i

ii

ACKNOWLEDGEMENT
I, Maneesha Jaiswal , student of MBA , sincerely thank Dr.R.K. Trivedi , the Director
of Step HBTI , Kanpur for being associated with this reputed Institute for my MBA
studies.
I am grateful and wish to place on record my sincere thanks , for the leadership and
guidance to Rashi Saxena (Faculty Mentor) for the moral, academic and problem
solving support without which this project report would not have come up to its
present form. At this point of time I would not forget Mr. Manish Shrivastava ,
Branch Manager, Reliance Communication Ltd., Ghaziabad .
Last but not the least, I would also like to thank my colleagues and staff of the MBA
department and employees of this elite Institute for whatever they have done for
helping me out every time in completion of this project report.
I would also like to extend a vote of thanks to all those people and the websites who
guided or directed me in bringing this project to the reality. Without their guidance
and proper support this project report would not have been possible for me to prepare.
Maneesha Jaiswal

iii

DECLARATION

I , Maneesha Jaiswal , hereby declare that I have carried out summer training on
the topic, Study of Training & Development at Reliance Communication Ltd.
I further declare that this Research work is my original work and no part of this report
has been published or submitted to anybody or university award of any other degree
or diploma. I also take the responsibility of my shortcomings.

Date:
Place:
(Signature)

iv

CHAPTER-1
EXECUTIVE SUMMARY

vi

EXECUTIVE SUMMARY
When I was working in the company I have taken good knowledge about the working
capital management process of the company. The senior financial analysts of the company
always helped me in understanding difficulties in the ratio analysis process.
The following data and diagrams are the overview of the project. The data content
Provide an overall conceptual aspect of Working Capital And Ratio Analysis For
Supertech Pvt LtdResearch is defined as human activity based on intellectual
application in the investigation of matter. The primary purpose for applied research is
discovering, interpreting, and the development of methods and systems for the
advancement of human knowledge on a wide variety of scientific matters of our world
and the universe. Research can use the scientific method, but need not do so. Scientific
research relies on the application of the scientific method, a harnessing of curiosity. This
research provides scientific information and theories for the explanation of the nature and
the properties of the world around us. It makes practical applications possible. Scientific
research is funded by public authorities, by charitable organizations and by private
groups, including many companies. Scientific research can be subdivided into different

vii

classifications according to their academic and application disciplines.The selection of the

particular research approach depends on the kind of information required. Qualitative
research collects, analyzes, and interprets data that cannot be meaningfully quantified,
that is, summarized in the form of numbers. For this reason, qualitative research is
sometimes referred to as soft research. Quantitative Research calls for very specific
data, capable of suggesting a final course of action. A primary role of quantitative
research is to test hunches or hypotheses. These suggest that qualitative approach is a soft
research approach in which collected data cannot be meaningfully quantified and more
importantly in this approach non-structured research is conducted. But so far as
quantitative research approach is concerned, through this approach structured research is
conducted with approaching larger respondents and the collected data can be
meaningfully quantified. Research data can be collected either in the form of secondary or
primary or both. Secondary Data usually factual information can be obtained through
secondary data that has already been collected from other sources and is readily available
from those sources. The definition and characteristics of secondary data presented above
suggest us that secondary data are data that have already been collected for purpose other
than the problem in hand. Before detailing as how and what secondary data were
collected in this research, in would be worth to examine the advantages and disadvantages
of such data.
Secondary data are easily accessible, relatively inexpensive, and quickly obtained. Some
secondary data are available on topics where it would not be feasible for a firm to collect
primary data. Although it is rare for secondary data to provide all the answers to a nonroutine research problem, such data can be useful in a variety of ways. Primary data is
collected for the specific purpose of addressing the problem at hand. The collection of
primary data involves various steps. Thus obtaining primary data can be expensive and

viii

time consuming. These suggest that primary data are those data that are collected for the
particular purpose of research in hand. The disadvantage of collecting primary data is that
it is lengthy and resource and time consuming process, but the advantage of primary data
is that they are first hand information and comparatively more reliable. A researcher
originates primary data for the specific purpose of addressing the problem at hand.
According to Clifford Woody research comprises defining and redefining the problems ,
formulating hypothesis or suggested solutions, collecting , organizations and evaluating
data, making deductions making deductions and reaching conclusion and at last carefully
testing the conclusions whether they fit the formulating hypothesis. Research
methodology is a procedure designed to the extent to which it is planned and evaluated
before conducting the inquiry and the extent to which the method for making decisions is
evaluated before conducting the inquiry and the extent to which the method for making
decisions is evaluated. The research methodology if scientifically developed enables the
research to establish with high degree of confidence, cause and effect relationship
between the research between the research activities and observed outcomes.
Along with various important tools that are essential for the firms should be fast
and responsive. These require responding to customer needs for quality, variety and
Timeliness.
Meeting these requires a workforce that is technically trained in all respect. Working
Capital Management require people who are capable of analyzing and solving job related
Problems. To survive and flourish in the present day corporate jungle, companies should
Invest time and money in upgrading the knowledge and skills of their employees
constantly .

ix

As the so taken companies act as the benchmark for Real Estate Sector, therefore their
study and evaluation in respect to social survey was a learning experience. Companys
profile, its facts and figure though provide the background of the company but they also
showcases, the prime importance of social survey for any organization to perpetuate
itself, through growth, there is a basic need for developing its manpower resources. It is
essential to develop skills and also update knowledge. Especially, in rapidly changing
society, employee training and development is not only an activity that is desirable but
also one that an organization must commit its resources to, if it is to maintain a viable and
knowledge workforce.

Statement of research problem:

Working capital is a financial metric which represents operating liquidity available to a
business, organization, or other entity, including governmental entity. Along with fixed
assets such as plant and equipment, working capital is considered a part of operating
capital. Net working capital is calculated as current assets minus current liabilities. It is a
derivation of working capital that is commonly used in valuation techniques such as
DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity
has a working capital deficiency, also called a working capital deficit.

Statement of Research Objectives:

To analyze the working capital management and do the ratio analysis of the
company Supertech Private Limited Company.

OBJECTIVES
The main objective of working capital management is to manage current assets and
current liabilities in a manner so that working capital can be kept in a satisfactory
level. It is also taken in to account that the working capital should be neither excessive
nor inadequate. Management of working capital affects profitability, risk and liquidity
of the business significantly. Managements should, therefore, maintain proper balance
among these factors while managing working capital. If the quantum of working
capital is more, it will increase liquidity, but decrease profitability and risk. If working
capital relatively declines, it will decrease liquidity but cause an increase in
profitability and risk. If business wants to earn more profit, it will have to bear higher
risk. Risk means inability of the firm to pay current liabilities in time.

xi

CHAPTER -2
INTRODUCTION

xii

INTRODUCTION
1.1 General Introduction about the sector:
The rapidly growing real estate market in India is moving towards maturity with
increasing participation from large local and international players, rising investor
interest and a market-friendly approach. The governments decisions to allow 100%
foreign direct investment (FDI) and the entry of venture funds in real estate are
expected to add to the growth momentum created by affordable financing options and
rising disposable incomes. Further, there are indications that obstacles such as the
absence of investment instruments in real estate are likely to be removed. Already,
real estate mutual funds have been allowed to be floated in a move industry observers
believe will pave the way for the setting-up of Real Estate Investment Trust-like
structures. Apart from the IT sector, demand for commercial space is also expected to
be driven by the special economic zones, large retail formats and warehousing. The
real estate market touched US$xx by 2009 up from US$16 billion in 2009-12.It is
estimated that private equity funds would invest about US$xx in the countrys real
estate sector between 2009-2011 attracted by yields that are among the highest in the
region.

xiii

PEST Analysis of Indian Real Estate Industry:

Political Factors:

Cement Prices Reduced for State Infrastructure Projects

FDI Liberalization to Augment Industry Growth

Economic Factors:

Growth in Construction Activity Stimulating GDP Growth

Rate Hikes Unlikely To Slow Down Growth

Social Factors:

Shifting Consumption Pattern to Fuel Industry Growth

Rising Urbanization to Boost Industrial Growth

Technological Factors:

Low Technology Adoption to Hinder Growth

Construction as per Indian Requirements

xiv

SWOT Analysis of Indian Real Estate Industry:

Strength:

Employment and training opportunities

Construction of the multi building projects on the feasible locations in the

country.

Low cost well- educated and skilled labour force is now widely available
across the country.

Sufficient availability of raw material and natural resources in the country is

supportive for the industry.

Weakness:

Chances of Natural disadvantage are there.

Distance between projects reduces business efficiency.

Lack of clearly define processes and procedures for construction and its
management.

Huge amount of money need to be invested in this industry.

Opportunities:

Continuous private sector housing boom will create more opportunities.

xv

Renewable energy projects will offer opportunities to develop skills and

capacity in new markets.

More flexible training delivery techniques are now available.

Financial supports like loan and insurance and growth in income of people is
in support of industry.

Threats:

Long term market instability and uncertainty may damage the opportunities
and prevent the expansion of training and development facilities.

Current economic situation may have an adverse impact on Indian Real Estate
industry.

Infrastructure safety is a challenging task in industry.

Lack of political willingness and support on promoting new strategies

Inefficient accessibility in planning and concerning the infrastructure and

signs.

xvi

FINANCIAL ANALYSIS:
Indian Real Estate transactions are considered a key indicator of economic activity, is
showing first signs of financial stability after a free fall during the early part of this
year. According to real estate consultants, the worst phase for the industry seems to be
over as lease rentals both in peripheral areas as well as the central business district
(CBD) are showing signs of settling down, in addition to deals getting clinched.
Transaction data show that Chennai and its adjoining areas witnessed more than 1.95
million square feet of property deals in the first half of 2011. The whole of 2009
witnessed transactions for around 4.90 million square feet. We do not want to call it
recovery as yet, but at least we can say the downturn has been arrested. In our view,
the worst seems over. Property prices are showing signs of holding on, and it may not
fall further, said Rajesh Babu, Chief Consultant, RECS Group a real estate
consultancy, which managed the largest deal of RBS in India Land IT Park for 3.50
lakh square feet this year.

xvii

INVESTMENT OPPORTUNITY
Private equity real estate funds are well-suited to pursue opportunistic investment
strategies. Fund structures can be used to: (a) exploit niche opportunities; (b) gain
access to new markets; and (c) enhance portfolio returns. Private equity real estate
funds have enjoyed a strong performance record, assumed an increasingly influential
role in the real estate investment market, and achieved widespread acceptance among
institutional investors (Phalippou and Ludovic, 2009a). An important caveat is that the
success of private equity real estate funds over recent years, has taken place during a
period of cap rate compression. Even poorly managed private equity real estate funds
would have shown strong absolute returns. As many industry professionals concede:
Over the past few years, weve all looked like geniuses. The period of cap rate
compression is over and superior returns will not be achieved except through creative
and disciplined management. While levels are of exposure to them may vary. Private
equity real estate funds are expected to remain a permanent fixture within the
investment portfolios of institutional investors for the foreseeable future, primarily
because of the impact that management can have on real estate performance. As one
private equity real estate fund manager has stated: There has never been a better time
in the history of investment real estate to create value by leveraging the creativity of
human capital. Throughout the recent recession, the domestic real estate market
performed well compared to financial assets, despite challenging fundamentals in
some sectors and regional markets.

xviii

CHAPTER -3
COMPANY PROFILE

xix

PROFILE OF THE ORGANIZATION

2.1 ORIGIN OF THE ORGANIZATION:
The Supertech was promoted by Mr. R.K. Arora aged 46 years who is a civil engineer
by profession and having more than 20 years experience in construction and allied
activities. Supertech Group started long back in 1995 with their flapship company
Supertech Constructions Pvt ltd (Changed to Supertech Ltd now). The group grew
from small company to large corporate house of well known brand Supertech.
Supertech Limited has developed and constructed several prestigious group housing ,
malls, hotels, multiplexes and commercial complexes in and around Delhi. The group
is known from high quality construction, innovative designs and well planned
amenities at prime location. The brand supertech is well known in real estate
industry and the group has successfully completed a number of residential and
commercial complexes in NCR delhi and Western U.P.
In a span of 20 years, Supertech limited has achieved an impressive growth . The
annual turnover for the year ending 31th March, 2011 stands at Rs. 214.76 crores and
Profit before Tax at Rs. 35.99 crores. The companies tangible net worth is more than
183 crores as on 31.03.2011. The Company holds an ISO 9001:2000 certification and
Supertech as a brand name is registered with the registrar of Trade Marks.
The Group has completed three Shopping Malls called Shopprix at Sector 61,
Noida, Sector 5, Vaishali and Kaushambi, Ghaziabad respectively. The Group has
completed Group Housing Projects like Supertech Residency, Supertech Estate at
Vaishali, Housing Project Rameshwar Orchid at Kaushambi and Housing Project
Icon at Indrapuram, Ghaziabad. The presently ongoing projects of the group

xx

includes Integrated Townships, large Group Housing Complexes, Commercial

complexes, Multi cineplexes ans 5 Star Hotel Projects .

2.2 Growth and development of the organization:

The Group has completed three Shopping Malls called Shopprix at Sector 61,
Noida, Sector 5, Vaishali and Kaushambi, Ghaziabad respectively. The Group has
completed Group Housing Projects like Supertech Residency, Supertech Estate at
Vaishali, Housing Project Rameshwar Orchid at Kaushambi and Housing Project
Icon at Indrapuram, Ghaziabad. The presently ongoing projects of the group
includes Integrated Townships, large Group Housing Complexes, Commercial
complexes, Multi cineplexes ans 5 Star Hotel Projects .

This Group has crafted architectural masterpieces like Emerald Court at Sector 93,
NOIDA and High End Residential Project with 7 star living facilities at Sector-34
NOIDA and a 7, 00000 square feet commercial hub, The Pentagon Mall in Haridwar.
Super-tech Group had tied up with an MNC Group to set up a 5 star Hotel at
Rudrapur, Uttarakhand and a major health care company to open medical facility
outlets in different format at all the projects developed by the Group.

xxi

2.3 Present status of the organization:

Supertech Group, founded in 1995, has set new trends and benchmarks of
architectural excellence in the contemporary global scenario. An ISO 9001:2000
certified company; Supertech has successfully completed 20 years in real estate
business and today it has revolutionized the real estate arena. Under the dynamic and
pragmatic leadership of Mr. R.K.Arora, Chairman & CMD and experienced Board
Members, Supertech Group is scaling new heights and touched the horizon of
excellence. Their vision and entrepreneurial acumen and have taken the group to the
greater heights.
All this dedication and commitment has enabled us to receive the coveted Udyog
Ratan Award, 2001 for unparalleled contribution to this area. The greatest
contributory factor to this landmark achievement is the vision of Mr. R.K. Arora
whose entrepreneurial skills and business acumen have steered the group diligently on
a growth path. Mr. Arora has also been bestowed with Excellence Award for the
year 2001 for his outstanding contributions to real estate industry.
Supertech Group has already converted more than 33 million sq. ft. area of residential
and commercial entity into architectural landmarks and more than 36 projects that
accommodates nearly 30000 families. Its various projects viz. Residential &
Commercial Townships, Shopping Malls, Hotels and IT Parks have either completed
or about to complete. We are inspired by our clients to endeavour the dreams turning
into reality. Our commitment to deliver quality with aesthetic design surges ahead
with the enterprising vision of creating value through excellence. Our world class
architecture shows true modern lifestyle.

xxii

2.4 Functional department of the organization:

Chart 1: Functional department of the organization

xxiii

ORGANIZATION
STRUCTURE

xxiv

ORGANIZATION STRUCTURE

Chart 2: Organization structure

xxv

2.6 Product and service profile of the organization:

The company has built a lot of residential and commercial projects that are considered
modern architectural masterpieces. Some of these projects are as follows:

Supertech Czar Suites

Supertech Emperor

Supertech Livingston

Supertech Palm Greens

Supertech Metropolis at Rudrapur

Supertech Emerald Court

Supertech Icon at Indirapuram

Supertech Avant Garde at Vaishali.

Although, most of these projects are still under construction, these residential
complexes are ensuring facilities like:

R.O. Water Plant

Underground Cable

Swimming Pool

Hi-Tech round-the-clock security system with CCTV arrangements

xxvi

Dedicated Parking

Imported Wooden flooring

100% Power Backup

Sanitation with PPR pipes

Bathtub with imported shower panel

75% Green Area

In-house club with Gymnasium

In-house Play-way school, Day-care Center for Children

Gardens

Accommodation ranging from 2-bedroom flats to villas can be found with varying
price range.
The company is about to construct many more commercial projects. They are mainly
shopping malls which will have outlets of big companies like Barista, McDonalds,
John Players, Reliance, and so on.

Shopprix, Vaishali

Shopprix, Noida

Shopprix Mall, Haridwar

Shopprix Mall, Rudrapur

xxvii

Shopprix , Kausambi

Phoneix Mall, Meerut.

Tight security, glass capsule lifts, enough car parking space, fully air-conditioned, and
multiplexes are assured in these buildings. The company has started constructing its
township project named Crossings Republic, which aims at upholding the essence of
modern living.

MARKET PROFILE OF THE ORGANIZATION:

Supertech Group was founded in 1988. We developed some of the modern and finest
residential and commercial complexes in Delhi, National Capital Region (NCR) and
new urban settlement like Meerut, Moradabad, Haridwar and Rudrapur. Since our
inception we have been responsible for the development of many of Delhis other well
known urban housing colonies. Our foray into real estate and construction industry
led to creation of various landmark real estate projects Crossings Republik, Emerald
Court, Avant-Garde, Shopprix Mall are few examples of that. Its residential township
is having all the modern and essential facilities which includes commercial and retail
properties in a modern city infrastructure with schools, hospitals, hotels and shopping
malls. This Group has crafted architectural masterpieces like Emerald Court at Sector
93, NOIDA and High End Residential Project with 7 star living facilities at Sector 34
NOIDA and a 7, 00000 square feet commercial hub, The Pentagon Mall in Haridwar.
Supertech Group had tied up with an MNC Group to set up a 5 star Hotel at Rudrapur,
Uttarakhand and a major health care company to open medical facility outlets in
different format at all the projects developed by the Group.

xxviii

INDUSTRY PROFILE

xxix

INDUSTRY PROFILE
The real estate sector in the country is one of great importance. According to the
report of the Technical Group on Estimation of Housing Shortage, an estimated
shortage of 26.53 million houses during the Eleventh Five Year Plan (2007-12)
provides a big investment opportunity. India leads the pack of top real estate
investment markets in Asia for 2010, according to a study by PricewaterhouseCoopers
(PwC) and Urban Land Institute, a global non-profit education and research institute,
released in December 2009. The report, which provides an outlook on Asia-Pacific
real estate investment and development trends, points out that India, in particular
Mumbai and Delhi, are good real estate investment destinations. Residential
properties are viewed as more promising than other sectors. The study is based on the
opinions of over 270 international real estate professionals, including investors,
developers, property company representatives, lenders, brokers and consultants.
Further, real estate companies are coming up with various residential and commercial
projects to fulfill the demand for residential and office properties in Tier-II and TierIII cities. For instance, Ansal Properties has several residential projects in cities such
as Jodhpur, Ajmer, Jaipur, Panipat, Kundli and Agra. Omaxe has also planned around
40 residential and integrated township projects in Tier-II and Tier-III cities, majority
of them being in Uttar Pradesh, Punjab, Madhya Pradesh, Rajasthan and Haryana. The
growth in real estate in Tier-II and Tier-III cities is mainly due to increase in demand
for organised realty and availability of land at affordable prices in these cities.
According to the data released by the Department of Industrial Policy and Promotion
(DIPP), housing and real estate sector including cineplex, multiplex, integrated
townships and commercial complexes etc, attracted a cumulative foreign direct

xxx

investment (FDI) worth US$ 8.4 billion from April 2000 to April 2010 wherein the
sector witnessed FDI amounting US$ 2.8 billion in the fiscal year 2009-10.

A. Origin and development of the industry:

The realty sector in India is on a roll, attracting billions of dollars in international
funding, as developers are transforming city skylines. For the Indian real estate
industry, 2006 has indeed been an unforgettable year. Property prices have soared
across the sub-continent, despite millions of sq ft of real estate being developed, as
demand continued to soar. But for the first time in the history of the Indian real estate
sector, funding of projects has not been a problem. There has been an abundance of
money flowing into the sector, as foreign investors ploughed in the moolah, and
Indian developers floated issues in overseas exchanges, raising cash for mega
projects. The current boom in the Indian real estate sector is different from previous
ones in many ways. The property boom in the early 1990s was fuelled by speculative
buying and projects were funded by investors out to make a killing. This time,
investors are mainly institutional, and are not looking for a short-term return, but are
here to stay for the long run.
A majority of the buyers are also actual users, who are acquiring properties for their
own use. A large number of buyers are borrowing funds from housing finance
companies (HFCs), as housing loans have become affordable. While in the 1990s,
borrowers had to pay hefty rates on housing loans (up to 18 per cent), today it is
around half that level, enabling a wider group of people to access loans. Again,
unlike in previous bull-runs, there has been no slackening in supplies, as developers
are taking up massive projects around the country. About 15 years ago, when there
was a boom, it was mainly in cities like Mumbai, Pune. Bangalore and Delhi. But

xxxi

there is no doubt that the industry is witnessing boom conditions. Property prices in
cities like Mumbai, Delhi and Bangalore have been expanding by 75 to 100 per cent .
Most Indian cities are also witnessing an acute shortage of land, as top developers
have acquired vast tracts of land. Demand for land is soaring in urban India,
especially with hundreds of special economic zones (SEZs), IT and bio-tech parks,
airports, shopping malls, and other projects coming up by the hundreds. The billions
of dollars that are being invested in infrastructure development are also having a
terrific impact on the real estate sector. Property prices along the Delhi Metro, the
Mumbai-Pune expressway, the Ring Road in Bangalore, and other infrastructure
development sites have shot up phenomenally in recent months. 'Future of Real Estate
Investment in India,' values the industry higher at $16 billion. The ASSOCHAM study
notes that the sector had expected to burgeon to $60 billion by 2010, with FDI inflows
into the sector amounting to between $25 billion and $28 billion.
Some of the major investors so far include Royal Indian Raj International, a Canadabased NRI group (with investments of $2.9,billion), the Blackstone group and
Goldman Sachs ($1 billion each), Citigroup ($125 million in the initial phase), and
GE Commercial Finance Real Estate ($63 million). Last month. JP Morgan's Principal
Real Estate Investments invested $60 million in a premium residential project being
developed by Lodha Builders in Mumbai.

xxxii

(B). Growth and present status of the industry:

All immovable properties including land, structures on it and all other natural
resources can be classified as real estate. Realtors, builders, brokers, buyers and
sellers are the major players of the real estate industry. All types of residential,
commercial and industrial properties fall under its domain. With its huge growth
potential it has emerged as a major field of business in recent time. The real estate
sector in India is flourishing rapidly with a growth rate of 30 percent each year. About
80 percent of the real estate development in India has been in the field of residential
housing. The remaining 20 percent of the real estate includes office, shopping malls,
entertainment centers, hotels, multiplexes and hospitals.. In last couple of years the
share of commercial sector in the overall real estate growth has been more prominent.
Considering the advantages of significantly lower cost of operations in India, several
multinational companies across the globe are expressing their willingness to shift their
operations to India. These multinational companies have realized the fact that in order
to flourish their business, the skilled Indian work force can be of great use to them. So
they need to provide the Indian professionals with all the facilities of modern life
starting from housing to entertainment, so that they can give their best in the work
place and at the same time be happy with their standard of living. This trend has set
off the development of world-class entertainment centers and business centers, across
the country, thereby bringing a radical change in the lives of urban population in
India. The growing demand of skyscrapers in all the metropolitan cities across the
country has changed the image Indian skyline.

xxxiii

(C) Future of the industry:

Though we have experienced drastic economic issues in last year, still Kerala is a
paradise for real estate agents. Kerala is a beautiful greenish state situated in southern
part of India. Till now we can see the flow of money from other sources to real estate
industry. Investing money in land and properties is benefited not only as an asset but
also as a deposit for future. Comparing to other investing methods, real estate seems
to be more rigid and free from high fluctuations in exchange rate. Economic
specialists recommend youngsters to invest their money in solid assets like land,
house, buildings etc compared to investing money in share markets. If you are not
ready to participate in high risk business like share and equity markets, the best choice
is real-estate business. In India one of the major destinations for real estate companies
is Kerala right after major metro cities. It is because of some of the following reasons.

Growth of tourism in Kerala

Flow of NRI (Non-Resident Indian)money to this state

Growth of IT and IT related services in Kerala

High human density

Kerala is one of the top rated tourist hub in International tourism map. If we compare
the over all foreign visitors who came to India, Kerala enjoys the major share of it.
Warm and pleasant climate, hill stations, beaches and back waters of Kerala attract
visitors and the number of them increases per year. So investing money in acquiring
properties in tourist places in Kerala is a new trend we can see. Another reason for the
sudden growth of real-estate in Kerala is the huge flow of NRI income. Kerala is the
xxxiv

highly literate state in India and most of the youth is employed in United States,
European countries and in Middle East. The money send by them is mainly used to
purchase land and buildings. This phenomenon is one of the major back bone of realestate industry in Kerala. After tourism and NRI income, IT is the next major source
of income in Kerala. In recent years Government of Kerala is promoting IT industries
in Kerala and many new companies started their operation in Kerala. Introduction of
major IT cities encourage the investment of money in acquiring lands near them. So
due to the presence of many factors like tourism, IT industries, NRI income etc, real
estate service in Kerala seems to have good future.

xxxv

CHAPTER -4
WORKING CAPITAL
MANAGEMENT
&
RATIO ANALYSIS

xxxvi

WORKING CAPITAL MANAGEMENT

DEFINING WORKING CAPITAL
The term working capital refers to the amount of capital which is readily
available to an organization. That is, working capital is the difference between
resources in cash or readily convertible into cash (Current Assets) and organizational
commitments for which cash will soon be required (Current Liabilities).
Current Assets are resources which are in cash or will soon be converted into
cash in the ordinary course of business.
Current Liabilities are commitments which will soon require cash settlement
in the ordinary course of business.
WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES
In a departments Statement of Financial Position, these components of
working capital are reported under the following headings:
CURRENT ASSETS INCLUDE:

Sundry Debtors
Inventories
Loan an Advances
Interest Receivable
Cash and Bank.

Current Liabilities refer to those liabilities, which are to be paid in near future. It
includes:

Bank Overdraft
Bill Payable
Creditors
Outstanding expanses
Short term loans.

CONCEPTS OF WORKING CAPITAL

xxxvii

There are two concepts of working capital Gross and Net.

Gross Working Capital refers to the capital invested in total current assets of
the enterprise. Current assets are the assets which can be converted into cash within
an accounting year and include cash, short term securities, debtors, bills receivable
(accounts receivables or book debts) and stock.
Net Working Capital refers to the difference between current assets and
current liabilities. Current liabilities are those claims of outsiders, which are
expected to mature for payment within an accounting year, and include creditors
(accounts payable), bills payable and outstanding expenses. Net working capital can
be positive or negative. A positive net working capital will arise when current asset
exceed current liabilities. A negative net working capital occurs when current
liabilities are in excess of current assets.

DETERMINANTS OF WORKING CAPITAL NEEDS

NATURE OF BUSINESSThe working capital requirement of the firm is
closely related to the nature of its business. A service firm, like an electricity
undertaking or a transport corporation, which has a short operating cycle and
which sells predominantly on cash basis, has a modest working capital
requirement. On the other hand, a manufacturing concern like a machine tools
unit, which has a long operating cycle and which sells largely on credit, has a
very substantial working capital requirement.
SEASONALITY OF OPERATIONS Firms, which have marked seasonality
in their operations usually, have highly fluctuating working capital
requirements. If the operations are smooth and even throughout the year the

xxxviii

working capital requirement will be constant and will not be affected by the
seasonal factors.
PRODUCTION

POLICYA

firm

marked

by

pronounced

seasonal

fluctuations in its sales may pursue a production policy, which may reduce the
sharp variations in working capital requirements.
MARKET CONDITIONS The market competitiveness has an imp bearing
on the working capital needs of a firm. When the competition is keen, a large
inventory of finished goods is required to promptly serve customers who may
not be inclined to wait because other manufactures are ready to meet their
needs. In view of competitive conditions prevailing in the market the firm may
have to offer liberal credit terms to the customers resulting in higher debtors.
Thus, the working capital requirements tend to be high because of greater
investment in finished goods inventory and account receivables. On the other
hand, a monopolistic firm may not require larger working capital. It may ask
customer to pay in advance or to wait for some time after placing the order.
CONDITIONS OF SUPPLY The time taken by a supplier of raw materials,
goods, etc. after placing an order, also determines the working capital
requirement. If goods as soon as or in a short period after placing an order,
then the purchaser will not like to maintain a high level of inventory f that
good. Otherwise, larger inventories should be kept e.g. in case of imported
goods.
BUSINESS CYCLE FLUCTUATIONS Different phases of business cycle
i.e., boom, recession, recovery etc. also effect the working capital requirement.
In case of recession period there is usually dullness in business activities and

xxxix

there will be an opposite effect on the level of wor5king capital requirement.

There will be a fall in inventories and cash requirement etc.
CREDIT POLICY The credit policy means the totality of terms and
conditions on which goods are sold and purchased. A firm has to interact with
two types of credit policies at a time. One, the credit policy of the supplier of
raw materials, goods, etc., and two, the credit policy relating to credit which it
extends to its customers. In both the cases, however, the firm while deciding
the credit policy has to take care of the credit policy of the market. For
example, a firm might be purchasing goods and services on credit terms but
selling goods only for cash. The working capital requirement of this firm will
be lower than that of a firm, which is purchasing cash but has to sell on credit
basis.

xl

OPERATING CYCLE OR WORKING CAPITAL CYCLE

Operating Cycle is the time taken from the stage when cash is put into the business up
to the stage when cash is realized. A firm should aim at maximizing the wealth of its
shareholders, so the firm should earn sufficient returns 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 into cash instantaneously. There is always an Operating cycle
involved in the conversion of sales into cash.
There is 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 building. On the contrary, investment in current
assets is turned over many times in a year. Investment in current assets such as

xli

inventories and debtors (accounts receivable) is realized during the firms operating
cycle that is usually less than a year.
OPERATING CYCLEis the time duration required to convert sales, after the
conversion of resources into inventories, into cash.
The operating cycle of manufacturing company involves three phases:

Acquisition of resources such as raw material, labour, power and fuel.

Manufacture of the product which includes conversion of raw materials into

work-in-progress into finished goods.

Sale of the product either for cash or on credit. Credit sales create account
receivable for collection.
These phases affect cash flows, which most of the time, are neither synchronized

nor certain. They are not synchronized because cash flows usually occur before cash
inflows. Cash inflows are uncertain because sales and collections which give rise to
cash inflows are difficult to forecast accurately, on the other hand, are relatively
certain. The firm is, therefore, required to invest in current assets for a smooth,
uninterrupted functioning. It needs to maintain liquidity to purchase raw materials and
pay expenses such as wages and salaries, other manufacturing, administrative and
selling expenses and taxes as there is hardly a matching between cash inflows and
outflows.
Cash is also held to meet any future exigencies. Stocks of raw materials and
work-in-progress are kept to ensure smooth production and to guard against nonavailability of raw material and other components. The firm holds stock of finished
goods to meet the demand of customers on continuous basis and sudden demand from

xlii

some customers. Debtors are created because goods are sold on credit for marketing
and competitive reasons. Thus, a firm makes adequate investment in inventories, and
debtors, for smooth, uninterrupted production and sale.
Thus, the working capital requirement of a firm is determined by a host of
factors. The determination of working capital requirement is not once a whole
exercise; rather a continuous review must be made in order to assess the working
capital requirement in the changing situation. There are various reasons, which may
require the review of the working capital requirement e.g., change in credit policy,
change in sales volume, etc.

xliii

BALANCED WORKING CAPITAL POSITION

The firm should maintain a sound working capital position. It should have adequate
working capital to run its business operations. Both excessive as well as inadequate
working capital positions are dangerous from the firms point of view.

Excessive working capitalmeans holding costs and idle funds, which earn no
profits for the firm.

Disadvantages of excessive working capital

Excessive working capital means idle funds which earn no profits for the
business and hence the business cannot earn a proper rate of return on its
investments.
Where there is a redundant working capital, it may lead to unnecessary
purchasing and accumulation of inventories causing more chances of theft,
waste and losses.
Excessive working capital implies excessive debtors and defective credit
policy which may cause higher incidence of bad debts.
It results in unnecessary accumulation of inventories. Thus, chances of
inventory mishandling, waste, theft and losses increase.
It is an indication of defective credit policy and slack collection period.
Consequently, higher incidence of bad debts results, which adversely affects
profits.
Excessive working capital makes management complacent which degenerates
into managerial inefficiency.

xliv

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

A concern which has inadequate working capital cannot pay its short-term
liabilities in time. Thus, it will lose its reputation and shall not be able to get
good credit facilities.
It cannot buy its requirements in bulk and cannot avail of discounts, etc
It becomes difficult for the firm to exploit favorable market conditions and
undertake profitable projects due to lack of working capital.
The firm cannot pay day-to-day expenses of its operations and it creates
inefficiencies, increases costs and reduces the profits of the business.
It becomes difficult to implement operating plans and achieve the firms profit
target.
Operating inefficiencies creep in when it becomes difficult even to meet dayto-day commitments.
Fixed assets are not efficiently utilized for the lack of working capital funds
Paucity of working capital funds render the firm unable to avail attractive
credit opportunities etc.
The firm loses its reputation when it is not in a position to honor its short-term
obligations. As a result, the firm faces tight credit terms.
An enlightened management should, therefore maintain the right amount of
working capital on a continuous basis. A firms net working capital position is not
only important as an index of liquidity but it is also used as a measure of the firms
risk. Risk in this regard means chances of the firms being unable to meet its
obligation on due date.

xlv

IMPORTANCE OR ADVANTAGES OF ADEQUATE

WORKING CAPITAL:
Solvency of the Business
Goodwill
Easy Loans
Cash Discounts
Regular Supply of Raw Materials
Regular Payment of Salaries, Wages and Other Day-to-Day
Commitments
Exploitation of Favorable Market Conditions
Ability to Face Crisis
Quick and Regular Return on Investments
High Morale

Working capital constitutes part of the Crowns investment in a department.

Associated with this is an opportunity cost to the Crown. (Money invested in one area
may cost opportunities for investment in other areas.) If a department is operating
with more working capital than is necessary, this over-investment represents an
unnecessary cost to the Crown.
From a departments point of view, excess working capital means operating
inefficiencies. In addition, unnecessary working capital increases the amount of the
capital charge which departments are required to meet from 1 July 1991.

xlvi

SIGNIFICANCE OF WORKING CAPITAL:

Working capital has great importance in every organization. It is necessary to
maintain a sound working capital position in an organization to run its business
operations efficiently. The significance can be represented by the following diagram:

xlvii

APPROACHES TO WORKING CAPITAL MANAGEMENT:

The objective of working capital management is to maintain the optimum
balance of each of the working capital components. This includes making sure that
funds are held as cash in bank deposits for as long as and in the largest amounts
possible, thereby maximizing the interest earned. However, such cash may more
appropriately be invested in other assets or in reducing other liabilities.
Working capital management takes place on two levels:

Ratio analysis can be used to monitor overall trends in working capital and to

identify areas requiring closer management.

The individual components of working capital can be effectively managed by
using various techniques and strategies.
When considering these techniques and strategies, departments need to

recognize that each department has a unique mix of working capital components. The
emphasis that needs to be placed on each component varies according to department.
For example, some departments have significant inventory levels; others have little if
any inventory.
The working capital requirement of a firm depends, to a great extent upon the
operating cycle of the firm. The operating cycle may be defined as the time duration
starting from the procurement of the goods and raw materials and ending with the
sales realization of the finished product (after going through the various stages of
production).
There is the time gap between the happening of the first event and the
happening of the last event. This time gap is called operating cycle.
Thus the operating cycle of a firm consists of the time required for the
completion of the chronological sequence of the following:

xlviii

Procurement of raw material and service.

Conversion of raw material into work in progress.
Conversion of work in progress into finished goods.
Sale of finished goods.
Conversion of receivable into cash.

xlix

ISSUES IN WORKING CAPITAL MANAGEMENT

Working capital management refers to the administration of all components of
working capital cash, marketable securities, debtors (receivables), and stock
(inventories) and creditors (payables). The financial manager must determine levels
and composition of current assets. He must see that right sources are tapped to finance
current assets, and that current liabilities are paid in time.
There are many aspects of working capital management which make it an
important function of the financial manager.

Time. Working capital management requires much of the financial managers

time.

Investment. Working capital represents a large portion of the total investment

in assets. Actions should be taken to curtail unnecessary investment in current
assets.

Criticality. Working capital management has great significance for all firms
but it is very critical for small firms. Small firms in India face a severe
problem of collecting their dues debtors. Further, the role of current liabilities
is more significant in case of small firms, as, unlike large firms, they face
difficulties in raising long-term finances.

Growth. The need for working capital is directly related to the firms growth.
As sales grow, the firm needs to invest more in inventories and debtors.
Continuous growth in sales may also require additional investment in fixed
assets.

MANAGEMENT OF CURRENT ASSETS

The gross working capital concept focuses attention on two aspects of current
assets management:

How to optimize investment in current assets?

How should current assets be financed?

The considerations of the level of investment in current assets should avoid two

danger points- excessive or inadequate investment in current assets. Investment in

current assets should be just adequate to the needs of the business firm.
Excessive investment in current assets should be avoided because it impairs the
firms profitability, as idle investment earns nothing. On the other hand, inadequate
amount of working capital can threaten solvency of the firm because of its inability to
meet its current obligations. It should e realized that the working capital needs of the
firm may be fluctuating with changing business activity. The management should be
prompt to initiate an action and correct imbalances.
Another aspect of the gross working capital points to the need of arranging funds
to finance current assets. Whenever a need for working capital funds arises due to the
increasing level of business activity or for nay other reason, financing arrangement
should be made quickly. Similarly, if suddenly, some surplus funds arise they should
not be allowed to remain idle, but should be invested in short term securities. Thus,
the financial manager should have knowledge of the sources of working capital funds
as well as investment avenues where idle funds may temporarily are invested.

li

LIQUIDITY MANAGEMENT

Net working capital is a qualitative concept. It indicates the liquidity position of

the firm and suggests the extent to which working capital needs may be financed by
permanent sources of funds. Current assets should be sufficiently in excess of current
liabilities to constitute margin or buffer for maturing obligations within the ordinary
operating cycle of business. In order to protect their interests, short- term creditors
always like a company to maintain current assets at a
higher level than current liabilities. However, the quality of current assets should be
considered in determining level of current assets vis--vis current liabilities. A weak
liquidity position possesses a threat to the solvency of the company and makes it
unsafe and unsound. A negative working capital means a negative liquidity, and may
prove to be harmful for the companys reputation. Excessive liquidity is also bad. It
may be due to mismanagement of current assets. Therefore, prompt and timely action
should be taken by management to improve and correct the imbalances in the liquidity
position of the firm.
For every firm, there is a minimum amount of net working capital, which is
permanent. Therefore, a portion of working capital should be financed with permanent
sources of funds such as equity share capital, debentures, long-term debt, preference
share capital or retained earnings. Management must, therefore, decide the extent to
which the current assets should be financed with equity capital or borrowed capital.
It may be emphasized that both gross and net concepts of working capital are
equally important for the efficient management of working capital. There is no precise

lii

way to determine the exact amount of gross or net working capital of a firm. A
judicious mix of long and short term finances should be invested in current assets.
Since current assets involve cost of funds, they should be put to productive use.

liii

LIQUIDITY V/S PROFITABILITY

A large investment in current assets under certainty would mean a low rate of
return on investment for the firm, as excess investment in current assets will not earn
enough return. A smaller investment in current assets, on the other hand, would mea
interrupted production and sales, because of frequent stock-outs and inability to pay
creditors in time due to restrictive policy.

Given a firms technology and production policy, sales and demand conditions,
operating efficiency etc., its current assets holdings will depend upon its working
capital policy. These policies involve risk-return trade-offs. A conservative policy
means lower return and risk, while an aggressive policy produces higher return and
risk.

The two important aims of the working capital management are: profitability and
solvency. Solvency, used in the technical sense, refers to the firms continuous ability
to meet maturing obligations. If the fir maintains a relatively large investment in
current assets, it will have no difficulty in paying claims of creditors when they
become due and will be able to fill all sales orders and ensure smooth production.
Thus, a liquid firm has less risk of insolvency; that is, it will hardly experience a cash
shortage or a stock-out situation. However, there is a cost associated with maintaining
a sound liquidity position. A considerable amount of the firms will be tied up in
current assets, and to the extent this investment is idle, the firms profitability will
suffer.

liv

To have higher profitability, the firm may sacrifice solvency and maintain a
relatively low level of current assets. When the firm does so, its profitability will
improve as fewer funds are tied up in idle current assets, but its solvency would be
threatened and would be exposed to greater risk of cash shortage and stock-outs.

lv

WORKING CAPITAL RATIOS

RATIOS
Stock

FORMULAE

Turnover (Average

Ratio (in days)

RESULT
X days

stock*365)/COGS

INTERPRETATION
On average you turn over the value of your
entire stock every x days. You may need to
break this down into product groups for
effective

stock

management.

Obsolete

stock, slow moving lines will extend

overall

stock

turnover

days.

Faster

production, fewer product lines, just in time

ordering will reduce average days.
Debtor

Turnover (Average

Ratio (in days)

X days

debtor*365)/sales

Its takes you on average x days in

collecting money from debtors. Effective
debtor management will minimize the days.

Creditor

Turnover (Average

Ratio (in days)

X days

creditor*365)/purchases

On average you pay your creditors every x

day. If you negotiate better credit terms this
will improve, if you pay early to get
discount this will decrease, if you simply
defer paying your suppliers this will
increase but your reputation, the quality of
service and any flexibility provided by your
supplier may suffer.

Current Ratio

Current

assets/current X times

liabilities

Current Assets are assets that you can

readily turn in to cash or will do so within
12 months in the course of business.
Current Liabilities are amount you are due
to pay within the coming 12 months. For

lvi

example, 1.5 times means that you should

be able to lay your hands on $1.50 for
every $1.00 you owe. Less than 1 times e.g.
0.75 means that you could have liquidity
problems and be under pressure to generate
Quick Ratio

(Current
prepaid

assets-stock- X times
expenses)

the fact that it may take time to convert

/current liabilities
Working

Capital COGS/working capital

sufficient cash to meet oncoming demands.

Similar to current ratio but takes account of

inventory into cash.

%

A high % means that the working capital

Ratio

needs are high relative to sales.

lvii

COMPONENTS OF WORKING CAPITAL

Cash

Marketable Securities

Inventory

Receivables

1) Cash management
Meaning:
Cash is one of the current assets of a business. It is needed at all times to keep
the business going. A business concern should always keep sufficient cash for meeting
its obligations. Any shortage of cash will hamper the operation of a concern and any
excess of it will be unproductive. Cash is the most unproductive of all the assets.
While fixed assets like machinery, plant, etc. and current assets such as inventory will
help the business in increasing its earning capacity, cash in hand will not add anything
to the concern.
Cash management refers to management of cash balance and the bank
balance including the short terms deposits. For cash management purposes, the term
cash is used in this broader sense, i.e. it covers cash, cash equivalents and those assets
which are immediately convertible into cash. Cash management deals with
optimization of cash as an asset. It is required to manage the cash inflows and
outflows arising out of the operations of the firm.

Objectives:
Meeting the Payment Schedule
Minimizing Funds Committed to Cash Balances

lviii

Strategies:
Efficient Inventory- Production Management
Stretching Accounts Payable
Speeding Collection of Accounts Receivable
Combined Cash Management Strategies

2) Marketable securities management

Meaning:
Marketable securities are short- term investment instruments to obtain a
return on temporarily idle funds. In other words, they are securities which can be
converted into cash in a short period of time, typically a few days. Once the optimum
level of cash balance of a firm has been determined, the residual of its liquid assets is
invested in marketable securities. The basic characteristics of marketable securities
affect the degree of their marketability/ liquidity.

To be liquid, security must have two basic characteristics: a ready market and
safety of principal. Ready marketability minimizes the amount of time required to
convert a security into cash.
The second determinant of liquidity is that there should be little or no loss in the
value of a marketable security over time. Only those securities that can be easily
converted into cash without any reduction in the principal amount qualify for shortterm investments.

Selection Criteria:
Safety

lix

Maturity
Marketability
Liquidity
Taxability

Types:
Treasury Bills (TBs)
Commercial Papers (CPs)
Certificates of Deposits (CDs)
Inter- Corporate Deposits (ICDs)
Money Market Mutual Funds (MMMFs)
Bank Deposits

3) Inventory management
Meaning:
Inventory means stock of goods. Inventory is defined as Tangible property held
for sale in the ordinary course of business, in the process of production for such sale
or, to be consumed in the process of production of goods or services for sale.
Inventory management involves proper planning of purchasing, handling,
storing and accounting. The investment in inventory is very high in most of the
undertaking engaged manufacturing, whole-sale and retail trade. The amount of
investment is sometimes more in inventory than in other assets. About 90% part of
working capital invested in inventories. It is necessary for every management to give

lx

proper attention to inventory management. An efficient system of inventory

management will determine:
a. What to purchase?
b. How much to purchase?
c. From where to purchase?
d. Where to store, etc.
The purpose of inventory management is to keep stocks in such a way that
neither there is over-stocking nor under-stocking. The over-stocking will mean
reduction of liquidity and starving of other production processes, under-stocking, on
the other hand, will result in stoppage of work. The investments in inventory should
keep in reasonable limits.

Objectives:
Operating Objectives

Availability of Materials

Minimizing the Wastage

Promotion of Manufacturing Efficiency

Better Service to Customers

Control of Production Level

Optimal Level of Inventories

Financial Objectives

Economy in Purchasing

Optimum Investment and efficient Use of Capital

Reasonable Price

lxi

Tools and Techniques:

Determination of Stock Levels

Minimum Level

Re-ordering Level

Maximum Level

Danger Level

Average Stock Level

Determination of Safety Stocks

Ordering Systems of Inventory

Fixed Order Quantity System (or Q System)

Periodic Review System (or P System)

Modified Replenishment System

Economic Order Quantity (EOQ)

Just-In-Time (JIT)
A-B-C Analysis
VED Analysis
Inventory Turnover Ratios
Ageing of Inventories
Perpetual Inventory System

lxii

4) Receivables management
Meaning:
Receivables are asset accounts representing amount owed to the firm as a
result of sale of goods or services in the ordinary course of business. These are claims
of the firm against its customers and form part of its current assets. Receivables are
also known as accounts receivables, trade receivables, customer receivables or
book debts. Receivables are the extension of credit facilities to customers. Their basic
aim is to provide facility to customers to allow them a reasonable time in which they
can pay for goods purchased by them. The purpose of maintaining or investing in
receivables is to meet competition and to increase the sales and profits.

lxiii

Receivables management is the process of making decisions relating to

investment in trade debtors. Certain investment in receivables is necessary to increase
the sales and the profits of a firm. But at the same time investment in this asset
involves cost considerations also. Further, there is always a risk of bad debts too.
Receivables management may be defined as collection of steps and procedure
required to properly weigh the costs and benefits attached with the credit policies. The
Receivables management consists of matching the cost of increasing sales
(particularly credit sales) with the benefits arising out of increased sales with the
objective of maximizing the return on investment of the firm.

Objectives:
Book Debts are used as a Marketing Tool for Improvement of Business.
Optimum Level of Investment in Receivables.
Increase in Sales.
Increase in Profits.

Dimensions:
1. Credit Policy: The credit policy of a company can be regarded as a kind of
trade-off between increased credit sales leading to increased in profit and the
cost of having larger amount of cash locked up in the form of receivables and
the loss due to the incidence of bad debts. The credit policy decision of a firm
has three broad dimensions:
Credit Standards
Credit Terms

lxiv

 Collection Efforts
2. Credit Evaluation: A firm should develop procedure for evaluating credit
applicants. The second aspect of receivables management of a firm is credit
analysis and investigation. Two basic steps are involved in the credit
investigation process:

Obtaining Credit Information

Internal
External

Analysis of Credit Information

Well known 5Cs of credit:
Character
Capacity
Capital
Collateral
Conditions
3. Monitoring Receivables: The next important step in management of
receivables is control of these receivables. In order to control the level of
receivable, the firm should apply regular checks and there must be continuous
monitoring system. The firm should keep a watch on the creditworthiness of
all the customers as well as on the total credit policy of the firm. The
following methods can be used:
Average Collection Period
Aging Schedule of Receivables
Line of Credit

lxv

 Accounting Ratios

lxvi

WORKING CAPITAL FINANCING

The working capital requirements of a concern can be classified as:

1) FINANCING OF PERMANENT/ FIXED OR LONG-TERM

WORKING CAPITAL
Permanent working capital should be financed in such a manner that the
enterprise may have its uninterrupted use for a sufficiently long period. The
important sources of permanent or long-term working capital are:
Shares: Issue of shares is the most important source for raising the
permanent or long- term capital. A company can issue various types of
shares as equity shares, preference shares and deferred shares. As far as
possible, a company should raise the maximum amount of permanent
capital by the issue of shares.
Debentures: A debenture is an instrument issued by the company
acknowledging its debt to its holder. It is an important method of
raising long- term working capital. The debenture- holders are the
creditors of the company. When the debentures are secured they are
paid on priority to other creditors.
Ploughing Back of Profits: Ploughing back of profits means the
reinvestments by concern of its surplus earnings in its business. It is an
internal source of finance and is most suitable for an established firm
for its expansion, modernization and replacement etc. This method of
finance has a number of advantages as it is the cheapest rather cost-free
source of finance.

lxvii

 Loans from Financial Institutions: Financial institutions such as

Commercial Banks, Life Insurance Corporation, Industrial Finance
Corporation of India, State Financial Corporation, State Industrial
Development Corporations, Industrial Development Bank of India, etc.
also provide short-term, medium-term and long-term loans.

2) FINANCING OF TEMPORARY/ VARIABLE OR SHORTTERM WORKING CAPITAL

The important sources of temporary or short-term working capital are:
Commercial Banks/ Bank Finance: Commercial banks are the main
institutional sources of working capital finance in India. After trade
credit, bank credit is the most important source of financing working
capital requirements of firms in India. The amount approved by the
bank for the firms working capital is called credit limit. Credit limit is
the maximum funds which a firm can obtain from the banking system.
The forms of bank are:

Loans

Cash Credit

Overdrafts

Purchasing and Discounting of Bills

Note Lending System

Letter of Credit

lxviii

 Trade Credit: Trade credit refers to the credit extended by the

suppliers of goods in the normal course of business. As present day
commerce is build upon credit, the trade credit arrangement of a firm
with its suppliers in an important source of short-term finance. The
credit-worthiness of a firm and the confidence of its suppliers are the
main basis of securing trade credit. It is mostly granted on an open
account basis whereby supplier sends goods to the buyer for the
payment to be received in future as per terms of the sales invoice. It
may also take the form of bills payable whereby the buyer signs a bill
of exchanges payable on a specified future date.
Commercial Paper: Commercial paper (CP) is an important money
market instrument in advanced countries like U.S.A. to raise short-term
funds. In India, Reserve Bank of India (RBI) introduced commercial
paper in the Indian money market. Commercial paper, as it is known in
the advanced countries, is a form of unsecured promissory note issued
by firms to raise short-term funds.
Factoring of Receivables: Credit management is a specialized
activity, and involves a lot of time and efforts of a company. Collection
of receivables poses a problem, particularly for small scale enterprises.
Banks have the policy of financing receivable. However, this support is
available for a limited period and the seller of goods and services has
to bear the risk of default by debtors. A company

can assign its

credit management and collection to

specialist organizations, called factoring organizations. Factoring is a
popular mechanism of managing, financing and collecting receivables

lxix

in developed countries like USA and UK, and has extended to a

number of other countries in the recent past, including India.
Subsidiaries of four Indian banks State bank of India, Canara Bank,
Punjab National Bank and Allahabad Bank provide factoring
services.
Public Deposits: public deposits are the fixed deposits accepted by a
business enterprise directly from the public. This source of raising
short term and medium-term finance was very popular in the absence
of banking facilities. Many firms, large and small, have solicited
unsecured deposits from the public in recent years, mainly to finance
their working capital requirements.
Installment Credit: This is another method by which the assets are
purchased and the possession of goods is taken immediately but the
payment is made in installments over a pre-determined period of time.
Generally, interest is charged on the unpaid price or it may be adjusted
in the price. But, in any case, it provides funds for some time and is
used as a source of short- term working capital by many business
houses which have difficult fund position.
Advances: Some business houses get advances from their customers
and agents against orders and this source is a short- term source of
finance for them. It is a cheap source of finance and in order to
minimize their investment in working capital, some firms
having long production cycle, especially the firms manufacturing
industrial products prefer to take advances from their customers.

lxx

 Accrued Expenses and Deferred Incomes: Accrued expenses are the

expenses which have been incurred but not yet due and hence not yet
paid also. These simply represent a liability that a firm has to pay for
the services already received by it. The most important items of
accruals are wages and salaries, interest and taxes. Wages and salaries
are usually paid on monthly, fortnightly or weekly basis for the
services already rendered by employees. The longer the paymentperiod, the greater is the amount of liability towards employees or the
funds provided by them. Deferred incomes are incomes received in
advance before supplying goods or services. They represent funds
received by a firm for which it has to supply goods or services in
future.

lxxi

CHAPTER 5
RESEARCH
METHODOLOGY

lxxii

DEFINITION OF RESEARCH METHODOLOGY

In simple terms methodology can be defined as, it is used to give a clear cut idea on
what the researcher is carrying out his or her research. In order to plan in a right point
of time and to advance the research work methodology makes the right platform to the
researcher to mapping out the research work in relevance to make solid plans. More
over methodology guides the researcher to involve and to be active in his or her
particular field of enquiry. Most of the situations the aim of the research and the
research topic won't be same at all time it varies from its objectives and flow of the
research but by adopting a suitable methodology this can be achieved. Research
methodology drives the researcher in the right track. The entire research plan is based
on the concept of right methodology. More over through methodology the external!
environment constitutes the research by giving a depth idea on setting the right
research objective, followed by literature point of view, based on that chosen analysis
through interviews or questionnaires findings will be obtained and finally concluded
message by this research.

lxxiii

OBJECTIVES

lxxiv

OBJECTIVES
To identify the financial strengths & weakness of the company. Through the net
profit ratio & other profitability ratio, understand the Profitability of the
company.
Evaluating company s performance relating to financial statement analysis.
To know the liquidity position of the company with the help of current ratio.
To find out the utility of financial ratio in credit analysis & determining the
financial capacity of the firm.
To know the most effective method for analyzing the financial statement.
To know the financial statement that are used in financial statement analysis.
To know the used of Financial analysis.
To know the different purposes of doing the financial statement analysis.

lxxv

RESEARCH DESIGN
In this research report, I took exploratory research, A research design is the overall
plan on programming of research. It includes an outline of what the investigator will
do from writing the hypothesis and their operational implications to the final analysis
of data. I used exploratory research.
SAMPLING DESIGN:
I used non- probability sampling design (Convenience).

CONVENIENCE SAMPLING
Convenience sampling refers to the non probability process by which a scientist
gathers statistical data from the population. This form of selection is done based on
the ease of gaining the statistical data. Rather than gathering a more accurate array of
data from the population, the researcher simply gathers data from people nearby. A
researcher might go to a nearby mall, or street comer to gather data. This form of data
collection works for some areas of study, but researcher bias may result in inaccurate
METHOD OF DATA COLLECTION IN TO TWO TYPES
1.

Primary

2.

Secondary

I collected my data regarding research report thought Secondary Data.

SECONDARY DATA
When an investigator uses the data that has been already collected by others, is called
secondary data. The secondary data could be collected from Journals, Reports,
libraries, magazines, fair & conference and other publications. I my research report I
collected data through Balance Sheet of The company working Capital statement of
the company.
lxxvi

EXPLORATORY RESEARCH.
In this research report it took the objective of the exploratory research is to seek
new ideas and to discover new relationship between different set factors in a
way that will permit of specific hypothesis.

COLLECTION OF DATA THROUGH QUESTIONNAIRES

This method of data collection is quite popular, particularly incase of big
inquiries. It is being adopted private researchers, and workers, and private and
public organizations and even government. In this method a questionnaire is sent
(usually by post) to the persons concerned with a request to answer the question
and return the questionnaire.
The method of collecting data wise mailing the questionnaires to respondents is
the most extensively employed in various economy and business surveys. The
merits claimed on behalf of this method are as follows:

lxxvii

CHAPTER 6:
DATA ANALYSIS
AND
INTERPRETATION

lxxviii

Q1. From how many years you have been working in your
organization?
Less than 2 Years

20%

2 to less than 4 Years

40%

4 to less than 6 Years

30%

More than 6 Years

10%

45%

40%

40%
35%

30%

30%
25%
20%

20%

15%

10%

10%
5%
0%
Less than 2
Years

2 to less than 4
Years

4 to less than 6
Years

More than 6
Years

Interpretation
40% respondents replied that they are working in the organization from 2
to less than 4 years but 30% respondents replied that they are working in
the organization from 4 to less than 6 years.

Q2. What types of financial statement are used in financial statement analysis?

lxxix

Balance sheet: also referred to as satement of financial position or condition,

reports on a company's assets, liabilities, and Ownership equity at a given
point in time.

Income statement: also referred to as Profit and Loss statement (or a ''P&L''),
reports on a company's income, expenses, and profits over a period of time.
Profit & Loss account provide information on the operation of the enterprise.
These include sale and the various expenses incurred during the processing
state.

Statement of retained earnings: explains the changes in a company's

retained earnings over the reporting period.

Statement of cash flows: reports on a company's cash flow activities,

particularly its operating, investing and financing activities.

Interpretation
For large corporations, these statements are often complex and may include an
extensive set of notes to the financial statements and management discussion and
analysis. The notes typically describe each item on the balance sheet, income
statement and cash flow statement in further detail. Notes to financial statements are
considered an integral part of the financial statement

lxxx

Q3. Financial analysis is widely used to summarize the information in a

company's financial statements in assessing its financial health

Strongly Agree

35%

Agree

45%

Neutral

5%

Disagree

12%

Strongly Disagree

3%

Interpretation
45% respondents are agree with this statement but 12% respondents are disagree with
this statement

lxxxi

Q4. Both the company's profitability (as measured in terms of profit margin) and
efficiency (as measured in terms of asset turnover) determine its ROA. This ROA

Strongly Agree

30%

Agree

55%

Neutral

5%

Disagree

8%

Strongly Disagree

2%

Interpretation
30% respondents are strongly agree with this statement but 8% respondents are
disagree with this statement
Q5. The changes in the company's ROE are to be noted and explained through
its profit margin, asset turnover, and equity multiplier over time

Strongly Agree

lxxxii

29%

Agree

49%

Neutral

13%

Disagree

8%

Strongly Disagree

1%

Interpretation
29% respondents are strongly agree with this statement but 8% respondents are
disagree with this statement

.
Q6. Debt ratios show the extent to which a firm is relying on debt to finance its
investments and operations, and how well it can manage the debt obligation

Strongly Agree

lxxxiii

31%

Agree

52%

Neutral

10%

Disagree

6%

Strongly Disagree

1%

Interpretation
31% respondents are strongly agree with this statement but 6% respondents are
disagree with this statement

lxxxiv

Q7. What are the limitations in case of analyzing the financial statement?
1. There is considerable subjectivity involved, as there is no correct number for the
various ratios. Further, it is hard to reach a definite conclusion when some of the
ratios are favorable and some are unfavorable.
2. Ratios may not be strictly comparable for different firms due to a variety of factors
such as different accounting practices or different fiscal year periods. Furthermore, if
a firm is engaged in diverse product lines, it may be difficult to identify the industry
category to which the firm belongs. Also, just because a specific ratio is better than
the average does not necessarily mean that the company is doing well; it is quite
possible rest of the industry is doing very poorly.
3. Ratios are based on financial statements that reflect the past and not the
future. Unless the ratios are stable, it may be difficult to make reasonable projections
about future trends. Furthermore, financial statements such as the balance sheet
indicate the picture at one point in time, and thus may not be representative of
longer periods.
4. Financial statements provide an assessment of the costs and not value. For
example, fixed assets are usually shown on the balance sheet as the cost of the assets
less their accumulated depreciation, which may not reflect the actual current market
value of those assets.
5. Financial statements do not include all items. For example, it is hard to put a value
on human capital (such as management expertise). And recent accounting scandals
have brought light to the extent of financing that may occur off the balance sheet.

lxxxv

Q8. What are the different purposes of doing the financial statement analysis?

Owners and managers require financial statements to make important business

decisions that affect its continued operations. Financial analysis is then
performed on these statements to provide management with a more detailed
understanding of the figures. These statements are also used as part of
management's annual report to the stockholders.

Employees also need these reports in making collective bargaining agreements

(CBA) with the management, in the case of labor unions or for individuals in
discussing their compensation, promotion and rankings.

Prospective investors make use of financial statements to assess the viability

of investing in a business. Financial analyses are often used by investors and
are prepared by professionals (financial analysts), thus providing them with
the basis for making investment decisions.

Financial institutions (banks and other lending companies) use them to decide
whether to grant a company with fresh working capital or extend
debt securities (such as a long-term bank loan or debentures) to finance
expansion and other significant expenditures.

Government entities (tax authorities) need financial statements to ascertain the

propriety and accuracy of taxes and other duties declared and paid by a
company.

Vendors who extend credit to a business require financial statements to assess

the credit worthiness of the business.

lxxxvi

FINDINGS

lxxxvii

FINDINGS:
Comments on Ratio Analysis:
Liquidity ratios show the short-term solvency of the company. The liquidity
ratios of the Supertech Group Limited are as follows:

Current ratio is increasing; it means that current assets of the company are
increasing.

Cash ratio is constant in 2009 and 2010 and then starts increasing.

Acid test ratio increase in 2010 and then decrease in 2011.This ratio decreased
in 2011 due to increase in inventory and prepayments.

The overall liquid position of the company is becoming fair.

Interest coverage ratio of the company decreased in 2010 due to decrease in

EBIT and increase in financial charges. It then increases in 2011 due to the
reason vice versa.
Leverage ratios of the company are as follows:

Total capitalization ratio decrease in 2010 and then increases in 2011 due to
increase in equity as more shares were issued in 2011.

Long-term debt to equity ratio is increasing due to more long term financing to
the company.

Long-term debt to total assets ratio is decreasing because total assets are
increasing every year.

lxxxviii

Total debt to equity and total debt to total assets ratios is increasing due to
increase in short term and long-term debt.
Activity ratios of the company are as follows:

R.T.R in days are increasing but still fair and not increasing at tremendous
rate.

P.T.R in days decreases in 2010 and increases in 2011 and is more than 90
days, which is not a good thing for companys goodwill.

I.T.R in days is increasing due to increase in goods manufactured.

Due to above a situation operating cycle and cash cycle is increasing.

Total assts turnover ratios decrease in 2010 due to decrease in sales and then
slightly increase in 2011 due to increase in sales.
Profitability ratios of the company as follows:

Gross profit margin of the company is increasing due increase in sales.

Operating profit margin is decreasing slightly due to increase in operating

expenses like selling and administration expenses. Net profit margin is
decreasing due to decrease in operating margin and due to increase in financial
charges.

R.O.I is first decreasing and then slightly increasing. It is decreasing due to

decrease in net profit and is increasing in 2011 due to increase in assets.

R.O.E is decreasing with the decrease in net profit.

lxxxix

Earning per share decreased due to decrease in profit of te company.

Price to earning ratio increased because price of the share is same in all the
years but EPS decreased every year.

Dividend payout ratio is very low in all the years because company is not
paying the dividend in cash.

Comments on common size analysis:

In the common size analysis, the performance of the current assets decreases
in 2010 and then increased in 2011.

The same is the case with the fixed assets. These are going towards better
performance. As a whole the common size analysis is good in balance sheet
items.

In income statement, the cost of goods sold is increasing and expenses are
increasing. The taxation increases in 2010 and then decreases in 2011. Interest
charges are increasing due to increase in external financing. The increase in
expenses causes a decrease in net profit.

Comments on index analysis:

In index analysis there is an increasing trend in the assets as compared to the base
year. All the assets are in increasing percentage. Liabilities are also increasing but at
lower rate as compared to assets. The percentage of the building decrease in 2010 and
increases in 2011, which shows that more land is, build in the year 2011. The
percentage of the sale is low in 2010 as compared to 2009 and 2011 and there is also

xc

increase in CGS. Financial charges against debt have a tremendous percentage as

compared to the base year. Taxation has low percentage in 2010 and more in 2011 as
compared to the base year 2009. The net profit percentage is also decreasing at
decreasing rate as compared to the base year 2009.

xci

RATIO ANALYSIS
To understand the information contained in financial statements with a view to know
the strength or weaknesses of the firm and to make forecast about the future prospects
of the firm and thereby enabling the financial analyst to take different decisions
regarding the operations of the firm.
Ratio Analysis: Fundamental Analysis has a very broad scope. One aspect looks at
the general (qualitative) factors of a company. The other side considers tangible and
measurable factors (quantitative). This means crunching and analyzing numbers from
the financial statements. If used in conjunction with other methods, quantitative
analysis can produce excellent results.
Ratio analysis isn't just comparing different numbers from the balance sheet, income
statement, and cash flow statement. It's comparing the number against previous years,
other companies, the industry, or even the economy in general. Ratios look at the
relationships between individual values and relate them to how a company has
performed in the past, and might perform in the future
Meaning of Ratio: It is a mathematical yardstick that measures the relationship
between two figures, which are related to each other and mutually interdependent.
Ratio is express by dividing one figure by the other related figure.

It can be

expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as so

many times. As accounting ratio is an expression relating two figures or accounts or
two sets of account heads or group contain in the financial statements

xcii

Meaning of Ratio Analysis:

Ratio analysis is the method or process by which the relationship of items or group of
items in the financial statement are computed, determined and presented.
Ratio analysis is an attempt to derive quantitative measure or guides concerning the
financial health and profitability of business enterprises. Ratio analysis can be used
both in trend and static analysis. There are several ratios at the disposal of an annalist
but their group of ratio he would prefer depends on the purpose and the objective of
analysis.
While a detailed explanation of ratio analysis is beyond the scope of this section, we
will focus on a technique, which is easy to use. It can provide you with a valuable
investment analysis tool.
This technique is called cross-sectional analysis. Cross-sectional analysis compares
financial ratios of several companies from the same industry. Ratio analysis can
provide valuable information about a company's financial health. A financial ratio
measures a company's performance in a specific area. For example, you could use a
ratio of a company's debt to its equity to measure a company's leverage. By
comparing the leverage ratios of two companies, you can determine which company
uses greater debt in the conduct of its business. A company whose leverage ratio is
higher than a competitor's has more debt per equity. You can use this information to
make a judgment as to which company is a better investment risk.
However, you must be careful not to place too much importance on one ratio. You
obtain a better indication of the direction in which a company is moving when several
ratios are taken as a group.

xciii

Types of Comparisons:
The ratio can be compared in three different ways
1] Cross section analysis:
One of the way of comparing the ratio or ratios of the firm is to compare them with
the ratio or ratios of some other selected firm in the same industry at the same point of
time. So it involves the comparison of two or more firms financial ratio at the same
point of time. The cross section analysis helps the analyst to find out as to how a
particular firm has performed in relation to its competitors. The firms performance
maybe compared with the performance of the leader in the industry in order to
uncover the major operational inefficiencies. The cross section analysis is easy to be
undertaken as most of the data required for this may be available in financial
statement of the firm.
2] Time series analysis:
The analysis is called Time series analysis when the performance of a firm is
evaluated over a period of time. By comparing the present performance of a firm with
the performance of the same firm over the last few years, an assessment can be made
about the trend in progress of the firm, about the direction of progress of the firm.
Time series analysis helps to the firm to assess whether the firm is approaching the
long-term goals or not. The Time series analysis looks for (1) important trends in
financial performance (2) shift in trend over the years (3) significant deviation if any
from the other set of data

xciv

3] Combined analysis:
If the cross section & time analysis, both are combined together to study the behavior
& pattern of ratio, then meaningful & comprehensive evaluation of the performance
of the firm can definitely be made. A trend of ratio of a firm compared with the trend
of the ratio of the standard firm can give good results. For example, the ratio of
operating expenses to net sales for firm may be higher than the industry average
however, over the years it has been declining for the firm, whereas the industry
average has not shown any significant changes.
Pre-Requisites to ratio analysis:
In order to use the ratio analysis as device to make purposeful conclusions, there are
certain pre-requisites, which must be taken care of. It may be noted that these
prerequisites are not conditions for calculations for meaningful conclusions. The
accounting figures are inactive in them & can be used for any ratio but meaningful
&correct interpretation & conclusion can be arrived only if the following points are
well considered.
1) The dates of different financial statements from where data is taken must be same.
2) If possible, only audited financial statements should be considered, otherwise there
must be sufficient evidence that the data is correct.
3) Accounting policies followed by different firms must be same in case of cross
section analysis otherwise the results of the ratio analysis would be distorted.
4) One ratio may not throw light on any performance of the firm. Therefore, a group
of ratios must be preferred. This will be conductive to counter checks.

xcv

5) Last but not least, the analyst must find out that the two figures being used to
calculate a ratio must be related to each other, otherwise there is no purpose of
calculating a ratio
Financial analysts often assess the firm's:
1. Profitability - its ability to earn income and sustain growth in both short-term and
long-term. A company's degree of profitability is usually based on the income
statement, which reports on the company's results of operations;
2. Solvency - its ability to pay its obligation to creditors and other third parties in the
long-term;
3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate
obligations;
Both 2 and 3 are based on the company's balance sheet, which indicates the financial
condition of a business as of a given point in time.
4. Stability- the firm's ability to remain in business in the long run, without having to
sustain significant losses in the conduct of its business. Assessing a company's
stability requires the use of the income statement and the balance sheet, as well as
other financial and non-financial indicators.

xcvi

LIMITATION

xcvii

LIMITATION
1. Ratios may not be strictly comparable for different firms due to a variety of factors
such as different accounting practices or different fiscal year periods. Furthermore, if
a firm is engaged in diverse product lines, it may be difficult to identify the industry
category to which the firm belongs. Also, just because a specific ratio is better than
the average does not necessarily mean that the company is doing well; it is quite
possible rest of the industry is doing very poorly.
2. Ratios are based on financial statements that reflect the past and not the
future. Unless the ratios are stable, it may be difficult to make reasonable projections
about future trends. Furthermore, financial statements such as the balance sheet
indicate the picture at one point in time, and thus may not be representative of
longer periods.
3. Financial statements provide an assessment of the costs and not value. For
example, fixed assets are usually shown on the balance sheet as the cost of the assets
less their accumulated depreciation, which may not reflect the actual current market
value of those assets.
4. Financial statements do not include all items. For example, it is hard to put a value
on human capital (such as management expertise). And recent accounting scandals
have brought light to the extent of financing that may occur off the balance sheet.

xcviii

CONCLUSION

xcix

CONCLUSION
For analysis of the financial conditions of Supertech we can segregate the financial
statements (ratios) of Supertech into four different parts - liquidity ratios, asset
management ratios, debt management ratios, and profitability ratios. These ratios can
be used to evaluate the overall condition of any company. Here I am providing the
overall comments about Supertech based on the liquidity ratios, asset management
ratios, debt management ratios, and profitability ratios. In case of liquidity ratios, their
current ratio is decreased than the previous year but it is higher than the industry
average. Side by side their quick ratio is decreased than the previous year and the
industry average. So we can say that for current ratio their have some little idle
money. But in case of quick ratio at the present rate it is not possible for the company
to pay its bills as they come due. In case of asset management their inventory turnover
in days is higher than the previous year and industry average. This suggests that
inventory stocks of Supertech are higher than they need to be. Side by side is in better
position in comparison with previous year. In case of debt management, Supertechs
debt to asset ratio is higher than the previous year but lower than the industry average.
So they have the opportunity to increase their debt up to 10% to expand their
business. Their debt to equity ratio is higher than the previous year and they have to
maintain the standard. In case of profitability position of this company return on
assets is increased than the previous year and industry average. Return on equity is
decrease than the previous year but both are higher than the industry average. Net
profit margin is increase than the previous year and industry average. So we can say
that, overall the companys profitability position is good in spite of their net profit
margin slightly lower than the industry average.

RECOMMENDATION

ci

RECOMMENDATION
Financial statements are most significant part of a company because financial
statement analysis involves a comparison of a firms performance with that of other
firms in the same line of business, which usually identified by the firms industry
classification. The analysis is used to determine the firms financial position so as to
identify its current strength and weakness and to suggest actions the firm might
pursue to take advantage of the strengths and correct any weakness. Here is our
recommendations about this company are as follows:

Our valuation of the debt to total assets suggests that Supertechs debt to total
assets currently is lower than the industry average. So they have the
opportunity to expand their business by increasing their debt.

Our evaluations of the account receivables turnover suggest that Supertechs

average days to collect its credit sale currently is lower than the industry
average which is determines that companies account receivables turnover is
good.

Our evaluations of the acid test ratio suggest that Supertechs liquidity position
currently is poor. Supertechs ratio test ratio seems inadequate.

The year 2008-09 has lowest capital as compared to earlier years. The
company must increase its capital. The greater the margin, the better will be
the liquidity of the firm.

The company should maintain the low level of creditors because the company
can pay them easily whenever required.
cii

Our opinion of the return on common shareholders equity suggests that

Supertechs net income were earned for each taka invested by the owners is
higher than the industry average. We think the return on common
shareholders equity of this company is maintaining a good standard. So they
should maintain this immovability

The company should maintain a proper inventory management system, so the

unnecessary blockage of money can be avoided.

The company must have adequate cash and bank balance to face any situations. The
company has low cash and bank balance in the year 2009-11.

ciii

CHAPTER -7

APPENDIX

civ

APPENDIX
QUESTIONNAIRE
Q1.

Q2.

From how many years you have been working in your organization?
(a) Less than 2 Years

(b) 2 to less than 4 Years

(c) 4 to less than 6 Years

(d) More than 6 Years

What types of financial statement are used in financial statement analysis?

Q3.

Balance sheet:
Income statement
Statement of retained earnings
Statement of cash flows
Both

Financial analysis is widely used to summarize the information in a company's

financial statements in assessing its financial health

Q4.

(a) Strongly Agree

(b) Agree

(c) Neutral

(d) Disagree

(e) Strongly Disagree

Both the company's profitability (as measured in terms of profit margin) and
efficiency (as measured in terms of asset turnover) determine its ROA. This
ROA
(a) Strongly Agree

(b) Agree

(c) Neutral

(d) Disagree

cv

(e) Strongly Disagree

Q5.

The changes in the company's ROE are to be noted and explained through its
profit margin, asset turnover, and equity multiplier over time

Q6.

(a) Strongly Agree

(b) Agree

(c) Neutral

(d) Disagree

(e) Strongly Disagree

Debt ratios show the extent to which a firm is relying on debt to finance its
investments and operations, and how well it can manage the debt obligation
(a) Strongly Agree

(b) Agree

(c) Neutral

(d) Disagree

(e) Strongly Disagree

Q7.

What are the limitations in case of analyzing the financial statement?

Q8.

What are the different purposes of doing the financial statement analysis?
____________________________________________________________

cvi

CHAPTER -8
BIBLIOGRAPHY

cvii

BIBLIOGRAPHY
BOOKS
Brealey, R.A. and S.C. Myers. Principles of Corporate Finance (2000),
6th Edition, The McGraw-Hill Companies, Inc.
Koehn, J.L. and Hallam, J.J. A Course Survey of Financial Statement
Analysis, issues in Accounting.
Ross, S.A., R.W. Westerfield and J. Jaffe. Corporate Finance 5th Edition,
Irwin/McGraw-Hill.
Scott, D.F., J.D. Martin, J.W. Petty and A. Keown. Basic Financial
Management Prentice-Hall, Inc

Websites
www.google.com
www.wikipedia.com

cviii