A PROJECT REPORT ON

WORKING CAPITAL MANAGEMENT OF SMALL SCALE INDUSTRY

Under the guidance of Mrs.Manju vats Faculty-MBA(FINANCE) Submitted by BHUPESH KUMAR Roll No- 511028660 WebUniv. Infotech Ltd Centre Code :01504 in partial fulfillment of the requirement for the award of the degree Of MBA IN Finance Management SESSION (2010- 2012)

ACKNOWLEDGEMENT
This project has been possible through the direct and indirect co-operation of various persons to whom I wish to express my appreciation and gratitude. First and foremost, my thanks go to Mrs. Manju vats whose versatility of creativeness, interest and enthusiasm gave a new dimension to my work with a motto to seek, to strive and not to yield. solve my problems. In addition to this, I would like to thank all my respondents, who has spent their valuable time with me and help me in getting the requested information for this project. Her unfailing guidance and encouragement made me understand the situation of appropriation and help to

BONAFIDE CERTIFICATE
Certified that this project report titled WORKING CAPITAL MANAGEMENT OF SMALL SCALE INDUSTRY is the bonafide work of BHUPESH KUMAR who carried out the project work under my supervision.

SIGNATURE HEAD OF THE DEPARTMENT

SIGNATURE FACULTY IN CHARGE

ABSTRACT
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In the past few years, the Indian industries have understood the importance of managing the working capital requirements of the business and thus the need for the correct evaluation and management of working capital came into existence. Working capital plays a major role in running the day to day operations of the organisation smoothly, may it be a small organisation, a mediocre one or a large group company. Since the sources of finance are scare now a days and available at a costly rate of interest, it is very much important for an organisation to correctly evaluate its requirement for the working capital and long term assets so as to manage the funds accordingly.

TABLE OF CONTENTS

1. Introduction .7
2. 3. 4. 5. 6. 7. 8. 9.

Factors Affecting Working Capital 10 Operating Cycle Analysis.12 Computation of Working Capital...14 Trade Off Bet.Profitability & Risk17 Financing Working Capital20 Managing Working Capital .31 Objective Of The Study.56 Research Methodology57

10.Ratio Analysis.59 11. Standards of Comparison61 12. Types of Comparsion62 13. Interpretation of Ratio..63 14. Classification of Ratio.64 15.Analysis & Findings65 16. Advantages of Ratio Analysis.83 17. Limitations of Ratio Analysis..85 18. Bibliography..90

LIST OF TABLES & FIGURES

TABLE:5

Tables for finding of different types of Ratio:1. Current Ratio 2. Quick Ratio 3. Capital Turnover Ratio 4. Fixed Asset Turnover Ratio 5. Net Working Capital Turnover Ratio 6. Debt Equity Ratio 7. Interest Coverage Ratio 8. Total Debt Ratio 9. Fixed Asset Ratio 10. Proprietary Ratio

FIGURES:
1. Purpose of Performance appraisal 2. Appraisal technique 3. Graphs Of Results

INTRODUCTION
There are two concept of Working Capital : gross and net .
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a)

The term gross working capital , also referred to as working capital , means the total current assets .

b) The net working capital can be defined in two ways : 1. The most common definition of net working capital ( NWC ) is the difference between current assets and current liabilities ; and 2. Alternate definition of NWC is that portion of current assets which is financed with long term funds . The task of financing manager in managing working capital efficiently is to ensure sufficient liquidity in the operations of the enterprise . Net working capital , as a measure of liquidity is not very useful for comparing the performance of different firms , but it is quite useful for internal control . The NWC helps in comparing the liquidity of the same firm over time . For the purpose of working capital management , therefore , NWC can be said to measure the liquidity of the firm . In the other words , the goal of working capital management is to manage the current assets and liabilities in such a way that an acceptable level of NWC is maintained . The basic components of working capital are , Current Assets : a) Inventories a. Raw Materials and Components b. Work in Progress c. Finished Goods d. Others b) Trade Debtors c) Loans And Advances d) Investments e) Cash And Bank Balance Current Liabilities:
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a) Sundry Creditors b) Trade Advances c) Borrowings d) Commercial Banks e) Provisions Given the objective of financial decision making to maximise the shareholders wealth , it is necessary to generate sufficient profits . The extent to which profits can be earned will naturally depend , among other things , upon the magnitude of sales . A successful sales program is , in other words , necessary for earning profits by any business enterprise . However , sales do not convert into cash instantly ; there is invariably a time lag between sale of goods and the receipt of cash . There is therefore , a need for working capital in the form of current assets to deal with the problem arising out of the lack of immediate realisation of cash against goods sold . Therefore sufficient working capital is necessary to sustain sales activity . The two components of working capital (WC) are current assets (CA) and current liabilities (CL) . They have a bearing on the cash operating cycle . In order to calculate working capital needs, what is required is the holding period of various types of inventories , the credit collection period and the credit payment period . Working capital also depends on the budgeted level of activity in terms of productivity / sales . The calculation of WC is based on the assumption that the productivity is carried on evenly throughout the year and all costs accrue similarly . As the working capital requirements are related to the cost excluding depreciation and not to the sale price , WC is computed with reference to cash cost . The cash cost approach is comprehensive and superior to the operating cycle approach based on holding period of debtors and inventories and payment period of creditors .

After determining the level of Working Capital, the firm has to decide how it is to be financed. The need for finance arises mainly because the investment in working
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capital/current assets, that is, raw material, work-in-progress, finished goods and receivables typically fluctuates during the year. Although long-term funds partly finance current assets and provide the margin money for working capital, such working capitals are virtually exclusively supported by short term sources. The main sources of working capital financing are namely, Trade credits, Bank credits and commercial bankers.

FACTORS AFFECTING WORKING CAPITAL

The working capital needs of a firm are influenced by numerous factors . The important ones are
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i)

Nature of business : The working capital requirement of a firm is closely related to the nature of business . A service firm , like 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 , 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 .

ii)

Seasonality of Operation : Firms which have marked seasonality in there operations usually have highly fluctuating working capital requirement . For example , consider a firm manufacturing air conditioners . The sale of air conditioners reaches the peak during summer months and drops sharply during winter season . The working capital need of such a firm is likely to increase considerably in summer months and decrease significantly during winter period . On the other hand , a firm manufacturing consumer goods like soaps , oil , tooth pastes etc. which have fairly even sale round the year , tends to have a stable working capital need .

iii)

Production Policy : A firm marked by pronounced seasonal fluctuation in its sale may pursue a production policy which may reduce the sharp variations in working capital requirements . For example a manufacturer of air conditioners may maintain steady production through out the year rather than intensify the production activity during the peak business season . Such decision may dampen the fluctuations in working capital requirements .

iv)

Market Conditions : When competition is keen , larger inventory of finished goods is required to promptly serve the customers who may not be inclined to wait because other manufacturers are ready to meet their needs . Further generous credit terms may have to be offered to attract customers in highly competitive market . Thus , working capital needs tend to be high because of greater investment in finished goods inventory and accounts receivable . If the market is strong and competition is weak , a firm can manage with smaller inventory of finished goods because customers can be served with
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delay . Further in such situation the firm can insist on cash payment and avoid lock up of funds in accounts receivables it can even ask for advance payment , partial or total .
v)

Conditions of Supply : The inventory of raw material , spares and stores depends on the conditions of supply . If supply is prompt and adequate , the firm can manage with small inventories . However if the supply is unpredictable and scant then the firm , to ensure continuity of production , would have to acquire stocks as and when they are available and carry large inventories on an average . A similar policy may have to be followed when the raw material is available only seasonally and production operations are carried out round the year .

Operating Cycle Analysis

The Operating cycle of the firm begins with the acquisition of raw materials and ends with the collection of receivables . It may be divided into four stages a) raw
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material and stores storage stage , b) work-in-progress stage , c) finished goods inventory stage and d) debtors collection stage .

Duration of operating cycle : The duration of operating cycle is equal to the sum of the duration of each of these stages less the credit period allowed by the suppliers to the firms . It can be given as O=R+W+F+DC Where O = Duration of operating cycle R = Raw material and stores storage period W = Work-in-progress period F = Finished goods storage period D = debtors collection period C = Creditors payment period

The components of Operating cycle may be calculated as follows ; R = Average stock of raw materials and stores Average raw material and stores consumption per day
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Average Work-in-progress inventory Average cost of production per day

Average Finished Goods Inventory Average cost of goods sold per day

Average books debts Average credit sales pert day

Average trade creditors Average credit purchase per day

Computation Of Working Capital

The two components of working capital (WC) are current assets (CA) and current liabilities (CL) . They have a bearing on the cash operating cycle . In order to calculate working capital needs, what is required is the holding period of various types of inventories , the credit collection period and the credit payment period . Working capital
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also depends on the budgeted level of activity in terms of productivity / sales.

Estimation of Current Assets :

Raw Material Inventory : The investment in raw materials inventory is estimated on the basis of , Raw material inventory = Budgeted Production period ( in units ) per unit 12 months / 365 days Work-in-Progress (WIP) Inventory : The relevant costs to determine WIP inventory are the proportionate share of cost of raw materials and conversion costs ( labour and manufacturing overhead costs excluding depreciation ). In case of full unit of raw material is required in the beginning the unit cost of WIP would be higher , i.e. , cost of full unit + 50% of conversion cost , compared to the raw material requirement throughout the production cycle ; WIP is normally equivalent to 50% of total cost of production. Symbolically , Budgeted Production X ( in units ) Estimated WIP cost per unit X Average time span of WIP inventory ( months / days ) ( months/days ) X Cost of raw material(s) X Average inventory holding

12 months / 365 days Finished Goods Inventory : Working capital required to finance the finished goods inventory is given by factor as below Budgeted Production X Cost of goods produced per unit ( excluding Finished goods X holding period
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( in units )

depreciation ) 12 months / 365 days

( months / days )

Debtors : The WC tied up in debtors should be estimated in relation to total cost price (excluding depreciation) , symbolically Budgeted Credit sale X ( in units ) Cost of sales per unit excluding depreciation 12 months / 365 days Cash and Bank Balances : Apart from WC needs for financing inventories and debtors , firms also find it useful to have some minimum cash balances with them . It is difficult to lay down the exact procedure of determining such an amount . This would primarily based on the motives for holding cash balances of the business firm , attitude of management toward risk , the access to the borrowing sources in times of need and past experience , and so on . X Average debt collection period ( months / days )

Estimation of Current Liabilities:

The working capital needs of business firms are lower to that extent such needs are met through the current liabilities ( other than bank credits ) arising in the ordinary course of business . The important current liabilities ( CL ) , in this context are , trade creditors , wages and overheads : Trade Creditors : Budgeted yearly Production ( in units ) X Raw material requirement per unit 12 months / 365 days Note : proportional adjustment should be made to cash purchase of raw materials.
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Credit period X allowed by creditors ( months / days )

Direct Wages : Budgeted yearly Production ( in units ) 12 months / 365 days The average credit period for the payment of wages approximates to a half-a-month in the case of monthly wage payment: The first days wages are , again , paid on the 30th day of the month , extending credit for 28 days and so in . Average credit period approximates to half-a-month . Overheads ( Other Than Depreciation and Amortisation ) Budgeted yearly Production ( in units ) 12 months / 365 days The amount of overheads may be separately calculated for different types of overheads . In case of selling overheads , the relevant item would be sales volume instead of production volume . X Overhead cost per unit Average time lag in X payment of overheads ( months / days ) X Direct Labour cost per unit X Average time-lag in payment of wages ( months / days )

Trade Off Between Profitability And Risk

In evaluating firms net working capital position an important consideration is the tradeoff between profitability and risk . In other words , the level of NWC has a bearing on profitability as well as risk . The term profitability used in this context is measured by
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profit after expenses . The term risk is defined as the profitability that a firm will become technically insolvent so that it will not be able to meet its obligations when they become due for payment . The risk of becoming technically insolvent is measured using NWC . It is assumed that the greater the amount of NWC , the less risk prone the firm is . Or , the greater the NWC , the more liquid is the firm and , therefore , the less likely it is to become technically insolvent . Conversely , lower level of NWC and liquidity are associated with increasing level of risk . The relationship between liquidity , NWC and risk is such that if either NWC or liquidity increases , the firms risk decreases . Nature of Trade-Off : If a firm wants to increase its profitability , it must also increase its risk . If it is to decrease risk , it must decrease profitability . The trade-off between these variables is that regardless of how the firm increases profitability through the manipulation of WC , the consequence is a corresponding increase in risk as measured by the level of NWC . In evaluating the profitability-risk trade-off related to the level of NWC , three basic assumptions which are generally true , are a) that we are dealing with a manufacturing firm , b) that current assets are less profitable than fixed assets and c) the short term funds are less expensive than long term funds .

Effect of the Level of Current Assets on the Profitability-Risk Trade-Off The effect of the level of current assets on profitability-risk and trade-off can be shown using the ratio of current assets to total assets . This ratio indicates the percentage of total assets that are in the form of current assets . A change in the ratio will reflect a change in the current assets . It may either increase or decrease . Effect of Increase / Higher Ratio An increase in the ratio of current assets to total assets will lead to a decline in profitability because current assets are assumed to be less profitable than fixed assets . A second effect of the increase in the ratio will be that the risk to technical insolvency
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would also decrease because the increase in current assets , assuming no change in current liabilities, will increase NWC . Effect of Decrease / Lower Ratio A decrease in the ratio of current assets to total assets will result in an increase in profitability as well as risk . The increase in profitability will primarily be due to the corresponding increase in fixed assets which are likely to generate higher returns. Since the current assets decrease without a corresponding reduction in current liabilities, the amount of NWC will decrease, thereby increasing risk. Effect of Change in Current Liabilities on Profitability-Risk Trade-off As in the case of current assets, the effect of change in current liabilities can also be demonstrated by using the ratio of current liabilities to total assets. This ratio will indicate the percentage of total assets financed by current liabilities. The effect of change in level of current liabilities would be that the current liabilitiestotal assets ratio will either a) increase or b) decrease . Effect of an Increase in the Ratio One effect of the increase in the ratio of current liabilities to total assets would be that profitability will increase. The reason for the increased profitability lies in the fact that current liabilities, which are a short term sources of finance will be reduced. As short term sources of finance are less expensive than long-run sources, increase in ratio will, in effect, means substituting less expensive sources for more expensive sources of financing. There will, therefore, be a decline in cost and a corresponding rise in profitability. The increased ratio will also increase the risk. Any increase in the current liabilities, assuming no change in current assets, would adversely affect the NWC. A decrease in NWC leads to an increase in risk. Thus, as the current liabilities-total assets ratio increases, profitability increases, but so does risk.

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Effect of a Decrease in the Ratio The consequences of a decrease in the ratio are exactly opposite to the results of an increase. That is, it will lead to a decrease in profitability as well as risk. The use of more long term funds which, by definition, are more expensive will increase the cost; by implication profits will also decline. Similarly, risk will decrease because of the lower level of current liabilities on the assumption that current assets remains unchanged. Combined Effect of Changes in Current Assets and Current Liabilities on Profitability-Risk Trade-off: The combined effects of changes in current assets and current liabilities can be measured by considering them simultaneously. We have seen the effect of decrease in the current assets-total assets ratio and effect of an increase in the current liabilities-total assets ratio. These changes, when considered independently, lead to an increased profitability coupled with a corresponding increase in risk. The combined effect of these changes should, logically, be to increase over all profitability as also risk and at the same time decrease NWC.

FINANCING WORKING CAPITAL

After determining the level of Working Capital, the firm has to decide how it is to be
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financed. The need for finance arises mainly because the investment in working capital/current assets, that is, raw material, work-in-progress, finished goods and receivables typically fluctuates during the year. Although long-term funds partly finance current assets and provide the margin money for working capital, such working capitals are virtually exclusively supported by short term sources. The main sources of working capital financing are namely, Trade credits, Bank credits and commercial bankers. 1. Trade Credit Trade credit refers to the credit extended by the supplier of goods and services in the normal course of business of the firm. According to trade practices, cash is not paid immediately for purchases but after an agreed period of time. Thus, trade credit represents a source of finance for credit purchases. There is no formal/specific negotiation for trade credit. It is an informal agreement between the buyer and the seller. Such credit appears in the books of buyer as sundry creditors/accounts payable. The most of the trade credit is on open account as accounts payable, the supplier of goods does not extend credits indiscriminately. Their decision as well as the quantum is based on a consideration of factors such as earnings record over a period of time, liquidity position of the firm and past record of payment. Advantages :i) ii) iii) iv) v) It is easily, almost automatically available. It is flexible and spontaneous source of finance. The availability and the magnitude of trade credit is related to the size of operation of the firm in terms of sales/purchases. It is also an informal, spontaneous source of finance. Trade credit is free from restrictions associated with formal/negotiated source of finance/credit.

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2. Bank Credit Bank credit is primarily institutional source of working capital finance in India. In fact, it represents the most important source for financing of current assets. Working Capital finance is provided by banks in four ways :

Cash Credit / Overdrafts : Under cash credit/ overdraft agreement of bank finance, the bank specifies a predetermine borrowing/credit limit. The burrower can burrow upto the stipulated credit. Within the specified limit, any number of drawings are possible to the extent of his requirements periodically. Similarly, repayment can be made whenever desired during the period. The interest is determined on the basis of the running balance/amount actually utilized by the burrower and not on the sanctioned limit. However, a minimum charge may be payable on the unutilized balance irrespective of the level of borrowing for availing of the facility. This type of financing is highly attractive to the burrowers because, firstly, it is flexible in that although borrowed funds are repayable on demand, and, secondly, the burrower has the freedom to draw the amount in advance as an when required while the interest liability is only on the amount actually outstanding. However, cash credit/overdraft is inconvenient to the banks and hampers credit planning. It was the most popular method of bank financing of working capital in India till the early nineties. With the emergence of the new banking since mid-nineties, cash credit cannot at present exceed 20% of the maximum permissible bank finance (MPBF)/credit limit to any borrower.

Loans : under this arrangement, the entire amount of borrowing is credited to the current account of the borrower or released in cash. The borrower has to pay interest on the total amount. The loans are repayable on demand or in periodic installments. They can also be renewed from time to time. As a form of financing, loans imply a financial discipline on the part of the borrowers. From a modest beginning in the early nineties, at least 80% of MPBF must be in form of loans in India.
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Bills Purchased/Discounted : This arrangement is of relatively recent origin in India. With introduction of the New Bill Market Scheme in 1970 by RBI, bank credit is being made available through discounting of usance bills by banks. The RBI envisaged the progressive use of bills as an instrument of credit as against the prevailing practice of using the widely-prevalent cash credit arrangement for financing working capital. The cash credit arrangement gave rise to unhealthy practices. As the availability of bank credit was unrelated to production needs, borrower enjoyed facilities in excess of their legitimate needs. Moreover, it led to double financing. This was possible because credit was taken form different agencies for financing the same activity. This was done, for example, by buying goods on credit from suppliers and raising cash credit b hypothecating the same goods. The bill financing is intended to link credit with sale and purchase of goods and, thus eliminate the scope for misuse or diversion of credit to other purposes.Before discounting he bill, the bank satisfies itself about the credit worthiness of the drawer and the genuineness of the bill. To popularize the scheme, the discount rates are fixed at lower rates than those of cash credit. The discounting banker asks the drawer of the bill to have his bill accepted by the drawee bank before discounting it. The later grants acceptance against the cash credit limit, earlier fixed by it, on the basis of the borrowing value of stocks. Therefore, the buyer who buys goods on credit cannot use the same goods as a source of obtaining additional bank credit. The modus operandi of bill finance as a source of working capital financing is that a bill that arises out of a trade sale-purchase transaction on credit. The seller of goods draws the bill on the purchaser of goods, payable on demand or after a usance period not exceeding 90 days. On acceptance of the bill by the purchaser, the seller offers it to the bank for discount/purchase. On discounting the bill, the bank releases the funds to the seller. The bill is presented by the bank to the purchaser/acceptor of the bill on due date for payment. The bills can be rediscounted with the other banks/RBI. However,
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this form of financing is not popular in the country. Term Loans for Working Capital : Under this arrangement, banks advance loans for 3-7 years payable in yearly or half-yearly installments. The purchaser of goods on credit obtains a letter of credit from a bank. The bank undertakes the responsibility to make payment to the supplier in case the buyer fails to meet his obligations. Thus , the modus operandi of letter of credit is that the supplier sells goods on credit/extends credit to the purchaser, the bank gives a guarantee and bears risk only in case of default by the purchaser.

3. Mode of Security
a) Hypothecation : Under this mode of security, the banks provide credit to

borrowers against the security of movable property, usually inventory of goods. The goods hypothecated, however, continue to be in the possession of the owner of these goods (i.e. the borrower ). The rights of the lending bank (hypothecate) depend upon the terms of the contract between the borrower and the lender. Although the bank does not have physical possession of the goods, it has the legal right to sell the goods to realize the outstanding loan. Hypothecation facility is normally is not available to new borrowers.
b) Pledge : Pledge, as a mode of security, is different from hypothecation in that in

the former, unlike in the later, the goods which are offered as security are transferred to the physical possession of the lender. An, essential perquisite of pledge, therefore, is that the goods are in the custody of the bank. The borrower who offer the security is, called a pawnor (pledgor), while the bank is called the pawnee (pledgee). The lodging of goods by the pledgor to the pledgee is a kind of bailment. Therefore, pledge creates some liabilities for the bank. It must take reasonable care of goods pledged with it. In case of non-payment of the loans, the bank enjoys the right to sell the goods.
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c) Lien : The term lien refers to the right of a part to retain goods belonging to

another party until a debt due to him is paid. Lien can be of two types: (i) particular lien, and (ii) general lien. Particular lien is a right to retain goods until a claim pertaining to theses goods is fully paid. On the other hand, general lien can be applied till all dues of the claimant are paid. Banks usually enjoy general lien.
d) Mortgage : It is the transfer of a legal/equitable interest in specific immovable

property for securing the payment of debt. The person who parts with the interest in the property is called mortgagor and the bank in whose favour the transfer takes place is the mortagagee. The instrument of transfer is called the mortgage deed. Mortgage is, thus, conveyance of interest in the mortgaged property. The mortgage interest in the property is terminated as soon as the debt is paid. Mortgage are taken as an additional security for working capital credit b banks.
e) Charge : Where immovable property of one person is, by the act of parties or by

the operation of law, made security for the payment of money to another and the transaction does not amount to mortgage, the latter person is said to have a charge on the property and all the provisions of simple mortgage will apply to such a charge. The provision are as follows: A charge is not the transfer of interest in the property though it is security for payment. But mortgage is a transfer of interest in the property. A charge may be created by the act of parties or by the operation of law. But a mortgage can be created only by the act of parties. A charge need not be made in writing but a mortgage deed must be attested. Generally, a charge cannot be enforced against the transferee for consideration without notice. In a mortgage, the transferee of the mortgage property can acquire the remaining interest in the property, if any is left. 4.Reserve Bank of India Framework for Regulation of Bank Credit
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After mid-nineties, the framework for regulation of bank credits has been relaxed permitting banks greater flexibility in tune with the emergence of new banking in the country, focusing on viability and profitability in contrast to the earlier thrust on social/development banking. The notable features of the framework/regulation related to fixation of norms for bank lending to industry. The norms are:
a) Inventory and Receivable Norms : The norms refer to the maximum level for

holding inventories and receivables in each industry. Raw materials were expressed as so many months consumptions; WIP as so many months cost of production; finished goods and receivables as so many months of cost of sales and sales respectively. These norms represent the maximum levels of holding inventory and receivables in each industry. Borrowers were not expected to hold more than that level. The fixation of these norms was, thus, intended to reduce the dependency of industry on bank credit.
b) Lending Norms/Approach to Lending/MPBF : According to the lending norms,

a part of the current assets should be financed by the trade credit and other current liabilities. The remaining part of the current assets, termed as working capital gap, should be partly financed by the owners funds and long term borrowings and partly by short term bank credit. The approach to lending is vitally significant. It takes into account all the current assets requirements of borrowers total operational needs and not merely inventories or receivables; it also takes into account all the other sources of finance at his command. Another merit of the approach is that it invariably ensures a positive current ratio and, thus, keeps under check any tendency to overtrade with borrowed funds.
c) Forms of Financing/Style of Credit : In 1995, a mandatory limit on cash credit

and a loan system of delivery of bank credit was introduced. The cash-credit limit was initially limited to 60% of the MPBF. The balance 40% could be availed of as short term loans. The cash credit limit sanctions are currently 20% and loan component 80%.
d) Information and Reporting System : The main components of the information

and reporting system are four, namely,

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Quarterly Information System : Form I. Its contents are (i) production and sales estimates for the current and the next quarter, and (ii) current assets and current liabilities estimates for the next quarter.

Quarterly Information System : Form II. It contains (i) actual production and sales during the current year and for the latest completed year, and (ii) actual current assets and current liabilities for the latest completed quarter.

Half-yearly Operating Statement : Form III. The actual operating performance for the half-year ended against the estimates are given in this. Half-yearly Operating Statement : Form IIIB. The estimates as well as the actual sources and uses of funds for the half-year ended are given.

5.Commercial Papers Commercial Paper (CP) is a short term unsecured negotiable instrument, consisting of usance promissory notes with a fixed maturity. It is issued on a discount on a face value basis but it can also be issued in interest bearing form. A CP when issued by a company directly to the investor is called a direct paper. The companies announce current rates of CPs of various maturities, and investors can select those maturities which closely approximate their holding period. When CPs are issued by security dealer on behalf of their corporate customers, they are called dealer paper. They buy at a price less than the commission and sell at the highest possible level. The maturities of CPs can be tailored within the range to specific investments.

a) Advantages - CP is a simple instrument and hardly involves any documentation. - It is flexible in terms of maturities which can be tailored to match the cash flow of the issuer. - A well rated company can diversify its sort-term sources of finance from banks to money market at cheaper cost.
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- The investors can get higher returns than what they can get from the banking system. - Companies which are able to raise funds through CPs have better financial standing. - The CPs are unsecured and there are no limitations on the end-use of funds raised through them. - As negotiable/transferable instruments, they are highly liquid.

b) Framework of Indian CP Market The CPs emerged as sources of short-term financing in the early nineties. They are regulated by RBI. The main element of present framework are given below. CPs can be issued for periods ranging between 15 days and one year. Renewal of CPs is treated as fresh issue. The minimum size of an issue is Rs.25 lakh and the minimum unit of subscription is Rs.5 lakh. The maximum amount that a company can raise by way of CPs is 100% of the working capital limit. A company can issue CPs only if it has a minimum tangible net worth of Rs.4 crore, a fund-based working limit of Rs.4 crore or more, at least a credit rating of P2 (Crisil ), A2 ( Icra ), PR-2 ( Care ) and D-2 ( Duff & Phelps ) and its borrowal account is classified as standard asset. The CPs should be issued in the form of usance promissory notes, negotiable by endorsement and deliver at a discount rate freely determined by the issuer. The rate of discount also includes the cost of stamp duty ( 0.25 to 0.5% ), rating charges (0.1 to 0.2%), dealing bank fee ( 0.25% ) and stand by facility ( 0.25% ). The participants/investors in CPs can be corporate bodies, banks, mutual funds, UTI, LIC, GIC, NRIs on non-repatriation basis. The Discount and Finance House of India ( DFHI ) also participates by quoting its bid and offer prices. The holder of CPs would present them for payment to the issuer on maturity.
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c) Effective Cost/Interest Yield As the CPs are issued at discount and redeemed at it face value, their effective pre-tax cost/interest yield = { (Face Value Net amount realised) / (Net amount realised) }x{(360) / (Maturity period) } where net amount realised = Face value discount issuing and paying agent (IPA) charges that is, stamp duty, rating charges, dealing bank fee and fee for stand by facility.

6.Factoring Factoring provides resources to finance receivables as well as facilitates the collection of receivables. Although such services constitute a critical segment of the financial services scenario in the developed countries, they appeared in the Indian financial scene only in the early nineties as a result of RBI initiatives. There are two bank sponsored organisations which provide such services: (i) SBI Factors and Commercial Services Ltd., and (ii) Canbank Factors Ltd. The first private sector factoring company, Foremost Factors Ltd. Started operations since the beginning of 1997.
a) Definition : Factoring can broadly be defined as an agreement in which

receivables arising out of sales or goods/services are sold by a firm ( client ) to the factor ( a financial intermediary ) as a result of which the title of the goods/services represented by the said receivables passes on to the factor. Henceforth, the factor becomes responsible for all credit control, sales accounting and debt collection from the buyer. In a full service factoring concept ( without resource facility ), if any of the debtor fails to pay the dues as a result of his financial inability/insolvency/bankruptcy, the factor has to absorb the losses.

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b) Mechanism : Credit sales generate the factoring business in the ordinary course of

business dealings. Realisation of credit sales is the main function of factoring services. Once a sale transaction is completed, the factor steps in to realise the sales. Thus the factor works between the seller and the buyer and sometimes with the sellers bank together.
c) Functions of a Factor : Depending on the type/form of factoring, the main

functions of a factor, in general terms, can be classified into six categories: i) Financing facility/trade debts : The unique feature of factoring is that a factor purchases the book debts of his client at a price and the debts are assigned in favour of the factor who is usually willing to grant advances to extent of, say, 80% of the assigned debts. Where the debts are factored with recourse, the finance provided would become refundable by the client in case of non-payment of the buyer. However, where the debts are factored without recourse, the factors obligation to the seller becomes absolute on the due date of the invoice whether or not the buyer makes the payment. ii) Maintenance/administration of sales ledger : The factor maintains the clients sales ledger. In addition, the factor also maintains a customer-wise record of payments spread over a period of time so that any change in the payment pattern can be easily identified. iii) Collection facility of accounts receivable : The factor undertakes to collect the receivables on the behalf of the client relieving him of the problems involved in collection, and enables him to concentrate on other important functional areas of the business. This also enables the client to reduce the cost of collection by way of savings in manpower, time and efforts. iv) Credit Control and Credit Restriction : The factor in consultation with the client fixes credit limits for approved customers. Within these limits, the factor undertakes to purchase all trade debts of the customer without resource. In other words, the factor assumes
29

the risk of default in payment by the customer. Operationally, the line of credit/credit limit up to which the client can sell to the customer depends on his financial position, his past payment record and value of goods sold by the client to the customer. v) Advisory Services : These services are a spin-off of the close relationship between a factor and a client. By virtue of their specialised knowledge and experience in finance and credit dealings and access to extensive credit information, factors can provide a variety of incidental advisory services to their clients. vi) Cost of Services : The factors provide various services at a charge. The charge for collection and sales ledger administration is in the form of a commission expressed as a value of debt purchased. It is collected in advance. The commission for short term financing as advance part-payment is in the form of interest charge for the period between the date of advance payment and the date of collection date. It is also known as discount charge.

MANAGING WORKING CAPITAL

1.Cash Management
A) Objectives:
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The basic objective of cash management are two fold: a) to meet the cash disbursement needs and b) to minimise funds committed to cash balances. These are conflicting and mutually contradictory and the task of the cash management is to reconcile them. Meeting Payment Schedule In normal course of business, firms have to make payments of cash on a continuous and regular basis to suppliers of goods, employees and so on. At the same time, there is a constant inflow of cash through collections from debtors. A basic objective of cash management is to meet the payment schedule, that is, to have sufficient cash to meet the cash disbursement needs of a firm. The advantages of adequate cash are : (i) it prevents or bankruptcy , (ii) the relationship with banks is not strained, (iii) it helps in fostering good relations with trade creditors and suppliers of raw materials, as prompt payment may help their own cash management, (iv) a cash discount can be availed of if payment is made within the due date, (v) it leads to a strong credit rating , (vi) to take advantage of favorable business opportunities that may be available periodically, and finally (vii) the firm can meet unanticipated cash expenditure with a minimum of strain during emergencies, such as strikes, fires, or a new marketing campaign by competitors. Keeping large cash balances, however, implies a high cost. Minimising Funds Committed to Cash Balances The second objective of Cash Management is to minimise cash balances. In minimizing the cash balances, two conflicting aspects have to be reconciled. A high level of cash balances will, as mentioned above, ensure prompt payment together with all the advantages. But it also implies that large funds will remain idle, as cash is a non earning asset and the firm will have to forgo profits. A low level cash balances, on the other hand, may mean failure to meet the payment schedule. The aim of cash management, therefore, should be to have optimal amount of cash balances.

31

Factors Determining Cash Needs

i)

Synchonisation of cash flows : The proper synchronization between the outflows and inflows should be followed . This is possible by adopting cash budget technique. The properly prepared budget will pinpoint the months/periods when the firm will have an excess or a shortage of cash.

ii)

Short Costs : The cash budgets reveals the periods of shortage of cash, but, in addition, there may be some unexpected shortfalls. The expenses incurred as a result of shortfalls is called as Short Costs.

iii)

Excess Cash Balance Costs: The cost of having excessively large cash balances is known as the excess cash balance cost. If large funds are idle, the implication is that the firm has missed opportunities to invest those funds and has thereby lost interest which it would otherwise have earned. This loss of interest is primarily the excess cost.

iv)

Procurement and Management : These are the costs associated with establishing and operating cash management staff and activities. They are generally fixed and are mainly accounted for by salary, storage, handling of securities and so on.

v)

Uncertainty and Cash management : Finally, the impact on cash management strategy is also relevant as cash flows cannot be predicted with complete accuracy.

Cash Budget : Management Tool Cash Budget is the most important tool in cash management. It is the statement showing the estimated cash inflows and cash outflows over the planning horizon. The various purposes of cash budgets are : (i) to co-ordinate the timings of cash needs, (ii) it pinpoints the period when there is likely to be excess cash, (iii) it assists management in taking cash discounts on its account payables, (iv) it helps to arrange needed funds on the most favorable terms and prevents accumulation of excess funds. Preparation of Cash Budget
32

The principle aim of the cash budget, as a tool is to predict cash flows over a given period of time, and to ascertain whether at any point of time there is likely to be excess or shortage of cash. The first element of cash budget is the selection of the period of time to be covered by the budget. It s referred to as the planning horizon over which the cash flows are to be projected. There is no fixed rule , it varies from firm to firm. The period selected should be neither too long nor too short. If it is too long, it is likely that the estimates will be inaccurate. If, on the other hand, the time span is too small many important events which lie just beyond the period cannot be accounted for and the work associated with the preparation of the budget becomes excessive. If the flows are expected to be stable and dependable, such a firm may prepare a cash budget covering a long period, say, a year and divide it into quarterly intervals. In the case of firms whose flows are uncertain, a quarterly budget, divided into monthly intervals, may be appropriate. If the flows are subjected to extreme fluctuations, even a daily budget may be called for. The idea behind subdividing the budget period into smaller intervals is to highlight the movement of cash from one sub period to another.

Operating Cash Flow Operating Cash Flow Items Inflows / Cash Receipts 1. Cash Sales 2. Collection of Accounts Receivables

Outflows / Disbursements 1. Accounts payable / Payable payments 2. Purchase of raw materials

33

3. Disposals of Fixed Assets

3. Wages and Salaries 4. Factory Expenses 5. Administrative and selling expenses 6. Maintenance Expenses 7. Purchase of Fixed Assets

Among the operating factors affecting cash flows, are the collection of accounts ( inflows ) and accounts payable ( outflows ). The terms of credit and the speed with which the customer pay would determine the lag between the creation of accounts receivable and their collection. Financial Cash Flows

Financial Cash Flow Items Cash Inflows / Receipts 1. Loans / Borrowings 2. Sales of Securities 3. Interest received 4. Dividend received 5. Rent received 6. Refund of tax 7. Issue of new shares and securities

1. 2. 3. 4. 5.

Cash Outflows / Payments Income-tax / Tax payment Redemption of loan Repurchase of shares Interest paid Dividend paid

Preparation of Cash Budget After the time span of the cash budget decided and the pertinent operating and financial factors have been identified, the final step is the construction of the cash budget. Thus the total cash inflows, cash outflows and the net receipt or payment is worked out.

C) Cash Management : Basic Strategies The cash budget, as a management tool, would throw light on the net cash position of the firm. After knowing the cash position, the management should workout the basic
34

strategies to be employed to manage its cash. The broad cash management strategies are essentially related to the cash turnover process, that is, the cash cycle together with the cash turnover. The cash cycle refers to the process by which the cash is used to purchase materials from which are produced goods, which are then sold to customers, who later pay the bills. The firm receives cash from customers and the cycle repeats itself. The cash turnover means the number of times the cash is used during each year. The cash cycle involves several steps along the way as fund flows from the firms accounts.

Minimum Operating Cash The higher the cash turnover, the less is the cash a firm requires. A firm should, therefore, try to maximize the cash turnover. But it must maintain a minimum amount of operating cash balance so that it does not run out of cash. The basic strategies that can be employed to do the needful are as follows:
i)

Stretching accounts payable : In other words, a firm should pay its accounts payable as late as possible without damaging its credit standing. It should, however take advantage of the cash discount available on prompt payment.

ii)

Efficient Inventory-Production Management : Increase inventory turnover, avoiding stock-outs, that is, shortage of stocks. This can be done in following ways: a) Increasing the raw materials turnover by using more efficient inventory control techniques. b) Decreasing the production cycle through better production planning, scheduling and control techniques, it will lead to an increase in WIP inventory turnover. c) Increasing the finished goods turnover through better forecasting of demand and a better planning of production.

35

iii)

Speeding Collection of Accounts Receivable : Another strategy for efficient cash management is to collect account receivable as quickly as possible without losing future sales because of high-pressure collection techniques. The average collection period of the receivables can be reduced by changes in (a) credit terms, (b) credit standards, and (c) collection policies

iv)

Combined Cash Management Strategies : We have seen strategies related to (i) accounts receivables, (ii) inventory, and (iii) accounts receivables but there are certain problems for management . First, if the accounts payable are postponed too long, the credit standing of the firm may be adversely affected. Secondly, a low level of inventory may lead to a stoppage of production as sufficient raw materials may not be available for uninterrupted production, or the firm may be short of enough stock to meet the demand for its product, that is, stock-out. Finally, restrictive credit standards, credit terms and collection policies may jeopardize sales. These implications should be constantly kept in view while working out cash management strategies.

2.Receivables Management
A) Objectives The term receivables is defined as debt owed to the firm by the customers arising from sale of goods or services in the ordinary course of business. When a firm makes an ordinary sale of goods or services and does not receive payment, the firm grants trade credit and creates accounts receivables which could be collected in the future. Receivables management is also called trade credit management. Thus accounts receivable represent an extension of credit to customers, allowing them a reasonable period of time in which to pay for the goods received.
36

a) The sale of goods on credit is an essential part of the modern competitive

economic systems. In fact, the credit sale and, therefore, the receivables, are treated as a marketing tool to aid the sale of goods. As a marketing tool, they are intended to promote sales and obligations through a financial instrument. Management should weigh the benefits as well as cost to determine the goal of receivables management. The objective of receivable management is to promote sales and profits until that point is reached where the return on investment in further funding receivables is less than the cost of funds raised to finance that additional credit. The specific costs and benefits which are relevant to the determination of the objectives of receivables management are examined below. a)Costs : The major categories of costs associated with the extension of credit and accounts receivable are :Collection Cost: Collection costs are administrative costs incurred in collecting the receivables from the customers to whom credit sales have been made. Capital Cost: The increased level of accounts receivable is an investment in assets. They have to be financed thereby involving a cost. It includes the additional funds required to meet its own obligation while waiting for payment from its customer and also the cost on the use of additional capital to support credit sales, which alternatively could be profitably employed elsewhere. Delinquency Cost: This cost arises out of the failure of the customers to meet their obligations where payment on credit sales become due after the expiry of the credit period. Such costs are called delinquency costs. Default Costs: Finally, the firm may not be able to recover the overdues because of the inability of the customers. Such debts are treated as bad debts and have to be written off as they cannot be realized. Such costs are treated as default costs associated with credit sales and accounts receivables. b) Benefits: Apart from the costs, another factor that has a bearing on accounts receivable management is the benefit emanating from credit sales. The benefits are the increased sales and anticipated profits because of the more liberal policy.
37

The impact of the liberal trade credit policy is likely to take two forms. Firstly, it is oriented to sales expansion. Secondly, the firm may extend credit to protect its current sales against emerging competition. Here, the motive is sales-retention. From the above discussion, it is clear that investments in receivables involve both benefits and costs. The extension of trade credit has a major impact on sales, cost and profitability. Therefore account receivable management should aim at off between profit (benefits) and risk (cost). B) Credit Policies In the preceding discussion it has been clearly shown that the firms objective with respect to receivables management is not merely to collect receivables quickly but attention should also be given to the benefit-cost trade-off involved in the various areas of accounts receivable management. The first decision area is Credit Policies. The credit policy of the firm provides the framework to determine (a) whether or not to extend credit to a customer and (b) how much credit to extend. The credit policy decision of firm has two broad dimensions:
(i)

Credit Standards : The term credit standards represents the basic criteria for the extension of credit to customers. The quantitative basis of establishing credit standards are factors such as credit ratings, credit references, average payment period and certain financial ratios. Since we are interested in illustrating the trade-off between benefit and cost to the firm as a whole, we do not consider here these individual components of credit standards. To illustrate the effect, we have divided the overall standards into (a) tight or restrictive, and (b) liberal or non-restrictive. The trade-off with reference to credit standards covers
(a) Collection Costs : The implications of the relaxed credit standards are (i)

more credit, (b) a large credit department to service accounts receivable and related matters, (iii) increase in collection costs. The effect of tightening of credit standards will be exactly the opposite. These costs are likely to be semi-variable.
38

(b) Investments in Receivables or the Average Collection Period : The

investment in accounts receivable involves a capital cost as funds have to be arranged by the firm to finance them till customer makes payment. Moreover higher the average accounts receivables, the higher is the capital or carrying cost. A change in credit standards-relaxation or tightening-leads to a change in the level of accounts receivable either (i) through a change in sales, or (ii) through a change in collections. A relaxation in credit standards, as already stated, implies an increase in sales which, in turn, would lead to higher average accounts receivable. Further relaxed standards would mean that credit is extended liberally so that it is available to even less credit-worthy customers who will take a longer period to pay overdues. In contrast, a tightening of credit standards would signify (i) a decrease in sales and lower average accounts receivables, and (ii) an extension of credit limited to more credit-worthy customers who can promptly pay their bills and, thus, a lower average level of accounts receivable.
(c) Bad Debt Expenses : Another factor which is expected to be affected by

changes in credit standards is bad debt expenses. They can be expected to increase with relaxation in credit standards and decrease if credit standards become more restrictive.
(d) Sales Volume : Changing credit standards can also be expected to change

the volume of sales. As standards are relaxed, sales are expected to increase; conversely, a tightening is expected to cause a decline in sales.

B) Credit Analysis Besides establishing credit standards, a firm should develop procedures for evaluating credit applicants. The second aspect of credit policies of a firm is credit analysis and investigation. Two basic steps are involved in the credit investigation process (a)Obtaining Credit information : The first step in credit analysis is obtaining credit information on which to base the evaluation of a customer. The sources of information,
39

broadly speaking, are

(i)

Internal : Usually, firms require their customers to fill various forms and documents giving details about financial operations. They are also required to furnish trade references with whom the firms can have contacts to judge the suitability of the customer for credit. This type of information is obtained from internal sources of credit information. Another internal source of credit information is derived from the records of the firms contemplating an extension of credit.

(ii)

External : The availability of information from external sources to assess the credit-worthiness of customers depends upon the development of institutional facilities and industry practices. In India, the external sources of credit information are not as developed as in the industrially advanced countries of the world. Depending upon the availability, the following external sources may be employed o collect information.
-

Financial Statements : One external source of credit information is the published financial statements, that is, the balance sheet and the profit and loss account. They contain very useful information such as applicants financial viability, liquidity, profitability, and debt capacity. They are very helpful in assessing the overall financial position of a firm, which significantly determines its credit standing.

Bank References : Another useful source of credit information is the bank of the firm which is contemplating the extension of credit. The modus operandi here is that the firms banker collects the necessary information from the applicants bank. Alternatively, the applicant may be required to ask his banker to provide the necessary information either directly to the firm or to its bank.

Trade References : These refer to the collection of information from firms with whom the applicant has dealings and who on the basis of their experience would vouch for the applicant.
40

Credit Bureau Report : Finally, specialist credit bureau reports from organizations specializing in supplying credit information can also be utilized.

(b) Analysis of Credit Information : Once the credit information has been collected from different sources, it should be analysed to determine the credit-worthiness of the applicant. The analysis should cover two aspects:
(i)

Quantitative : The assessment of the quantitative aspects is based on the factual information available from the financial statements, the past records of the firm, and so on. The first step involved in this type of assessment is to prepare an Aging Schedule of the accounts payable of the applicant as well as calculate the average age of accounts payable. This exercise will give an insight into the past payment pattern of the customer. Another step in analyzing the credit information is through a ratio analysis of the liquidity, profitability and debt capacity of the applicant. These ratios should be compared with the industry average. Morever, trend analysis over a period of time would reveal the financial strength of the customer.

(ii)

Qualitative : The quantitative assessment should be supplemented by a qualitative/subjective interpretation of the applicants credit-worthiness. The subjective judgement would cover aspects relating to the quality of management. Here, the reference from other suppliers, bank references and specialist bureau reports would form the basis for the conclusion to be drawn. In the ultimate analysis, therefore, the decision whether to extend credit to the applicant and what amount to extend will depend upon the subjective interpretation of his credit standing.

C) Credit Terms The second decision area in accounts receivables management is the credit terms. After the credit standards have been established and the credit-worthiness of the customer has
41

been assessed, the management of a firm must determine the terms and conditions on which the trade credit will be made available. The stipulations under which goods are sold on credit are referred to as credit terms. The credit terms specifies the repayment terms of receivables. The credit terms have three components : (i) credit period, in terms of duration of time for which trade credit is extended-during this period the overdue amount must be paid by the customer; (ii) cash discount, if any, which the customer can take advantage of, that is, the overdue amount will be reduced by this amount; and (iii) cash discount period, which refers to the duration during which the discount can be availed of. The credit terms, like the credit standards, affect the profitability as well as the cost of a firm. A firm should determine the credit terms on the basis of cost-benefit trade-off. The components of credit are here below: (a) Cash Discount : The cash discount has implications for the sales volume, average collection period/average investment receivables, bad debt expenses and profit per unit. In taking a decision regarding the grant of cash discount the management has to se what happens to these factors if it initiates increase, or decrease in the discount rate. The changes in the discount rate would have both positive and negative effects. The implications of increasing or initiating cash discount are as follows: i. The sales volume will increase. The grant of discount implies reduced prices. If the demand for the products is elastic, reduction in prices will result in higher sales volume. ii. Since the customers, to take advantage of the discount, would like to pay within the discount period, the average collection period would be reduced. The reduction in the collection period would lead to a reduction in the investment in receivables as also the cost. The decrease in the average collection period would also cause a fall in bad debt expenses. As a result, profits would increase. iii. The discount would have a negative effect on the profits. This is because the decrease in prices would affect the profit margins per unit of sale.
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E)Collection Policies The third area involved in accounts receivable management is collection policies. Thy refer to the procedures followed to collect the accounts receivable when, after the expiry o the credit period, they become due. These policies cover two aspects: (i) Degree of Collection Effort : To illustrate the effect of the collection effort, the credit policies of a firm may be categorised into (i) strict / light, and (ii) lenient. The collection policy would be tight if very rigorous procedures are followed. A tight collection policy has implications which involve benefits as well as costs. The management has to consider a trade-off between them. Likewise, a lenient collection effort also affects the cost-benifit trade-off. The effect of tightening the collection is discussed below : - Bad debt expenses would decline. - The average collection period will be reduced. - As a result profit will increase. - Increased collection costs. - Decline in sales volume. The effect of lenient policy will just be the opposite.
(iii)

Type of Collection Efforts : The second aspect of collection policies relates to the steps that should be taken to collect overdues from the customers. A well established collection policy should have clear-cut guidelines as to the sequence of collection efforts. After the credit period is over and payment remains due, the firm should initiate measures to collect them. The effort should in the beginning be polite, but, with the passage of time, it should gradually become strict. The steps usually taken are (i) letters, including reminders, to expedite payment; (ii) telephone calls for personal contact; (iii) personal visits; (iv) help of collection agencies; and finally,(v) legal action. The firm should take recourse to very stringent measures, like legal actions, only after all other avenues have been fully
43

exhausted. They not only involve cost but also affect the relationship with the customers. The aim should be to collect as early as possible; genuine difficulties of the customers should be given due consideration.

3. Marketable Securities
A) Meaning And Characteristics Once the optimal level of cash balance of a firm has been determined, the residual of its liquid assets is invested in marketable securities. Such 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. To be liquid, a 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. A 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 short term investments. A firm would be better off leaving the balances in cash if the alternative were to risk a significant reduction in principle.

B) Selection Criterion A major decision confronting the financial managers involves the determination of the mix of cash and marketable securities. In general, the choice of the mix is based on a trade-off between the opportunity to earn a return on idle funds during the holding period, and the brokerage costs associated with the purchase and sale of marketable securities. There are three motives for maintaining liquidity and therefore for holding marketable securities: transaction motive, safety motive and speculative motive. Each motive is based on the premise that a firm should attempt to earn a return on temporarily idle funds. An assessment of certain criteria can provide the financial manager with a useful framework for selecting a proper marketable securities mix. These considerations
44

include evaluation of :

Financial Risk : It refers to the uncertainty of expected returns from a security attributable to possible changes in the financial capacity of the security issuer to make future payments to the security owner. If the chances of default on the terms of the investment is high, then the financial risk is said to be high and vise versa .

Interest Rate Risks : The uncertainty associated with the expected returns from a financial instrument attributable to changes in interest rates is known as interest rate risk. If prevailing interest rates rise compared with the date of purchase, the market price of the securities will fall to bring their yield to maturity in line with what financial managers could obtain by buying a new issue of a given instrument, for instance, treasury bills. The longer the maturity of the instrument, the larger will be the fall in prices. To hedge against the price volatility caused by interest rate risk, the market securities portfolio will tend to be composed of instruments that mature over short period. Taxability : Another factor affecting observed difference in market yields is the differential impact of taxes. A differential impact on yields arises because interest income is taxed at the ordinary tax rate while capital gains are taxed at a lower rate. Liquidity : With reference to marketable securities portfolio,

liquidity refers to the ability to transform a security into cash. The financial manager will want the cash quickly and will not want to accept a large price reduction in order to convert the securities.

Yield : The final selection criterion is the yields that are available on the different financial assets suitable for inclusion in the marketable portfolio. All the four factors listed above, influence the available yields on financial instruments. The finance manager must focus on
45

the risk-return trade-offs associated with the four factors on yield through his analysis. Marketable Security Alternatives
(i)

Treasury Bills : There are obligations of the government. They are sold on a discount basis. The investor does not receive an actual interest payment. The return is the difference between the purchase price and the face value of the bill. The treasury bills are issued only in bearer form. They are purchased, therefore, without the investors name on them. As the bills have the full financial backing of the government, they are, for all practical purposes, riskfree.
(ii) Negotiable Certificates of Deposits : These are marketable receipts for funds

that have been deposited in a bank for a fixed period of time. The deposit funds earn a fixed rate of interest. The CDs are offered by banks on a basis different from treasury bills, that is, they are not sold at discount. When the certificate mature, the owner receives the full amount deposited plus the earned interest.
(iii)

Commercial Paper : It refers to short-term unsecured promissory note sold by large business firms to raise cash. As they are unsecured, the issuing side of the market is dominated by large companies which typically maintain sound credit rating. Commercial paper can be sold either directly or through dealers. Companies with high credit ratings can sell directly to the investors. They can even be purchased with varying maturities. For all practical purposes, there is no active trading in secondary market for commercial papers although direct sellers of CPs often repurchase it on request.

(iv) Bankers Acceptances : These are draft (order to pay) drawn on a specific

bank by an exporter in order to obtain payment for goods he has shipped to a customer who maintains an account with that specific bank. They can
46

also be used in financing domestic trade. The draft guarantees payment by the accepting bank at a specific point of time. The seller who holds such acceptance may sell it at a discount to get immediate funds. They serve the wide range of maturities and are sold on a discount basis, payable to the bearer.
(v) Repurchase Agreements : These are legal contracts that involves the actual

sale of securities by a borrower to the lender with a commitment on the part of the former to repurchase the securities at the current price plus a stated interest charge. The securities involved are government securities and other money market instruments. The borrower is either a financial institution or a security dealer.
(vi) Units : The units of Unit Trust of India (UTI) offers a reasonably convenient

alternative avenue for investing surplus liquidity as (i) there is a very active secondary market for them, (ii) the income for units is tax-exempt up to a specified amount and, (iii) the units appreciate in a fairly predictable manner.
(vii)

Intercorporate Deposits : Intercorporate deposits, that is, short-term deposits with other companies is a fairly attractive form of investment of short-term funds in terms of rate of return which currently ranges between 12 and 15 per cent. However, apart from the fact that one months time is required to convert them into cash, intercorporate deposits suffers from high degree of risk.

(viii)

Bill Discounting : Surplus funds may be developed to purchase/discount bills. Bills of exchange are drawn by seller on the buyer for the value of goods delivered to him. If the seller is in need of funds, he may get the bills discounted. Bill discounting is superior to intercorporate deposits for investing surplus funds.

(ix) Call market : It deals with funds borrowed/lent overnight/one-day (call)

money and notice money for periods up to 14 days. It enables corporates to utilize their float money gainfully. However the returns are highly
47

volatile. The stipulations pertaining to the maintenance of cash reserve ratio (CRR) by banks is the major determinant of the demand of funds and is responsible for volatility in call rates. Large borrowings by them to fulfill their CRR requirements pushes up the rates and a sharp decline takes place once these funds are met.

4. Inventory Management
A) Objectives The basic responsibility of the financial manager is to make sure the firms cash flows are managed efficiently. Efficient management of inventory should ultimately result in the maximization of the owners wealth. As we know that in order to minimise cash requirements, inventory should be turned over as quickly as possible, avoiding stockouts that might result in closing down the production line or lead to a loss of sales. It implies that while the management should try to pursue the financial objective of turning inventory as quickly as possible, it should at the same time ensure sufficient inventories to satisfy production and sales demands. The objective of inventory management consists of two counterbalancing parts: (i) to minimise investment in inventory, and (ii) meet a demand for the product by efficiently organizing the production and sales operations. These two conflicting objectives of inventory management can also be expressed in terms of cost and benefit associated with inventory. That the firm should minimise investment in inventory implies that maintaining inventory involves costs, such that the smaller the inventory, the lower is the cost to the firm. But inventories also provide benefits to the extent that they facilitate the smooth functioning of the firm: the larger the inventory, the better it is from the viewpoint. Obviously, the financial managers should aim at a level of inventory which will reconcile these conflicting elements. That is to say, an optimum level of inventory should be determined on the basis of the trade-off between costs and benefits associated with the levels of inventory.

B) Costs of Holding Inventory

48

One operating objective of inventory management is to minimise cost. Excluding the cost of merchandise, the cost associated with inventory fall into two basic categories:
(i)

Ordering or Acquisition or Set-up costs : This category of cost is associated with the acquisition or ordering of inventory. Firms have to place orders with suppliers to replenish inventory of raw materials. The expense involved are referred to as ordering costs. The ordering costs consist of (a) preparing the purchase order or requisition form and (b) receiving, inspection, and recording the goods received to ensure both quantity and quality. The cost of acquiring materials consists of clerical costs and costs of stationery. It is therefore, called, a set-up cost. They are generally fixed per order placed, irrespective of the amount of the order. The acquisition costs are inversely related to the size of inventory: they decline with the inventory. Thus, such costs can be minimised by placing fewer orders for a large amount. But acquisition of a large quantity would increase the cost associated with the maintenance of inventory, that is, carrying cost.

(ii)

Carrying costs : The second broad category of costs associated with inventory are the carrying costs. They are involved in maintaining or carrying inventory. The cost of holding inventory may be divided into two categories:
1.

Those that arise due to the storing of inventory : The main components of this category of carrying costs are (1). Storage costs, that is, tax, depreciation, insurance, maintenance of the building, utilities and janitorial services; (2). insurance of inventory against fire and theft; (3). Deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescence and price decline; (4). Serving costs, such as, labour for handling inventory, clerical and accounting costs.

2.

The opportunity cost of funds : This consists of expenses in raising funds (interest on capital) to finance the acquisition of inventory. If funds are not locked in inventory, they would have earned a return.

49

This is the opportunity cost of funds or financial cost component of the cost. The carrying costs and the inventory size are positively related and move in the same direction. If the level of inventory increases, the carrying costs also increase and vice versa. The sum of the order and carrying costs represents the total cost of inventory. This is compared with the benefits arising out of inventory to determine the optimum level of inventory.

C) Benefits of Holding Inventory The second element in the optimum inventory decision deals with the benefits associated with holding inventory. The three types of inventory, raw materials, work-in-progress and finished goods, perform certain useful functions. The rigid tying (coupling) of purchase and production to sales schedules is undesirable in the short run as it will deprive the firms certain benefits. The effect of uncoupling (maintaining inventory) are as follows
(i)

Benefits in Purchasing : If the purchasing of raw materials and other goods is not tied to production/sales, that is, a firm can purchase independently to ensure the most efficient purchase, several advantages would become available. In the first place, a firm can purchase larger quantities than is warranted by usage in production or the sales level. This will enable it to avail of discounts that are available on bulk purchases. Moreover, it will lower the ordering cost as fewer acquisitions would be made. There will, thus, be a significant saving in the costs. Secondly, firms can purchase goods before anticipated or announced price increases. This will lead to a decline in the cost of production. Inventory, thus, serves as a hedge against price increases as well as shortages of raw materials. This is highly desirable inventory strategy.

(ii)

Benefits in Production : Finished goods inventory serves to uncouple production and sale. This enables production at rate different from that of
50

sales. That is, production can be carried on at a rate higher or lower than the sales rate. This would be a special advantage to firms with seasonal sales pattern. In their case, the sales rate will be higher than the production rate during the part of the year (peak season) and lower during the off season. The choice before the firm is either to produce at a level to meet the actual demand, that is, higher production during peak season and lower (or nil) production during off-season, or, produce continuously throughout the year and build up inventory which will be sold during the period of seasonal demand. The former involves discontinuity in the production schedule while the later ensures level production. The level production is more economical as it allows the firm to reduce the cost of discontinuities in the production process. This is possible because excess production is kept as inventory to meet future demands. Thus, inventory helps a firm to coordinate its production scheduling so as to avoid disruption and the accompanying expenses. In brief, since inventory permits least cost production scheduling, production can be carried on more efficiently.
(iii)

Benefits in Work-in-Progress : The inventory in Work-in-Progress performs two functions. In the first place, it is necessary because production processes are not instantaneous. The amount of such inventory depends upon technology and efficiency of production. The larger the steps involved in the production process, the larger the WIP and vice versa. By shortening the production time, efficiency of the production process can be improved and the size of this type of inventory reduced. In a multi-stage production process, the WIP serves a second purpose also. It uncouples the various stages of production so that all of them do not have to be performed at the same time rate. The stages involving higher set-up costs may be most efficiently performed in batches with WIP inventory accumulated during a production run.

(iv)

Benefits in Sales : The maintenance in inventory also helps a firm to enhance its sales efforts. For on thing, if there are no inventories of finished goods, the level of sales will depend upon the level of current production. A firm will not be able to meet demand instantaneously. The inventory serves to bridge the
51

gap between current production and actual sales. A basic requirement in a firms competitive position is its ability vis--vis its competitor to supply goods rapidly. If it is not able to do so, the customer are likely to switch to suppliers who can supply goods at short notice. Moreover, in the case of firm having a seasonal pattern of sales, there should be a substantial finished goods inventory prior to the peak sales season. Failure to do so may mean loss of sales during the peak season. To summarise the preceding discussion relating to objective of inventory management, the two main aspects pertain to the minimisation of investment in inventory, on the one hand, and the need to ensure that there is enough inventory to meet demand such that production and sales operations are smooth. By holding less inventory, the cost can be minimized, but there is a risk that the operations will be disturbed as the emerging demands cannot be met. On the other hand, by holding a large inventory, the chances of disruption of operations are reduced, but, the cost will increase. The appropriate level of inventory should be determined in terms of a trade-off between the benefits and cost associated with maintaining inventory.

D) Techniques There are many sophisticated mathematical techniques available to handle inventory management problems. We will discuss some of the simple production-oriented methods of inventory control to indicate a broad framework for managing inventories efficiently in conformity with the goal of wealth maximization. The major problem areas that comprise the heart of inventory control are:(i) Classification Problem : A B C System The A B C System is a widely used classification technique to classify different types of inventories and to determine the type and degree of control required for each. This technique is based on the assumption that a firm should not exercise the same degree of control on all items of inventory. It should rather keep a more rigorous
52

control on items that are (a) the most costly, and/or (b) the slowest-turning, while items that are less expensive should be given less control effort. On the basis of the cost involved, the various inventory items are classified into three classes A, B and C. The items included in group A involves largest investment. Inventory control for such items must be most rigorous and intensive and most sophisticated inventory control techniques should be applied to these items. The C group item consists of items of inventory which involve relatively small investments although the number of items is fairly large. These items deserve minimum attention. The B group stands midway. It deserves less attention than A but more than C. It can be controlled by less sophisticated technique. (ii) Order Quantity Problem : Economic Order Quantity ( EOQ ) Model After determining the type of controls for each categories of items ( A B and C ), question arises regarding the appropriate quantity to be purchased in each lot to replenish the stock. Buying a large quantity implies a higher average inventory level which will assure (a) smooth production/sales operations, and (b) lower ordering or setup costs. But it will involve higher carrying costs. On the other hand, if the order quantity is small then the carrying cost is reduced but it will increase the ordering costs. On the basis of the trade-off between the both the optimum level of order to be placed should be determined. The optimum level of inventory is called as economic order quantity (EOQ). The economic order quantity can be defined as that level of inventory order that minimizes the total cost associated with inventory management. Assumptions: EOQ model is based on following assumptions: - the firm knows with certainty the annual consumption of a particular item of inventory. - The rate at which the firm uses inventory is steady over time.

53

- The order placed to replenish inventory stocks are received at exactly that point in time when inventories reach zero. - There are two distinguishable costs associated with inventories: cost of ordering and cost o carrying. - Cost of order is constant regardless of the size of the order. - The cost of carrying is fixed percentage of the average value of inventory. EOQ Formulae:EOQ = I 2FU P C

Where, U = annual sales F = fixed cost per order P = purchase price per unit C = Carrying cost Limitations :
-

The assumption of constant consumption and the instantaneous replenishment of inventories are of doubtful validity. It is possible that deliveries from suppliers may be slower than expected for reasons beyond control. It is also possible that there may be an unusual and unexpected demand for stocks. To meet such contingencies additional stock called as safety stock is kept.

- Another weakness of EOQ model is that the assumption of a known annual demand for inventories is open to question. There is likelihood of
54

discrepancy between the actual and the expected demand, leading to a wrong estimate of the economic ordering quantity. - In addition, there are some computation problems involved. A more difficult situation may occur when the number of orders to be placed may turn out to be a fraction.

OBJECTIVE OF THE STUDY

Deciding optimum level of investment in various working capital assets. Decide optimal mix of short term and long term capital.
55

 Decide appropriate means of short term financing.

To find out the size of Working Capital (WC) and to measure its liquidity and the operational efficiency by using ratio analysis.

To ascertain the estimated WC needs by fitting linear regression line , to find out the degree of association between the estimated and the actual WC by competing simple correlation coefficient and to test the significance of such coefficient .

To make element-wise analysis of WC and to identify the elements / components responsible for variation in WC.

RESEARCH METHODOLOGY
Meaning of Research Research is defined as human activity based on intellectual application in the investigation of matter. The primary aim 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.
56

Duration Of The Study The duration was 15 days.

Data Collection Data collection usually takes place early on in an improvement project, and is often formalized through a data collection Plan which often contains the following activity. There are two ways of data collection:a) Primary data collection

b) Secondary data collection The method of data collection used in this project is both primary data as well as secondary data

In primary data collection, data is collected from a small scale industry regarding their requirement of working capital, how they manage it and source of its finance through the interview of the concerned persons of the organization. Secondary data is being collected from various books and websites. Also the norms and methods followed by the banks to finance the working capital limit have been analyzed and the information has been collected from concerned officers of bank.

There are many methods of collecting primary data and the main method include: Interviews of concerned officer Observations on the site Secondary data has been collected using texts from various books and contents from various websites.
57

RATIO ANALYSIS
(An Introduction)
A ratio is the relationship expressed in mathematical term between two individual and group of figures connected with each other in some logical manner. The ratio analysis is based on the premise that a single accounting figure by itself may not communicate any meaningful information but when expressed as a relative to some other figure, it may definitely give some significant information. The relationship between 2 or more accounting figures/groups is called a Financial Ratio. A Financial
58

Ratio helps to summarize a large mass of financial data into a concise form & to make meaningful interpretations & conclusions about the performance & position of the firm. Ratio analysis is one of the popular tools of financial statement analysis. A ratio is defined as The indicated quotient of two mathematical expressions and as the relationship between two or more things. Relationship between two figures, expressed in arithmetical terms is called a ratio. A ratio is simply one number in terms of another. It is found by dividing one number by another.

Usually ratio is stated as percentage i.e., distribution expenses might be stated as 20 percent of sales. Often, however, the ratio is expressed in units, thus sales might be expressed as 20 times inventory. It is a mathematical yardstick that measures relationship between two financial figures. It involves the break down for the examined financial report into component parts, which are than evaluated in relation to each other and exogenous factors. However such an approach would not fulfill any purpose unless the figures chosen are significantly related to each other. Ratio analysis involves calculation of ratios and then comparing them with some predetermined standards. The standard ratio may be the past ratios of the same firm or industrys average ratio or a projected ratio.

59

STANDARDS OF COMPARISON
Ratio analysis involves comparison for useful interpretation of financial statements. A single ratio in itself does not indicate favorable & unfavorable conditions. It should be compared with some other standards. Standards of comparison may consist of:1. Past Ratios: - Ratios calculated from past financial statements of the some form. 60

2. Competitors Ratios: - Ratio of some selected firms, especially the most

progressive & successful competitors at some point in time.

3. Industrial ratios: - Ratio of the industry to which the firm belong.

4. Projected Ratios: - Ratios developed using the project or pro-forma financial

statements.

TYPES OF COMPARISON
The ratio can be compared in three different ways: Cross Section Analysis (CSA): - In this, the ratios of the firm are compared with

the ratios of some other selected firm in the same industry 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 may be compared with the performance of the leader in the industry in order to uncover
61

the major operational inefficiencies.

Time Series Analysis (TSA): - In this, the performance of the firm in 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 progress of the firm. The information generated by the TSA can be of immense help to the firm to make planning for future operations. The TSA can also help the firm to assess whether the firm is approaching long-tem goals or not.
Combined Analysis(CA): - In this cross section and time series analysis are

combined to study the behavior and pattern of ratios so that meaningful and comprehensive evaluation of the performance of the can be made.

INTERPRETATION OF RATIO
One of the most difficult problems confronting the analyst is the interpretation and analysis of financial ratios. An adequate financial analysis involves more than an understanding and interpretation of each of the individual ratio. Further, the analyst require an insight into the meaning of the inter-relationships among the ratios and financial data in the statements The analysis of financial statement primary aims at pinpointing of strength and
62

weaknesses of a business undertaking by regrouping and analyzing figures contained in financial statement. It is useful for the management for its internal affairs and to the outsiders who are directly or indirectly related to the affairs of the company. Financial statements are crucial reports, which reflect the financial soundness of a business enterprise through a well-arranged financial data. But the mere statistics cant facilitate the decision making process.

CLASSIFICATION OF RATIOS
It is difficult to give exhaustive list of accounting ratios. However, a list of common, relevant and important ratios can definitely be attempted. Moreover, these ratios these ratios can be grouped on the basis of some or other common feature. Therefore, the ratios can be studied by classifying into following groups: (A) THE LIQUIDITY RATIO 1.
63

Current Ratio 2. Quick Ratio (B) THE ACTIVITY RATIO 1. Capital Turnover Ratio 2. Fixed Asset Turnover Ratio 3. Net working capital turnover ratio (C) THE LEVERAGE RATIO 1. Debt Equity Ratio 2. Interest Coverage Ratio 3. Total Debt Ratio 4. Fixed Asset Ratio 5. Proprietary Ratio

ANALYSIS AND FINDINGS

64

(A)LIQUIDITY RATIO 1. CURRENT RATIO

The ratio is the indicator of the firms commitment to meet its short-term liabilities. It is an index of the concerns financial stability since it shows the extent to which the Current Asset exceeds Current Liabilities. A very high ratio is not desirable which means less efficient use of funds, poor investment policies; poor inventory control, and increase in debtors, Cash and Bank balance lying idle. It also means excessive dependence on longterm sources of fund, which are costlier than Current Liabilities and can results in lowering down the profitability of the concern. A very low ratio indicates lack of liquidity and shortage of working capital. An equal increase in both current assets & current liabilities would decrease current ratio. SIGNIFICANCE:An equal increase in both current assets & current liabilities would decrease current ratio. In the same manner equal decrease current assets & current liabilities would increase current ratio. The Current Ratio shows the extent to which the Current Assets are quickly convertible in to cash exceeds the liabilities that will be shortly payable. The current ratio of 2:1 is considered to be satisfactory. A higher ratio indicates poor investment policies of the management & poor inventory control while a low ratio indicates lack of liquidity & shortage of working capital. An ideal ratio is 2:1, which means creditors will be able to get their payment in full. In the same manner equal decrease current assets & current liabilities would increase current ratio. The Current Ratio shows the extent to which the Current Assets are quickly convertible in to cash exceeds the liabilities that will be shortly payable. The current ratio of 2:1 is considered to be satisfactory. A higher ratio indicates poor investment policies of the management & poor inventory control while a low ratio indicates lack of liquidity & shortage of working capital. This
65

ratio is also called as working capital ratio. Current Ratio = Current Asset/Current Liabilities Period (Quarterly) 01/04/2008 to 30/06/2008 01/07/2008 to 30/09/2008 01/10/2008 to 31/12/2008 01/01/2009 to 31/03/2009 Current Assets 9105280 8762760 8995520 9530440 Current Liabilities 4632040 4804840 5119160 6124920 Current Ratio 1.96571704 9 1.82373606 6 1.75722579 5 1.55601052 7

Current Assets & Current Liabilities

12000000 10000000 CA & CL 8000000 6000000 4000000 2000000 0 01/04/2007 to 30/06/2007 01/07/2007 to 30/09/2007 01/10/2007 to 31/12/2007 01/01/2008 to 31/03/2008 Current Assets Current Liabilities

Period

66

Current Ratio 2.5 2 CR 1.5 1 0.5 0 01/04/2007 to 30/06/2007 01/07/2007 to 30/09/2007 01/10/2007 to 31/12/2007 01/01/2008 to 31/03/2008 Current Ratio

Period

COMMENTS: In 1st and 2nd period the ratio was high at 1.965 and 1.8237 respectively that mean that company has an extensive investment in current asset that does not provide a significant return. In 3rd period positioned improved & current ratio was at 1.757 mainly because of significant decrease in Cash/Bank, from 7882000 to 7783280. In last period the ratio was not satisfactory and was at 1.55601. 2. QUICK RATIO This ratio is also termed as Acid Test Ratio. This ratio is the relationship of Liquid asset with Current Liabilities. Liquid ratio is computed to assess the short-term liquidity of the firm in its correct form. Liquid assets are those assets which are either in the form of cash or cash equivalent or can be converted in to cash within a very short period. Liquid assets are computed by deducting stock and prepaid expenses from total current assets. Liquid assets include cash, bills receivable, marketable securities, and debtors (excluding bad & doubtful debts) etc. Stock is excluded from liquid assets because it may take some time before it is converted in to cash. Similarly, Prepaid Expenses do not provide cash at all and Inventories are not taken as Liquid Asset. The ideal Ratio is 1:1. In LG Electronics the Ratio somewhat less than 1 is also acceptable.
67

SIGNIFICANCE: Quick Ratio is an indicator of short-term solvency of the firm. In fact, it is a better indicator of liquidity as it involves computation of Liquid Assets, which means the illiquid portion of the current assets is eliminated. Quick Ratio is considered as a further refinement of current ratio. Generally a quick ratio of 1:1 is considered to be satisfactory because this means that the Quick Assets of the firm are just equal to the current liabilities & there does not seem to be a possibility of default in payment by firm. Quick Ratio = Liquid Asset/Current Liabilities LIQUIDASSET=S.DEBTORS+CASH+BANK Period (Quarterly) 01/04/2008 to 30/06/2008 01/07/2008 to 30/09/2008 01/10/2008 to 31/12/2008 01/01/2009 to 31/03/2009
9000000 8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 01/04/2007 to 30/06/2007 01/07/2007 to 30/09/2007 01/10/2007 to 31/12/2007 01/01/2008 to 31/03/2008

Liquid Assets 8225480 7552040 6998560 8371640

Current Liabilities 4632040 4804840 5119160 6124920

Quick Ratio 1.775779138 1.571756812 1.367130545 1.36681622

LA & CL

Liquid Assets Current Liabilities

Period

68

Current Ratio 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 01/04/2007 to 30/06/2007 01/07/2007 01/10/2007 to to 30/09/2007 31/12/2007 01/01/2008 to 31/03/2008

Current Ratio

QUICK RATIO COMMENTS: In 1st & 2nd period the ratio was high at 1.776 & 1.572 respectively but in the next 2 periods it goes on declining and was at 1.367 & 1.367 which is good for the company because it is very near to its satisfactory ratio i.e. 1:1 but it should not be further decline. (B) ACTIVITY RATIO 1. CAPITAL TURNOVER RATIO (CTR): Capital Turnover indicates the speed or rate with which capital employed is rotated in the process of doing business. Efficient Rotation of capital would lead to higher profitability. The Resultant Ratio would show the number of times the capital has been rotated in the process of doing business. The ratio is calculated as follows: Capital Turnover Ratio = Net Sales / Capital Employed Capital employed = fixed assets + working capital Working Capital = current Assts current Liabilities. CTR establishes the relationship between sales & capital employed. The objective of working out this ratio is to determine how efficiently the capital employed is being used. Higher the ratio, greater is the sales made per rupee of capital employed in the firm & hence higher is the profit. A low CTR refers to low sales generated in relation to Capital Employed or
69

excessive Capital being used in the firm. Net Period 1/04/2008 to 31/03/2009 COMMENTS: CTR establishes the relationship between sales & capital employed. The objective of working out this ratio is to determine how efficiently the capital employed is being used. Higher the ratio, greater is the sales made per rupee of capital employed in the firm & hence higher is the profit & vice versa. 2. FIXED ASSETS TURNOVER RATIO This Ratio shows how to well the fixed assets are being utilized. If compared with a previous period, it indicates whether the investment in fixed assets has been judicious or not. The ratio is calculated as follows: Fixed Assets Turnover Ratio = Net Sales / Net Fixed Assets Net fixed Assets = fixed assts-depreciation In computing Fixed Assets Turnover Ratio, the fixed assets are generally taken at written down value at the end of the year. Fixed Assets Turnover Ratio indicates how efficiently the fixed assets are used. If there is an increase in the ratio, it will indicate that there is improvement in the utilization of fixed assets. If there is a fall in ratio, it is a case for the management to investigate the fall, if fixed assets remain idle for any reason, the turnover ratio will decrease. Net Sales 28225125 12 Fixed Assets 27302720 F.A.T. R 103.37 8 Sales 2822512512 Capital Employed 143015760 C.T.R 19.736

Period 1/04/2008 to 31/03/2009

COMMENTS:
70

Fixed Assets Turnover Ratio indicates how efficiently the fixed assets are used. If there is an increase in the ratio, it will indicate that there is improvement in the utilization of fixed assets. If there is a fall in ratio, it is a case for the management to investigate the fall, if fixed assets remain idle for any reason, the turnover ratio will decrease. 3. NET WORKING CAPITAL TURNOVER RATIO The ratio indicates the number of times a unit invested in working capital produces sale. In other words, this ratio indicates whether or not Working Capital has been effectively utilized in making sales. This is also known as Working Capital Leverage Ratio. Working capital is computed by deducting current liabilities from the current assets. In fact, in the short run, it is the current assets and current liabilities which play a major role. A careful handling of the short-term assets and funds will mean a reduction in the amount of capital employed thereby improving turnover. The ratio is calculated as follows: Working Capital Turnover Ratio = Net sales/net working Capital Net Working Capital = Current Asset Current Liabilities In case a company can achieve higher volume of sales with relatively small amount of working capital, it is an indication of the operating efficiency of the company. The higher the Working Capital Turnover ratio, the lower is the investment in the working capital and higher would the profitability means the higher the ratio, the better it is. However, a very high ratio indicates Overtrading-the working capital being meager for the scale of operations. This ratio shows the efficiency and inefficiency in the use of the entire working capital and not merely a part of it. SIGNIFICANCE: This ratio indicates whether or not Working Capital has been effectively utilized in making sales. It shows the number of times a unit invested in a working capital produces sale.

71

NET Net Period 1/04/2008 to 31/03/2009 COMMENTS: Sales 282251251 2 WORKING CAP. 15713040 N.W.C.T.R 179.629

Higher the ratio, the better it is but a very high ratio (more than 100%) i.e. 179.629 times indicate overtrading- the working capital being meager for the scale of operations. It shows the number of times a unit invested in a working capital produces sale. (C) LEVERAGE RATIO 1. DEBT- EQUITY RATIO The Debt-Equity ratio is the basic and the most common measure of studying the indebtedness of the firm, it indicates the percentage of funds being financed through borrowings. The Debt-Equity ratio is determined to ascertain the soundness of the long-term financial policies of the company. This ratio expresses a relationship between debt (external equities) and the equity (internal equities).debt means long term loans, i.e. debenture, loans (long-term) from financial institutions. Equity means shareholders funds, i.e., preference share capital, equity share capital, reserves less losses and factious assets like preliminary expenses. Debt-equity ratio indicates the proportion between shareholders funds and the longterm borrowed funds. A higher ratio indicates a risky financial position while a lower ratio indicates safer financial position. The greater the ratio higher is the risk to the lenders and vice versa. The ratio indicates the proportion of owners stake in business. Excessive liabilities tend to cause insolvency. The ratio indicates the extent to which the firm depends upon outsiders for its existence. It tells the owners the extent to which they can gain benefits or maintain control with a limited investment. SIGNIFICANCE:
72

The DE Ratio throws light on the margin of safety available to the debt lenders of the firm. If a firm with a high DE Ratio fails then a chunk of the financial loss may have to be borne by the debt holder of the firm. The greater the DE Ratio, higher would be the risk of lenders. Also the term of credit will become unfavorable to the firm. On the other hand a low DE Ratio implies a low risk to lenders & creditors of the firm. A question that now arises is that what should be the ideal DE Ratio. The answer the above question is that a balance between the proportions of debt equity should be maintained so as to take care of the interest of lenders, shareholders & the firm as a whole. In India, this ratio is taken as acceptable as 2:1. If the DE Ratio is more than that, it shows a rather risky financial position from long-term point of view. However, 1:1 is considered as the ideal DE Ratio. Debt Equity Ratio = Total Debt/Total Owners Equity Total Debt=Loan+ Liabilities Owners Equity=Shareholders Fund-Misc. Expenditure

Period (Quarterly) 01/04/2008 to 30/06/2008 01/07/2008 to 30/09/2008 01/10/2008 to 31/12/2008 01/01/2009 to 31/03/2009

Long-term Debt 2017800 2114440 2158000 2075960

Stockholder Equity 7899760 8227080 8413240 8212120

Debt Equity Ratio 0.255425481 0.257009777 0.256500468 0.252792214

73

9000000 8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 01/04/2007 to 30/06/2007 01/07/2007 to 30/09/2007 01/10/2007 to 31/12/2007 01/01/2008 to 31/03/2008

LD & SE

Longterm Debt Stockholder Equity

Period

Debt Equity Ratio 0.258 0.257 0.256 0.255 0.254 0.253 0.252 0.251 0.25 01/04/2007 to 30/06/2007 01/10/2007 to 31/12/2007 01/01/2008 to 31/03/2008 01/07/2007 to 30/09/2007

Dbt Eqy Rat

Debt Equity Ratio

Period

COMMENTS: In 1st period the ratio was 0.255 and increases in 2nd period to 0.257 then fall down in 3rd period to 0.256 and finally decreases to 0.252 in last period. This ratio indicates the proportion between shareholders funds & long term borrowed funds. A higher ratio indicates a risky financial position while a lower ratio indicates safer financial position. This ratio may be acceptable as 2:1 but it is prefer to be 1:1. 2. INTEREST COVERAGE RATIO When a business borrows money, the lender is interested in finding out whether the business would earn sufficient profits to pay periodically the interest charges. A ratio, which expresses this, is called Interest Coverage Ratio or Debt Service Ratio or Fixed
74

Charges Cover. The Ratio is calculated as follows: Interest Coverage Ratio = Net Profit before Interest & Tax / Interest on Fixed Loans SIGNIFICANCE: This ratio indicates how many times the profit covers fixed interest. It measures margin of safety for the lenders. If profit just equals interest, it is a bad position for the company as nothing will be lift for shareholders & lenders. Higher the ratio, more secure will be the lender in respect of his periodical interest income.

Net Profit Before Int. Period 1/04/2008 to 31/03/2009 COMMENTS: This ratio indicates the extent to which earnings may fall without causing any embarrassment to the firm regarding the payment of the interest charges. A higher ratio is desirable but too high ratio indicates that the firm is very conservative in using debt & it is not using credit to the best advantage of shareholders. A lower ratio indicates excessive use of debt or inefficient operations. The firm should make efforts to improve the operating efficiency, or to retire debt to have a comfortable coverage ratio. 3. TOTAL DEBT RATIO The total Debt Ratio compares the total Debts (Long Term as will as Short Term) with the total assets. The Ratio is calculates as follows: Total Debt Ratio = Total Debts / Net Assets Total Debt Ratio = (Long-term Debts + Current Liabilities) / Total Debts + Net Worth
75

Int. on Fixed Loans 221200 I.C.R 9.875

& Tax 2184400

SIGNIFICANCE: The total debt ratio depicts the proportion of total assets financed by the total liabilities. The remaining assets are financed be the shareholders funds. Higher the total debt ratio, the more risky is the solution because all liabilities are to be repaid sooner of later. Moreover, higher liabilities imply greater financial risk also. Period (Quarterly) 01/04/2008 to 30/06/2008 01/07/2008 to 30/09/2008 01/10/2008 to 31/12/2008 01/01/2009 to 31/03/2009 Total Debts 6649840 6919280 7277160 8200880 Total Assets 14930760 15580040 16217000 16968920 Total Debt Ratio 0.445378533 0.444111825 0.448736511 0.48328827

Debt Ratio
Series1 18000000 16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 Amount (Rs) Series2 Series3

01/04/2007 to 30/06/2007

01/07/2007 to 30/09/2007

01/10/2007 to 31/12/2007

Period

01/01/2008 to 31/03/2008

76

0.49 0.48 0.47 0.46 0.45 0.44 0.43 30/06/2007 01/07/2007 30/09/2007 01/10/2007 01/01/2008 31/03/2008 01/04/2007 31/12/2007 0.42 Series1

to

to

to

COMMENTS: The total debt ratio depicts the proportion of total assets financed by the total liabilities. The remaining assets are financed by the shareholders fund. Higher the total debt ratio, the more risky is the solution because all liabilities are to be repaid sooner or later. 4. FIXED ASSETS RATIO It must be known that fixed assets should be financed only out of long-term funds. The ratio will be 1, if long-term funds are equal to fixed assets. If the ratio is less then 1, it means that the firm has adopted the imprudent policy of using short-term funds for acquiring fixed assets; on the other hand, a very high ratio would indicate that long-term funds are being used for short-term purposes i.e. for financing working capital. It is not good from the firms point of view because it is usually more difficult to raise long-term funds. The Ratio is calculated as follows: Fixed Assets Ratio = (Shareholders Fund + long-term Loans) / Net Fixed assets SIGNIFICANCE: This ratio is important to ascertain the proper investments of funds from the point o view of long-term financial soundness. It indicates as to what extent fixed assets are financed out of
77

to

long term funds. This ratio should normally be more then 1. If it is less then1, it means that the firm has followed the wrong policy of using short-term funds for long term needs.

Sh.holders Period (Quarterly) 01/04/2008 to 30/06/2008 01/07/2008 to 30/09/2008 01/10/2008 to 31/12/2008 01/01/2009 to 31/03/2009 Fund + Long Term Loans 2886560 2988560 2767480 1531280 Net Fixed Assets 5825 480 6817280 7221480 7438480 Fixed Assets Ratio 0.495505949 0.438380116 0.383228922 0.205859261

8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0

07 /2 00 7 07 /2 0 /2 0 /2 0 08

Sh.holders Fund + Long Term Loans Net Fixed Assets Fixed Assets Ratio

/0 6

/0 9

/1 2 31 to 01 /0 1 /2 0 08 to

30

30

to

07

07

to

/2 0

/2 0

01 /0 4

01 /0 7

01 /1 0

/2 0

07

31

/0 3

78

30 /0 6/ 2

30 /0 9 /2

31 /1 2/ 2

to

to

to

/0 4/ 20 0

/0 7 /2 00

/1 0/ 2 00

01

01

01

COMMENTS: This ratio should normally be more then 1. If it is less then1, it means that the firm has followed the wrong policy of using short-term funds for long term needs. But in this case it goes on declining & not near to 1 so this is not good for the company

5. PROPRIETARY RATIO It establishes relationship between the proprietors funds and the total tangible assets. Proprietary funds means share capital plus reserves and surplus, both of capital and revenue nature. Loss if any should be deducted. Funds payable to others should not be added. It measures the conservatism of capital structure and shows the extent of shareholders funds in total assets employed in the business. The ratio focuses the attention on the general financial strength of the enterprise. The ratio is of particular importance to the creditors who can find out the proportion of shareholders fund in the total asset employed in the business. A high ratio will indicate a relatively little danger to the creditors etc. in case of winding up of the business. A low proprietary ratio indicates greater risk to the creditors since in the event of losses a part of their money may be lost. A ratio below 50% may be alarming for the creditors.
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01

/0 1 /2 00

to

3 1/ 0 3/ 2

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Fixed A ssets Ra tio N Fixed A et ssets Sh.holders Fund + Long Term Loan s

0 07

0 07

0 07

0 08

Higher the ratio the better it is for all concerned. SIGNIFICANCE: The ratio is of particular importance to the creditors who can find out the proportion of shareholders funds in the total assets employed in the business. A high proprietary ratio will indicate a relatively little danger to creditors etc., in the event of forced reorganization of winding up of the company. A low proprietary ratio indicates greater risk to the creditors since in the event of loss a part of their money may be lost besides loss to the proprietors of the business. A ratio below 50% may be alarming for the creditors since they may have to loose heavily in the event of companys liquidation on the account of heavy losses. Proprietary Ratio = Owners equity/Total asset Period (Quarterly) 01/04/2008 to 30/06/2008 01/07/2008 to 30/09/2008 01/10/2008 to 31/12/2008 01/01/2009 to 31/03/2009 Shareholder Fund 7899760 8227080 8413240 8212120 Total Assets 14930760 15580040 16217000 16968920 Proprietary Ratio 0.52909296 0.52805256 0.518791392 0.483950658

The increase in the ratio was due to increase in owners equity as a result of increase in Reserves & Surplus. The positioned has improved which means relatively higher degree of security for the company.
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The ratio is continuously declining not a good sign for the company. An enterprise is considered financially weak if it has relatively small investment in firm in comparison to creditors. A low proprietary ratio would indicate a relatively larger degree of security for the company.

18000000 16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 01/04/2007 to 30/06/2007 01/07/2007 to 30/09/2007 01/10/2007 to 31/12/2007 01/01/2008 to 31/03/2008

SF & TA

Shareholder Fund Total Assets

Period

Properietory Ratio 0.54 0.53 0.52 0.51 0.5 0.49 0.48 0.47 0.46 01/04/2007 to 30/06/2007 01/07/2007 to 30/09/2007 01/10/2007 to 31/12/2007 01/01/2008 to 31/03/2008

PR

Properietory Ratio

Period

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COMMENTS: Higher the ratio the better it is for all concerned. A high ratio shows that there is a safety for creditors of all types. A ratio below 50% may be alarming for the creditors since they may have to lose heavily in the event of companys liquidation on account of heavy losses. As in this case it goes on declining so it is not good for the company.

ADVANTAGES OF RATIO ANALYSIS

Ratio analysis is the most important tool of analyzing the financial statements. It helps the reader in giving tongue to the mute heaps of figures given in financial statements. The figures then speak of liquidity, solvency, profitability etc. of the business enterprise. Some of the important advantages derived by a firm by the use of accounting ratios are:
Helpful in analysis of financial statements: Ratio analysis is an extremely

useful device for analyzing the financial statements. It helps the bankers, creditors, investors, shareholders etc. in acquiring enough knowledge about the profitability and financial health of the business. In the light of the knowledge so
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acquired by them, they can take necessary decisions about their relationships with the concern.
Simplification of accounting data: Accounting ratio simplifies and summarizes a

long array of accounting data and makes them understandable. It discloses the relationship between two such figures which have a cause and effect relationship with each other.
Helpful in comparative study: With the help of ratio analysis comparison of

profitability and financial soundness can be made between one firm and another in the same industry. Similarly, comparison of current year figures can also be made with those of previous years with the help of ratio analysis.
Helpful in locating the weak spots of the business: Current years ratios are

compared with those of the previous years and if some weak spots are thus located, remedial measures are taken to correct them.
Helpful in forecasting: Accounting ratios are very helpful in forecasting and

preparing the plans for the future. For example, if sales of a firm during this year are Rs. 10 lakhs and the average amount of stock kept during the year was Rs.2 lakhs, i.e., 20% of sales and if the firm wishes to increase sales next year to Rs. 15 lakhs, it must be ready to keep a stock of Rs. 3, 00,000, i.e., 20% of 15 lakhs. Similar other estimates for future can be worked out by establishing a relationship between capital and sales, debtors and sales, expenses and sales etc.
Estimate about the trend of the business: If accounting ratios are prepared for a

number of years, they will reveal the trend of costs, sales, profits and other important facts.
Fixation of ideal standards: Ratio helps us in establishing ideal standards of the

different items of the business. By comparing the actual ratios calculated at the end of the year with the ideal ratios, the efficiency of the business can easily measured.
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 Effective control: Ratio analysis discloses the liquidity, solvency and profitability

of the business enterprise. Such information enables management to assess the changes that have taken place over a period of time in the financial activities of the business. It helps them in discharging their managerial functions, e.g., planning, organizing, directing, communicating and controlling more effectively.
Study of financial soundness: Ratio analysis discloses the position of business

with different view-points. It discloses the position of business with the liquidity point of view, solvency point of view, profitability point of view etc. with the help of such a study we can draw conclusions regarding the financial health of the business enterprise.

LIMITATIONS OF RATIOS

Ratios provide a great deal of information, but they do have limitations. Remember that ratios only indicate the relationship between two sets of figures. What is more, one ratio should not be taken to represent the whole of your business. Try to get an overall picture. Ratio analysis allows you to compare current and past performances of the company but doesn't offer any indication of future performance. Ratios are developed for specific periods. Consequently, if you operate a seasonal business, ratios may not provide an accurate measure of financial performance.
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Additionally, if you make comparisons with other businesses in your industry, keep in mind not all businesses are the same. Ratios are usually comparisons with industry averages, however your business will not, and should not be, exactly the same as others in your industry. It should also be noted that financial statements are often prepared by different methods, resulting in financial ratios that may not present an accurate account of the average business in your industry. 1. Accounting Information The greater the ratio higher is the risk to the lenders and vice versa. # Different Accounting Policies: - The choices of accounting policies may distort inter company comparisons. Example IAS 16 allows valuation of assets to be based on either revalued amount or at depreciated historical cost. The business may opt not to revalue its asset because by doing so the depreciation charge is going to be high and will result in lower profit.

# Creative accounting :- The businesses apply creative accounting in trying to show the better financial performance or position which can be misleading to the users of financial accounting. Like the IAS 16 mentioned above, requires that if an asset is revalued and there is a revaluation deficit, it has to be charged as an expense in income statement, but if it results in revaluation surplus the surplus should be credited to revaluation reserve. So in order to improve on its profitability level the company may select in its revaluation programme to revalue only those assets, which will result in revaluation surplus leaving those with revaluation deficits still at depreciated historical cost. 2.Information problems # Ratios is not definitive measures :- Ratios need to be interpreted carefully. They can provide clues to the companys performance or financial situation. But on their own,
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they cannot show whether performance is good or bad. Ratios require some quantitative information for an informed analysis to be made. # outdated information in financial statement:-The figures in a set of accounts are likely to be at least several months out of date, and so might not give a proper indication of the companys current financial position. # Historical costs not suitable for decision making :- IASB Conceptual framework recommends businesses to use historical cost of accounting. Where historical cost convention is used, asset valuations in the balance sheet could be misleading. Ratios based on this information will not be very useful for decision-making. # Financial statements certain summarized information:- An equal increase in both current assets & current liabilities would decrease current ratio. In the same manner equal decrease current assets & current liabilities would increase current ratio. The Current Ratio shows the extent to which the Current Assets are quickly convertible in to cash exceeds the liabilities that will be shortly payable. The current ratio of 2:1 is considered to be satisfactory. A higher ratio indicates poor investment policies of the management & poor inventory control while a low ratio indicates lack of liquidity & shortage of working capital. An ideal ratio is 2:1, which means creditors will be able to get their payment in full. Ratios are based on financial statements, which are summaries of the accounting records. Through the summarization some important information may be left out which could have been of relevance to the users of accounts. The ratios are based on the summarized year-end information, which may not be a true reflection of the overall years results. # Interpretation of the ratio :- It is difficult to generalize about whether a particular ratio is good or bad. For example a high current ratio may indicate a strong liquidity position, which is good or excessive cash, which is bad. Similarly Non current assets turnover ratio may denote either a firm that uses its assets efficiently or one that is under capitalized and cannot afford to buy enough assets.
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3.Comparison of performance over time # Price changes :- Inflation renders comparisons of results over time misleading as financial figures will not be within the same levels of purchasing power. Changes in results over time may show as if the enterprise has improved its performance and position when in fact after adjusting for inflationary changes it will show the different picture. # Technology changes :- When comparing performance over time, there is need to consider the changes in technology. The movement in performance should be in line with the changes in technology. For ratios to be more meaningful the enterprise should compare its results with another of the same level of technology. # Changes in accounting policy :- Changes in accounting policy may affect the comparison of results between different accounting years as misleading. The problem with this situation is that the directors may be able to manipulate the results through the changes in accounting policy. This would be done to avoid the effects of an old accounting policy or gain the effects of a new one. It is likely to be done in a sensitive period, perhaps when the businesss profits are low. # Changes in Accounting standard :-Accounting standards offers standard ways of recognizing, measuring and presenting financial transactions. Any change in standards will affect the reporting of an enterprise and its comparison of results over a number of years. # Impact of seasons on trading :- As stated above, the financial statements are based on year-end results which may not be true reflection of results year round. Businesses, which are affected by seasons, can choose the best time to produce financial statements so as to show better results. For example, a tobacco growing company will be able to show good results if accounts are produced in the selling season. This time the business will have good inventory levels, receivables and bank balances will be at its highest. While as in planting seasons the company will have a lot of liabilities through the
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purchase of farm inputs, low cash balances and even nil receivables. 4.Inter-firm comparison # Different financial and business risk profile :-No two companies are the same, even when they are competitors in the same industry or market. Using ratios to compare one company with another could provide misleading information. Businesses may be within the same industry but having different financial and business risk. One company may be able to obtain bank loans at reduced rates and may show high gearing levels while as another may not be successful in obtaining cheap rates and it may show that it is operating at low gearing level. To Uninformed analyst he may feel like company two is better when in fact its low gearing level is because it cannot be able to secure further funding. # Different capital structures and size :- Companies may have different capital structures and to make comparison of performance when one is all equity financed and another is a geared company it may not be a good analysis. # Impact of Government influence :-Selective applications of government incentives to various companies may also distort inter company comparison. One company may be given a tax holiday while the other within the same line of business not, comparing the performance of these two enterprises may be misleading. # Window dressing :- These are techniques applied by an entity in order to show a strong financial position. For example, MZ Trucking can borrow on a two-year basis, K10 Million on 28th December 2003, holding the proceeds as cash, then pay off the loan ahead of time on 3rd January 2004. This can improve the current and quick ratios and make the 2003 balance sheet look good. However the improvement was strictly window dressing as a week later the balance sheet is at its old position. Ratio analysis is useful, but analysts should be aware of these problems and make adjustments as necessary. Ratios analysis conducted in a mechanical, unthinking manner is dangerous, but if used intelligently and with good judgment, it can provide useful insights into the firms
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operations.

BIBLIOGRAPHY
BOOKS
1 2

S. Srinivasan, Cash Management & Working Capital Management. Kothari, C.R., Research Methodology: Method and Techniques, Wishwa Prakashan, 1990, New Delhi. Tulsian P. C. , Concepts of Financial Managements. Gupta, Sharma, Financial Management, Kalyani Publishers,2000, Delhi. Institute of Chartered Accountants, Financial Management .
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3 4 5

INTERNET SITES 1 http://indiainfoline.com 2 http://caclubindia.com

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