A PROJECT REPORT

ON
WORKING CAPITAL MANAGEMENT
OF

I.T.I Limited ,Mankapur

SUBMITTED TO:

SUBMITTED BY:

Mr. Haridas Gupta

DeputyFinanceHead
ITI Lmt. Mankapur

Mukul Saxena
MBA(FS) , 3rd Sem

PREFACE
The winter training is an integral part of academic curriculum. During this a student gets
opportunity to understand the practical aspects of various functional domains. There is
always gap between theories and practices and the training is aimed at removing this gap.
This project report is the outcome of the summer training that I have undergone at ITI
Limited Mankapur for the partial fulfillment of Masters of Business Administration in
School of Economics , Devi Ahilya Vishwavidhyalaya , Indore.
The topic is concerned with the WORKING CAPITAL MANAGEMENT. This project
work has been undertaken to know the procedures involved in the FINANCE
DEPARTMENT in ITI Limited. The report is written account of what I have learnt and
experienced in my training and have tried my level best to encompass each and every
aspect of it which is necessary to justify the project undertaken.
The preparation of this project requires initiative, perseverance, proper guidance and
direction. Therefore, it became mandatory to take aids from various departments.

ACKNOWLEDGEMENT
I would like to express my gratitude to all those people who have provided me support,
co-operation and their valuable time to help me in the completion of this project. I wholeheartedly acknowledge the intellectual simulation of my esteem guide Mr. Hari Das
Guptaji for giving me opportunity to work in such an important sphere and sharing his
vision and experience.
I, express my deep sense of gratitude and sincere thanks to Mr. Tiwariji and Mr. Sunil
Guptaji who has provided me with the necessary information and their valuable
suggestion and comments in bringing out this report in the best way possible.
I would like to thank Mr. Bhist, Human Resource Development Centre (HRDC) for
providing me the opportunity to complete my internship in this esteemed organization. I
also give my sincere thanks to all those people who directly or indirectly helped me in
finding the way to collect the requisite information and completing the project timely and
effectively.
At last I would also like to thank the entire management team of Finance department in
ITI, as working with them has been an enriching and motivating experience for me.

Date : 14TH JULY 2015

Place: MANKAPUR

( MUKUL SAXENA)
MBA(FINANCIAL SERVICES)

DECLARATION
I, Mukul Saxena, pursuing an Masters of Business Administration from School of
Economics , Devi Ahilya Vishwavidhyalaya , Indore, hereby declare that I have
completed a project on WORKING CAPITAL MANAGEMENT OF ITI Limited
during 1st June 2015 to 14th July 2015 ( 6 wks ) . The information complied and submitted
in this report pertaining to the project is true and original to the best of my knowledge.
However, the views expressed in this report are not necessarily those of the company or
college and all responsibility for any errors remains with the author.
Date : 14TH JULY 2015
Place: MANKAPUR

( MUKUL SAXENA)
MBA(FINANCIAL SERVICES)

TABLE OF CONTENTS
Sl.No.

TITLE

PAGE NO.

CHAPTER 1
CHAPTER 2
CHAPTER 3
CHAPTER 4

INTRODUCTION...
LITERATURE REVIEW
COMPANY PROFILE
DATA ANALYSIS AND

CHAPTER 5

INTERPRETATION.
PROBLEMS, CAUSES OF IT WITH

33

SOLUTIONS
CONCLUSION.............................................
BIBLIOGRAPHY.....

34
35

CHAPTER 6

8-9
11-20
21-22
23-32

CHAPTER-1
INTRODUCTION TO THE STUDY:
This study comprises the working capital of ITI LTD. It basically deals with analyzing
the short term liquidity position of the company with the help of various ratios such as
Liquidity ratio, turnover ratio, profitability ratio etc.

OBJECTIVES OF THE RESEARCH:

The objective of this project work is to focus on the working situation of ITI Lmit. and
exploring its potential in the company. The project contain the basic postulates of
working capital, procedure of analysis of working capital, ratios being used to define the
working capital and its impact on the company in case of excess or inadequacy.

To study about working capital of ITI Lmt.

To judge the efficiency and effectiveness of management.
To know about cash flow.
To know about accounting policy.
To study the financial position of company.
To study the profitability position of company.
To find out the financial strengths and weakness of company.
To give suitable suggestion on the basis of findings.

RESEARCH DESIGN
The research design for the study is of exploratory type and the focus is given to
discover the possible measures, by detailed analysis, for the company which would be
helpful up to some extent to achieve a good position in the competitive market. The
research design is not formal and rigid one as the focus depends upon the availability of
new ideas and relationship among variables.

DATA COLLECTION METHOD

There are two types of data:
Primary data- Primary data are those data which are collected afresh and for the
first time, and thus happen to be original in character.
Secondary data- Secondary data are those data which have already been
collected and processed through statistical processes.
For the purpose of study both primary as well as secondary data have been used. The
Secondary data have been collected from newspapers, company annual reports, and
websites. For the collection of primary data questions were asked personally from many
peoplewithin the organization.

TOOLS FOR ANALYSIS

The following statistical tools have been used for analyzing the data:
Column Diagram
Ratios

RESEARCH LOCATION
This project is a part winter training at the same company and has been done during the
training period.

SCOPE OF THE STUDY

The scope of the study is concerned with the proper management of funds, as much to
know how effectively funds are utilized for meeting short-term and long-term needs. The
basic
scope of the research is to discover the firms involvement in raising funds and their
effective
Utilization keeping in view the overall objectives of the firm applying working capital
analysis tools to procure the profitability of the business.

LIMITATIONS OF THE STUDY

a) The Study is mainly based on the information gathered from secondary data.
b) The findings of the study are based on historical data. Hence, accuracy cannot be
ascertained.

CHAPTER 2
LITERATURE REVIEW
AN INTRODUCTION TO THE WORKING CAPITAL
MANAGEMENT:

In

common parlance, working capital is that part of capital, which is in working or

which is used to meet day-to day expenses of the firm.
To understand the exact meaning of the term Working Capital, it will be appropriate to
Understand its two components current assets and current liabilities. The current assets
are those assets, which can be converted into cash within a short period of time, say not
more than one year during the operating cycle of business or without affecting normal
business operations. Current liabilities are such liabilities which are to be paid within the
normal business cycle within the course of an accounting year out of current assets.

DEFINING WORKING CAPITAL:

The term working capital refers to the amount of capital which is readily available to an
organization. That is, working capital is the difference between resources in cash or
readily convertible into cash (Current assets) and organizational commitments for which
cash will be soon required (Current liabilities). Thus,
WORKING CAPITAL =CURRENT ASSETS - CURRENT LIABILITIES
Where,
Current Assets:
Liquid Assets (cash and bank deposits)
Inventory
Debtors and Receivables
Others
Current Liabilities:
Bank overdraft
Creditors and payables
Other short term liabilities
Working Capital may be regarded as the life blood of business. 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. Every business needs fund for two
purposes:
Long term funds are required to create production facilities through purchase of
fixed
assets such as plants, machineries, lands, buildings, etc.
Short term funds are required for the purchase of raw materials, payment of
wages, and to meet other day-to-day expenses.
It is otherwise known as revolving or circulating capital.

OBJECTIVES OF WORKING CAPITAL MANAGEMENT:

Working capital management is essential for any business to succeed. It is becoming
increasingly important to have access to more capital when we need it. In simple words,
Working capital is the excess of current assets over current liabilities. It is the heart of the
business. If it is weak business cannot prosper and survive. Cash is the lifeline of the
company. If this lifeline deteriorates so does the companys ability to fund operations,
reinvest to meet capital requirements and payment. Understanding companys cash flow
health is essential in making investment decisions. A good way to judge a companys
flow prospects is to look at its working capital management. The company must have
adequate working capital with the company. It should neither be excessive or nor
inadequate. The goal of working capital management is to ensure that a firm is able to
continue its operations. And that it has sufficient ability to satisfy both maturing short
term debt and upcoming operational expenses. The better a company manages its
working capital, the less it needs to borrow. Even companies with cash surpluses need to
manage working capital to ensure those surpluses are invested in ways that will generate
suitable returns for investors.
Therefore, the primary objectives of working capital management is to ensure that
sufficient cash is available to:

Meet day to day cash flow needs

Pay wages and salaries when they fall due
Pay creditors to ensure continued supplies of goods and services
Pay government taxation and provider of capital dividends
Ensure the long term survival of the business entity

NEED FOR WORKING CAPITAL:

Every business needs some amount of working capital. The need for working capital
arises due to the time gap between production and realization of cash from sales. It may
have to pass through various stages to complete its operating cycles. This can be
categorized into manufacturing firms and trading firms.

TYPES OF WORKING CAPITAL:

On balance sheet basis: There are two types of working capital on the basis of balance
sheet- Gross working capital and Net working capital.

 GROSS WORKING CAPITAL: The term gross working capital refers to the
firms
investment in current assets.
GROSS WORKING CAPITAL = TOTAL CURRENT ASSETS
The consideration of the level of the investment in current assets should avoid two
danger points- excessive and inadequate investments in arranging funds to finance
current assets.

NET WORKING CAPITAL: It refers to the difference between current assets

and current liabilities. Thus,
NWC= Current Assets-Current Liabilities

Net working capital can be positive or negative.

It is positive :
When current assets >current liabilities
It is negative :
When current asset<current liabilities
It is a quantitative concept which:
o Indicates the liquidity position of the firm
o Suggests the extent to which working capital needs may be financed by
Permanent sources of funds.

On the basis of time: There are two types of working capital on the basis of time (or
need) fixed or permanent working capitaland variable or temporary working capital.

PERMANENT WORKING CAPITAL: It is the minimum amount of

investment in all current assets which is required at all times to carry out
minimum level of business activities. Tan don Committee has reserved to this
type of working capital as Core Current Assets.
CHARACTERISTICS OF PERMANENT WC:

Amount of permanent working capital remains in the business in one form or

another.
It also grows with the size of the business. It is permanently needed for the
business, and therefore, it should be financed out of long term funds.

VARIABLE WORKING CAPITAL: The amount of working capital over

permanent working capital is known as variable working capital. The amount of
such working capital keeps on fluctuating from time to time on the business
activities. It may again be subdivided into seasonal working capital and special
working capital.

Seasonal working capital is required to meet the seasonal demands of busy periods
occurring at stated intervals on the other hand, special working capital is required to meet
extraordinary needs for its contingencies.

DETERMINANTS OF WORKING CAPITAL:

Working capital requirements of a concern depends on a number of factors, each of which
should be considered carefully for determining the proper amount of working capital. It
may
be however be added that these factors affect differently to the different units and these
keeps
varying from time to time. In general, the determinants of working capital which are
common
to all organizations can be summarized as under:
1. NATURE OF BUSINESS: The composition of current assets is a function of the size
of a business and the industry to which it belongs. Small companies have smaller
proportion of cash, receivables and inventory than large corporation. A public utility
concerns mostly employ fixed assets in its operations, while a merchandising or
manufacturing department depends generally on inventory and receivables.
2. PRODUCTION POLICIES: The production policies pursued by the management
have a significant effect on the requirement of working capital in the business, in case of
labour intensive industries the working capital requirement will be more but in case of
highly automatic plant, the requirement of long term funds will be more and working
capital will be less.
3. SIZE OF BUSINESS: The size of the business unit has an important impact on its
working capital needs. Size may be measured in terms of scale of operation. A firm with
larger scale of operation will need more working capital than a firm with smaller scale of
operation.
4. LENGTH OF OPERATING CYCLE: Operating cycle of the firm also influences
the working capital. Longer the operatingcycle, the higher will be the working capital
requirement of the organization and vive-versa.

5. TERMS OF PURCHASE AND SALE: Terms of purchase and sales affect the
amount of working capital. The practice of cash purchases with credit sales require more
working capital while the practice of credit purchases with cash sales requires less
working capital.
6. BUSINESS FLUCTUATION: Cyclical changes in the economy also influence the
level of working capital. During boom period, the tendency of management is to pile up
inventories of raw materials andfinished goods to avail the advantage of rising prices.
This creates demand for morecapital. Similarly, during depression when the prices and
demand for manufactured goods are low, thedemand for working capital is also low.
7. CURRENT ASSETS POLICIES: The quantum of working capital of a company is
significantly determined by its currentassets policies. A company with conservative assets
policy may operate with relativelyhigh level of working capital than its sales volume. A
company pursuing an aggressive assets policy operates with a relatively lower level of
working capital.
6. FLUCTUATIONS OF SUPPLY AND SEASONAL VARIATIONS:
Some
companies need to keep large amount of working capital due to their irregular salesand
intermittent supply. Similarly companies using bulky materials also maintain
largereserves of raw material inventories. This increases the need of working capital.
Somecompanies manufacture and sell goods only during certain seasons. Working
capitalrequirements of such industries will be higher during certain seasons.
7.GROWTH AND EXPANSION: Growing concerns require more working capital than
those that are static. It is logical to expect larger amount of working capital in a growing
concern to meet its growing needs of funds.
8.DIVIDEND POLICY: Dividend policy and working capital are interrelated.
Management takes a view of current assets before declaring a dividend.
9.PRICE LEVEL CHANGES: Rising price level requires more working capital to
maintain the same level of current assets.
10. TAXES: Prevalent rent of taxes of the country plays a vital role in determining the
requirements of working capital. If the rate of tax is low, then need of working capital is
also low otherwise more because a major cash goes to the government in the form of tax.

SOURCES OF WORKING CAPITAL:

SOURCES OF WORKING CAPITAL

SHORT TERM SOURCES

LONG TERM SOURCES

Indigenous bankers

Issues shares

Advances

Issue of debentures

Deferred income

Public deposits

Commercial banks

ploughing back of profit

Institution

Loans from financial

Instalment credit
A/cs receivables credit/factoring
SOURCES OF LONG TERM WORKING CAPITAL:
The long term working capital requirements can be met from the following sources.
Issue of Shares: It is the safest way of procuring permanent and regular working
capital without any fixed charges.
Issue of Debenture: Regular and long term working capital may be obtained at
lower cost of trade on equity.
Retained Profits: Accumulated large profits are also considered to be a good
source of financing long term working capital requirements. It is the best and
cheapest source of finance.
Sale of Fixed Assets: If there is any idle fixed assets in the firm can be sold out
and the proceeds may be utilized for financing the working capital requirements.
SOURCES OF SHORT TERM WORKING CAPITAL :
The sources of short-term working capital may be classified in two heads:
1.Internal sources
2.External sources
Internal Sources: Under this category the sources of working capital are tapped from
within the internal sources are depreciation funds, provision for taxation and accrued
expenses.
Depreciation Fund: Depreciation funds created out of profits provided they are
invested in or represented by assets.
Provision for Taxation: There remains a time lag between making the provision
for and payment of taxation. A company may utilize such provision during the
intermittent period temporarily.

 Accrued Expenses: The Company sometimes postpones the payment of certain

expenditure due to finalization of the accounts. These accrued expenses also

constitute an important source of working capital.
External Sources: External sources mean the sources providing finance for companys
working capital other than those of internal sources. These may be enumerated as given
below:
Normal Trade Credit: Creditors provide short-term finance to the company by
selling the goods, inventories and equipment on the basis of deferred payment. It
is very common source of short term finance and normally every concern use this
source as a normal trade practice.
Credit Papers: Bills payable or promissory note which may be discounted from
bankers for meeting short term capital need by the drawer.
Bank Credit: The greater part of the working capital is supplied by commercial
banks to their customers through direct advances in the shape of loans, cash credit
or over draft and through discounting the credit, papers, e.g. bills payable and
promissory notes etc.
Customer Credit: Advance may also be obtained from customers against the
contracts entered into by the enterprise such advances are generally asked for, by
the companies manufacturing large plants and machinery involving longer time in
completing the process of manufacturing e.g. ship building industries. The
amount can be used for purchasing raw materials.
Public Deposits: Most of the companies in recent years depend on this source to
meet their working capital requirements. Under the companies Act 1956 a
company is authorized to raise funds equal to 25% of paid up capital and free
reserves by this source.
Government Assistance: Central and state governments of the country provide
short-term finances to industries or businesses by allowing tax concessions,
sanctioning direct loans or grants to industries or a class of industries to assist
their production programs etc.

BALANCED WORKING CAPITAL:

The firm should maintain a sound working capital position. It should have adequate
working capital to run its business operations. Both excessive and inadequate working
capital positions are dangerous from the firms point of view. Excessive working capital
means holding costs and idle funds which earn no profits for the firm. Paucity of working
capital not only impairs the firms profitability but also results in production interruptions
and inefficiencies and sales
Disruptions.

The dangers of excessive working capital are as follows:

Excessive working capital means ideal funds which earn no profit for the firm and
business cannot earn the required rate of return on its investments.
Redundant working capital leads to unnecessary purchasing and accumulation of
inventories.

 Excessive working capital implies excessive debtors and defective credit policies
and this causes higher incidence of bad debts.
It may reduce the overall efficiency of the business.
If a firm is having excessive working capital then the relations with banks and
other financial institution may not be maintained.
Due to lower rate of return on investments, the values of shares may also fall.
The redundant working capital gives rise to speculative transactions.

The dangers of inadequate working capital are as follows:

It leads to stagnation of growth. It becomes difficult for the firm to undertake

profitable projects due to non-availability of working capital funds.
It becomes difficult to implement operating plans and achieve the firms profit
target.
Operating inefficiencies creep in when it becomes difficult even to meet day to
day commitments.
Fixed capital cannot be utilized due to the lack of working capital funds. Thus the
firms profitability would deteriorate.
Paucity of working capital funds render the firm unable to avail attractive credit
opportunities etc.
The firm loses its reputation when it is not in a position to honor its short term
obligations. As a result the firm faces tight credit terms.
An enlightened management should, therefore, maintain the right amount of working
capital on the continuous basis. Only then a proper functioning of business operations
will be ensured.
Sound financial and statistical techniques, supported by judgment, should be used to
predict
the quantum of working capital needed at different time periods. A

firms net working capital position is not only important as an index of

liquidity but it is also used as a measure of the firms risk. Risk in this
regard means chances of the firm being unable to meet its obligations
on due date. The lender considers a positive net working capital as a
measure of safety. All other things being equal, the more the net
working capital a firm has, theless likely that it will default in meeting
its current financial obligations. Lenders such ascommercial banks
insist that the firm should maintain a minimum net working capital
position.

CHAPTER-3
COMPANY PROFILE

ABOUT ITI LIMITED

ITI Limited (Formally known as Indian Telephone Industries) is the first
public sector enterprises. It was established in 1948 just after the
independence. The first ITI setup at Bangalore. The products of ITI are
extensively integrated into the national telecom network and have
established a track record for dependability contributing over 70%of the
existing Indian Tele communication infrastructure.
With its focused technical expertise, targeted reach out capabilities and
network excellence, ITI has India's only vertically integrated telecom
profile; seven state of art manufacturing facilities; three innovative R&D
centers and a countrywide network of more than forty marketing/services
outlets.
In other words, ITI is a self-reliant company with adequate resources for
conceptualizing, designing, implementing and backing-up total telecom
solutions including annual maintenance contract for its varied customers.
Enriched with the experience of pioneering telecom
India, ITI offers leading edge technology through strong
in house R&D and select collaborations strategic
alliances

and

joint

ventures

with

global

leaders

underline ITI as an emerging power on the global

telecom

horizon,

ensuring

complete

reliable

communication anywhere, everywhere.

ITI LIMITED, MANKAPUR UNIT

(DIGITAL CITY OF INDIA)
Mankapur unit of ITI Ltd. was setup in year 1982 for manufacturing of
digital electronic switching equipment in collaboration with M/S CIT,
ALCATEL France to manufacture E10B type of switching system for the
first time in country.
This unit has been setup for in remote area to bring up socio-economic
growth in eastern part of U. P.
ITI Mankapur unit setup with an investment cost of Rs. 177.02 crores.
This unit is largely producing CSN-MM exchange. E10B type is a new
outdated and only repairing of this exchange is done here.
It has developed its own infrastructure facilities for water supply
configuration, medical, education, transport, telecommunication and
entertainment etc. There are 470 hostels, 3000 residential quarters.
Mankapur plant has exported products like subscriber connection
equipment, line cords, MDF, Tester and various other equipment.
The Units of I.T.I. Ltd. Are:Bangalore:- The major products are ESSCON PROJECT for Defense purpose, MSC
Products, CDMA (Handsets).
Palghat:- Scratching cards, GSM, MSE.
Naini (U.P.):- Latest Transmission equipment (ADSL).
Raibareily (U.P.):- B.T.S. and Power plant.
Mankapur (U.P.):- GSM, BTS, C-Dot and Landline communication.
Srinagar (Jammu & Kashmir):- Presently Shut Down.

CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
Working capital position of a firm is analysed so as to detect trends and take corrective
actions when the analysis indicates need for the same. A second reason for it is to see
what changes have taken place in the company over a period of time so that this
knowledge can be used in setting guidelines.
There are two important tools for analyzing the working capital position of an enterprise.
One is the funds flow analysis and the other is ratio analysis.
1. Funds Flow Analysis of Working Capital This analysis shows how funds have
been procured for a business and how they have been employed. This technique helps
to analyze changes in working capital components between two data. The comparison
of current assets and current liabilities, as shown in the balance sheet at the beginning
and at the end of a specific period, shows changes in each type of current assets as
well as the sources from which working capital has been obtained. However, this
technique does not throw light on the question whether the working capital is being
used most effectively and whether the current financial position of the enterprise has
improved.
2. Ratio Analysis of Working Capital This is the most commonly used technique
which deals practically with each and every aspect of working capital analysis. In this
technique, for each aspect of analysis certain ratios are computed and then results are
drawn on the basis of trends shown by them against those fixed as guide posts.
Various ratios are used in analyzing the various aspects of the working capital
position of an enterprise:
(a)Liquidity of Working Capital An analysis of the liquidity of working capital is
of use for both the short-term creditors and internal management or a business
enterprise. To the former it communicates - the chances of receiving payment at the
time of maturity, the margin of safety, if the unexpected should arise which may
indicate whether the working capital is sufficient, the extent to which a concern has
over- or under-invested the cash in its operating cycle. Two appropriate tests of this
important feature of the working capital analysis are to be found in the computation
of current and quick ratios. The details of the current and quick ratios have been
discussed in the chapter where ratios have been computed and analyzed.
(b) Circulation of working capital An analysis of circulation of working capital
highlights the efficiency which working capital is being utilized. For this purpose

various turnover ratios such as inventory turnover ratio, Receivables turnover ratio,
cash turnover ratio etc. are calculated which show efficiency of the use of working
capital in each or its components as well as on the whole. Generally the higher the
level of these turnover ratios, the smaller would be the working capital requirements
of an enterprise.

RATIO ANALYSIS:
1) Liquid Ratio: A firms ability to meet short term obligations when they become due
for payment can be measured through liquidity ratios. Liquidity is a perquisite to the
survival of the firm and reflects the short-term financial strength and solvency of a firm.
The liquidity ratios are:
1.1> CURRENT RATIO: This is the most widely used ratio. It is the ratio of current
assets and current liabilities. It shows a firms ability to cover its current liabilities with
its current assets. It expresses the relationship between current assets and current
liabilities and can be
expressed as follows:
Current ratio= Current assets- Current liabilities
Usually the actual current ratio, ascertain with the help of the relevant financial
figures, has
To be compared with the standard ratio of 2:1.

YEAR
2013
2014

TABLE NO. 1.1

CURRENT
CURRENT
ASSETS
LIABILITIES
245441
263475
242511
263790

CURRENT
RATIO
0.93
0.91

CHART NO. 1.1

INTERPRETATION:
The standard ratio for comparison is 2:1. In 2014 it is only 0.91 which means that
companys liquidity position in terms of current ratio is not that sound. However, higher
current ratio is not always favorable for the company. It may be implied that they have
excess cash or inventory which remains idle for long period due to which their fund may
be blocked or inventory may become obsolete.

1.2> Quick Ratio: It depicts the relationship between quick assets and current liabilities.
It refers to all current assets which can be converted in to cash at a short notice without
diminution of value. Thus current assets which are excluded in the calculation of quick
assets are prepaid expenses and inventories.
Quick Ratio = Quick Assets / Current Liabilities

YEAR

2013
2014

TABLE NO. 1.2

QUICK
CURRENT
ASSETS
LIABILITIES
243468
263475
240867
263790

QUICK RATIO
0.92
0.91

CHART NO. 1.2

INTERPRETATION:
The quick ratio is much more exacting measure than the current ratio to pay off the debt
of the company. The quick ratio of 1:1 is considered to be satisfactory. In 2013 and 2014
the companys position in terms of quick ratio was good but after that it started to fall
considerably which implies that the inventories might not be converted into cash and
therefore lead to reduction in quick ratio. It is also indicating that the major portion of
current assets is inventory.
1.3> Cash Ratio: Cash is the most liquid asset. A financial analyst examines the cash
Ratio and its equivalent to current liabilities in order to get the actual
liquidity position of the firm in case of contingency. Cash Ratio depicts
the relationship between cash andcurrent liabilities and shows the
ability of the firm to meet its current obligations with cash and cash
equivalents. Trade investments or marketable securities are equivalent
ofcash and therefore, may be included in the computation of cash
ratio. It can be calculated as:

Cash Ratio= (Cash and equivalent+ Marketable

Securities)/Current Liabilities

TABLE NO. 1.3

CASH

CURRENT

126
56

LIABILITIES
263475
263790

YEAR

CASH
RATIO
0.0004
0.0002

2013
2014

CHART NO. 1.3

INTERPRETATION:
The company is constantly facing liquidity threat. Cash has crunched and the company
needs to put more effort on the issue as it is much below the industry standard.
2> WORKING CAPITAL TURNOVER RATIO: Working capital ratio measures the
effective utilization of working capital. It also measures the smooth running of the
business or otherwise. The ratio establishes relationship between cost of sales/sales and
workingcapital. It is calculated with the help of following formula:
Working capital turnover ratio = Sales / Net Working Capital
Net Working Capital = Current Assets Current Liabilities

TABLE NO. 2
YEAR

SALES

2013

6175

NET
WORKING
CAPITAL
(18034)

WC
TURNOVER
RATIO
(0.34)

2014

8491

(21279)

(0.39)

CHART NO. 2

INTERPRETATION:
Conventionally a higher WC ratio means higher efficiency, but there is always a flipside
of the coin. Extremely high ratio may also be due to inadequate working capital. Since
the company has excess of current liabilities over current assets hence it is also
hampering the working capital turnover ratio of the company.

3> CAPITAL TURNOVER RATIO: Capital turnover ratio measures the

efficiency of
the management. Management efficiency through capital turnover
ratio is calculated by establishing the relationship between costs of sales with amount of
capital invested in the business. Capital turnover ratio is calculated with the help of the
following formula:
Capital Turnover Ratio = Sales / Capital Employed;
Capital Employed = Total Assets Current Liabilities

TABLE NO. 3
YEAR

SALES

CAPITAL

CAPITAL

EMPLOYED

TURNOVER
RATIO

2013
2014

6175
8491

60218
59627

0.10
0.14

CHART NO. 3

INTERPRETATION:
Capital turnover ratio during 2013-2014 is low which indicates the inefficiency of the
management. It must be due to poor financial position of ITI.
4> FIXED ASSETS TURNOVER RATIO: This ratio determines efficiency of fixed
assetsand profitability of a business concern. Higher the ratio more is the efficiency in
utilization of fixed assets. A lower ratio is the indication of underutilization of fixed
assets.
Fixed Assets Turnover Ratio = Net Sales / Net Fixed Assets

TABLE NO. 4
YEAR

NET SALES

NET FIXED
ASSETS

2013
2014

6645
8989

25159
24126

CHART NO. 4

FIXED ASSETS TURNOVER

RATIO
0.26
0.37

INTERPRETATION:
The fixed asset turnover ratio of the company is low which indicates the underutilization
of fixed assets.
5.> CURRENT ASSTES TURNOVER RATIO: This ratio determines efficiency of
current assets and profitability of a business concern. Higher the ratio more is the
efficiency in utilization of current assets. A lower ratio is the indication of
underutilization of fixed assets.
Current Assets Turnover Ratio = Net Sales / Current Assets

TABLE NO. 5
YEAR

NET SALES

CURRENT
ASSETS

2013
2014

6645
8989

245441
242511

CURRENT
ASSETS
TURNOVER
RATIO
0.02
0.03

CHART NO. 5

INTERPRETATION:
The current assets turnover ratio is inconsistent but since the variations are not too high, it
can be concluded that the current assets are being efficiently utilized.
6.> TOTAL ASSTES TURNOVER RATIO: This ratio determines efficiency of total
assets and profitability of a business concern. Higher the ratio more is the efficiency in
utilization of total assets. A lower ratio is the indication of underutilization of total assets.
Total Assets Turnover Ratio = Net Sales / Total Assets

TABLE NO. 6
YEAR

NET

TOTAL

TOTAL ASSETSTURNOVER

SALES

ASSETS

RATIO

2013

6645

2014

8989

323693
323417

0.020
0.027

CHART NO. 5

INTERPRETATION:
The total assets turnover ratio is not satisfactory and indicates the underutilization of the
total assets the reason same with that of the capital turnover ratio and fixed assets
turnover ratio.
7.> INVENTORY TURNOVER RATIO: Inventory Turnover Ratio indicates the
number of times the inventory is rotated during the relevant accounting period and
evaluates the efficiency with which a firm is able to manage its inventory. The ratio
indicates whether investment in stock is within proper limit or not.
ITR=COGS or Net Sales/Average Inventory

YEAR
2013
2014

TABLE NO. 7
NET SALES
AVERAGE
INVENTORY
6645
8989

(254.17)
81

INVENTORY
TURNOVER
RATIO
(26.14)
110.97

CHART NO. 7

INTERPRETATION:
Usually a high inventory turnover ratio indicates efficient management of inventory
because more frequently the stocks are sold; the lesser amount is required to finance the
inventory. Hence the consistent higher inventory turnover ratio is a good sign for a
company.
8.> GROSS PROFIT RATIO: This ratio depicts the relationship between gross profit
and net sales. It reflects efficiency with which a firm produces its products. As the gross
profit is found bydeducting cost of goods sold from net sales, higher the gross profit
better it is. The formula
for Gross Profit Ratio is:
GPR= (Gross Profit/Net sales)*100

TABLE NO. 10
YEAR

GROSS
PROFIT

NET SALES

2013
2014

0.00
0.00

6645
8989

GROSS
PROFIT
RATIO
0
0

INTERPRETATION:
The company has 0 gross profit ratio. More efforts are required to withstand against the
huge losses.

11.> OPERATING RATIO: Operating ratio shows the operational efficiency of the
business. Lower operating ratio shows higher operating profit and vice versa. An
operating ratio ranging between 75% and 80% is generally considered as standard for
manufacturing concerns. The formula for Operating Ratio is:
OR = [{COGS + Operating Expenses}/Net sales]*100

TABLE 11
YEAR

COGS+OPERATING
EXPENSES

NET SALES

OPERATING
RATIO

2013
2014

11240
16089

6645
8989

1.69
1.78

CHART NO. 11

INTERPRETATION:
The company needs to put more efforts to increase the operational efficiency of the
organisation. Since the standard is 75%-80% so greatest efforts are required in this in
order to attain overall efficiency and effectiveness.

10.> NET PROFIT RATIO: NP Ratio is used to measure the overall profitability of the
firm and hence it is very useful to the proprietors. The ratio also indicates the firms
ability to face adverse economic conditions such as price competition, low demand, etc.
Obviously, higher the ratio the better is the profitability. The formula for NP Ratio is:
NPR= (Net profit/Net sales)*100

TABLE 12
YEAR

NET PROFIT

NET SALES

NET PROFIT
RATIO

2013
2014

0
0

6645
8989

0
0

INTERPRETATION:
This indicates that the profitability of the firm in 2013 and 2014 is 0 and company is
incurring huge losses.

PROBLEMS, CAUSES AND SOLUTION

IN THE IMPLEMENTATION
PROBLEM:

Company takes lots of time for dispatching the goods.

Limited customers.
Limited Exports.
Company does not possess a proper budgeting and monitoring system.
Trading has increased whereas manufacturing has decreased which resulted in
decrease in contribution. With relation to fixed assets, the company has to incur
losses.

CAUSES:

Lack of proper management of inventory i.e. inventory lag period is high.

Lack of proper distribution network.
Low efficiency work force.
Lack of proper sales promotional scheme and advertisement.
Obsolete technology.
Fierce competition with global market.

SOLUTIONS :

Implementation of innovative technology in the company.

Proper inventory management should be followed.
Dedicated research and development people are needed.
Motivational classes should be arranged for the employees.
Proper training process is needed.
Internal transfer of the employee is needed.

CONCLUSION
In this study of working capital management of the company different ratios are
evaluated so as to measure the short term liquidity position of the company. The analysis
and interpretation of these ratios are summarized in the report clearly and precisely.
On the basis of above analysis this can be concluded that the short term liquidity position
of the company is sound enough though efforts need to be put to strengthen it more.
The liquidity ratios suggest that there is excess of current liabilities over current assets
which according to the standard norms are not a good sign for the company. But there is
also a flipside of the coin. The current assets are less due to the stringent credit policies of
the company due to which its debtors are very less and cash sales are very high. On the
contrary due to the strong market presence worldwide the company is able to get its
requirement on credit due to which the current liability of the company gets surmounted
which can be paid later on. Therefore this is implying a favorable position for the
company.
The turnover ratios of the company are suggesting a good position of the company. The
company also has negative operating cycle which implies that it has very effective
liquidity management. However, the assets turnover ratio indicates that the assets are not
effectively utilized. But this is also due to the heavy investment in expansion project
which was not able to earn revenue due to the problems related to mining approvals and
land acquisition.
The profitability ratios of the company are sufficient enough but there is always a room
for improvement.
The figures also suggest inadequate working capital but this might be
because of the above reasons. Hence, there is no doubt in the fact that
company is in a good position and continuously overcoming the
adverse situations. However more efforts are required to strengthen its
current position.

BIBLIOGRAPHY
BOOKS

Financial analysis by Prasanna Chandra

Financial Management by I M Pandey

WEBSITES

www.itilmt.com

www.wikipedia.com

www.indiantelephoneindustry.nic.in

www.economywatch.com