dass project

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A STUDY ON WORKING CAPITAL MANAGEMENT

IN

INTEGRAL COACH FACTORY

A SUMMER PROJECT REPORT

Submitted by

J.RAMDASS

1080078

Under the Guidance of

Mr M.MARTIN SELVAKUMAR

Lecturer, Department of management sciences

in partial fulfillment for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

FACULTY OF MANAGEMENT STUDIES

ANNA UNIVERSITY OF TECHNOLOGY CHENNAI: CHENNAI 600113

AUGUST 2011


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ANNA UNIVERSITY OF TECHNOLOGY CHENNAI

BONAFIDE CERTIFICATE

Certified that this project titled

is the bonafide work of Mr. /

Ms.. who carried out the research under my supervision.

Certified further that to the best of my knowledge the work reported herein does not form part of any

other project or dissertation on the basis of which a degree or award was conferred on an earlier

occasion of this or any other candidate.

Mr M.MARTIN SELVAKUMAR Dr.S.N.GEETHA

Lecturer Supervisor/Professor

Department of Management Studies Department of Management Studies

Anna University of Technology Chennai, Anna University of Technology

Chennai,

Chennai-600 113. Chennai- 600 113.


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ACKNLOWLEDMENT

I express my Sincere and Profound thanks to Dr. S.N.Geetha M.com., M.phil., PhD.H.O.D Department of management studies, Anna university of Technology, Chennai for

having given all the facilities and resource in bringing this work successfully.

I sincerely acknowledge the contribution of my guide Mr.M. Martien

Selvakumar., M.Phil., for the guidance and invaluable suggestions to completion of the

project work. Without his help and contribution I could not have been completed the project

work.

I express my heartful thanks to the Integral Coach Factory for allowing me to do

the summer project and also i thank MS.Vijayalakshmi for guiding me in successfully

completing my project.


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CONTENTS

Chapter No Title Page No

I INTRODUCTION 5

II COMPANY PROFILE 9

III REVIEW OF LITERATURE 13

IV RESEARCH METHODOLOGY 18

V DATA ANALYSIS &INTERPREATIONS 19

VI FINDINGS &SUGGESTION 54

VII CONCLUSION 5

VIII BIBLIOGRAPHY 57


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INTRODUCTION

Working capital management is an integral part of overall corporate management.

Management is an art of anticipating and preparing for risks and uncertainties and

overcoming obstacles. For the finance manager who is ready to play his role and has a

working knowledge of the tools and techniques he can employ to carry out his tasks, the

working capital sphere throws open a welcome challenge and an opportunity.

Working capital is a simple term is the account of funds which a company must have

to finance its day to day operation. In practice a firm has to employ short term funds as short

term assets. The management of such assets described as working capital management the

problems involved in the management of working capital differ from those in fixed assets.

The purpose of this project is to provide an insight into the problem of working

capital management is discussed in subsequent chapters.


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INDUSTRY PROFILE

The first railway on Indian sub continent ran over a stretch of 21 miles from Bombay

to thane. The idea of a railway to connect Bombay with thane, kalyan and with the thane and

Bhore ghats inclines first occurred to George clark, the chief engineer of Bombay

government, during a visit to Bhandup in 1843.

The formal inauguration ceremony was performed on april 1853 when 14 railway

carriage about 400 guests bori bunder. The first passenger train streamed out of howrah

station destined for Hooghly a distance of 24 miles on 15 th august 1854. Thus the first

section of east Indian railways opened to public traffic inaugurating the beginning of railwaytransport on eastern side of sub continent.

In south,the first line was opened on 1st

july1856 by the madras railway company . it

ran between vyasarpadi and walajah broad(arcot) a distance of 63 miles. In the north, a length

of 119 miles of line was laid from Allahabad to Kanpur on 3rd

march,1959. The first section

from hathras road to Mathura cantonment was opened to traffic on 19th

October,1875.

These were the small beginnings which is in due course developed into a

network of railway lines all over the country by 1880. The Indian railway system had a route

mileage of about 9000 miles. Indian railways, the premier transport organisation of the

country is the largest rail network in asia and the worlds second largest under one

management.


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RAILWAY ZONES

Western railway South east central railway Central railway East central railway

East coast railway

Eastern railway North central railway North eastern railway North western railway North east frontier railway Northern railway South central railway South eastern railway South western railway Southern railway


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PRODUCTION UNITS

Chittarajan loco works Diesel loco Modernisation works diesel locomotive works Integral coach factory Rail wheel factory

CORPORATION UNDER INDIAN RAILWAYS

Central organization for modernisation of workshops centre for railway informationsystem

Container corporation of india ltd Indian railways catering and tourism corporation ltd Indian railways finance corporation Mumbai railway vikas corporation Railtel corporation of india ltd RITES ltd

OTHER ORGANIZATION UNDER INDIAN RAILWAYS

Rail Vikas Nigam Ltd., Central Organization For Railway Electrification Delhi Metro Rail Corporation

Federation Of Railway Officer Association Indian Railway Accounts Service Association


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Indian Railway Accounting Reforms Indian Railway Central Organization For Telecom Indian railway stores services Indian railway welfare organization Indian railway institute of electrical engineering Institute of railway transport National rail museum Railway board Railway recruitment board Railway staff college baroda Research design and standards organization Indian railway institute of mechanical and electrical engineering


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COMPANY PROFILE

INAUGRATION

The Integral Coach Factory at Chennai is the first of its kind to be established after

Independence for the manufacture of light weight, all steel and of welded Integral railway

passenger coaches. The factory was set up in 1955 with Swiss Collaboration.

PRODUCTION

ICFs initial plan was to produce 30 Board Gauge Third Class shells (unfurnished

body of the Railway Coaches) only, which were to be furnished by the Zonal Railways

Workshops. Later, in view of the sever limitation of capacity of the Railway Workshops and

also take advantage of mass production, a separate Furnishing Division was added on 2nd

October, 1962. The capacity was progressively expanded from the initial 350 shells to 750

fully furnished coaches per annum by 1973- 74 with additional inputs. This was enhanced to

thousand coaches during 1986-87. The production belt was modernized at a cost of Rs. 63

Crores with view to augment production to 1000 coaches per annum. During 1990-91,

against a target of 1000 coaches, ICF turned 1013 coaches.

DESIGN FEATURES

By, design, the roof, side wells, end walls and the under frame are joined together by

welding, to form a fully integral coach shell. The end wall construction has been made


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especially strong to make it anti-telescopic safety to passengers. From the basic design

handed down by the collaborators. ICF has diversified having established its expertise and

skills in this field, to design and manufacture more than 127 different types of coaches for

Indian Railways and export market. Every time a new type of coaches is launched, emphasis

is laid on improving passengers comfort, passenger safety and higher speeds. ICF follows

standard inspection procedures to ensure quality from raw material stage to the finished

coach.

PRODUCT RANGE

ICF has been meeting the needs of the Indian Railways for varied types of coaches

however sophisticated the type may be. Some of the important types are:

1. SELF PROFELLED

Electric multiple Units for suburban services in Metropolitan cities; Diesel Rail Cars; Metro Coaches for Calcutta underground Metro Railways; Diesel Electric Multiple Units & Diesel Hydraulic Multiple Units for non-electrified

routes and Mainline Electric Multiple Units for long distance inter-city commuter

ship.

2. SPECIAL COACHES

Air-conditioned & Non-air-conditioned Pantry Cars. High capacity Power Cars for Shatabdi & Rajdhani Express trains. Air-Conditioned Military Ward Cars for Indian Army. Air-conditioned Saloon Cars, Dining Cars of the luxurious Palace-on-wheels train.


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EXPORT

ICFs achievement on the export front has been enviable since its inception. Against stiff

international competition from more advanced countries like Japan, etc., ICF secured several

export orders most of which are repeat orders. So far, 359 bogies and 485 coaches including

air-conditioned coaches have exported to 11 Afro-Asians countries. ICF has bagged a

number of awards for Export Excellence also.

DESIGN & DEVELOPMENT EFFORTS

Complementing the existing design capacities and facilities, a fully computerized

Design & Development Cell has been set up with sophisticated state of the art Computer

designing facilities and testing equipments for coach components and raw materials.

FOR BETTER TRAVEL

ICF has carved a niche of the Indian Railway system by constantly improving the

quality of travel through its passenger coach design which has undergone a sea-change from

the days of bye-gone era of mere transport of passengers. There has been a steady growth

both in the quality and quantity of its production.

As a milestone in this endless travel, ICF has obtained the ISO.9001 certificate for

the quality systems from M/s.TUV, Germany. ICF is also on the anvil of implementing the

total quality systems management in every sphere of its activity.

All this has been made possible through ICFs commitment to progress and

improvement with its decided work force functioning in a contented atmosphere in pleasant

surroundings and working conditions. Several welfare schemes like staff quarters, adequate

clean water supply, improved medical facilities, encouragement in sports activities, etc., are

provided.


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NEED FOR THE STUDY

Working capital analysis is a powerful mechanisms of determining working capitalposition of the firm

Analysing financial statements is a process of evaluating the component part offinancial statement to obtain a better understanding of firms position and

performance

The purpose of working capital analysis is to diagnose the information contained infinancial statement and to judge the working capital soundness of the firm

Working capital management refers to the administration of all aspects of currentassets and current liabilities

The annual report of company constitutes he most important source of data forjudging the working capital position of integral coach factory

OBJECTIVE OF THE STUDY

To evaluate the effectiveness of working capital management in ICF To study the liquidity position through various ratios To evaluate the cost structure of the organization To evaluate the effective utilization of resources To perform the trend analysis

LIMITATIONS OF THE STUDY

The primary data collected is restricted in integral coach factory Time limit was the major constraint for the researcher, hence a wide and deep study

cannot be possible

Only few datas is available for analysis. This causes a major limitation in analyzingvarious ratios

The main limitation of the study is that the datas are mostly secondary in nature as itwas taken from financial statements, annual reports etc.


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REVIEW OF LITERATURE

Meaning of working capital management

Working capital management is the amount of funds that are needed for short term purposefor the purchase of raw materials, payment of wages and other day to day expenses etc. These

funds are known as working capital, working capital refers to a part of the firms capital

which is required financing short form or current assets such as cash, marketable securities,

debtors etc, hence it is also known as revolving or circulating capital or short term capital.

DEFINITION

According to shubin, working capital is the amount of funds necessary to cover the cost ofoperating enterprise

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital;

1. Gross working capital2. Net working capital

GROSS WORKING CAPITAL

The gross working capital is the capital invested in the total current assets of an enterprise.

NET WORKING CAPITAL

Net working capital is the excess of current assets over current liabilities

NEED FOR WORKING CAPITAL

A firm should aim at maximizing the wealth of shareholder and a firm should earn sufficient

return from its operations. The firm has to invest enough finds in current assets for generating

sales. Current assets are needed because sales do not convert into cash immediately


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MANAGEMENT OF WORKING CAPITAL

Working CAPITAL MANAGEMENT policies of a firm have a great effect on its

profitability, liquidity and structural health of organization

Working capital management is concerned with problem that arise in attempting to manage

the current assets, current liabilities and the inter relationship between them

TYPES OF WORKING CAPITAL

There are two types of working capital are as follows:

1. Permanent or fixed working capital2. Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

It is the minimum amount which is required to ensure an effective utilisation of fixed

facilities and her maintaining the circulation of current assets. There is always a minimum

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

business operations.

TEMPORARY OR VARIABLE WORKING CAPITAL

It is amount of working capital which is required to meet the seasonal demand and some

special contingencies. It keeps on fluctuating from time to time on the basis of business

activities.

COMPONENTS OF WORKING CAPITAL

Current assets

Current assets are those assets which are convertible into cash within a period of one year and

those which are required to meet day to day operations of the business. These includes

i. Cash and bank balanceii. Temporary investment

iii. Short term advancesiv. Prepaid expenses


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v. Receivablevi. Inventory of raw material stores and spares

vii. Inventory of work in progressCurrent liabilities

These are those liabilities which are intend to be paid in ordinary course of business within a

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

business

Creditors for supplies and service Liabilities for employee payments include provident fund provision for sales tax,

excise duty etc.

Short term loans and borrowings including bank overdraft Advance received and deferred payment

IMPORTANCE OF ADEQUATE WORKING CAPITAL

i. Solvency of the businessii. Goodwill

iii. Easy loansiv. Cash discountsv. Regular supply of raw material

vi. Regular payment of salaries, wages and other day to day commitmentsvii. Quick and regular return on investment

DETERMINANTS OF WORKING CAPITAL

A large number of factors, each having a different importance influence working capital

needs of firm the important among them are

Nature of business Sales and demand conditions Technology and manufacturing policy Credit policy


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Availability of credit Operating efficiency Price level changes

ISSUES IN WORKING CAPITAL MANAGEMENT

Working capital represents a large portion of total investment in assets Working capital management has a greater significance for all firms but it is very

critical for small firms

The need for working capital is directly related to the firms growth

MAIN COMPONENTS OF WORKING CAPITAL

Cash Inventory Receivables

SOURCES OF WORKING CAPITAL

The working capital requirement should be met both from short term as well as long term

sources of funds.

The financing of working capital through short term sources of funds has the benefit of

lowest cost and establishing close relationship with bank

Financing of working capital from long term resource provides the following benefits;

It reduces the risk since the need to repay loans at frequent intervals is eliminated It increase liquidity since the firm has not worry about the payment of these funds in

near future


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The following are the general principles of a sound working capital management

Principle of risk variation Principle of cost of capital Principle of equity position Principle of maturity of payment

It is concerned with the relation between the level of working capital and others

The type of working capital directly affects the amount of risk that a firm assumes as well as

the opportunity for gain or loss and cost of capital

The greater disparity between maturities of firm short term debt instrument and its flow of

internally generated funds the greater the risk and vice versa

STEPS INVOLVED IN EFFICIENT MANAGEMENT OF WORKING

CAPITAL

Proper financial set up with appropriate authority and responsibility Co-ordination between the following functional areas

Production planning and control Sales credit control Material management Optimum utilization of fixed plant and machinery together with

other facilities

Acquiring plant and machinery Cost reduction programme

Financial planning and control for achieving increased profitability to have adequateinternal source of finance

Proper cash management through projection of cash flow sources and application offunds

Estimating appropriating information and reporting system


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RESEARCH METHODOLOGY

DEFINITION

According to Ridman and Mory , it is defined as a systematic effort to gain knowledge. It

has been defined as a careful investigation or inquiry especially through search for new facts

in any branch of knowledge

AIM OF THE STUDY

The aim of the study is to examine the factors affecting the working capital requirements in

integral coach factory and to compare the last working capital requirement with the current

year working capital requirement

RESEARCH DESIGN

Based on the nature of the study, the researcher has selected the exploratory and analytical

research design. The historical research design study was also made as most of past figures

are used for research

PERIOD OF STUDY

The study was carried out for a period of one month (july 2011)

SOURCES OF DATA

There are two types of sources data. They are:

Primary data Secondary data

The primary data are those which are collected afresh and for first time and thus it happen to

be original in character

The information which is collected from any published sources is called secondary data. In

this study secondary data are collected from annual reports of ICF also the data was collected

through journals, magazines etc..


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TOOLS FOR DATA ANALYSIS

Ratio Analysis Changes in working capital Trend Analysis Correlation Analysis Comparative balance sheet

RATIO ANALYSIS

The Ratio Analysis is one of the most powerful tools of financial analysis. It is the

process of establishing and interpreting various ratios. The financial statements can be

analysed more clearly and decisions are made from such Analysis. Ratios help to summaries

large quantities offinancial data and to make qualitature Judgement about the firm financial

performance the main ratios used for the analysis are

Liquidity Ratios

Activity RatiosLiquidity Ratios

These Ratio are also termed as working capital ratio or short term solvency ratio. An

enterprise must have adequate working capital to run its days to days operation, inadequacy

of working capital my bring the entire business operation to a grinding halt because of

inability of enterprise to pay for wages materials and other regular expenses. The most

common liquity ratios are

Current Ratio

Quick Ratio


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Current Ratio

The current ratio is a measure of the firms short term solvency current assets

including cash and those assets which can be converted in to cash with in a year. All expense

are maturing within a year are included in current liabilities. The current ratio is calculated as

follows

Current Ratio = Current Assets/ Current Liabilities

Quick Ratio

This Ratio is also termed as acid test ratio or liquidity ratio. This ratio is ascertained

as a relationship between quick or liquid assets and current liabilities. An assets is liquid if it

can be converted into cash immediately or reasonably soon without a loss of value. Quick

assets are debtors and bills receivable inventories are considered to be less liquid. The Quick

Ratio is found out as follows

Quick Ratio = Current Assets-Inventories/Current Liabilities

ACTIVITY RATIOS:

Activity Ratios are employed to evaluate the efficiency with which the firm manages

and utilize its Asset. These Ratios are also called Turnover Ratios because they indicate the

speed with which assets are being converted or turned in to sales several activity ratios can becalculated to judge the effectiveness of asset utilization, there are several activity ratios. They

are as follows

Inventory Turnover Ratio

Debtors Turnover Ratio

Creditors Turnover Ratio

Working Capital Turnover Ratio

Fixed Assets Turnover Ratio


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Capital Turnover Ratio

INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio indicates the efficiency of the firm in producing and selling

its products. It is calculated by dividing the cost of Goods Sold by the Average Inventory.

Cost of Goods Sold

Inventory Turnover Ratio= -----------------------------

Average Inventory

Average Inventory is the opening and closing balance of Inventory

DEBTORS TURNOVER RATIO

Debtors constitute an important constituents of current assets and therefore a quality

of debtors to a great extent determines a firms liquidity.

Credit sales

Debtors turnover Ratio= -----------------------

Average debtors

CREDITORS TURNOVER RATIO

Creditors Turnover Ratio indicates the speed with which the payments for credit

purchase are made to the creditors. The ratio can be computed as follows:

Credit Purchase

Creditors turnover ratio= ------------------------

Average creditors

WORKING CAPITAL TURNOVER RATIO

Working capital ratio measures the effective utilization of working capital.

The ratio establishes relationship between cost of sales and working capital.

Working capital turnover ratio is calculated with help of following formula.

Sales

Working capital Turnover Ratio =---------------------------

Net Working Capital


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FIXIED ASSETS TURNOVER RATIO

This ratio determines efficiency of utilization of Fixed Assets and profitability of a

business concern higher the ratio more is the efficiency in utilization of fixed assets. A lower

ratio is the under utilization of fixed assets.

Sales

Fixed assets turnover ratio= -------------------------------

Net fixed assets

CAPITAL TURNOVER RATIO

Managerial efficiency is also calculated by establishing the relationship between cost

of sales with the amount of capital invested in the Business capital turn over ratio is

calculated with help of the following formula

sales

Capital turnover ratio= ----------------------------

Capital employed

CHANGES IN WORKING CAPITAL

Probable associate with excess and inadequate working capital. Both the excessive

and inadequate working capital positions are dangerous from firms point of view. Excessworking capital results in ideal funds which do not earn any return for the firm and shortage

of working capital affects the firms profitability.

COMPARATIVE BALANCE SHEET

Comparative balance sheet as on two or more different dates can be used for

comparing assets and liabilities and finding out any increase or decrease in these items.

TREND ANALYSIS

Comparing the past data over a period of time with a base years called Trend Analysis underthis techniques information for a number of year is taken up and one year usually the first

year is taken as a base year and on that basis the percentage is to show the direction of the

change in upward or downward. The trend percentages are generally computed for major

items in the statement.

CORRELATION ANALYSIS

The statistical tool with help of which these relationship between two or more than

one variable are studied is called correlation the correlation refers to the techniques used for

measuring the various variable.


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The value of coefficient shall always lie between

It means there is a positive correlation between variable

It means there is a perfect negative correlation between variable.

It means there is no relationship between the two variable.

RATIO ANALYSIS

Table 1.1

Table showing current ratio for five consecutive years

YEARS CURRENT

ASSETS

CURRENT

LIABILITIES

RATIO

2005-2006 1665705026 1196306538 1.39

2006-2007 1976529595 1450533740 1.36

2007-2008 2806068953 1591220981 1.76

2008-2009 3870055543 2063097393 1.87

2009-2010 5053680042 2647040395 1.90

Current ratio= current assets/current liabilities


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INTERPRETATION

The current ratio has been fluctuating during the past five years. The ratio has decreased from1.39 to 1.90. The current ratio is above 1 for all the years. This indicates that short term

solvency of the organisation is satisfactory.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

1 2 3 4 5 6 7 8 9 10

YEARS

CURRENT RATIO


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Table 1.2

Table showing the quick ratio for the five consecutive years

YEARS CURRENT

ASSETS

INVENTORY QUICK

ASSETS

CURRENT

LIABILITIES

RATIO

2005-

06

1665705026 740925711 924779325 1196306538 0.77

2006-

07

1976529595 890343607 1086185987 1450533740 0.75

2007-

08

2806068953 1655726690 1150342263 1591220981 0.72

2008-

09

3870055543 2351627647 1518427896 2063097393 0.73

2009-

10

5053680042 3137616020 1916064022 2647040395 0.72

Quick ratio= (current assets-inventories)/current liabilities


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INTERPRETATION

According to the above table in the year 2005-08 there is a decrease in quick ratio but there is

an slight increase in the year of 2008-09. The quick ratio for all the years are above 0.3

indicating that liquidity position of the organisation is satisfactory.

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

1

2

3

4

5

6

7

8

9

10

QUICK RATIO

YEARS


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Table 1.3

Table showing the inventory turnover ratio for the five year

YEARS SALES AVERAGE

INVENTORY

INVENTORY

TURNOVER

RATIO

DAY OF

INVENTORY

HOLDING

2005-06 6678179606 598523284.5 11.16 32

2006-07 7755278040 815634659 9.51 38

2007-08 9084052393 1273035148 7.14 50

2008-09 1177000000.03 2003677169 5.87 62

2009-10 15810000000.2 2744621384 5.76 63

Inventory turnover ratio= sales/average inventory


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INTERPRETATION

The inventory turnover ratio is to reflect the efficiency of inventory management. The

inventory holding period can be upto 30 days. In case of ICF the inventory holding period for

2010 is 63 days indicating that is not within then acceptable limit. The inventory turnover

ratio is declining over the years. This is mainly due to increase in holding inventories for

export of goods every year.

0

2

4

6

8

10

12

1 2 3 4 5 6 7 8 9 10

YEARS

INVENTORY TURNOVER RATIO


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DEBTORS TURNOVER RATIO

YEARS CREDIT SALES AVERAGE

DEBTORS

DEBTORS

TURNOVER

RATIO

AVERAGE

COLLECTION

PERIOD

2005-06 6678179606 1047758859 6.37 57

2006-07 7755278040 1004649112.5 7.72 47

2007-08 9084052393 1109084913 8.19 44

2008-09 1177000000.03 814723026 14.4 35

2009-10 15810000000.2 1715241184 9.2 39

Debtors turnover ratio= credit sales/average debtors


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INTERPRETATION

The debtors turnover ratio reveals the quickness with which the debtors clears the debt owing

to the firm in ICF the average collection period of 30 days is normal. But in ICF all the years

have more than 30 days except 2008-09 indicating that the organisation is not able to collect

its debt in time.

0

2

4

6

8

10

12

14

16

1 2 3 4 5 6 7 8 9 10

DEBTORS TURNOVER

RATIO

YEARS


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CREDITORS TURNOVER RATIO

YEARS CREDIT

PURCHASE

AVERAGE

CREDITORS

CREDITORS

TURNOVER

RATIO

AVERAGE

PAYMENT

PERIOD

2005-06 4457640296 1179707039 3.77 97

2006-07 5773937015.57 652203083.5 8.85 41

2007-08 7040181897.14 705288281.5 9.98 36

2008-09 8750000000.45 746347388 11.72 31

2009-10 11910000000.8 835121599 14.26 26

Creditors turnover ratio= credit purchase/average creditors

INTERPRETATION

The creditors turnover ratio indicates the speed with which payment for credit purchase are

made to creditors for an assembly organisation

0

2

4

6

8

10

12

14

16

1 2 3 4 5 6 7 8 9 10

YEARS

CREDITORS TURNOVER

RATIO


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WORKING CAPITAL TURNOVER RATIOThe below table indicates that the working capital turnover ratio of ICF over the year is

reducing. This is due to high volume of sales and

Relatively small amount of working capital which indicates effective utilization of working

capital of the company

Table showing working capital turnover ratio for five years

YEARS SALES WORKING

CAPITAL

WORKING

CAPITAL

TURNOVER

RATIO

2004-05 6678179606 469398498 14.23

2005-06 7755278040 525995854 14.74

2006-07 9084052393 1214847972 7.48

2007-08 1177000000.03 1806958150 6.51

2008-09 15810000000.16 24066399647 0.6

WORKINGCAPITALTURNOVERRATIO=SALES/WORKINGCAPITAL


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INTERPRETATION

The above table indicates that the working capital turnover ratio of ICF over the year

is reducing. The is due to high volume of sales and relatively small amount of working

capital which indicates effective utilisation of working capital of the company.

0

2

4

6

8

10

12

14

16

2005-06 2006-07 2007-08 2008-09 2009-10

WORKING CAPITAL TURNOVER RATIO

WORKING CAPITAL TURNOVER

RATIO


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FIXED ASSETS TURNOVER RATIO

YEARS SALES FIXED ASSETS FIXED ASSETS

TURNOVER

RATIO2005-06 6678179606 2081337873 3.2

2006-07 7755278040 2569823785 3.0

2007-08 9084052393 3455052598 2.6

2008-09 1177000000.03 4267731379 2.7

2009-10 15810000000.2 5430349629 2.9

Fixed assets turnover ratio= sales/net fixed assets


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CAPITAL TURNOVER RATIO

YEARS SALES CAPITAL

EMPLOYED

CAPITAL

TURNOVER RATIO

2005-06 6678179606 1809810660 3.68

2006-07 7755278040 2205476032 3.52

2007-08 9084052393 3014173880 3.01

2008-09 1177000000.03 3870094963 3.04

2009-10 15810000000.2 5018996566 3.15

Capital turnover ratio= sales/capital employed

INTERPRETATION

The above table indicates that the capital turnover ratio of ICF is declining over the year in

the year 2005-06 the capital turnover ratio is high which indicates the efficiency in usage of

capital is high.

0

0.5

1

1.5

2

2.5

3

3.5

4

1 2 3 4 5 6 7 8 9 10

CAPITAL TURNOVER

RATIO

YEARS


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SOLVENCY RATIO

YEARS TOTAL ASSETS TOTAL DEBTS SOLVENCY

RATIO

2005-06 3006117198 6309455853 2.10

2006-07 3656009772 7390342084 2.02

2007-08 4605394861 8679508662 1.88

2008-09 8137786922 10251128420 1.25

2009-10 10484029671 12098708088 1.15

Solvency ratio= total debts/total assets

INTERPRETATION

The above table indicates that the solvency ratio of ICF over the years is moving downwards

it indicates that the greater risk and lower safety to the organisation.

0

0.5

1

1.5

2

2.5

1 2 3 4 5 6 7 8 9 10

YEARS

SOLVENCY RATIO


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MATERIAL COST OF TOTAL TRANSFER COST

YEARS STORES TRANSFER

COST

STORES TOTAL

TRANSFER

COST2005-06 4457640296 6678179606 66.74

2006-07 5773937015.5 7755278040 74.45

2007-08 7040181897 9084052393 77.50

2008-09 8787234117 10526617973 83.50

2009-10 1156274992 12111974443 95.65

Stores

Material Cost to Total Transfer cost = -----------------------x100

Transfer Cost

0

10

20

30

40

50

60

70

80

90

100

1 2 3 4 5 6 7 8 9 10

YEARS

STORES TOTAL TRANSFER

COST


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INTERPRETATION

In this above table the proportion of materials cost to total transfer cost is increasing

over the years of 2005-2010.

LABOUR COST TO TOTAL TRANSFER COST

YEARS LABOUR COST TRANSFER

COST

LABOUR COST

TO TOTAL

TRANSFERCOST

2005-06 1909762002 6678179606 28.59

2006-07 2011682396 7755278040 25.93

2007-08 2159293177.5 9084052393 23.77

2008-09 2295839606 10526617973 21.81

2009-10 3499014466 12111974443 28.88

Labour cost to total transfer cost= labour cost/transfer cost *100


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INTERPRETATION

The labour cost of the organisation for the year 2010 is 28.88% of total transfer cost for ICF

which is labour intensive, the labour cost of 28.88% is acceptable. The proportion of labour

cost to total transfer cost is fluctuating over the year indicating that the organisation is able to

the labour even in a inflationary situation.

0

5

10

15

20

25

30

35

1 2 3 4 5 6 7 8 9 10

YEARS

LABOUR COST TO TOTAL

TRANSFER COST


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SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR

2006-2010

PARTICULARS 2005 2006 CHANGES IN WORKING

CAPITAL

INCREASE DECREASE

CURRENT

ASSETS

Debtors 1171620957 923896761 247724196

Inventory 456120858 740925711 284804853

Cash in hand 20804713 882564 19922149

Total (A) 164854528 1665705036CURRENT

LIABILITIES

Sundry

creditors

559152426 650554613 61402187

Expenses

outstanding

825752943 575751925 250001018

Total (B) 1384905369 1196306538

WORKING

CAPITAL(A-B)

263641159 469398498

Increase in

working

capital

205757339 205757339

GRAND

TOTAL

469398498 469398498 534805871 534805871

INTERPRETATION

In the year 2006, it has been noticed that there is an incease in inventory and also due to

decrease in expenses outstanding. Thus it shows an increase in working capital of

Rs.205757339


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CAPITAL

INCREASE DECREASE

CURRENT

ASSETSDebtors 923896761 1085401464 161504703

Inventory 740925711 890343607 149417896

Cash in hand 882564 784523 98041

Total (A) 1665705036 1976529594

CURRENT

LIABILITIES

Sundry

creditors

620554613 683851554 63296941

Expenses

outstanding

575751925 766682186 190930261

Total (B) 1196306538 1450533740

WORKING

CAPITAL(A-B)

469398498 525995854

Increase in

working

capital

56597356 56597356

GRANDTOTAL

525995854 525995854 310922599 310922599

INTERPRETATION

The above schedule clearly states that there is an increase in Debtors and inventory.

This is the reason which made an increase in working capital of Rs.56597356.


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Schedule of changes in working capital for the years 2009


CAPITAL

INCREASE DECREASECURRENT

ASSETS

Debtors 1132768362 1576169190 383400828

Inventory 1655726690 2351627647 695900957

Cash in hand 17573901 2258706 15315195

Total (A) 2806068953 3870055543

CURRENT

LIABILITIES

Sundry

creditors

726725009 765969767 39244758

Expenses

outstanding

864495972 1297127626 432631654

Total (B) 1591220981 2063097363

WORKING

CAPITAL(A-B)

1214847972 1806958150

Increase in

workingcapital

592110178 592110178

GRAND

TOTAL

1806958150 1806958150 1079301785 1079301785

INTERPRETATION

In this year inventories increased and current liabilities also increased this causes a

main reason for increase in working capital of Rs.592110178.


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Schedule of changes in working capital for the years 2009


CAPITAL

INCREASE DECREASECURRENT

ASSETS

Debtors 1576169190 1914313178 398143988

Inventory 2351627647 3137616020 785988373

Cash in hand 2258706 1750844 507862

Total (A) 3870055543 5053680042

CURRENT

LIABILITIES

Sundry

creditors

765969767 904273431 138303664

Expenses

outstanding

1297127626 1742766964 445639338

Total (B) 2063097363 2647040395

WORKING

CAPITAL(A-B)

1806958150 2406639647

Increase in

workingcapital

599681497 599681497

GRAND

TOTAL

2406639647 2406639647 1184132361 1184132361

INTERPRETATION

In this year there is a increase in debtors and cash in hand where there is a increase in

current liabilities. This causes a main reason for increase in working capital of Rs.599681497.


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COMPARATIVE BALANCE SHEET

PARTICULARS 2005 2006 AMOUNT %

CURRENT

ASSETSDebtors 1171620957 923896761 -247724196 -21.14

Inventory 456120858 740925711 284804853 62044

Cash in hand 20804713 882564 -19922149 -95.75

TOTAL 1648546528 1665705036 17158508 1.04

Fixed assets 1675794651 2081337873 405543222 24.2

Investment 3246889773 3651483491 404593718 12.46

TOTAL 4922684424 5732831364 810136940 16.45

Total assets 6571230952 7398526400 827295448 12.58

CURRENT

LIABILITIES

Creditors 559152426 650554613 61402187 10.98

Expenses

outstanding

825752943 575751925 -250001018 -30.27

TOTAL 1384905369 1196306538 -188598831 -13.6

Capital 1483314952 1809810660 326495708 22.01

Reserves and

surplus

3703010631 4392409202 689398571 18.6

TOTAL 5186325583 6202219862 1015894279 19.5

Total

liabilities

6571230952 7398526400 827295448 12.5

INTERPRETATION

In the above balance sheet of 2005 and 2006. It indicate that there is a decrease in

Debtors and cash in hand and increase in assets where there is decrease in current liabilities

and in 2006 the company have planned to minimise the expenses by full utilisation of current

assets.


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CURRENT

ASSETSDebtors 923896761 1085401464 161504703 17.48

Inventory 740925711 890343607 149417896 20.16

Cash in hand 882564 784523 -98041 -11.10

TOTAL 1665705036 1976529594 310824558 18.66

Fixed assets 2081337873 2569823785 488485912 23.46

Investment 3651483491 4053051599 401568099 10.99

TOTAL 5732831364 662875375 4176394011 170.7

Total assets 7398526400 8599404969 1200878569 16.23

CURRENT

LIABILITIES

Creditors 650554613 683851554 63296941 10.20

Expenses

outstanding

575751925 766682186 190930261 33.16

TOTAL 1196306538 1450533740 254227202 21.25

Capital 1809810660 2205476032 395665372 21.86

Reserves and

surplus

4392409202 4943395197 550985995 12.54

TOTAL 6202219862 7148871229 946651367 15.26

Total

liabilities

7398526400 8599404969 1200878569 16.23

INTERPRETATION

In the above table, when compared to 2005 and 2007. It indicate that there is an

increase in debtors and inventory but there is a decrease in cash in hand and there is anincrease in assets and liabilities.


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CURRENT

ASSETS

Debtors 1085401464 1132768362 47366898 4.36

Inventory 890343607 1655726690 765383083 85.96Cash in hand 784523 175753901 174969378 23.02

TOTAL 1976529594 2806068953 829539359 41.96

Fixed assets 2569823785 3455052598 -22243185 -86.5

Investment 4053051599 4342386191 2893334601 7.13

TOTAL 662875375 7797438789 1174563414 17.3

Total assets 8599404969 10603507742 2004102771 23.3

CURRENT

LIABILITIESCreditors 683851554 726725009 42873455 6.26

Expenses

outstanding

766682186 864495972 97813786 12.75

TOTAL 1450533740 1591220981 140687241 9.69

Capital 2205476032 3014173880 808697848 36.6

Reserves and

surplus

4943395197 5998112879 1054717682 21.3

TOTAL 7148871229 9012286759 1863415530 26.0

Totalliabilities

8599404969 10603507742 2004102771 23.3

INTERPRETATION

In the above table, it is said that in 2007 and 2008 it indicate that there is an increase

in current assets and increase in current liabilities.


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CURRENT

ASSETS

Debtors 1132768362 1516169190 383400828 33.84

Inventory 1655726690 2351627647 695900957 42.02Cash in hand 175753901 2258706 -15315195 -87.14

TOTAL 2806068953 3870055545 1063986590 37.9

Fixed assets 3455052598 4267731379 812678781 23.5

Investment 4342386191 4684010709 341624518 7.8

TOTAL 7797438789 8951742088 1154303299 14.8

Total assets 10603507742 12821797631 2218289890 20.9

CURRENT

LIABILITIESCreditors 726725009 765969767 39244758 5.4

Expenses

outstanding

864495972 1297127626 432631654 50.04

TOTAL 1591220981 2063097393 471876412 29.6

Capital 3014173880 3870094963 855921083 28.3

Reserves and

surplus

5998112879 6888605274 6288793987 48.4

TOTAL 9012286759 10758700237 1746413476 19.37

Totalliabilities

10603507742 12821797631 2218289890 20.9

INTERPRETATION

In the above table, it is compared to 2008 and 2009. It indicate that there is an

increase in current assets and increase in current liability it due to current assets and current

liability is fully utilised.


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CURRENT

ASSETSDebtors 1516169190 1914313178 398143988 26.25

Inventory 2351627647 3137616020 785988373 33.43

Cash in hand 2258706 1750844 -507862 -22.48

TOTAL 3870055545 5053680042 1183624499 30.58

Fixed assets 4267731379 5430349629 1162618250 27.2

Investment 4684010709 4923840651 239829942 5.12

TOTAL 8951742088 10354190280 1402448192 15.6

Total assets 12821797631 1540787032 -112810106 -87.98

CURRENT

LIABILITIES

Creditors 765969767 904273431 138303664 18.05

Expenses

outstanding

1297127626 1742766964 445639338 34.35

TOTAL 2063097393 2647040395 583943002 28.3

Capital 3870094963 5018996566 1148901603 29.68

Reserves and

surplus

6888605274 -3912743203 -1080134848 -15.6

TOTAL 10758700237 -1106253364 -1186495419 -110.28

Total

liabilities

12821797631 1540787032 -112810106 -87.98

INTERPRETATION

When compared to 2009 and 2010 it indicate that all current assets and fixed assets

have increased but cash in hand have slightly decreased. There is an increase in currentliability and there is a decrease in reserves. So the present company position is satisfactory in

maintenance of assets and liability.


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TREND PERCENTAGE FOR THE YEAR 2006-2010

Amount (Rs. In lakhs) Trend % base year 2006

PARTICULARS 2006 07 08 09 10 2006 07 08 09 10

Current assetsSundry

debtors

9238 10854 11327 15161 19143 100 117 122 164 207

Inventory 7409 8903 1655 2351 3137 100 120 22.3 31.73 42.3

Cash in hand 8825 7845 1757 2258 1750 100 89 20 26 20

TOTAL 25472 27602 14739 19770 24030 100 108 58 78 94

Current

liabilities

Sundry

creditors

6205 6838 7267 7659 9042 100 110 117 123 146

Expense o/s 5757 7666 8644 1297 1742 100 133 15+0 23 31

TOTAL 11962 14505 15911 8956 10784 100 121 133 75 90

INTERPRETATION

For all the years under analysis the liquidity position is highly satisfactory. The growing trend

in working capital is satisfactory. During the year 2010 cash in hand has been decreased to

20% and inventory has been increased to 42%. The above table also indicate that there is an

increase in sundry creditors and expense outstanding in the year 2010.


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TREND ANALYSIS OF WORKING CAPITAL FOR THE YEAR 2011-

2015

YEAR WORKING

CAPITAL(y)

DEVIATIONS

FROMMIDDLE(x)

X2

Xy

2006 469398498 -2 4 -938796996

2007 525995854 -1 1 -525995854

2008 1214847972 0 0 0

2009 1806958150 1 1 1806958150

2010 24066399647 2 4 4813267992

TOTAL 2808360011 0 10 5155433292

a = y/n =2808360011/5 =561672002

b = xy/x^2 =5155433292/10 = 515543329

yc = a+bx

2006:

561672002+515543329(-2) = -469414656

2007:

561672002+515543329(-1) = 510117673

2008:

561672002+515543329(0) = 561672002

2009:

561672002+515543329(1) = 613226331

2010:

561672002+515543329(2) = 664780660

2011:

561672002+515543329(3) = 716334989


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2012:

561672002+515543329(4) = 767889318

2013:

561672002+515543329(5) = 819443647

2014:

561672002+515543329(6) = 870997976

2015:

561672002+515543329(7) = 922552305

INTERPRETATION

The trend analysis of working capital for the next 5 years from 2011-2015 would be

Rs.716334989, Rs. 767889318,Rs. 819443647,Rs. 870997976, and Rs. 922552305

716334989767889318

819443647870997976

922552305

0

100000000

200000000

300000000

400000000

500000000

600000000

700000000

800000000

900000000

1E+09

1 2 3 4 5

YEAR

TREND VALUE

Linear (TREND VALUE)


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CORRELATION BETWEEN NET PROFIT AND FIXED ASSETS

YEAR NET

PROFIT(x)

FIXED

ASSETS(y) X2

Y2

Xy

2005-06

542490595 2081337873 2.942960457 4.331967342 1.129106221

2006-

07

1051460673 256982378 1.105569547 6.603994286 2.702068646

2007-

08

1247558174 3455052598 1.556401398 1.193738845 4.31037911

2008-

09

1522388928 4267731379 2.317668048 1.821353112 6.497146999

2009-

10

1800084320 5430349629 3.240303559 2.948869709 9.775087219

TOTAL 6163982690 1780427526 11.162990301 16.89992329 24.4137882

x / n = 6163982690/5 = 1232796538

= y / n = 1780429526/5 = 356085905.2

x = (1/n) x2-2

1/5*(11.16290301)-(123796538)2

(11.16290301/5)-1.519787

2.2325-1.519787

0.7127

=0.84

y = (1/n) y2-2

1/5*(16.89992329)-(356085905)2

= (16.89992329/5)-1.26797

= 1.45

r = (1/n) -.

xy


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= (24.4137/5)-(1232796538)(356085905)

(0.84)(1.45)

=4.88274-4.3898

1.218

=0.40

INTERPRETATION

From the above calculation it clearly states that there is a positive correlation between net

profit and fixed assets in ICF.

TABLE SHOWING CORRELATION BETWEEN NET SALES & WORKING CAPITAL

YEAR NET SALES(x) WORKING

CAPITAL(y) X2

Y2

Xy

2005-

06

6678179606 469398488 445980825 220334949 3134727476

2006-

07

7755278040 525995854 601443748 2766716384 4079244096

2007-08 9084052393 1214847972 825200078 1475855595 1103574263

2008-

09

11770000000 1806958150 1385329 3265097756 2126789743

2009-

10

15810000000 24066399647 2499561 5791915916 3804897783

TOTAL 5.109751004 2.808360011 1.87301277 1.55029351 1.424923336

x / n = 5.109751004/5 = 1.0219

= y / n = 2.808360011/5 = 0.5616

x = (1/n) x2-2

= -0.817

y = (1/n) y2-2

= -2.30


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FINDINGS

The current assets shows an increasing trend from 2006-2010. The working capital turnover ratio was high in 2006-2010 which indicates the

working capital activity is more than other years.

The organisation quick ratio is decreasing over the year from 2009-2010which indicates a liquidity position is satisfactory.

The inventory turnover ratio was high in 2005 -2006 and 20062007, this indicatesa good management of inventory in the organisation.

The fixed assets turnover ratio in the year 2005-2006 is high which indicates moreefficiency in utilisation of fixed assets.

Average collection period for the organisation is high which indicate a lower turnoverof debtors and inefficient collection procedures.

Average payment period is high which indicates that the organisation is not able topay its payment in time.

The percentage of labour cost to transfer cost is decreased to 21.18 in the year 2008-2009 and there is an increase in the year of 2009-2010. The organisation is able to

control the labour cost.

The direct cost to total transfer cost is decreased to 1.536 in the year 2009-2010. There is a significant reduction of overhead cost is 7.5112. The companys investment in working capital was increasing every year from 2006-

2010.


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SUGGESTIONS

The organisation is to take adequate steps in maintaining its working capital as well asliquidity position.

Working capital requirement of the organisation increases mainly due to increase indebtor and inventory.\

The organisation purchases the materials according to the need as and when arises.This may lead to urgent purchases sometimes it leading to extra payment therefore it

is better to follow JIT method for purchase of material.

The Material cost of the organisation is also increasing over the year. Theorganisation should take steps to control the Material cost.

The organisation can speed up collection process. The organisation should try tominimise collection period for better utilisation of funds.

The inventory holding period not within the acceptable limit hence the organisationshould try to minimise the inventory holding period for efficient Management of

inventory.

The Average payment period for all the years is more than 30 days indicating thatorganisation is not able to pay its payment in time.Hence the organisation should take

steps to make payment in time.


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CONCLUSION

The project was undertaken in ICF, Chennai is to study the detailed analysis on the

working capital management of the organisation. The study at ICF provided me an insight in

to workings of Coach Factory and to how a firm manages its working capital.

The Goal of working capital management is to manage the firms current assets and

current and current liabilities. In such a way that satisfactory level of working capital is

maintained on the review of the performance of company ratio and other financial statements

for the past five years reveals that the company maintained the good solvency positions.

Hence it is concluded that ICF is found to be efficiently managing working capital

and this study reveals the working capital has been increased through the years it is hoped

that the interpretations, findings would support the organization in an efficient way.


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BIBLIOGRAPHY

Books Referred

Financial Management 1 IM pandey Financial Management and Policy - V.K. Bhall Principles of Management AccountingDr.S.N.Maheswari Management AccountT.S. Reddy and Y. Hari Prasad Reddy

Websites

www.icf.gov.in

www.indianrailways.org

dass project

Documents