CHANGES IN WORKING CAPITAL


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FOR YEAR 2003-2004

Particulars Year

2003

Year

2004

Increase in

working capital

Decrease in

working capital

Current AssetsA. Inventory :

Raw material

Work-in-progressStores & Spares

Finished goods

Sundry Debtors :

Outstanding for a 6

Months

Other Debts

Cash and Bank bal.

Cash on handBalance with schedule

Bank .

B. Loans and Advances :

Sundry Deposits

Balance with Excise

authorities .

Current Liabilities :

Sundry Creditors

Other liabilities

Total

1,85,328

1,03,994

1,50,047

2,15,845

93,089

31,66,633

26,16310,25,909

3,15,299

35,569

48,12,592

21,30,153

---

4,52,116

6,23,463

1,50,075

4,47,966

1,48,857

41,88,234

28,59312,15,836

3,56,725

12,245

65,55,104

22,39,704

---

2,66,788

51,94,469

28

2,32,121

55,768

10,21,601

2,4301,89,927

41,426

22,73,790

23,324

17,42,512

1,09,551

18,75,387

Net increases in working capital = 22,73,790 18,75,387 = 3,98,403



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FOR YEAR 2004-2005

Particulars Year

2004

Year

2005

Increase in

Working

capital

Decrease in

Working

capital

Current Assets

A. Inventory :

Raw material


Finished goods

Sundry Debtors :Outstanding for a 6

Months

Other Debts

Cash and Bank bal.

Cash on handBalance with

Schedule Bank

B. Loans and AdvancesSundry Deposits

Balance with Excise

authorities .


Sundry Creditors

Other liabilities

4,52,1166,23,463

1,50,075

4,47,966

1,48,857

41,88,234

28,593

12,15,836

3,56,72512,245

65,55,104

22,39,704

4,12,8491,05,298

1,82,122

7,35,523

-

50,78,101

20,916

9,82,137

3,87,7881,67,641

63,27,517

18,88,728

32,047

2,87,557

8,89,867

31,0631,55, 396

2,27,587

3,50,976

39,2675,18,165

1,48,857

7,677

2,33,699

Total --- --- 19,74,493 9,47,665

NET INCREASE IN WORKING CAPITAL = 19,74,493 - 9,47,665 = 10,26,828



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FOR YEAR 2004-2005

Particulars Year

2004

Year

2005

Increase in

Working

capital

Decrease in

Working

capital

Current Assets

A. Inventory :

Raw material


Finished goods

Sundry Debtors :Outstanding for a 6

Months

Other Debts

Cash and Bank bal.

Cash on handBalance with

Schedule Bank

B. Loans and AdvancesSundry Deposits

Balance with Excise

authorities .


Sundry Creditors

Other liabilities

4,52,1166,23,463

1,50,075

4,47,966

1,48,857

41,88,234

28,593

12,15,836

3,56,72512,245

65,55,104

22,39,704

4,12,8491,05,298

1,82,122

7,35,523

-

50,78,101

20,916

9,82,137

3,87,7881,67,641

63,27,517

18,88,728

32,047

2,87,557

8,89,867

31,0631,55, 396

2,27,587

3,50,976

39,2675,18,165

1,48,857

7,677

2,33,699

Total --- --- 19,74,493 9,47,665

NET INCREASE IN WORKING CAPITAL = 19,74,493 - 9,47,665 = 10,26,828


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FOR YEAR 2005-2006

Particulars Year

2005

Year

2006

Increase in

Working

capital

Decrease in

Working

capitalCurrent

Assets

A. Inventory :Raw material

Work-in-progress

Stores & SparesFinished goods

Sundry Debtors :Outstanding for a 6Months

Other Debts

Cash and Bank bal.

Cash on hand

Balance withSchedule Bank

B. Loans and Advances

Sundry DepositsBalance with Excise

authorities .


Sundry Creditors

Other liabilities

4,12,849

1,05,298

1,82,1227,35,523

-

50,78,101

20,916

9,82,137

3,87,788

1,67,641

63,27,517

18,88,728

1,66,628

1,89,109

1,08,7732,71,525

1,64,210

59,00,021

34,061

7,81,033

8,00,644

14,108

57,60,549

18,75,892

83,811

1,64,210

8,21,920

13,145

4,12,856

5,66,968

12,836

2,46,221

73,3494,63,998

2,01,104

1,53,533

Total --- --- 20,75,746 11,38,205

NET CHANGING IN WORKING CAPITAL = 20,75,746 11,38,205 = 9,37,541


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0

200000

400000

600000

800000

1000000

1200000

2003-04 2004-05 2005-06

Changes In Working Capital

COMMENT :

From the above graph it can be seen that the working capital is

Decreased in the year 2006 as compared to the previous

year. This indicate that the company has not a sufficient

capital. There fore the company have to increase it working

capital in the next year.


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RECOMMENDATION & SUGGESTION

Following are the recommendation and suggestions

The ratio like current ratio working capital turnover ratio should be

improved through the efficient working and effective policies so as to

facilitate the lower investment in working capital.

Creditors should be paid in proper time period and debtors collection

period should be reduced.

The proper follow up procedure for making the collection from

debtors should under take by the company.


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project on wcap

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