a study on the topic "working capital management" for delphi connection system india pvt...

A Report of

A Study on

WORKING CAPITAL MANAGEMENT

for

DELPHI CONNECTIONS SYSTEMS INDIA PVT. LTD

Submitted to the

Department of Management Studies

In partial fulfilment of the

Post Graduate Diploma in Management

Under the Guidance of

ASST PROF. PRAVEEN MADHAVAN

SCMS COCHIN SCHOOL OF BUSINESS

by

SUMIT KR SINGH

BATCH 24 FK-2777


SCMS CAMPUS, PRATHAP NAGAR, MUTTOM, ALUVA, COCHIN-106.

September 2016

i

DECLARATION

I, the undersigned, hereby declare that this project report entitled “A

STUDY ON WORKING CAPITAL MANAGEMENT at

DELPHI CONNECTION SYSTEMS INDIA PVT. LTD,

KOCHI” has been written and submitted under the guidance of

ASST PROF. PRAVEEN MADHAVAN and is my original work.

I understand that detection of any copying is liable to be punished

in any way the school deems fit.

DATE: SUMIT KR SINGH

ii

###COMPANY CERTIFICATE##

iii



CERTIFICATE

This is to certify that the project work entitled ' A STUDY ON

WORKING CAPITAL MANAGEMENT AT DELPHI

CONNECTIONS SYSTEMS INDIA PVT. LTD, KOCHI' has been

carried out under my guidance by SUMIT KR SINGH Roll No: FK-

2777 in partial fulfilment of his Post Graduate Diploma in

Management during the academic year 2015 - 2017.

Date: ASST PROF. PRAVEEN MADHAVAN

Faculty Guide

iv



This is to certify that the project work entitled ' A STUDY ON

WORKING CAPITAL MANAGEMENT AT DELPHI

CONNECTIONS SYSTEMS INDIA PVT. LTD, KOCHI' has been

carried out by SUMIT KR SINGH in partial fulfilment of his Post

Graduate Diploma in Management.

DATE: DR. FILOMINA P. GEORGE

DIRECTOR

v

ACKNOWLEDGEMENT

The Internship opportunity I had with Delphi connection systems was a great chance for

learning and professional development The satisfaction and joy that accompanies the

successful completion of a task is incomplete without mentioning the name of the person

who extended their help and support in making it a success

I wish to express my sincere gratitude to Dr. Filomina P. George (Director) and the

management of SCMS PGDM, Cochin for providing me a wonderful opportunity to gain

practical knowledge by including this project as a part of PGDM curriculum.. It was not

only learning but also an enriching experience. Special thanks to Prof. K.J. Paulose of

SCMS-COCHIN for his continuous guidance and unconditional support throughout the

project tenure.

I am greatly indebted to my Faculty Guide Asst Prof. Praveen Madhavan of SCMS

Cochin School of Business, for devoting his valuable time and efforts towards my project.

I thank him for being a constant source of Knowledge, inspiration and help during this

period of making project

I would like to thank Prof. V. Rajagopal of SCMS Cochin School of Business, for

supporting and providing opportunity to carry out internship in Delphi Connections

Systems. I also extend my gratitude to all the faculty members of SCMS Cochin School of

Business for their encouragement and support.

My deep thanks goes to my company guide Ms. Prameela Narayanan (Senior finance

manager) for taking part in useful decision & giving necessary advices.

I also want to thank our colleagues and friends for providing constant encouragement and

help. Finally, I am grateful to my family for their moral support and understanding.

SUMIT KR SINGH

vi

Table of Contents

List of tables……………….………………………………….………..………………..….……VIII

List of figures………………………………………………….………...…………….………...... IX

Executive summary………… ……………………..…………………………………….…….X

CHAPTER I INTRODUCTION AND THEORITICAL BACKGROUND ............... 1

1.1 INTRODUCTION AND MEANING OF WORKING CAPITAL: ................................... 2

1.2 WORKING CAPITAL MANAGEMENT ...................................................................... 6

1.3 OPERATING CYCLE OF WORKING CAPITAL ......................................................... 8

1.5 SOURCES OF WORKING CAPITAL .......................................................................... 8

1.6 COMPONENTS OF WORKING CAPITAL ................................................................ 10

1.7 REVIEW OF LITRATURE ................................................................................................. 12

CHAPTER –II RESEARCH METHODOLOGY ....................................................... 14

2.1 TITLE OF THE PROJECT ......................................................................................... 15

2.2 OBJECTIVES ............................................................................................................ 15

2.3 SCOPE OF THE STUDY ........................................................................................... 15

2.4 MANAGERIAL USEFULNESS OF THE STUDY........................................................ 15

2.5 RESERCH DESIGN .................................................................................................. 16

CHAPTER-III COMPANY PROFILE ....................................................................... 18

3.1 PROFILE OF THE INDUSTRY ................................................................................. 19

3.2 GLOBAL SCENARIO ............................................................................................... 20

3.3 STATE SCENARIO ................................................................................................... 20

3.4 PRODUCT DETAILS ................................................................................................ 21

3.4 COMPANY STRUCTURE ......................................................................................... 22

3.6 SWOT ANALYSIS: ................................................................................................... 23

CHAPTER IV DATA ANALYSIS & INTERPRETATION ...................................... 25

4.1 WORKING CAPITAL ANALYSIS ........................................................................... 26

4.2 COMPARATIVE ANALYSIS OF NET WORKING CAPITAL AND PROFITABILITY

OF THE COMPANY .......................................................................................................... 30

4.3 ANALYSIS OF THE STATEMENT OF CHANGES IN WORKING CAPITAL .......... 33

4.4 RATIO ANALYSIS .................................................................................................. 39

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4.4.1 CURRENT RATIO ANANYSIS ............................................................................... 41

4.4.2 ACID TEST RATIO /QUICK RATIO/LIQUIDITY RATIO ANALYSIS ....................... 42

4.4.3 ABSOLUTE LIQUID RATIO ANALYSIS ................................................................ 43

4.4.4 STOCK TURNOVER RATIO (STOCK VELOCITY) ANALYSIS ......................... 45

4.4.5 INVENTORY HOLDING PERIOD ANALYSIS ....................................................... 46

4.4.6 INVENTORY TO NET WORKING CAPITAL TURNOVER RATIO ANALYSIS ..... 47

4.4.7 RECEIVABLE TURNOVER RATIO (DEBTOR’S VELOCITY) ANALYSIS ............ 49

4.4.8 DEBTOR’S COLLECTION PERIOD ANALYSIS .................................................... 50

4.4.9 CREDITOR’S TURNOVER RATIO ........................................................................ 51

4.4.10 ACCOUNT PAYABLES PERIOD ANALYSIS ......................................................... 53

4.4.11. WORKING CAPITAL TURNOVER RATIO ANALYSIS ........................................ 54

4.4.12 NET WORKING CAPITAL RATIO ANALYSIS ..................................................... 56

4.4.13 FIXED ASSETS TURNOVER RATIO ANALYSIS ................................................. 57

4.4.14 CURRENT ASSETS TURNOVER RATIO ANALYSIS ........................................... 58

4.4.15 WORKING CAPITAL CYCLE / CASH CONVERSION CYCLE ANALYSIS. ......... 59

4.4.16 GROSS PROFIT AND NET PROFIT RATIO ANALYSIS ........................................ 61

4.4.17 OPERATING RATIO ANALYSIS ........................................................................... 63

4.5 COMPARATIVE ANALYSIS OF LIQUIDITY AND PROFITABILITY RATIOS ..... 64

4.6 COMPARATIVE ANALYSIS OF PROFITABILITY AND TURNOVER RATIOS. ... 67

4.7 ANALYSIS OF EFFECT OF CHANGE IN WORKING CAPITAL RATIOS ON

PROFITABILTY RATIO .................................................................................................... 70

4.8 ANALYSIS OF CASH CONVERSION CYCLE / WORKING CAPITAL CYCLE OR

OPERATING CYCLE EFFETS ON PROFITABILITY RATIO............................................. 73

CHAPTER V FINDINGS & CONCLUSIONS .......................................................... 78

5.1 FINDINGS ................................................................................................................ 79

5.2 CONCLUSIONS ........................................................................................................ 80

CHAPTER VI SUGGESTIONS & RECOMMENDATIONS ................................... 84

6.1 SUGGESTIONS AND RECOMMENDATIONS .......................................................... 85

Bibliography ....................................................................................................................... 86

APPENDIX ........................................................................................................................ 88

viii

List of Tables

Table 3.3.1 CompanyProfile……………………………………………………………..20

Table 4.1.1 Net Working Capital ..................................................................................... 26

Table 4.1.2 Trend of Gross and Net working capital ........................................................ 28

Table 4.2.1 Working Capital and Profitability Analysis Trends ...................................... 31

Table 4.3.1 Change in working capital for the year 2012-13 .......................................... 34

Table 4.3.2 Changes in working capital for the year 2013-14 .......................................... 35

Table 4.3.3 Changes in working capital for the year 2014-15 ......................................... 36

Table 4.3.4 Changes in working capital for the year 2015-16 ......................................... 38

Table 4.4.1 Current Ratio analysis ................................................................................... 41

Table 4.4.2 Acid Test Ratio / Quick Ratio / Liquidity Ratio analysis ............................. 42

Table 4.4.3 Absolute liquidity Ratio analysis .................................................................. 44

Table 4.4.4 Inventory Turnover Ratio ............................................................................. 45

Table 4.4.5 Inventory Holding Period ............................................................................. 46

Table 4.4.6 Inventory to Working capital ratio ................................................................ 47

Table 4.4.7 Account Receivables Turnover Ratios ......................................................... 49

Table 4.4.8 Receivables Collection Period ...................................................................... 50

Table 4.4.9 Creditors/Account Payables Turnover Ratios............................................... 52

Table 4.4.10 Payables Payments Period (Days) ............................................................... 53

Table 4.4.11 Working Capital Turnover Ratio ................................................................. 55

Table 4.4.12 Net Working Capital Ratio .......................................................................... 56

Table 4.4.13 Fixed Assets Turnover Ratio ....................................................................... 57

Table 4.4.14 Current Assets Turnover Ratio .................................................................... 58

Table 4.4.15 Calculation of Net Working Capital Operating Cycle ................................. 60

Table 4.4.16 Gross Profit Ratio ....................................................................................... 61

Table 4.4.17 Operating Ratio ........................................................................................... 63

Table 4.5.1 Comparative Analysis of Liquidity and the Profitability Ratios ................. 64

Table 4.6.1 Comparative Analysis of Turnover Ratios And Profitability Ratio ............. 67

Table 4.7.1 Comparative Analysis of Working Capital Ratios and Profitability ............ 70

Table 4.8.1 Comparative Analysis of Cash Conversion Cycle and Net Profit Ratio ...... 74

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List of Figures

Figure: 4.1.1 Gross Working Capital and Net working Capital ....................................... 27

Figure 4.1.2 Trend of Inventory, Trade Receivables, cash and Trade payables ............. 29

Figure.4.2.1 (Net Working Capital, Gross Working Capital and Profit) .......................... 31

Figure: 4.2.2 Trend of % Change in Net Profit due to % Change in Net Working Capital

........................................................................................................................................... 32

Figure 4.4.1 Current Ratio ................................................................................................ 41

Figure 4.4.2 Quick Ratio ................................................................................................... 43

Figure 4.4.3 Absolute Liquidity Ratio .............................................................................. 44

Figure 4.4.4 Inventory Turnover Ratio (times) ................................................................. 45

Figure 4.4.5 Inventory Holding Period (Days) ................................................................. 47

Figure 4.4.6 Inventory to working capital turnover ratio (Times) .................................... 48

Figure 4.4.7 Account Receivables Turnover Ratios (Times) ........................................... 49

Figure 4.4.8 Average Collection Period (days) ................................................................ 51

Figure 4.4.9 Account Payables Ratio (times) ................................................................... 52

Figure 4.4.10 Payables Payment Period (Days)................................................................ 54

Figure 4.4.11 Working Capital Turnover Ratio (WCTR) (Times) ................................... 55

Figure 4.4.12 Net Working Capital Ratio ......................................................................... 56

Figure 4.4.14 Current Assets Turnover Ratio (Times) ..................................................... 59

Figure 4.4.15 Net Operating cycle .................................................................................... 60

Figure 4.4.16 Gross profit and Net Profit Ratio................................................................ 62

Figure 4.4.17 Operating Ratio .......................................................................................... 63

Figure 4.5.1 Comparative Trend Analysis of Profitability and Liquidity Ratio ............. 65

Figure 4.6.1 Comparative Analysis of Profitability Ratio and Turnover Ratios ............ 68

Figure 4.7.1 Comparative Analysis of Working Capital Ratios and Profitability .......... 71

x

Executive Summary

The working capital management refers to the management of working capital, or precisely

to the management of current assets. This project tried to evaluate how the management of

working capital is done in Delphi connection system India Pvt ltd. The main objectives of

this project was to understand the impact of working capital management on the profitability

of the firm.

This study includes descriptive research study and analytical research study to identify the

problem to explain and validate findings. In this research, the approach was made to gather

relevant data from, annual reports, facts or information for five years to make a critical

analysis and find out the required results and information. Data analysis was done by using,

inventory ratios, working capital ratios, trends, and comparative analysis of data.

The major findings are: Increase in the percentage of working capital from the base year

2011-12 to 2015-16 from 100 % to 484 %.Current ratio shows the increasing trend

throughout the five years. In the year 2011-12 the ratio was 1.28 which was less than ideal,

but in the year 2015-16 it achieved more than ideal ratio such as 2.42 times. Inventory

turnover ratio reached highest in the year 2012-13, 11 times after which it is showed a

continuous decreasing trend and it reached 7.53 times in the year 2016. Creditor’s turnover

ratio showed the lowest in the year 2011-12 is 0.55 times and reached at highest in the year

2012-13 is 3.79 times. Operating Ratio of the Company is showed a decreasing trend from

the year 2013 to 2016 as it has reached from highest 103.85% to 86.53%

Recommendations and suggestions are:

Working capital of the company was increasing every year and profit was also

increasing every year simultaneously this is good sign for the company and they

should maintain it further.

There should be an improvement in its inventory turnover ratio to 9 times for more

frequency for their liquidity position that will further reduce its burden on cash

conversion cycle.

Company should maintain a negative or at least a minimum 5 days of cash cycle

through sound credit policy and vendor selection that can improve its profitability.

1

CHAPTER I

INTRODUCTION AND THEORITICAL BACKGROUND

2

1.1 INTRODUCTION AND MEANING OF WORKING CAPITAL:

1.1.1 Background of the Study

Funds in a business unit either a retail shop or a large manufacturing unit is very important.

Money is the only common factor in all units. Thus money management is important that

is commonly known as financial management. Proper management of invested funds in a

business results in effective financial management. Each and every business unit needs

funds mainly for two purposes (I) for establishment and (II) to carry out its day to day

operations. Long term funds are required to facilitate production through purchase of fixed

assets such as plant and machinery, land and building, furniture etc. and also for

diversification and expansion of business, renovation or modernization of plant and

machinery and research and development. The part of firm’s capital which is blocked on a

permanent or fixed basis and is called fixed capital. Funds are also needed for short term

purposes for the purchase of raw materials, payment of wages and for meeting routine

expenses. All the goods which are manufactured in a given time period may not be sold in

that period. Hence, some goods remain in stock, e.g. raw material, semi-finished goods and

finished marketable goods. These funds are known as working capital. In simple words

working capital refers to that part of the firm’s capital which is required for financing short

term or current assets such as each marketable securities debtors and inventories (Pandey

1983).

1.1.2 Working capital:

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

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

maintain the smooth running of a business (Venkatachalam 1995).

Working capital management concerned with administration of the current assets as well

as current liabilities.

Working capital means the funds (i.e.; capital) available and used for day to day operations

(i.e.; working) of an enterprise. It consists broadly of that portion of assets of a business

which are used in or related to its current operations.

3

In Accounting:

Working Capital = Current Assets – Current Liabilities

Positive working capital means that the company is able to pay off its short-term liabilities

companies that have a lot of working capital will be more successful since they can expand

and improve their operations.

Negative working capital means that a company currently is unable to meet its short-term

liabilities with its current assets. . Companies with negative working capital may lack the

funds necessary for growth.

1.1.3 The need for the working capital The need for working capital arises due to the time gap between production and realization of cash

from sales. Working capital is must for every business for purchasing raw-materials, semi-finished

goods, stores & spares etc. and the following purposes.

To purchase raw materials, spare parts and other component.

A manufacturing firm needs raw-materials and other components parts for the purpose of

converting them in to final products, for this purpose it requires working capital. Trading

concern requires less working capital.

To meet overhead expenses.

Working capital is required to meet recurring overhead expenses such as cost

of fuel, power, office expenses and other manufacturing expenses.

To hold finished and spare parts etc.

Stock represents current asset. A firm that can afford to maintain stock of required finished goods,

work in progress & spares in required quantities can operate successfully. So for that adequate

quantity of working capital is required.

To pay selling & distribution expenses

Working capital is required to pay selling & distribution expenses. It includes cost of packing,

commission etc.

4

1.1.4 Disadvantages of Short and Excessive Working Capital

Irregularity or late payment in short term liabilities results in loss of reputation

and also makes firm unable to get good credit facilities.

Regular supply of material cannot be maintained due to inadequate working

capital. This affects the whole production cycle.

It cannot buy its requirements in bulk and can not avail of discounts.

It cannot undertake profitable projects due to lack of working capital.

It becomes difficult to pay day to day expenses of firm’s operations and it creates

inefficiency, increases cost and reduces the profits of the business.

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

Excessive working capital:

Too much working capital is as dangerous as too little of it. Excessive working capital raises

problems.

1. It results in unnecessary accumulation of inventories. Thus chances of inventory

mishandling, waste, theft and losses increase.

2. Indication of defective credit policy and slack collection period. Consequently, it

results in higher incidence of bad debts, adversely affecting profits,

3. Makes the management complacent which degenerates in to managerial inefficiency.

4. The tendencies of accumulating inventories to make a speculative profit, which tends

to liberalize the dividend policy, make it difficult for the concern to cope in the future

when it is not able to make speculative profits.

1.1.7 Determinants of Working Capital Needs:

There are large number of factors upon which the working capital need of a concern

depends such as size a nature of a firm, operations done by the firm, length of production

cycles, stock turnover rate, change in economic circumstances etc. (Jani 2007).

Nature of Business: The working capital needs are basically influenced by the

Nature of the business. Trading and financial firms require a working capital in

5

large amount as they have to carry large stocks of a variety of merchandise to satisfy

their customer’s varied demand.

Size of Business: Size of the business directly affects the working capital

requirements. Greater the size of a business unit generally large will be the

requirements of working capital.

Manufacturing Cycle: Needs of working capital is in direct proportion to length

of manufacturing cycle i.e. longer the process period of manufacture, large is the

amount of working capital needs.

Production Policy: The needs of working capital depends upon the production

policy followed by the business unit. If a firm follows steady production policy,

even when demand is seasonal by accumulating inventories during stock period

with a view to meet high demand during the peak season it will require higher

working capital.

Seasonal Variations: The certain industries availability of raw material is seasonal

and cannot be obtained throughout the year/ in such a situation it becomes must to

buy raw material in bulk to ensure the constant production during the entire year.

Credit terms: The credit terms followed by the firm in dealing with its creditors

and debtors considerably affects its working capital needs.

Rate of Stock Turnover: Due to high rate of stock turnover sales gets easily

converted into cash and ultimately the length of operating cycle decreases or say

operating cycle moves fast and it results into less requirements of working capital.

Rate of Growth of Business: As a company grows, logically, larger amount of

Working capital will be needed, though it is difficult to state any firm rules

regarding the relationship between growth in the volume of a firms business and its

working capital needs.

Earning Capacity: The earning capacity differs from firm to firm as the quality of

their products is different and the conditions like monopoly also affect it. Firms

with high earning capacity receive cash profit that adds to the working capital

amount.

6

Price Level Changes: Generally rising price level needs a higher investment in

working capital. With rising prices the same level of current assets need enhanced

investment.

Other Factors: Certain other factors such as operating efficiency, management

ability, irregular supply, import policy, assets structure, importance of labour,

banking facilities etc. also affects the working capital needs of a business.

1.2 WORKING CAPITAL MANAGEMENT

Working Capital Management refers to management of current assets and current

Liabilities. The major thrust of course is on the management of current assets .Its

Importance stems from two reasons:-

Investment in current assets represents a substantial portion of total investment.

Investment in current assets and the level of current liabilities have to be geared quickly

to change in sales. (William 1998)

CLASSIFICATION OF WORKING CAPITAL

1.2.1 On The Basis of Concepts

WORKING CAPITAL

On The Basis of Concepts On The Basis of Time

Gross Working

Capital

Net Working

Capital

Permanent / Fixed

Working Capital

Temporary /

Fluctuating

Working Capital

Initial Working

Capital

Regular Working

Capital

Seasonal Working

Capital

Special Working

Capital

7

1.2.1.1Gross Working Capital

Gross working capital is the amount of funds invested in various components of current assets.

Current assets are those assets which are easily / immediately converted into cash within a short

period of time say, an accounting year. Current assets includes Cash in hand and cash at bank,

Inventories, Bills receivables, Sundry debtors, short term loans and advances.

1.2.1.1 Net Working Capital

This is the difference between current assets and current liabilities. Current liabilities are

those that are expected to mature within an accounting year and include creditors, bills

payable and outstanding expenses.

Permanent or fixed working capital is minimum amount which is required to ensure

effective utilization of fixed facilities and for maintaining the circulation of current assets.

At its inception and during the formative period of its operations a company must have

enough cash fund to meet its obligations. The need for initial working capital is for every

company to consolidate its position.

Regular working capital refers to the minimum amount of liquid capital required to keep up the

circulation of the capital from the cash inventories to accounts receivable and from account

receivables to back again cash. It consists of adequate cash balance on hand and at bank, adequate

stock of raw materials and finished goods and amount of receivables.

Temporary / Fluctuating working capital is the working capital needed to meet seasonal as well as

unforeseen requirements. It may be divided into two types.

There are many lines of business where the volume of operations are different and hence

the amount of working capital vary with the seasons. The capital required to meet the

seasonal needs of the enterprise is known as seasonal Working capital.

The Capital required to meet any special operations such as experiments with new products

or new techniques of production and making interior advertising campaign etc. are also

known as special Working Capital.

8

1.3 OPERATING CYCLE OF WORKING CAPITAL

The cash conversion cycle is a cash flow calculation that attempts to measure the time it

takes a company to convert its investment in inventory and other resource inputs into cash.

In other words, the cash conversion cycle calculation measures how long cash is tied up in

inventory before the inventory is sold and cash is collected from customers. The cash cycle

has three distinct parts. (R.R, Cash Planning and Management 2000)

Low conversion cycle better for the company and high is not sufficient for the firm.

Working capital cycle = Inventory holding Period + Average Collection Period –

Payables payment period

Conversion of cash into raw materials through payment to creditors.

Conversion of raw materials into work in progress.

Conversion of work in progress into finished stock.

Conversion of finished stock into accounts receivables (Debtors) through sale and

Conversion of account receivables into cash.

1.5 SOURCES OF WORKING CAPITAL

Sources of fixed working capital should facilitate an uninterrupted use for a sufficiently

long period. The important five sources of fixed working capital are; owner’s capital,

RAW

MATERIALS

WORK-IN-PROGRESS

FINISHED STOCK

DEBTORS

CASH Creditors/Payables

9

borrowed capital, internal sources, public deposits and loans. Let us discuss them in

detail.

The various sources of working capital are as follows

Internal Sources:

Internal sources refer to the surplus earnings in a business by the firm. It is a suitable

source for an established firm for its expansion modernization and replacement etc.

Public Deposits: Now a days the public deposits are replaced by banking facilities.

Public deposits are accepted directly from the public as fixed deposits by a business

enterprise for raising short term and medium term finance.

Loans: The word ‘Loan’ has been popular after the banking facilities came into

existence. Loans are one type of borrowed capital, a fixed rate interest is charged on it

and the amount of the loan is to be paid by way of instalment in a number of years.

Advances: Advances from customers and agents against their order is one of the

cheapest sources of short term finance.

Factoring or Accounts Receivables: When commercial banks offer finance for bills

receivable it becomes a good source of raising short term capital. After discounting the

bill bank pays immediately for sales made on credit.

Instalment Credit: In this method goods or assets are purchased and immediately the

possession is received while the payment is made in the instalment. Amount payable

should be paid within a decided time period and interest is charged on due amount.

Commercial Banks: Commercial banks are most popular source providing Short-term

finance in forms of loans and advances. The different forms of loans and advances.

Loans: A loan is an advance in lump sum against some security. In case of a loan, the

specified amount is given to the customer on whom he is required to pay interest from

the date of the sanction.

Cash Credit: A bank allows his customer to borrow money up to a certain limit

against some tangible securities is known as cash credit.

Purchasing and Discounting of Bills: The seller receives a bill of exchange accepted

on the goods sold from the buyer immediately. The bank purchases the bills payable

on demand and credits the customer’s amount with the amount of bill less discount.

Commercial Papers

10

Commercial Paper (CP) is a short term unsecured negotiable instrument, consisting of

issuance promissory notes with a fixed maturity. It is issued on a discount on a face value

basis but it can also be issued in interest bearing form.

1.6 COMPONENTS OF WORKING CAPITAL

The components of working capital are:

CASH MANAGEMENT

RECEIVABLES MANAGEMENT

INVENTORY MANAGEMENT

PAYABLES MANAGEMENT

1.6.1 CASH MANAGEMENT:

Cash is the important current asset for the operation of the business. Cash is the Basic input

needed to keep the business running in the continuous basis, it is also the ultimate output

expected to be realized by selling or product manufactured by the firm. The firm should

keep sufficient cash neither more nor less. (R.R, Cash Planning and Management 2000)

OBJECTIVES OF CASH MANAGEMENT

Primary object of the cash management is to maintain a proper balance between liquidity

and profitability. In order to protect the solvency of the firm and also to maximize the

profitability. Following are some of the objectives of cash management.

1. To meet day to day cash requirements.

2. To provide for unexpected payments.

3. To maximize profits on available investment opportunities.

4. To protect the solvency of the firm and build up image.

5. To minimize operational cost of cash management.

11

1.6.2 RECEIVABLES MANAGEMENT:

Receivables or debtors are the one of the most important parts of the current Assets which

is created if the company sells the finished goods to the customer but not receive the cash

for the same immediately. Trade credit arises when a company sales its products or services

on credit and does not receive cash immediately. It is an essential marketing tool, acting as

a bridge for the moment of goods through production and distribution stages to customers.

(Venkatachalam 1995)

The receivables include three characteristics

1) It involve element of risk which should be carefully analysis.

2) It is based on economic value. To the buyer, the economic value in goods or services

passes immediately at the time of sale, while seller expects an equivalent value to be

received later on.

3) It implies futurity. The cash payment for goods or serves received by the buyer will be

made by him in a future period.

1.6.3 INVENTORY MANAGEMENT:

Inventories are goods held for eventual sale by a firm. Inventories are thus one of the

major elements, which help the firm in obtaining the desired level of sales.

Inventories includes raw materials, semi-finished goods, and finished products.

Efficient management of inventory should ultimately result in wealth maximization of

owner’s wealth. It implies that while the management should try to pursue financial

objective of turning inventory as quickly as possible, it should at the same time ensure

sufficient inventories to satisfy production and sales demand.

The main objectives of inventory management are operational and financial.

The following are the objectives of inventory management:-

To ensure continuous supply of materials, spares and finished goods.

To avoid both over and under stocking of inventory.

12

To maintain investments in inventories at the optimum level as required by the

operational and sale activities.

To keep material cost under control so that they contribute in reducing cost of

production and overall purchases.

To minimize losses through deterioration, pilferage, wastages and damages.

To design proper organization for inventory control so that management. Clear cut

account ability should be fixed at various levels of the organization.

To ensure perpetual inventory control so that materials shown in stock ledgers should

be actually lying in the stores.

1.6.4 ACCOUNTS PAYABLE MANAGEMENT:

Payables or creditors are one of the important components of working capital. Payables

provide a spontaneous source of financing of working capital. Payable management is very

closely related with the cash management. Effective payable management leads to steady

supply of materials to a firm as well as enhances its reputation.

It is generally considered as a relatively cheap source of finance as suppliers rarely charge

any interest on the amount owed. However, trade creditors will have a cost as a result of

loss of enjoying cash discount on cash purchases.

1.7 REVIEW OF LITRATURE

Siddharth and Das (1994) in his study on “Working capital Turnover in Pharmaceutical

Companies” attempted to ascertain efficient or otherwise use of working capital in selected

automotive firms in India. Having studied the data of 10 years has concluded that the

overall working capital turnover ratio was 9.03 times. The overall analysis of the data

indicated that the selected companies did very well in terms of employment of working

capital.

Rao and Rao (1991) in their study among a few public enterprises belonging to

manufacturing sector in the state of Karnataka, have attempted to probe in to the capacity

of the various techniques I evaluating working capital efficiency of business enterprises.

The study revealed that the investment working capital was considerably high when

13

compared to the total investment. The Tandon Committee norms were found to be yielding

better results among the surveyed companies. However, the study also revealed that the

working capital planning and control was found to be disorderly and ineffective and hence,

the urgent need for full focus on working capital management.

Singh (2004) study on Working capital in Lupin Laboratories Ltd. attempted to assess the

significance of management of working capital through working capital ratio and operating

cycle. Having analysed seven years data (1995 – 2002), he concluded that the liquidity

position of the company was good, mean percentage of current assets was very high when

compared to the percentage of net fixed assets and the operating cycle showed declining

trend. The element wise analysis of working capital also revealed that trade debtors

constituted the highest percentage of current assets followed by loan and advances,

inventories and cash and bank balances.

Parasuraman (2004) study attempts to understand the relationship between credit period

given by companies and their actual performance in terms of sales and profitability. He has

also attempted to find average level of other key financial parameters connected to working

capital management. Having laid the emphasis on Indian Pharmaceutical companies, he

found out that leading companies have employed greater working capital for enhancing

profitability. The study also revealed the day’s sales outstanding had gone up in the sample

companies. Though the rise was marginal, it played an important role in the management

of working capital. The study inferred that the top pharmacy companies strategies on their

working capital policy to relax the credit policy to achieve greater sales and greater profits.

Arindam Ghosh (2007) “Working Capital Management Practice in some selected

industries in India – A case study of impact of working capital ratios on profitability in

Cement Industry”. The study which attempted to examine the efficiency of working capital

management of the Indian cement companies during 92-93 to 2001–02.

14

CHAPTER –II

RESEARCH METHODOLOGY

15

2.1 TITLE OF THE PROJECT

A Study on the “Working Capital Management” in Delphi Connection Systems India

Pvt. Ltd, Kochi.

STATEMENT OF THE PROBLEM

The working capital management refers to the management of working capital, or precisely

to the management of current assets. This project tries to evaluate how the management of

working capital is done in Delphi connection system India pvt ltd. through inventory

ratios, working capital ratios, trends, and comparative analysis that shows how to handle

day to day operation for manufacturing concern. This will evaluate the correct position of

working capital requirement of the company.

2.2 OBJECTIVES

To understand the relationship of working capital management on profitability of

the firm.

To study the different components of working capital and its relationship on the

performance of the firm.

To measure the financial soundness of the company by analysing various ratios.

To suggest ways for better management and control of working capital at the

concern.

2.3 SCOPE OF THE STUDY

This project will be mostly covering the important variables such as receivables, payables,

cash and the inventory policy of the company and it will show the effect of liquidity analysis

on the profitability position of the company and how they maintain it.

2.4 MANAGERIAL USEFULNESS OF THE STUDY

Managing assets and liabilities is one of the most important jobs for business managers and

accountants. Businesses in particular must strike a perfect balance between the two to

successfully continue operations, because they lack the capital to absorb large losses. Proper

16

working capital management proves essential in the avoidance of bankruptcy by helping a

business balance needs with obligations. The aim of good working capital management is to

maintain balance in having sufficient working capital to ensure that the business is liquid to

meet its current requirements. Thus, the importance of managing good working capital

emerges due to the fact a business that manages its working capital effectively can survive

while meeting its day-to-day operations successfully which in turn leads to the long term

success.

2.5 RESERCH DESIGN

Type of research: Descriptive research design

This is a descriptive research study and analytical. This is because the researcher is using the

facts or information already available, and analyze these to make a critical evaluation of the

facts, data or material.

In this research the approach is made to gather relevant data from, Annual Reports, facts or

information which is already available will be used to make a critical analysis and find out

the required results and information.

Sampling Plan:

Five years of required data has been taken as sample for this project as specified by the

company.

Data collection:

There are mainly two sources through which the data required for the research will be

collected.

Primary data

In this study the Primary data is collected from Personal Interaction with Finance manager

and the other staff.

Secondary data:

The major source of data for this project will be collected through annual reports, and other

financial reports.

17

Data Analysis:

By using, inventory ratios, working capital ratios, trends, computation of cash, and short term

financing trends, and comparative analysis of data.

Limitations of the study:

The study duration (summer in plant) is short.

The analysis is limited to just five years of data study (from year 2012 to year 2016) for

financial analysis.

Limited interaction with the concerned heads due to their busy schedule and limitation of

detailed required data.

18

CHAPTER-III

COMPANY PROFILE

19

3.1 PROFILE OF THE INDUSTRY

The Automotive Industry designs, develops, manufactures, markets, and sells motor

vehicles, and is one of the earth's most important economic sectors by revenue. The

automotive sector in India comes under Ministry of Heavy Industries & Public Enterprises

– Government of India. This industry currently accounts for nearly 7.4% (mar 1 2015) of

the GNP and 13% of the indirect tax revenue.

While the genesis of Indian automotive industry can be traced to the 1940s, distinct growth

decades started in the 1970s.Between 1970 and 1984 cars were considered a luxury

product; manufacturing was licensed, expansion was restricted.

The decade of 1985 to 1995 saw the entry of Maruti Udyog in the passenger car segment

and Japanese manufactures in the two wheelers and light commercial vehicle segment.

Economic liberalization started in 1991, led to relicensing of passenger car segment in

1993.

Starting in 2000 several landmark policy changes like removal of quantitative restriction

(QR) and 100 % FDI through automatic route were introduced. Indigenously developed

(Made in India) vehicles were introduced in the domestic market and exports were given a

thrust. Auto companies started collaboration with financial firms to provide auto financing

and insurance services to customers. In 2003, core group on automotive R & D (C.A.R)

was set up to identify priority areas for automotive R & D in India.

20

3.2 GLOBAL SCENARIO

Delphi Automotive PLC (NYSE: DLPH) is a high-technology company that integrates

safer, greener and more connected solutions for the automotive sector. Headquartered in

Gill Ingham, U.K., Delphi operates technical centers, manufacturing sites and customer

support services in 44 countries.

Delphi Connection Systems Ltd comes under automotive industry and they are major

player of connectors in India.The global market for connectors is round US 30-35 Billion

and Delphi’s share is just a small part of this market; signaling enough space for growth.

In 2010 there was an 9.1% increase in sales of connectors. Europe is the largest market for

connectors with US 12.201 Billion sales in 2010. North America is the second largest

connector region with US 9.90 Billion sales in 2010. In 2015 it has Turnover of 15.16

Billion USD.

1, 73,000 Employees Globally

19,000 Scientists and Engineers

Operating in 44 countries, with 14 major technical centres and 126 manufacturing

facilities, Investing $1.6 billion a year in engineering and development and 60 million

parts per day 2ppm at 99.9998% quality

3.3 STATE SCENARIO

Table 3.3.1 Company Profile

Name of the company Delphi Connection Systems India Ltd. has only one branch

in Kerala at: XII/101, XII/102, Thiruvaniyoor – Vettickal

Road, Kochi – 682308, Kerala, India.

Year of establishment Registered at Registrar of Companies ROC-Ernakulum on

07 November, 2000 but operation started in 2012 after

acquiring FCI(MVL)

Active Directors Rajiv Navaloor, Simon Yang Xiaoming, and Har Nishith

Sahai,

21

3.4 PRODUCT DETAILS

1 .Automotive Industry:

These are some major products

Body and security, connection system, Driver Interface, Electricals, fuel cells and

infotainment0

2. Commercial Vehicle Industry

We handle the needs of heavy-and medium-duty trucks as well as school and public

transportation buses with unmatched global capability of Body controls, Cables & wiring,

Connection Systems, Displays, Fuel Cells, Power train Systems and safety.

Type of company Company limited by shares and an Indian Non-Government

or private limited company.

Area of operation It has only one branch in Kerala at: XII/101, XII/102,

Thiruvaniyoor – Vettickal Road, Kochi – 682308, Kerala,

India.

Nature of Business Production and sale of Connectors ,tools ,safety restraints

system , mechatronics packaging ,housings and pin headers

Export places Europe ,North America , Asia pacific ,Africa, India(Chennai

, Haryana, Pune, ,Haridhwar ,Gujarat ,Mumbai, Delhi )

No. of departments 7(SEVEN) Departments

Number of employees Total no of employees 468 among these Non-executive 333

and remaining are executive employees.

Number of working days 300 Days

Production capacity 855, 00,000 units per year production as per the year 2015-

16.

Storage Capacity 32,490 square foot this is warehouse capacity

22

3.4 COMPANY STRUCTURE

Organisation structure

BOARD OF DIRECTORS

MANAGING DIRECTOR

SUPPLY ENGINEERING AUTONOMOUS QUALITY HR SALES FINANCE CHAIN MANUFACTURING PRODUCTIONMANAGER HEAD MANAGER CONTROLLER MANAGERHEAD UNIT MANAGER HR ASSISTANT TRAINER ACCOUNT MANAGERS MAINTAINANCE PRODUCT LINE TOOLING SUPPORTING ENGINEERS ENGINEERS ENGINEERS FUNCTION TECHICIANS SUPERVISORS TOOL MAKER QUALITY ENGG TOOL DESIGNER PROCESS ENGG OPERATORS MANUFACTURING ENGINEER SYSTEMS ENGG SAQ ENGG APQP ENGG LAB ENGG DOCUMENT CONTROLLER (ISO/TS 16949) AUTOMATION ENGG/SUPERVISER COST ACCONTANT CUSTOMER WAREHOUSING & PLANNER PURCHASE COMMERCIAL COST ASSISTANT SERVICE DISPATCH ENGINEERS MANAGER EXICUTIVE SUPERVISER OFFICE JUNIOR EXICUTIVE ASSISTANT 2 OFFICE ASSISTANT

23

Foreign currency translation of Delphi connections systems India pvt ltd.

Initial Recognition : Foreign Currency tractions are recorded in the reporting currency ,by

accepting to any foreign currency amount the exchange rate between the reporting currency

and the foreign currency at the date of the transaction

Conversion : Foreign currency monetary items are retranslated using the exchange rate

prevaling at the reporting rate.Non monetary items ,which are measured at fair value or

other similar valuation denominated in a foreign currency ,are translated using the

exchange rate at the date when such value was determined.

3.5 MILESTONES

1. Winner for the outstanding safety performance award by National Safety Council

for “2015”

2. Won consolidated price in “Productivity Contest” organized by Indian Institution

of industrial engineering Kerala Chapter.

3. Received occupational Excellence Achievement award for National Safety Council

US for “2013”

4. Zero Accident since inception

5. Longest period without any lost time injury : 3514 days as on 30th Aug 2016

3.6 SWOT ANALYSIS:

SWOT analysis is a well-defined study about the strength, weakness, opportunities and

threats of the organization. SWOT analysis is very much helpful in analyzing the strength,

weakness, opportunities and threats of the organizations. SWOT analysis is a tool for

auditing an organization and its environment. It is the first stage of planning and helps

marketers to focus on key issues.

24

STRENGHTS:

1) Full edge globel operation

2) Technical manpower: professionally-trained human recourse pool.

3) Quality products

4) Presence of highly qualified executives

WEAKNESS:

Low investment in R&D

Lack of experience in system integration

OPPORTUNITIES:

Growing market

Technological advances

Global market oppertunity provided byconnector industry

THREATS:

Increasing competition

Cost of technology investment

Entry of foreign players into indian market

Pirated product produced by small companies

25

CHAPTER IV

DATA ANALYSIS & INTERPRETATION

26

4.1 WORKING CAPITAL ANALYSIS

Working Capital Analysis is done to understand the relationship of change in Working

capital during this five years of time period and what are the other components of Working

capital is changed and what are the possible reasons.

Table: 4.1.1 Net Working Capital

Net working capital (Amount is in Indian rupees)

Current assets

March 31,

2012

March31

,2013

March 31,

2014

March 31,

2015

March 31,

2016

Current

investments 46,652,668 0 0 0 0

Inventories 140,134,844 218,589,094 243,775,963 273,012,011 375,227,529

Trade receivables 368,818,005 383,545,957 451,292,042 469,095,621 496,757,812

Cash and bank

balances 42,151,142 18,858,045 114,214,196 164,644,042 296,533,951

Short term loans

and advances 89,636,055 77,490,713 225,121,183 170,978,660 132,227,573

Other current assets 36,992,000 14,589 5,791 0 0

GROSS

WORKING

CAPITAL 724,384,714 698,498,398 1,034,409,175 1,077,730,334 1,300,746,865

LESS:-Current

Liabilities

Short term

borrowings 32,855,749 147,936,707 0 0 0

Trade payables 290,277,231 278,067,701 407,231,190 294,461,919 373,783,269

Other current

liabilities 222,884,497 98,609,407 189,395,757 254,630,872 205,220,736

Short term

provisions 20,837,523 12,500,209 46,833,926 32,870,041 (41,118,092)

566,855,000 537,114,024 643,460,873 581,962,832 537,885,913

NET

WORKING

CAPITAL 157,529,714 161,384,374 390,948,302 495,767,502 762,860,952

27

Figure: 4.1.1 Gross Working Capital and Net working Capital

March31, 2012

March31, 2013

March31, 2014

March31, 2015

March31, 2016

GROSS WORKING CAPITAL(Totalcurrent assects)

724,384,714 698,498,398 1,034,409,175 1,077,730,33 1,300,746,86

NET WORKING CAPITAL 157,529,714 161,384,374 390,948,302 495,767,502 762,860,952

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

AM

OU

NT

IN R

UP

EES

YEARS

GROSS WORKING CAPITAL(Total current assects)

NET WORKING CAPITAL

Linear (NET WORKING CAPITAL)

28

Table: 4.1.2 Trend of Gross and Net working capital

Trend of Gross and Net working capital (Amount is in Indian rupees)

Mar,31 2012

Mar,31

2013

Mar,31

2014

Mar,31

2015 Mar,31 2016

Current assets

Current

investments 100% 0% 0% 0% 0%

Inventories 100% 156% 174% 195% 268%

Trade

receivables 100% 104% 122% 127% 135%

Cash and bank

balances 100% 45% 271% 391% 704%

Short term loans

and advances 100% 86% 251% 191% 148%

Other current

assets 100% 0% 0% 0% 0%

GROSS

WORKING

CAPITAL 100% 96% 143% 149% 180%

LESS:-Current

Liabilities

Short term

borrowings 100% 450% 0% 0% 0%

Trade payables 100% 96% 140% 101% 129%

Other current

liabilities 100% 44% 85% 114% 92%

Short term

provisions 100% 60% 225% 158% -197%

100% 95% 114% 103% 95%

NET

WORKING

CAPITAL 100% 102% 248% 315% 484%

(NOTE: - Here, Base Year is 2012 and all the percentage change is compared to the base

year only that shows the trends during the year compare to base year)

29

Figure 4.1.2 Trend of Inventory, Trade Receivables, cash and Trade payables

INTERPRETATION:

Here it can be seen from the table4.1.1 and Figure 4.1.1 that there is a positive increase in the Net

working Capital of the company throughout the year, from the year 2012 to 2014 it changed from

Rs 157,529,714 to Rs 390,948,302 and from the Year 2014 to Year 2016 it reached to Rs

762,860,952. It shows that the company is having sustainable amount of increase in working capital

from the year 2012 to 2016 which shows sustainable fund is available with the company to pay off

its current liability and finance its day to day operation of the company that can be seen from the

increasing trend line in the Figure4.1.3 is the percentage increase from year 2012 to 2014 is 100%

to 248% and from 2014 to 2016 it reached to 484 %.

100% 156%174%

195%

268%

100% 104%122% 127% 135%100%

45%

271%

391%

704%

100% 96%

140%

101%129%

0%

100%

200%

300%

400%

500%

600%

700%

800%

3/31/2012(%change) 3/31/2013(% change) 3/31/2014(%change) 3/31/2015(%change) 3/31/2016(% change)

As at As at As at As at As at

PER

CEN

TAG

E

YEARS

Inventories Trade receivables Cash and bank balances Trade payables

30

The reasons for such dramatic increase in the net working capital is due to various aspect of the

working capital such as (Figure4.1.3)

Increase in the inventory trend from 2012 to 2014 is 100% to 174% and from 2014 to 2016 it

reached to 268% and this increasing trend shows that the increase in sales and business operation

for that the high amount of inventory cost is required to support day to day operation and at the

same time that inventory cost is financed through revenues this shows the conversion of inventory

to cash through sales revenue is quite good at the same time.

Increase in the Trade receivables is not as much as big like inventory, it increased from the year

2012 to 2014 is 100% to 122% and from 2014 to 2016 it reached to 135 % which shows the

company credit policy is comparatively good respect to revenue and collection of receivables is

improving that can be understood through increasing cash trend that shows the higher trend of

cash which is from the year 2012 to 2014 is 100% base to 271% and from 2014 to 2016 it reached

very high at 704%.And at the same time payable is also comparatively increased from the year

2012 to 2014 is 100% base to 140% and from the year 2014 to 2016 it reached at 129% that is

effectively paid by sufficient level of cash availability and comparatively improvement in

receivables collection amount compared to sales revenue that shows the good credit policy of the

company due to that company maintains a sufficient level of working capital fund.

With the proper timely measures company’s Net working capital position has become more

effective and sustainable to support day to day operation of the company and maintain a good liquid

position to finance its operations.

4.2 COMPARATIVE ANALYSIS OF NET WORKING CAPITAL

AND PROFITABILITY OF THE COMPANY

Note: - This Analysis will show the effect of the change in profit due to change in the Net

Working Capital of the company and at the same time due to other aspects also.

31

Table 4.2.1 Working Capital and Profitability Analysis Trends

Working Capital And Profitability Analysis Trends(Amounts Are In Indian Rupees)

March 31, 2012 March 31, 2013 March 31, 2014 March 31, 2015 March 31, 2016

GROSS

WORKING

CAPITAL 724,384,714 698,498,398 1,034,409,175 1,077,730,334 1,300,746,865 NET WORKING

CAPITAL(NWC) 157,529,714 161,384,374 390,948,302 495,767,502 762,860,952

% change

(NWC) 100% 102% 248% 315% 484%

Profit/(Loss)

for the year 6,444,294 (67,649,638) 91,396,834 59,980,952 351,056,257

% change in

Profit 100% -1050% 1418% 931% 5448%

Figure.4.2.1 (Net Working Capital, Gross Working Capital and Profit)

(This Figure shows the yearly amount of gross, net working capital and profitability for

the year Mar 31, 2012 to Mar 31, 2016)

(200,000,000)

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

YEARS


GROSS WORKING CAPITAL 724,384,714 698,498,398 1,034,409,175 1,077,730,334 1,300,746,865

NET WORKING CAPITAL(NWC) 157,529,714 161,384,374 390,948,302 495,767,502 762,860,952

Profit/(Loss) for the year 6,444,294 (67,649,638) 91,396,834 59,980,952 351,056,257

32

Figure: 4.2.2 Trend of % Change in Net Profit due to % Change in Net Working

Capital (Base Year Is 2012)

(This Figure shows that the trend of % change in Net working capital and profit from the base year

Mar 31, 2012 to the year Mar 31, 2016 and all the percentage change compared to the base year

only)

INTERPRETATION

If company maintain a sufficient revenue that improves the profitability then they can

maintain a good working capital without sacrificing their capital for liquidity need for the

company and at the same time profit also contributes to increasing and the management of

working capital for the smooth operations.

Here, it can be seen that the negative increase in the profitability of the company from the

year 2012 to 2013 that is Rs 6,444,294 to Rs (67,649,638) this is mainly because of lack of

sustainable liquid fund or working capital management that can be seen from the

Figure.4.2.2, only 2% increase in net working capital and at the same time company

expenses with respect to revenue is very high that makes the huge amount of loss or around

(1050)% of loss respect to last year (that revenue and expenses details can be extracted

from the profit and loss statements )and during such time company cash position is

comparatively very low that is 45% respect to last year.

From the year 2013 to 2016 there is a huge increase in the trend of Net working capital

which shows that company is having sufficient amount of liquid position to support its day

100% 102% 248% 315% 484%100%

-1050%

1418%

11%

5448%

-2000%

-1000%

0%

1000%

2000%

3000%

4000%

5000%

6000%

PER

CEN

TAG

E

YEARS


% change (NWC) 100% 102% 248% 315% 484%

% change in Profit 100% -1050% 1418% 11% 5448%

% change (NWC) % change in Profit Linear (% change in Profit)

33

to day operation due to that company achieved high level of sales demand and made more

revenue and at the same time company’s expenses comparison to last year is going down

and it can be seen that the huge amount of increase in inventory , cash , and receivables

that contributes to the increase in working capital of the company which directly

contributes to profit which is achieved through the smooth operating cycle.

From the table 4.2.1 it can be seen that from the year 2013 to 2016 there is an increase in

Net working capital that is from Rs 161,384,374 to Rs 762,860,952 and at the same time

the increase in the profitability is from Rs (67,649,638) to Rs 351,056,257.

In terms of percentage through trends it can be seen that increase in the Net Working capital

is from year 2013 to 2016 the percentage increase is 104% to 484% throughout the year

and that shows the linear increase in the profitability trend from year2013 to 2016 it reached

from (-1050) % to positive 5448% that shows the increasing trend relationship of both Net

working capital and profitability of the company.

Here increase in profit happens due to other factors also such as reduction in expenses,

increase in revenues and decrease in other working capital cost and other cost, but sufficient

amount of Working capital played a big role for the company to increasing in their profit

and at the same time that profit contributes to maintain a sufficient amount of working

capital for the successive years.

4.3 ANALYSIS OF THE STATEMENT OF CHANGES IN WORKING

CAPITAL

The purpose of preparing this statement is for finding out the increase or decrease in

working capital and to make a comparison between two financial years and finding the

reasons of such changes(Here all the changes in percentage is compared with the last year)

34

Table: 4.3.1 Change in working capital for the year 2012-2013

Change in working capital for the year 2012-2013(Amounts are in Indian

rupees)

Effect on working capital

%

Change

March 31,

2012

March 31,

2013 Increase Decrease

Current assets

Current investments 46,652,668 (46,652,668) -100%

Inventories 140,134,844 218,589,094 78,454,250 56%

Trade receivables 368,818,005 383,545,957 14,727,952 4%

Cash and bank

balances 42,151,142 18,858,045 (23,293,097) -55%

Short term loans

and advances 89,636,055 77,490,713 (12,145,342) -14%

Other current assets 36,992,000 14,589 (36,977,411) -100%

GROSS WORKING

CAPITAL 724,384,714 698,498,398 (25,886,316) -4%

LESS:-Current

Liabilities

Short term

borrowings 32,855,749 147,936,707 115,080,958 350%

Trade payables 290,277,231 278,067,701 (12,209,530) -4%

Other current

liabilities 222,884,497 98,609,407 (124,275,090) -56%

Short term

provisions 20,837,523 12,500,209 (8,337,314) -40%

NET WORKING

CAPITAL 157,529,714 161,384,374 3,854,660 2%

INTERPRETATION

In the above table, it is seen that during the year 2011-12 to 2012-13 there was a net increase in

working capital of Rs 3,854,660 or by 2 % as compare to the last year. It indicates a positive

working capital in Delphi connections systems India pvt ltd.

This is mainly because of increase in inventories by Rs 78,454,250 or 56%, trade receivables by

Rs 14,727,952 or 4% and even after the decrease in Gross working capital by Rs 25,886,316 or -

4% company is able to achieve 2% of increase in Net Working Capital, this is because of drastically

decrease in trade payables by Rs 12,209,530 or -4%, other current liabilities by Rs 124,275,090 or

-56% and short term provisions by Rs 8,337,314 or -5%.

35

Table: 4.3.2 Changes in working capital for the year 2013-14

Changes in working capital for the year 2013-14 Amounts are in Indian

rupees)

As at As at


%

change

Current assets

March 31,

2013

March 31,


Current

investments 0 0

Inventories 218,589,094 243,775,963 25,186,869 12%

Trade receivables 383,545,957 451,292,042 67,746,085 18%

Cash and bank

balances 18,858,045 114,214,196 95,356,151 506%

Short term loans

and advances 77,490,713 225,121,183 147,630,470 191%

Other current

assets 14,589 5,791 (8,798) -60%

GROSS

WORKING

CAPITAL 698,498,398 1,034,409,175 335,910,777 48%

LESS:-Current

Liabilities

Short term

borrowings 147,936,707 (147,936,707) -100%

Trade payables 278,067,701 407,231,190 129,163,489 46%

Other current

liabilities 98,609,407 189,395,757 90,786,350 92%

Short term

provisions 12,500,209 46,833,926 34,333,717 275%

537,114,024 643,460,873 106,346,849 20%

NET WORKING

CAPITAL 161,384,374 390,948,302 229,563,928 142%

INTERPRETATION

In the above table, it is seen that during the year 2012-13 to 2013-14 there was a huge net increase

in the working capital by Rs 229,563,928 or 142% as Compare to 2011-12 and 2012-13.

This is mainly because of increase in cash by Rs 95,356,151 or 506%, inventories by Rs 25,186,869

or by 12 %, trade receivables by Rs 67,746,085 or by 18 % and short term loans by 147,630,470

or 191 % and as a result it can be seen the overall increase in Gross working Capital by

335,910,777 or 48 % but at the same time it can be seen that the huge increase in net working

36

capital which is around Rs 229,563,928 or 142% this is mainly because of total decrease in

the short term borrowings by Rs 147,936,707 or -100% .This shows that due to overall

effects of this increasing and decreasing , company is able to maintain sufficient amount

of working capital throughout the year for their day to day operation and able to generate

more revenue through which there is an increase in profit as compare to last year’s loss.

Table: 4.3.3 Changes in working capital for the year 2014-15

Changes in working capital for the year 2014-15(Amounts are in Indian

rupees)


%

change

Current Assets

March 31,

2014

March 31,


Current

investments

Inventories 243,775,963 273,012,011 29,236,048 12%

Trade

receivables 451,292,042 469,095,621 17,803,579 4%

Cash and bank

balances 114,214,196 164,644,042 50,429,846 44%

Short term loans

and advances 225,121,183 170,978,660 (54,142,523) -24%

Other current

assets 5,791 0 (5,791) -100%

GROSS

WORKING

CAPITAL 1,034,409,175 1,077,730,334 43,321,159 4%

LESS:-Current

Liabilities

Short term

borrowings

Trade payables 407,231,190 294,461,919 (112,769,271) -28%

Other current

liabilities 189,395,757 254,630,872 65,235,115 34%

Short term

provisions 46,833,926 32,870,041 (13,963,885) -30%

NET

WORKING

CAPITAL 390,948,302 495,767,502 104,819,200 27%

37

INTERPRETATION

In the above table, it is seen that during the year 2013-14 and 2014-15 there was also a net increase

in working capital by Rs 104,819,200 or 27% as compare to 2012-13 and 2013-14.

This is mainly because of increase in inventories by Rs 29,236,048 or 12%, in trade receivables by

Rs 17,803,579 or 4%, and in cash and bank balances by Rs 50,429,846 or 44% that contributes to

increase in the gross working capital by Rs 43,321,159 or by 4 % and at the same time it can be

seen that company removed its total short term borrowings and decreased in trade payable by Rs

112,769,271 or -28% and short term provisions by Rs 13,963,885 or -30%. Due to this it can be

seen that company is able to maintain a sufficient amount of Net working capital which is actually

generated through the last year’s profit and from the same profit is effectively utilized to finance

day to day operation in current year’s operation that is reflected through the positive increase in

working capital amount.

38

Table 4.3.4: Changes in working capital for the year 2015-16

Changes in working capital for the year 2015-16(Amount in Indian Rupees)


%

change

Current Assets March 31,

2015

March 31,


Current

investments

Inventories 273,012,011 375,227,529 102,215,518 37%

Trade

receivables 469,095,621 496,757,812 27,662,191 6%

Cash and bank

balances 164,644,042 296,533,951 131,889,909 80%

Short term loans

and advances 170,978,660 132,227,573 (38,751,087) -23%

Other current

assets 0 0

GROSS

WORKING

CAPITAL 1,077,730,334 1,300,746,865 223,016,531 21%

LESS:-Current

Liabilities

Short term

borrowings 0 0

Trade payables 294,461,919 373,783,269 79,321,350 27%

Other current

liabilities 254,630,872 205,220,736 (49,410,136) -19%

Short term

provisions 32,870,041 (41,118,092) (73,988,133) -225%

NET WORKING

CAPITAL 495,767,502 762,860,952 267,093,450 54%

INTERPRETATION

In the above table, it is seen that during the year 2014-15 and 2015-16 there was also a net increase

in working capital by Rs 267,093,450 or 54% as compare to 2013-14 and 2014-15.

This is mainly because of increase in inventories by Rs 102,215,518 or 37%, in trade receivables

by Rs 27,662,191 or 6% and in cash and bank balances by Rs 131,889,909 or 80% that contributes

in the increase in Gross working capital by Rs 223,016,531 or 21% at the same time it can be seen

that there is a decrease in other current liabilities by Rs 73,988,133 or -19% and short term provision

by Rs 73,988,133 or -225%, that contributes to overall increase in Net working capital by 54% and

due to this company is able to maintain a smooth functioning of day to day operation and able to

39

achieve the desired level of revenue and at the same time maintains a huge amount of profit as

compare to last year.

4.4 RATIO ANALYSIS

INTRODUCTION

The financial statement of a company contains a lot of information about the financial

performance of the company. Financial statements mainly consist of the Balance Sheet and

Profit and Loss Accounts. These statements give the overall picture of the company, but to

analyses each aspect of business extensively, financial ratios are used. The Balance Sheet

and the Statement of Income are essential, but they are only the starting point for successful

financial management. Financial Ratio Analysis derived from Financial Statements

analyses the success, failure, and progress of business.

Ratio Analysis is a very powerful analytical tool useful for measuring the performance of

an organization. The ratio analysis concentrates on the interrelationship among the figure

appearing in the mentioned financial statements. The ratio analysis helps the management

to analyze the past performance of the firm and to make further projections.

Here ratio analysis is being used in this project in order to substantiate the management of

working capital. For this, we used some of the ratios to get the required output.

Various working capital ratios are being used are as follows:

I. LIQUIDITY RATIO

Liquidity Ratios are also termed as Short-Term Solvency Ratios. The term liquidity

means the extent of quick convertibility of assets in to money for paying obligation of

short-term nature. The following ratios are commonly used:

Current ratio

Acid Test Ratio / Quick Ratio / Liquidity Ratio

Absolute liquidity ratio or cash position ratio

40

II. TURNOVER / ACTIVITY RATIO

Turnover Ratios may be also termed as Efficiency Ratios or Performance Ratios or Activity

Ratios. Turnover Ratios highlight the different aspect of financial statement to satisfy the

requirements of different parties interested in the business. It also indicates the

effectiveness with which different assets are vitalized in a business. Turnover means the

number of times assets are converted or turned over into sales. The activity ratios indicate

the rate at which different assets are turned over.

Inventory Ratio or Stock Turnover Ratio (Stock Velocity)

Inventory holding period ratio

Inventory to working capital turnover ratio

Debtor’s Turnover Ratio or Receivable Turnover Ratio (Debtor’s Velocity)

Debtor’s Collection Period Ratio

Creditor’s Turnover Ratio or Payable Turnover Ratio (Creditor’s Velocity)

Debt Payment Period Ratio

Working Capital Turnover Ratio

Fixed Assets Turnover Ratio

Current assets turnover ratio

Net working capital Ratio

Net Operating cycle period analysis

III. PROFITABILITY RATIO

(Note- Here profitability ratio is calculated to make a comparative analysis of date with

respect to liquidity and turnover ratio of the company)

Profitability Ratio is used to measure the overall efficiency or performance of a business.

Generally, a large number of ratios can also be used for determining the profitability as the same

is related to sales or investments.

The following important profitability ratios are discussed below:

Gross profit ratio

Net profit ratio

Operating ratio

41

4.4.1 CURRENT RATIO ANANYSIS

It is a ratio, which express the relationship between the total current Assets and current

liabilities. It measures the firm’s ability to meet its current liabilities. It indicates the availability

of current assets in rupees for every one rupee of current liabilities. A ratio of greater than one

means that the firm has more current assets than current liabilities claims against them. The

ideal current ratio is 2: 1.

Current Ratio = Current Assets / Current Liability

Table 4.4.1: Current Ratio analysis

Current Ratio analysis(Amounts are in Indian rupees)

Year Current Assets Current Liabilities Current Ratio

2011-12 724,384,714 566,855,000 1.28

2012-13 698,498,398 537,114,024 1.30

2013-14 1,034,409,175 643,460,873 1.61

2014-15 1,077,730,334 581,962,832 1.85

2015-16 1,300,746,865 537,885,913 2.42

Figure: 4.4.1 Current Ratio

INTERPRETATION

Here it can be seen that from the above chart and table that company liquidity position is

not ideal as per the standard ratio 2:1 but still its more than one which indicates the firm’s

ability to pay its current obligation. In the year 2011-12 ratio is 1.28 times than current

liability and it’s increasing year by year that talks that firm position in liquidity solvency

1.2

8

1.3

0 1.6

1 1.8

5

2.4

2

2 0 1 1 - 1 2 2 0 1 2 - 1 3 2 0 1 3 - 1 4 2 0 1 4 - 1 5 2 0 1 5 - 1 6

RA

TIO

IN T

IMES

YEARS

42

is improving throughout the time period, it can be seen that ratio in 2012-13 is 1.30 and

from there to 2014-15 it reached to 1.85 and finally in the year 2015-16 they achieved

more than the ideal ratio which is 2.42:1 which indicates that firm is having Rs 2.42 for

every Rs 1 of its current liability and reason for improvement in current ratio is because

of increase in inventories ,trade receivables and cash and decrease in the short term

obligations such as payables ,other liabilities and the borrowings of the firm . Here it can

be said that there is enough current assets Delphi connections systems India Pvt ltd. to meet

its current liabilities and short term operational expenses.

4.4.2 ACID TEST RATIO /QUICK RATIO/LIQUIDITY RATIO ANALYSIS

This ratio establishes a relationship between quick/liquid assets and current liabilities. It

measures the firms’ capacity to pay off current obligations immediately. The ideal Quick

Ratio of 1: 1 is considered to be satisfactory. High Acid Test Ratio is an indication that the

firm has relatively better position to meet its current obligation in time. On the other hand,

a low value of quick ratio exhibiting that the firm's liquidity position is not good.

Quick Ratio = (Quick Assets (current assets - (Inventory + prepaid

Expenses))/Current Liabilities

Table 4.4.2: Acid Test Ratio / Quick Ratio / Liquidity Ratio analysis

Acid Test Ratio / Quick Ratio / Liquidity Ratio analysis(Amounts are in Indian

rupees)

YEAR Current

Assets Inventory

Quick

Assets

Current

Liabilities

Quick

Ratio

2011-12 640,740,046 140,134,844 500,605,202

566,855,000 0.88

2012-13 698,498,398 218,589,094 479,909,304

537,114,024 0.89

2013-14 1,034,409,175 243,775,963 790,633,212

643,460,873 1.23

2014-15 1,077,730,334 273,012,011 804,718,323

581,962,832 1.38

2015-16 1,300,746,865 375,227,529 925,519,336

537,885,913 1.72

43

Figure 4.4.2: Quick Ratio

INTERPRETATION

Here it can be seen that from the above chart and table that the quick ratio for the first two

years such as in 2011-12 and 2012-13 is 0.88 and 0.89 which is less than the standard ratio

1:1 that shows company is not able to meet its immediate obligations. But at the same time

low quick ratio does not necessarily mean a bad liquidity position as inventories are not an

absolutely non-liquid and a low quick ratio may also have liquidity position, if it has fast

moving inventories. But from the year 2013-14 it can be seen that ratio has become

adequate or better than ideal ,in the year 2013-14 ratio is 1.23 and in the year 2014-15 it

has increased to 1.38 and finally in the year 2015-16 it has reached to 1.72 ,this shows that

from the year 2013-14 to 2015-16 company is having sufficient amount of liquid fund to

meet its immediate obligations that shows that company is having more than one rupees of

quick liquidity for every one rupees of liability which tells that the strength of the liquid

position of the company this is mainly happened because of increase in the receivables

,cash and other assets and at the same time there is a decrease in its expenses towards the

payables ,other liabilities and completely reduction in its short term borrowings .

4.4.3 ABSOLUTE LIQUID RATIO ANALYSIS

Absolute Liquid Ratio is also called as Cash Position Ratio (or) Over Due Liability Ratio.

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

liabilities. The optimum value for this ratio should be one, i.e., 0.5: 1.

0.88 0.89

1.231.38

1.72

0.00

0.50

1.00

1.50

2.00

2011-12 2012-13 2013-14 2014-15 2015-16

RA

TIO

IN

TIM

ES

YEARS

44

Absolute Liquidity Ratio = Cash & Bank Balance

Current Liabilities

Table 4.4.3 Absolute liquidity Ratio analysis

Absolute liquidity Ratio analysis (Amounts are in Indian Rupees)

Year Cash & Bank Balance

Current

Liabilities

Absolute liquidity

ratio

2011-12 42,151,142 566,855,000 0.07

2012-13 18,858,045 537,114,024 0.04

2013-14 114,214,196 643,460,873 0.18

2014-15 164,644,042 581,962,832 0.28

2015-16 296,533,951 537,885,913 0.55

Figure 4.4.3 Absolute Liquidity Ratio

INTERPRETATION

Here it can be seen that from the above Figure and table that the absolute liquid ratio from

the year 2011-12 to the year 2014-15 is not near to the standards that shows that company

is not having the sufficient amount of cash in hand to meet its immediate obligations of

liabilities ,but it is improving also it can be seen that in the year 2011-12 is 0.07 and in

2013-14 is 0.18 after that it reached to 0.28 in 2014-15 and finally it achieved the ideal

ratio in the year 2015-16 that is 0.55 that shows that company is having enough cash in

hand and bank to finance its immediate obligation of liabilities and the reason for

improving in the absolute liquidity ratio is first the increase in amount of profit compared

0.07 0.04

0.18

0.28

0.55

0.00

0.10

0.20

0.30

0.40

0.50

0.60

2011-12 2012-13 2013-14 2014-15 2015-16

RA

TIO

S IN

TIM

ES

YEARS

45

to last year and also increased in collection of debt and the decrease in the other current

liabilities and petty cash expenses of the firm . Hence it shows that the absolute liquidity

position of the firm is adequate in the year 2015-16 and company also maintains the

advanced cash for the next year.

4.4.4 INVENTORY RATIO OR STOCK TURNOVER RATIO (STOCK

VELOCITY) ANALYSIS

Stock Turnover Ratio indicates that the number of times the stock has been turned over in

business during a particular period. While using this ratio, care must be taken regarding

seasons and condition, Price trend and Supply condition etc.

Table: 4.4.4 Inventory Turnover Ratio

Inventory Turnover Ratio( Amounts Are In Indian Rupees)

Year Net Sales

Closing

Inventory Average Inventory

Inventory

Turnover

Ratio(Times)

2011-12 416,662,689 140,134,844 140,134,844 2.97

2012-13 1,973,492,188 218,589,094 179,361,969 11.00

2013-14 2,151,350,156 243,775,963 231,182,529 9.31

2014-15 2,241,876,023 273,012,011 258,393,987 8.68

2015-16 2,440,877,835 375,227,529 324,119,770 7.53

Figure: 4.4.4 Inventory Turnover Ratio (times)

INTERPRETATION

2.97

11.009.31

8.687.53

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2011-12 2012-13 2013-14 2014-15 2015-16

RA

TIO

S IN

TIM

ES

YEARS

46

Here it can be seen that from the (Figure ) and table that stock turnover ratio in the year

2011-12 is 2.97 times which shows that company position to convert its inventory into

sales is quite low as compare to succeeding years within the year that says company is able

to convert its inventory into sales only 2.97 times in the year this is because of less demand

as the company started in the respective yea , but it is seen that in the year 2012-13 it

reached 11.00 which tells that company position to convert its sales from the inventory

almost 11 times in a year which is a good signal for the company, and in the year 2013-14

it decreased to 9.31 that is because of policy followed by the company called just in time

inventory process for some lines which determines the requirement of the material will be

procured just before its use and that type of inventory doesn’t need any warehouse and

even this policy effects the warehouse maintenance and handling costs, and at the same

time due to price changes demand got change and inventory requirement got down that can

be seen from the decreasing trend of inventory from 2013-14 to 2014-15 its decreased to

8.68 and finally its reached in the year 2015-16 is 7.53 that shows company’s demand for

inventory proportion to sales is decreasing due to that inventory requirement is also going

down.

4.4.5 INVENTORY HOLDING PERIOD ANALYSIS

Inventory holding period is an accounting ratio which measures the number of days a

company takes to sell its average balance of inventory. It is also an estimate of the number

of days for which the average balance of inventory will be sufficient.

Inventory Holding Period = Days in a year/Inventory Turnover Ratio

Table 4.4.5 : Inventory Holding Period

Inventory Holding Period

Year Days in a Year

Inventory Turnover

Ratio(times)

Inventory Holding

Period(Days)

2011-12 365 2.97 123

2012-13 365 11.00 33

2013-14 365 9.31 39

2014-15 365 8.68 42

2015-16 365 7.53 48

47

Figure 4.4.5 Inventory Holding Period (Days)

INTERPRETATION

Here it can be seen from the above table and (Figure) that holding period of the inventory of the

company is coming down which shows that the conversion of inventory to sales is taking less time

and since inventory carrying costs take significant investment, a business must try to reduce the

level of inventory. Lower level of inventory will result in lower days' inventory on hand ratio that

is favorable for the company to reduce inventory holding cost. In the year 2011-12 it can be seen

that holding period stands 123 days after that it comes down to 33 days in the year 2012-13 which

shows that the fast conversion of the production process and at the same time reduction in the

inventory cost after that in the year 2013-14 it increased little to 39 days and then it reached to 42

days in the year 2014-15 and finally it increased to 48 days in the year 2015-16 that shows that the

company is not able to minimizing its inventory holding period as compared to previous year but

from the initial year it has improved throughout the upcoming years because at the same time

company is having high demand for their products so due to hike in demand company’s inventory

got pileup and it started showing the increasing trend due to high level of production .

4.4.6 INVENTORY TO NET WORKING CAPITAL TURNOVER

RATIO ANALYSIS The Inventory to Working Capital ratio measures how well a company is able to generate cash

using Working Capital at its current inventory level. A low value of 1 or less of inventory to

working capital means that a company has high liquidity of current asset. While it may also mean

insufficient inventories.

Inventory to Working Capital Ratio = Inventory / Working capital

Table: 4.4.6: Inventory to Working capital ratio

123

3339 42

48

0

20

40

60

80

100

120

140

2011-12 2012-13 2013-14 2014-15 2015-16

NO

OF

DA

YS

YEARS

48

Inventory to Working capital ratio (Amounts are in Indian Rupees)

Year Closing Inventory

Net Working

Capital

Inventory to working

capital turnover

ratio(times)

2011-12 140,134,844 157,529,714 0.89

2012-13 218,589,094 161,384,374 1.35

2013-14 243,775,963 390,948,302 0.62

2014-15 273,012,011 495,767,502 0.55

2015-16 375,227,529 762,860,952 0.49

Figure: 4.4.6 Inventory to working capital turnover ratio (Times)

INTERPRETATION

Here it can be seen that from the above chart and table that in the year 2011-12 this ratio is

0.89 which shows that company is having good liquidity position even after paying off the

inventory cost ,company is able to keep 0.11 times of cash for its future operations, in the

year 2012-13 this ratio reached to 1.35 which is more than one which shows company is

carrying too much inventory in stock and due to that company cash shortage is happened

by almost 35% which shows that company liquidity in terms of inventory conversion is

very low ,but from the year 2013-14 it can be seen a drastic decrease in the ratio reached

to 0.62 and then it again decreased to 0.55 in the year 2014-15 after that finally it reduced

to 0.49 in the year 2015-16 which shows that company is s continuously improving its

inventory policy and at the same time reducing it excessive inventory holding and also

reducing the inventory holding cost that is improving the company’s liquidity position and

0.89

1.35

0.62 0.55 0.49

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2011-12 2012-13 2013-14 2014-15 2015-16

RA

TIO

IN

TIM

ES

YEARS

49

due to that even after providing inventory cost company is maintaining good liquidity to

run the smooth functioning of operations to meet the demand.

4.4.7 DEBTOR’S TURNOVER RATIO OR RECEIVABLE

TURNOVER RATIO (DEBTOR’S VELOCITY) ANALYSIS

Debtor's Velocity indicates the number of times the receivables are turned over in business

during a particular period. In other words, it represents how quickly the debtors are

converted into cash. It is used to measure the liquidity position of a concern. This ratio

establishes the relationship between receivables and sales.

Debtors turnover ratio = Net Sales /Average account receivables

Table 4.4.7 Account Receivables Turnover Ratios

Account Receivables Turnover Ratios(Amounts are in Indian

rupees)

Year Net sales Receivables Average Receivables

Account

Receivables

turnover

ratios(Times)

2011-12 416,662,689 368,818,005 368,818,005 1.13

2012-13 1,973,492,188 383,545,957 376,181,981 5.25

2013-14 2,151,350,156 451,292,042 417,419,000 5.15

2014-15 2,241,876,023 469,095,621 460,193,832 4.87

2015-16 2,440,877,835 496,757,812 482,926,717 5.05

Figure: 4.4.7 Account Receivables Turnover Ratios (Times)

INTERPRETATION

1.13

5.25 5.15 4.87 5.05

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2011-12 2012-13 2013-14 2014-15 2015-16

RA

TIO

S IN

TIM

ES

YEARS

50

Here it can be seen from the above table and graph, Account receivables turnover ratio is

fluctuating over the period, in the year 2011-12 it is 1.13 which shows that collection of

credit sale is very slow that shows company’s credit policy is not as efficient as succeeding

years because of establishment of the plant and at the same time huge amount of cash that

is available with debtors which is not earning any interest for the firm. But from the year

2011-12 it can be seen that ratio has reached to 5.25 and after that in the year 2013-14 it

reached to 5.15 then again it decreased to 4.87 in the year 2014-15 and finally it again

increased to 5.05, the reasons for such increase in this ratio from the year 2012-13 to 2015-

16 is that the company operates on a cash basis or that its decrease in credit days and

collection of accounts receivable are efficient. Also, a high ratio reflects a short lapse of

time between sales and the collection of cash, while a low number means collection takes

longer. The ratio is going up due to collection policy may be improving, sales are increasing

and receivables increased through fast collection of debtors.

4.4.8 DEBTOR’S COLLECTION PERIOD ANALYSIS

Debtors collection period measures the quality of debtors since it measures the rapidity or

the slowness with which money is collected from them a shorter collection period implies

prompt payment by debtors. It reduces the chances of bad debts. A longer collection period

implies too liberal and inefficient credit collection performance.

Average Collection Period = Days in a Year/ Debtors Turnover Ratio

Table 4.4.8: Receivables Collection Period

Receivables Collection Period(Amounts Are In Indian Rupees)

Year No of Days

Account Receivables

turnover ratios

Average Collection

Period(Days)

2011-12 365 1.13 323

2012-13 365 5.25 70

2013-14 365 5.15 71

2014-15 365 4.87 75

2015-16 365 5.05 72

51

Figure: 4.4.8 Average Collection Period (days)

INTERPRETATION

Here it can be seen that from the table and (Figure) that collection period during the year

2011-12 is 323 days, and the company credit policy for the collection of debt from debtors

is 64 days approximately that shows company is not able to maintain the proper credit

policy of collection of debt due to that cash is available with the debtors which is not

earning any interest for the firm. In the year 2012-13 collection period decreased to 70 days

and then in the year 2013-14 it reached to 71 days after that there is a slight increase in

days in the year 2014-15 is 75 days and finally it reached to 72 days in the year 2015-16,

so for these four year (2012-13 to 2015-16) it can be seen that company is almost

maintaining similar collection days which lies from 70 to 72 days on average which talks

about that company is maintaining a good credit policy because as per rule, outstanding

receivables should not exceed credit terms by more than 10-15 days and here credit policy

for the company is average 64 days approximately and company is collecting debt in

average 72 days so according to the rule company can exceed around 10-15 days and here

company is going beyond only the credit term for 6-8 days , this shows that sufficient credit

collection of the company.

4.4.9 CREDITOR’S TURNOVER RATIO OR PAYABLE TURNOVER

RATIO (CREDITOR’S VELOCITY) ANALYSIS

Creditor's Turnover Ratio is also called as Payable Turnover Ratio or Creditor's Velocity.

This ratio establishes the relationship between the net credit purchases and the average

32

3

70 71 75

72

2 0 1 1 - 1 2 2 0 1 2 - 1 3 2 0 1 3 - 1 4 2 0 1 4 - 1 5 2 0 1 5 - 1 6

NO

OF

DA

YS

YEARS

52

trade creditors. Creditor's velocity ratio indicates the number of times with which the

payment is made to the supplier in respect of credit purchases.

Note: It has been taken the total Purchases instead of the credit purchases, because the

credit purchases information has not available for the calculations of CTR.

Creditors Turnover Ratio = Net Purchases/Average trade payables

Table 4.4.9: Creditors/Account Payables Turnover Ratios

Creditors/Account Payables Turnover Ratios(Amounts Are In Indian Rupees)

Year

Net

Purchases Trade Payables

Average Trade

Payables

Account

Payables

Turnover

Ratio(Times)

2011-12 160,967,999 290,277,231 290,277,231 0.55

2012-13 1,077,176,212 278,067,701 284,172,466 3.79

2013-14 1,077,498,516 407,231,190 342,649,446 3.14

2014-15 1,152,896,505 294,461,919 350,846,555 3.29

2015-16 1,236,116,239 373,783,269 334,122,594 3.70

Figure 4.4.9 Account Payables Ratio (times)

INTERPRETATION

Here it can be seen from the table and (Figure) in the year 2011-12 is 0.55 times, it means it takes

almost 2 years to settle its payments to the vendors and from one point of view it’s good for the

company because company is getting more time to pay off its obligations and at the same time

company can avail maximum benefits with their credit policy, but at the same time company can

0.55

3.79

3.14 3.29 3.70

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2011-12 2012-13 2013-14 2014-15 2015-16

RA

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S IN

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ES

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53

lose its creditworthiness to the vendors. From the year 2013-14 it can be seen a dramatic increase

in the payables ratio that is 3.79 times which indicates that company is paying it’s almost four times

in a year and it also implies that new vendors will get paid back quickly. A high turnover ratio can

be used to negotiate favorable credit terms in the future. And in the year 2013-14 that ratio

decreased to 3.14 after that in the year 2014-15 it again increase to 3.29 and finally in the year

2015-16 it stabilized to 3.70 times, this little fluctuations and increase and decrease is happening

due to credit terms allowed by the vendors and at the same time improvement in the inventory ratio

and decrease in inventory holding period and also the decrease in debt collection period due to that

company inventory is fast converting into cash and debt collection from debtor is also fast, due to

that company is able to maintain the fast payments to its vendors due to availability of cash .

4.4.10 DEBT PAYMENT PERIOD RATIO / ACCOUNT PAYABLES

PERIOD ANALYSIS Average payment period means the average period taken by the company in making payments to

its creditors. It is computed by dividing the number of working days in a year by creditor’s turnover

ratio.

Average Payment Period = Days in a year / Creditors Turnover Ratio

Table 4.4.10 Payables Payments Period (Days)

Payables Payments Period(Days)

Year Days

Account Payables

ratio(Times)

Payables payment

Period(days)

2011-12 365 0.55 658

2012-13 365 3.79 96

2013-14 365 3.14 116

2014-15 365 3.29 111

2015-16 365 3.70 99

54

Figure 4.4.10: Payables Payment Period (Days)

INTERPRETATION

Here it can be seen that from the above table and (Figure) that in the year 2011-12 payment

period is around 658 days that is very huge comparable to other successive years that shows

that company is taking more time to pay off its vendors with respect to its own credit period

which is around 64 days approximate. But from the year 2012-13 company has reduced its

payment period to 96 days that shows company pays off its obligation very fast and in the

year 2013-14 it again increased to 116 days then in the year 2014-15 it reduced 111 days

and finally in the year 2015-16 it has reached to 99 days and the reason for decrease in

payment days in average is as similar as reason for increase in the account payables ratio

that shows that company is following almost a stabilized payment period that is allowed

by the vendors and company is able to make prompt payments to the vendors on time and

maintaining a proper creditworthiness.

4.4.11. WORKING CAPITAL TURNOVER RATIO ANALYSIS This ratio highlights the effective utilization of working capital with regard to sales. This ratio

represent the firm's liquidity position. A higher working capital turnover ratio indicates efficient

utilization of working capital, i.e., a firm can repay its fixed liabilities out of its working capital.

Also, a lower working capital turnover ratio shows that the firm has to face the shortage of working

capital to meet its day-to-day business activities unsatisfactorily. But a very high working capital

turnover is not a good situation for any firm.

Working Capital Turnover Ratio = Net Sales / Net Working Capital

658

96 116 111 99

0

100

200

300

400

500

600

700

2011-12 2012-13 2013-14 2014-15 2015-16

NO

OF

DA

YS

YEARS

55

Table 4.4.11 Working Capital Turnover Ratio

Working Capital Turnover Ratio(Amounts Are In Indian Rupees)

Years Net sales Net Working Capital

Working Capital

Turnover Ratio(times)

2011-12 416,662,689 157,529,714 2.64

2012-13 1,973,492,188 161,384,374 12.23

2013-14 2,151,350,156 390,948,302 5.50

2014-15 2,241,876,023 495,767,502 4.52

2015-16 2,440,877,835 762,860,952 3.20

Figure 4.4.11 Working Capital Turnover Ratio (WCTR) (Times)

INTERPRETATION

Here it can be seen that from the above table and (Figure) that WCTR is fluctuating year by year,

in the year 2011-12 it is 2.64 times as compare to the other successive years it is very low that

shows that company is not utilizing its liquidity position in an effective manner because of begging

of the operation and facing shortage of working capital due to that it can be seen that the lowest

sales Figure (From profit and loss account). In the year 2012-13 this ratio reached to 12.23 which

is very high because in the same year company is facing a huge loss that it can be seen that from

the profit and loss statements and due to that company does not have enough capital to support it

sales growth and at the same time account payable component is very high. But from the year 2013-

14 there is a decrease in the ratio to 5.50 and in the year 2014-15 again ratio decreased to 4.52 and

finally it reached to 3.20 in the year 2015-16 which shows that company is trying to come from

higher ratio to moderate ratio for the smooth operation and to generate more sales as per the demand

that can be seen from the increasing sales figure and during the same time payable component of

the company is coming down to maintain the better liquidity position of the company.

2.64

12.23

5.504.52

3.20

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2011-12 2012-13 2013-14 2014-15 2015-16

RA

TIO

S IN

TIM

ES

YEARS

56

4.4.12 NET WORKING CAPITAL RATIO ANALYSIS

The Working Capital to Total Assets ratio measures company’s ability to cover its short

term financial obligations (Total Current Liabilities) by comparing its current assets to its

Total Assets.

Net Working Capital Ratio = Net Working Capital / Total Assets

Table: 4.4.12 Net Working Capital Ratio

Net Working Capital Ratio(All Amounts Are In Indian Rupees)

Year Net Working Capital Total Assets

Net Working Capital

Ratio

2011-12 157,529,714 1,504,989,009 0.10

2012-13 161,384,374 1,455,800,381 0.11

2013-14 390,948,302 1,673,720,280 0.23

2014-15 495,767,502 1,681,071,103 0.29

2015-16 762,860,952 1,995,728,952 0.38

Figure 4.4.12 Net Working Capital Ratio

INTERPRETATION

Here from the above table it can be seen that there is a continuous increase in the Net

working capital ratio , in the year 2011-12 it is 0.10 which shows that company is having

the 10 % liquid cash all the time compare to the total assets of the company , and

successively in the year 2012-13 ratio increased to 11 % after that it got the huge increase

and in the year 2013-14 it reached to 23% then again it got an increase in the year 2014-15

to 29 % and finally it reached to 38% in the year 2015-16 that shows that company liquidity

10% 11%

23%

29%

38%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2011-12 2012-13 2013-14 2014-15 2015-16

PER

CEN

TAG

E

YEARS

57

position toward its total assets has increased and company is having sufficient amount of

liquidity to fulfill its short term obligations and at the same time it can be connected that

the current ratio of the company that’s also showing increasing trend proportionally and

shows a positive signal to the liquidity of the firm.

4.4.13 FIXED ASSETS TURNOVER RATIO ANALYSIS

This ratio indicates the efficiency of assets management. Fixed Assets Turnover Ratio is

used to measure the utilization of fixed assets. This ratio establishes the relationship

between cost of goods sold and total fixed assets. Higher the ratio highlights a firm has

successfully utilized the fixed assets. If the ratio is depressed, it indicates the

underutilization of fixed assets. The ratio may also be calculated as:

Fixed Assets Turnover Ratio = Net Sales / Total Fixed Assets

Table 4.4.13 Fixed Assets Turnover Ratio

Fixed Assets Turnover Ratio(Amounts Are In Indian Rupees)

Year Total Fixed Assets Net sales

Fixed Assets Turnover

Ratio(Times)

2011-12 780,604,295 416,662,689 0.53

2012-13 757,301,983 1,973,492,188 2.61

2013-14 639,311,105 2,151,350,156 3.37

2014-15 603,340,769 2,241,876,023 3.72

2015-16 694,982,087 2,440,877,835 3.51

Figure: 4.4.1 Fixed Assets Turnover Ratio (Times)

0.53

2.61

3.373.72

3.51

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2011-12 2012-13 2013-14 2014-15 2015-16

RA

TIO

S IN

TIM

ES

NO OF YEARS

58

INTERPRETATION

Here from the above table and graph it can easily be seen that there is a continuous increase

in the fixed assets turnover ratio over the years, in the year 2011-12 it is 0.53 times which

is lower than 1 that shows the net sales of the company is less than the average total assets

as compare to the succeeding years because of lack of proper use of company’s fixed assets

and at the same time more burden of debt collection period and payments period and

company had to expand more liquidity for the maintenance cost of fixed assets and also for

depreciation expenses but from the year 2012-13 it shows the increasing trend and from

2.61 in the year 2013-14 it has reached 3.37 then again it jumped to 3.72in the year 2014-

15 and finally it has reached to 3.51in the year 2015-16 that shows that company is

effectively doing the proper utilization of its fixed assets and able to generate more

production for the sale to meet the demand ,at the same time it also shows that company’s

proper utilization of liquidity for the smooth function of operation .

4.4.14 CURRENT ASSETS TURNOVER RATIO ANALYSIS

An activity ratio measuring firm’s ability to generating sales through its current assets and

it shows the no of turn’s shows by the current assets of the enterprises. High ratio indicates

the high intensity of current assets usage and decrease of this ratio indicates firm’s needs

of source of finance.

Current assets turnover ratio = Net sales / Average current assets

Table 4.4.14 Current Assets Turnover Ratio

Current Assets Turnover Ratio(Amounts Are In Indian Rupees)

Year Net sales Total Current Assets

Current Assets

Turnover Ratio(times)

2011-12 416,662,689 724,384,714 0.58

2012-13 1,973,492,188 698,498,398 2.83

2013-14 2,151,350,156 1,034,409,175 2.08

2014-15 2,241,876,023 1,077,730,334 2.08

2015-16 2,440,877,835 1,300,746,865 1.88

59

Figure 4.4.14 Current Assets Turnover Ratio (Times)

INTERPRETATION

Here from the above table it can be seen that current assets turnover ratio is very low in the

year 2011-12 which is 0.58 that’s shows company current assets to sales conversion is very

low not even a one time in a year, it may be because of credit policy and payment terms at

the same time more inventory pileup in the stock and lack of cash to maintain a smooth

operation , but from the year 2012-13 that ratio has increased to 2.83 and after that next

two years from 2013-14 to 2014-15 it remains same at 2.08 and after that it reduced to 1.88

times in the year 2015-16 ,but overall these last three years have shown good signal for the

company where company is working on the consistence improvement of its policies in

inventory ,accounts receivables ,cash and other current assets management .

4.4.15 WORKING CAPITAL CYCLE / CASH CONVERSION CYCLE

ANALYSIS.

The cash conversion cycle is a cash flow calculation that attempts to measure the time it

takes a company to convert its investment in inventory and other resource inputs into cash.

In other words, the cash conversion cycle calculation measures how long cash is tied up in

inventory before the inventory is sold and cash is collected from customers. The cash cycle

has three distinct parts.

Working capital cycle = Inventory holding Period + Average Collection Period –

Payables payment period

0.58

2.83

2.08 2.081.88

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2011-12 2012-13 2013-14 2014-15 2015-16

RA

TIO

S IN

TIM

ES

YEARS

60

Table 4.4.15: Calculation of Net Working Capital Operating Cycle

Calculation Of Net Working Capital Operating Cycle

Year

Inventory

Holding

Period(Days

)(A)

Average

Collection

Period(Days)

(B)

Gross

Operating

Cycle(A+B)(

Days)

Payables

payment

Period(c)

(Days)

Net

Operating

cycle(A+B-C)

2011-12 123 323 446 658 -212

2012-13 33 70 103 96 6

2013-14 39 71 110 116 -6

2014-15 42 75 117 111 6

2015-16 48 72 121 99 22

Figure 4.4.15 Net Operating cycle

INTERPRETATION

Here it can be seen that from the above chart and table that in the year 2011-12 company

is having a negative operating cycle of -212 days this basically means that company is

converting its inventory into sales in early days and they are getting paid by their customers

long before they pay their suppliers, essentially this is an interest free way to finance their

operations by borrowing from their suppliers and its clearly indicates that company is

maintaining its Working Capital very smoothly and this is possible due to good inventory

policy and credit policy of the company, the year 2012-13 it reached to 6 days in positive

that talks company is taking around 6 more days after the payment of vendors to realize its

inventory through sales and collection of cash or for the completion of WCC and in the

year 2013-14 it became negative -6 days it indicates company is having 6 extra days to pay

-212

6

-6

622

-250

-200

-150

-100

-50

0

50

100

2011-12 2012-13 2013-14 2014-15 2015-16

DA

YS

YEARS

61

off its vendors and complete WCC before 6 days’ time period , after that in the year 2014-

15 it has reached to 6 positive days and finally it has reached to 22 days positive in the year

2015-16 which is highest period for cash conversion that talks company is required more

22 days to realize its cash through sales after making payment to vendors , this fluctuations

is happening because of company inventory policy where inventory holding period is

increasing /decreasing and at the same time due to company credit policy where company

receivables period also fluctuates which shows that fluctuations in the cash conversion

period and working capital cycle .

4.4.16. GROSS PROFIT AND NET PROFIT RATIO ANALYSIS

Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between

gross profit and total net sales revenue. The ratio is computed by dividing the gross profit

figure by net sales. Higher Gross Profit Ratio is an indication that the firm has higher

profitability. It also reflects the effective standard of performance of firm's business.

Net profit ratio (NP ratio) is a popular profitability ratio that shows relationship between

net profit after tax and net sales. It is computed by dividing the net profit (after tax) by net

sales.

Table 4.4.16: Gross Profit Ratio

Gross Profit Ratio(Amounts are in Indian Rupees)

Year

Gross

profit

before tax Net Profit Net Sales

Gross

profit ratio Net profit

ratio

2011-12 10,706,504 6,444,294 416,662,689 2.57% 1.55%

2012-13 (63,330,467) (67,649,638) 1,973,492,188 -3.21% -3.43%

2013-14 102,240,378 91,396,834 2,151,350,156 4.75% 4.25%

2014-15 92,535,900 59,980,952 2,241,876,023 4.13% 2.68%

2015-16 329,004,208 351,056,257 2,440,877,835 13.48% 14.38%

62

Figure 4.4.16 Gross profit and Net Profit Ratio

INTERPRETATION

Here from the above chart and table it can be seen that in the beginning of the year 2011-

12 company is making Gross profit and Net profit around 2.57% and 1.55% and after that

company is making a huge Net loss in the year 2012-13 that is around -3.43% ,it is not

because of lack of proper working capital management ,the main reasons for such huge

loss are comparative cost of sales is more than the net revenue that can be understood by

high operating ratio that’s talks overall cost of sales is around 4% more than net revenue

and at the same time company is facing problem of inventory holding cost due to huge

amount of unsold inventory in stock is around Rs (60,176,562) and also projected demand for

the sales of the company is not being achieved . But in the year 2013-14 both gross and net profit

reached to 4.75 % and 4.25% after that in the year 2014-15 both gross and net profit slips to 4.13

% and 2.68% and finally in the year 2015-16 it can be seen that there is a huge jump in profit to

13.48 % and 14.38%(the reason for high 1% net profit respect to gross profit due to prepaid taxes

paid by the company in previous year) , the major reasons of increasing trend in profit throughout

the year is because of proper working capital management that can be understood through the

proper liquidity ratios , and positives turnover ratios , that shows that company is functioning with

sufficient amount of working capital management for smooth functioning of operation with proper

inventory and credit policy due to that company is able to achieve high turnovers throughout the

year and also reduction in cost throughout the year that directly increases the profitability .

2.57%

-3.21%

4.75% 4.13%

13.48%

1.55%

-3.43%

4.25%2.68%

14.38%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2011-12 2012-13 2013-14 2014-15 2015-16

PER

CEN

TAG

E

YEARSGross profit ratio Net profit ratio

63

4.4.17. OPERATING RATIO ANALYSIS

Operating Ratio is calculated to measure the relationship between total operating expenses

and sales .The total operating expenses is the sum total of cost of goods sold, office&

administrative expenses and selling and distribution expenses. In other words, this ratio

indicates a firm's ability to cover total operating expenses. The lower the ratio, the more

efficiently the company is creating profits.

Operating ratio = Total operating cost / Net sales

Table 4.4.17: Operating Ratio

Operating Ratio(Amounts Are In Indian Rupees)

Year Total Operating cost Net sales Operating ratio

2011-12 408,474,652 416,662,689 98.03%

2012-13 2,049,562,135 1,973,492,188 103.85%

2013-14 2,064,185,101 2,151,350,156 95.95%

2014-15 2,158,483,359 2,241,876,023 96.28%

2015-16 2,112,069,766 2,440,877,835 86.53%

Figure 4.4.17 Operating Ratio

INTERPRETATION

Here it can be seen that from the above graph and table in the year 2011-12 company is

having 98.03% of the operating ratio its shows company is having 98.03% cost involved

in revenues or sales after that in the year 2012-13 it reached to 103.85% that is not a good

98.03% 103.85%95.95% 96.28%

86.53%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2011-12 2012-13 2013-14 2014-15 2015-16

PER

CEN

TAG

E

YEARS

2011-12 2012-13 2013-14 2014-15 2015-16

64

condition for the company which shows that company’s efficiency of operation is not good

in that year due to high cost of sales and at the same time having increase in other operating

expenses and company is facing a loss but from the year 2013-14 to 2015-16 there is a

continuous decrease in this ratio and finally its reached to 86.53% which shows that

company has improved its operational efficiency that also implies that company is

smoothly running its operation through proper working capital management which can be

easily reflected through increasing profitability.

4.5 COMPARATIVE ANALYSIS OF LIQUIDITY AND

PROFITABILITY RATIOS

This Comparative analysis is being done in order to find out the relationship which exists

between the liquidity and the profitability of the company for that we have used time series

analysis to analyses the effect and to find that is there any proportional relationship between

changes in liquidity of the company and impact on to profitability at the same time.

Table 4.5.1 Comparative Analysis of Liquidity and the Profitability Ratios

Comparative Analysis Of Liquidity And The Profitability Ratios

Year

Current

Ratio Quick Ratio

Absolute

liquidity ratio

Operating

ratio

Net profit

ratio

2011-12 1.28 0.88 0.07 98% 1.55%

2012-13 1.30 0.89 0.04 104% -3.43%

2013-14 1.61 1.23 0.18 96% 4.25%

2014-15 1.85 1.38 0.28 96% 2.68%

2015-16 2.42 1.72 0.55 87% 14.38%

65

Figure 4.5.1 Comparative Trend Analysis of Profitability and Liquidity Ratio

0.88 0.89

1.23

1.38

1.72

0.070.04

0.18

0.28

0.55

98.03%

103.85%

95.95%

96.28%

86.53%

1.55%

-3.43%

4.25% 2.68%

14.38%

1.28 1.30

1.61

1.85

2.42

0.00

0.50

1.00

1.50

2.00

2.50

3.00

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2011-12 2012-13 2013-14 2014-15 2015-16

Quick Ratio Absolute liquidity ratio Operating ratio

Net profit ratio Current Ratio Linear (Net profit ratio)

Linear (Net profit ratio)

66

INTERPRETATION

Here from the above table and chart it can be seen that the relationship among liquidity

and the profitability of the company, from year 2011-12 to 2012-13 there is a change in the

profitability is 1.55% to -3.43% this is mainly because of huge operating ratio that

increased from 98.03% to 103.85% that talks company total cost of sales is almost 3.85%

more than the sales revenue and at the same time company is not maintaining sufficient

amount of working capital to maintain its operation for sales that can be understood by

liquidity ratios which is lower than with respect to their expected ideal ratios and also there

is a decrease in absolute liquidity ratio from 0.07 to 0.04 times which talks company’s cash

positions is also very weak to support its day to day operation .

But from the year 2012-13 to 2015-16 it can be seen that a relationship between all

liquidity ratios and profitability ratios which show an increasing trend throughout these

three years and at the same time company operating ratio trend is coming down which talks

company’s cost of sales with respect to sales revenue is decreasing with increasing liquidity

ratios which directly contributes to increase in profitability through the sufficient

availability of working capital for smooth day to day operation that can be reflected

through the improving sales turnover .

Here it can be seen that the increase in liquidity ratio and at the same time company’s

profitability ratio is increasing and operating ratios are decreasing, from the year 2012-13

to 2013-14 there is increase in profitability ratio from -3.43 % to 4.25 % this is mainly

because of decrease in operation ratio from 103.85% to 95.95% and also it can be seen the

increase in current ratio from 1.30 to 1.61, quick ratio from 0.89 to 1.23 and at the same

time absolute liquid ratio increased from 0.04 to 0.18, from the year 2013-14 to 2014-15

there is a slight decrease in profitability ratio from 4.25% to 2.68 % this is mainly because

of increase in operating ratio which increased from 95.95% to 96.28% and finally in the

year we can see a direct impact on the profitability ratio with respect to liquidity ratio from

the year 2014-15 to 2015-16 there is a huge increase in profitability from 2.68 % to 14.38

% this is mainly because of decrease in operating ratio to 86.56% and at the same time it

can be seen that all the liquidity ratios have achieved more than their ideal ratios respect

to previous year that shows the relationship between profitability and liquidity .

67

With respect to the above interpretation it can be understood that due to improvement in

the liquidity ratios, company maintains the good liquidity position to support its day to day

operation that helped in reducing cost and increasing sales that improve the profit of the

company.

4.6 COMPARATIVE ANALYSIS OF PROFITABILITY AND

TURNOVER RATIOS.

This comparative analysis is being done in order to find out the effect of major turnover

ratios on to the profitability of the firm and how the changes happened in the profitability

due to change in turnover ratios . If a business can increase its turnover, it can theoretically

generate a larger profit, since it can fund operations with less debt, thereby reducing interest

costs. However, when tracked on a trend line, it can give useful perspective on the ability

of a company to maintain its price points and production costs over the long term.

Table: 4.6.1: Comparative Analysis of Turnover Ratios And Profitability Ratio

Comparative Analysis Of Turnover Ratios and Profitability Ratio

Year

Inventory

Turnover

Ratio

Account

Receivables

Turnover

Ratios

Account

Payables

Ratio

Fixed

Assets

Turnover

Ratio

Current

Assets

Turnover

Ratio

Net

Profit

Ratio

2011-12 2.97 1.13 0.55 0.53 0.58 1.55%

2012-13 11.00 5.25 3.79 2.61 2.83 -3.43%

2013-14 9.31 5.15 3.14 3.37 2.08 4.25%

2014-15 8.68 4.87 3.29 3.72 2.08 2.68%

2015-16 7.53 5.05 3.70 3.51 1.88 14.38%

68

Figure 4.6.1 Comparative Analysis of Profitability Ratio and Turnover Ratios

2.97

11.00

9.31

8.68

7.53

1.13

5.25 5.154.87

5.05

0.55

3.79

3.143.29

3.70

0.53

2.61

3.37

3.723.51

0.58

2.83

2.08 2.081.88

1.55%

-3.43%

4.25%

2.68%

14.38%

2011-12 2012-13 2013-14 2014-15 2015-16

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2011-12 2012-13 2013-14 2014-15 2015-16

Inventory Turnover Ratio(times) Account Receivables turnover ratios(Times)

Account Payables ratio(Times) Fixed Assects Turnover Ratio(Times)

Current Assects Turnover Ratio(times) Net profit ratio


69

INTERPRETATION

From the above chart and the table it can be seen that the effects of changing in turnover

ratios with respect to profitability , from the year 2011-12 to 2012-13 there is a decrease in

net profit ratio from 1.55% to -3.43% but this loss is not due to decrease in turnover ratios

because here all the turnover ratios have increased mainly inventory turnover ratio but with

comparison to that there is not big increase in receivables and payables turnover ratio due

to that company is not able to generate effective cash cycle and other reasons for such loss

is huge operating cost , price falling and decrease in the demand at the same time company

got pileup with the unsold inventory and got more burden of fixed finance cost that can be

understood by high operating ratio.

From the year 2012-13 to 2015-16 it can be understood that there is a relationship among

the turnover ratios and profitability because it can be seen that from the year 2012-13 to

2013-14 net profit increased to 4.25 % at the same inventory turnover ratio come down

from 11 to 9.31 that shows conversion time is less but proportion of inventory respect to

last year is very high in amounts to achieve sales demand this shows that company is

following a stable inventory policy with respect to the sales demand that can be easily

understood by receivables turnover ratio which stabilized at 5.15 but comparison to

payables ratio its less decrease and at the same time it can be seen there is a slight decrease

in the payables turnover ratio from 3.79 to 3.14 which says company payment times has

decreased due to vendors credit policy and here company is enjoy some interest free income

and the fixed assets turnover ratio has increased from 2.61 to 3.37 that says company is

using its fixed assets in an effective manner to generate more sales revenue .

From the year 2013-14 to 2014-15 there is decrease in profitability ratio from 4.25 % to

2.68 % and at the same time it can be seen that a decrease in inventory turnover ratio

decreased to 8.86 and receivables turnover ratio to 4.87 that’s show the reduction in their

operations and at the same time account payable turnover ratio has increased that shows

increase in payments to vendors for raw material cost but at the same time less frequent to

convert these to sales and generate revenue for appropriate payments that effects

profitability .

70

Finally it can be seen that from the year 2014-15 to 2015-16 there is huge increase in the

profitability ratio from 2.68% to 14.38% and at the same time it can be seen that the

reduction in inventory turnover ratio from 8.86 to 7.56 that shows company is trying to

produce only according to the demand due to that more inventory cost can be minimized

so company has reduced its operation according to the demand , at the same time

company’s receivables turnover ratio and payables turnover ratio reached from 3.29 to

3.70 that’s says the fast collection and payment to vendors for the continuing operation due

to that company is able to achieve high level of profit and at the same time company

reduced its operating cost to get more profit on sale.

4.7 ANALYSIS OF EFFECT OF CHANGE IN WORKING CAPITAL RATIOS

ON PROFITABILTY RATIO

This analysis is being done to see the effects of change in net working capital turnover ratio

and inventory to net working capital turnover ratio on the profitability of the company.

This analysis will help us to understand how the efficient management of working capital

effects the operation of the company through which company is able to maintain sales

revenue and at the same time we will see the effects of Inventory to working capital

turnover ratio which will indicates the how inventory holding cost also effect the liquidity

that can be understood by Net working capital ratio of the company and at the same time

how it affect the company’s profitability.

Table 4.7.1 Comparative Analysis of Working Capital Ratios and Profitability

Comparative Analysis Of Working Capital Ratios And Profitability

Year

Working

Capital

Turnover

Ratio(times)

Inventory to

working capital

turnover

ratio(times)

Net Working

Capital Ratio Net profit ratio

2011-12 2.64 0.89 10.47% 1.55%

2012-13 12.23 1.35 11.09% -3.43%

2013-14 5.50 0.62 23.36% 4.25%

2014-15 4.52 0.55 29.49% 2.68%

2015-16 3.20 0.49 38.22% 14.38%

71

Figure 4.7.1 Comparative Analysis of Working Capital Ratios and Profitability

INTERPRETATION

From the above table and chart it can be seen that the effect of change in all the ratios from

the year 2011-12 to 2012-13 there is a change in net profit ratio is 1.55% to loss –(3.43) %

2.64

12.23

5.50

4.52

3.20

0.89

1.35

0.62 0.55 0.4910.47% 11.09% 23.36% 29.49% 38.22%

1.55%

-3.43%

4.25%

2.68%

14.38%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2011-12 2012-13 2013-14 2014-15 2015-16

PER

CEN

TAG

E

RA

TIO

S IN

TIM

ES

YEARS

Working Capital Turnover Ratio(times)

Inventory to working capital turnover ratio(times)

Net Working Capital Ratio

Net profit ratio

72

and at the same time it can be related with that there is a huge increase in the working

capital turnover ratio from 2.64 to 12.23 times which is the highest level of ratio through

all the years that shows company is having very high working capital turnover respect to

sales which is more than the requirement that shows company is having huge idol money

in the form of inventory and receivables that is not effectively used to generate the sales or

revenue for the company that can be easily understood by inventory to turnover ratio which

increase from 0.89 to 1.35 that shows inventory is having more value than its net working

capital which shows there is a huge stock of inventory is pile up with the company on

which company is losing interest income on that amount and also has to be paid to the

vendors and also less liquidity making a problem for the day to day liquid requirement .

But from the year 2012-13 to 2013-14 there is an increase in the Net profit ratio from –

(3.43)% to 4.25 % and at the same time it can be seen that net working capital turnover

ratio decrease to 5.50 that can be called as a stable ratio where firm is utilizing its working

capital in an effective manner to generate sales and at the same time inventory to net

working capital also decreased from 1.35 to 0.62 which shows that company has changed

its policy towards inventory and carrying less inventory in stock to maintain more liquidity

for the smooth operations and generating more revenue that contributes to profit .

And finally from the year 2013-14 to 2015-16 there is an increase in the Net profit ratio

from 4.25 % to 14.38 % and at the same time working capital turnover ratio has decrease

from 5.50 to 3.20 which shows that company is trying to maintain a profitable liquidity

position for the effective operation of the business that they are achieving through the less

inventory value in stock that can be understood through the reduction in inventory to net

working capital ratio from 0.62 to 0.49 which is giving more liquidity for day to day

operation of the firm .

Here it can be seen that company is reducing its working capital turnover ratio from the

year 2012-13 to 2015-16 and the main reason for reducing it reducing to maintain more

liquidity in cash through reduction in the inventory amount because at the same time

inventory to working capital turnover ratio also decreasing that shows company is reducing

its inventory stock to reduce it inventory carrying cost that effects the profitability of the

firm directly and at the same time company is improving its net working capital ratio that

73

shows the improving liquidity of the firm with respect to the total assets of the firm that

shows the increase from 10.47% to 38.22 % which shows that company maintains 38.22%

liquid assets with respect to total assets but proportion to sales they reduced its liquidity

because of reduction in inventory with proportion to sales that shows through working

capital turnover ratio .

4.8 ANALYSIS OF CASH CONVERSION CYCLE / WORKING

CAPITAL CYCLE OR OPERATING CYCLE EFFETS ON

PROFITABILITY RATIO

This analysis is carried to understand the effect of net operating cycle of the company on

the profitability ratio because the duration of the operating cycle is important to understand

the cash flow of the company and at the same time it effects the working capital

management of the company for the smooth operation that effects the sales and profitability

of the company and this gives idea about ,is there company is using interest free financing

or at the same time their money is pile up with receivables on which company have to pay

interest that directly effects the cost to the operation or making chances for enjoying more

benefit of holding cash and making further investment for generating profit that will be

effected through profitability ratio.

74

Table 4.8.1: Comparative Analysis of Cash Conversion Cycle and Net Profit Ratio

Comparative Analysis Of Cash Conversion Cycle And Net Profit Ratio

Year

Inventory

Holding

Period(Days)

(A)

Average

Collection

Period(Days)(B)

Gross

Operating

Cycle(A+B

)(Days)

Payables

payment

Period(c) (Days)

Net

Operating

cycle(A+B-

C)(DAYS)

Net

profit

ratio

2011-12 123 323 446 658 -212 2%

2012-13 33 70 103 96 6 -3%

2013-14 39 71 110 116 -6 4%

2014-15 42 75 117 111 6 3%

2015-16 48 72 121 99 22 14%

75

Figure: 4.8.1 Comparative Analysis of Cash Conversion Cycle and Net Profit Ratio

123

33 39 42 48

323

70 71 75 72

446

103 110 117121

658

96116 111

99

-212

6

-6

622

1.55%

-3.43%

4.25%

2.68%

14.38%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

-300

-200

-100

0

100

200

300

400

500

600

700

800

2011-12 2012-13 2013-14 2014-15 2015-16

Inventory Holding Period(Days)(A) Average Collection Period(Days)(B)

Gross Operating Cycle(A+B)(Days) Payables payement Period(c) (Days)

Net Operating cycle(A+B-C)(DAYS) Net profit ratio


76

INTERPRETATION

From the above chart and table it can be seen that in the year 2011-12 company is having negative

-212 days of Net operating cycle which says here company is having more payments period to pay

off its vendors around 658 days and at the same time inventory holding period and collection period

is around total 446 days that makes benefit for the company to enjoy interest free finance and

improves working capital position to further investment through increase in the holding period of

cash that improves the operation and contribute to the company’s Net profit ratio around 1.55%

even in the year of establishment of company.

In the year 2012-13 Net loss around 3.43% and here it can be seen that there is a hike in

cash conversion cycle to 6 days instead of reduction in inventory holding period and

collection period from debtors that says company is taking around more six days to get

cash through its operation and at the same time company is facing unnecessary burden of

interest factor on investment for six days with directly effects the company’s profitability

and also the creditworthiness, the major reason for such increase in cash conversion cycle

is reduction in outstanding payment period from 658 days to 96 days which is 6 days higher

than the inventory holding period and collection period but this loss is happened due to

some other macro-economic factors such as high operating cost , reduction in selling price,

decrease in demand and huge inventory loss.

In the year 2013-14 there is an increase in profitability to 4.25% and it can also relate that

in the same year company again reached to negative -6 days of cash conversion cycle which

talks company is having more 6 days in hands to pay off its vendors and at the same time

company again enjoying interest free financing for 6 days, the main reason to get this

negative operating cycle is increase in the payment period to 116 days by its vendors

which is greater than gross operating cycle of 110 days that shows that a smooth operation

of business through fast collection of cash through its sales and improve the liquidity and

working capital of the company to improve its profitability.

But in the year there is a decrease in the profitability ratio to 2.68% this can be related with

the cash conversion cycle which again reached to 6 days this is because of increase in

inventory holding period and collection period to 42 days and 75 days with respect to that

company is getting less payment period to its vendor respect to gross operation cycle which

77

is 111 days which creates an interest burden and also higher inventory holding cost which

effects the company profitability.

Finally in the year of 2015-16 there is a huge increase in net profit ratio to 14.38 % but at

the same time it can be seen that there is an increase in the cash conversion cycle to 22

days which is higher than the previous year and takes more 22 days for cash conversion

from the operation this is mainly because of increase in inventory holding period and

collection period and at the same time reduction in the outstanding payment period which

talks company cash conversion period is not good as compare to previous years that

increase the interest cost for the company and also making high inventory cost but again

company has improved its net profit that is mainly because of reduction in cost and at the

same time increasing in demand and decreasing in price . But if company could maintain

as same as or nearby cash conversion cycle with respect to previous year that improves

the working capital position of the company that makes more smooth operations and

improves the net revenue and at the same time reduction in operating cost that increased

the profitability of the company .

78

CHAPTER V

FINDINGS & CONCLUSIONS

79

5.1 FINDINGS

Working Capital of Delphi Connection System India private limited was increasing

and showing a positive Working Capital from the year 2011-12 to 2015-16 it has

increased from Rs 157,529,714 to Rs 762,860,952 and from trend analysis it can be

seen that there is an increase in the percentage of working capital from the base

year 2011-12 to 2015-16 is 100 % to 484 %.

From the Comparative trend analysis of Net Working Capital and profitability of

the company it can be seen that from the year 2013 to 2016 the percentage increase

is 104% to 484% throughout the year and that shows the linear increase in the

profitability trend from the year 2013 to 2016 it reached from (-1050) % to 5448%.

Statement of Changes in Working Capital Analysis shows there is a highest

increase in the Net working capital comparison to last year is in the year 2014 is

142% after that in the year 2016 is 54% respect to last year.

Current ratio shows the increasing trend throughout the years, in the year 2011-12

it is 1.28 which is less than ideal but in the year 2015-16 it achieved more than ideal

ratio such as 2.42 times.

Quick ratio shows an increasing trend from the beginning of the year and it went

more than its ideal from the year 2013-14 to 2015-16 and it has reached 1.23 times

to 1.72 times .

Absolute liquidity ratio has achieved its ideal position in the year 2015-16 that is

0.55 times.

Inventory turnover ratio has reached highest in the year 2012-13 is 11 times after

that it is showing continuous decreasing trend and it reached 7.53 times in the year

2016.

Inventory to Net working capital shows the highest in the year 2013 is 1.35 times

and after that it shows the continuous decrease and in the year 2016 it reached to

0.49 times .

Account receivables turnover ratio is fluctuating over the period, in the year 2011-

12 it is 1.13 times but from the year 2011-12 it can be seen that ratio has reached to

5.25 and after that in the year 2013-14 it reached to 5.15 then again it decreased to

80

4.87 in the year 2014-15 and finally it again increased to 5.05 times in the year

2015-16.

Creditor’s turnover ratio which shows the lowest in the year 2011-12 is 0.55 times

and reached at highest in the year 2012-13 is 3.79 times.

Working capital turnover ratio is showing the lowest trend in the year 2011-12 is

2.64 times and highest in the year 2013 is 12.23 times and from the year 2013 it

can be seen that a decreasing trend that decreased to 3.20 times in the year 2016.

Fixed assets turnover ratio showing the increasing trend throughout the year, from

the year 2011-12 to 2015-16 it increased from 0.53 to 3.51 and highest it reached

in the year 2014-15 is 3.72.

Working capital cycle is showing the negative days of -212 days in the year 2011-

12 then again in the year 2012-13 it shows the negative -6 days after that it reached

to positive 22 days in the year 2016.

Profitability ratio shows a negative loss of – 3.43% in the year 2013 after that from

the year 2013 to 2016 it shows an increasing trend and it’s reached the highest at

14.38 % in the year 2016.

Operating Ratio of the Company is showing the decreasing trend from the year

2013 to 2016 it has reached from highest 103.85% to 86.53 % .

5.2 CONCLUSIONS

It shows that the company is having sustainable amount of increase in working

capital from the year 2012 to 2016 which shows sustainable fund is available with

the company to pay off its current liability and finance its day to day operation of

the company that can be seen from the increasing trend line through the trend

analysis.

81

From the year 2013 to 2016 there is an increase in the trend of Net working capital

which shows that company is having sufficient amount of liquid position to support

its day to day operation due to that company achieved high level of sales demand

and made more revenue and at the same time company’s expenses comparison to

last year is going down and it can also be seen that the huge amount of increase in

inventory , cash , and receivables that contributes to the increase in working capital

of the company which directly contributes to profit which is achieved through the

smooth operating cycle.

The major reasons of increasing trend in profit throughout the year is because of

proper working capital management that can be understood through the proper

liquidity ratios and positives turnover ratios , that shows that company is

functioning with sufficient amount of working capital management for smooth

functioning of operation with proper inventory and credit policy due to that

company is able to achieve high turnovers throughout the year and also reduction

in cost throughout the year that directly increases the profitability and the huge loss

of -3.43 % in the year 2013 basically due to high operating cost.

Reasons for improvement in current ratio is because of increase in inventories, trade

receivables and cash and decrease in the short term obligations such as payables,

other liabilities and the borrowings of the firm. Here it can be said that there is

enough current assets for Delphi connections systems India PVT. Ltd. to meet its

current liabilities and short term operational expenses.

Quick Ratio shows that from the year 2013-14 to 2015-16 company is having

sufficient amount of liquid fund to meet its immediate obligations that shows that

company is having more than one rupees of quick liquidity for every one rupees of

liability which tells that the strength of the liquid position of the company this is

mainly happened because of increase in the receivables ,cash and other assets and

at the same time there is a decrease in its expenses towards the payables ,other

liabilities and completely reduction in its short term borrowings .

Continuous decrease in Inventory Turnover Ratio from the year 2012 to 2016

happened mainly because of policy followed by the company called just in time

inventory process for some lines which determines the requirement of the material

82

will be procured just before its used and at the same time high scrape value and

obsolete inventory and that type of inventory doesn’t need any warehouse and even

this policy effects the warehouse maintenance and handling costs, and at the same

time due to price changes demand got change and inventory requirement got down

that can be seen from the decreasing trend of inventory from 2013-14 to 2014-15

its decreased to 8.68 and finally its reached in the year 2015-16 is 7.53 that shows

company’s demand for inventory proportion to sales is decreasing due to that

inventory requirement is also going down.

The main reasons for such increase in Accounts Receivables turnover ratio from

the year 2012-13 to 2015-16 is that the company operates on a cash basis or that its

decrease in credit days and collection of accounts receivable are efficient. Also, a

high ratio reflects a short lapse of time between sales and the collection of cash,

while a low number means collection takes longer. The ratio is going up due to

credit policy is improving, sales are increasing and receivables increased through

fast collection of debtors.

The main reason for increase and decrease in Accounts Payable ratios is happening

due to credit terms allowed by the vendors and at the same time improvement in the

inventory ratio and decrease in inventory holding period and also the decrease in debt

collection period due to that company inventory is fast converting into cash and debt

collection from debtor is also fast, due to that company is able to maintain the fast payments

to its vendors due to availability of cash.

From the year 2013-14 there is a decrease in the Working capital turnover ratio to 5.50

and in the year 2014-15 again ratio decreased to 4.52 and finally it reached to 3.20 in the

year 2015-16 which shows that company is trying to come from higher ratio to moderate

ratio for the smooth operation and to generate more sales as per the demand that can be

seen from the increasing sales figure and during the same time payable component of the

company is coming down to maintain the better liquidity position of the company.

Increasing Trend of Fixed Assets turnover ratio that shows that company is effectively

doing the proper utilization of its fixed assets and able to generate more production

for the sale to meet the demand and at the same time it also shows that company’s

proper utilization of liquidity for the smooth function of operation .

83

The fluctuations in Working capital cycle is happening because of company

inventory policy where inventory holding period is fluctuating and at the same time

due to company’s credit policy where company receivables period also fluctuates

which shows that fluctuations in the cash conversion period and working capital

cycle .

Comparative Trend Analysis of Profitability and Liquidity Ratio with respect to

that it can be understood that due to improvement in the liquidity ratios, company

maintains a good liquidity position to support its day to day operation that helped

in reducing cost and increasing sales that improve the profit of the company.

Comparative Analysis of Profitability Ratio and Turnover Ratios that shows there

is a relationship in the changes or fluctuations in turnover ratios that can be seen

from the year 2013 to 2016 where it can be seen that if there is an improvement in

turnover ratios that directly improved the profitability and vice-versa only in the

year 2013 it is a loss due to high operating cost and macro-economic reasons such

as change in demand.

Comparative Analysis of Cash Conversion Cycle and Net Profit Ratio shows there

is a direct relationship between cash conversion cycle and profitability if there is a

low cash conversion that directly effects the profit of the firm through which

company is able to maintain smooth working capital cycle and also reduction and

gaining interest income through low and high cash conversion cycle.

84

CHAPTER VI

SUGGESTIONS & RECOMMENDATIONS

85

6.1 SUGGESTIONS AND RECOMMENDATIONS

Working capital of the company is increasing every year and Profit is also increasing

every year this is good sign for the company. It has to maintain it further, to run the business

long term effectively.

The Current and quick ratios has almost reached to the standard requirement and further

it is advised that to maintain current ratio at least two times to keep a measures of liquidity

crisis and quick ratio should be minimum one times and cash ratio should be 0.5 times.

Even after continuous decrease in inventory turnover ratio company is able to generate

profit but here should be an improvement in its inventory turnover ratio to 9 times for the

more frequency for their liquidity position that will also reduce its burden on cash

conversion cycle and influence the fast working capital cycle and profitability ratio will

increase.

Company is maintaining a good liquidity through the policy and holding lesser

inventory to working capital turnover ratio but if they should maintain at least 0.5 times of

this ratio then it will increase in the profitability performance through the higher liquidity

by less holding of inventory in working capital.

Company is maintaining a sustainable credit policy for receivable management that can

be understood through increasing account receivables turnover ratios but to get more

improvement in this the collection period days should maintain for maximum 72 days that

will reduce the cash conversion cycle and company can maintain more interest free finance

that will directly influence the profit directly.

From the fixed assets turnover ratio it can be said that company is making good use of

fixed asset of the company that can be seen from the improving trend of this ratio.

Company is almost maintaining a good working capital cycle for cash generation but

at the same time they can improve it through better policy adopted from vendors and

receivables that can reduce the cycle and improve the time chances of getting interest free

income and possibly it should maintain a negative or at least a minimum 5 days of cash

cycle. Here company has improved its efficiency towards the cost of sales through the

better management of the working capital that can be understood through decreasing trend

of operating ratio.

86

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Empirical Study 45-63.

Appuhami, BAR. 2008. “The Impact of Firms’ Capital Expenditure on Working Capital.” An

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R.R, Bari. 2000. Cash Planning and Management. Delhi: Triveni Publication.

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Walsh, Ciaran. 1997. Key Management Ratios. New Delhi: Macmillan India.

William, Baranek. 1998. Working Capital Management. California: Belmont publication.

88

APPENDIX

Financial Documents

Delphi Connection Systems India Private Limited(formerly Delphi Connection Systems India

Limited)

Balance Sheet as at March 31, 2016

(all amounts are in Indian rupees unless otherwise stated)

As at As at As at As at As at

March 31, 2016 March 31,

2015

March 31,

2014

March 31,

2013

March 31,

2012

EQUITY AND

LIABILITIES

Shareholders' Funds

Share capital 51,872,580 5 1,872,580 5 1,872,580 5 1,872,580 5 1,872,580

Reserves and surplus 480,320,379 129,264,122 7 2,153,591 -19,243,243 48,406,395

532,192,959 181,136,702 124,026,171 32,629,337 100,278,975

Non - Current Liabilities

Long term borrowings 881,319,000 881,319,000 881,319,000 881,319,000 837,000,000

Long term provisions 35,645,345 27,966,834 23,398,889 4,738,020 855,034

Other non-current liabilities 8,685,735 8,685,735 1,515,347

925,650,080 917,971,569 906,233,236 886,057,020 837,855,034

Current Liabilities

Short term borrowings - - 147,936,707 32,855,749

Trade payables 373,783,269 294,461,919 407,231,190 278,067,701 290,277,231

Other current liabilities 205,220,736 254,630,872 189,395,757 98,609,407 222,884,497

Short term provisions (41,118,092) 32,870,041 46,833,926 12,500,209 20,837,523

537,885,913 581,962,832 643,460,873 537,114,024 566,855,000

TOTAL 1,995,728,952 1,681,071,103 1,673,720,280 1 ,455,800,381 1,504,989,009

ASSETS

Non - Current Assets

Fixed assets:

Tangible assets 512,015,650 435,136,618 436,569,320 4 02,912,857 475,854,459

Intangible assets 66,250,184 7 8,480,980 9 0,711,776 2,942,572 118,231,067

Capital work-in-

progress 75,274,014 3 5,161,239 3 4,877,514 1 0,911,071 9,692,772

653,539,848 548,778,837 562,158,610 5 16,766,500 603,778,298

Deferred tax asset (net) 27,274,928 36,094,621 30,267,396 2,162,000

Long term loans and

advances 10,083,969 14,383,969 43,282,851 239,347,097 173,477,395

Other non-current assets 4,083,342 4 ,083,342 3 ,602,248 1 ,188,386 1,186,602

694,982,087 603,340,769 639,311,105 757,301,983 780,604,295

Current Assets

Current investments 46,652,668

Inventories 375,227,529 273,012,011 243,775,963 2 18,589,094 140,134,844

Trade receivables 496,757,812 469,095,621 451,292,042 3 83,545,957 368,818,005

Cash and bank balances 296,533,951 164,644,042 114,214,196 1 8,858,045 42,151,142

89

Short term loans and

advances 132,227,573 170,978,660 225,121,183 7 7,490,713 89,636,055

Other current assets - 5,791 1 4,589 36,992,000

1,300,746,865 1,077,730,334 1,034,409,175 698,498,398 724,384,714

TOTAL 1,995,728,952 1,681,071,103 1,673,720,280 1 ,455,800,381 1,504,989,009

Delphi Connection Systems India Private Limited(formerly Delphi Connection Systems India Limited)

Statement of profit and loss

for the year ended March

31, 2016

(all amounts are in Indian

rupees unless otherwise

stated)

For the year ended

For the year

ended

For the year

ended

For the year

ended

For the year

ended

March 31, 2016 March 31, 2015 March 31, 2014 March 31, 2013

March 31,

2012

INCOME

Revenue from operations (gross) 2,440,877,835 2,315,094,073 2 ,204,556,810 2 ,017,413,899 420,834,354

Less: Excise duty 0 73,218,050 53,206,654 4 3,921,711 4,171,665

Revenue from operations (net) 2,440,877,835 2,241,876,023 2,151,350,156 1 ,973,492,188 416,662,689

Other income 196,139 9,143,236 15,075,323 1 2,739,480 2,518,467

Total income 2,441,073,974 2,251,019,259 2,166,425,479 1 ,986,231,668 419,181,156

EXPENSES

Cost of raw materials and components consumed

928,491,112

853,286,538 8 84,394,473 964,903,159 156,285,081

Purchase of traded goods 346,801,714 346,801,714 2 26,140,417 1 72,449,615 16,901,686

(Increase)/decrease in inventories of finished

goods , work in progress and traded

goods (39,176,587) (47,191,747) (33,036,374) (60,176,562) (12,218,768)

Employee benefits expense 387,009,904 355,136,918 3 20,264,475 2 98,684,386 100,551,556

Other expenses 337,115,217 403,233,781 4 38,362,060 4 16,795,631 109,413,900

Depreciation and amortization 150,084,418 144,063,510 1 19,286,186 1 45,975,639 23,982,345

Finance costs 1,743,988 103,152,645 1 08,773,864 1 10,930,267 13,558,852

Total expenses 2,112,069,766 2,158,483,359 2,064,185,101 2 ,049,562,135 408,474,652

Profit before tax 329,004,208 92,535,900 102,240,378 (63,330,467) 10,706,504

Profit on Sale of global business support division 0 0

Profit before tax( Gross Profit) 329,004,208 92,535,900 102,240,378 (63,330,467) 10,706,504

90

Tax expense:

Current tax (8,482,692) 36,904,130 41,110,940 11,418,357

Deferred tax charge/(credit) (13,569,357) (4,349,182) (30,267,396) 2,162,000 (1,498,000)

Total tax expenses (22,052,049) 32,554,948 10,843,544 2,162,000 9,920,357

Profit/(Loss) for the year/period

before prior period items 351,056,257 59,980,952 91,396,834 (65,492,467) 786,147

Prior period item (Note 34) 0 0 0 2 ,157,171 0

Profit for the year

351,056,257

59,980,952 91,396,834 (67,649,638) 786,147

DISCONTINUED OPERATIONS

Profit before tax from discontinued operations 0 0 0 0 3,679,995

Profit on sale of global business support division 0 0 0 0 4,695,000

Less : Tax expense of discontinued

operations 0 0 0 0 2,716,848

Profit after tax from discontinued

operations (B) 0 0 0 0 5,658,147

Profit/(Loss) for the year/period

(A+B)(Net profit) 351,056,257 59,980,952 91,396,834 (67,649,638) 6,444,294

Earnings per share (EPS) (basic and

diluted) 68 12 18 (13) 0

Nominal Value Per Share Rs 10 Rs 10 Rs10 Rs 10 Rs 10

Number of shares used for

computation of EPS 5,187,258 5,187,258 5,187,258 5 ,187,258 5,187,258

a study on the topic "working capital management" for delphi connection system india pvt...

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