Impact of Current Assets On Working Capital of OTPL

Impact of Current Assets on Working Capital.
AT
OILGEAR TOWLER POLYHYDRON PRIVATE LIMITED (OTPL)
Contents
Sl. No.
I Chapter 1
Titles
Page No.
Introduction
Literature Review
37
Statement of the Problem
39
Purpose of the Study
39
Scope of the study

Objectives of the Study
39
40
II Chapter 2
Organization Profile
41
Organization Chart
50
Data Collection Method
52
III Chapter 3
Results & discussion with Charts & graphs
53
Findings
77
Suggestions
78
Conclusions
79
IV Chapter 4
Appendix
80
Bibliography
80
Joining Report
81
Weekly Reports
82
Impact of Current Assets on Working Capital. AT

Introduction: -
The project is assigned to me Impact of Current Assets on Working Capital. At

Oilgear Towler Polyhydron Private Limited (OTPL). The various information regarding
classification, determinants, components, sources, arrangement operating cycle have been
also discussed and aspects relating to the perspective of Oilgear Towler Polyhydron
Private Limited (OTPL).
Ratio Analysis has been carried out using Financial Information for last three
accounting years i.e. from 2003 to 2005; Ratios like Current Ratio, Working Capital
Turnover Ratio, Inventory Turnover Ratio, Debtors Turnover Ratio have also been
analyzed. A Statement of Changes in Working Capital has also been analyzed and
attached Turnover & Performance of the Company for last three years has also been
analyzed.


MEANING & DEFINITION OF WORKING CAPITAL: -
Working capital in simple terms is the amount of funds, which a company, must
have to finance its day-to-day operation, it can be regarded as part/portion of capital,
which is, employed in short operation.
Every organization invests their funds in two terms of capital namely,
1. Fixed Capital.
2. Working Capital
The amount invested in the assets like Plant and Machinery, Building, Furniture
etc, blocked on permanent basis and is called Fixed Capital Organization not only
requires Fixed Capital, but also need of fund to meet day to day operations for short term
purpose, such funds is called Working Capital.
A Study of Working Capital is of major part of the external and internal analysis
because of its close relationship with the current day to day operation of business.
Working Capital consists broadly for that position/the assets of a business that are used at
related current operations and is represented by raw materials, stores, work in process and
finished goods merchandise, note/bill receivable.

Definition of Working Capital: -
Genestenberg: -
Working Capital means Current Assets of a company that are changed in the
ordinary course of business, from one to another, for ex, from cash to inventories,
inventories to receivable, receivable to cash.
Gathman & Dug wall: -
Working Capital as excess of current assets over current liabilities.
Westen & Brigham: -
Working capital refers to a term investment in short term assets cash, short term
securities accounts receivables and inventories.
J. Smith: -
The Sum of the current assets is the working capital of the business.
WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.

Working capital cycle: Introduction

The working capital cycle can be defined as:
The period of time, which elapses between the point at which, cash begins to be
expended on the production of a product and the collection of cash from a customer
The diagram below illustrates the working capital cycle for a manufacturing firm

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-today 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 (WIP)
Work will continue on the WIP until it eventually emerges as the finished product
As production progresses, labor costs and overheads will need 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
Each of the areas stocks (raw materials, work in progress 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.
Unlike movements in the working capital items, most of these non-working

capital cash transactions are not everyday events. Some of them are annual events (e.g.
tax payments, lease payments, dividends, interest and, possibly, fixed asset purchases and
sales). Others (e.g. new equity and loan finance and redemption of old equity and loan
finance) would typically be rarer events.

COMPONENTS OF WORKING CAPITAL

There are two components of Working Capital
A. Current Assets
B. Current Liabilities
A. Current Assets
An asset is termed as current assets when it is acquired either for the purpose of
selling or disposing of after taking some required benefit through the process of
manufacturing of which constantly changes in form and contributes to transactions take
place with the operation of the business although such assets does continue for long in the
same form.
Components of Current Assets are as follows:
Cash & Bank Balance
Stock of Raw Material at cost- work in process and Finished Goods.
Advanced Recoverable in Cash or kind or kind or for value to be received.
Security deposits with electricity board-telephone department balances with
customers.

Deposits under the company scheme.
Prepaid Expenses.
Miscellaneous Stores implements goods in transit.
Advanced payment of income takes credit certificates.
Excise duty and sales tax recoverable.
Outstanding debts for a period exceeding six months.
CO-RELATION BETWEEN CURRENT ASSETS AND WORKING CAPITAL
The working capital is in simple terms is the amount of funds which company
must have to finance its day-to-day operations. The interaction between current assets and
current liability is main theme of theory of working capital. In general terms working
capital means difference between current assets and current liabilities.
The current assets are main source of working capital. It refers to those assets,
which can be converted into cash within a year. The current assets are inventories, cash
and bank balance, sundry debtors, loans and advances etc
Current asset management is one the most important aspect of the overall
financial management. The efficient management of working capital can determine its
profitability skill of every financial manager lies in the efficient management requires
maintaining proper relationship between current asset and current liability. Therefore,
planning and control of current asset is he most important function of finance manager.

A study of working of working capital is major part of external and internal
analysis. Because, of its close relationship with current day-to-day operations of business.
Working capital consists broadly the assets of business that are used at current operations
which was represented by raw materials, stores, WIP, and finished goods, merchandise,
bills receivable. Etc.
Characteristics of Current Assets
While managing the working capital bear in mind of two characteristics of

Current assets.
1. Short life span.
2. Swift transformation into other assets forms.
Current assets a life span, cash balance may be held idle for a week or two
accounts receivable may have life span of 32 to 60 days and inventories may be need for
2 to 60 days. It s depends upon time require in the activities of procurement of,
production, sales and collection, and the degree of synchronization among them.
Each Current Assets swiftly transform into other asset cash is used for requiring
raw materials: raw material are transform in to finished goods, finished goods are
generally sold on credit are convertible into account receivable and finally accounts
receivable on realization, generate cash.

The short life span of working capital component and they swift transformation
from one from to another has certain implication.
CURRENT ASSETS CYCLE
Finished Goods
A\C Receivable
WIP
Wages / Factory
overhead
Cash
1.
Raw Materials
Suppliers
Decisions relating to working capital management are repetitive and frequent.
2. The difference between profit and present value is insignificant.

3. The close interaction among working capital components implies that efficient
management one component cannot undertake without simultaneous consideration of
other components.
Working capital means assets of the company that are changed in the ordinary
capital of business term to another. For ex, from another as for as from cash to
inventories, inventories to debtors and again debtors in to cash where it is collected.
Working capital refers to a term investment in short term assets cash; short-term
securities account receivable and inventories. Current asset management that affects a
firm liquidity is at another important finance function. In addition to the management of
long-term assets, Current assets should be managed efficiently for safe guarding the firm
against the dangerous of liquidity and insolvency. Investment in Current Assets affects
the firm profitability, liquidity and risk.
Current Liabilities:
Components of Current Liabilities are as follows:
Non-Refundable non-interest bearing advances against subscription to shares.
Sundry Creditors for the goods and expenses.
Income tax deducted at sources from contractors.
Expenses Payable.

Amount due to promoter of company.
Unclaimed Dividend.
Security Deposits.
Dealers Deposits.
Liabilities for bills discounted.
IMPORTANCE OF WORKING CAPITAL: -
Working Capital is most important in every organization whether it is a small or

big concern. Therefore it is said that, working capital is the blood and center at a
business.
1. Adequately Working Capital creates certainty, security and confidence in the
minds of the person in the might as well in the minds of creditors and workers.
2. It creates a good credit standing for the firm because credit standing depends upon
the ability to pay promptly. A company with adequate working capital is always
able to meet C.L. in time.
3. It ensure solvency and stability of the enterprise it also ensures continuity in
production and sales.
4. It enables the company to take advantage of cash discount allowed by the
suppliers of raw materials or merchandise.
5. It enables the prestige of the company and the morale of its workers because a
company with adequately working capital is always able to pay wages and
salaries promptly and regularly.

6. It enables the company to procure loans terms banks on easy and competitive
terms.
7. In terms of boon it enables the company to meet increasing demand of its product.
8. In the time of depression, it enables the company to overcome the crises
successfully.
9. It enables the company to hold up inventory and wait for better marketing
opportunities so as to secure higher prices.
10. It enable the company on its business successfully and achieve progress and
prosperity,
METHODS OF ESTIMATING WORKING CAPITAL: Conventional Method: According to the conventional method, cash inflows and outflows are matched
with each other. Greater emphasis is laid on liquidity and greater importance is attached
to current ratio, liquidity ratio, etc., which pertain to the liquidity of a business.
Operating cycle method:

In order to understand what gives rise to differences in the amount of timing of
cash flows, we should first know the length of time which is required to convert cash into
resources, resources into final product, the final product into receivables and receivables
back into cash.

CLASSIFICATION OF WORKING CAPITAL

A. On the basics of Concept

(a) Net Working Capital:
This is the difference between current assets and current liabilities.
Current
Liabilities are those that are expected to mature within an accounting year and include
creditors, bills payable and outstanding expenses.
Investment is current assets represent a very significant portion of the total
investment in assets.
In case of public limited companies in India, current assets
constitute around 60% of the total capital employed. Therefore the finance manager
should attention to working capital management.
Working Capital Management is no doubt significant for all firms, but its
significance is enhanced in cases of small firms. A small firm has more investment in
current assets than fixed assets and therefore current assets should be efficiently
managed.
The working capital needs increase as the firm grows. As sales grow, the firm
needs to invest more in debtors and inventories. The finance manager should be aware of
such needs and finance them quickly.
Current Assets can be finance through long-term and short-term sources. The
ratio of long-term to short-term source will depend on whether the firm is aggressive of

conservative. It the firm is aggressive then it will finance a part of its permanent current
assets with short-term funds. On the other hand, a conservative firm will finance its
permanent assets and also a part of temporary current assets with long-term financing.
(b) Gross Working Capital

This refers to the firms investment in current assets. Current Assets are the assets
which can be converted into cash within a short period say, an accounting year. Current
assets include cash, debtors, and bill receivable, short-term securities. etc.
A. On the basis of Time

a. Permanent Working Capital
Permanent Working Capital is permanently locked up in the circulation of current
assets. It covers the minimum amount requested for maintaining the circulation of current
assets.
i. Initial Working Capital

At its inception and during the formative period of its operations a company must
have enough cash fund to meet its obligations. The need for initial working capital is for
every company to consolidate its position.
ii. Regular Working Capital

It refers to the minimum amount of liquid capital required to keep up the
circulation of the capital from the cash inventories to account receivable and from
account receivables to back again cash. It consists of adequate cash balance on hand and
at bank, adequate stock of raw materials and finished goods and amount of receivables.
b. Variable Working Capital

It refers to the past of the Working Capital that changes with the volume of
business; it may be divided into two classes.
i. Seasonal Working Capital

There is many line of business where the volumes of operations are different and
hence the amount of working capital varies with seasons. The capital required to meet
the seasonal needs of the enterprise knows as Seasonal Working Capital.
ii. Special Working Capital

The capital required to meet any special operations such as experiments with new
products or new techniques of production and making interior advertising campaign etc,
is also know as Special Working Capital.
B. Other Determinants of Working Capital

In order to manage the Working Capital optimally; on has to give due
consideration to the factors that influence the amount of Working Capital to be
maintained.
SOURCES OF WORKING CAPITAL: -

1. Long Term Sources of Working Capital: The following are the some important of the long
term sources of working capital.
A. Issue of Shares: Issuing shares can finance a part of long-term working capital.
B. Issue of Debenture: Long Term Working Capital can be collected by the way of
issuing the debentures.
C. Retained Profits: Accumulated large profit can also consider as a source of financing
the long-term capital.
D. Term Loans: - The mid and term loan above three year are also important source of
financing the long term working capital needs.
E. Reserves and Surplus: -These are also useful for financing long-term working
capital.

SHORT TERM SOURCES OF WORKING CAPITAL: Duration for this generally do not exceeds one year. Its sources are
INTERNAL SHORT TERM SOURCES
1. Depreciation Funds: Depreciation Funds created out of the profit is good source for
short-term source of financing working capital.
2. Provision for Taxation: Provision made for the companies, can use taxation as a
source of working capital during the intermediate period.
3. Accrued Expenses:
The company executives postpone the payment of certain
expenditures due the date of finalization of account. These accrued expenses are useful as
working capital
EXTERNAL SHORT TERM SOURCES.
1. Trade Credit: Trade Credits extended by one business unit to the other on the
purchase sale of goods and equipments are very important.

2. Bank Credit: - Commercial banks are providing a greater part of working capital in
the form of over drafts cash credit and short-term loans.
3. Credit Papers: - Bills Payable, promissory notes etc are usefully for working capital
requirements.
4. Customer Credit: Amount may also be obtained from customer and these amounts
can be used for purchasing raw materials, paying expenses etc.
5. Financial Corporation: The financial corporation likes IDBI, IFCI, ICICI, etc,
advances loans for various types of assistance.
6. Government Assistance: State and Central Government, of the country provide shortterm finance industries on easy terms.
7. Loan from Directors: - One enterprise can also obtain loan from its directors,
officers, M.D. etc

EFFICIENT UTILIZATION OF WORKING CAPITAL MANAGEMENT
Well working capital management refers to the administration of all aspects of the
current assets and liabilities. It is necessary to get maximum benefit.
There is a direct relation between sale and working capital needs. As sale grows
the firm needs capital to invest in inventories and book debts.
A) Cash Management: -
Cash is required to meet the firms transactions and precautionary needs. The firm
needs cash to make payments for acquisition of resources and services, for the normal
consist of the business. It keeps addition funds to meet any emergency situation.
Cash Management involves three things.
Managing cash flow in and out of the firm.
Managing cash flow within the firm.
Financing deficit or investing surplus cash. And thus controlling of cash balance at
the point of time.
B) Inventory Management: -

Inventories play very significant role in working capital. It is single most sizable
investment in working material, indigenous raw material, spares, stock, tools, the
maintenance, and goods in progress, stock of packing materials, stationary etc. To
manage inventories efficiently and effectively answer should be sought from the
following questions.
How much should be ordered?
When should be ordered?
The aim of inventory management thus should be to avoid excessive and
inadequate levels of inventories and to maintain sufficient inventories for the smooth
production and sales operation.
C) Management of Receivables: -
Business firm generally sell goods on credit to facilitate sales. When goods are
sold on credit finished goods are converted into receivable. Receivable when realized
generate cash for forecasting standard ratio of accounts receivables based on analysis of
part data of two years. Recessions analysis and making may be appeared.
D) Operating Cycle: Operating Cycle refers to length of time required to complete the series of events
as stated below in case of manufacturing enterprise, which is cyclical in nature.
For a manufacturing firm, cash is spent on acquiring raw materials, which are
transformed in to work in progress. The work in progress is then converted in to finished

goods. Finished goods take the form sales, which may be credit or cash. Credit sales
convert in to sundry debtors, bills receivables, which after some time, gets converted in to
cash. This cycle repeats.
OPERATING CYCLE OF MANUFACTURING COMPANY
Cash
Debtors / BR
Raw Materials
Sales of goods
Work in Progress
Finished Goods
IMPORTANCE OF OPERATING CYCLE

Operating cycle concept is a new concept in working capital management, which
has been gaining more and more importance in recent years. This concept emphasizes the
importance of time factors in the conversion of raw materials into final product and then
in to sales resulting in cash collection, right from the acquisition of raw materials,
normally operating cycle passes through the following stages.
1. Acquisition of raw materials.

2. Work in Progress.

3. Stock of finished goods.
4. Sale and realization of sales proceeds.
Operating cycle concept plays an important role in determining the working

capital requirement of firm. Duration of manufacturing process right from the acquisition
of raw materials till they are sole out after being converted into final products and the
cash is realized determines the amount of working capital required. Longer the operating
cycle greater will be the amount of working capital required and shortest operating cycle
requires limited amount of working capital. Therefore, an efficient management should
try to reduce the time elapsed in these consecutive stages in operating cycle.

DETERMINANTS OF WORKING CAPITAL: A firm should plan its operations in such a way that it should have neither too
much not too of little working capital. The working capital requirement is determined by
a wide variety of factors. These factors, however, affect different enterprise differently.
They also vary from time to time. In general, the following factors are involved in a
proper assessment of the quantum of working capital required.
The following are the some important determinants of working capital
1. General Nature of Business

The working capital requirements of an enterprise are basically related to the
conduct of business. Enterprise falls in to some broad categories depending on the nature
of their business. For instance, public utilities have certain features which have a bearing
on their working capital needs. The two relevant features are,
1. The cash nature of business, that is, cash sale.
2. Sale of services rather than commodities.
In a view of these features, they do not maintain big inventories and have,
financial enterprise. The nature of their business is such that they have to maintain a
sufficient amount of cash, inventories, and book debts.
2. Production Cycle

Another factors which have a bearing on the quantum of working capital is the
production cycle. The term
Production or manufacturing cycle refer to the time
involved in the manufacture of goods. It covers the time-span between the procurement
of finished goods. Funds have to be necessarily tied up during the process of
manufacture, necessitating enhanced working capital. In other words, there is some time
gap before raw material becomes finished goods. To sustain such activities the need for
working capital is obvious. The longer the time span (i.e. Production Cycle), the larger
will be the tied up fund and, therefore, the larger is the working capital needed and viceversa.
3. Business Cycle
The working capital requirements are also determined by the nature of business
cycle. Business fluctuations lead to cyclical and seasonal changes, which, in turn, cause a
shift in the working capital position, particularly for temporary working capital
requirement. The variations in business condition may be in two directions,
1. Upward Phase: - When boom conditions prevail,
2. Downswing Phase: - When economic activity is marked by a decline.
During the upswing of business activity, the need for working capital is likely to
grow to cover the lag between increased sales and receipt of cash as well as to finance
purchase of additional material to cater to the expansion of the level of activity.
4. Production Policy

The quantum of working capital is also determined by production policy. In case
of certain lines of business, the demand for products is seasonal, that is, they are
purchased during certain months of the year. There are two options to open to such
enterprise: either they confine production only to period when goods are purchased or
they follow a steady production policy throughout the year and product goods at a level
to meet the peak demand. In former case, there are working force and physical facilities
without adequate production and sale.
5. Credit Policy
The credit policy relating to sales and purchases, also affects the working capital.
The credit policy influences the requirements of working capital in two ways,
1. Through the credit terms granted by the firm to its customers/buyers of goods.
2. Credit Terms available to the firm from its creditors.
1. The credit terms granted to customers have a bearing on the magnitude of
working capital by determining the level of book debts. The credit sales result in higher
book debt (receivables). Higher book debts mean more working capital. On the other
hand, if liberal credit terms are available from the suppliers of goods (trade creditors), the
need of working capital is less. The working capital requirements of a business are, thus,
affected by the terms purchase and sale, and role given to credit by company in its
dealing with creditors and debtors.
2. Credit terms fixed by an enterprise are affected by the prevailing trade practices
as well as changing economic conditions. If, for example, competition were keen, there
would pressure to grant generous credit terms. Nevertheless, there is wide scope for

managerial discretion in working out a suitable credit policy relevant to each customer
based on the merits of each case. For instance, liberal credit facilities can be extended on
the basis of credit rating. This will avoid the problem of having excess working capital.
6. Growths and Expansion

As a company grows, it is logical to expect that a larger amount of working
capital is required. It is, of course, difficult to determine precisely the relationship
between the growth in the volume of business of a company and the increase in its
working capital. The composition of working capital in a growing company also shifts
with economic circumstance and corporate practices. Other things, being equal, growth
industries require more working capital than those that are static.
7. Profit Level
The level of profit earned differs from enterprise to enterprise. In general, the
nature of the product, hold on the market, quality of management and monopoly power
would by and large determine the profit earned by a firm. A priori, it can be generalized
that a firm dealing in a high quality product, having a good marketing arrangement and
enjoying monopoly power in the market, is likely to earn high profit and vice-versa.
Higher profit margin would improve the prospects of generating more internal funds
thereby contributing to the working capital pool.
8. Dividend Policy

Another appropriation of profit, which has a bearing on working capital, is
dividend payment. The payment of dividend consumes cash resources and, thereby,
affects working capital to that extent. Conversely, if the firm does not pay dividend but
retains the profits, working capital increase. In theory, a firm should retain profits to
preserve cash resources and, at the same time, it must pay dividends to satisfy the
expectations of investors. When profits are relatively small, the choice is between
retention and payment. The choice must be made after taking in to account all the
relevant factors.
9. Depreciation Policy
Depreciation Policy also exerts an influence on the quantum of working capital.
Depreciation charges do not involve any cash outflows. The affect of depreciation policy
on working capital is, therefore, indirect. In the first place, depreciation affects the tax
liability and retention of profits. Depreciation is allowable expenditure in calculating net
profits. Enhanced rates of depreciation lower the profits and, therefore, the tax liability
and, thus, more cash profits. Higher depreciation also means lower disposable profits and,
therefore, a smaller dividend payment. Thus, cash is preserved. In the second place, the
selection of method of depreciation has important financial implication.
10. Price level Changes

Changes in the price level also affect the requirement of working capital. Rising
prices necessitate the use of more funds for maintaining an existing level of activity. For

the same level of current assets, higher cash outlays are required. The effect of rising
prices is that a higher amount of working capital needed. However, in the case of
companies, which can raise their prices proportionately, there is no serious problem
regarding working capital.
11. Operating Efficiency

The operating efficiency of the management is also an important determinant of
the level of working capital. The management can contribute to a sound working capital
position through operating efficiency. Although the management cannot control the rise
in prices, it can ensure the efficient utilization of resources by eliminating waste,
improving co-ordination, and a fuller utilization of existing resources and so on.
Efficiency of operations accelerates the pace of cash cycle and improves the working
capital turnover. It releases the pressure on working capital by improving profitability and
improving the internal generation of funds.

Techniques of Working Capital Management: Working Capital management involves deciding upon the amount and
composition of current asset and how to finance the asset. This decision involves trade off
between risk and profitability.
Working Capital Balances are measured from the financial dates of the companys
balance sheet. A study of the causes for changes of working capital that take place in the
balance from time to time is necessary. These changes can be measured in rupee amount
and also in percentage by comparing current assets, current liabilities and working capital
over the given period.
The importance tools of Working Capital are,
1. Ratio Analysis of Working Capital: 1. Ratio analysis of working capital.

2. Turnover of working capital Ratio.
3. Current Ratio.
4. Current Debt tangible net worth.
5. Inventory Turnover Ratio.
6. Debtor Turnover Ratio.

2. Funds Flow Analysis of Working Capital: It is an effective management tool to study how funds have been produced for a
business and how they have been employed. This technique helps to analyze change in
working capital components between two data. The comparison of current asset and
current liability at the beginning and at the end of specific period show changes in such
type of current assets and resources from which Working Capital has been obtained funds
flow statement contributes materially to the financial aspects.
3. Working Capital Budget: The working capital budget is an important phase of overall financing budgeting.
This budgeting should be distinguished from a cash budget that is designed to measure all
the financial repayment of loans, term loan and similar item. On the other hand working
capital repayment and assure that they are duly provided for. The objective of that budget
is to secure an effective utility of investment.
4. Trend Analysis: A trend analysis indicates the change, which has been taking place from time to
time of an individual item of current assets. Assets and utility and net working capital on
the basis of some standards year and its effect on working capital portion. It enables
creative the upward and down ward trend of current assets and current liabilities. These
are usage measured from review of comprehensive balance sheet of a concern at the end
of account year and result is drawn on the basis of trend shown by them.

Literature Review: -
Working Capital management is concerned with the problems that arise in

attempting to manage the current assets and current liabilities and the interrelationship
that exists between them.
The term Current Assets refer to those assets, which in the ordinary course of
business can be, or will be converted in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm. The major current
are cash, marketable securities, accounts receivable and inventory.
The term Current Liabilities refer to those liabilities, which are intended at their
inception, to be paid in the ordinary course of business, within a year out of current assets
or earning of the concern. The basic current liabilities are accounts payable, bills payable,
banks overdraft and outstanding expenses.
The goal of working capital management is to manage the firms current assets
and liabilities in such a way that a satisfactory level of working capital is maintained.
This is so because, if the firm cannot maintain a satisfactory level of working capital, it is
likely to become insolvent and may even be forced into bankruptcy. The current assets
should be large enough to cover its current liabilities in order to ensure a reasonable

margin of safety. Each of the current assets must be managed efficiently in order to
maintain the liquidity of the firm while not keeping too high a level of any one of them. A
proper balance between Current Assets and Current Liabilities is, therefore, the main
theme of the theory of working capital management.
Working Capital refer to that part of total capital which is kept invest in current
assets that are required for regular business operation. In accounting, working capital is
taken to mean the difference between Current Assets and Current Liabilities.
According to Genestenberg: -
Working Capital means Current Assets of a company that are changed in the
ordinary course of business, from one to another, for ex, from cash to inventories,
inventories to receivable, receivable to cash.
Management Problem
The Company wants to study its working capital efficiency where current
assets are main constituents of working capital management. The company wants to
avoid two dangerous points i.e excessive and inadequate investment in current
assets. Investment in Inventories and Debtors should be minimized so that it can
maximize its cash and bank balance.
Research Problem: -

Research Problem is to maximize the companys cash and bank balance through
the study of Impact of Current Assets on Working Capital.
Statement of the Problem: The study has been undertaken in the organization for the purpose to know the
companys working capital management through the study of Impact of Current Assets
on Working Capital.
Purpose of the Study:The Purpose of the Study of working capital in Oilgear Towler Polyhydron
Private Limited is to analyze the working capital with the help of financial ratios and to
check how the company is maintaining the working capital.
The study should be made on the basis of the followings,
1. Financial Statements.
2. Financial Ratios.
Scope of the Study: The working capital is spread to some important departments in Oilgear Towler
Polyhydron Private Limited. The departments are,

1. Finance Department.
2. Design Department.
3. Production Department.
Objective of the Study: The following are the some importance objective of the study of working capital
management.
1. To analyze the working capital of the organization.
2. To analyze the effect of current assets on working capital.
3. To study financial performance of organization with the help of ratios.
4. To study the working capital and recommend the suitable working capital of the
year to the organization.


1. INTRODUCTION: -
OILGEAR TOWLER POLYHYDRON PRIVATE LIMITED, (Now popular by

its short name OTPL) was formerly known as Polyhydron Systems Private Ltd. The
company established in the year 1985. The company, Polyhydron System Private Ltd,
was one of the four independently run engineering concern managed by a group of
entrepreneurs well known in the country for their quality products, fair approach to
business ethics. The group is known in the country as Polyhydron.
Name of the other three companies are,
1. HYLOC HYDROTECTINIC PRIVATE LIMITED.

2. POLYHYDRON PRIVATE LIMITED.
3. SPICA MOUCLD CYLINDERS PRIVATE LIMIED.
The oldest company in the group is HYLOC HYDROTECTINIC PRIVATE

LIMITED, The Company started in 1974 and is engaged in manufacturing complete
range of Hydraulic Tubes coupling for metric tubes flanged fitting, shut of valves and
needle valves POLYHYDRON PRIVATE LIMITED. As founded in 1984 and is known
in the country for its modern and sophisticated management techniques and quality

marketed very reasonable price, the company manufacturing Redial Piston Pumps, Relief
Valves, and Directional Control Valves. And SPICA MOUCLD CYLINDERS PRIVATE
LIMIED, established in Jan 06 for manufacture of Mould Cylinders to be exported to
Italy. This company is yet to commence its production.
OILGEAR TOWLER POLYHYDRON PRIVATE LIMITED: -
From its inspection has been manufacturing OIL HYDRAULIC SYSTEMS &
HYDRAULIC ACTUATORS & has later added PISTION type accumulators to its range
of products.
1. COLLABORATION
The company entered into a joint venture collaboration agreement with the
OILGEAR COMPANY, OILGEAR TOWLER INTERNATIONAL DIVISION, USA in
Dec 1993.
THE OILGEAR COMPANY is a world famous for its Electro-Hydraulic and
Hydraulics products such as sophisticated pumps, valves and systems and especially
known in the technology of world for its contribution to the technology of Metal
Extrusion and Metal forming systems. The company also has its subsidiaries in Australia,
Canada, France, Germany, Great Britain, Italy, Japan, and Korea & Spain.
Participated in following Business Areas
Market Oilgear products in the Indian market. Include products like piston, pumps,
solenoid valves, prefil valves and cartridge valves.

Market Hydraulic and Electro hydraulic and subsystems for presses and machines.
Install, commission, and service, Hydraulic and Electro hydraulic systems
manufacturing by the Oilgear Company in Asian and South East Asian countries.
Assemble, service, repairs and test Oilgear products.
Design, manufacturing, sell, Install, repair, and service Hydraulic and Electro
hydraulic systems and subsystems, cylinders and other equipment in Asian and South
East Asian countries.
2. THE CONSTITUTION OF THE COMPANY: -
Name
OILGEAR TOWLER POLYHYDRON PRIVATE

LIMITED (OTPL)
Constitution
A private limited company registered under

companies act 1956
Registered Office
Location
Plot No 4, R.S. No- 608/2, BEMCIEL

UDYAMBAG BELGAUM, 590008
KARNATAKA STATE, INDIA.
Works
Phone: - 0831-2441157; Fax: - 0831-2441610

Plot No 34 & 37B
Village Kuttalwadi

P.O. Navage, Belgaum, 590014
(0091)(831) 2411528 (4 lines)
(0091)(831) 2411576
otplbgmpl2@oilgear.co.in
Phone
91831-2441157, 2441459
E-mail
otplbgm@sanchearnet.com
Works
(0091)(831) 2411528 (4 lines)

(0091)(831) 2411576
otplbgmpl2@oilgear.co.in
Board of Directors: -
Chairman
Managing Director
Director Production
Director Commercial
Director Finance
Director
Mr. Robert Drake.

Mr. V.K.Samant.
Mr. H.D. Kadrolkar.
Mr. N. Radhakrishana Rao
Mr. D.S. Chitnis
Mr. Srikanth Srinivasan.
Collaborators - THE OILGEAR COMPANY

OILGEAR TOWLER INTERNATIONAL DIVISION, USA.
4. ASSETS: -

4.1) LAND AND BUILDING
Land and the site of the registered office 11054 Sq.ft (1026 Sq.m.)
Building and the site of the registered office- 4830 Sq.ft (450 Sq.m.)
Land at site of plant 1- 2200 Sq.ft. (204 Sq.m.)
Building at site of plant 1- 1622 Sq.ft (51 Sq.m.)
Land site of the works 258,100 Sq.ft (23978 Sq.m.)
Building Site of the works 25,000 Sq. ft (2322 Sq.m.).
4.2)
MACHINERY, HANDLING, EQUIPMENT AND TEST RIGS
Laths
Horizontal Bore
CNC Machine Center
CNC Vertical Machine Center
Drilling Machine
Milling Machine
Surface Machine
Honing Machine
Hack Saws
TIG Welding Set
Flame Cutting Equipments
Arc Welding Set
4.3) OFFICE AND EQUIPMENT
3 No s
3 No s
1 No s
1 No s
3 No s
1 No s
2 No s
1 No s
2 No s
1 No s
1 Set
2 No s
Painting Equipment
Electro Static Cleaner
Cleaning Machine
Pallet Trucks
Air Compressors
Prgauge Calibrator
Hardness Tester
Pumps Test Stands
Valve Test Stands
Generating Stands
Over head Cranes
Communication: Head Office: Phone lines
6 Nos.
Fax lines
1 No
E-mail
1 No
Electronic Exchange 10*30 Capacities.
2 Sets
1 No s
2 No s
2 No s
3 No s
1 No s
1 No s
3 No s
1 No s
3 No s
3 No s

Works: Phone lines
6 Nos.
Fax line
1 No.
E-mail
1 No
Electronic Exchange 10*30 Capacities.
4.4)
DATA PROCESSING
Computer ---- 24 Nos.
For
Design
Accountancy
Inventory
Planning
Sales
Purchase
Administration.
5)
STAFF: -
Sales
7 Engineers + 4 Support
Purchase
2 Officers + 3 Support
Planning
1 Engineer

6)
Design
Accounts and Administrations
6 Officers + 3 Supports
Manufacturing
3 Engineers + 40 Supports
Servicing
Quality Assurance
FACILITIES: -
6.1)
In House
Design - Designing of mechanical and electro hydraulic
systems Auto card 2000 solid works 2001 + Cosmos works.
Machining Metal Cutting

Turning
Milling
Prilling & Tapping
Surface Grinding

Honing
Welding
TIG Welding.
ARC Welding
Surface Treatment Cleaning by Kerosene

Phosphating
Painting.



Methodology adopted and data collection: -
The nature of the study was collection analysis and interpretation of working
capital management in OTPL The information about this was gathered through
following sources.
Primary Data: -
Primary Data are those, which are collected fresh and for the first time, and thus it
happens to be original in character.
The primary sources of data are collected from the financial executives through
personal discussion in the light of the set objectives. Along with this, informal discussion
with other, member of the finance.
Secondary Data: -
Secondary Data are those have already been collected by someone else and while
already been passed through statistical process.
Annual Report of the Company.
Annual Accounts of the Company.
Ledger Profit and Loss Account.


STATEMENT SHOWING CHANGES IN WORKING CAPITAL IN 2003
OTPL
Particulars
2002
2003
Increase
Decrease
1. Inventories.
1,43,29,584
1,82,87,763
39,58,179
---------
2. S. Debtors
1,47,19,225
1,62,67,703
15,48,478
---------
96,70,212
99,24,482
2,54,270
---------
5,04,462
6,83,065
1,78,603
---------
23,58,269
18,000,63
---------
5,52,206
4,15,81,752
4,69,69,076
1. Current Liabilities
88,76,844
1,27,30,292
--------
39,53,448
2. Provision
56,67,201
47,89,238
8,77,963
------------
1,45,44,045
1,76,19,530
2,70,37,707
2,93,49,456
68,17,493
45,05,654
A) Current Assets
3. Cash & Bank Balance

4. Other C. Assets.
5. Loans & Advances.
TOTAL
B) Current Liabilities
TOTAL
Working Capital
(A-B)
Net Increase in
Working Capital
GRAND TOTAL
23,11,839
2,93,49,456
23,11,839
2,93,49,456
68,17,493
68,17,493

INTERPRETATION
As we can see in the above year 2002-03, there is an increase in the working
capital by Rs. 23,11,839. This is because:
1. As we can see that there is a great increase in Current Assets as the company is
looking to invest more in the inventory of raw material in this year, because of the
shortage of raw material in the market, so overall there is increase in the current
assets. But in current assets loans and advance are decreased.
2. As we can see there is decrease of Rs. 39,53,448 in the liabilities of the company,
which is good for the company. But Rs. 8,77,963 increases provisions.
3. So from all the above calculation we can see that there is good increase in the
working capital.
So we can say that company is more likely to increase there
inventory because they thinking it for the long term perspective.

STATEMENT SHOWING CHANGES IN THE WORKING CAPITAL IN 2004
OTPL PVT LTD
Particulars
(Rs. In Thousand)
2003
2004
Increase
Decrease
A) Current Assets
1. Inventories
18,288
34,600
16,312
-------
2. S. Debtors
16,298
32,122
15,854
-------
9,924
12,492
2,568
-------
6,83
9,45
2,62
-------
1,806
1,939
1,33
-------
46,969
82,098
12,830
28,541
----------
15,711
4,789
7,664
----------
2,875
17,619
36,205
29,350
45,893
35,129
18,586
3. Cash & Bank Bal.

4. Other C. Assets
5. Loans & Advances
TOTAL
2. Provision
TOTAL
Working Capital
(A-B)
Net Increase in Working
Capital
16,543,
GRAND TOTAL
45,893
16,543
45,893
35,129
35,129

INTERPRETATION
In the above table it is seen that, there is an increased in the working capital by
Rs.16, 543 in the year 2003-04, this is because: -
1. As we can see in the above table that in the Current assets are increased, because of
increase in inventories, debtors, cash and bank balance, loans and advance and also
increase in other current assets.
2. As we can see there is overall decrease in current liabilities. Because of current

liabilities are decreased by Rs. 15,711 and also provision are also decreased by Rs.
2,875.
3. So as the liabilities have decreased this year and there is increase in current assets, so
there is increase in working capital.
STATEMENT SHOWING CHANGES IN THE WORKING CAPITAL IN 2004

OTPL PVT LTD
(Rs. In Thousand)
Particulars
2004
2005
Increase
Decrease
A) Current Assets
1. Inventories
34,600
28,042
--------
6,558
2. S. Debtors
32,122
47,790
15,668
-------
3. Cash & Bank Bal
12,492
10,084
--------
2,408
9,45
6,056
5,111
-------
5. Advance to Suppliers
-------
1,215
1,215
-------
6. Loans & Advances
1,930
1,771
--------
1,59
82,098
94,958
21,994
9,125
28,541
26,531
2,210
--------
2. Advance from customer
---------
9,082
------
9,082
7,664
6,778
8,86
-------
TOTAL
36,205
42,191
3,096
9,082
Working Capital (A-B)
45,896
52,767
25,090
18,207
Net Increase in Working Capital
6,874
4. Other C. Assets
TOTAL
3. Provision
GRAND TOTAL
INTERPRETATION
52,767
6,883
52,767
25,090
25,090

In the above table it is seen that, there is an increased in the working capital by
Rs.6, 883 in the year 2004-05, this is because: -
1. As we can see of the Current Assets side there is decrease in Inventories, cash and
bank balance and loans and advances. There is an increased in sundry debtors, other
current assets and company also given the advance to supplies by Rs. 1,215. This
decrease in Inventory because there is unavailability of their main raw material.
Because of the shortage of it in the market.
2. Current Liabilities side there has been increased in current liabilities and provisions of
Rs. 2,210 and Rs. 8,86 respectively and also company has taken the advance from
customers of Rs. 9,082.
3. So, looking above calculation we see that working capital of the company is
increased, because current assets are more than current liability. Working Capital is
increased from Rs. 6,874 to Rs. 6,883. Because in this year company has taken the
advance from customer and given advance to suppliers.
RATIO ANALYSIS
Meaning: -

Ratio Analysis is a widely used tool of financial analysis. It defined as the
systematic use of to interpret the financial statement so that the strength and weakness
of a firm well as its historical performance and current financial condition can be
determined. This relationship can be expressed
1. Percentage says net profits are 25 percent of sales.
2.
Proportion of numbers (the relationship between net profit and sales is 1:4), these
alternative methods of expressing items which are related to each other are, for the
purpose of financial analysis, referred to as ration analysis.
Types of Ratios
Ratio can be classified into following categories,
1. Current Ratios.
2. Net Working Capital Ratios.
3. Total Assets Turnover Ratios.
4. Inventory Turnover Ratios.
5. Fixed Assets Turnover Ratios.
6. Creditors Turnover Ratios.
7. Creditors Collection Period.
8. Debtors Turnover Ratios.
9. Debtors Collection Period.
10. Gross Profit Margin Ratios.
MERITS AND DEMERITS OF THE RATIO: -

Merits of the Ratio: The following are the some important merits of the ratio
1. Ratio Analysis reflects the working efficiency of a concern.
2. Since, ratio analysis relates the financial health of a concern, insurance other
financial institution relay on them while judging loan application and in taking
vital investment decision.
3. It helps in establishing trends since the result are preparing plans for the future.
4. It is helpful in forecasting likely events in future.
Demerits of the Ratio: The following are the some important demerits of the ratio.
1. The striking aspect of ratio analysis is the absence of an explicit theoretical
structure; different methods of collection are adopted by different concerns.
2. For concert analysis inside information must be known by the analyst since most
concern report to portray of easy picture of the financial attachments.
3. Change in the basis of accounting may pose difficulty in analysis ratios between
one period
1. Current Ratios: -

It can be calculated as current assets divided by current liabilities. The current
ratio measures the relative ability of a company to pay its short-term debts. The ratio is
used to reveal how well a company could meet a sudden demand to pay off its short-term
creditors.
Formulas,
Current Ratio = Current Assets
Current Liabilities
Particulars
Current Assets
Current Liabilities
Current Ratio
2002-2003
4,69,69,000
1,76,19,000
2.66
2003-2004
8,20,98,000
3,62,05,000
2.26
2004-2005
9,49,58,000
4,21,91,000
2.25
Current Ratio
Ratios
2.8
2.6
2.4
Current Ratio
2.2
2
2002-2003 2003-2004 2004-2005
Years
Interpretation: -

As a conventional rule, a current ratio of 2:1 or more considered satisfactory. The
OTPL Company, has current ratio is 2.66:1; therefore, it may be interpretated to be
satisfactory company. The current ratio represents a margin of safety for creditors. The
higher the current ratio, the greater the margin of safety, so, there has been increased in
the ratio during 2002-2003, when compared with 2003-2004 and 2004-2005. So, larger
the amount of current assets in relation to current liabilities, the more the firms ability to
meet its current obligation. Firm with less than 2:1, current ratio may be doing well,
while firm with 2:1 or even higher current ratio may be struggling to meet their
obligations. This is so because, if Rs.2 is your Current Assets and Rs.1 is Your Current
Liabilities. Thus Current Ratio shown is 2:1, which is an Ideal Ratio.
2. Quick Ratio
It establishes a relationship between quick or liquid, assets and current liabilities.
An asset is liquid if it can be converted in to cash immediately or reasonably soon
without a loss of value. Cash is most liquid assets. Other assets, which are considered to
be relatively liquid and included in the quick assets, are debtors, and bills receivable and
marketable securities. Inventories are considered to be less liquid, inventories normally
requires some time for realizing in to cash; their value also has a tendency to fluctuate.
Formula
Quick Ratio = Current Assets Inventories
Current Liabilities

Particulars
Current Assets
(-) Inventory
Total
(/) Current Liabilities
Quick Ratio
2002-2003
4,69,69,000
1,82,88,000
2,86,81,000
1,76,19,000
1.62
2003-2004
8,20,98,000
3,46,00,000
4,74,98,000
3,62,05,000
1.31
2004-2005
9,49,58,000
2,80,42,000
6,69,16,000
4,21,91,000
1.58
Quick Ratio
Ratios
2
1.5
1
Quick Ratio
0.5
0
2002-2003
2003-2004
2004-2005
Years
Interpretation: Generally a quick ratio is 1:1 is considered to represent a satisfactory current

financial condition. In the year 2002-03 quick ratio was 1.62 and there has been
decreased in the year compared to 2003-04 and 2004-05.
The high ratio indicates that all debtors may not be quick and cash may be
immediately needed to pay operating expenses. It should be noted that inventories are not
absolutely non-liquid to a measurable extent inventories are available to meet current
obligations. So the company can suffer from shortage of funds. On the other hand, a
company with low ratio in the year 2003-04 and 204-05, indicates that quick ratio may

really be prospering and paying its current obligation in time if it has been turning over
its inventories efficiently.
3. Total Assets Turnover Ratio: The Total assets turnover ratio in addition to, or instead the net current assets, This
ratio shows the firms ability in generating sale from all the financial resource committed
to total assets
Formula,
Total Assets Turnover Ratio = Net Sales
Total Assets
Particulars
Net Sales
Total Assets
Total Assets Turnover Ratio
2002-2003
5,73,73,000
2,69,95,000
2.12
2003-2004
2004-2005
10,86,60,000 10,70,00,000
2,57,87,000 2,52,21,000
4.21
4.24

Ratios

5
4
3
2
1
0
Total Assets
Turnover Ratio
2002-2003 2003-2004 2004-2005

Years
Interpretation: There has been increased in the year 2004-05, when compared to 2002-2003 and
2003-2004. And high ratio indicates that in the year 2004-05, that ratio shows the firms
ability in generating sales from all financial resources.
4. Inventory Turnover Ratio: -
It indicate the efficiently of the firm in producing the selling its product. The ratio
indicates how fast inventory is sold. A high ratio is good from viewpoint of liquidity and
vice versa. A low ratio would signify that inventory does not sell and stay on the shelf or
in warehouse for a long time.
Inventory Turnover Ratio = Net Sales
Inventory
Particulars
Net Sales
Inventory
Inventory Turnover Ratio
2002-2003
5,73,73,000
1,82,88,000
3.13
2003-2004
2004-2005
10,86,60,000 10,70,00,000
3,46,00,000 2,80,42,000
3.14
3.81

Interpretation: There has been increased in the ratio in the year 2004 2005, when compared
with 2002-2003 and 2003-2004. In the year 2004-2005, indicates high ratio, it means,
Inventory turnover ratio implies good inventory management and very high ratio calls for
a careful analysis. It may indicate under investment in inventory. While a Low ratio
indicate in the year 2002-2003, that, it may be result in use of inferior quality of goods
and over investment in sales in the 2003-2004.
4. Fixed Assets Turnover Ratio: Fixed Assets Turnover Ratio measures Sales per rupees investment in Fixed
Assets. It measures the efficiency of fixed assets employed in the organization. High
degree of ratio indicates high efficiency of assets utilization vice-versa.
Fixed Assets Turnover Ratio = Net Sales

Fixed Assets
Particulars
Net Sales
Fixed Assets
Fixed Assets Turnover Ratio
2002-2003
5,73,73,000
3,69,41,000
1.55
2003-2004
2004-2005
10,86,60,000 10,70,00,000
3,72,38,000 3,83,06,000
2.91
2.79

Ratios
4
3
Fixed Assets
Turnover Ratio
2
1
0
2002-2003 2003-2004 2004-2005
Years
Interpretation: There has been increased in the ratio during 2002-2003 and 2004-2005, when
compared with 2003-2004. A low ratio in the year 2002-2003 indicates in efficiency use
of assets, and the next two years (2003-2004 and 2004-2005) shows high ratio, which
means that increasing efficiency of fixed assets employed in the organization. One of the
cautions to be kept in the mind is when fixed assets are old and substantially depreciated
the ratio tenders to be high, because, the denominator of the ratio will be low.
5. Creditors Turnover Ratio: -

It is the ratio between the Sales and Creditors or Net Credit Purchase and average
amount of creditors. It is an important tool of analysis as a firm can maintain minimum
amount of Current Assets, as credit from suppliers is easily available.
Creditor Turnover Ratio = Net Sales
Creditors
Particulars
Net Sales
Creditors
Creditors Turnover Ratio
2002-2003
2003-2004
5,73,73,000
1,28,30,000
4.47
10,86,60,000
2,85,41,000
3.80
2004-2005
10,70,00,000
2,63,31,000
4.06
Ratios
5
4.5
4
3.5
3
2002-2003
2003-2004
Years
2004-2005

Interpretation: In the year 2002-2003, there was been increased when compared to 203-2004 and
2004-2005. In the year 2002-2003 indicate high ratio means the sales of the year very
low as compared to 2003-2004 and 2004-2005 and also creditors are low as compared to
2003-2004 and 2004-2005.
6. Creditors Collection Period: This ratio is the difference between Days and Creditors turnover ratios.
Formula,
Creditors Collection Period = Days
Particulars
Days
Creditors Collection Period
2002-2003
365
4.47
81.65
2003-2004
365
3.80
96.05
2004-2005
365
4.06
89.90

Ratios
150
100
Creditors Collection
Period
50
0
2002-2003
2003-2004
2004-2005
Years
Interpretation: In the year 2002-2003, there was increase when compared to 2003-2004 and
2004-2005. The high ratio of 2002-2003 indicates that the sales of the year is very low as
compared to 2003-2004 and 2004-2005, and also creditors are low as compared to as
compared to 2003-2004 and 2004-2005. While low ratio in the year 2003-2004 indicates
that creditors are high as compared to other year.
7. Debtors Turnover Ratio: It indicate the how many times debtors turnover each year. Generally, the higher
the ratio of debtors turnover, the more efficient is the management of credit. The ratio
measured how will reveal the days of debts to be colleted.
Debtors Turnover Ratio= Net Sales
Debtors

Particulars
2002-2003
Net Sales
Debtors
Debtors Turnover Ratio
2003-2004
5,73,73,000
1,62,68,000
3.52
10,86,60,000
3,21,22,000
3.38
2004-2005
10,70,00,000
4,77,90,000
2.23
Ratios
4
3
Debtors Turnover
Ratio
2
1
0
2002-2003
2003-2004
2004-2005
Years
Interpretations: There has been increased debtor in the year 2002-2003 as compared to 2003-204
and 2004-2005, high ratio indicates of shorter time gap between credit sales and cash
collation. A low ratio shows that debts are not being colleted rapidly. So, the standard
norms this high ratio reveals that company has quite efficient management of debtors. In
the year 2000 & 2003 are showing equal turnover ratio.
8. Debtors Payment Period: -

The debtors payment period is mainly related to how many days debtors have
taken to complete a period and how much is debtors turnover ratio.
Debtors Payment Period = Days
Particulars
2002-2003
Days
Debtors Collection Period
2003-2004
365
3.52
103.69
2004-2005
365
3.38
107.98
365
2.23
163.67
Ratios

200
150
100
50
0
Debtors Collection
Period
20022003
20032004
20042005
Years
Interpretation: The shorter the collection period is better quality of debtors. Since, a short
collection period implies that prompt payment by debtors. In collection period having
some increase and decrease. So, we can find out that there is no uniformity in the debtors
collection period of the year.

8. Gross Profit Margin Ratio: Gross Profit Margin Ratio is the result of relationship between price, sales,
volume and cost. A change in gross profit margin can be due to changes in any of these
factors. It represents the limit of beyond which fall in sales price are outside and tolerance
limit.
Gross Profit Margin Ratio = Gross Profit
Net Sales
Particulars
Gross Profit
Net Sales
Gross Profit Margin Ratio
2002-2003
7,26,000
5,73,73,000
1.26
2003-2004
1,42,88,000
10,86,60,000
13.14
2004-2005
1,86,54,000
10,70,00,000
17.43
Ratios
20
15
Gross Profit Margin

Ratio
10
5
0
2002-2003
2003-2004
Years
2004-2005

Interpretation: There has been increased in the year 2004-2005 as compared to 2002-2003 and
2003-2004. The high ratio indicates that the company should earn a sufficient profit on
each rupee of sales. While low ratio indicate that in the year 2002-2003 that the company
will be meeting the operations expenses and no returns will be available to the owners.
And also high ratio indicate that a good management indicate that cost of production of
the firm is relatively low, it may also indicate higher the sales price without a
corresponding increase in the cost of the goods.
CONSOLIDATED STATEMENT OF THE RATIOS FOR THREE YEARS
Sl. No
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Particulars
Current Ratio
Quick Ratio
Inventory Turnover Ratio
2002-2003
2.66
1.62
2.12
3.13
1.55
4.47
81.65
3.52
103.69
1.265
2003-2004
2.26
1.31
4.21
3.14
2.91
3.80
96.05
3.38
107.98
13.14
2004-2005
2.25
1.58
4.24
3.81
2.79
4.06
89.90
2.23
163.67
17.43

Gross Profit
Consolidated Statement of Ratios Margin Ratio

300
250
200
Ratios 150
100
50
0
Debtors
Collection
Period
Debtors
Turnover Ratio
20022003
20032004
20042005
Years
Creditors
Collection
Period
Creditors
Turnover Ratio
Fixed Assets
Turnover Ratio
FINDING AND SUGGESTIONS
Findings: -
Inventory
Turnover Ratio
Total Assets
Turnover Ratio
Quick Ratio
1. Current Ratio of OTPL Company shows the solvency of the firm ability to repay its
liabilities. As ratio is decline to 2.66. It shows that company is inCurrent
solvency
Ratio
state.
Current assets are should always be twice of current liabilities.
2. In a comparative statement of Balance Sheet, debtors were 1,47,19,000 in the year

2002-2003, and it has increased to 3,21,22,000 and 4,77,90,000 in the last two years.
Because increased in credit sales.
3. Total assets turnover ratio shows the ability to convert all its assets incurring fixed
assets to sales. As per the ratio calculated in the year 2002-2003 it was 2.12, which
was low ratio means firm is able to convert its total assets quickly into funds as per

the company ratio the firm is able to convert it assets because the ratio are higher
between 4.24 to 2.12, which was low ratio.
4. Inventory Turnover Ratio is increased from 3.13 to 3.81 in the year 2002-2003 and
2004-2005 respectively. It shows company has maintained good inventory policy.
5. Gross profit margin ratio shows that increasing year to year. It shows that company
should earn a sufficient profit on each rupee of cash.
Suggestions: -
The working capital including all its related aspects is managed quite well by
OTPL. The finance department is carrying out its responsibilities efficiently. The entire
departments are collectively working hard for the progress of OTPL.
The following are the suggestions.
1. In a comparative Balance Sheet Debtors are increased from year to year (1,47,19,000
to 4,77,90,00). Even though debtors are increased which is favorable enough for the
company. But should take care while dealing against the loss due to doubtful and bad
debt.

2. The company net sale is very low in the year 2002-2003 Rs 5,73,73,000, as compared
to 2003-2004 Rs. 10,86,60,000. So, the company should manage its current assets,
which effects on production and ultimately on sales.
3. The Current Ratio of the company is decreased from 2.66 to 2.55 in the last threeyear (2003 to 2005). So, the current ratio should be maintained by the company in
such a way that the ratio does not follow below 2:1.
4. Company should give minimum payment time to get prompt payment by debtors.
Conclusion
Working capital may be regarded as lifeblood of a business. Its effective

provision can do much to ensure the success of a business, while its inefficient
management can lead not only to loss of profits but also to the ultimate down fall of what
otherwise might be considered as a promising concern. A study of working capital is of
major importance to internal and external analysis because of its close relationship with
the current day to day operations of a business.

1. Here, I conclude that Changes in the financial year is showing increase in the working
capital, because company maintains its working capital properly in the year 2003 to
2005.
2. According to my calculation Current Assets main part of, the working capital of the
business. According to all Ratios, It shows that company maintains its ratio is very
well. So, In the year 2004-2005 company showing better position in the working
capital.

BIBLOGRAPHY
Financial Management by books used from which I have taken help for the theory
part of the study:
M.V. Khan & P.K. Jain
I.M. Pandey

I have also used the trial balance of Oilgear Towler Polyhydron Private Limited
(OTPL). Those are from the year 2003-2005. Which provide by the official at
Belgaum Works.
I have meet with the different people at the Administrative Department at Oilgear
Towler Polyhydron Private Limited (OTPL). As also took their views and information
for my Study.
I have also took the help form the company site www.oilgear.co.in

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Impact of Current Assets on Working Capital.

Statement of the Problem

Purpose of the Study

Scope of the study

Data Collection Method

Impact of Current Assets on Working Capital. AT

The project is assigned to me Impact of Current Assets on Working Capital. At

Impact of Current Assets on Working Capital. AT

Impact of Current Assets on Working Capital. AT

Impact of Current Assets on Working Capital. AT

Gathman & Dug wall: -

Working Capital as excess of current assets over current liabilities.

Westen & Brigham: -

WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.

Impact of Current Assets on Working Capital. AT

Working capital cycle: Introduction

Impact of Current Assets on Working Capital. AT

As production progresses, labor costs and overheads will need to be met

Of course at some stage trade creditors will need to be paid

Impact of Current Assets on Working Capital. AT

Lessors of fixed assets will be paid their rent

Shareholders (existing or new) may provide new funds in the form of

Some shares may be redeemed for cash

Dividends may be paid

Unlike movements in the working capital items, most of these non-working

Impact of Current Assets on Working Capital. AT

COMPONENTS OF WORKING CAPITAL

Impact of Current Assets on Working Capital. AT

Impact of Current Assets on Working Capital. AT

Characteristics of Current Assets

While managing the working capital bear in mind of two characteristics of

Impact of Current Assets on Working Capital. AT

CURRENT ASSETS CYCLE

Decisions relating to working capital management are repetitive and frequent.

2. The difference between profit and present value is insignificant.

Impact of Current Assets on Working Capital. AT

Impact of Current Assets on Working Capital. AT

IMPORTANCE OF WORKING CAPITAL: -

Working Capital is most important in every organization whether it is a small or

Impact of Current Assets on Working Capital. AT

Operating cycle method:

Impact of Current Assets on Working Capital. AT

CLASSIFICATION OF WORKING CAPITAL

Impact of Current Assets on Working Capital. AT

A. On the basics of Concept

In case of public limited companies in India, current assets

Impact of Current Assets on Working Capital. AT

(b) Gross Working Capital

A. On the basis of Time

i. Initial Working Capital

ii. Regular Working Capital

Impact of Current Assets on Working Capital. AT

b. Variable Working Capital

i. Seasonal Working Capital

ii. Special Working Capital

B. Other Determinants of Working Capital

Impact of Current Assets on Working Capital. AT

SOURCES OF WORKING CAPITAL: -

Impact of Current Assets on Working Capital. AT

Impact of Current Assets on Working Capital. AT

INTERNAL SHORT TERM SOURCES

The company executives postpone the payment of certain

EXTERNAL SHORT TERM SOURCES.