Term Paper

On
Working Capital Management
Practices
(With reference to course, Financial
Management, MGT 517)

Submitted to:
Submitted by:
Ms. Swati Goyal RAJIV GUPTA
Lecturer LSB ROLL NO:
B34
SEC: RR1902
 REG NO:
10901946
INDEX
 Introduction to Working Capital
 Introduction to Ambuja Cement
 Balance Sheet of Ambuja Cement
 Working Capital Analysis
 Interpretation
 Ratio Analysis
 Interpretation
 Introduction to IBM
 Balance Sheet of IBM
 Working Capital Analysis
 Interpretation
 Ratio Analysis
 Interpretation
 Introduction to Birla Sun Life
 Balance Sheet of Birla Sun Life
 Working Capital Analysis
 Interpretation
 Ratio Analysis
 Interpretation
 Comparative Analysis
ACKNOWLEGEMENT

First of all we would like to thank the Lovely

Professional University and take the opportunity to
do this project as a part of the M.B.A.

Many people have influenced the shape and content of

this project, and many supported me through it. I
express my sincere gratitude Ms. Swati Goyal for
assigning me a project on Working Capital
Management which is an interesting and
exhaustive subject. She has been an inspirational
and role model for this topic. Her guidance and
active support has made it possible to complete the
assignment.

I would also like to thank my friends who have helped

and encouraged me throughout the working of this
project.

Last but not the least I would like to thank the Almighty
for always helping me

RAJIV GUPTA
Working Capital Management
Working capital, also known as "WC", is a financial metric which
represents operating liquidity available to a business. Along with fixed assets
such as plant and equipment, working capital is considered a part of operating
capital. It is calculated as current assets minus current liabilities. If current
assets are less than current liabilities, an entity has a working capital
deficiency, also called a working capital deficit. Net working capital is
working capital minus cash (which is a current asset). It is a derivation of
working capital that is commonly used in valuation techniques such as DCFs
(Discounted cash flows).
Working Capital = Current Assets − Current Liabilities
A company can be endowed with assets and profitability but short of liquidity if
its assets cannot readily be converted into cash. Positive working capital is
required to ensure that a firm is able to continue its operations and that it has
sufficient funds to satisfy both maturing short-term debt and upcoming
operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable and cash.
Ambuja Cements Limited
Ambuja Cements Limited was set up in the late 80s. The cement industry presented an
opportunity of steady growth and ethical competition to the promoters.

However, a decade later, it became one of world’s most efficient cement companies
producing the finest cement in the world at the lowest cost. While adhering to the most
stringent international pollution-control norms.

Today, Ambuja is the 3 rd largest cement company in India, with an annual plant capacity of
16 million tonnes including Ambuja Cement Eastern Ltd. and revenue in excess of Rs.3298
crores.

More importantly, its plants are some of the most efficient in the world. With environment
protection measures that are on par with the finest in the developed world.

But the company’s most distinctive attribute is its approach to the business.

Ambuja believes its most valuable assets aren’t cement plants.

They are the people who run the plants.

This unique vision is encapsulated in the company’s homegrown philosophy of giving people
the authority to set their own targets, and the freedom to achieve their goals.

It’s called ‘I can’’

This simple vision has created an environment where there are no limits to excellence, no
limits to efficiency. And has proved to be a powerful engine of growth for the company.

As a result, Ambuja has consistently raised the bar in all aspects of the cement industry.
Be it transportation, plant efficiency, brand building or human resource development.

Take a look:

First plant set up in record time

When Ambuja set up its first plant in 1986, the accepted time period for installing a plant was
3 years.

Ambuja, did it in less than 2 years. And with a significantly lower capital expenditure.

In 1993 the company went a step further and bettered its own record. Ambuja's second plant
was installed in a mere 13 months - the quickest time for setting up a one million tonne
cement plant.

A whole new way of transporting cement

In the early 90s, almost all cement in India travelled by rail or road. And in bags. A mode that
involves deterioration of both, the quality and volume of cement.

In 1993, Ambuja Cement set up a complete system of transporting bulk cement via the sea
route.
Making it the first company in India to introduce bulk cement movement by sea. Others
followed and today, about 10% cement travels by this new route.

The facility comprises: A dedicated port at the Gujarat plants, capable of berthing 40,000
DWT vessels, three bagging terminals at Mumbai, Surat and Sri Lanka, and seven special
bulk cement vessels.

This capability has enabled us to supply fresh cement to many coastal markets – domestic
and international.

Branding a commodity

Cement is a commodity, sold largely on price. Ambuja Cement was the first company to
create a brand out of cement and command a premium.

It was also the first to introduce a special cell, providing technical services to consumers and
masons. Today, this has become the norm in cement marketing.

The trick of course was to provide a consistently high quality of cement, backed by
excellent service. This was reinforced by a strong dealer network.

The result is that customers are ready to pay 2-3% premium for Ambuja Cement for the value
they receive. Ambuja Cement is the top brand in Western, Northern, Central and Eastern
India.
Exports

Ambuja Cement exports almost 17% of its production in a very competitive international
environment. For the last ten years, Ambuja Cement remains India’s highest exporter of
cement.

This has been possible for two reasons –

One, the quality of cement matches the best in the world.

Two, the dedicated bulk cement transportation capability at our Gujarat plant.
Ambuja Cement Eastern Ltd. - Research
Center
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Balance sheet
(Rs crore)
Jun ' 09 Jun ' 08 Jun ' 07 Jun ' 06 Jun ' 05
Sources of funds
Owner's fund
Equity share capital 193.30 193.30 193.30 193.30 193.30
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 88.06 14.92 -30.16 -147.86 -159.69
Loan funds
Secured loans 30.13 107.27 151.16 207.82 221.27
Unsecured loans 55.93 40.80 51.37 34.02 27.99
Total 367.43 356.30 365.67 287.28 282.88
Uses of funds
Fixed assets
Gross block 552.74 471.06 464.50 456.51 427.99
Less : revaluation reserve - - - - -
Less : accumulated depreciation 292.07 255.07 226.75 203.56 176.90
Net block 260.67 215.99 237.75 252.95 251.09
Capital work-in-progress 32.02 27.77 1.87 1.56 19.00
Investments 50.99 41.25 15.03 0.01 0.02
Net current assets
Current assets, loans & advances 139.66 182.48 206.09 111.06 87.93
Less : current liabilities & provisions 116.51 113.84 99.18 83.84 76.20
 Jun ' 09 Jun ' 08 Jun ' 07 Jun ' 06 Jun ' 05
Total net current assets 23.14 68.64 106.91 27.22 11.73
Miscellaneous expenses not written 0.61 2.64 4.10 5.54 1.04
Total 367.43 356.30 365.67 287.28 282.88
Notes:
Book value of unquoted investments 50.99 41.25 15.03 - -
Market value of quoted investments - - - 0.01 -
Contingent liabilities 61.86 46.70 18.80 23.96 22.10
Number of equity shares outstanding (Lacs) 1924.52 1924.52 1924.52 1924.50 1924.50

Net Working Capital = Current Assets – Current Liabilities

Here,

Current Assets = Current assets, Loans and Advances

(Rs crore)

Current 2009 2008 2007 2006 2005

assets
Current 139.66 182.48 206.09 111.06 87.93
assets, loans
and advances

Current Liabilities = Current Liabilities and Provisions

Current 2009 2008 2007 2006 2005

Liabilities
Current 116.51 113.84 99.18 83.84 76.20
Liabilities
and
Provisions

Hence,

Net Working Capital = Current Assets – Current Liabilities

Particulars 2009 2008 2007 2006 2005
Current 139.66 182.48 206.09 111.06 87.93
Assets
Current 116.51 113.84 99.18 83.84 76.20
Liabilities
Working 23.14 68.64 106.91 27.22 11.73
Capital

Interpretation
When we analyse the working capital of the company, we can see that the company’s
working capital was 11.73 crore in the year 2005 which increased to 27.22 crore in the year
2006 and it further increased to 106.91 crore in the year 2007 but it reduced to 68.64 crore
and it further reduced to 23.14 crore in the year 2009.

What we can analyse from this is that the company’s working capital was very good in the
initial year that is between 2005 to 2007 and it started declining in the successive years.
Though the company is still in the good condition of the working capital, the company should
pay attention towards it and find out the cause of reduction in the working capital.

Ratio analysis
Ratios 2009 2008 2007 2006 2005
Current 1.19 1.60 2.07 1.32 1.15
Ratio

Working notes:

 Current Ratio = Current Assets/Current Liabilities

 Quick Ratio = Quick Assets/ Current Liabilities

(Quick Ratio = Current Assets – Stock – Prepaid Expenses)

 Absolute Liquid Ratio = Quick Assets – Stock – Bills Receivables – Debtors

Standard for Ratios:

 Current Ratio = 2:1

 Quick Ratio = 1:1

 Absolute Ratio = 0.5:1

Since, the information needed to calculate the Quick Ratio and
Absolute Ratio is not sufficient so we have calculated only the
Current Ratio

Interpretation
As far as ratio analysis is concerned, the company has sufficient current assets and their
current ratios are somewhat up to the standard. Because the standard for the current ratio is
2:1, the company is able to maintain them. Hence the company is in the good condition when
we analyse the current ratio.

Thus, analysing the overall working capital and current ratio of the company we can say that
the company is in the good position. However there is always room for further improvement,
hence, the company should made extra efforts in order to move to the situation even better
than this.

International Business Machine Corp. (IBM)

International Business Machines (NYSE: IBM), abbreviated IBM, is a
multinational computer, technology and IT consulting corporation head-quartered
in Armonk, North Castle, New York, United States. IBM is the world’s largest
technology company and the second most valuable by global brand (after Coca-Cola). IBM is
one of the few information technology companies with a continuous history dating back to
the 19th century. IBM manufactures and sells computer hardware and software (with a focus
on the latter), and offers infrastructure services, hosting services, and consulting services in
areas ranging from mainframe computers to nanotechnology.
IBM has been well known through most of its recent history as the world's largest computer
company and systems integrator. With over 407,000 employees worldwide, IBM is second
largest (by market capitalisation) and the second most profitable information technology and
services employer in the world according to the Forbes 2000 list with sales of greater than
100 billion US dollars. IBM holds more patents than any other U.S. based Technology
Company and has eight research laboratories worldwide. The company has scientists,
engineers, consultants, and sales professionals in over 200 countries. IBM employees have
earned five Nobel Prizes, four Turing Awards, nine National Medals of Technology, and
five National Medals of Science. As a chip maker, IBM has been among the Worldwide Top
20 Semiconductor Sales Leaders in past years.

IBM India - A Profile

IBM has been present in India since 1992 (re-entry, after an exit in the 1970s). Since
inception, IBM in India has expanded its operations considerably with regional headquarters
in Bangalore and offices in 14 cities including regional offices in New Delhi, Mumbai,
Kolkata and Chennai. Today, the company has established itself as one of the leaders in the
Indian Information Technology (IT) Industry.
IBM has set the agenda for the industry with 'on demand business' - a kind of transformation
where an organisation changes the way it operates and reduces costs; serving customers
better, reducing risks and improving speed and agility in the marketplace. IBM is already
working with customers to transform them into 'on demand' businesses. IBM is the only
company in the world that offers end-to-end solutions to the customers from hardware to
software, services and consulting. Linux support further enhances IBM's e-business
infrastructure enabler capability.

Balance Shee
Financial data in U.S. Dollars
Annual Interim
Values in Millions (Except for per share
items)
2009 2008 2007 2006 2005
Period End Date 12/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005

Stmt Source 10-K 10-K 10-K 10-K 10-K

Stmt Source Date 02/23/2010 02/23/2010 02/26/2008 02/27/2007 02/28/2006

Stmt Update Type Updated Reclassified Updated Updated Updated

Assets

Cash and Short Term Investments 13,974.0 12,907.0 16,146.0 10,656.0 13,686.0

Total Receivables, Net 26,793.0 27,555.0 28,789.0 26,848.0 24,428.0

Total Inventory 2,493.0 2,700.0 2,664.0 2,810.0 2,841.0

Prepaid Expenses 3,946.0 4,299.0 3,891.0 2,539.0 2,941.0

Other Current Assets, Total 1,730.0 1,542.0 1,687.0 1,806.0 1,765.0

Total Current Assets 48,936.0 49,003.0 53,177.0 44,659.0 45,661.0

Property/Plant/Equipment, Total - Net 14,164.0 14,304.0 15,082.0 14,439.0 13,756.0

Goodwill, Net 20,190.0 18,226.0 14,285.0 12,854.0 9,441.0

Intangibles, Net 2,513.0 2,879.0 2,107.0 2,203.0 1,663.0

Long Term Investments 5,379.0 5,058.0 5,248.0 4,501.0 3,142.0

Note Receivable - Long Term 10,644.0 11,183.0 11,603.0 10,068.0 9,628.0

Other Long Term Assets, Total 7,196.0 8,871.0 18,930.0 14,509.0 22,457.0
Other Assets, Total 0.0 0.0 0.0 0.0 0.0

Total Assets 109,022.0 109,524.0 120,432.0 103,233.0 105,748.0

Liabilities and Shareholders' Equity

Accounts Payable 7,436.0 7,014.0 8,054.0 7,964.0 7,349.0

Payable/Accrued 0.0 0.0 0.0 0.0 0.0

Accrued Expenses 9,728.0 11,203.0 10,546.0 9,967.0 8,558.0

Notes Payable/Short Term Debt 1,946.0 2,295.0 8,545.0 6,134.0 4,228.0

Current Port. of LT Debt/Capital Leases 2,222.0 8,942.0 3,690.0 2,768.0 2,988.0

Other Current Liabilities, Total 14,671.0 12,982.0 13,475.0 13,257.0 12,029.0

Total Current Liabilities 36,003.0 42,436.0 44,310.0 40,090.0 35,152.0

Total Long Term Debt 21,932.0 22,689.0 23,039.0 13,780.0 15,425.0

Deferred Income Tax 470.0 270.0 1,064.0 665.0 1,616.0

Minority Interest 118.0 119.0 0.0 0.0 0.0

Other Liabilities, Total 27,864.0 30,545.0 23,548.0 20,192.0 20,457.0

Total Liabilities 86,387.0 96,059.0 91,961.0 74,727.0 72,650.0

Redeemable Preferred Stock 0.0 0.0 0.0 0.0 0.0

Preferred Stock - Non Redeemable, Net 0.0 0.0 0.0 0.0 0.0

Common Stock 41,810.0 39,129.0 35,188.0 31,271.0 28,926.0

Retained Earnings (Accumulated80,900.0 70,353.0 60,640.0 52,432.0 44,734.0

Deficit)

Treasury Stock – Common -81,243.0 -74,171.0 -63,945.0 -46,296.0 -38,546.0

Other Equity, Total -18,830.0 -21,845.0 -3,414.0 -8,901.0 -2,016.0

Total Equity 22,637.0 13,466.0 28,469.0 28,506.0 33,098.0

Total Liabilities & Shareholders’109,024.0 109,525.0 120,430.0 103,233.0 105,748.0
Equity

Total Common Shares Outstanding 1,305.34 1,339.1 1,385.23 1,506.48 1,573.98

Total Preferred Shares Outstanding 0.0 0.0 0.0 0.0 0.0

Here,

Current Assets = Cash and Short term Investment + Total Receivables + Total Inventory +

Prepaid Expenses + Other Current Assets

Particulars 2009 2008 2007 2006 2005

Cash & short 13974.0 12907.0 16146.0 10656.0 13686.0
term
Investment
Total 26793.0 27555.0 28789.0 26848.0 24428.0
Receivables
Total 2493.0 2700.0 2664.0 2810.0 2841.0
Inventory
Prepaid 3946.0 4299.0 3891.0 2539.0 2941.0
Expenses
Other 1730.0 1542.0 1687.0 1806.0 1765.0
Current
Assets
Total of 48936.0 49003.0 53177.0 44659.0 45661.0
Current
Assets

Now,

Current Liabilities = Account Payable + Payable Accrued + Accrued Expenses + Notes

Payable/Short Term Debt + Current Port. Of LT Debt/Capital Leases + Other Current
Liabilities

Particulars 2009 2008 2007 2006 2005

Account 7436.0 7014.0 8054.0 7964.0 7949.0
Payable
Payable 0.0 0.0 0.0 0.0 0.0
Accrued
Accrued 9728.0 11203.0 10546.0 9967.0 8558.0
Expenses
Short term 1946.0 2295.0 8545.0 6134.0 4228.0
Debt
Current Port 2222.0 8942.0 3690.0 2768.0 2988.0
of LT Debt
Other 14671.0 12982.0 13475.0 13257.0 12029.0
Current
Liabilities
Total C L 36003.0 42436.0 44310.0 40090.0 35152.0
Hence,

Net Working Capital = Current Assets – Current Liabilities

Particulars 2009 2008 2007 2006 2005

Total Current 48936.0 49003.0 53177.0 44659.0 45661.0
Assets
Total Current 36003.0 42436.0 44310.0 40090.0 35152.0
Liabilities
Net 12933.0 6567.0 8867.0 4569.0 10509.0
Working
Capital

Interpretation
Here what we can analyse from the company’s Net Working Capital Management is that the
company is paying sufficient attention towards the managing its working capital. The
company’s working capital in the year 2005 was $10509 million which however fell to $4569
during the year. The working capital raise to $8867 million in 2007 and fell to $6567 in the
year 2008 and it went to $12933 in the year 2009.

This shows the company’s working capital is fluctuating over time. However it is never
below the standard or it has never reached the point where it would reflect the company’s
poor management. Therefore we can say that the company’s management is better in case of
working capital management.

Ratio Analysis
Ratios 2009 2008 2007 2006 2005
Current 1.40 1.15 1.20 1.11 1.29
Ratio
Quick Ratio 1.18 0.98 1.05 0.98 1.13
Absolute 0.46 0.34 0.40 0.31 0.44
Ratio

Working notes:
  Current Ratio = Current Assets/Current Liabilities

 Quick Ratio = Quick Assets/ Current Liabilities

(Quick Ratio = Current Assets – Stock – Prepaid Expenses)

 Absolute Liquid Ratio = Quick Assets – Stock – Bills Receivables – Debtors

Standard for Ratios:

 Current Ratio = 2:1

 Quick Ratio = 1:1

 Absolute Ratio = 0.5:1

Interpretation
When we analyse the ratios of the company we can say that the company is in good position.
This means the company has sufficient working capital for its use. When we analyse the
current ratio of the company, we can see that it was 1.29 in the year 2005 which fell to 1.11
in the year 2006. There was a slight improvement in the year 2007 that is the ratio went to
1.20. Again the ratio fell to 1.15 in the year 2008 however it was 1.40 in the year 2009.

When we compare it with the actual standard which is 2:1 we can analyse that the company’s
current ratio is not up to the mark. It is below the standard. However the company might have
focused to some other areas of improvement. But the company must pay attention towards
this also and try to maintain the standard of its current ratio.

As far as Quick ratio and Absolute ratio is concerned, they are up to the standard. The slight
deviation can be seen in the 2006 and 2008; however they are above standard in rest of the
years. This means the company is holding sufficient amount of current assets with it.

Finally when we analyse both the Working Capital and the Ration Analysis, we can say that
the company is in good financial condition. It has sufficient amount of liquidity to meet its
current and future need of liquid expenses.
Birla Sun Life Insurance Company

Birla Sun Life Insurance Company also known as BSLI is one of the renowned names in the
field of insurance in India. This insurance company is a result of a joint venture between
Aditya Birla Group, a multinational company in India and Sun Life Financial Inc, a leading
global name in the field of insurance. Birla Sun Life Insurance has to its credit of being the
first company in the field of financial solution to start the Business Continuity Plan. The
vision of the group is to create long term value together with market leadership.

The primary aim of the company is to help customers ease risks of life, accident, health and
money at every stage and under any circumstance. The company works towards making the
financial future and enterprises of the customers better than what they currently are. All the
works undertaken at Birla is done with integrity, full commitment, passion and ample speed.

Silent features of BSLI

• Birla Sun Life Insurance initiated the Unit Linked Life Insurance Solutions in
India.
• In 4 years, BSLI has made its position very strong as a leading player in the private
Life Insurance Industry.
• The company's focus has been on investment linked insurance products, supported
with protection products to uphold leadership in product modernization
• Web-enabled IT systems for superior customer services
• First to have issued policies over the Internet
• Corporate governance and a high degree of transparency in all business practices
and procedures

BSLI Solutions
Birla Sun Life Insurance Company provides individual and other solutions to customers
based on their varied needs. So whether the customer wants long term protection or short
term protection plans, the company has it all for their clients. The insurance solutions offered
by the company are:

• Protection Solution
• Retirement Solutions
• Children's Future Solutions
 • Health & Wellness Solutions
• Wealth with Protection Solutions

The protection solutions are ideal for someone who wishes to separate their insurance and
investment needs. The terms of the insurance are made in a way so that it deals with the most
basic need of life insurance, which is the provision of life cover. The children's future
solutions aim to take care of all the financial needs of the child in the best way possible. The
health and wellness solutions have provisions to take care of any financial emergency that
may come up in the family.

Birla Sun Life Insurance Products

Birla Sun Life Insurance Term Plan is ideal for those who are seeking to get insurance
benefits at a lower price. The plan covers all liabilities and provides complete security to the
clients. The minimum age of a customer seeking this insurance must be 18 years and the
maximum age must be 55 years. Premium payment options range from monthly to annual to
quarterly to semi annually depending on the policies. Listed below is some of Birla Sun Life
Insurance saving policies:

1. Birla Sun Life Insurance Prime Life

2. Birla Sun Life Insurance Dream Plan
3. Birla Sun Life Insurance Gold-Plus II
4. Birla Sun Life Insurance Simply Life
5. Birla Sun Life Insurance Flexi Life Line
6. Birla Sun Life Insurance Supreme-Life
7. Birla Sun Life Insurance Life Companion
8. Birla Sun Life Insurance Flexi Save Plus
9. Birla Sun Life Insurance Flexi Cash Flow
10. Birla Sun Life Insurance Saral Jeevan Plan
11. Birla Sun Life Insurance PrimeLife Premier
12. Birla Sun Life Insurance ClassicLife Premier
13. Birla Sun Life Insurance Single Premium Bond

Balance Sheet of Birla Sun Life

(Rs. crore)

Mar’05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds
Total Share Capital 124.40 124.40 124.49 124.49 124.49
Equity Share Capital 124.40 124.40 124.49 124.49 124.49
Share Application Money 0.00 0.09 0.00 0.77 1.68
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 942.73 913.78 1,639.29 2,571.73 3,475.93
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net worth 1,067.13 1,038.27 1,763.78 2,696.99 3,602.10
Secured Loans 1,253.35 1,221.93 1,151.25 982.66 1,175.80
Unsecured Loans 278.03 229.90 427.38 757.84 965.83
Total Debt 1,531.38 1,451.83 1,578.63 1,740.50 2,141.63
Total Liabilities 2,598.51 2,490.10 3,342.41 4,437.49 5,743.73
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds
Gross Block 4,304.29 4,605.38 4,784.70 4,972.60 7,401.02
Less: Accum. Depreciation 1,755.39 2,068.21 2,267.42 2,472.14 2,765.33
Net Block 2,548.90 2,537.17 2,517.28 2,500.46 4,635.69
Capital Work in Progress 48.18 141.03 696.95 2,283.15 677.28
Investments 184.79 172.39 483.45 170.90 1,034.80
Inventories 283.71 379.57 433.58 609.76 691.97
Sundry Debtors 171.95 172.55 183.50 216.61 186.18
Cash and Bank Balance 56.26 61.50 89.59 100.69 104.49
Total Current Assets 511.92 613.62 706.67 927.06 982.64
Loans and Advances 338.86 168.23 265.46 390.43 395.71
Fixed Deposits 0.00 0.10 0.00 0.00 0.00
Total CA, Loans & Advances 850.78 781.95 972.13 1,317.49 1,378.35
Deferred Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 1,010.27 1,103.26 1,308.93 1,708.96 1,860.59
Provisions 23.87 39.18 18.47 125.55 121.80
Total CL & Provisions 1,034.14 1,142.44 1,327.40 1,834.51 1,982.39
Net Current Assets -183.36 -360.49 -355.27 -517.02 -604.04
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00
Total Assets 2,598.51 2,490.10 3,342.41 4,437.49 5,743.73

Contingent Liabilities 130.74 685.42 1,942.56 645.17 355.07

Book Value (Rs) 85.78 83.46 141.69 216.59 289.22

Net Working Capital = Current Assets – Current Liabilities

Here,

Current Assets = Inventories + Sundry Debtors + Cash at Bank + Loans & Advance

Particulars 2005 2006 2007 2008 2009

Inventories 283.71 379.57 433.58 609.76 691.97
Sundry 171.95 172.55 183.50 216.61 186.18
Debtors
Cash At Bank 56.26 61.50 89.59 100.69 104.49
Loans And 338.86 168.23 265.46 390.43 395.71
Advances
Total 850.78 781.95 972.13 1317.49 1378.35
Current
Assets

 Assuming Loans and advances as Current Assets.

Current Liabilities = C.L + Provisions

Particulars 2005 2006 2007 2008 2009

C.L 1010.27 1103.26 1308.93 1708.96 1860.59
Provision 23.87 39.18 18.47 125.55 121.80
Total of 1034.14 1142.44 1327.40 1834.51 1982.39
Current
Liabilities

Net Working Capital = C.A – C.L

Particulars 2005 2006 2007 2008 2009

Current 850.78 781.95 972.13 1317.49 1378.35
Assets
Current 1034.14 1142.44 1327.40 1834.51 1982.39
Liabilities
Net Working -183.26 -360.49 -355.27 -517.02 -604.04
Capital
Interpretation
When we analyse the Working Capital Management of the company, we can say that the
company is not in the good position because in all of the 5 years the company’s Net Working
Capital is negative. The net working capital in the year 2005 was – 604.04 crore and in the
year 2006 it was – 517.02. Then it slightly improved to – 355.27 crore in the year 2007 and it
was – 360. 49 in the year 2008 and finally in the year 2009 it was – 183.26 crore. Though the
company’s net working capital is negative in all the five years, it seems to improving because
the negative balance in the working capital is decreasing. This implies that the company is
improving its net working capital management.

This is a good sign for the company’s management as they are able to check this fault and the
situation seems to be improving throughout the upcoming period.

Ratio Analysis
Ratios 2005 2006 2007 2008 2009
Current 0.82 0.68 0.732 0.718 0.695
Ratio
Quick Ratio 0.54 0.35 0.40 0.38 0.34
Absolute 0.38 0.20 0.54 0.50 0.44
Ratio

Working notes:

 Current Ratio = Current Assets/Current Liabilities

 Quick Ratio = Quick Assets/ Current Liabilities

(Quick Ratio = Current Assets – Stock – Prepaid Expenses)

 Absolute Liquid Ratio = Quick Assets – Stock – Bills Receivables – Debtors

Standard for Ratios:

 Current Ratio = 2:1

 Quick Ratio = 1:1

 Absolute Ratio = 0.5:1

Interpretation
When we analyse the ratios of the company then we can find that the company is not in the
good position. The company’s overall current ratio is not up to the standard. The company’s
current ratio in the year 2005 was 0.82 which is far below the standard that is 2:1. Again in
the year 2006 its current ratio is 0.68, which too is below the standard and it has also reduced
from that which it was in the year 2005. Further analysing the ratio we can say that the
current ratio of the company is not improving and is reduced to 0.695 in the year 2009.

When we analyse the Quick ratio of the company which should be 1:1, the company is again
not up to the standard. The Quick ratio of the company is 0.54 in the year 2005, 0.35 in the
year 2006, 0.40 in the year 2007 and the same was 0.38 in the year 2008 and finally it was
0.34 in the year 2009. What we can analyse from this that in non of the five years the
company’s quick ratio is up to the standard. In all those five years the company has its quick
ratio less than the required. This implies that the company is not up to the standard.

However when we analyse the absolute ratio of the company’s absolute ratio is near the
standard. Since it should be in the ratio of 0.5:1, the company is able to maintain the standard
of its absolute ratio. In all the five years the company’s absolute ratio is near to the standard.
Hence we can say that company is able to maintain its standard in the absolute ratio

Finally when we analyse the overall Net Working Capital Management and Ratio Analysis of
the company then we can say that the company is not in the good position. The company
should pay attention towards the management of its working capital and besides its liquidity
management is also not good.

The financial team should pay attention towards this problem if the company is to improve its
situation in the coming period of time.

Comparative Analysis
Now after analysing the Net Working Capital Management as well as the Ratios of the given
company we can find that both the companies Ambuja Cement and IBM are in good position
however Birla Sun Life is not in better position.

IBM is the most preferred company in all these three companies because at IBM the working
capital management is very good and the company is also able to maintain good level of
working capital with it. Besides it is also able to maintain its ratios up to the standard. The
company is also able to earn sufficient amount of profit which can be observed from its
balance sheet.

Ambuja Cement is also in good position. It is also able to maintain its working capital in
good state and its ratios are also in good condition. The company is also able to earn
sufficient amount of profit which can be observed from its balance sheet. However there is
always a room for further development hence, the company should focus on such areas where
improvements can be done.
The third company is the Birla Sun Life. This company is not able to perform well. The
company is not able to manage its working capital and besides the ratios of the company is
also not up to the standard. Hence the company should pay more attention towards managing
its working capital and they should also manage their liquidity in proper manner so as to meet
the current and future demand of the liquidity.