A STUDY ON

“WORKING CAPITAL MANAGEMENT”

With reference to
“THE NATCO PHARMA LIMITED”
Hyderabad
A Project Report Submitted to
Jawaharlal Nehru Technological University, Kakinada
In Partial fulfillment for the Award of the Degree of
MASTER OF BUSINESS ADMINISTRATION

Submitted By
RAJANA GANESH

(Regd. No: 176J1E0043)

Under the Guidance of

XXXXXXXXX
Assistant Professor

DEPARTMENT OF MANAGEMENT STUDIES

SIMHADHRI EDUCATIONAL SOCIETY GROUP OF INSTIUTIONS
(Approved by AICTE, Recognized by the Govt. of A.P. &
Affiliated to JNT University, Kakinada.)
Visakhapatnam.
(2017-2019)

DEPARTMENT OF MANAGEMENT STUDIES

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 SIMHADHRI EDUCATIONAL SOCIETY GROUP OF INSTIUTIONS
NARAPADU, VISAKHAPATNAM

CERTIFICATE
This is to certify that the project “A STUDY ON WORKING CAPITAL MANAGEMENT” with reference to “NATCO
PHARMA LIMITED”, HYDERABAD has been carried out byR.GANESHunder my guidance, and the project report
has not been submitted to any other university or institution any time before.

B.SATYA PRAKASH XXXXXX

(Head of the Department) (Project guide)

External Guide

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 DECLARATION

I hereby declare that this project report entitled “A STUDY ON

WORKING CAPITAL MANAGEMENT” with reference to ‘NATCO
PHARMALIMITED.’,HYDERABAD,hasbeen prepared by me in partial fulfillment of
requirement for the award of Degree of Master of Business Administration by
JNTU, KAKINADA.

I also hereby declare that this project is the result of my own effort and
that it has not been submitted to any other university for the award of any
degree or diploma.

Place: R.GANESH
Date: (Regd No: 176J1E0004)

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 ACKNOWLEDGEMENT

I take the responsibility to acknowledge the following distinguished

personalities who graciously allowed me to carry out this project work
successfully.
I express my profound regards to Dr. Dr. K. GOPI KRISHNAPrincipal of
Simhadhri Educational Society Group of Institutionfor providing an opportunity
to undertake this project work.
I am thankful to my project guide xxxxxx Assistant Professor, Simhadhri
Educational Society Group of Institutionwithout whose guidance and
encouragement this project would not have been completed. She is constant
source of inspiration throughout the project.
I am thankful to Mr. M.SUDHA MOHAN, HR Dept. , who gave me an
opportunity to do this project work.
Finally I would like to thank my family and friends who assisted me in
completing the project work.

R.GANESH

(Regd. No: 176J1E0043)

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 CONTENTS

Chapter No Contents Page No

CHAPTER-1
1.1 INTRODUCTION TO THE STUDY 1-3
1.2 NEED FOR THE STUDY 4

1.3 OBJECTIVES OF THE STUDY 5

1.4 METHODOLOGY OF THE STUDY 6

1.5 LIMITATIONS OF THE STUDY 7

CHAPTER-2
2.1 INDUSTRY PROFILE OF PHARMA 8-25
2.2 COMPANY PROFILE OF
NATCO PHARMA LTD 26-40

CHAPTER-3
3.1THEORETICAL FRAMEWORK OF
WORKING CAPITAL MGT 41-52

CHAPTER-4
4.1 DATA ANALYSIS AND INTERPRETATION 53-64

CHAPTER-5
5.1 SUMMARY 65
5.2 FINDINGS 66
5.3SUGGESTIONS 67
5.4CONCLUSION 68

BIBLIOGRAPHY 69

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 CHAPTER – 1

INTRODUCTION

1.1Introduction to the study

1.2Need for the study
1.3 Objectives of the study
1.4 Methodology of the study
1.5 Limitations of the study
1.6 Frame work of the study

INTRODUCTION
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 Financial management is that activity which is concerned with the planning and controlling
of the firm’s financial resources. It was a branch of economics till 1890, as a separate activity
discipline of recent origin. Still, it has no unique body of knowledge of its own and draws
heavily on economics for its theoretical concept even today.

Financial management is managerial activity, which is concerned with planning and

controlling of firms financial resources. Theory of financial management provides conceptual
and analytical insight to make decisions relating to financial aspects of organization skillfully.

DEFINITIONS OF FINANCIAL MANAGEMENT:-

“Financial management is concerned with the efficient use of an important economic

resource, namely capital fund”.
--- Soloman
“Financial management deal with procurement of funds and their effective utilization in the
business”.
--- S.C.Kuchhal
“Financial management is concerned with the managerial decisions that result in the
acquisition and financing of short term and long term credits for the firm”.
--- Phillippatus
From the above definitions, we can understand that there are, two basic aspects of financial
management viz., ‘procurement of funds’ and effective use of these funds’ to achieve
business objectives.

SCOPE OF FINANCIAL MANAGEMENT

The importance of financial management cannot be over emphasized. Some people think that
financial management is useful only in private enterprises. This is not true, infect a sound
financial management is essential in all types of organizations whether profit or non-profit,
where funds are involved.

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 Even in boom period, when a company makes high profits, there is a danger of
liquidation, because of bad financial management. Infect the main cause of liquidation of
such companies is either over-trading or over-expanding without an adequate financial base.
Financial management essentially optimizes the output from the given input of funds.
It attempts to use the funds in the most productive manner.

If proper financial management techniques are used, most of our enterprises can
reduce their capital employed and improve their return on investment. A sound sense of
financial management has to be cultivated among our bureaucrats, administrators, engineers,
educationists and public at large. Unless this is done the colossal wastage of the scarce capital
resource of our country cannot be stopped.

OBJECTIVES OF FINANCIAL MANAGEMENT

Efficient financial management requires the existence of some objectives or goals
because judgment as to whether or not a financial decision is efficient must be made in the
lights of some objectives of financial management.

These are:
Profit maximization
Wealth maximization

PROFIT MAXIMIZATION:
It has traditionally been argued that the objective of a company is to earn profit; hence the

has to make his decisions in a manner, so that the profits of the concern are maximized. If
profit is given undue importance that a number of problems can arise, they may

 The term profit is vague. It does not clarify what exactly it means.
 Profit maximization has to be attempted with a realization of risk involved. Higher the
risk, higher is the possibility of profit.
 Profit maximization as an objective does not take into account the time pattern of
return.
 Profit maximization, as an is too narrow. It fails to take into account the social
consideration.

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WEALTH MAXIMIZATION:

Value of firm is represented by the market price of company’s stock.

AN OVERVIEW OF FINANCIAL MANAGEMENT

Financial Management

Maximization of share value

Financial Decision

Investment Financing Dividend Liquidity

Decision Decision Decision
The fi

Trade-Off
Return Risk

FUNCTIONS:
It may be difficult to separate the finance functions from production, marketing and other
functions, yet the functions themselves can readily identified. The function of raiding funds,
investing them in assets and distributing returns earned from assets to shareholders are
respectively known as financing, investing and dividend decisions. While performing these
functions, a firm attempts to balance cash inflows and outflows. This is called liquidity
decision.
Finance functions or decisions include :
Investment or long term – mix decision.
Financing or capital – mix decision.
Dividend or profit allocation – mix.
Liquidity or short –term asset –mix decision.

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Investment Decision :
Investment decision or capital budgeting, involves the decision of allocation of capital
or commitment of funds to long-term assets that would yield benefit in the future. Two
important aspect of investment decision are:

a)Evaluation of prospective return on new investment.

b)The measurement of a cut-off rate against that the prospective return of new
investment.
Investment proposal should therefore be evaluated in terms of both expected return and risk.

Financing Decision :
Financing decision is the second important function to be performed by the financial
manager. The main issue is to determine the proportion of equity and debt. The mix of debt
and equity is known as the firm’s capital structure. The financial manager must strive to
obtain the best financing mix or the optimum capital structure for the firm. The firm’s capital
structure is considered to be optimum when the market value of share is maximized. A proper
balance has to be struck between return and risk.

Dividend Decision :
The financial manager must decide whenever the firm should distribute all profits, or
retain them, or distribute a portion and retain the balance. Like the debt policy, the dividend
policy should be determined in terms of its impact on shareholders value.

The optimum dividend policy is one that maximize the market value of the firm’s share. The
financial manager must determine the optimum dividend payout ratio. The payout ratio is
equal to the percentage of dividends to earnings available to share holders.

Liquidity Decision:

Investment in current assets affects the firm’s profitability and liquidity. Current
assejts management that affects a firm’s liquidity is yet another important finance function.
Current assets should be managed efficiently for safeguarding the firm against the risk of
illiquidity. Lack of liquidity (or illiquidity) in extreme situations can lead to the firm’s
insolvency. A conflict exists between profitability and liquidity while managing current

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assets. If the firm does not invest sufficient funds in current assets, it may become illiquid and
therefore, risky. But it would lose profitability, as idle current would not earn anything. Thus,
a proper trade-off must be achieved between profitability and liquidity. The profitability-
liquidity trade-off requires that the financial manager should develop sound techniques of
managing current assets.
.

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 NEED FOR THE STUDY

Working capital refers to current assets of the company that are changed in the

ordinary course of business and one firm to another, for instance from cash to inventories,

inventories to receivables, receivables into cash.

It refers to the firm’s investment in current assets. Current assets are the assets which

can be converted in to cash within the accounting year and include cash, short-term securities,

debtors, bills receivables and stock.

When current assets exceed. Current liabilities, the working capital are positives.

Working capital is needed for financing current assets.

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 OBJECTIVES OF THE STUDY

To analyze the working capital management strategies of NATCO PHARMA LIMITED

To study the entire working capital cycle of the firm.

To find out the working capital policies and procedures of the firm.

To analyze the company’s receivables, cash, inventory techniques.

To examine the cash management policies through liquidity ratios.

To analyze the inventory management in the firm through inventory turnover ratios.

To study the liquidity position through cash inflows, outflows of the company.

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 SCOPE OF THE STUDY

1) The study is based on company analysis.

2) The study is based on five consecutive years from 2013-17.

3) The trend is in ratio analysis and comparative analysis.

4) The study is only for two months period of time.

5) The study is related with various aspects of working capital like current assets, current
liabilities.

6) The information collected from primary data and secondary data.

7) The calculation may be done in various analyses through some selected

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 METHODOLOGY

For the preparation of a project the collection of data is very essential. There are two broad
methods, from which date is to be collected. They are primary data and secondary data.

Sources of Data

Primary Data Secondary Data

PRIMARY DATA:
This is a firsthand data, which is collected using various data collecting methods such as
observation methods, interviews, questionnaire, schedulers and other methods such as
warranty card etc.
In this research study the primary data is collected through discussions with the senior
finance staffs of the company.

SECONDARY DATA:
In research, secondary data is data collected and possibly processed by people other than the
researcher in question. Secondary data is data which is gathered from primary sources to
create new research. In terms of historical research, these two terms have different meanings.
A primary source is a book or set of archival records. A secondary source is a summary of a
book or

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 LIMITATIONS OF THE STUDY

1. The study is based on the working capital analysis.

2. The source of the study is limited to 5 years from 2012-13 to 2016-17.

3. The information collected through personal interaction with the management is

strictly on fined to their views.

4. The study of working capital does not reflect the whole financial position of the
organization.

5. Major part of the study is based on secondary data.

6. The time duration for the project is only 8 weeks. So the study was unable to cover
all related fields.

7. The data available is still scarce for calculating various important ratios.

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 CHAPTER -2

INDUSTRY PROFILE
OF
PHARMA

COMPANY PROFILE
OF
NATCO PHARMA LTD

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 INDUSTRY PROFILE
A Global Pharmaceutical Industry Report:
The global pharmaceutical industry is a multinational industry that is a highly regulated,
capital intensive, and which is driven by large research and development expenditures. The
industry is primarily privately owned and is technologically sophisticated. The global
pharmaceutical market is forecasted to grow to US$ 842 billion in 2010, an equivalent CAGR
of 6.9% over the next five years. The strong growth in the ten European market that joined
the European Union in 2004 will help to boost European sales over the next five years. Of the
leading product classes in 2005, cytostatics and angiotensin-II inhibitors generated the
greatest year on year growth. There were sixteen blockbuster drugs in 2005, generating
combined sales of US$ 18.1 billion. The total pharmaceutical sales from the top ten
companies accounted for more than 40% of the total market.

Despite a growth rate of 7% down sliding from 2004 and the lowest since 1998, in 2005 the
total global pharmaceutical sales reached US$602. Among the ten leading international
markets combined, which account for 81% of world wide sales, audited growth was just
5.7%, down from 7.2% in 2004. Emerging markets such as China, South Korea, Brazil,
Russia and Turkey experienced double-digit growth signaling an important shift occurring in
the pharmaceutical industry. As growth in the mature markets flatten, industry attention is
shifting to smaller, developing markets that are doing exceptionally well. Many of these
developing nations are experiencing significant gross domestic product growth which helps
finance the healthcare systems, increase patient access and fuels the double digit growth.
Pharmaceutical measures are gearing up to the challenges of meeting the unmet needs of
these markets.

Growth in the global pharmaceutical industry is expected to slow in 2008, marked by slowing
growth in the United States and other major markets. At the same time, pharmaceutical
industry growth in emerging markets is expected to reach double-digits, although these
markets still represent a small percentage of global pharmaceutical sales. And 2008 will see
continued growth in both generic and specialty drugs.

The global pharmaceutical market is projected to increase between 5 and 6% in 2008 to reach
$735–745 billion, according to IMS Health (Norwalk, CT). This pace is down from growth of

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6–7% in 2007. In the US and the five largest European markets, sales growth in 2008 is
projected at 4–5%, marking a historic low for the US market, according to IMS.

“ In several respects, 2008 marks an important inflection point for the global pharmaceutical
market,” says Murray Aitkin, senior vice-president of Healthcare Insights at IMS Health, in a
company release. “For the first time, the seven largest markets will contribute just half of
overall pharmaceutical growth, while seven emerging markets will contribute nearly 25% of
growth worldwide.” These seven emerging markets (Brazil, China, India, Mexico, Russia,
South Korea, and Turkey) are expected to grow 12–13% next year to $85–90 billion,
according to IMS.

Indian Pharmaceutical Industry

Global pharmaceuticals market is of US$500bn growing at about 9% a year with North
America as the largest market accounting for almost half the total global sales. Europe and
Japan follows next. USA is also the largest generics market in the world estimated at around
US$17bn and growing at about 14%. India currently accounts for less Than 8% of the
world's pharmaceutical consumption and is the fifth largest producer of pharmaceutical
products in the world.
Pharmaceutical industry in India is highly fragmented with about 24,000 players around 330
in the organized sector and remaining in the unorganized sector. The industry comprises
large, medium and small-scale operators out of which some 330 companies' together account
for nearly 90 per cent of the domestic market, while the rest is accounted for by a large
number of small companies. The top ten companies make up for more than a third of the
market. The revenues generated by the industry are approximately US$ 7 bn and have grown
at an average rate of 10% over last five years. The Indian Parma industry accounts for about
1 % of the world's Parma industry in value terms and 8% in volume terms. The largest
formulation players occupies market share of less than 6%. The industry manufactures about
400 bulk drugs and almost the entire range of formulations. About a third of India's
production - close to US $ 3.5 billion - is exported and exports are growing at 25% per
annum. Half a billion dollars worth of exports is to the US alone, while Germany, Russia, the
UK, Canada, Italy and Japan are amongothers.

The signing of the Trade Related Intellectual Property Rights (TRIPS) agreement in 1995,
which committed India to honor the WTO mandated product patent regime from 2005,

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marked the beginning of a fresh chapter in the industry's evolution and India has finally transited into
product patent regime from process patent. The Top 10 Indian companies in terms of Turnover are

S.No Company Name Turn Over Turn Over

(Rs core) (US Mill)
1 Ranbaxy Laboratories Ltd. 4243.00 987.00
2 Cipla Ltd. 2055.00 478.00
3 Dr. Reddy’s Laboratories Ltd. 1839.00 428.00
4 Nicholas Piramal India Ltd. 1440.00 335.00
5 Aurobindo Pharma Ltd. 1341.00 312.00
6
GlaxoSmithKline Pharmaceuticals Ltd. 1242.00
289.00
7 Lupin Ltd. 1233.00 287.00
8 Cadila Healthcare Ltd 1172.00 273.00
9 Sun Pharmaceutical Indus. Ltd. 936.00 218.00
10 Wockhardt Ltd. 767.00 178.00

MAJOR PLAYERS

Cipla Limited
The Chemical, Industrial & Pharmaceutical Laboratories which came to be popularly known
as Cipla was founded by Dr K.A. Hamied in 1935. A Mumbai-based company currently Cipla
is a leading domestic Indian pharmaceutical company with a market share of about 5.85% and
crossed Rs20bn mark in revenues during FY04

Cipla's businesses are broadly divided into the following segments:

 Formulations
 Bulk drugs & Intermediates
 Technology services

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Ranbaxy Laboratories
Established in 1961, Ranbaxy Laboratories is India's largest pharmaceutical and ranks 9th
worldwide as a generics drug manufacturer. The company went public in 1973 and began the
first of its several strategic alliances through a joint venture in Nigeria in 1977. The Ranbaxy
research foundation was initiated in 1985 and several more production facilities were in
place by 1987. Its plant in Toansa, Punjab, which is the largest manufacturer of antibiotics,
got US FDA approval in 1988. By 2005, Ranbaxy had opened its third state-of-the-art R&D
facility in India and also entered the Canadian market. The company has strong growth rates
with an expanding international presence in the USA, UK, France, Germany, India, China,
Brazil etc. Ranbaxy leverages its Indian competitiveness to launch quality products into
global markets.

Ranbaxy Laboratories Limited has managed to lead the industry and strengthen its global
presence by successfully implementing the following Market Busine moves

 Radically improve the productivity

 Capitalize on second-order effects of shifts in constraint

Glen mark Pharmaceutical

Glen mark Pharmaceuticals Limited (Glen mark) was established in 1977 in Mumbai (India)
and was listed on the Indian bourses in 1999.The company is actively engaged in New Drug
Discovery Research, the major areas of research being inflammation and metabolic
disorders. Glen mark is a key player in the development, manufacturing and marketing of
Branded Generic and Generic Drug Formulations and API (active pharmaceutical
ingredient). It has presence in over ten therapeutic segments with a strong product portfolio
in dermatology, pediatrics, gynecological, anti-diabetes, and cardiovascular. Its API
Manufacturing facilities are located at Ankles war, Kurkumbh and Soapier and its generic
formulation is located at Goa, Baddi and Nasik.The Success factors of Glenmark include
Leveraging strategic partnerships and Product development with the API advantage.

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GlaxoSmithKline (GSK)

It is the number one prescription generator in India. It is ranked first by general/consulting

physicians and general surgeons. With an overall market share of 6.5 per cent, the company
has held a leading position in the Indian market for over last two decades. It enjoys the
highest sales force among global MNCs in India. GSK's coverage spans over 9 segments,
with top ranking in 8 out of 12 doctor segments. It is the leader in anti-infective, anti-
inflammatory, analgesic, gastroenterological, ant allergic and dermatological
(corticosteroids) segments.

Cadila Healthcare Limited

Cadila Healthcare Ltd., the flagship company of the Ahmedabad based Zydus Group, is one
of the top five pharmaceutical companies in the domestic formulations market, with a market
share of 3.85%. It is also a leading producer of bulk drugs. The company headed by Mr.
Pankaj Patel, Chairman& MD, comprises of nine subsidiaries and two IV companies namely
Zydus Atlanta and Sarabhai Zydus. While Zydus Atlanta manufactures intermediates of
Pantoprazole and conducts clinical research on new molecules, Sarabhai Zydus is the leading
animal health care company in India.

The Company's activities comprises of:

 Manufacturing and marketing of domestic formulations.

 Manufacturing bulk drugs and API
 Contract manufacturing services

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 COMPANY PROFILE

BANJARA HILLS,
HYDERABAD.
: AUTHORISED 10,00,00,000

1. COMPANY : NATCO PHARMA LTD

2. NATURE : PRIVATE LTD
3. DATE OF INCORPORATION : 19-09-1981
4. PLACES OF REGISTRATION : ANDHRA PRADESH
5. LOCATION : ADMN OFFICE
NATCO HOUSE,
ROAD NO 2,

6. SHARE CAPITAL
7. Current turn over above US$ 100 million.
NATCO Pharma Limited is an Indian enterprise molded by global aspirations. This has
always demanded a preparedness and long- term organizational vision that can encompass the
turbulences and paradoxes of shifting terms and terrain's of business.

Beginning: - NATCO PHARMA was promoted by Mr. V.C. Nannapaneni in the year 1981 as
a Private Limited Company to be in the business of Research, Developing, Manufacturing
and Marketing of Pharmaceutical Substances and Finished Dosage forms for Indian and
International markets. NATCO PHARMA began operations in 1984 in Andhra Pradesh, India.

The Journey: - NATCO PHARMA was ranked 82nd in sales among Indian Pharmaceutical
companies in 1994. NATCO also has the credit of being one of the largest contract

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manufacturers in India. Some of the well-known companies like Ranbaxy, Dr. Reddy's
Laboratories, and John Wyeth etc. get their products manufactured. Today: -

NATCO PHARMA LIMITED, which began its operations as a single unit with 20 employees,
today has four manufacturing facilities and employs around 1500 people. It has an on-line
data for analysis and decision making. Consistently ranked among the fastest growing
pharmaceutical companies in the country, Natco is utilizing its collective experience to kick
start its future plans as a global company. Respected for Quality, Performance, Care,
Responsibility and for creation and maximization of wealth for its Shareholders NATCO

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Pharma Limited, the post-merger organization represents a strategic stage in NATCO’s

constant evolution as the Complete Pharma Company. MISSION:

An Indian pharmaceutical industry, with significant international presence. Today it is more

innovative and active than ever across the entire spectrum in pharmaceuticals - from basic
research, bulk actives & intermediates to finished dosage forms and clinical trials. In the
emerging industry patterns of the twenty-first century, based on new technologies, NATCO
recognizes that innovative product development has to be complemented with cost effective
therapeutic solutions to address a better informed and a more demanding fraternity. To
achieve this, the company has harnessed all its strengths – compact productive teams, modern
facilities. It commands over chemical technologies and economies of Scale - into a synergistic
organic entity, continuously creating and nurturing high quality products and technologies.
NATCO believes that in the new order of symbiotic drug industry, it will emerge a powerful
player with specialized skills to address encompassing opportunities in pharmaceuticals.
Attracting industry leaders with the constancy of its purpose. NATCO's emergence from a
major business re-engineering exercise further fuels its ambition to be among the select top
leaders in the industry with the power to turn shared DREAMS into REALITY. VISION
NATCO will be the global organization most respected for quality, service and social
commitment in health care and other areas of business.
NATCO is a group of companies associated with
1. NATCO PHARMA LIMITED
2. NATCO PHARMA DIVISION
3. NATCO CHEMICAL DIVISION
4. TIME CAP PHARMA LABS PVT.LTD
5. K.N. BIOTECH PVT.LTD
6. NATCO CHEMICAL AND R&D DIVISION
MANUFACTURING FACILITIES
FORMULATION
PARENTERALS
BULK DRUGS
R&D

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MANUFACTURING LOCATIONS:
KOTHUR:
The company has one manufacturing factory at Kothur, situated in 52, 80 sq. m site.
This factory has attained the ISO-9002, 14002 certification and it is engaged in the
manufacturing of tablets, capsules, liquids and drug syrups.
The biotechnology unit of NATCO is located at Kothur. This factory is one of the
few factories available in India, which manufactures fungal diastase for digestive image. It is
equipped with one of the finest equipments and technology. MEKAGUDA:

This factory is a chemical division located at Mekaguda spread over 100 acres; this
factory incorporates the latest technology and immense capacities. It is one of the latest
synthetic bulk activities manufacturing units in India. This factory also possesses an effluent
treatment plant which adds miles in the direction of being environmentally friendly.
NAGARJUNA SAGAR:
This factory is a parental division located at NagarjunaSagar, which is around 180km
from Hyderabad. This factory is one of the biggest single unit manufactures for the
manufacturing of small and large volume parentarals.

SANATH NAGAR:
This is chemical and R&D division located at Sanathnagar, Hyderabad. It is the
only manufacturing factory in India that manufactures the world’s best known anti depressant
fluoxetine, HCL. It also manufactures other bulk drugs including isosorbides etc.
INFRASTRUCTURE:
30,000 sq. ft of Laboratory Space.

30,000 sq. ft space available for further expansion.

7 Laboratories for synthesis

4 Laboratories for analytical method development and analytical instrumentation.

A Laboratory for natural actives and Biotech oriented research.

Centralized library housing over 3000 books, journals, periodicals etc.

Computer Database for on line literature search and patent scan.

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RESEARCH AND DEVELOPMENT:
NATCO`s research and development effort is multi disciplinary. With the help of
NATCO research centre, centralized support, networking and integration of group
requirements is facilitated. The center has a core team of dedicated scientists backed by
advanced facilities and equipments. Currently R&D is involved in the development of new
controlled release drug delivery system which include specialized gels, micro/nano
sponges and liposomes technologies. The company conducts research in peptide synthesis
through fermentation process, microbiological and through stain improvement techniques are
also undertaken.

NATCO has been sanctioned an assistance of Rs.130 lakhs under the SPONSEREDRE
SEARCH AND DEVELOPMENT PROGRAMME(SPREAD) by industrial credit and
investment corporation of India for carrying research projects in association with leading
National Research Labs.

NATCO conducts research in peptide synthesis along with Center for Cellular and
Molecular Biology, Hyderabad. NATCO works in close collaboration with Central Leather
Research Institute, Madras for the development or oral vaccines.

NATCO has entered in strategic alliance with Hyderabad Central University and Birla
Institute of Technology and Science, Pilani to conduct research in the field of Synthetic
chemistry.

NATCO out sources selective research and development project to Nizam`s Institute of
Medical Sciences, Hyderabad.
OPERATIONAL REVIEW & FUTURE OUTLOOK
NATCO is the current leader in Oncology segment. Generic formulations from NATCO are
launched in USA, Canada and few countries in EU.

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FINISHED DOSAGE FORMULATION DIVISION-

The finished dosage formulation unit has turned out exceptionally good performance,
basically driving by the oncology segment. The company continues to make in road into the
segment and now starts as number one in terms of revenues, from amongst the Indian
companies operating in the segment. Revenues from this segment have crossed Rs. 6 crores
per month and are likely to grow further. During the year 2012-13 revenue from the oncology
segment alone grew to rupees 56 crores from rupees 33 crores during 2006. Revenues from
the formulation division grew to rupees 102 crores. The year 2007 witnessed the launch of
number of products both in oncology and non-oncology segments.

Some of the significant launches include BANDRONE (injection and tablets) and
BORTENNTS & PAMNAT injections in the oncology segments and anorest tablets in non-
oncology segments.
The company has also launched TARANA, world class oral contraceptives for
women, with fewer side effects. It is a combination of drospironene 3mg and ethinylestradlol
0.03mg. it is first international brand.

Finished Dosage Facility:

1. US FDA
2. UK, MHRA
3. TGA,AUSTRALIA
4. HEALTH CANADA
5. GERMAN HEALTH AUTHORITY
6. DANISH HEALTH MINISTRY
7. INFARMED PORTUGAL
8. GREECE HEALTH AUTHORITY
9. BYELORUSSIAN HEALTH MINISTRY

Bulk Activities Facility:

1. US FDA
2. GERMAN HEALTH AUTHORITY
3. TGA, AUSTRALIA

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EXPANSION, GLOBALIZATION AND DIVERSIFICATION:

NATCO as a part of globalization plant finalized an investment proposal for setting up a

formulation unit in New Jersey, USA at an estimate cost of US $ 6 Million. The EXIM Bank
of India is likely to fund team loan finance equivalent to US $ 4.08 Million and the company
will invest the balance. The proposed US project is expected to be highly beneficial to the
company both financially and technologically, besides earning foreign exchange to our
country.

INTERNATIONAL BUSINESS:
NATCO pharma services markets are across the globe. Some of the countries where its
presence is felt are USA , UK, Canada, Columbia, Brazil, Spain, Denmark, Ireland, Greece,
Bangladesh, China , Hong Kong, Belgium, Russia, Cyprus, Pakistan, Italy, South Africa,
Egypt, Poland, Australia etc.

NATCO pharma is one of the first Indian companies to set up a unit in USA: NATCO
PHAMALLIC (New Jersey)

The exports have shown a study increase in previous years. NATCO pharma production
facility has received the World Health Organization (WHO) Certificate for maintaining good
manufacturing practice (GMP).

NATCO pharma has a distinction of launching the formulations of Samaritan the first
Anti Migraine for the first time in Asia. NATCO pharma is one of the first Indian Companies
to have achieved ISO 9002 certification for its quality standards.

NATCO pharma has pioneered and developed the concept of time-release dosage
preparation for which it has earned enormous goodwill in India. The company today is
specially recognized with time –release preparation.

29 | P a g e
NEW PROJECTS
“Future-Focused Organizations understand core competencies not to mean repetitive
activities that have meant past profits ;but the ability to concentrate in undisputed streams
towards new frontiers , the collective experience of a radical past’’.

To connect to respond to galvanize accumulated momentum on to terrain that

unleashes its full potential.

This is what the credo of NATCO demands. Into its second decade NATCO`s new projects
display tenacity whose fruitfulness thus far guarantees a rewarding future.

PRODUCTS OF THE COMPANY:

1. PHARMA

2. SOLID THOMORS

30 | P a g e
1. Pharma
Brand
TIGI
Name
Active
Tigecycline
Ingredients
Strength 50 mg
Dosage Lyophilized powder in
Form vial
Retail
Vial
Pack

Brand
URINAT
Name
Active
TamsulosinHcl
Ingredients
Strength 0.4mg
Dosage
Capsules in blister pack
Form
Retail Pack 10's

Brand
PRIMANAT
Name
Active
Imipenem and Cilastatin
Ingredients
Strength 500 mg
Dosage
Lyophilized powder in vial
Form
Retail Pack Vial

31 | P a g e
Brand
AMINAT
Name
Active
Amikacin
Ingredients
Strength 100mg, 250mg, 500mg
Dosage
Solution in vial
Form
Retail
Vial
Pack

Brand
VORIZOL
Name
Active
Voriconazole
Ingredients
50mg, 200mg & 200mg
Strength
Inj
Dosage Tablets in aluminium
Form strip
Retail
10's / 4's / Vial
Pack

Brand
NATCLOVIR
Name
Active
Ganciclovir
Ingredients
Strength 250mg Caps, 500mg Inj
Capsule in aluminium
Dosage
strip, Lyophilized
Form
powder in vial
Retail
10's / Vial
Pack

32 | P a g e
Brand
NATFLU
Name
Active
Oseltamivir
Ingredients
Strength 75 mg
Dosage
Capsules in bottle
Form
Retail
10's
Pack

Brand
X-VIR
Name
Active
Entecavir
Ingredients
Strength 1 mg, 0.5 mg
Dosage
Tablets in plastic bottles
Form
Retail Pack 30's

Brand
BUNIDE CR
Name
Active
Budesonide
Ingredients
Strength 3 mg
Dosage
Capsules in bottle
Form
Retail
30's
Pack

33 | P a g e
 Brand
OMENAT
Name
Active
Omeprazole
Ingredients
Strength 40 mg
Dosage Lyophilized powder in
Form vial
Retail
Vial
Pack

Brand
NATZOLD
Name
Active
Zoledronic acid
Ingredients
Strength 5 mg
Dosage
Infusion solution
Form
Retail
Bottle
Pack

Solid Tumors

Brand
GEFTINAT
Name
Active
Gefitinib
Ingredients

Strength 250mg

Dosage Tablets in Plastic bottles,

Form Tablets in blister Pack

Retail Pack 10's, 30's

34 | P a g e
Brand
PEMNAT
Name
Active
Pemetrexed
Ingredients
Strength 100mg

Dosage
Lyophilized powder in vial
Form
Retail Pack Vial

Brand
FULVENAT
Name
Active
Fulvestrant
Ingredients
Strength 250mg

Dosage
Solution in vial
Form
Retail Pack Vial

Brand
XTANE
Name
Active
Exemestane
Ingredients
Strength 25mg

Dosage
Tablets in bottle
Form
Retail Pack 30's

35 | P a g e
Brand
TEMONAT
Name
Active
Temozolomide
Ingredients
Strength 20mg, 100mg, 250mg

Dosage
Capsules in bottle
Form
Retail Pack 15's, 5's, 5's

Brand
ZOLDONAT
Name
Active
Zoledronic acid
Ingredients
Strength 4mg

Dosage
Lyophilized powder in vial
Form
Retail Pack Vial

Brand
CANTRET
Name
Active
Altretamine
Ingredients

Strength 50mg tablets

Dosage
Tablets in aluminium strip
Form

Retail Pack 10's

36 | P a g e
Brand
DOCENAT
Name
Active
Docetaxel
Ingredients
Strength 20mg, 80mg, 120mg

Dosage
Lyophilized powder in vial
Form
Retail Pack Vial

Brand
ERLONAT
Name
Active
Erlotinib
Ingredients
Strength 25mg, 100mg, 150mg

Dosage
Tablets in plastic bottles
Form
Retail Pack 30's

37 | P a g e
Organizational Structure of NATCO Ltd.

38 | P a g e
 CHAPTER –3

THEORETICAL FRAMEWORK OF
WORKING CAPITAL MANAGEMENT

THEORETICAL FRAME WORK OF WORKING CAPITAL MANAGEMENT

39 | P a g e
A study on working capital management helps to identify need and adequacy of the extend
of working capital in a firm and how they are managing the components of working
capital.

According to 'Schaller Haley'-

Managing current asset require more attention them managing plant equipment
expenditure too large an investment in current assets means trying up capital that can be
used productively else where on the other hand too title investment can also be expensive.

The firm working capital refers to the capital required for day-to-day operations of a
business enterprise. It is represented by excess of current asset over current liabilities. All
these indicate that proper estimation of working capital requirement is a must for running
the business efficiently and profitability. The project is mainly based on study of working
capital management in NATCO PHARMA LTD.

Working capital may be classified in to two types they are, l. On the basis
of concept.
2. On the basis of time.

On the basis of concept:

Working capital is classified as, gross working capital & Net working
capital.
This classification is important from the point of view of the financial manager.
Two concepts are given below:

1. Gross working capital.

2. Net working capital.

Gross working capital:

It refers to the firm's investment in current assets. Current assets are the asset:
which can be converted in to cash with in an accounting year and include cash, short-ten"
securities, debtors, bills receivables and stock.

Networking capital:
40 | P a g e
 It refers to the difference between current assets and current liabilities Current
liabilities are those claims of out-siders, which are expected to mature to payment with in an
accounting year and include creditors, bills payable outstanding expenses.Net working capital
can be positive/negative. A positive working capital will arise when current assets exceed
current liabilities. A negative working capital occurs when current liabilities are in excess of
current assets.

The two concepts of working capital gross and net are not exclusiverather they have equal
significance from the management view point. On the basis of time working capital may be
classified as,

1. Permanent /Fixed working capital.

2. Temporary/Variable working capital.

l. Permanent/ Fixed working capital:

This capital is the minimum amount, which required ensuring effective utilization of fixed
facilities and for maintaining the circulation of current assets. There is always a minimum
level of current assets, which is continuously required by the enterprise to carry out its normal
business operations. Shares, debentures, public deposits, loans from financial institutions are
some examples of fixed assets.

2. Temporary (or) variable working capital:

This capital is the amount of working capital, which is required to meet the seasonal
demands and some special exigencies. Variable working capital can be further classified as
seasonal and special working capital. Most of the companies have to provide additional
working capital to meet the seasonal and special needs. Commercial banks, indigenous
bankers, trade creditors installment credit advances, accounts receivable, credit/factoring,
accrued expenses, commercial paper are the examples of temporary for) variable working
capital.

IMPORTANCE OF ADEQUATE WORKING CAPITAL

41 | P a g e
 Working capital is the life blood and center of a business. Working capital is very
essential to maintain the smooth running of a business. No business can run successfully

without an adequate amount of working capital. Some of the advantages of working capital
management are given below.

1. Solvency of the business: Adequate working capital enable helps in maintaining

solvency of the business by providing the uninterrupted flow of production.

2. Goodwill:Sufficient working capital enables a business concern to make prompt

payments and hence help in creating maintaining goodwill.

3. Easy loans: A concern having adequate working capital high solvency and good
credit standing can arrange loans from banks and others on easy ant favorable terms.

4. Cash discounts: Adequate working capital also enables a concern to avail cash
discounts on the purchases and hence it reduces costs.

5. Regular supply of raw materials: Sufficient Working capital ensures regular supply
of raw materials and continuous production.

6. Regular payment of salaries .wages and other day-to -day commitments: A

company which has sample working can make regular payment of salaries, wages and other
day-to-day commitments which raises the moral of its employees, increases their efficiently
reduces wastages, costs, enhances production and profits.

7. Levitation of favorable market conditions: Its only concerns with adequate working
capital can exploit favorable market conditions such as purchasing its requirements in bulk
when the prices are lower and by holding its inventories for higher prices.

8. Ability to face crisis: Adequate working capital enables a concern to face business
crisis to in emergencies such as depression because during such periods, generally they're in
such pressure on working capital.

9. Quick and regular return on investments: Every investor wants a quick and regular
return on his investments sufficiency of working capital enables a concern to plough back
profits. These gain the confidence of its investors and create a favorable market to raise
additional funds in the future.

42 | P a g e
10. High morale: Adequacy of working capital creates an environment of security
confidence high moral and creates overall efficiency in a business.

NEED FOR WORKING CAPITAL

The need for working capital to run the day-to-day business activities cannot be over
emphasized. A firm should aim at maximizing the wealth of its shareholders. A firm should
earn sufficient return from its operations. Earning a steady amount of profit requires
successful sales activity. The firm has to invest enough funds in current assets for generating
sales current assets are needed because sales do not convert cash instant ancously. There is
always an operating cycle involved in the conversion of sales into cash.

Definition of Operating Cycle:

The time lag between the purchase of raw materials and the collection of cash for
sales is referred to as the operating cycle for the company. The time lag between the payment
for raw materials purchases and the collection of cash from sales is referred to as cash cycle.

Operating Cycle:

It refers to the time duration required to convert sales after the conversion of resources into
inventories, into cash. This cycle involved 3 phases.

Acquisition of Resources:

It refers from such as raw material, lab our, power and fuel etc.

Sales of the Product:

It refers from either for cash or on credit for credit sales create accounts receivable for
collection.

WORKING CAPITAL OPERATING CYCLE:

Investment in working capital is influenced by four key events in the

production and sales cycle. These events are: purchase of raw materials, payment for their
purchase, the sale of finished goods, and collection of cash for the sales made.

43 | P a g e
Operating Cycle of the Company:

The entire sequence of operations in a company can be summarized as follows:

The operating cycle for a company primarily begins with the purchase of raw
materials, which are paid after a delay representing the creditor's payable period.

These purchased raw materials are then converted by the production unit into
finished goods and then sold. The time lag between the purchase of raw materials and the sale
of finished goods is known as the inventory period.

 Upon sale of finished goods on credit terms, there exists a time lag between the sale of
finished goods and the collection of cash on sale. This period is known as the accounts
receivables period.

The operating Cycle can be depicted as:

 The stage between purchase of raw materials and their payment is known the
creditor’s payables period.

 The period between purchase of raw materials and production of finishing goods is
known as the inventory period.

44 | P a g e
 The period between sale of finished goods and the collection of receivables known as
the accounts receivable period.

 DETERMINANTS OF WORKING CAPITAL

There are no sets of rules or formulae to determine the working capital requirements
of firms. A large number of factors, each having a different importance, influence working
capital need so firms. An analysis of relevant factors should be made in order to determine
total investment in working capital. The description of factors, which generally influence the
working capital requirements of firms are.

 Nature of Business

 Sales and Demand Conditions

 Credit Policy

 Technology and Manufacturing policy

 Availability of Credit

 Operating Efficiency

ESTIMATING WORKING CAPITAL NEEDS

The most appropriate methods of calculating the working capital needs of a firm is the
concept of operating cycle i.e., a number of other methods may be used to determine working
capital needs in practice. There are 3 types of approaches applied.

CURRENT ASSETS HOLDING PERIOD

It estimate working capital requirements on the basis of average holding period of current
assets and relating them to costs and relating them to costs based on the company's
experience in the previous years. This method is essentially based on the operating cycle
concept.

45 | P a g e
 Ratio Of Sales:
To estimate working capital requirement as a ratio of sales on the assumption
that current assets change with sales.

 Ratio Of Fixed Investment :

Its estimate working capital requirement as a percentage of fixed investment.

 Management Of Cash :

Cash is the important current asset for the operations of the business possession of
cash is necessary because payment of bill has to be made in cash. If cash is not available in
sufficient quantity at proper time obligations cannot be made in time and the company will
become insolvent only cash management is required to maintain the liquidity position cash
management determines the important factor. Determination of the necessary minimum cash
balance arranging the method of collection and payment of cash in such a way that only
minimum balance is maintained to invest the surplus cash in temporary investments and that
investment differ from one to another.

Motives Of Holding Cash :

A distinguish feature of cash as an asset irrespective of the firm in

which it is held is that it does not earn any substantial return for the business. In spite of this
fact firm with the following holds cash.

Transactions Motive:

A form enters into variety of business transaction resulting in

both inflow and outflow of cash in order to meet the business obligations, it is necessary I
maintain adequate cash balance for meeting routine payment.

Speculative Motive:

A firm also keeps cash balance to take advantage of unexpected

opportunities typically outside the normal course of business, which is speculative,

46 | P a g e
ACCOUNTS RECEIVABLE MANAGEMENT

Trade credit creates book debts or accounts receivable. It is used as marketing tool to
maintain or expand the firm’s sales. A firm’s investment in account receivable depends on
volume of credit sales and collection period. Credit policy includes credit standards, credit
terms and collection efforts.

If the firm has soft standards and sells to almost all customers its sales may increase but its
costs in the form of bad debts losses and credit administration will also increase. The
incremental return, which a firm may gain by changing its credit policy, should be compared
with the cost of funds invested in receivables. The cost of funds is related to risk. Then it wills
increases. The goal of credit policy is to maximize the shareholders wealth it is neither
maximization of sales nor minimization of bad debt losses cash discounts are given for
receiving payments before than the normal credit period. A firm has to make efforts to collect
payments from customers.

INVENTORY MANAGEMENT

Inventories are stock of the product a company is manufacturing for sale and components that
make up the product. The various forms in which inventories exist in a manufacturing
company are raw materials; work in process and finished goods. The objective of inventor’s
management is given below. To maintain a large size of inventory for efficient and smooth
production and sales operations.To maintain a minimum investment in inventories to
maximize profitability.

TECHNIQUES

Managing inventories the firm’s objective should be in constantans with the shareholders
wealth maximization principle. Efficiently controlled inventories make the firm flexible.
Inventory control results in unbalanced inventory and inflexibility. This increases the level of
investment and makes the firm unprofitable.

CASH MANAGEMENT

Cash is required to meet a firm’s transactions and precautionary needs. The term cash
includes coins, currency, cheques held by the firm and balances in its bank accounts. Cash is

47 | P a g e
the most liquid; form of asset. It is the ready money available in the bank or with the
business, essential for its operations.

The following short-term investment opportunities are available to companies in India to

invest their temporary cash surplus. Treasury bills are short-term government securities. The
difference between the issue price and redemption price adjusted for the time value of money
is return on treasury bills.

Commercial papers are short-term unsecured securities issued by highly credit worthy large
companies. They are issued with a maturity of 3 months to 1 year. Earning per share are
marketable securities and therefore liquidity is not a problem. Certificates of deposits are
papers issued by banks acknowledging fixed deposits for a specific period of time.
Certificates of deposits are negotiable instruments that make them marketable securities. A
firm can deposit its temporary cash in a bank for a fixed period of time. The interest rate
depends on the maturity period. Money market mutual funds focus on short-term marketable
securities such as TBs, CPs, or call money, MMMFs, have been recently offered by Kothari
pioneer, UTI, IDBI. A minimum lock an investor can withdraw the money any time at a short
notice or even across the counter in some cases. A company needs cash for the following
three purposes:

CASH FLOWS:

The flow of cash into and out of the business over a period of time refers to cash flow. Cash
inflow can be in the form of cash received from customers, lenders and investors. Cash
outflow can arise as a result of payments made to employees (salaries), suppliers and
creditors.

Positives cash flow:

when cash inflow exceeds outflow it results in positive cash flows. Positive
cash flow is beneficial to the business, the only thing to be cautious about is the opportunity
cost, incurred as a result of id money.

Negative cash flow:

Negative cash flows arise when cash out flow exceeds in flows. This can be due to
various reasons. For example, if inventory management is not optimal; or the collection

48 | P a g e
Operating cash flows:

Operating cash flow, often referred to as working capital, is generated from internal
operations. It is the cash generated from the sale of a product or service of a particular
business. As it is the lifeblood of a business firm, it is monitored carefully.

Investing cash flow:

Investing cash flow is generated internally from non-operating activities. This component
would include investments in plant and equipment or other fixed assets, non-recurring gains
or losses, or other sources and uses of cash outside of normal operations.

Financing cash flow:

financing cash flow is the cash to and from external sources, such as lenders, investors and
share holders. A new loan, the repayment of a loan, the issuance of stock and the payment of
dividend are some of the activities that would be included in this section of the cash flow
statement.

CASH MANAGEMENT:

It involves the following:

 Identifying sources of cash flows.

 Identifying various avenues to invest surplus.

 Being prepared to meet any cash contingencies.

A cash crisis can be pre-empted by preparing cash budget. This involves short-term cash
forecasting (weekly, monthly and annually) to help manage daily a Cash and long term
(annual, 3-5 year) cash flow projections to develop the necessary capital strategy to meet
business needs

Cash Budgeting:

Cash budgeting includes short-term forecasting, which can be effectively managed by the
receipt and payment method. This method indicates the timing and magnitude of expected
cash flows over the

49 | P a g e
forecast period. To prepare a short-term cash flow projection under this method, the account
balance is added to the cash that is expected to be received within the period, and then cash
outflows during the same time period are subtracted

ABC Analysis:

Where there are a large number of items in the inventory it

becomes essential to have an efficient control over all items of stores. However comparatively
greater are should be given to the higher values.

The movement of certain service concern may consist of a small number of minor
portions of inventory value. The modem technique for collecting the inventory is a value item
analysis popularly known as 'ABC' analysis that attempts to relate how the inventory value
concentrate among the individual items

Category A: Which includes the most important item which represents about 60 to 70
percent of value of stores but constitute only 10% to l5% of items.

Category B: Which includes less important items representing an investment value of 20

to 25 percent and constitutes a similar percentage of items?

Category C: Which constitutes of the least important items of stores and constitutes 60
percent of stores item representing only a capital investment between 10 to 15 percent?

 EOQ Analysis :

A strategic factor in the inventory management is the consumption of the optimum size of
normal purchase order. Decision about how much to order has great significance in inventory
management the quantity to be purchased should neither be small nor big because costs of
buying and carrying material are very high. EOQ is the quantityofthematerial, whichcan be
purchased with minimum costs.

50 | P a g e
BILLS RECEIVABLE MANAGEMENT

Trade credit is the most prominent force of the modem business. Receivables constitute
a substantial portion of current assets of several firms. Granting credit and creating
debtors amount to the blocking of the firms funds. The interval between the date of sale
and date of payment has to be financial out of working capital. This necessities the firm
to set funds from bankers or other sources.

Thus trade debtors represent investment. The debtor's management important to the working
capital management of the firm. A firm grants the credit protect its sales from the competitors
to attract the patent customers. A firm's investment in accounts receivables depends to the
volume of credit sales and the collection period.

RATIO ANALYSIS

Ratio analysis is a widely used tool financial analysis. It is defined as the systematic use of
ratio to interpret the financial statement so that the strengths and weaknesses of a firm as well
as it’s historical performance and current financial condition can be determined

TYPES OF RATIOS:

Ratios for the purpose of working capital management can be classified into two
broad categories
Liquidity ratios
Turnover ratios

LIQUIDITY RATIO:
The liquidity ratios measure the ability of a firm to meet its short term obligations and
reflect the short-term financial strength/solvency of a firm. The ratios, which indicate the
liquidity of a firm, are :
Current ratio
Quick ratio
Cash ratio

51 | P a g e
 CURRENT RATIO:

It is used to measure the liability position of the concern and thus it reflects the short-term
solvency of the concern. In other words it shows the ability of the concern to meet all its
current obligations Alisha when there are during the short-term period. A high ratio can idle
capital and low ratio indicate lay out of inefficiency of working capital.

CurrentAssets
CurrentRatio
CurrentLiabilities

NOTE:
Inventories + sundry debtors +cash & bank balances + Loans
Current Assets = &advances of the company.

Current liabilities = Sundry creditors + unclaimed dividends + Deposits +

Interest accrued but not due on loans. + Provisions (proposed dividend + provision for tax on
proposed dividend + provision for income tax.)

 QUICK RATIO:

It determines by dividing assets and current liabilities. It is test of financial strength than the
current ratio Alisha it gives absolute position of SANGAM. The ratio is also an indication of
short –term solvency of the company. The idle ratio is 1:1. If the ratio is 1:1 then the working
capital is in good condition. If working capital increases the cost of production also increases.

Quick Ratio Current Asset Inventories

Current Liabilities

NOTE:

Current Assets = Inventories + Sundry debtors + Cash & Bank balances + Loans &
advances of the company.

Inventories = Stock of current year.

52 | P a g e
 Current Liabilities = Sundry creditors + Unclaimed dividends + Deposits + Interest
accrued but not due on loans + Provisions (proposed dividend +provision for tax on proposed
dividend + provision for income tax)

CASH RATIO: Cash is an important part in the business. Working capital depends on the
cash position; if cash decreases it determines bad financial position of the organization, if
cash is more it indicates good financial position of the organization.

Cash ratio cash Marketable securities

Current Liabilities.
TURNOVER RATIOS

Another Way Of Examining The Liquidity Is To Determine How Quickly Certain Current
Assets Are Converted Into Cash. The Ratio To Measure These Are Referred To As Turnover
Ratios.

Relevant Turnover Ratios Are ……

INVENTORY TURNOVER RATIO

DEBTORS TURNOVER RATIO

CREDITORS TURNOVER RATIO

WORKING CAPITAL RATIO

INVENTORY TURN OVER RATIO:

Inventory turnover ratio indicates the efficiency of the firm in producing and selling its
product. It shows how rapidly the inventory is turning in to receivables through sales.
Generally high inventory turnover indicates a good inventory management. A low inventory
turnover implies excessive inventory levels than warranted by production and sales activities,
or a slow- moving or obsolete inventory.

Costofgoodssold
Inventory turnover ratio
A var ageinventory

53 | P a g e
NOTE:

Cost of goods sold = Opening stock + Purchases + Direct expenses- Closing stock

Average inventory = Opening stock + Closing stock

2
DEBTORS TURNOVER RATIO:

It determines the liquidity of the form how quickly it shows debts are converted into
cash. If the debtor turnover is higher the better is t credit management of sales/debtors.

Netsales
DebtorsturnoverRatio
Averagedebtors
CREDITORS TURN OVER RATIO:

It is very important on the organization point of view because it helps to find the payment
period to creditors after purchases. It shows the financial position of the company to clear its
debts. It is opposite to debtors. Creditors is the first stage of the company i.e., purchases of
raw materials.

Cash ratio cash Marketablesecurities

CurrentLiabilities.
NOTE:

Purchases = Purchases of the company (subtract any returns)

Average creditors = Opening creditors + closing creditors

2
WORKING CAPITAL TURNOVER RATIO:

It indicates whether or not working capital has been efficiently utilized in making sales. In
case a company can achieve high volume of sales with relatively small amount of working
capital it is an indication of the operating efficiency of the company.

Sales = Sales of current year(subtract any adjustment)

Net W.C = Current assets – Current liabilit

54 | P a g e
Changes in Working Capital position of natco for the period of 2016 and 2017

Rs. In lakhs)
Particulars 2016 2017 Increase Decrease
Current Assets
Cash in hand 3.86 4.84 0.98 -
Cash at bank 908.26 550.16 - 358.10
Postage 0.054 0.04 - 0.009
Closing stock 2255.9 2334.80 78.98 -
Debtors 353.00 369.90 16.90 -
Advances & deposits 240.29 243.02 2.73 -
Total current assets 3761.36 3502.84
Current Liabilities
Deposits 342.20 344.69 - 2.47
Suspense 25.64 24.94 0.7 -
Creditors 30.93 57.54 - 26.61
Out standing expenses 540.46 399.15 141.31 -
P & L A/c 25.41 4.38 21.03 -
Total current liabilities 964.66 830.70 - -
Working capital (A-B) 2796.70 2672.14 - -
Net increased in working 124.56 124.56
capital
Total 2796.70 2796.70 387.19 387.19
Changes in Working Capital position of natco for the period of 2015 and 2016

(Rs. In lakhs)
Particulars 2015 2016 Increase Decrease
Current Assets
Cash in hand 3.08 8.61 5.53 -
Cash at bank 442.95 393.62 - 49.33
Postage 0.015 0.047 0.032 -
Closing stock 2222.92 2426.11 203.19 -
Debtors 210.66 148.75 - 61.99
Advances & deposits 244.96 249.40 4.46 -
Total current assets 3124.56 3226.53
Current Liabilities
Deposits 349.07 354.91 - 5.84
Suspense 27.10 24.10 3.00 -
Creditors 12.18 36.33 - 24.15
Out standing expenses 362.52 412.88 - 50.36
P & L A/c 5.10 7.66 - 2.54
Total current liabilities 755.97 835.86 - -

Working capital (A-B) 2368.59 2390.67 - -

Net increased in 22.08 22.08

working capital
Total 2390.67 2390.67 216.21 216.21
 Changes in Working Capital position of natco for the period of 2014and 2015
(Rs. In lakhs)

Particulars 2014 2015 Increase Decrease

Current Assets
Cash in hand 4.84 3.08 - 1.76
Cash at bank 550.16 442.95 - 107.21
Postage 0.044 0.015 - 0.028
Closing stock 2334.88 2222.92 - 111.96
Debtors 369.90 210.66 - 159.24
Advances & deposits 243.02 244.94 1.92 -
Total current assets 3502.84 3124.56
Current Liabilities

Deposits 344.69 349.09 - 4.38

Suspense 24.94 27.10 - 2.16
Creditors 57.54 12.18 45.36 -
Out standing expenses 399.15 362.52 36.63 -
P & L A/c 4.38 5.10 - 0.72
Total current liabilities 830.70 755.97 - -

Working capital (A-B) 2672.14 2368.59 - -

Net increased in working 303.55 303.55

capital

Total 2672.14 2672.14 387.46 387.46

 CHAPTER -4

DATA ANALYSIS &

INTERPRETATION
 DATA ANALYSIS & INTERPRETATION

Table-1
Analysis of gross working capital and net working capital for the period of
2012-2017 (Rs. In lakhs)
Year Gross Working Current Liabilities Net Working
Capital (Rs.) (Rs.) Capital
2012-2013 3660.17 905.55 2754.62
2013-2014 3761.32 964.66 2796.66
2014-2015 3502.84 830.70 2672.14
2015-2016 3124.56 755.97 2368.59
2016-2017 3226.53 835.86 2390.67

GRAPH – 1

Interpretation:
It is found from the above table that the net working capital ratio for 2012-2013 is
2754.62; 2013-2014 is 2796.66; 2014-2015 is 2672.14 ; 2015-2016is 2368.59 and 2016-2017
is 2390.67.
It also found that the net working capital position has shown decreasing trend in the
period of study. It is having a high value of 2796.66 in the year of 2013-2014 because in
decreasing current liabilities it has shown a very low value of 2368.59 in the year of 2014-
2015 because decreasing current liabilities.
Table -2
Analysis of CURRENT RATIO for the period of 2012-2017.

Current Assets
Current Ratio =
Current
Liabilities
(Rs. In lakhs)
Year Current Assets Current Current Ratio
(Rs.) Liabilities (Rs.)
2012-2013 3660.17 905.55 4.04
2013-2014 3761.32 964.66 3.89
2014-2015 3502.84 830.70 3.76
2015-2016 3124.56 755.97 4.13
2016-2017 3226.53 835.86 3.860

GRAPH -2

Current Ratio
4.2

4.1

3.9

3.8 Current Ratio

3.7

3.6
3.5
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
It is found from the above table that the current ratio for 2012-13 is 4.04; 2013-14 is
3.89; 2014-15 is 3.76 and for 2015-16 is 4.13 and for 2016-17 is 3.8
Table -3
Analysis of QUICK RATIO OR ACID-TEST RATIO for the period of 2012-2017.

Quick Ratio = Current Assets Inventory

Current Liabilities
(Rs. In lakhs)
Year Quick Assets (Rs.) Current Liabilities Quick Ratio
(Rs.)
2012-2013 1530.68 905.55 1.690
2013-2014 1505.46 964.66 1.560
2014-2015 1167.96 830.70 1.405
2015-2016 901.64 755.97 1.192
2016-2017 1056.85 835.86 1.264

GRAPH-3

Quick Ratio
1.8
1.6
1.4
1.2
1
0.8 Quick Ratio
0.6
0.4
0.2
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
It is found from the above table that the quick ratio for 2012-13 is 1.69; 2013-
14 is 1.56; 2014-15 is 1.40; and for 2015-16 is 1.19 and for 2016-17 is 1.26.It also found that
the quick ratio position has shown decreasing trend in the period of study. It is having a high
value of 1.69 in
the year of 2012-13 because in decreasing current liabilities it has shown a very low value of
1.19 in the year of 2015-16 because decreasing current liabilities.
Table -4
Analysis of CASH MANAGEMENT for the period of 2012-2017.
(Rs. In lakhs)

Year Cash & Bank Current Ratio in Total Assets Ratio

Balances (Rs.) Assets (Rs.) (%) (Rs.)
2012-2013 964.74 3660.17 26.34 5905.43 16.34
2013-2014 912.17 3716.36 24.25 6125.22 14.9
2014-2015 555 3502.84 15.84 5962.48 9.31
2015-2016 446.03 3124.56 14.27 5613.49 7.95
2016-2017 402.29 3226.53 12.40 5759.66 6.98

GRAPH -4

Ratio
18
16
14
12
10
8 Ratio
6
4
2
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
“Managing cash is managing profits is the dictum in business”. Cash management involves
the efficient collection, disbursement and temporary investment of cash. The treasurer’s
department of the dairy is usually responsible for the dairy’s cash management system.
Table -5
Analysis of INVENTORY MANAGEMENT for the period of
2012-2017.
(Rs. In lakhs)
Year Inventory TotalCurrent Ratio (%) Total Assets Ratio
(Rs.) Assets (Rs.) (Rs.)

2012-2013 2129.49 3660.17 58.18 5905.43 36.05

2013-2014 2255.9 3716.36 60.70 6125.22 36.81
2014-2015 2334.88 3502.84 66.65 5962.48 39.16
2015-2016 2222.92 3124.56 71.14 5613.49 39.60
2016-2017 2426.11 3226.53 75.19 5759.66 42.12

GRAPH -5

Ratio
43
42
41
40
39
38
37 Ratio
36
35
34
33
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
It is found from the above table that the inventory management for 2012-13 is 36.05;
2013-14 is 36.81; 2014-15 is 39.16 and for 2015-16 is 39.60 and for 2016-17 is 42.12.
Table -6
Analysis of DEBTORS TURNOVER RATIO for the period of
2012-2017.

Net Credit Sales

Debtors Turnover =
Average Debtors
(Rs. In lakhs)
Year Debtors (Rs.) Sales (Rs.) Debtor Turn Ratio

2012-2013 322.53 11700.16 36.28

2013-2014 353.00 11600.05 32.86
2014-2015 369.90 10200.14 27.57
2015-2016 210.66 11600.54 55.06
2016-2017 148.75 12987.20 87.30

GRAPH -6

Interpretation:
Debtors turnover indicates the number of times debtors turnover each year. Generally
the higher the value of debtor’s turnover, the more efficient is the management of credit
Table -7
Net Assets Turnover Ratio.
Sales
Net Assets Turnover Ratio =
Net Assets
Net Assets = C.A –C.L+F.A
(Rs. In lakhs)
Year Sales Net Assets Ratio
2012-2013 67411.65 14446.11 4.67
2013-2014 100055.98 20714.3 4.83
2014-2015 93455.40 30399.17 3.07
2015-2016 77066.76 32255.82 2.39
2016-2017 70029.03 35603.98 1.97
GRAPH – 7

Ratio
6

3
Ratio
2

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
From the above graph in connection with net assets ratio, it is evident that the
ratio has gradually increased from 4.67% and 4.83% respectively it has decreased to 3.07% in
2011-12 and in 2015-16 it is 2.39% and it is decreased to 1.97% in 2016-17. During the study
period the ratio in decreasing trend. Higher the ratio the higher is the sales and the firm is able
to increase the assets turnover with better frequency indicating optimum utilization of assets.
Table -8

Year Sales (Rs.) Total Assets Ratio

2012-2013 67411.65 64640.14 1.04
2013-2014 100055.98 78647.64 1.27
2014-2015 93455.40 99961.07 0.93
2015-2016 77066.76 106271.24 0.73
2016-2017 70029.03 127381.87 0.55

TotalAssetsTurnover Ratio:
Analysts like to compute the total assets turnover in addition to or instead of net assets
turnover. This ratio shows the firm’s ability in generating sales from all financial resources
committed to total assets.
Sales
Total Assets Turnover Ratio =
TotalAssets
GRAPH-8

Ratio
1.4

1.2

0.8

0.6 Ratio
0.4

0.2

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Interpretation:
The ratio indicates the firm’s ability in generating sales from all financial resources
committed to total assets. From the above graph it is evident that the total assets ratio is in
increased in the first two years of the study period and latter a decreased. From the year 2014-
15 it follows a downward trend. The higher the ratios, higher are the sales and the firm is able
to operate efficiently.
 CHAPTER-5
SUMMARY, SUGGESTIONS

FINDINGS & CONCLUSION

 FINDINGS

1. In my opinion and according to the information and explanations given to me three

adequate control internal control procedures commensurate with the size of the company.

2. Financial statements of prepare on accrual basis under historical cost conversion and
in accordance with accounting.

3. The company’s quick assets positions are very high.

4. The company’s cash reserves are very low. To meet day-to-day obligations it has to
maintain adequate level of cash reserves.

5. Stock in process in valid at estimated cost.

6. None of the fixed assets have been revalued during the year; we have obtained all the
information and explanations to the best of our knowledge and belief necessary for the
project.

7. According to the information and explanations given to us parties to whom loans and
advances have been giving by the company are repaying principal amount and also interest as
stipulate.
 SUGGESTIONS

1. The firm may increase its quick assets, to create confidence among short-term creditors.

2. The firm has to increase its cash level to meet day-to-day obligations.

3. The company has to reduce its various expenses to maximize profits.

4. Government should come forward to supply power continuously to care growers for their
browsers.
5. The company is suggested to maintain the ratio of current assets at present level
ranging from fifty to sixty percentages the company is in good position in maintaining
the current asserts level.
 CONCLUSION

Any change in the working capital will have an effect on a business's cash flows. A
positive change in working capital indicates that the business has paid out cash, for example
in purchasing or converting inventory, paying creditors etc. Hence, an increase in working
capital will have a negative effect on the business's cash holding. However, a negative change
in working capital indicates lower funds to pay off short term liabilities (current liabilities),
which may have bad repercussions to the future of the company. If you would like to get a
better understanding of financial statements or budgeting contact

 After overhauling the Four years balance sheet of NATCO PHARMA

LIMITED and all condition, I have to reach this conclusion that;

 There was much good financial position of NATCO PHARMA LIMITED

inthe year 2016 comparison 2017 and present year.

 Working process of NATCO PHARMA LIMITED is take very long time

because of which, NATCO PHARMA LIMITED is not being able to progress.
So improved the working process.

 NATCO PHARMA LIMITEDare facing the capital problem because of which

financial position of NATCO PHARMA LIMITED are affected.

 NATCO PHARMA LIMITEDare paying more taxes. Because of paying more

taxes, financial position of NATCO PHARMA LIMITED are affected.

 There was earned more profit in year 2017 but year by year NATCO
PHARMA LIMITED is on loss.
 BIBLIOGRAPHY

Financial management - Prasannachandra

Financial management - I.M.Pandey

Financial management - P.V.Kulakarni

Advanced accountancy - S.N.Maheswari

Advanced accountancy - M.Y.Khan& P.K. Jain

Annual reports - NATCO PHARMA LIMITED