Study of Working Capital at Greenplus Solution Pvt Ltd

Greenplus Solution Pvt Ltd
A
Report on
Summer project undertaken at
Green plus Solution Pvt Ltd
Feb-April 2011
Study of Working Capital.
Submitted To :- Mr. Kaushikbhai Patel (Asst.

Manager)
Green plus Solution Pvt Ltd,
S.G Road,
Ahmedabad
Gujarat.
Project Guide:- Mr. Gautam Vaghela
Submitted by:- Ilesh Vaghela

4th sem Finance M.B.A
IIMT, Usmanpura
Ahmedabad.
IDEA Institute of Management &

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PREFACE
This report has been prepared keeping in mind the curriculum of M.B.A 4th sem Finance
of Sikkim Manipal University for training for 90 days.
This report seeks to describe the functions of various departments of business

organization. The report covers specialized department viz. Finance.
The initial part contain brief introduction about the organization and its role functioning
with respect to the corporate world in brief. The principal content of this report is to
reveal the functioning of the organization and its role in the society as whole.
In preparing this report, I have drawn vast amount of information from electronic,
communicative internal and personal sources which were nearly impossible without the
co-operation from various senior people from the organization and well organized
support by various people.
I owe intellectual debt to all the people who supported me to prepare and complete a
systematic report like this.

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Acknowledgement
This project is an intrigal part of the partial fulfillment of the M.B.A. programme. It is
very essential to learn practical knowledge for a management student.
I am thankful to Mr. Kulpesh Patel Sr.Executive (HRD) of Green Plus Solution Pvt Ltd.
And particularly to Mr. Kaushikbhai Patel, Asst.Manager, Ahmedabad to assign me a
summer training and provide me an opportunity to gain practical knowledge, which is
very important for enhancing my skill, knowledge and ability. Mr. Gautam sir who
provides me a valuable guidance at every stage when I needed. I also extend my gratitude
to Mr.Mayur Patel, Mr. Bharat Sir.
Ilesh Vaghela
4th Sem.Finance M.B.A.
IIMT, Usmanpura.
Ahmedabad.

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Introduction
Financial Management is the specific area of finance dealing with the financial decision
corporations make, and the tools and analysis used to make the decisions. The discipline as a
whole may be divided between long-term and short-term decisions and techniques. Both share the
same goal of enhancing firm value by ensuring that return on capital exceeds cost of capital,
without taking excessive financial risks.
Capital investment decisions comprise the long-term choices about which projects receive
investment, whether to finance that investment with equity or debt, and when or whether to pay
dividends to shareholders. Short-term corporate finance decisions are called working capital
management and deal with balance of current assets and current liabilities by managing cash,
inventories, and short-term borrowings and lending (e.g., the credit terms extended to customers).
Corporate finance is closely related to managerial finance, which is slightly broader in scope,
describing the financial techniques available to all forms of business enterprise, corporate or not.
Role of Financial Managers:

The role of a financial manager can be discussed under the following heads:
1. Nature of work
2. Working conditions
3. Employment
4. Training other qualifications and Advancement
5. Job outlook
6. Earnings
7. Related occupations
Let us discuss each of these in a detailed manner.

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1. Nature of work
Almost every firm, government agency and organization has one or more financial
managers who oversee the preparation of financial reports, direct investment activities,
and implement cash management strategies. As computers are increasingly used to record
and organize data, many financial managers are spending more time developing strategies
and implementing the long-term goals of their organization.
The duties of financial managers vary with their specific titles, which include controller,
treasurer or finance officer, credit manager, cash manager, and risk and insurance
manager. Controllers direct the preparation of financial reports that summarize and
forecast the organization’s financial position, such as income statements, balance sheets,
and analyses of future earnings or expenses. Regulatory authorities also in charge of
preparing special reports require controllers. Often, controllers oversee the accounting,
audit, and budget departments. Treasurers and finance officers direct the organization’s
financial goals, objectives, and budgets. They oversee the investment of funds and
manage associated risks, supervise cash management activities, execute capital-raising
strategies to support a firm’s expansion, and deal with mergers and acquisitions. Credit
managers over see the firm’s issuance of credit. They establish credit-rating criteria,
determine credit ceilings, and monitor the collections of past-due accounts. Managers
specializing in international finance develop financial and accounting systems for the
banking transactions of multinational organizations.
Cash managers monitor and control the flow of cash receipts and disbursements to meet
the business and investment needs of the firm. For example, cash flow projections are
needed to determine whether loans must be obtained to meet cash requirements or
whether surplus cash should be invested in interest-bearing instruments. Risk and
insurance managers over see programs to minimize risks and losses that might a rise from
financial transactions and business operations undertaken by the institution. They also
manage the organization’s insurance budget.

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Financial institutions, such as commercial banks, savings and loan associations, credit
unions, and mortgage and finance companies, employ additional financial managers who
oversee various functions, such as lending, trusts, mortgages, and investments, or
programs, including sales, operations, or electronic financial services. These managers
may be required to solicit business, authorize loans, and direct the investment of funds,
always adhering to State laws and regulations.
Branch managers of financial institutions administer and manage all of the functions of a
branch office, which may include hiring personnel, approving loans and lines of credit,
establishing a rapport with the community to attract business, and assisting customers
with account problems. Financial managers who work for financial institutions must keep
a breast of the rapidly growing array of financial services and products.
In addition to the general duties described above, all financial managers perform tasks
unique to their organization or industry. For example, government financial managers
must be experts on the government appropriations and budgeting processes, whereas
healthcare financial managers must be knowledgeable about issues surrounding
healthcare financing. Moreover, financial managers must be aware of special tax laws
and regulations that affect their industry.
Financial managers play an increasingly important role in mergers and consolidations and
in global expansion and related financing. These areas require extensive, specialized
knowledge on the part of the financial manager to reduce risks and maximize profit.
Financial managers increasingly are hired on a temporary basis to advise senior managers
on these and other matters. In fact, some small firms contract out all accounting and
financial functions to companies that provide these services.
The role of the financial manager, particularly in business, is changing in response to
technological advances that have significantly reduced the amount of time it takes to
produce financial reports. Financial managers now perform more data analysis and use it
to offer senior managers ideas on how to maximize profits. They often work on teams,
acting as business advisors to top management. Financial managers need to keep abreast

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of the latest computer technology in order to increase the efficiency of their firm’s
financial operations.
2. Working conditions
Financial managers work in comfortable offices, often close to top managers and to
departments that develop the financial data these managers need. They typically have
direct access to state-of-the-art computer systems and information services. Financial
managers commonly work long hours, often up to 50 or 60 per week. They generally are
required to attend meetings of financial and economic associations and may travel to visit
subsidiary firms or to meet customers.
3. Employment
While the vast majority is employed in private industry, nearly 1 in 10 works for the
different branches of government. In addition, although they can be found in every
industry, approximately 1 out of 4 are employed by insurance and finance establishments,
such as banks, savings institutions, finance companies, credit unions, and securities
dealers.
4. Training, Other qualifications and Advancement
A bachelor’s degree in finance, accounting, economics, or business administration is the
minimum academic preparation for financial managers. However, many employers now
seek graduates with a master’s degree, preferably in business administration, economics,
finance, or risk management. These academic programs develop analytical skills and
provide knowledge of the latest financial analysis methods and technology.
Experience may be more important than formal education for some financial manager
positions—notably, branch managers in banks. Banks typically fill branch manager
positions by promoting experienced loan officers and other professionals who excel at
their jobs. Other financial managers may enter the profession through formal
management training programs offered by the company.
Continuing education is vital for financial managers, who must cope with the growing
complexity of global trade, changes in State laws and regulations, and the proliferation of
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new and complex financial instruments. Firms often provide opportunities for workers to
broaden their knowledge and skills by encouraging employees to take graduate courses at
colleges and universities or attend conferences related to their specialty. Financial
management, banking, and credit union associations, often in cooperation with colleges
and universities, sponsor numerous national and local training programs. Persons enrolled
prepare extensively at home and then attend sessions on subjects such as accounting
management, budget management, corporate cash management, financial analysis,
international banking, and information systems. Many firms pay all or part of the costs
for employees who successfully complete courses. Although experience, ability, and
leadership are emphasized for promotion, this type of special study may accelerate
advancement.
In some cases, financial managers also may broaden their skills and exhibit their
competency by attaining professional certification. There are many different associations
that offer professional certification programs. For example, the Association for
Investment Management and Research confers the Chartered Financial Analyst
designation on investment professionals who have a bachelor’s degree, pass three
sequential examinations, and meet work experience requirements. The Association for
Financial Professionals (AFP) confers the Certified Cash Manager credential to those
who pass a computer-based exam and have a minimum of 2 years of relevant experience.
The Institute of Management Accountants offers a Certified in Financial Management
designation to members with a BA and at least 2 years of work experience who pass the
institute’s four-part examination and fulfill continuing education requirements. Also,
financial managers who specialize in accounting may earn the Certified Public
Accountant (CPA) or Certified Management Accountant (CMA) designations.
Candidates for financial management positions need a broad range of skills. Interpersonal
skills are important because these jobs involve managing people and working as part of a
team to solve problems. Financial managers must have excellent communication skills to
explain complex financial data. Because financial managers work extensively with
various departments in their firm, a broad overview of the business is essential.
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Financial managers should be creative thinkers and problem-solvers, applying their
analytical skills to business. They must be comfortable with the latest computer
technology. As financial operations increasingly are affected by the global economy,
financial managers must have knowledge of international finance. Proficiency in a
foreign language also may be important.
Because financial management is critical for efficient business operations, well-trained,
experienced financial managers who display a strong grasp of the operations of various
departments within their organization are prime candidates for promotion to top
management positions. Some financial managers transfer to closely related positions in
other industries. Those with extensive experience and access to sufficient capital may
start their own consulting firms.
5. Job outlook
Some companies may hire financial managers on a temporary basis, to see the
organization through a short-term crisis or to offer suggestions for boosting profits. Other
companies may contract out all accounting and financial operations. Even in these cases,
however, financial managers may be needed to oversee the contracts.
Computer technology has reduced the time and staff required to produce financial
reports. As a result, forecasting earnings, profits, and costs, and generating ideas and
creative ways to increase profitability will become a major role of corporate financial
managers over the next decade.
Financial managers who are familiar with computer software that can assist them in this
role will be needed.
6. Earnings
The Association for Financial Professionals’ 16th annual compensation survey showed
that financial officers’ average total compensation in 2006, including bonuses and
deferred compensation, was $261,800.
Large organizations often pay more than small ones, and salary levels also can depend on
the type of industry and location. Many financial in both the business and private industry
receive additional.
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Compensation in the form of bonuses, which also vary substantially by size of firm.
Deferred compensation in the form of stock options is becoming more common,
especially for senior level executives.
7. Related occupations
Financial managers combine formal education with experience in one or more areas of
finance, such as asset management, lending, credit operations, securities investment, or
insurance risk and loss control. Workers in other occupations requiring similar training
and skills include accountants and auditors; budget analysts; financial analysts and
personal financial advisors; insurance underwriters; loan counselors and officers;
securities, commodities, and financial services sales agents; and real estate brokers and
sales agents.
NEED FOR THE STUDY
1. The study has great significance and provides benefits to various parties whom directly
or indirectly interact with the company.
2. It is beneficial to management of the company by providing crystal clear picture
regarding important aspects like liquidity, leverage, activity and profitability.
3. The study is also beneficial to employees and offers motivation by showing how
actively they are contributing for company’s growth.
4. The investors who are interested in investing in the company’s shares will also get
benefited by going through the study and can easily take a decision whether to invest or
not to invest in the company’s shares.
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OBJECTIVES
The major objectives of the resent study are to know about financial strengths and
weakness of Green Plus Solution Pvt Ltd. through Working Capital.
The main objectives of resent study aimed as:
To evaluate the performance of the company by using working capital as a yardstick to
measure the efficiency of the company. To understand the liquidity, profitability and
efficiency positions of the company during the study period. To evaluate and analyze
various facts of the financial performance of the company. To make comparisons
between the ratios during different periods.
OBJECTIVES
1. To study the present financial system at genting Green plus Solution Pvt Ltd.
2. To determine the Profitability, Liquidity Ratios.
3. To analyze the capital structure of the company with the help of Leverage ratio.
4. To offer appropriate suggestions for the better performance of the organization.
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METHODOLOGY
The information is collected through secondary sources during the project. That
information was utilized for calculating performance evaluation and based on that,
interpretations were made.
Sources of secondary data:
1. Most of the calculations are made on the financial statements of the company provided
statements.
2. Referring standard texts and referred books collected some of the information
regarding theoretical aspects.
3. Method- to assess the performance of he company method of observation of the work
in finance department in followed.
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LIMITATIONS
1. The study provides an insight into the financial, personnel, marketing and other aspects
of Green Plus Solution Pvt Ltd. Every study will be bound with certain limitations.
2. The below mentioned are the constraints under which the study is carried out.
3. One of the factors of the study was lack of availability of ample information. Most of
the information has been kept confidential and as such as not assed as art of policy of
company.
Time is an important limitation. The whole study was conducted in a period of 60 days,
which is not sufficient to carry out proper interpretation and analysis.
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2.1 REASEARCH METHODOLOGY:
 Study objectives :-
a) To study the nature of working capital, concepts and definition of working
capital.
b) To examine the effectiveness of working capital management practices
of the firm.
c) To find out how adequacy or otherwise of working capital affects
commercial operations of the company.
d) To prescribe remedial measures to encounter the problems faced by the
firm.
e) To study the working capital financing or means of financing of the
company.
 Scope of the study :-
f) Planning of working capital management
g) Working capital finance
 Methods of Data collection :-
a) Primary data:
Basic information collected from the local sources as well as
from the company staff like managers, accountants and officers. Moreover
information gathered through practically preparing the data for working
capital.
b) Secondary data:
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i. From the B/S of the company
ii. From CMA proposal report
iii. From internet
iv. From books
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Green Plus Solution Pvt. Ltd
1.1 INTRODUCTION OF WORKING CAPITAL
T
he importance of working capital in any industry needs no special emphasis. Working

capital is considered to be life-giving force to an economic entity. Management of
working capital is one of the most important functions of corporate management. Every
organization whether profit oriented or not, irrespective of its size and nature of business,
needs requisite amount of working capital. Capital to keep an entity working is working
capital. The efficient Working capital management is the most crucial factor in
maintaining survival, liquidity, solvency and profitability of the concerned business
organization. It needs sufficient finance to carry out purchase of raw materials; payment
of day-today operational expenses including salaries and wages, repairs and maintenance
expenses etc. and funds to meet these expenses are collectively known as working
capital.
In simplicity, working capital refers to that portion of total fund, which finances
the day-to-day working expenses during the operating cycle. The term "working" here
implies continuity of production and distribution of want removing goods and services
required by the society. Working capital is necessary to finance current assets which
include inventories, debtors, marketable securities, bank, cash, short term loans and
advances, payment of advance tax and so on. An inadequate working capital as both the
phenomena of over capitalization and under capitalization of working capital generates
adverse effects on the profitability and liquidity of the concerned firm. The effective
working capital necessitates careful handling of current assets to ensure short-term
liquidity and solvency of the business. To be more specific, neither under stocking nor
overstocking of raw materials, careful maintenance and trade off between credit
receiving.
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Green plus Solution Pvt. Ltd. meets its working capital needs by borrowing Fund based
loans and Non-fund based loans from different banks. Fund based loans include loans
like Cash credit, Working capital term loan, Working capital demand loan, Packing
Credit, Advance against retention money etc..Whereas Non-fund based loans include
Letter of Credit and Bank Guarantee. Generally in any company the requirements of
Non-fund based loans is more than Fund based loans.
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5.1 NATURE OF WORKING CAPITAL:

W
orking capital management is concerned with the problems that arise in attempting to
manage current assets, the current liabilities and the interrelationship that exists between
them. The term current assets refers to those assets which in the ordinary course of
business can be or will be, converted into cash within one year without undergoing a
diminution in value and without disrupting the operations of the firm. The major current
assets are cash, marketable securities, accounts receivables and inventory. Current
liabilities are those liabilities which are intended, at their inception, to be paid in the
ordinary course of business, within a year, out of the current assets or earnings of the
concern. The basic current liabilities are account payable, bills payable, bank overdraft,
and outstanding expenses.
The goal of working capital management is to manage the firm’s current assets
and liabilities in such a way that a satisfactory level of working capital is maintained.
This is so because if the firm cannot maintain a satisfactory level of working capital, it is
likely to become insolvent and may even be forced into bankruptcy. The current asset
should be large enough to cover its current liabilities in order to ensure a reasonable
margin of safety. Each of the current assets must be managed efficiently in order to
maintain the liquidity of the firm while not keeping too high a level of any one of them.
Each of the short-term sources of financing must be continuously managed to ensure that
they are obtained and used in the best possible way. The interaction between current
assets and current liabilities is, therefore, the main theme of the theory of the theory of
working management.
The basic ingredients of the theory of working capital management may be said to
include its definition, need, optimum level of current assets, and the trade–off between
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profitability and risk which is associated with the level of current assets and liabilities,
financing-mix strategies and so on.
5.2 CONCEPT OF WORKING CAPITAL:
There are two concepts of working capital: Gross and Net.
 The term gross working capital, also referred to as working capital, means the total
current assets.
 The term net working capital can be defined in two ways:
1. The most common definition of net working capital(NWC) is the difference
between current assets and current liabilities; and
2. Alternate definition of NWC is that portion of current assets which is financed
with long-term funds.
The task of the financial manager in managing working capital efficiently is to

ensure sufficient liquidity in the operations of the enterprise. The liquidity of a business
firm is measured by its ability to satisfy short-term obligations as they become due. The
three basic measures of a firm overall liquidity are
i. The current ratio
ii. The acid-test ratio, and
iii. Net working capital ratio
Net working capital (NWC), as a measure of liquidity is not very useful for
comparing the performance of different firms, but it is quite useful for internal control.
The NWC helps in comparing the liquidity of the same firm over time. For purpose of
working capital management, therefore, NWC can be said to measure the liquidity of the
firm. In other words, the goal of working capital management is to manage the current
assets and liabilities in such a way that an acceptable level of NWC is maintained.
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The two concepts of working capital – Gross and Net – are not exclusive; rather, they
have equal significance from the management viewpoint.
5.3 DEFINITION :
W Orking capital refers to the cash a business requires for day-to-day operations,
or, more specifically, for financing the conversion of raw materials into finished
goods, which the company sells for payment. Among the most important items of
working capital are levels of inventory, accounts receivable, and accounts payable.
Analysts look at these items for signs of a company's efficiency and financial strength.
Working capital is commonly defined as the difference between current assets and
current liabilities. Efficient working capital management requires that firm should operate
with some amount of working capital, the exact amount varying from firm to firm and
depending, among other things, on the nature of industry. The theoretical justification for
the use of working capital to measure liquidity is based on the premise that the greater the
margin by which the current assets cover the short –term obligations, the more is the
ability to pay obligations when they become due for payment. The NWC is necessary
because the cash outflows and inflows do not coincide. In other words, it is the non-
synchronous nature of cash flows that makes NWC necessary. In general, the cash
outflows resulting from payment of current liabilities are relatively predictable.
Some companies are inherently better placed than others. Insurance companies,
for instance, receive premium payments up front before having to make any payments;
however, insurance companies do have unpredictable outgoings as claims come in.
Normally a big retailer like Wal-Mart has little to worry about when it comes to accounts
receivable: customers pay for goods on the spot. Inventories represent the biggest
problem for retailers. Manufacturing companies, for example, incur substantial up-front
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costs for materials and labor before receiving payment. Much of the time they eat more
cash than they generate.
5.4 NEED FOR WORKING CAPITAL:
The need for working capital (gross) or current assets cannot be overemphasized.
Given the objective of financial decision making to maximize the shareholder’s wealth, it
is necessary to generate sufficient profits. The extent to which profits can be earned will
naturally depend, among other things, upon the magnitude of the sales. A successful sales
programme is, in other words, necessary for earning profits by any business enterprise.
However, sales do not convert into cash instantly; there is invariably a time-lag between
the sale of goods and the receipt of cash. There is, therefore, a need for working capital in
the form of current assets to deal with the problem arising out of the lack of immediate
realization of cash against goods sold. Therefore, sufficient working capital is necessary
to sustain sales activity.
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5.5 TYPES OF WORKING CAPITAL:
WORKING CAPITAL
Permanent Temporary
Initial working Regular working Seasonal Special working

capital capital working capital capital
Business activity does not come to an end after the realization of cash from
customers. For a company, the process is continuous and, hence, the need for a regular
supply of working capital. For all practical purposes, this requirement has to be met
permanently as with other fixed assets. This requirement is referred to as permanent or
fixed working capital.
Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable working capital. This portion of the required
working capital is needed to meet fluctuations in demand consequent upon changes in
production and sales as a result of seasonal changes.
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Amount
Of Temporary
Working
capital
Permanent
Time
Figure shows that the permanent level is fairly constant, while temporary working
capital is fluctuating-increasing and decreasing in accordance with seasonal demands.
  Initial working capital:

In the initial period of its operation, a company must have enough money to pay
certain expenses before the business yield a cash receipt. In the initial years bank may
not grant loans or overdraft. Sales may be made in credit and may be necessary to make
payment to creditors. Hence the necessary fund will have to be supplied by the owner in
initial year.
  Regular working capital:

It is the working capital required to continue the regular business operation. It is
required to maintain regular stock of raw material and work –in-progress, finished goods.
Regular working capital is the excess of current assets over current liabilities; it ensures
smooth operation of business.
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  Seasonal working capital:
Some business enterprises require additional working capital during the season.
For ex: - sugar mill have to purchase sugarcane in particular season and have to employ
additional labor to produce.
  Special working capital:

In all enterprise some unforeseen events do occur, when extra funds are needed to
tide over such situation. Some of these events are sudden increase in demand of final
product, downward movement of price, and sales during depression.
5.6 DETERMINANTS OF WORKING CAPITAL:
A firm should plan its operations in such a way that it should have neither too
much nor too little working capital. The total working capital requirement is determined
by a wide variety of factors. These factors, however, affect different enterprise
differently. They also vary from time to time.
  General Nature of Business:
The working capital requirements of an enterprise are basically related to the
conduct of business. Enterprise falls into some broad depending on the nature of their
business. For instances, public utilities have certain features which have a bearing on
their working capital needs. The two relevant features are:
1. the cash nature of business, that is, cash sales, and
2. Sale of services rather than commodities.
In the view of these features, they do not maintain big inventories and have,
therefore, probably the least requirement of working capital.
  Production cycle:
Another factor which has a bearing on the quantum of working capital is the
production cycle. The term production or manufacturing cycle refers to the time involved
in the manufacture of goods. It covers the time-span between the procurement of raw
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materials and the completion of the manufacturing process leading to the production of
finished goods. Funds have to be necessarily tied up during the process of manufacture,
necessitating enhanced working capital. In other words, there is some time gap before
raw material becomes finished goods; to sustain such activities the need for working
capital is obvious.
  Business cycle:
The working capital requirements are also determined by the nature of the
business cycle. Business fluctuations leads to cyclical and seasonal changes which, in
turn, cause a shift in the working capital position, particularly for temporary working
capital requirements. The variations in business conditions may be in two directions:
1. Upward phase when boom conditions prevail, and
2. Downswing phase when the economic activity is marked by decline.
  Production policy:
The quantum of working capital is also determined by production policy. In case
of certain lines of business, the demand for products is seasonal, that is, they are
purchased during certain months of the year. What kind of production policy should be
followed in such case? There are two options open to such enterprise: either they confine
their production only to periods when goods are purchased or they follow a steady
production policy throughout the year. During slack season, the firms have to maintain
their working force and physical facilities without adequate production and sale.
  Credit policy:
The credit policy relating to sales and purchase also affects the working capital.
The credit policy influences the requirement of working capital in two ways:
1. Through credit terms granted by the firm to its customers , buyers of
goods;
2. Credit terms available to the firm from its creditors.
The credit terms granted to customers have a bearing on the magnitude of
working capital by determining the level of book debts. The credit sales result in higher
book debts. Higher book debts mean more working capital. On the other hand, if liberal
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credit terms are available from the suppliers of goods, the need for working capital is
less.
  Growth and Expansion:
As a company grows, it is logical to expect that a larger amount of working
capital is required. It is, of course, difficult to determine precisely the relationship
between the growth in the volume of business of a company and the increase in its
working capital. The composition of working capital in a growing company also shifts
with economic circumstances and corporate practices.
  Vagaries in the Availability of Raw Material
The availability or otherwise of certain raw material on a continuous basis without
interruption would sometimes affect the requirement of working capital. There may be
some materials which cannot be produced easily either because of their sources are few
or they are irregular. To sustain smooth production, therefore the firm might be
compelled to purchase and stock them far in excess of genuine production needs.
  Profit Level:
The level of profits earned differs from enterprise. In general, the nature of the
product, hold on the market, quality of management and monopoly power would by and
large determine the profit earned by a firm. A priori, it can be generalized that a firm
dealing in a high quality product, having a good marketing arrangements and enjoying
monopoly power in the market, is likely to earn high profits and vice-versa.
  Level of Taxes:
The first appropriation out of profits is payment or provision for tax. The amount
of taxes to be paid is determined by the prevailing tax regulations the management has no
discretion in this respect. Very often, taxes have to be paid in advance on the basis of the
profit of the preceding year. Tax liability is, in a sense, short-term liability payable in
cash. An adequate provision for tax payments is, therefore, an important aspect of
working capital planning.
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  Dividend Policy:
Another appropriation of profits which has a bearing on working capital is
dividend payment. The payment of dividend consumes cash resources and, thereby,
affects working capital to that extent. Conversely, if the firm does not pay dividend but
retains the profits, working capital increases. In planning working capital requirements,
therefore, a basic question to be decided is whether profits will be retained or paid out to
shareholders.
  Price Level Changes:
Changes in the price level also affect the requirements of working capital. Rising
prices necessitate the use of more funds for maintaining an existing level of activity. For
the same level of current assets, higher cash outlays are required. The effect of rising
prices is that a higher amount of working capital is needed.
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Green Plus Solution Pvt. Ltd.
6.1 WORKING CAPITAL CYCLE:
C urrent assets are needed because sales do not convert into cash instantaneously.
There is always an operating cycle involved in the conversion of sales into cash.
There is a difference between current and fixed assets in terms of their liquidity. A firm
requires many years to recover the initial investment in fixed assets such as plant and
machinery or land and buildings.
Working capital cycle is the time duration required to convert sales, after the
conversion of resources into inventories, into cash. The cycle of a manufacturing
company involves three phases:
1. Conversion of cash into inventory;
2. Conversion of inventory into receivables;
3. Conversion of receivables into cash.
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Technology.
Working capital cycle, also known as the asset conversion cycle, net operating
cycle, cash conversion cycle or just cash cycle, is used in the financial analysis of a
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Technology.
business. The higher the number, the longer a firm's money is tied up in business
operations and unavailable for other activities such as investing. The cash conversion
cycle is the number of days between paying for raw materials and receiving cash from
selling goods made from that raw material.
The operating cycle consists of three phases. In phase I, cash gets converted into
inventory. This includes purchase of raw material, conversion of raw materials into work-
in-progress, finished goods and finally the transfer of goods to stock at the end of the
manufacturing process. In phase II of the cycle, the inventory is converted into
receivables as credit sales are made to customers. In phase III, when receivables are
collected complete the operating cycle.
The length of the operating cycle of a manufacturing firm is the sum of:
i. Inventory conversion period

ii. Debtors conversion period, total of these called Gross operating cycle.
The difference between operating cycle and payables deferral period is net
operating cycle, also represents the cash conversion cycle.
INVENTORY CONVERSION PERIOD
 Raw material conversion period:
RMCP = Raw material inventory * 365
Raw material consumption
= 1239.72 * 365
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Technology.
15169.72
= 29.83 days
 Work-in-progress inventory conversion period:
WIPCP = work-in-progress inventory * 365
Cost of production
= 42.30 * 365
31496.75
= 0.49 days
 Finished goods conversion period:
FGCP = finished goods inventory * 365
Cost of goods sold
= 449.34 * 365
31496.75
= 5.21 days
DEBTORS CONVERSION PERIOD
DCP = Average debtors * 365
Net sales
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Technology.
= 410.495 * 365 (Rs. In Crore)
7387.70
= 20.28 days
CREDITORS DEFERRAL PERIOD
 Creditors deferral period:
CDP = Average creditors * 365
purchase
= 1664.225 * 365
14539.23
= 41.78 days
WORKING CAPITAL CYCLE
Net operating cycle = Gross operating cycle – Creditors deferral period
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Technology.
= (RMCP + WIPCP + FGCP + DCP) – CDP
= (55.81 – 41.78) days
= 14.03days
Company‘s working capital cycle completes in 14 days. Raw Material conversion

Period is 29.83 days and Work In Progress Inventory Conversion Period is 0.49 Days and
Finished goods Conversion Period is 5.21 days. So total inventory conversion period is
35.53 days while Debtors Conversion period is 20.28 days which is quite good. So Green
Plus Solution Pvt. Ltd’s gross operating cycle is 55.81 days. But Creditors Deferral
Period is 41.78 days. It is better in comparison with the Debtors Conversion period. So
Net Working Capital Cycle is 14.03 days. So this is short working capital cycle and it
indicates that Green Plus Solution Pvt. Ltd. is well managing its working capital. As
stated above a business should not over invest in working capital. The key point to note
here is that a longer cash cycle ties up a bigger investment in working capital. It is
therefore useful to monitor the length of cash cycle, and changes in it, to judge whether a
business has an excessive working capital level or perhaps whether working capital is
inadequate which may lead to liquidity problems.
6.2 WORKING CAPITAL ANALYSIS:
The two components of working capital are current assets and current liabilities.
They have a bearing on the cash operating cycle. In order to calculate the working capital
needs, what is required is the holding period of various types of various inventories, the
credit collection period and the credit payment period. Working capital also depends on
the budgeted level of activity in terms of production/sales. As the working capital
requirement is related to the cost excluding depreciation and not to the sale price,
working capital is computed with reference to cash cost.
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Technology.
Working capital: excess of current assets compared to current liabilities, and indicates
amount of excess current assets relative to current liabilities available to conduct revenue
generating operations.
  Total current assets minus current liabilities are value of working capital.
 Current Assets: cash, marketable securities, notes receivable, accounts receivable,

inventories, supplies, and prepaid expenses
 Consumed in production of sales revenue
 Current Liabilities: accounts payable, accrued expenses,(e.g. wages payable, interest

payable, taxes payable)
 Operating cost incurred on credit
  Inflows- Sources of Working Capital:

 Income from operations
a) Accrued income is sales revenue less all expense incurred in producing
sales revenue inflow
b) Sales revenue generated by cash sales or on credit through receivables
c) Expenses incurred by immediate payment of cash or credit through
Payable
 Accrual net income
a) Determined after deducting noncash expenses
b) To convert net income to increase working capital, capitalized expenses
added to net income
 Sale of long term assets
a) Land, building, furniture, equipment, investment
b) Sale treated as flow which increases working capital
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Technology.
 Increase in long term liability
a) Create or increase loan, mortgage, or bond achieves this
b) Inflow that increases working capital
c) Borrowing long tern debt create increase in cash, current assets, or current
receivable with no effect to current liability
  Outflows - Uses of Working Capital:
 Loss from operations
a) When loss occurs, expenses have exceeded sales revenue
b) Decreases working capital
 Purchase of long term asset
a) Land, building, furniture, equipment, investment
b) Outflow that decreases working capital
 Payment of Long term liabilities

) Payment reducing principal amount owed on long term liability
Payment of cash dividends

Payable obligations
b) In partnership, current asset withdrawals by
owner are reductions to capital investments.
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Technology.
CURRENT LIABILITIES
Schedule-12 & 13
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Technology.
2008-2009 2007-2008 2006-2007
LIABILITIES
CURRENT LIABILITIES
1. Bank Overdraft 9.29 12.23 7.21
2. Sundry creditors 2447.66 880.79 786.95
3. Advance payments
from customers 7.29 5.21 6.15
4. Interest payable 30.22 15.16 19.59
5. Other statutory liability 26.36 19.36 15.92
6. Deposits 35.24 27.53 31.34
7.Other current liabilities 303.82 88.21 161.31
8. Provisions 322.71 323.08 172.76
9. Total current liabilities 3182.89 1371.57 1201.23
  CURRENT ASSETS
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Technology.
Schedule-8 to 11
2009-2008 2008-2007 2006-2007
ASSETS
CURRENT ASSETS
9.Cash & Bank balances 69.63(0.91%) 243.32(4.20%) 330.84(5.44%)
10.Debtors
(i) Considered as Good 0.41(0.01%) 0.75(0.01%) 2.00(0.03%)
(ii) Considered as
Doubtful
0.01(0.00%) 0.21(0.00%) 2.47(0.04%)
(iii) Other Debts

Unsecured 406.82(5.30%) 413.01(7.15%) 359.68(5.92%)
(Considered as Good)
Less: Prov.for Doubtful (0.01)(0.00%) (0.21)(0.00%) (2.47)(0.04%)

Debt
Total(Debtors) 407.23(5.31%) 413.76(7.16) 361.68(5.95%)
11. Inventory
(i) Raw material 823.39(10.73%) 959.39(16.61%) 551.27(9.07%)
(ii) Stock in progress 42.30(0.55%) 36.89(0.64%) 26.44(0.44%)
(iii) Finished goods 449.34(5.86%) 174.24(3.02%) 1320.90(21.72%)
(iv) Stores & Spares 290.21(3.78%) 327.83(5.68%) 311.74(5.13%)
(v) Loose Tools 2.03(0.03%) 1.83(0.03%) 2.25(0.04%)
(vi) Chemicals & Catalysts 72.49(0.94%) 28.94(0.50%) 30.81(0.51%)
(vii) Packing Materials 37.49(0.49%) 33.26(0.58%) 28.08(0.46%)
14.11(0.18%) 14.72(0.26%) 12.45(0.21%)
(viii) Construction Material
Total(Inventory) 1731.36(22.56%) 1577.10(27.32%) 2283.94(37.58%)
12. Loans and Advances 5464.77(71.22%) 3541.56(61.32%) 3104.82(51.01%)
13. Total current assets

7672.99 (100%) 5775.74(100%) 6081.28 (100%)
( Gross working capital)
NET WORKING CAPITAL

( Current assets – Current
liability)
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Technology.
(13 – 9) 4490.10 4404.17 4880.05
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Technology.
Ratio Analysis
FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths and
weaknesses of the firm and establishing relationship between the items of the balance
sheet and profit & loss account.
Financial ratio analysis is the calculation and comparison ofratios, which are
derived from the information in a company’s financial statements. The level and
historical trends of these ratios can be used to make inferences about a company’s
financial condition, its operations and attractiveness as an investment. The information in
the statements is used by
• Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity
position of the company.
• Investors, to know about the present and future profitability of the company and
its financial structure.
• Management, in every aspect of the financial analysis. It is the responsibility of
the management to maintain sound financial condition in the company.
FINANCIAL ANALYSIS
The term “Ratio” refers to the numerical and quantitativerelationship between two items
or variables. This relationship can be exposed as
• Percentages
• Fractions
• Proportion of numbers
Ratio analysis is defined as the systematic use of the ratio to interpret the financial
statements. So that the strengths and weaknesses of a firm, as well as its historical
performance and current financial condition can be determined. Ratio reflects a
quantitative relationship helps to form aquantitative judgment.
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Technology.
STEPS IN RATIO ANALYSIS

 The first task of the financial analysis is to select the information relevant to
the decision under consideration from the statements and calculates
appropriate ratios.
 To compare the calculated ratios with the ratios of the same firm relating to
the pas6t or with the industry ratios. It facilitates in assessing success or
failure of the firm.
 Third step is to interpretation, drawing of inferences and report writing
conclusions are drawn after comparison in the shape of report or
recommended courses of action.
BASIS OR STANDARDS OF COMPARISON
Ratios are relative figures reflecting the relation between variables. They enable
analyst to draw conclusions regarding financial operations. They use of ratios as a tool of
financial analysis involves the comparison with related facts. This is the basis of ratio
analysis. The basis of ratio analysis is of four types.
 Past ratios, calculated from past financial statements of the firm.
 Competitor’s ratio, of the some most progressive and successful competitor firm
at the same point of time.
 Industry ratio, the industry ratios to which the firm belongs to
 Projected ratios, ratios of the future developed from the projected or pro forma
financial statements
NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial statements.
It is the process of establishing and interpreting various ratios for helping in making
certain decisions. It is only a means of understanding of financial strengths and
weaknesses of a firm. There are a number of ratios which can be calculated from the
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Technology.
information given in the financial statements, but the analyst has to select the appropriate
data and calculate only a few appropriate ratios. The following are the four steps involved
in the ratio analysis.
 Selection of relevant data from the financial statements depending upon the
objective of the analysis.
 Calculation of appropriate ratios from the above data.
 Comparison of the calculated ratios with the ratios of the same firm in the past, or
the ratios developed from projected financial statements orthe ratios of some other
firms or the comparison with ratios of theindustry to which the firm belongs.
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Technology.
INTERPRETATION OF THE RATIOS
The interpretation of ratios is an important factor. The inherent limitations of ratio
analysis should be kept in mind while interpreting them. The impact of factors such as
price level changes, change in accounting policies, window dressing etc., should also be
kept in mind when attempting to interpret ratios. The interpretation of ratios can be made
in the following ways.
 Single absolute ratio
 Group of ratios
 Historical comparison
 Projected ratios
 Inter-firm comparison
GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS

The calculation of ratios may not be a difficult task but their use is not easy.
Following guidelines or factors may be kept in mind while interpreting various ratios are
 Accuracy of financial statements
 Objective or purpose of analysis
 Selection of ratios
 Use of standards
 Caliber of the analysis
IMPORTANCE OF RATIO ANALYSIS

 Aid to measure general efficiency
 Aid to measure financial solvency
 Aid in forecasting and planning
 Facilitate decision making
 Aid in corrective action
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Technology.
 Aid in intra-firm comparison
 Act as a good communication
 Evaluation of efficiency
 Effective tool
LIMITATIONS OF RATIO ANALYSIS

 Differences in definitions
 Limitations of accounting records
 Lack of proper standards
 No allowances for price level changes
 Changes in accounting procedures
 Quantitative factors are ignored
 Limited use of single ratio
 Background is over looked
 Limited use
 Personal bias
CLASSIFICATIONS OF RATIOS
The use of ratio analysis is not confined to financial manager only. There are
different parties interested in the ratio analysis for knowing the financial position of a
firm for different purposes. Various accounting ratios can be classified as follows:
1) Traditional Classification
2) Functional Classification
3) Significance ratios
1) Traditional Classification
It includes the following.

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 Balance sheet (or) position statement ratio: They deal with the relationship
between two balance sheet items, e.g. the ratio of currentassets to current
liabilities etc., both the items must, however, pertainto the same balance
sheet.
 Profit & loss account (or) revenue statement ratios: These ratios deal with
the relationship between two profit & loss account items, e.g. the ratio of
gross profit to sales etc.,
 Composite (or) inter statement ratios: These ratios exhibit the relation
between a profit & loss account or income statement item and a balance
sheet items, e.g. stock turnover ratio, or the ratio of total assets to sales.
2) Functional Classification
These include liquidity ratios, long term solvency and leverage ratios, activity
ratios and profitability ratios.
3) Significance ratios
Some ratios are important than others and the firm may classify them as primary
and secondary ratios. The primary ratio is one, which is of the prime importance to a
concern. The other ratios that support the primary ratio are called secondary ratios.
IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE

A. Liquidity ratio
B. Leverage ratio
C. Activity ratio
D. Profitability ratio
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Technology.
 LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current obligations as &
when there becomes due. The short term obligations of a firm can be met only when there
are sufficient liquid assets. The short term obligations are met by realizing amounts from
current, floating (or)circulating assets The current assets should either be calculated
liquid (or)near liquidity. They should be convertible into cash for paying obligations of
short term nature. The sufficiency (or) insufficiency of current assets should be assessed
by comparing them with short-term current liabilities. If current assets can pay off current
liabilities, then liquidity position will be satisfactory.
To measure the liquidity of a firm the following ratios can be calculated
 Current ratio
 Quick (or) Acid-test (or) Liquid ratio
 Absolute liquid ratio (or) Cash position ratio
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 CURRENT RATIO:
Current ratio may be defined as the relationship between current assets and
current liabilities. This ratio also known as Working capital ratio is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial position
(or) liquidity of a firm.
Current Ratio
Current Ratio
Years Current Assets Current Ratio
Liabilities
2005 58,574,151 79,03,952 7.41
2006 69,765,346 31,884,616 2.19
2007 72,021,081 16,065,621 4.48
2008 91,328,208 47,117,199 1.94
2009 115,642,068 30,266,661 3.82
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Current Ratio
3.82
7.41 2005
2006
1.94 2007
2008
2009
4.48
2.19
Interpretation
As a rule, the current ratio with 2:1 (or) more is considered as satisfactory
position of the firm. When compared with 2008, there is an increase in the provision for
tax, because the debtors are raised and for that the provision is created. The current
liabilities majorly included Lanco Group of company for consultancy additional services.
The sundry debtors have increased due to the increase to corporate taxes.
In the year 2006, the cash and bank balance is reduced because that is used for
payment of dividends. In the year 2005, the loans and advances include majorly the
advances to employees and deposits to government. The loans and advances reduced
because the employees set off their claims. The other current assets include the interest
attained from the deposits. The deposits reduced due to the declaration of dividends. So
the other current assets decreased.
The huge increase in sundry debtors resulted an increase in the ratio, which is
above the benchmark level of 2:1 which shows the comfortable position of the firm.
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 QUICK RATIO
Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to
the ability of a firm to pay its short-term obligations as &when they become due. Quick
ratio may be defined as the relationship between quick or liquid assets and current
liabilities. An asset is said to be liquid if it is converted into cash with in a short period
without loss of value.
Quick Ratio
Quick Ratio
Years Current Assets Current Ratio
Liabilities
2005 58,574,151 7,903,952 7.41
2006 52,470,336 31,884,616 1.65
2007 69,883,268 16,065,620 4.35
2008 89,433,596 47,117,199 1.90
2009 115,431,868 30,266,661 3.81
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Technology.
Quick Ratio
3.81
7.41
2005
2006
1.9 2007
2008
2009
4.35 1.65
Interpretation
Quick assets are those assets which can be converted into cash with in a short
period of time, say to six months. So, here the sundry debtors which are with the long
period does not include in the quick assets.
Compare with 2008, the Quick ratio is increased because the sundry debtors are
increased due to the increase in the corporate tax and for that the provision created is also
increased. So, the ratio is also increased with the 2008.
 ABSOLUTE LIQUID RATIO

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Technology.
Although receivable, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately or
in time. Hence, absolute liquid ratio should also be calculated together with current ratio
and quick ratio so as to exclude even receivables from the current assets and find out the
absolute liquid assets.
Absolute liquidity ratio

Absolute Liquidity Ratio
Years Absolute Absolute Ratio
Current Assets Current
Liabilities
2005 31,004,027 7,903,952 3.92
2006 10,859,778 31,884,616 0.34
2007 39,466,542 16,065,620 2.46
2008 53,850,852 47,117,199 1.14
2009 35,649,070 30,266,661 1.18
Absolute liquidity ratio
1.18
1.14
2005
3.92 2006
2007
2008
2009 51

2.46
0.34
Technology.
Interpretation
The current assets which are ready in the form of cash are considered as absolute liquid
assets. Here, the cash and bank balance and the interest on fixed assts are absolute liquid
assets.
In the year 2008, the cash and bank balance is decreased due to decrease in the deposits
and the current liabilities are also reduced because of the payment of dividend. That
causes a slight increase in the current year’s ratio.
 LEVERAGE RATIOS
The leverage or solvency ratio refers to the ability of a concern to meet its long
term obligations. Accordingly, long term solvency ratios indicate firm’s ability to meet
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the fixed interest and costs and repayment schedules associated with its long term
borrowings.
The following ratio serves the purpose of determining the solvency of the concern.
 Proprietory ratio
 PROPRIETORY RATIO
A variant to the debt-equity ratio is the proprietory ratio whichis also known as equity
ratio. This ratio establishes relationship betweenshare holders funds to total assets of the
firm.
4. PROPRIETORY RATIO
Proprietory Ratio
Years Absolute Absolute Ratio
Current Assets Current
Liabilities
2005 67,679,219 78,572,171 0.86
2006 53,301,834 88,438,107 0.6
2007 70,231,061 89158,391 0.79
2008 56,473,652 106,385,201 0.53
2009 97,060,013 129,805,102 0.75
Proprietory Ratio
0.75 0.86
2005
2006
2007
0.53 2008
0.6 2009 53

0.79
Technology.
Interpretation
The proprietary ratio establishes the relationship between shareholders funds to
total assets. It determines the long-term solvency of the firm. This ratio indicates the
extent to which the assets of the company can be lost without affecting the interest of the
company.
There is no increase in the capital from the year 2006. The shareholder’s funds
include capital and reserves and surplus. The reserves and surplus is increased due to the
increase in balance in profit and loss account, which is caused by the increase of income
from services.
Total assets, includes fixed and current assets. The fixed assets are reduced
because of the depreciation and there are no major increments in the fixed assets. The
current assets are increased compared with the year 2008. Total assets are also increased
than previous year, which resulted an increase in the ratio than older.
C. ACTIVITY RATIOS
Funds are invested in various assets in business to make sales and earn profits.
The efficiency with which assets are managed directly effect the volume of sales.
Activity ratios measure the efficiency (or) effectiveness with which a firm manages its
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resources (or) assets. These ratios are also called “Turn over ratios” because they indicate
the speed with which assets are converted or turned over into sales.
 Working capital turnover ratio
 Fixed assets turnover ratio
 Capital turnover ratio
 Current assets to fixed assets ratio
 WORKING CAPITAL TURNOVER RATIO
Working capital of a concern is directly related to sales.
Working capital = Current assets - Current liabilities
It indicates the velocity of the utilization of net working capital. This indicates the no. of
times the working capital is turned over in the course of a year. A higher ratio indicates
efficient utilization of working capital and a lower ratio indicates inefficient utilization.
Working capital turnover ratio=cost of goods sold/working capital.
5. WORKING CAPITAL TURNOVER RATIO
Working Capital Turnover Ratio

Years Income from Working Ratio
Services Capital
2005 36,309,834 50,670,199 0.72
2006 53,899,084 37,880,730 1.42
2007 72,728,759 55,355,460 1.31
2008 55,550,649 44,211,009 1.26
2009 96,654,902 85,375,407 1.13
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Working Capital Turnover Ratio
0.72
1.13
2005
2006
1.42 2007
2008
1.26
2009
Interpretation 1.31
Income from services is greatly increased due to the extra invoice for Operations &
Maintenance fee and the working capital is also increased greater due to the increase in
from services because the huge increase in current assets.
The income from services is raised and the current assets are also raised together
resulted in the decrease of the ratio of 2009 compared with 2008.
 FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the
efficiency and profit earning capacity of the firm. Higher the ratio, greater is the
intensive utilization of fixed assets. Lower ratio means under-utilization of fixed
assets.
Fixed assets turnover ratio =cost of sales/net fixed assests.
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Cost of Sales = Income from Services
Net Fixed Assets = Fixed Assets – Depreciation
6. Fixed assets turn over ratio
Fixed Assets turn over Ratio

Years Income from Net fixed Assets Ratio
Sevices
2005 36,309,834 28,834,317 1.26
2006 53,899,084 29,568,279 1.82
2007 72,728,759 17,137,310 4.24
2008 55,550,649 15,056,993 3.69
2009 96,654,902 14,163,034 6.82
Fixed Assets turn over Ratio
1.26
1.82
6.82 2005
2006
2007
4.24 2008
2009
57
IDEA Institute
3.69
of Management &
Technology.
Interpretation
Fixed assets are used in the business for producing the goods to be sold. This ratio shows
the firm’s ability in generating sales from all financial resources committed to total
assets. The ratio indicates the account of one rupee investment in fixed assets.
The income from services is greaterly increased in the current year due to the increase
in the Operations & Maintenance fee due to the increase in extra invoice and the net fixed
assets are reduced because of the increased charge of depreciation. Finally, that effected a
huge increase in the ratio compared with the previous year’s ratio.
 CAPITAL TURNOVER RATIOS

Sometimes the efficiency and effectiveness of the operations are judged by
comparing the cost of sales or sales with amount of capital invested in the business
and not with assets held in the business, though in both cases the same result is
expected. Capital invested in the business maybe classified as long-term and short-
term capital or as fixed capital and working capital or Owned Capital and Loaned
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Capital. All Capital Turnovers are calculated to study the uses of various types of
capital.
Capital turnover ratio = cost of good sold/capital employed
Cost of Goods Sold = Income from Services
Capital Employed = Capital + Reserves & Surplus
7.0 Capital turnover Ratio
Capital turn over Ratio

Years Income from Capital Ratio
Services Employed
2005 36,309,834 37,175,892 0.98
2006 53,599,084 53,301,834 1.01
2007 72,728,759 70,231,061 1.04
2008 55,550,649 56,473,652 0.98
2009 96,654,902 97,060,013 1.00
Capital turn over Ratio
1 0.98
2005
2006
2007
1.01 2008
0.98
2009
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1.04
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Interpretation
This is another ratio to judge the efficiency and effectiveness of the company like
profitability ratio.
The income from services is greaterly increased compared with the previous year and
the total capital employed includes capital and reserves & surplus. Due to huge increase
in the net profit the capital employed is also increased along with income from services.
Both are effected in the increment of the ratio of current year.
 CURRENT ASSETS TO FIXED ASSETS RATIO

This ratio differs from industry to industry. The increase in the ratio means
that trading is slack or mechanization has been used. A decline in the ratio means that
debtors and stocks are increased too much or fixed assets are more intensively used.
If current assets increase with the corresponding increase in profit, it will show that
the business is expanding.
Current Assets to Fixed Assets Ratio = Current assets/fixed assets
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8. CURRENT ASSETS TO FIXED ASSETS RATIO

Current Assets To Fixed Assets Ratio
Years Current Assets Fixed Assets Ratio
2005 58,524,151 19,998,020 2.93
2006 69,765,346 18,672,761 3.74
2007 72,021,081 17,137,310 4.20
2008 91,328,208 15,056,993 6.07
2009 115,642,068 14,163,034 8.17
Current Assets To Fixed Assets Ratio
2.93
8.17
3.74 2005
2006
2007
2008
2009
4.2
6.07
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Technology.
Interpretation
Current assets are increased due to the increase in the sundry debtors and the net
fixed assets of the firm are decreased due to the charge of depreciation and there is no
major increment in the fixed assets.
The increment in current assets and the decrease in fixed as sets resulted an
increase in the ratio compared with the previous year.
D. PROFITABILITY RATIOS
The primary objectives of business undertaking are to earn profits. Because profit
is the engine, that drives the business enterprise.
 Net profit ratio
 Return on total assets
 Reserves and surplus to capital ratio
 Earnings per share
 Operating profit ratio
 Price – earning ratio
 Return on investments
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 NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and
sales and indicates the efficiency of the management in manufacturing, selling
administrative and other activities of the firm.
NET PROFIT RATIO =Net profit after tax/net sales
Net Profit after Tax = Net Profit (–) Depreciation (–) Interest (–) Income Tax
Net Sales = Income from Services
PROFITABILITY RATIOS
GENERAL PROFITABILITY RATIOS
9. NET PROFIT RATIO
Net Profit Ratio

Years Net Profit after Income from Ratio
Tax Services
2005 21,123,474 36,039,834 0.59
2006 16,125,942 53,899,084 0.30
2007 16,929,227 72,728,759 0.23
2008 18,259,580 55,550,649 0.33
2009 40,586,359 96,654,902 0.42
63

Technology.
Net Profit Ratio
0.42
0.59
2005
2006
2007
2008
0.33
2009
0.3
0.23
Interpretation
The net profit ratio is the overall measure of the firm’s ability to turn each rupee of
income from services in net profit. If the net margin is inadequate the firm will fail to
achieve return on shareholder’s funds. High net profit ratio will help the firm service in
the fall of income from services, rise in cost of production or declining demand.
The net profit is increased because the income from services is increased. The
increment resulted a slight increase in 2009 ratio compared with the year 2008.
64

Technology.
 RETURN ON TOTAL ASSETS

Profitability can be measured in terms of relationship between net profit and
assets. This ratio is also known as profit-to-assets ratio. It measures the profitability
of investments. The overall profitability can be known.
Returen on assets = Net Profit/ total assets
Net Profit = Earnings before Interest and Tax
Net Profit = Earnings before Interest and Tax
11.0 Return on total assets ratio
Return on Total Assets Ratio

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Technology.
Years Net Profit after Total Assets Ratio
Tax
2005 21,123,474 78,572,171 0.27
2006 16,125,942 88,438,107 0.18
2007 16,929,227 89,158,391 0.19
2008 18,259,580 106,385,201 0.17
2009 40,586,359 129,805,102 0.31
Return on Total Assets Ratio
2005
2006
2007
2008
2009
Interpretation
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Technology.
This is the ratio between net profit and total assets. The ratio indicates the return
on total assets in the form of profits.
The net profit is increased in the current year because of the increment in the income
from services due to the increase in Operations &Maintenance fee. The fixed assets are
reduced due to the charge of depreciation and no major increments in fixed assets but the
current assets are increased because of sundry debtors and that effects an increase in the
ratio compared with the last year i.e. 2008.
 RESERVES AND SURPLUS TO CAPITAL RATIO

It reveals the policy pursued by the company with regard to growth shares. A
very high ratio indicates a conservative dividend policy and increased ploughing back
to profit. Higher the ratio better will be the position.
Reserves & surplus to capital = Reserve & surplus/capital
12.0 Reserve & Surplus to capital Ratio
Reserve & Surplus to Capital Ratio

Years Reserve & Capital Ratio
Surplus
2005 65,599,299 20,79,920 31.54
2006 34,582,554 18,719,280 1.85
2007 51,511,781 18,719,280 2.75
2008 37,754,372 18,719,280 2.02
67

Technology.
2009 78,340,733 18,719,280 4.19
Reserve & Surplus to Capital Ratio
4.19
2.02
2.75 2005
2006
1.85
2007
2008
2009
31.54
68

Technology.
Interpretation
The ratio is used to reveal the policy pursued by the company a very high ratio
indicates a conservative dividend policy and vice-versa. Higher the ratio better will be the
position.
The reserves & surplus is decreased in the year 2008, due to the payment of dividends
and in the year 2009 the profit is increased. But the capital is remaining constant from the
year 2006. So the increase in the reserves & surplus caused a greater increase in the
current year’s ratio compared with the older.
 EARNINGS PER SHARE

Earnings per share is a small verification of return of equity and is calculated
by dividing the net profits earned by the company and those profits after taxes and
preference dividend by total no. of equity shares.
Earnings per share = Net Profit after tax/No. of Equity shares
13. EARNINGS PER SHARE

Earnings Per Share
Years Net Profit after No. of Equity Ratio
Tax Shares
2005 21,123,474 2,07,992 101.56
2006 16,125,942 1,871,928 8.61
2007 16,929,227 1,871,928 9.04
2008 18,259,580 1,871,928 9.75
2009 40,586,359 1,871,928 21.68
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Technology.
Earnings Per Share
21.68
9.75 2005
2006
9.04
2007
2008
8.61
2009
101.56
Interpretation
70

Technology.
Earnings per share ratio are used to find out the return that the shareholder’s earn
from their shares. After charging depreciation and after payment of tax, the remaining
amount will be distributed by all the Shareholders.
Net profit after tax is increased due to the huge increase in the income from services.
That is the amount which is available to the shareholders to take. There are 1,871,928
shares of Rs.10/- each. The share capital is constant from the year 2006. Due to the huge
increase in net profit the earnings per share is greaterly increased in 2009.
 OPERATING PROFIT RATIO

Operating ratio establishes the relationship between cost of goods sold and
other operating expenses on the one hand and the sales on the other.
Operation ratio = Operating cost/Net sales
Operating profit = Net sales - Operating cost
Operating Profit ratio = Operating profit/sales
14.0 Operating Profit Ratio

Operating Profit Ratio
Years Operating Profit Income from Ratio
Services
2005 36,094,877 36,039,834 0.99
2006 27,576,814 53,899,084 0.51
2007 29,540,599 72,728,759 0.41
2008 31,586,718 55,550,649 0.57
2009 67,192,677 96,654,902 0.70
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Technology.
Operating Profit Ratio
0.7
0.99
2005
2006
2007
2008
0.57
2009
0.51
0.41
Interpretation
The operating profit ratio is used to measure the relationship between net profits
and sales of a firm. Depending on the concept, it will decide.
72

Technology.
The operating profit ratio is increased compared with the last year. The earnings are
increased due to the increase in the income from services because of Operations &
Maintenance fee. So, the ratio is increased slightly compared with the previous year.
 PRICE - EARNING RATIO

Price earning ratio is the ratio between market price per equity share and
earnings per share. The ratio is calculated to make an estimate of appreciation in the
value of a share of a company and is widely used by investors to decide whether (or)
not to buy shares in a particular company.
Generally, higher the price-earning ratio, the better it is. If the price earning ratio falls,
the management should look into the causes that have resulted into the fall of the ratio.
Price – Earning Ratio = Market Price Per Share/ Earning Per Share
Market Per Share =Capital + Reserve & Surplus/No Of Equity Shares
Earning Per Share = Earning before interest & tax/No of equity shares
14.0 Price earnings (P/E) Ratio

Price Earnings (P/E) Ratio
Years Market Price Earning per Ratio
Per Share Share
2005 32.54 101.56 0.32
2006 28.47 8.61 3.30
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Technology.
2007 37.52 9.04 4.15
2008 30.17 9.75 3.09
2009 51.85 21.68 2.39
Price Earnings (P/E) Ratio
0.32
2.39
3.3
2005
2006
2007
3.09 2008
2009
4.15
Interpretation
The ratio is calculated to make an estimate of application in the value of share of a
company.
74

Technology.
The market price per share is increased due to the increase in the reserves & surplus.
The earnings per share are also increased greaterly compared with the last year because
of increase in the net profit. So, the ratio is decreased compared with the previous year.
 RETURN ON INVESTMENTS
Return on share holder’s investment, popularly known as Return on
investments (or) return on share holders or proprietor’s funds is the relationship
between net profit (after interest and tax) and the proprietor’s funds.
Return on shareholder’s investment = Net Profit( After interest &
tax)/Shareholder’s Fund
15.0 Return on Investment
Return on Investment
Years Net Profit after Shareholders Ratio
Tax Fnd
2005 21,123,474 67,679,219 0.31
2006 16,125,942 53,301,834 0.30
2007 16,929,227 70,231,061 0.24
2008 18,259,580 56,473,652 0.32
2009 40,586,359 97,060,013 0.42
75

Technology.
Return on Investment
0.31
0.42
2005
2006
2007
0.3 2008
2009
0.32
0.24
Interpretation
This is the ratio between net profits and shareholders funds. The ratio is generally
calculated as percentage multiplying with 100.
76

Technology.
The net profit is increased due to the increase in the income from services ant the
shareholders funds are increased because of reserve &surplus. So, the ratio is increased in
the current year.
A fter determining the level of working capital, a firm has to decide how it is to be
financed. The need for financing arise mainly because the investment in working
capital/current assets, that is, raw material, work-in-progress, finished goods and
receivables typically fluctuates during the year. The present chapter discusses the main
sources of finances for working capital. Although long-term funds partly finance current
assets and provide margin money for working capital, such assets working capital is
virtually exclusively supported by short-term sources. The main sources of working
capital financing, namely, trade credit, bank credit, commercial papers and factoring.
GREENPLUS SOLUTION PVT. LTD has divided its working capital needs which can
be satisfied by two ways.
In GREENPLUS SOLUTION PVT. LTD working capital financing is mainly divided
into two parts:
1) Fund based working capital financing
2) Non-fund based working capital financing.
  Difference between Fund based and Non-fund based loan
Fund based loans are actually received in cash whereas Non-fund based loans are
not received in cash. Non-fund based loans are given by bank to other parties on the
behalf of a company. In Fund based loans there is no limit utilization whereas in Non-
77

Technology.
fund based loans there is certain limit to which it can be utilized. We may be aware that
fund- based finance for exporters are considered at all times by the bankers in view of the
necessity to earn foreign exchange. The computation of the credits for the exporter is
taken up in the usual way as for any working capital limits. The maximum permissible
bank finance is arrived at and the exporter is asked to bring in his share or stake.
The non-fund-based limits are necessary to enable the parties concerned to get the
requisite goods without the necessity of parting with the funds in advance. Based on the
guarantee extended by the purchaser’s bank the supplier sells the items and thereafter
claims under the L/C. the non-fund based limits confers to both the bankers and the
exporters.
1. No blocking of funds. Hence no impact on credit-deposit ratio.

2. Banks are able to earn hefty income from commission without advancing
any fund.
8.1 MARKET SCENARIO:

Financial Assistance provided by financial institutions & commercial banks mainly
includes following products.
78

Technology.
Financial Products
Fund Based Non-fund Based
Working capital
Letter of Credit
Line of Credit
Bank Guarantee
Bill Finance
Deferred
Term Loan
Payment
Short-term
Guarantees
Corporate loan
Solvency
Bridge Loan
Certificate
Project Finance
Credit Reports
Over Draft
Today, the market providing financing solutions to corporate is very competitive. The
only difference that the provider can make is the differentiation through its services.
Modifying some of the product features can distinguish the service provider but there is
very less scope in that front as the current products are almost in line with its most
innovative nature. Companies utilize this product according to its nature of business as
well as financial terms agreed with its supplier and customers.
8.2 FINANCIAL INSTRUMENTS USED BY GREENPLUS

SOLUTION PVT. LTD LTD:
These two pats are further divided into subparts.
Fund based financing can be classified into sub parts like

1) Cash Credit
2) Short term loans from Banks
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Technology.
Non-fund based working capital can be divided into sub parts like
1) Bank Guarantee or Letter of Guarantee
2) Letter of Credit or Line of Credit
FINDINGS, SUMARRY & CONCLUSION

FINDINGS OF THE STUDY
80

Technology.
 The current ratio has shown in a fluctuating trend as 7.41, 2.19, 4.48, 1.98, and
3.82 during 2003 of which indicates a continuous increase in both current assets
and current liabilities.
 The quick ratio is also in a fluctuating trend through out the period 2003 – 07
resulting as 7.41, 1.65, 4.35, 1.9, and 3.81. The company’s present liquidity
position is Satisfactory.
 The absolute liquid ratio has been decreased from 3.92 to 1.18, from 2003 – 07.
 The proprietory ratio has shown a fluctuating trend. The proprietory ratio is
increased compared with the last year. So, the long term solvency of the firm is
increased.
 The working capital increased from 0.72 to 1.13 in the year 2003 – 07.
 The fixed assets turnover ratio is in increasing trend from the year 2003 – 07
(1.26, 1.82, 4.24, 3.69, and 6.82). It indicates that the company is efficiently
utilizing the fixed assets.
 The capital turnover ratio is increased form 2003 – 05 (0.98, 1.01, and 1.04) and
decreased in 2006to 0.98. It increased in the current year as 1.00.
 The current assets to fixed assets ratio is increasing gradually from 2003 – 07 as
2.93, 3.74, 4.20, 6.07 and 8.17. It shows that the current assets are increased than
fixed assets.
 The net profit ratio is in fluctuation manner. It increased in the current year
compared with the previous year form 0.33 to 0.42.
 The net profit is increased greaterly in the current year. So the return on total
assets ratio is increased from 0.17 to 0.31.
 The Reserves and Surplus to Capital ratio is increased to 4.19 from 2.02. The
capital is constant, but the reserves and surplus is increased in the current year.
 The earnings per share was very high in the year 2003 i.e., 101.56. That is
decreased in the following years because number of equity shares are increased
and the net profit is decreased. In the current year the net profit is increased due to
81

Technology.
the increase in operating and maintenance fee. So the earnings per share is
increased.
 The operating profit ratio is in fluctuating manner as 0.99, 0.51, 0.41, 0.57 and
0.69 from 2003 – 07respectively.
 Price Earnings ratio is reduced when compared with the last year. It is reduced
from 3.09 to 2.39, because the earnings per share is increased.
 The return on investment is increased from 0.32 to 0.42 compared with the
previous year. Both the profit and shareholders funds increase cause an increase
in the ratio.
SUMMARY
 After the analysis of Financial Statements, the company status is better, because
the Net working capital of the company is doubled from the last year’s position.
 The company profits are huge in the current year; it is better to declare the
dividend to shareholders.
 The company is utilising the fixed assets, which majorly help to the growth of the
organisation. The company should maintain that perfectly.
82

Technology.
 The company fixed deposits are raised from the inception, it gives the other
income i.e., Interest on fixed deposits.
CONCLUSION
The company’s overall position is at a good position. Particularly the current year’s
position is well due to raise in the profit level from the last year position. It is better for
the organization to diversify the funds to different sectors in the present market scenario.
BIBLIOGRAPHY
REFFERED BOOKS
 FINANCIAL MANAGEMENT - I. M. PANDEY
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Technology.
 MANAGEMENT ACCOUNTANCY - PILLAI & BAGAVATI
 MANAGEMENT ACCOUNTING – SHARMA & GUPTA
INTERNET SITE
 www.ercap.org
 www.wikipedia.com
 www.nwda.gov.in
Balance Sheet as on 31st March 2009
Particular 2008-09 2007-2008

1} Shareholder’s Funds
A} Capital 18,719,280 18,719,280
B} Reserve and Surplus 78,340,733 37,754,372
2} Deferred Tax Liability 24,78,428 27,94,350
Total 99,538,441 59,268,002
Application of Funds
1} Fixed Assets
A} Gross Block 31,057,596 29,767,979
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Technology.
B} LESS: Depreciation 16,894,562 14,710,986
C} Net Block 14,163,034 15,056,993
2} Current Assets, Loans,
& Advances
A} Sundry Debtors 80,712,804 37,856,420
B} Cash & Bank 34,043,520 51,690,326
C} Other Current Assets 1,52,228 8,57,753
D} Loans & Advances 7,33,516 9,23,709
LESS: Current Liabilities
& Provisions
A} Liabilities 21,596,916 38,591,265
B} Provisions 8,669,745 8,525,934
30,266,661 47,117,199
Net Current Assets 85,375,407 44,211,009
TOTAL 99,538,441 59,268,002
1} INCOME
Income from Services 96,654,902 55,550,649
Other Income 23,98,220 22,85,896
TOTAL 99,053,122 57,936,545
2} Expenditure
Administrative & other 81,334,750 75,599,719
expenses
81,334,750 75,599,719
LESS: Expenditure 49,474,305 49,349,892
Reimbursable under
Operations &
Maintenance Agreement
TOTAL 31,860,445 26,249,827
3} Profit before 67,792,677 31,586,718
depreciation and taxation
4} Profit before taxation 65,009,101 29,306,801
Provision for taxation
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Technology.
Current 24,292,000 10,680,440
Deferred (3,15,922) (67,359)
Fringe Benefit 4,46,663 4,34,140
5} Profit after taxation 40,586,359 15,259,580
Surplus through forward 26,699,257 44,951,851
form previous year
6} Profit available for 67,285,617 63,211,431
appropriations
Transfer to general reserve ------------ 4,495,185
Interim Dividend Rs. 15 ------------ 28,078,920
Per equity share ( 2005-
NIL)
Provision for dividend ------------ 3,938,069
distribution tax
7} Balance carried to 67,285,617 26,699,257
balance sheet
86

Technology.

Study of Working Capital at Greenplus Solution Pvt Ltd

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Greenplus Solution Pvt Ltd

Study of Working Capital.

Submitted To :- Mr. Kaushikbhai Patel (Asst.

Project Guide:- Mr. Gautam Vaghela

Submitted by:- Ilesh Vaghela

IDEA Institute of Management &

This report seeks to describe the functions of various departments of business

IDEA Institute of Management &

4th Sem.Finance M.B.A.

IDEA Institute of Management &

Role of Financial Managers:

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

2.1 REASEARCH METHODOLOGY:

IDEA Institute of Management &

IDEA Institute of Management &

he importance of working capital in any industry needs no special emphasis. Working

IDEA Institute of Management &

IDEA Institute of Management &

5.1 NATURE OF WORKING CAPITAL:

IDEA Institute of Management &

5.2 CONCEPT OF WORKING CAPITAL:

There are two concepts of working capital: Gross and Net.

The task of the financial manager in managing working capital efficiently is to

IDEA Institute of Management &

IDEA Institute of Management &

5.4 NEED FOR WORKING CAPITAL:

IDEA Institute of Management &

5.5 TYPES OF WORKING CAPITAL:

Initial working Regular working Seasonal Special working

IDEA Institute of Management &

  Initial working capital:

  Regular working capital:

IDEA Institute of Management &

  Special working capital:

5.6 DETERMINANTS OF WORKING CAPITAL:

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

IDEA Institute of Management &

i. Inventory conversion period

INVENTORY CONVERSION PERIOD

 Raw material conversion period:

RMCP = Raw material inventory * 365

Raw material consumption

IDEA Institute of Management &

 Work-in-progress inventory conversion period:

WIPCP = work-in-progress inventory * 365

 Finished goods conversion period:

FGCP = finished goods inventory * 365

Cost of goods sold

DCP = Average debtors * 365