gaurang desai-1231
Post on 30-May-2018
234 Views
Preview:
TRANSCRIPT
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 1/34
- BY
GAURANG .V. DESAI(ROLL NO 1231)
Faculty Guide
Prof. Naresh Shah
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 2/34
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 3/34
CONTENTCONTENT
y Objectives of study
y Methodology & limitation of Study
y Overview of company
y Working capital theory
y working capital requirement of Elecon
y Ratios
y Operating Cycley Suggestions and Findings
y Bibliography
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 4/34
OJECTIVES OF THE STUDYOJECTIVES OF THE STUDY
To evaluate the financial performance of the company in
context ofWorking capital.
To analyze the working capital performance of thecompany for the last five years that is 2004-05 to 2008-09.
To estimate the working capital requirement of Elecon.
To study the operating and cash cycle of the company.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 5/34
METHEDOLOGYMETHEDOLOGY
Primary Data :
In the project primary data was collected by
consulting various executives of the company.
Secondary Data :
Study is mainly based on the
secondary data, which are collected from the books,
records, journals and profiles of the organization and 5
years annual reports of the company.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 6/34
LIMITATION OF STUDYLIMITATION OF STUDY
Limited data
Limited period
Limited area
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 7/34
INTRODUCTION OF COMPANYINTRODUCTION OF COMPANY
From a modest start of design and manufacture of Elevators and Conveyors from which incidentally, thecompany derives its corporate identity. viz. "Elecon".
Established in 1951, Elecon Engineering is a leadingplayer in industrial gears ,material handling equipmentsand windmills.
Elecon is the first industrial gear company to achieveISO 9001 certificate in 1994 and ISO 9001:2000 versionin 2001.
Elecon is India's largest gear manufacturer with all
types of gear transmission products under one roof.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 8/34
BUSINESS PORTFOLIOBUSINESS PORTFOLIO
Bulk Material Handling Plants (MHE)
From elevators, conveyors and gears to material handlingplants. For over 5 decades, Elecon has supplied hi-tech equipment to coresectors such as steel, fertilizer, cement, coal, lignite and iron are mines,power stations and port mechanization in India and abroad.
Industrial Gears
Driven by excellence since 1951, Elecon is Asia·s largest gearmanufacturing company enjoying a significant presence in India and abroad.Elecon is the supplier of choice to core sectors like Sugar, Cement,
Chemical, Fertilizer, Steel, Plastic Extrusion and Rubber.
Windmill
ELECON take the opportunity to help the world inreducing the Global Warming by providing the solution to generate theGREEN POWER by harnessing energy through renewables, mainly throughWind.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 9/34
WORKING CAPITALWORKING CAPITAL
y Working capital is the amount of capital that a business has
available to meet the day to- day cash requirements of its
operations, or more specially, for financing the conversion of
raw material into finished goods, which the company sells for
payment.
y 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 cash, marketable securities, debtors
and inventories.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 10/34
DETERMINENT OF WORKINGDETERMINENT OF WORKING
CAPITALCAPITALNature of IndustrySize of BusinessManufacturing CycleProduction Policy
Volume of SalesTerms of purchase & Sales Business Cycle
Growth and ExpansionSupply of Raw Materials
Price Level changesOperating Efficiency
Profit Margin
Profit Appropriation
Capital Structure
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 11/34
NEED FOR WORKING CAPITALNEED FOR WORKING CAPITAL
For the purchase of raw material.
To pay wages & salaries.
To incur day to day expenses and overhead costs. To meet selling costs.
To provide credit facilities to the customer.
To maintain the inventories of raw material, work in
progress, stores and spares and finished stock.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 12/34
Maintains solvency of business.
Helps in creating & maintaining goodwill.
Helps in arranging loans from banks & others on easy
and favorable terms. Ensures regular supply of raw materials.
Regular payment of salaries, wages & other day to daycommitment.
Enables a concern to face business crisis.
IMPORTANCE OR ADVANTAGES OFIMPORTANCE OR ADVANTAGES OF
ADEQUATEADEQUATE WCWC::--
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 13/34
WORKING CAPITALWORKING CAPITAL
REQUIREMENT OF ELECONREQUIREMENT OF ELECON
PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05
CURRENT
ASSET
100,845.9 80,963.70 60,871.21 43,341.26 36,780.06
CURRENTLIABILITIES
43,177.28 35,003.64 25,558.94 21,670.43 15,840.46
NETWORKING
CAPITAL
57,668.62 45,960.06 35,312.27 21,670.83 10,939.60
Working capital is the funding that a
company needs to support its accounts receivable and
inventory, and is offset by the amount of funding it
obtains from its suppliers through accounts payable.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 14/34
CONT«..CONT«..
The working capital requirement is increasing by
98%,63%, 30%,25% from 2004-05 to 2008-09.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 15/34
INTERPRETATIONINTERPRETATION
After analysis the 5 year data we can say that the Working
Capital requirement is increasing year by year. We are looking
increasing pattern in working capital.
The company is managing working capital very preciselyas we know that Elecon Engineering is high working capital
oriented organization.
The sale is increasing year by year which results into increase
in debtors and cash which ultimately results into increase inworking capital requirement.
Elecon is getting new order at regular interval as it gives
importance to quality.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 16/34
Investment in the current asset is also increasing with
increase in the span. On the other hand there is also
increase in the current liabilities. We can say that
current assets and current liabilities go hand in hand.
Elecon is using short term loans from bank to financeworking capital.
Elecon is also utilizing spontaneous finance.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 17/34
CURRENT RATIOCURRENT RATIO
YEAR 2008-09 2007-08 2006-07 2005-06 2004-05
CURRENT
ASSETS
100,845.90 80,963.70 60,871.21 43,341.26 36,780.06
CURRENT
LIABILITIE
S
43,177.28 35,003.64 25,558.94 21,670.43 15,840.46
CURRENT
RATIO
2.33 2.31 2.38 2.00 2.32
This ratio explains the relationship between current
assets and current liabilities of a business.
Current Ratio = Current Assets/ Current Liabilities
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 18/34
y A conventional rule is that a current ratio of 2:1 or
more is considered satisfactory.
y The current ratio of Elecon is more than 2:1.So it is
sufficient and good for Elecon.
y Elecon has more current asset then current liabilities
claim so unit is able to meet current obligation in full
and it can be said that its liquidity position is sound.
y The current ratio is more than 2 due to higher level of
inventory.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 19/34
QUICK RATIOQUICK RATIO
YEAR 2008-09 2007-08 2006-07 2005-06 2004-05
QUICK
ASSETS
60929.64 57055.93 45239.32 27738.15 15365.24
QUICK
LIABILITIE
S
43,177.28 35,003.64 25,558.94 21,670.43 15,840.46
QUICK
RATIO
1.41 1.63 1.77 1.28 0.97
Quick ratio is a more rigorous test of liquidity than
current ratio. Quick ratio may be defined as the
relationship between quick/liquid assets and current or
liquid liabilities.
Quick Ratio = Quick Assets/ Quick Liabilities
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 20/34
y
Generally quick ² ratio of 1:1 is considered to representa satisfactory to current financial condition and this
ratio is sufficient.
y Elecon has ability to pay its current claim quickly.
y
So, Elecon has sufficient current assets which can easilyconvert into the cash immediately.
y By exclusion of stock from current assets leads to
drastic change in quick ratio.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 21/34
ABSOLUTE LIQUID RATIOABSOLUTE LIQUID RATIO
To know the absolute liquidity of the company
absolute liquid ratio is calculated.
ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS
CURRENT LIABILITES
YEAR 2008-09 2007-08 2006-07 2005-06 2004-05
ABSOLUTE
LIQUID
ASSETS
137150.42 100394.99 74262.88 52009.51 45975.075
CURRENT
LIABILITIES
100,845.90 80,963.70 60,871.21 43,341.26 36,780.06
ABSOLUTE
LIQUID
RATIO
1.36 1.24 1.22 1.20 1.25
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 22/34
1.1
1.15
1.2
1.25
1.3
1.35
1.4
2008-09 2007-08 2006-07 2005-06 2004-05
Absolute liquid ratio
liquid ratio
y The ideal ratio is 0.5:1
y Elecon is having absolute liquidity which is good sign
y In the last year the ratio has been increased to 1. 36y Elecon has ability to pay its current claim quickly.
y So, Elecon has sufficient current assets which can easilyconvert into the cash immediately.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 23/34
INVENTORY TURNOVER RATIOINVENTORY TURNOVER RATIO
INVENTORY TURNOVER RATIO = COST OF GOOD SOLDAVERAGE INVENTORY
YEAR 2008-09 2007-08 2006-07 2005-06 2004-05
COGS 6397.72 5543.69 4903.67 2393.83 1763.28
AVERAGE
INVENTORY
1367.035 1229.20 972.95 668.67 532.715
INVENTORY
TURNOVER
RATIO
4.68 Times 4.51 Times 5.04 Times 3.58 Times 3.31 Times
Inventory turnover ratio measures the speed with which thestock is converted into sales. Usually a high inventory ratio indicates an
efficient management of inventory because more frequently the stocks are
sold; the lesser amount of money is required to finance the inventory.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 24/34
0
1
2
3
4
5
6
2008-09 2007-08 2006-07 2005-06 2004-05
inventory turnover ratio
inventory turnover ratio
y This ratios shows how rapidly the inventory is turninginto receivable through sales.
y In 2006-07 the company has high inventory turnoverratio but in 2007-08 and 2008-09 it has reduced.
y This shows that the company·s inventory managementtechnique is very much efficient as it converts the stock into finished goods more than 4 times in a year.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 25/34
DEBTORS TURNOVER RATIODEBTORS TURNOVER RATIODebtor·s velocity indicates the number of times the
debtors are turned over during a year. Generally higher the
value of debtor·s turnover ratio the more efficient is the
management of debtors/sales or more liquid are the debtors
DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)AVERAGE DEBTORS
YEAR 2008-09 2007-08 2006-07 2005-06 2004-05
SALES 283913.25 252646.67 136690.75 84496.92 47530.35
DEBTORS 48202.59 44015.10 30108.095 16407.17 11316.75
DEBTORS
TURNOVER
RATIO
5.89 Times 5.74 Times 4.54
Times
5.15
Times
4.20
Times
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 26/34
0
1
2
3
4
5
6
7
2008-09 2007-08 2006-07 2005-06 2004-05
debtors turnover ratio
debtors turnover ratio
y There is uneven trend we can observe in debtors turnover ratio
y This ratio indicates the speed with which debtors are being converted
or turnover into sales. The higher the values or turnover into sales.
y The higher the values of debtors turnover, the more efficient is the
management of credit.y But in the company the debtor turnover ratio is decreasing year to
year. This shows that company is not utilizing its debtors efficiency.
y Now their credit policy becomes liberal as compare to previous years.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 27/34
CREDITORS TURNOVER RATIOCREDITORS TURNOVER RATIO
It indicates the number of times sundry creditors have been
paid during a year. It is calculated to judge the requirements of
cash for paying sundry creditors. It is calculated by dividing the
net credit purchases by average creditors.
Creditor Turnover Ratio = Net Credit Purchases
Trade Creditor
YEAR 2008-09 2007-08 2006-07 2005-06 2004-05
COST OF
SALES
73747.68 59906.12 49862.03 31281.65 18481.65
CREDITORS 28167.81 27526.23 20395.53 15281.09 10369.10
CREDITORS
TURNOVER
RATIO
2.62 2.18 2.44 2.05 1.78
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 28/34
0
0.5
1
1.5
2
2.5
3
2008-09 2007-08 2006-07 2005-06 2004-05
creditors turnover ratio
creditors turnover ratio
y Higher the payable period lower the working capitalrequirement, but on the other hand it may affect the prestigeof the firm so the company has to frame creditors policy insuch manner.
y The creditors ratio is improving as compare to the last years.y This situation enhances the credit worthiness of the
company.
y Elecon is maintaining good relationship with the creditors .
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 29/34
OPERATING CYCLEOPERATING CYCLE
work-in -progress
finishedgoods
salesAccounts
receivables
Cash
raw-material
RMCP = Average Raw material stock × 365
Total Raw material consumption
WPCP= Average Work-in-progress × 365
Total cost of production
FGCP= Average Finished Goods × 365
Total Cost of goods sold
RCP= Average Receivable × 365
Total Credit sales
CCP= Average Creditors × 365
Total Credit purchase
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 30/34
OPERATING CYCLE PERIODSOPERATING CYCLE PERIODS
Particulars Numbers of Days2008-09
Numbers of Days2007-08
RMCP 70 56
+ WMCP 71 45
+ FGCP 13 6
+ RCP 222 218
TOCP 376 325
-DP 135 145
NOC 241 180
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 31/34
SUGGESTIONS & FINDINGSSUGGESTIONS & FINDINGSy Company·s main strength is its employees and company is properly
taking care of that by providing safety working conditions, canteen
facilities etc
y
Elecon is investing more and more money in subsidiary companiesfor its faster growth.
y Company·s working capital us enough to maintain company·s sales
and other operations easily. Due to high goodwill the company is
not getting any problem in getting short term finance.
y Elecon is continuously trying to maximize the wealth of share
holders.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 32/34
Conti««.Conti««.
y Company gives 75% of dividend since last two years, instead
of giving 75% dividend the company should give 60 to 65%
and reinvest the balance amount in financing the working
capital.
y Company is targeting to increase foreign exchange
transactions and also trying to avoid hedging risk.
y Company should try to utilize cheap source of finance forfinancing working capital requirements.
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 33/34
BIBILOGRAPHYBIBILOGRAPHY
y http://elecon.nlihost.com/investors-
relations_details.php?type=fs
y http://elecon.nlihost.com/page_details.php?id=31&level1
_id=33
y http://www.netmba.com/finance/financial/ratios
y Annual Reports of Elecon Engineering Ltd of last 5 years
8/9/2019 gaurang desai-1231
http://slidepdf.com/reader/full/gaurang-desai-1231 34/34
top related