Chapter - I: Working Capital Management

CHAPTER - I
INTRODUCTION
WORKING CAPITAL MANAGEMENT
Working capital management is concerned with the problems arise in
attempting to manage the current assets, the current liabilities and the inter
relationship that exist between them. The term current assets refers to those assets
which in ordinary course of business can be, or, will be, turned in to cash within
one year without undergoing a domination in value and without distribute the
operation of the firm. The major current assets are cash, marketable securities,
account receivable and inventory. Current liabilities ware those liabilities which
intended at their inception to be paid in ordinary course of business, within a year,
out of the current assets or earnings of the concern. The basic current liabilities are
account payable, bill payable, bank over-draft, and outstanding expenses. The goal
of working capital management is to manage the firms current assets and current
liabilities in such way that the satisfactory level of working capital is mentioned.
The current should be large enough to cover its current liabilities in order to ensure
a reasonable margin of the safety.
Working capital management is the part of financial management. In

working capital management, management of cash, management of inventory,
management of debtor and creditor will include.
The study of working capital behavior occupies an important place in
financial management. The earlier emphasis of financial management was more on
a long-term financial decision. Working capital management, which is concerned
with short term financial decision, appears to have been relatively neglected in
the literature of finance.
The developing economies generally face the problem of inefficient
utilization of Resources available to them. Capital is the scarce productive resource
in such economies and hence a proper utilization of these resources promotes the
rate of growth, cuts down the cost of production and above all, improves the
efficiency of the productivity system. Fixed capital and working capital are the
dominant contributors to the capital of a developing country. Fixed capital
investment generates productive capacity, whereas working capital makes the
utilization of that capacity possible.
Working capital management (WCM) is the management of short-term
financing requirements of a firm. This includes maintaining optimum balance of
working capital components receivables, inventory and payables and using the
cash efficiently for day-to-day operations. Optimization of working capital balance
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means minimizing the working capital requirements and realizing maximum

possible revenues. Efficient WCM increases firms free cash flow, which in turn
increases the firms growth opportunities and return to shareholders. Even though
firms traditionally are focused on long term capital budgeting and capital structure,
the recent trend is that many companies across different industries focus on WCM
efficiency.
There is much evidence in the financial literature that present the importance
of WCM. Results of empirical analysis show that there is statistical evidence for a
strong relationship between the firms profitability and its WCM efficiency.
However the study undertaken based on the data from CFO magazine on the
rankings of firms on WCM efficiency reveals that the measures of WCM efficiency
vary across different industries.
The study also gives significant evidence that issues of WCM are different
for different industries and firms from different industry sectors adopt different
approaches to working capital management. Firms follow an appropriate working
capital management approach that is favorable to their industry. Firms in an
industry that has less competition would focus on minimizing the receivable to
increase the cash flow. For firms in industry where there are large numbers of
suppliers of materials, the focus would be on maximizing the payable. The
Telecommunication industry is characterized by high intensive working capital
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requirements and high competition because of rapid technology changes, which

make the WCM crucial to bring attractive earnings to shareholders. The study
undertaken based on the data from CFO magazine on the rakings of firms on WCM
efficiency gives statistical evidence that telecommunication industry showed.
Working Capital = Current Assets-Current Liabilities
Definition:1. According to Guttmann & Dougall-Excess of current assets over current

liabilities.
2. According to Park & Gladson-The excess of current assets of a business (i.e.
cash, accounts receivables, inventories) over current items owned to employees
and others (such as salaries & wages payable, accounts payable, taxes owned to
government).
NEED OF WORKING CAPITAL MANAGEMENT
The need for working capital gross or current assets cannot be over
emphasized. As already observed, the objective of financial decision making is to
maximize the to shareholders wealth. Achieve this, it is necessary to generate
sufficient profits can be earned will naturally depend upon the magnitude of the
sales among other things but sales cannot convert into cash. There is a need for
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working capital in the form of current assets to deal with the problem arising out of
lack of immediate realization of cash against goods sold. Therefore sufficient
working capital is necessary to sustain sales activity. Technically this is refers to
operating or cash cycle. If the company has certain amount of cash, it will be
required for purchasing the raw material may be available on credit basis. Then the
company has to spend some amount for labor and factory overhead to convert the
raw material in work in progress, and ultimately finished goods. These finished
goods convert in to sales on credit basis in the form of sundry debtors. Sundry
debtors are converting into cash after expiry of credit period. Thus some amount of
cash is blocked in raw materials, work in progress, finished goods, and sundry
debtors and day to day cash requirements. However some part of current assets
may be financed by the current liabilities also. The amount required to be invested
in this current assets is always higher than the funds available from current
liabilities. This is the precise reason why the needs for working capital arise.
Gross working capital and Net working capital
CONCEPTS OF WORKING CAPITAL MANAGEMENT
The working capital meets the short-term financial requirements of a

business enterprise. It is the investment required for running day-to-day business. It
is the result of the time lag between the expenditure for the purchase of raw
materials and the collection for the sales of finished products. The components of
working capital are inventories, accounts to be paid to suppliers, and payments to
be received from customers after sales. Financing is needed for receivables and
inventories net of payables. The proportions of these components in the working
capital change from time to time during the trade cycle. The working capital
requirements decide the liquidity and profitability of a firm and hence affect the
financing and investing decisions. Lesser requirement of working capital leads to
less need for financing and less cost of capital and hence availability of more cash
for shareholders. However the lesser working capital may lead to lost sales and
thus may affect the profitability.
The management of working capital by managing the proportions of the
WCM components is important to the financial health of businesses from all
industries. To reduce accounts receivable, a firm may have strict collections
policies and limited sales credits to its customers. This would increase cash inflow.
However the strict collection policies and lesser sales credits would lead to lost
sales thus reducing the profits. Maximizing account payables by having longer
credits from the suppliers also has the chance of getting poor quality materials
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from supplier that would ultimately affect the profitability. Minimizing inventory
may lead to lost sales by stock-outs.
The working capital management should aim at having balanced; optimal
proportions of the WCM components to achieve maximum profit and cash flow.
Gross working capital
Gross working capital refers to the firms investment I current assets.
Current assets are the assets which can be convert in to cash within year includes
cash, short term securities, debtors, bills receivable and inventory.
Net working capital
Net working capital refers to the difference between current assets and
current liabilities. Current liabilities are those claims of outsiders which are
expected to mature for payment within an accounting year and include creditors,
bills payable and outstanding expenses. Net working capital can be positive or
negative efficient working capital management requires that firms should operate
with some amount of net working capital, the exact amount varying from firm to
firm and depending, among other things; on the nature of industries.net working
capital is necessary because the cash outflows and inflows do not coincide. The
cash outflows resulting from payment of current liabilities are relatively
predictable. The cash inflow are however difficult to predict. The more predictable
the cash inflows are, the less net working capital will be required. he concept of
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working capital was, first evolved by Karl Marx. Marx used T the term variable
capital means outlays for payrolls advanced to workers before the completion of
work. He compared this with constant capital which according to him is nothing
but dead labour. This variable capital is nothing wage fund which remains
blocked in terms of financial management, in work-inprocess along with other
operating expenses until it is released through sale of finished goods. Although
Marx did not mentioned that workers also gave credit to the firm by accepting
periodical payment of wages which funded a portioned of W.I.P, the concept of
working capital, as we understand today was embedded in his variable capital.
CLASSIFICATION OF WORKING CAPITAL
Working capital can be classified as follows:
On the basis of time
On the basis of concept
TYPE OF WORKING CAPITAL
The operating cycle creates the need for current assets (working capital).
However the need does not come to an end after the cycle is completed to explain
this continuing need of current assets a destination should be drawn between
permanent and temporary working capital.
1. Permanent working capital
The need for current assets arises, as already observed, because of the cash
cycle. To carry on business certain minimum level of working capital is necessary
on continues and uninterrupted basis. For all practical purpose, this requirement
will have to be met permanent as with other fixed assets. This requirement refers to
as permanent or fixed working capital
2. Temporary working capital
Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable, working capital. This portion of the required
working capital is needed to meet fluctuation in demand consequent upon changes
in production and sales as result of seasonal changes
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The following Graph shows that the permanent level is fairly castanet; while
temporary working capital is fluctuating in the case of an expanding firm the
permanent working capital line may not be horizontal. This may be because of
changes in demand for permanent current assets might be increasing to support a

rising level of activity
DETERMINANTS OF WORKING CAPITAL
The amount of working capital is depends upon a following factors
1. Nature of business
Some businesses are such, due to their very nature, that their requirement of
fixed capital is more rather than working capital. These businesses sell services and
not the commodities and that too on cash basis. As such, no founds are blocked in
piling inventories and also no funds are blocked in receivables.
E.g. public utility services like railways, infrastructure oriented project etc.
there requirement of working capital is less. On the other hand, there are some
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businesses like trading activity, where requirement of fixed capital is less but more
money is blocked in inventories and debtors.
2. Length of production cycle
In some business like machine tools industry, the time gap between the
acquisition of raw material till the end of final production of finished products
itself is quit high. As such amount may be blocked either in raw material or work
in progress or finished goods or even in debtors. Naturally there need of working
capital is high.
3. Size and growth of business
In very small company the working capital requirement is quit high due to
high overhead, higher buying and selling cost etc. as such medium size business
positively has edge over the small companies. But if the business start growing
after certain limit, the working capital requirements may adversely affect by the
increasing size.
4. Business/ Trade cycle
If the company is the operating in the time of boom, the working capital
requirement may be more as the company may like to buy more raw material, may
increase the production and sales to take the benefit of favorable market, due to
increase in the sales, there may more and more amount of funds blocked in stock
and debtors etc. similarly in the case of depressions also, working capital may be
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high as the sales terms of value and quantity may be reducing, there may be
unnecessary piling up of stack without getting sold, the receivable may not be
recovered in time etc.
5. Terms of purchase and sales
Some time due to competition or custom, it may be necessary for the
company to extend more and more credit to customers, as result which more and
more amount is locked up in debtors or bills receivables which increase the
working capital requirement. On the other hand, in the case of purchase, if the
credit is offered by suppliers of goods and services, a part of working capital
requirement may be financed by them, but it is necessary to purchase on cash
basis, the working capital requirement will be higher.
6. Profitability
The profitability of the business may be vary in each and every individual
case, which is in turn its depend on numerous factors, but high profitability will
positively reduce the strain on working capital requirement of the company,
because the profits to the extent that they earned in cash may be used to meet the
working capital requirement of the company.
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7. Operating efficiency
If the business is carried on more efficiently, it can operate in profits which
may reduce the strain on working capital; it may ensure proper utilization of
existing resources by eliminating the waste and improved coordination etc.
WORKING CAPITAL CYCLE
The upper portion of the diagram above shows in a simplified form the chain
of events in a manufacturing firm. Each of the boxes in the upper part of the
diagram can be seen as a tank through which funds flow. These tanks, which are
concerned with day-to-day activities, have funds constantly flowing into and out
of them.
The chain starts with the firm buying raw materials on credit.
In due course this stock will be used in production, work will be carried
out on the stock, and it will become part of the firms work-in-progress.
Work will continue on the WIP until it eventually emerges as the finished
product.
As production progresses, labor costs and overheads need have to be met.
Of course at some stage trade creditors will need to be paid.
When the finished goods are sold on credit, debtors are increased.
They will eventually pay, so that cash will be injected into the firm.
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Each of the areas- Stock (raw materials, WIP, and finished goods), trade debtors,
cash (positive or negative) and trade creditors can be viewed as tanks into and
from which funds flow.
Working capital is clearly not the only aspect of a business that affects the amount
of cash.
The business will have to make payments to government for taxation.
Fixed assets will be purchased and sold
Lessors of fixed assets will be paid their rent
Shareholders (existing or new) may provide new funds in the form of
cash
Some shares may be redeemed for cash
Dividends may be paid
Long-term loan creditors (existing or new) may provide loan finance,
loans will need to be repaid from time-to-time, and
Interest obligations will have to be met by the business
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CHAPTER II
COMPANY PROFILE
The WINWAY water company started with 2002 in Kumbakonam Temple
city. The owner of the company Mr.P.Chindrababu. He started the business is own
money and the bank loan.
Its small business of the organization. Startlingly there are 40 people worked
in an organization. Very low level of salary is given to the employees. Water
facilitates are more than secure of the place is Kumbakonam.
The main office is nearby government Arts College Kumbakonam. There
two branches of Win way Water Company and Winway GS Products of Pvt.
Ltd.Kumbakonam.
More than department is available for this organization. The employees are
selected to rural area nearby the organization. The physical test must by the water
company. The test from the organization finance. The welfare also gives to the
employees from the organization. Full safety organization.
Project and Development Division
Director (Technical) is heading this Division. This division consists of
project and Development Department and Corporate Planning Department with
officials in the rank of ED/General Managers directly reporting to the Director
(Technical). General Manager (R&D) reports to Director (Technical).
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Finance Division
Director (Finance) heads this division with an official in the rank of general
manager immediately under him. The activities of this division include;
Corporate finance
Internal audit
Project finance
Human Resource Division
Director (operation) additionally heads the Human Resources Division with
an official in the rank of General Manager at its apex level responsible for the
following activities.
Human resource service
Industrial relations
Administration service
Organizational development
Occupational health service
Liaison with the government department
Functions and Responsibilities of HR Division:
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1. Evolve, design develop an organization structure with a well-defined and
clearly identified relationship in accordance with the Companys plans, strategic

and objects.
2. Promote and develop collaborative attitude amongst the employees at all levels
in inculcate a sense of belonging.

3. Initiate and implement policies and procedures to ensure its objectives and
responsibilities pragmatically.
4. Develop the capacities and proficiency of the employees, and provide
opportunities for career advancement through required training; impart

education to enable updating of knowledge to face the challenges and absorb
newer technological changes.
5. Maintain and improve the culture of employees participation in the company
activities.
6. Practice and adopt social and statutory obligation and fulfill the Government
directives.
7. Promote productivity consciousness amongst the employees.
8. Direct its functions to motivate the employees, to develop a sense of
responsibilities, goodwill and commitment towards the company and facilitate

promotion of good relations between one another.
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9. Assists the managerial personnel in the understanding of the personnel policies
and practices, to help them promote and develop, harmonious relations amongst
the employees at all levels.
10. Advice the top management in the development and formulation of progressive
and pragmatic policies relating to personnel matters in company as whole.

In achieving these, the following will be specifically focused
Manpower planning in line with the corporate and its exercise in terms of
diversification/new projects, based on the skill inventory.
Initiate recruitment action to fill the vacancy that may arise at different
levels. In this any transfers/job rotations and promotions form/amongst the
existing employees; or any specific training or development activities
required will be meticulously planned.
Endeavor to promote/advice and co-ordinate all matters pertaining to the
activities of the division. In this, the following aspects will be considerably
provided to establish, maintain improve and develop the employees
qualitatively.
Working environment
Work discipline
Performance appraisal and development
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Human resource development

Collective bargaining
Grievance redressed
Health and safety
Recreation activities
Personnel research
Budgeting and accounting
Succession planning
WINWAYS VISION, MISSION AND VALUE
Vision
Kumbakonam WINWAY's will be a world class energy water company, well
respected and consistently profitable, with a Dominant presence in south India.
Mission
To maximize profit through the manufacturing and supply of water products
and other related businesses in a reliable, ethical and socially responsible manner.
Values
Professional Excellence
We, at Kumbakonam Win way Water Company, nature the best people,
practices, technology and products to set and maintain the highest standards of
performance.
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Agility and innovation

We, at Kumbakonam Win way Water Company, are pro-active to business
climate changes and challenges.
Ethical Values
We, at Kumbakonam Win way Water Company, uphold the high standards
of honesty and integrity in our business practices.
Customer Values
We, at Kumbakonam Win way Water Company, value our customers. We
supply quality products at competitive prices and provide exemplary service.
PEOPLE VALUE
We at, Kumbakonam Winway Water company,
Believe that our people are our best asset.
We nurture their wellbeing, development and empowerment
They demonstrate superior cooperation, safe and
Eco- friendly work practices and commitment towards
Excellent performance.
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CHAPTER III
OBJECTIVES OF THE STUDY
Primary objective
To study about the Working capital management and Ratio Analysis in
Kumbakonam Winway Private Limited.
Secondary objectives
To analyze the working capital requirement of Kumbakonam Win way
Private Limited for the period 2008-09 to 2012-13.

To analyze the changes in working capital.
To analyze and evaluate liquidity position of the company.
To analyze and evaluate the profitability position of the company.
To analyze and evaluate the level of current asset and current liability.
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CHAPTER IV
REVIEW OF LITERATURE
There is no unanimity in the definition of the working capital. There are as many
definitions of the concepts as there are many authors on financial management,
some of the definitions are reproduced below:
Working Capital is the excess of current assets over current liabilities
Harry G. Guthman and Herbert E. Dougall.
Most commonly, working capital is defined as the excess of current assets of a
business (Cash, Accounts Receivable Inventories) over current items owned to
employees and others (such as salaries, wages Accounts Payable owned to the
Government.)
- Dr. Colin Park and Prof. Gladson
Current Assets by definitions are assets normally converted into cash within one
year. Working capital management usually concerned to involve the administration
of these assets namely cash and marketable securities, receivables and
inventories.
- James C. van Horne
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Of these definitions, net working capital concept is more popular and has
pragmatic value. Economists like Lineout Sailors approve of the net working
capital on the following grounds:
a. It enables the creditors and investors to judge the financial soundness of the
enterprise.
b. The excess of the current assets over current liabilities is the only amount
that can rely upon to meet contingencies and emergencies.
c. The comparison of two concerns having the same amount of current assets
can be done only with the help of these concepts.
Banerjee study on corporate liquidity and profitability
Banerjee (1982) conducted a study on the corporate liquidity and
profitability. The study related to the period 1970-71 to 1977-78. The purpose of
the study was to analyses the trend in the liquidity position and their relationship
with the profitability in the medium and large public limited companies in India.
The study concluded that for some industry group risk in liquidity will lead to risk
in profitability and vice versa, there are other factors where increase in liquidity is
associated with a decline in profitability.
Hampton view on adequacy on current assets and risk posed by current

liabilities
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According to Hampton (1983) the working capital management is the

functional area of finance that covers all the current accounts of the firm. It is
concerned with the adequacy of current assets as well as the level of risk posed by
current liabilities. He also viewed that the firms policies for managing its working
capital should be designed to achieve three goals such as adequate liquidity
minimization of risk and contribute to minimizing firm value.
Know ,Scoh , Martin and Petty view on managing the investments
According to Know, Scoh, Martin and Petty (1983) working capital
management involves managing the firms liquidity, managing the firms
investments in current assets and its use of current assets was found to reduce the
firms risk of liquidity at the expenses of lowering its overall rate of return on its
investment in assets. Furthermore the use of long term sources of financing was
found to enhance the firms liquidity, which reduces the rate of return on assets.
Pradhan study on describing the demand for working capital and its various
components
Pradhan (1986) in his work on working capital management of Nepal
Enterprise used econometric models to describe the demand for working capital
and its various components. Using regression and coefficient of variation, it is
used to find holding costs also.
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CHAPTER V
RESEARCH METHODOLOGY
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The term Research refers to the systematic method consisting of

enunciating the problem, formulating a hypothesis, collecting the data, analyzing
the facts and reaching certain conclusions either in the form of solutions towards
the concerned problem or in certain generalized form of some theoretical
formulation.
RESEARCH DESIGN:
Research design is the blue print for doing the research. It is the arrangement
of conditions for collection and analysis of data in a manner that aims to combine
relevance to the research purpose with economy in procedure.
This is an empirical study based on the financial information contained in
the annual reports of Win way. The study adopts descriptive methodology for
evaluating the financial performance of the organization.
A study on financial performance of Kumbakonam Winway packaged
drinking water Private Limited has been made by calculating various ratios. The
data for such analysis have been extracted from the financial statements. These
ratios have been interpreted and conclusions have been drawn. Based on which,
suggestion have been made to improve the financial performance of Kumbakonam
Win way packaged drinking water Private limited.
NEED FOR THE STUDY
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To know the companys working capital.

To pay wages and salaries.
To incur day to day expenses.
To maintain inventories of raw materials, work in progress and finished
goods.
Gives a company the ability to meet its current liabilities.
NEED FOR WORKING CAPITAL
The bunnies firm has to invest maximum funds on current assets for the
success of sale activity. Current assets are need because when the sale is not
converting into cash immediately. There is always an operating cycle involving in
the conversion of sales into cash.
Operating Cycle
The times require to complete the sequence of events in the case of
manufacturing firm is called operating cycle.
Debtors
Sales
Cash
Finessed
Product
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Raw
materials
Working
programs
Fig: 1.1. Operating Cycle of the Manufacturing firm

The operating cycle consist of 3 phases. In the 1 st phase cash gets converted into
inventory. This includes purchase of raw material, conversion of raw material in to work-inprocess and working in program to finished product.
In the 2nd phase the stock is converted into receivables it credit sales are made.
In the 3rd phase the conversion of receivable into cash after certain period. the operating
cycles of a non manufacturing firm is
Accounts
receivables
Cash
Stock finished
good
Fig: 1.2. Operation cycle of non manufacturing firm
The operating cycle refers to the length of time necessary to complete the
following cycle of events.
WORKING CAPITAL
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Working capital is the excess of current assets over current liabilities.
Current Assets
Current Liabilities
1. Cash
1. Bank over draft
2. Bank balance
2. Bills payable
3. Short term investment
3. Trade creditors
4. Bills receivable
4. Provision for taxation
5. Trade debtors
5. proposed dividends
6. Short term loans & advances
6. Unclaimed dividends
7. Inventories
7. Advance payments & unexposed

discounts.
8. Prepaid payments
8. Occurred interest on unexpired

discounts.
9. Outs trading expenses
OPERATIONAL DEFINITIONS OF THE CONCEPTS

Working Capital Working Capital may be regarded as that proportion of a
firms total capital, which is employed in financing its day-to-day operations. It is
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the amount of funds, which a firm holds, in the form of current assets to meet its
current liabilities.
Net Working Capital (NWC) Net Working Capital is the difference between
current assets and current liabilities
Gross Working Capital (GWC) Gross working Capital refers to the firms
total investment in current assets.
Current assets Current assets are those assets which can be converted into
cash within an accounting year or within the operational cycle, without under
going diminution in value of or disrupting operational cycle. They include cash,
short-term securities debtors. Bill receivable and stock (inventory).
Current liabilities Current liabilities are those of outsides that are expected to
mature for payment with in an accounting year (or operating cycle). They include
creditors. Bills payable and outstanding expenses that are the short-term sources.
Cash is the money the firm can disburse immediately without any restriction.
It includes coins, currency, cheque held by the firm and balance in bank accounts.
Sometimes mere cash items such as marketable securities or bank time deposits are
also included in cash. The basic characteristics of near cash assets are that they
readily convertible into cash.
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Inventories Inventory refers to stock of goods or products of the company. It

may be in the firm of raw material, work-in-progress and finished goods.
SCOPE OF THE STUDY
This study is about the ratio analysis of WORKING CAPITAL
MANAGEMENT, which is a part of financial analysis. Ratio analysis is
perhaps the first financial tool developed to analyze and interpret the
financial statement and is still used widely for this purpose.
The company to understand its own position over time.
The present and potential investors, outside parties such as the creditors,
debtors, government and many more to get an idea of the overall
performance of the firm.
Ratio analysis is the specific area of finance dealing with the financial
decision Privates make, and the tools and analysis used to make the
decisions.
It may divide as long-term and short-term decisions and techniques.
LIMITATIONS OF THE STUDY
The working capital analysis is based on the annual reports published
by the organization. Thus the reliability of the analysis is depending on
the data provided in the balance sheets.
The study on working capital management is confined to a period of 5
years, i.e., from 2008-2009 to 2012-2013 due to time constraints.
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The study is based on secondary data and not on the basis of primary
data.
The study is based on the accounting standards and not based on the
economic condition.
WORKING CAPITAL
1. Gross Working Capital
2. Net Working Capital
GROSS WORKING CAPITAL
It refers to the firms investment in total current or circulating assets.
According to this concept, the working capital refers to the firms total investment
in current assets. Current assets mean assets which can be converted into cash
within an accounting year. Current assets include cash and bank balance, bills
receivable, sundry debtors, inventory, prepaid expenses.
NET WORKING CAPITAL:

According to this concept the working capital refers to the difference
between current assets and current liabilities. Current liabilities refer to the claims
of outsiders which are expected to mature for payment within an accounting year.
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Net working capital can be positive or negative. Positive Networking capital arises
when current assets exceed current liabilities. Negative net working capital occurs
when current liabilities are in excess of current assets.
PERIOD OF STUDY
The period of the study for project work is 6 month.

TOOLS USED
The data collected are analyzed with the help of the following tools
Ratio Analysis
Comparative Statement Of Working Capital
Common Size Balance sheet
DATA COLLECTION:
SECONDARY DATA:
The secondary data on the other hand are those which have already been
collected by someone else. The analysis of working capital management of the
organization necessitates accurate and reliable data. Therefore the sources for
collecting the data include secondary data.
For the purpose of the study available secondary data is used. The Annual
Reports of the company for the past five years (i.e.) F.Y.2008-09 to F.Y.2012-13
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constituted the basis of the study. For the purpose of Analysis, Financial statements
viz.., Fund Flow Statements and Financial Ratios relating to working capital on
specific current assets were used. Information collected from the above source
helped the researcher to conduct the study successfully.
PLAN OF ANALYSIS:
The study is made only by using accounting ratios, comparative statements
and average performance. It is basically a common size statement analysis. The
five years gross and net working capitals are obtained. The percentage shares of the
components of working capital are compared to that of the standard norms and
deviations if any are described as either favorable or unfavorable.
Diagrammatic presentations of statistical data are exhibited through bar
diagrams, Pie Charts for analysis of data for better understanding.
SIGNIFICANCE OF THE STUDY
The working capital of an organization is the lifeblood, which flows through
the veins and arteries. It gives courage and moral to the brain (management) and
the muscles (personnel). It digests to the best degree, the raw material used, by its
constant and regular flow and returns to the heart (cash flow) for another journey.
Hence when working capital is lacking or slow, the financial bodies have value
only as a junk.
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Funds are needed for short term purposes, viz., for purchases of raw material
payments of wages and other day to day business expenses. Many a times, in the
event of failure of a business concern, the shortage of working capital is given out
as its main cause. But in ultimate analysis, it may be the mismanagement of
resources of the firm that could have converted the otherwise successful business,
an unsuccessful one. A firm can exist and survive without making profit but
cannot survive without working capital funds.
Working capital has acquired a great significance and a sound position for the
twin objects of Profitability and Liquidity. It consumes a great deal of time to
increase profitability as well as to maintain proper liquidity at minimum risk. So
the effective management of working capital is the primary means of achieving the
firms goal of adequate liquidity, which helps to measure the degree of protection
against problems that might cause a shortage of funds. Essentially, the efficient
management of working capital minimizes risk in the repayment of its sources of
finance, thereby contributing to the maximization of firms value.
The present study on working capital management of Kumbakonam Winway
Private Ltd enables the organization to efficiently manage its working capital
components and achieve the goal of maximizing the value of the organization.
36
CHAPTER VI
DATA ANALYSIS AND INTERPRETATION
This chapter deals with the study of working capital management of

Win way packaged drinking Water Private limited. The tools used for the
study are common size statements and ratio analysis.
GROSS WORKING CAPITAL:
The Gross Working Capital of Win way packaged drinking water Private limited
registered trend during the entire period of the last five years of study. It has gone
up to from Rs.7586.18 crores in 2008-09 to Rs. 8123.14crores in 2012-13.
37
TABLE - 1
COMPONENTS OF CURRENT ASSETS 2008-09
(Rs. In Crores)
COMPONENTS OF
CURRENT ASSETS
2008-09
PERCENTAGE
Inventories
535.85
7.06
Sundry Debtors
781.44
10.3
Cash and Bank balance
5482.19
72.26
Other current Assets
189.48
2.49
Loans and Advances
597.22
7.87
TOTAL CURRENT
ASSETS
7586.18
100
Source: Compiled from the Annual Reports of Winway Private Ltd.

CHART - 1
38
TABLE - 2
(Rs. In Crores)
COMPONENTS OF
CURRENT ASSETS
2009-10
PERCENTAGE
Inventories
502.96
6.55
Sundry Debtors
1611.62
20.97
4823.63
62.77
164.56
2.14
Loans and Advances
581.59
7.57
TOTAL CURRENT
ASSETS
7684.36
100

CHART - 2
39
TABLE - 3
(Rs. In Crores)
COMPONENTS OF
CURRENT ASSETS
2010-11
PERCENTAGE
Inventories
491.71
Sundry Debtors
2202.39
28
4423.99
57
177.49
Loans and Advances
560.05
TOTAL CURRENT
ASSETS
7855.63
100
Source: Compiled from the Annual Reports of Winway private Ltd.

CHART - 3
40
TABLE - 4
(Rs. In Crores)
COMPONENTS OF
CURRENT ASSETS
2011-12
PERCENTAGE
Inventories
506.19
6.21
Sundry Debtors
3647.03
44.75
3329.10
40.85
259.44
3.18
Loans and Advances
406.80
4.99
TOTAL CURRENT
ASSETS
8148.56
100

CHART - 4
41
TABLE - 5
(Rs. In Crores)
COMPONENTS OF
CURRENT ASSETS
2012-13
PERCENTAGE
Inventories
683.72
8.4
Sundry Debtors
3800.27
2866.64
35.2
162.24
1.9
Loans and Advances
610.27
7.5
TOTAL CURRENT
ASSETS
8123.14
100
46.7

CHART - 5
42
TABLE - 6
COMPONENTS OF CURRENT LIABILITIES 2008-09
(Rs. In Crores)
COMPONENTS OF
CURRENT
LIABILITIES 2008-09
Rs. In Crores
PERCENTAGE
Sundry Creditors
734.16
25.69
Capital Works &

Purchases
471.41
16.5
Mine Closure
399.20
13.97
Other Liabilities
459.32
16.07
Provisions
792.66
27.74
Total Current Liabilities
2856.75
100

CHART - 6
43
TABLE - 7
(Rs. In Crores)
COMPONENTS OF
CURRENT
LIABILITIES 2009-10
Rs. In Crores
PERCENTAGE
Sundry Creditors
1175.70
39
Capital Works &

Purchases
426.60
14
Mine Closure
491.40
17
Other Liabilities
276.87
Provisions
613.28
21
2983.85
100

CHART - 7
44
TABLE - 8
(Rs. In Crores)
COMPONENTS OF
CURRENT
LIABILITIES 2010-11
Rs. In Crores
PERCENTAGE
Sundry Creditors
1108.80
39
Capital Works &

Purchases
721.47
26
Mine Closure
108.94
Other Liabilities
225.15
Provisions
649.94
23
2814.3
100

CHART - 8
45
TABLE - 9
(Rs. In Crores)
COMPONENTS OF
CURRENT
LIABILITIES 2011-12
Rs. In Crores
PERCENTAGE
Sundry Creditors
252.34
13.1
Capital Works &

Purchases
198.85
10.3
Mine Closure
18.87
0.9
Other Liabilities
647.40
33.7
Provisions
798.49
41.6
1915.95
100

TABLE -9
46
TABLE - 10
(Rs. In Crores)
COMPONENTS OF
CURRENT
LIABILITIES 2012-13
Rs. In Crores
PERCENTAGE
Sundry Creditors
266.59
9.9
Capital Works &

Purchases
221.45
8.2
Mine Closure
19.80
0.7
Other Liabilities
1628.44
60.4
Provisions
555.79
20.6
2692.07
100

TABLE -10
47
TABLE - 11
CALCULATION OF NET WORKING CAPITAL
(Rs. In Crores)
YEARS
CURRENT
ASSETS
CURRENT
LIABILITIES
NET
WORKING
CAPITAL
2008-2009
7586.18
2856.75
4729.43
2009-2010
7684.36
2983.85
4700.51
2010-2011
7852.12
2567.19
5284.93
2011-2012
8148.56
2760.95
5387.61
2012-2013
8314.65
2784.34
5530.34
Net working capital is a qualitative concept. It indicates the liquidity

position of the firm and suggests the extent to which working capital needs may be
financed by permanent source of funds.
Net working Capital = Current Asset Current Liabilities.
48
CHART - 11
NET WORKING CAPITAL
49
RATIO ANALYSIS
Ratio Analysis is a powerful tool of Financial Analysis. Ratio Analysis of

business enterprises centers on efforts to drive quantitative measures or guides
concerning the expected capacity of the firm to meet its future financial obligations
or expectations. The ratio analysis facilitates a firm to consider the time
dimensions into account i.e., whether the financial position of a firm is showing
any improvement or deteriorating over years.
Ratio is known as one number expressed in terms of another, it is an
expression of relationship spelt out by dividing one figures into the other.
TYPES OF RATIOS
Ratios are classified in broad groups. They are as follows:
Liquidity Ratios.
Leverage Ratios.
Activity ratios.
Profitability Ratios.
LIQUIDITY RATIO
Liquidity ratios derive a picture of the capacity of a firm to meet its short
term obligations out of its short term resources. These ratios constitute ratio50
analysis of the short-term financial position. Liquidity ratios, by establishing a

relationship between cash and other current assets to current obligations, provide a
quick measure of liquidity.
The most common ratios which indicate the Liquidity are:
Current Ratio
Quick Ratio
Cash Position Ratio
CURRENT RATIO
Current Ratio is the relationship between the total current assets and current
liabilities. It is the ratio of the current assets and current liabilities and is found out
by dividing the current assets by the current liabilities. As the ratio is connected
with the working capital [Current Assets Current Liabilities] and it is also called
working capital ratio. Current ratio is the indicator of short term liquidity position
of a firm.
CurrentAssets
Current Ratio =
----------------------CurrentLiabilitie
51
TABLE - 12
CURRENT RATIO
(Rs. in crores)
Current
Assets
Current
Liabilities
Ratio
2008-09
7557.07
2851.56
2.6
2009-10
7684.36
2541.85
3.02
2010-11
7855.63
2567.19
3.06
2011-12
8148.56
2760.95
2.95
2012-13
7630.93
2228.55
3.42
Year

INTERPRETATION
The calculated current ratio of the company was decrease from the 3.42:1 for
the year 2012-13 to3.06:1 for the year 2010-11 and then 3.02:1 for the year 200910 and always maintained more than the standard current ratio is 3:1. The current
asset of the company increased from 7557.07crore to 7630.93crore due to increase
in cash and bank balance has a main constituent of current asset. Hence the
liquidity of the company is high for the period under the review from the current
ratio point of view.
52
CHART 12
CURRENT RATIO
53
QUICK RATIO
It is also a tool of testing the liquidity of an organization. This ratio is also
called as Liquid Ratio (or) Acid test ratio. Acid Test Ratio or Liquid Ratio is
concerned with the relationship between Liquid Assets and Current Liabilities.
Quick Ratio is an Indicator of Short term solvency of the company.
LiquidAssets
Quick Ratio =
---------------------CurrentLiabilities
54
TABLE -13
QUICK RATIO
(Rs. In Crores)
Quick
Current
Assets
Liabilities
2008-09
7021.22
2851.56
2.4
2009-10
6075.02
2541.85
2.39
2010-11
7114.83.
2567.19
2.77
2011-12
7771.53
2559.79
3.04
2012-13
7630.93
2228.55
3.42
Year
Ratio
INTERPRETATION
The calculated quick ratio or liquid ratio decreases from3.42:1 in 2012-13 to
3.04:1 in the year 2011-12 and 2.77 in 2010-11. So the standard quick ratio is 2:1,
the quick ratio of the company is always on the higher side when compared to the
standard ratio. It shows the company is having higher liquid asset when compared
to current liability. Hence the company is having higher liquidity for the period
under the study from the quick ratio point of view.
55
CHART - 13
QUICK RATIO
56
CASH POSITION RATIO:

Cash Ratio measures the relationship between cash and near cash items on one
hand and immediately maturing obligations on the other. This test is rigorous
measure of a firms liquidity position. It is also called as absolute liquid ratio.
Cash + Marketable Securities

Cash position Ratio =
-----------------------------------------Current Liabilities
57
TABLE - 14
CASH POSITION RATIO
(Rs. in crores)
Cash +
Year
Marketable
Security
Current
Liabilities
Ratio
2008-09
5452.20
2851.56
1.91
2009-10
4823.63
2541.85
1.89
2010-11
4420.73
2567.19
1.72
2011-12
4415.55
2559.79
1.72
2012-13
3406.84
2784.34
1.22
INTERPRETATION
Generally, ideal absolute liquid ratio of 1:1 is said to be satisfactory. The
calculated cash ratios are varying from 1.91:1 for the year 2008-09 to 1.89:1 for
2009-10 and then to 1.72 for 2010-11. Cash ratios are calculated for maintaining
higher than the standard ratio. A cash ratio greater than 1.0 means that there is
more than enough cash on hand. It is vivid from the above analysis that the
company has sufficient high liquid funds to meet its current obligations. Hence the
company is having very high liquidity from cash ratio point of view.
58
CHART - 14
CASH POSITION RATIO
59
LEVERAGE RATIOS
Leverage Ratios measure the contribution of financing by owners compared
with financing provided by the outsiders. Leverage Ratios also provide some
measure of the risk of debt financing by the calculation of the coverage of fixed
charges. Leverage has a much more important bearing on profitability than does
Liquidity.
The most common Ratios used are:
Debt-Equity Ratio
Interest Coverage Ratio
Proprietary Ratio
DEBT EQUITY RATIO

Debt Equity Ratio is determined to ascertain the soundness of the long-term
financial position of the company. The investor may take Debt-Equity ratio as
satisfactory if shareholders Funds are equal to Outsiders Funds. This ratio
indicates the extent to which the firm depends upon outsiders for its existence.
Outsiders Fund
Debt Equity Ratio =
---------------------------Shareholders Fund
60
TABLE - 15
DEBT EQUITY RATIO
(Rs. in crores)
Outsiders
Shareholders
Fund
Fund
2008-09
3100.00
9412.78
0.32
2009-10
3237.50
10093.15
0.32
2010-11
3147.50
11174.48
0.28
2011-12
4957.76
12609.96
0.39
2012-13
7351.59
13081.26
0.56
Year
Ratio
INTERPRETATION
The calculated debt equity ratio has been increased from 0.56 in the year
2012-13 to 0.39 in the year 2011-12. The resource and surplus of the firm shows
`an increasing trend from 3100.00 crore to 7351.59 crore in 2008-13 and also
outsiders funds such as secured loans and unsecured loans are increased because of
the expansion projects.
61
CHART - 15
DEBT EQUITY RATIO
62
INTEREST COVERAGE RATIO
Interest Coverage Ratio is also known as Fixed charges cover. This ratio
established the relationship between EBIT and fixed interest charges. Interest
coverage ratio measures the ability of the company to meet interest commitments.
It also highlights the ability of the firm to raise additional funds in future.
Higher the ratio better is the position of long-term creditors and the companys risk
is lesser.
Earnings before Depreciation, Interest and Tax

Interest Coverage Ratio
=
------------------------------------------------------Interest
63
TABLE - 17
(Rs. in crores)
Year
EBIT
Interest
Ratio
2008-09
1486.37
8.15
182.37
2009-10
1889.16
33.58
56.26
2010-11
2259.98
159.07
14.18
2011-12
2012-13
2050.76
2045.66
376.47
193.39
5.45
10.57
INTERPRETATION
The calculated interest coverage ratios from 2008-09 to 2012-13 are appears
to be the average of around 182 and it is 10 for the year 2008-09 and it is 182 for
the year 2008-10. This is due to low interest is to be covered and higher earnings of
the company But in 2010-11 interest charged is very high when compared to rest of
the years so the interest coverage ratio is reduced to 14.18.The higher interest
coverage ratio indicates more solvency to the company and the company can very
well cover the interest payments on its long term debt..
64
CHART - 17
65
PROPRIETARY RATIO:
This ratio relates the shareholders funds to total assets. It throws light on the
general financial strength of the company. It is of greater importance to the
creditors since it enables to find out the proportion of shareholders funds in the
total assets of the business. A high Proprietary Ratio indicates relatively secure
position to the creditors in the event of liquidation. A low proprietary ratio will
include greater risk to the creditors.
Shareholders Fund
Proprietary Ratio =
-----------------------------Total Assets
66
TABLE - 18
PROPRIETARY RATIO
(Rs. in crores)
Shareholders
Fund
Total
Assets
Ratio
2008-09
9469.23
17049.9
0.55
2009-10
10093.15
14972.46
0.67
2010-11
11174.48
15757.95
0.70
2011-12
4488.91
1295.90
0.29
2012-13
13081.26
23217.19
0.56
Year
INTERPRETATION
The calculated proprietary ratio are varying from 0.56 for 2012-13 and then
decrease to 0.55 for the year 2008-09The decrease in ratio is because of purchase
of some special mining equipment during the year 2008-09. The total asset of the
company has been increased from 17049.9in 2008-09 to 23217.19in 2012-13. In
2010-11proprietory ratio increase by 0.70 the higher ratios indicate more security
to the creditors and relatively secure position of the company in the event of
liquidation.
67
CHART - 18
PROPRIETARY RATIO
68
ACTIVITY RATIOS:
An activity ratio measures the effectiveness of the employment of resources.
These ratios not only analyze the use of the total resources of the firm but also the
use of the components of the total assets. Activity Ratios involve a relationship
between assets and sales. Several Activity Ratios can be calculated to judge the
effectiveness of asset utilization.
Some of these ratios are:
Debtors turnover ratio.
Fixed assets turnover ratio.
Working capital turnover ratio.
Capital turnover ratio.
DEBTORS TURNOVER RATIO

Debtors constitute an important constituent of current assets and therefore
the quality of debtors to a great extent determines a firms liquidity.
This ratio indicates the efficiency of the staff entrusted with the collection of
book debts. The higher the ratio, the better it is.
Net Sales
Debtors Turnover Ratio =
-----------------------------Debtors
69
TABLE 19
(Rs. in crores)
Year
Net Sales
Debtors
Ratio
2008-09
3354.91
781.44
4.29
2009-10
4121.03
1611.62
2.56
2010-11
3949.08
2202.39
1.79
2011-12
4489.46
2503.45
1.79
3800.27
1.47
2012-13
5590.97
INTERPRETATION
The calculated debtors turnover ratio increased from 4.29 in 2008-09
to 2.56 in 2009-10 and the decreases from there to 1.79 in 2010-11. It indicates the
company has taken efficient debt management
70
CHART - 19
71
FIXED ASSET TURNOVER RATIO

Fixed Asset Turnover Ratio indicates the extent to which the investment in
fixed assets contributes towards sales. A highest ratio is an indication of greater
efficiency in the utilization of fixed assets. Fixed asset of the company are land and
building, Plant and machinery etc.
Cost of Goods Sold
Fixed Asset Turnover Ratio =
--------------------------Fixed Asset
72
TABLE - 20
FIXED ASSET TURNOVER
(Rs. in crores)
Year
Cost of
Goods Sold
Fixed Assets
Ratio
2008-09
2623.34
4503.04
0.58
2009-10
2231.87
5238.80
0.43
2010-11
3302.42
4990.15
0.66
2011-12
4488.91
8515.84
0.53
2012-13
5590.07
14902.54
0.37
INTERPRETATION
The fixed asset turnover ratios for the period under study are very less when
compared to standard ratio of 5. WINWAY being an integrated complex having
capital intensive mining and power industry, investment in fixed asset is high and
the ratio indicates the lesser ability of the company to generate sales from the
investment in the fixed assets. Higher ratio will help in improving the profitability
of the company.
73
CHART - 20
FIXED ASSET TURNOVER RATIO
74
WORKING CAPITAL TURNOVER RATIO
The ratio of cost of goods sold to Net working capital is determined in order
to test the efficiency with which net working capital is utilized. It indicates whether
the business is being operated on a small or large amount of Net working capital in
relation to sales.
A high working capital turnover may be the result of favorable turnover of
inventories and receivables whereas; a low turnover of net working capital results
in slow turnover of inventories and receivables.
Cost of Goods Sold

Working Capital Turnover Ratio = ----------------------Working Capital
75
TABLE -21
(Rs. in crores)
Cost of
Working
Goods Sold
Capital
2008-09
2623.34
4705.51
0.55
2009-10
2231.087
4681.17
0.48
2010-11
3302.42
2584.05
1.28
2011-12
3129.75
5387.61
0.58
2012-13
3581.01
5530.34
0.64
Year
Ratio
INTERPRETATION
The working capital turnover ratios show a Decreasing trend from 0.55 the
year 2008-09 to 0.48 for the year 2009-10 and have shown some improvement
during 2008-09. The decreasing trend of the working capital turnover ratio
indicates the companys ability to generate sales was decreasing up to 2009-10 and
has shown a sign of reversal in 2010-11. It means utilization working capital in
generating sales has started increasing from 2007-08 and continued in 2012-13.
Working capital turnover ratio is high in 2012-13 when compared with other year
because of mine closure and provision of gratuity
76
CHART - 21
77
CAPITAL TURNOVER RATIO
Capital Turnover Ratio indicates the extent to which capital employed

contributes towards sales. High ratio signifies that there exists efficient utilization
of the capital employed by the firm
Cost of Goods Sold

Capital Turnover Ratio =
-------------------------Capital Employed
78
TABLE - 22
(Rs. in crores)
Year
Cost of Goods
Sold
Capital
Employed
Ratio
2008-09
2623.34
9303.62
0.28
2009-10
2231.87
11166.88
0.20
2010-11
3302.42
11621.00
0.28
2011-12
3129.75
17733
0.17
2012-13
3581.01
17364
0.20
INTERPRETATION
The calculated capital turnover ratio was 0.28 for the year 2008-09 it
decreased to 0.02 in 2009-10 and then increased to 0.28in 2010-11. It indicates the
effective utilization of the capital employed by the company to generate sales has
decreased from the year 2008-09 to 2009-10 and increased in the latter years from
2010-11 to 2012-13.
79
CHART - 22
80
PROFITABILITY RATIOS:
Profitability ratios are calculated to measure the operating efficiency of the
company. Profitability Ratios are designed to highlight the end-result of business
activities.
Profitability ratios can be determined on the basis of Sales or
Investment. Profitability Ratios indicates the profitability i.e., the ability of the firm
to earn profit.
The important ratios are:
Net profit ratio.
Return on net worth.
Return on capital employed.
Gross profit ratio.
NET PROFIT RATIO:
Net Profit Ratio is the ratio of Net Income or Profit after Taxes to Net sales. It
indicates with portion of sales is left to the proprietors after all costs, charges and
expenses; have been deducted. It is extremely useful to the firm being an indication
of cost control and sales promotion. Net profit Ratio is a guide as to the efficiency
or otherwise of operating the firm.Net profit ratio is widely used as a measure of
over-all profitability and is very useful to the proprietors. Higher the ratio better is
the operational efficiency of the company.
81
TABLE - 23
NET PROFIT RATIO
(Rs. in crores)
Year
Net Profit
Sales
Ratio
2008-09
821.09
3354.91
0.24
2009-10
1247.46
4121.03
0.30
2010-11
1298.28
3949.08
0.32
2011-12
4488.91
1295.90
0.29
2012-13
5590.07
13081.26
0.42

Net Profit
Net Profit Ratio =
-------------Sales
INTERPRETATION
The calculated net profit ratio of the company was 0.24 for 2008-09 and decreased
to 0.3 for the year 2009-10 due to fall in net profit from Rs821.09Cr for 2008-09 to
Rs1247.46 Cr for 2009-10 and has shown a sign of improvement in 2010-11 to 0
32. It decreased to 0.29for 2011-12 due to fall in net profit to Rs 1298.68 Cr due to
Provision for gratuity of Rs 4488.91 Cr. The reduction in the sales turnover during
the year 2012-13 as compared to previous year 2009-10 was due to the adjustment
of mine closure cost amounting to Rs 340.72 crores in the sale income of 201282
13.and Ministry of coal revised downward in view of the reduction in mine closure
cost for the above period as stated the excess liability created in the earlier years
amounting to Rs 382.45 crores has been withdrawn and included in other income.
CHART - 23
NET PROFIT RATIO
83
RETURN ON NET WORTH

Return on net worth is desired to work out the profitability of the company from
the shareholders point of view, because the shareholders are interested in total
income after tax including net Non-operating Income.
Profit after tax
Return on Net worth =
------------------Net worth
84
TABLE - 24
RETURN ON NET WORTH
(Rs. in crores)
Year
Profit
after tax
Net worth
Ratio
2008-09
821.09
9412.78
0.08
2009-10
1247.46
10225.60
0.12
2010-11
1298.28
11121.40
0.11
2011-12
1411.33
11989.57
0.12
2012-13
1459.75
12925.15
0.11
INTERPRETATION
The calculated return on net worth was high at 0.08 in the year 2008-09
and slowly decreased to 0.12 in 2009-10 and increased to 0.11 in 2010-11 and then
decreased to 0.12 in the year 2011-12. The decrease in trend on return on net worth
was due tom fall in profit from 821.09 crore for 2008-09 to 1247.46crore in 201011. The decrease in returns on net worth for the year 2011-12 is 0.12 due to
provision for gratuity and mine closure to extent of rupees1298.28crore further
decrease in return on net worth in 2012-13 is 0.11 is due to The board of Directors
of the company has recommended a dividend of 23% for the year 2010-11
85
(previous year 20%) the total outgo on account of the dividend including
distribution tax will be Rs 448.47 Crores (previous year Rs 391.91Crore)
CHART - 24
RETURN ON NET WORTH
86
RETURN ON CAPITAL EMPLOYED

Return on Capital Employed Ratio shows the overall efficiency of the firm.
This ratio is the indicator of profitability of a firm. The profit being the net result of
all operations, the return on capital employed expresses all efficiency the
Inefficiency of a business collectivity and thus it is a dependable basis for judging
its overall efficiency or inefficiency.
Profit after Tax

Return on Capital Employed =
----------------------Capital Employed
87
TABLE - 25
(Rs. in crores)
Year
Profit
after tax
Capital employed
Ratio
2008-09
2231.87
5238.80
0.43
2009-10
3302.42
4990.15
0.66
2010-11
1298.33
11621.00
0.11
2011-12
1411.33
17733
0.07
2012-13
1459.75
17364
0.08
INTERPRETATION
The calculated return on capital employed ratio is 0.43 in 2008-09 and
slowly increased to 0.66 in 2009-10 and decreased to 0.11 in 2010-11 and then
decreased to 0.07 in 2011-12. The decrease in trend on return on capital was due to
fall in net profit from Rs 2231.87 Cr for 2008-09 to Rs 4488.91Cr in 2010-11. The
reason for decrease in return on capital for 2010-11 is due to provision for gratuity
and mine closure to an extent of Rs1298.33Cr and in 2012-13 return on capital is
stable because little increase in profit leads to increase in capital works and
purchases up to 1459.75Cr when compared to last year.
88
CHART - 25
89
GROSS PROFIT RATIO:

Gross profit ratio is the ratio of gross profit to net sales expressed as a percentage
representing the percentage of gross profits earned on sales. An increase in gross profit ratio may
reflect an increase in the sale price of goods sold without any corresponding increase in costs, a
decrease in cost without its impact on the sale price of goods. Low gross profit ratio may indicate
un-favorable purchasing and mark-up policies.
Gross Profit
Gross Profit Ratio =
------------------Sales
90
TABLE - 26
GROSS PROFIT RATIO
(Rs. in crores)
Year
Gross Profit
Sales
Ratio
2008-09
1486.37
3354.91
0.49
2009-10
1889.16
4121.03
0.46
2010-11
2259.98
3949.08
0.57
2011-12
1905.74
4866.85
0.39
2012-13
1886.31
5590.07
0.33
INTERPRETATION
The gross profit ratio for 2012-13 is the lowest during the period under the
study. The gross profit shows a fluctuating trend. The declining trend in gross
profit ratio is due to reduction in operating profit. The operating expense was
1886.31crore during the year 2012-13 it was considerably high when compared to
other years, in 2012-13 gross profit increase to due to overburden removal of
1886.31LM3 from all mines of the company put together so the gross profit also
increased so gross profit ratio increased by 0.33.
91
CHART 26
GROSS PROFIT RATIO
TABLE 26
92
(Rs. in crores)
SCHEDULE OF CHANGES IN WORKING CAPITAL
CURRENT ASSETS
2007-08
2008-09
INVENTORIES
448.05
535.85
87.8
SUNDRY DEBTORS
218.83
781.44
562.61
CASH & BANK BALANCES
4749.56
5452.2
702.64
OTHER CURRENT ASSETS
159.67
189.47
29.8
LOANS & ADVANCES
307.64
598.11
290.47
TOTAL (A)
5883.75
7557.07
1673.32
CURRENT LIABILITIES
2007-08
2008-09
CURRENT LIABILITIES
1465.96
2058.9
592.94
PROVISIONS
368.08
792.66
424.58
TOTAL (B)
1834.04
2851.56
1017.52
WORKING CAPITAL (A-B)
4049.71
4705.51
655.8
INCREASE IN WORKING
CAPITAL
655.8
655.8
TOTAL
4705.51
4705.51
655.8
655.8
INTERPRETATION
93
INCREASE DECREASE
Schedule of Changes in Working Capital, when compared between 2008-09

and 2009-10 It is stated that,
IN CURRENT ASSETS
Inventories increases by Rs. 87.8 Crores.

Debtors increases by Rs. 562.61 Crores.
Cash and Bank Balance increases by Rs. 702.64 Crores.
Other Current Assets increases by Rs. 29.8Crores.
Loans and advances increases by Rs. 290.47 Crores
IN CURRENT LIABILITIES & PROVISIONS

Current Liabilities increases by Rs. 592.94 Crores.
Provisions increases by Rs. 424.58 Crores.

Increase in Working capital Rs. 655.8 Crores.
TABLE 27
(Rs. in crores)
CURRENT ASSETS
2008-09
2009-10
INVENTORIES
535.85
502.96
94
INCREASE
DECREASE
32.89
SUNDRY DEBTORS
781.44
1611.62
5452.2
4823.63
628.57
189.47
164.56
24.91
LOANS & ADVANCES
598.11
581.59
16.52
TOTAL (A)
7557.07
7684.36
CURRENT LIABILITIES
2008-09
2009-10
CURRENT LIABILITIES
2058.9
2389.91
PROVISIONS
792.66
613.28
TOTAL (B)
2851.56
3003.19
331.01
179.38
4681.17
4705.51
523.51
499.17
INCREASE IN WORKING CAPITAL

TOTAL
24.34
4705.51
523.51
24.34
523.51
4705.51
830.18
830.18
702.89
331.01
179.38
INTERPRETATION
Schedule of changes in working capital, when compared between 2008-09
and 2009-10. It is stated that,
95
IN CURRENT ASSETS:
Inventories Decreases by Rs. 32.89 Crores.

Cash and Bank Balance Decreases by Rs.628.57 Crores.
Other Current Assets Decreases by Rs. 24.91 Crores.
Loans and Advances Decreases by Rs. 16.52 Crores.
IN CURRENT LIABILITIES & PROVISIONS:

Current Liabilities increases by Rs. 331.01Crores.
Provisions Decreases by Rs. 179.38 Crores.
Increase in working capital Rs. 24.34 Crores.
TABLE 28
(Rs. in crores)
CURRENT ASSETS
2009-10 2010-11 INCREASE DECREASE
11.25
INVENTORIES
502.96 491.71
SUNDRY DEBTORS
1611.62
96
2202.39
590.77
4823.63 4420.73
164.56
177.48
LOANS & ADVANCES
581.59
559.81
TOTAL (A)
7684.36 7852.12
CURRENT LIABILITIES
2009-10 2010-11
402.9
12.92
21.78
603.69
435.93
455.8
CURRENT LIABILITIES
2389.91
1934.11
PROVISIONS
613.28
649.94
36.66
3003.19 2584.05
36.66
455.8
4681.17 5268.07
567.03
19.87
547.16
567.03
567.03
TOTAL (B)

INCREASE IN WORKING
CAPITAL
T0TAL
547.16
5268.07 5268.07
INTERPRETATION
Schedule of changes in working capital, when compared between 2009-10 and
2010-11. It is stated that,
IN CURRENT ASSETS:
97
Inventories decreases by Rs. 11.25 Crores.

Cash and Bank Balance decreases by Rs.402.9 Crores.
Other Current Assets increases by Rs. 12.92 Crores.
Loans and Advances decreases by Rs. 21.78 Crores.

Current Liabilities decreases by Rs. 455.8Crores.
Provisions increases by Rs. 36.66Crores.
Increase in working capital Rs. 547.16Crores.
TABLE 29
(Rs. in crores)
CURRENT ASSETS
2010-11
2011-12
INCREASE
INVENTORIES
491.71
506.19
14.48
SUNDRY DEBTORS
2202.39
3647.03
1444.64
4420.73
3329.10
98
DECREASE
1091.63
81.96
177.48
259.44
LOANS & ADVANCES
559.81
406.80
TOTAL (A)
7852.12
8148.56
CURRENT LIABILITIES
2010-11
2011-12
CURRENT LIABILITIES
1934.11
1962.46
28.35
PROVISIONS
649.94
798.49
148.55
TOTAL (B)
2584.05
2760.95
176.9
5268.07
5387.61
1364.18
1265.88
INCREASE IN WORKING
CAPITAL
98.3
98.3
TOTAL
5387.61
5387.61
1364.18
1364.18
153.01
1541.08
1265.88
INTERPRETATION
IN CURRENT ASSETS:
Inventories increases by Rs. 14.48 Crores.
Cash and Bank Balance Decreases by Rs.1091.63 Crores.
99
Other Current Assets increases by Rs. 81.96 Crores.

Loans and Advances Decreases by Rs. 153.01Crores.
Current Liabilities increases by Rs. 28.35Crores.
Provisions increases by Rs. 148.55 Crores.
Increase in working capital Rs. 98.3 crores
TABLE 30
(Rs. in crores)
CURRENT ASSETS
2011-12
2012-13
INVENTORIES
1506.19
683.72
SUNDRY DEBTORS
3647.03
3800.27
3329.10
2866.64
156.24
162.24
100
INCREASE
DECREASE
822.47
153.24
462.46
81.96
6.0
LOANS & ADVANCES
406.80
610.27
TOTAL (A)
8045..86
8123.14
235.2
1284.93
CURRENT LIABILITIES
2011-12
2012-13
INCREASE
DECREASE
CURRENT LIABILITIES
1962.46
1801.65
160.81
PROVISIONS
798.49
555.79
242.7
TOTAL (B)
2760.95
2357.44
403.51
5284.91
5765.7
235.2
881.42
INCREASE IN WORKING
CAPITAL
646.22
646.22
TOTAL
5765.7
5765.7
881.42
881.42
INTERPRETATION
IN CURRENT ASSETS:
Inventories Decreases by Rs. 822.47Crores.

Debtors increases by Rs. 153.24Crores.
Cash and Bank Balance Decreases by Rs.462.46Crores.
Other Current Assets increases by Rs. 81.96Crores.
101
Loans and Advances Decreases by Rs. 6.01Crores.

Current Liabilities decreases by Rs. 160.81Crores.
Provisions decreases by Rs. 242.7Crores.
Increase in working capital Rs. 646.22crores
TABLE - 31
CURRENT ASSETS AND LIABILITIES OF WINWAY LTD.
(Rs. in crores)
102
PARTICULARS
2008-09
2009-10
2010-11
2011-12
2012-13
(+)/(-)
Inventories
536
503
492
506.19
683.72
134
Debtors
781
1612
2202
3647
3800
2034
Cash and Bank

Balance
5452
4824
4420
3329
2866
1871
Other Current
Assets
189
165
177
156
162
-26
Loans and
Advances
598
584
559.81
406
610
221.81
Creditors
734
1176
1103
259
277
857
Work in Progress
471
421
483
198
221
390
Other Liabilities
454
277
222
251
383
-33
Provisions
793
613
650
798
555
522
INTERPRETATION
Changes in Current Assets and Current Liabilities, when compared between
2008-09 and 2012-13, It is stated that,
IN CURRENT ASSETS:
103
Inventories increases by Rs. 134 Crores in 2012-13 compared to base year

2008-09 it is a normal increase @ 10% p.a.
Debtors decreases by Rs. 2034 Crores due to reduction in power tariff by
CERC norms and parameters and adjustment relating to earlier year sales.
Cash and Bank Balance increases by Rs. 1871 Crores due to increase in
Secured and Unsecured Loans for our expansion project, the amount is
invested in bank and utilizing the fund day by day. Accumulation of
Reserve from our profit.
Other Current Assets decreases by Rs 26 Crores it is a normal decrease.
Loans and Advances increases by Rs.221.81 Crores it is a normal
increase.
Sundry Creditors increases by Rs857 Crores, due to our expansion projects,
it is a normal increase.
Work in Progress increases by Rs. 390 Crores due to our expansion projects
in Rajasthan, Mine-II Expansion and Thermal-II Expansion, it is a normal
increase.
Other liabilities is decreases by Rs 33 Crores due to our expansion projects
in Rajasthan, Mine-II Expansion and Thermal-II Expansion, it is a normal
decrease.
Provisions are increases by Rs.522, due to final dividend declared in the
earlier years but, in current year interim dividend paid partly. A contingency
provision also increases.
104
CHAPTER - VII
FINDINGS
The study of working capital and its management in Winway packaged drinking
water Private the following:
The net working capital of the company has shown an increasing trend as
against Rs.4729.43 in 2008-09 it has grown to Rs.5530.34crores in 2012-13
thus it has increased from 2.6 to 3.42 times during the period of study.
The increasing working capital is due to increase in the current assets
without a corresponding increase in current liabilities.
The current ratio of 2:1 indicates that the pattern of companys financial
structure is sound. The Current ratio ranges from 2.6 to 3.42 average of
105
current ratio is 3.06 compared to the fixed norms. The liquidity position of
the concern is good.
The information given above reveals that quick ratio of Winway Private Ltd
fluctuate between 2.4 and 3.42 during the whole period of study its clearly
indicates the concern has the ability to maintain its liquidity positions in
better manner.
The ideal absolute liquid ratio of 1:1 is said to be satisfied. The calculated
cash ratios are varying from 1.91:1 for the year 2008-09 to 1.89:1 for 200910 and then to 1.72 for 2010-11.
The calculated debt equity ratio has been increased from 0.56 in the year
2012-13 to 0.39 in the year 2011-12. The resource and surplus of the firm
shows `an increasing trend from 3100.00crore to 7351.59crore in 2008-13,
so increased expansion projects.
The interest coverage ratio is reduced to 14.18.The higher interest coverage
ratio indicates more solvency to the company and the company can very
well cover the interest payments on its long term debt.
To calculated proprietory ratio are varying from 0.56 for 2012-13 and then
decrease to 0.55 for the year 2008-09. The decrease in ratio is because of
purchase of some special mining equipment during the year 2008-09.
The calculated debtors turnover ratio increased from 4.29 in 2008-09 to 2.56
in 2009-10 and the decreases from there to 1.79 in 2010-11. It indicates the
company has taken efficient debt management
106
The working capital turnover ratio shows a decreasing trend from 0.55 the
year 2008-09 to 0.48 for the year 2009-10 and has shown some improvement
during 2012-13.
The calculated capital turnover ratio was 0.28 for the year 2008-09 it
decreased to 0.02 in 2009-10 and then increased to 0.28in 2010-11. It
indicates the effective utilization of the capital employed by the company to
generate sales has decreased from the year 2008-09 to 2009-10 and
increased in the latter years from 2010-11 to 2012-13.
The calculated net profit ratio of the company was 0.24 for 2008-09 and
decreased to 0.3 for the year 2009-10 due to fall in net profit from
Rs821.09Cr for 2008-09 to Rs1247.46 Cr for 2009-10 and has shown a sign
of improvement in 2012-13 to 0 32.
The calculated capital turnover ratio was 0.20 for the year 2008-09and
increased by 0.28 in 2012-13 it shows the effective utilization of the capital
employed by the company to generate sales.
Working capital turnover ratio of average 0.70.for the period from 20082009 to 2012-2013. It indicates that the ratio ranges between0.55 to 0.64.
and 2012-13. It is stated that, Debtors increases by Rs.153.24Crores, Other
Current Assets increases by Rs.81.96Crores, Current Liabilities decreases by
Rs.160.81Crores, Provisions decreases by Rs.242.7Crores, Increase in
working capital Rs.646.22crores.
107
SUGGESTIONS AND RECOMMENDATIONS

To earn more profit the amount invested in current assets should be reduced
by way of reducing the quantum of inventories and debtors.
Asset utilization is good more efforts should be taken to achieve efficient
utilization of assets to earn more profit.
The members may aware that power generation is very necessary for
infrastructure development. Winway plays important role in the countrys
development. Winway may take necessary efforts to increase its capacities.
Development of participative culture and improve involvement of workmen
and others to be maintain conducive industrial climate for improving the
productivity and growth.
New initiatives are being taken by the Government to streamline this sector
in order to achieve the ultimate object of Power to all. Winway should are
strive hard to generate power at affordable cost.
CONCLUSIONS
108
The analysis of working capital of Winway packaged drinking water Private

Limited; Win way reveals effective position also of the companys working capital
policy. Financial position of the company is well and good for the past 5 years.
Liquidity position of the company is excellent. The company can still improve its
working capital position by implementing the suggestion made in this report.
Schedule of changes in working capital i.e. Increase or Decrease in Working
Capital during the period of study shows increases in working capital.
Hence, it is concluded that the companys financial position is at high level
and Working capital is being managed effectively.
BIBLIOGRAPHY
109
AnnualReports (2008-09 to 2012-13) collected from the library of Winway

Packaged drinking water Corporation Limited., Winway .
I.M.Pandey sixth edition Financial Management, Prentice hall of India
pvt.ltd.
Prasanna Chandra-seventh edition, Financial Management- McGraw-hill
publication.
T.S. Reddy & Y. HariPra
sad Ready Financial and Management Accounting Margham publishers,
Chennai.
AswathDamodaran Corporate Finance 2nd Edition, wiley India (P) Ltd
New Delhi, 2008.
Man Mohan and Shiv. N. Goyal Six Edition (1995), PRINCIPLES OF
MANAGEMENT ACCOUNTING SahityaBhawan Publications, Agra282 003, PP. 388-415, 416-507.
S.N. Maheswari Management Accounting Sultan chand& Co., New
Delhi.
110
BALANCE SHEET
STATEMENT OF GROSS WORKING CAPITAL
(Rs. In Crores)
COMPONENTS
OF CURRENT
ASSETS
20082009
20092010
20102011
20112012
20122013
Inventories
535.85
502.96
491.71
1506.19
683.72
Sundry Debtors
781.44
1611.62
2202.39
3647.03 3800.27
Cash and Bank

balance
5482.19 4823.63
4420.73
3329.10 2866.64
Other current
Assets
189.48
164.56
177.48
156.24
162.24
Loans and
Advances
597.22
581.59
559.81
406.80
610.27
7586.18 7684.36
7852.12
8045.86 8123.14
TOTAL
CURRENT
ASSETS

Gross working capital includes various current assets such as inventory,
sundry debtors, cash and bank balances and loans and advances. The position of
gross working capital, the components of gross working capital and their
percentage in the total assets are shown in Table-1
The components of Current Liabilities and their percentage in the total
Current Liabilities are shown in Table-2.
111
BALANCE SHEET
CURRENT LIABILITIES AND PROVISIONS
(Rs. In Crores)
STATEMENT OF CURRENT 2008-09 2009-10 2010-11 2011-12 2012-13

LIABILITIES
A. Current liabilities
1. Sundry creditors and
accrued expenses
2. Mine closure
3. Capital works and
purchases
4. Other liabilities
5. Unutilised revenue
grant
6. Unclaimed dividend
7. Staff security deposit
8. Interest accrued but
not due
a. Winway Bonds
b. Calyon Bank
c. KfW
734.16 1175.70 1103.33
252.34
266.59
491.40
108.94
18.87
19.80
426.60
482.94
198.85
221.45
471.41
276.87
222.04
198.45
221.45
431.34
6.21
3.94
4.78
6.99
8.35
1.28
0.86
0.93
1.27
0.63
0.01
0.01
0.01
0.01
9.87
9.87
9.87
9.99
9.87
0.96
1.17
2.18
1.9
2.77
1.01
1.01
1.05
1.03
399.20
0.01
1.16
B. Provision for
1. Accrued earned leave
2. Half pay leave
3. Short-term benefit of
earned leave
4. Short-term benefit of
half pay leave
5. Gratuity
6. Contingencies
96.06
143.41
96.06
120.68
90.66
49.18
70.33
30.35
54.36
0.00
3.46
3.43
4.36
10.69
5.58
1.48
1.95
2.57
4.21
3.73
203.77
141.37
0.00
58.20
42.05
35.13
44.82
54.82
46.60
84.88
112
7. Postretirement
medical benefit
8. Loss on assets
9. Proposed final
dividend
10.Proposed final
dividend tax
10.15
11.48
12.45
14.98
17.21
0.86
0.86
0.86
1.00
0.41
335.54
167.77
385.87
469.76
301.99
57.03
27.86
62.60
76.21
51.33
TOTAL 1834.04 3003.19 2836.14 1544.02 1348.32

From the Previous Table, it is inferred that the current liability of Win way show a
mixed trend. It was low in 2008-09 i.e. Rs. 1834.04 Crores but gradually raised to
Rs. 1348.32Crores in 2012-13.
113

Chapter - I: Working Capital Management

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Chapter - I: Working Capital Management

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CHAPTER - I

Working capital management is the part of financial management. In

means minimizing the working capital requirements and realizing maximum

requirements and high competition because of rapid technology changes, which

Definition:1. According to Guttmann & Dougall-Excess of current assets over current

CONCEPTS OF WORKING CAPITAL MANAGEMENT

The working capital meets the short-term financial requirements of a

TYPE OF WORKING CAPITAL

changes in demand for permanent current assets might be increasing to support a

1. Evolve, design develop an organization structure with a well-defined and

clearly identified relationship in accordance with the Companys plans, strategic

in inculcate a sense of belonging.

opportunities for career advancement through required training; impart

responsibilities, goodwill and commitment towards the company and facilitate

9. Assists the managerial personnel in the understanding of the personnel policies

and pragmatic policies relating to personnel matters in company as whole.

Human resource development

Agility and innovation

Private Limited for the period 2008-09 to 2012-13.

Hampton view on adequacy on current assets and risk posed by current

According to Hampton (1983) the working capital management is the

The term Research refers to the systematic method consisting of

To know the companys working capital.

Fig: 1.1. Operating Cycle of the Manufacturing firm

Fig: 1.2. Operation cycle of non manufacturing firm

Working capital is the excess of current assets over current liabilities.

1. Bank over draft

3. Short term investment

4. Provision for taxation

6. Short term loans & advances

7. Advance payments & unexposed

8. Occurred interest on unexpired

OPERATIONAL DEFINITIONS OF THE CONCEPTS

Inventories Inventory refers to stock of goods or products of the company. It

NET WORKING CAPITAL:

The period of the study for project work is 6 month.

This chapter deals with the study of working capital management of

Cash and Bank balance

Other current Assets

Loans and Advances

Source: Compiled from the Annual Reports of Winway Private Ltd.

Cash and Bank balance

Other current Assets

Loans and Advances

Source: Compiled from the Annual Reports of Winway Private Ltd.

Cash and Bank balance

Other current Assets

Loans and Advances

Source: Compiled from the Annual Reports of Winway private Ltd.

Cash and Bank balance

Other current Assets

Loans and Advances

Source: Compiled from the Annual Reports of Winway Private Ltd.

Cash and Bank balance

Other current Assets

Loans and Advances

Source: Compiled from the Annual Reports of Winway Private Ltd.

Capital Works &

Total Current Liabilities

Source: Compiled from the Annual Reports of Winway Private Ltd.

Capital Works &

Total Current Liabilities