A STUDY ON WORKING CAPITAL MANAGEMENT IN INTEGRAL COACH FACTORY A SUMMER PROJECT REPORT

Submitted by J.RAMDASS 1080078 Under the Guidance of Mr M.MARTIN SELVAKUMAR Lecturer, Department of management sciences in partial fulfillment for the award of the degree of MASTER OF BUSINESS ADMINISTRATION

FACULTY OF MANAGEMENT STUDIES ANNA UNIVERSITY OF TECHNOLOGY CHENNAI: CHENNAI 600113 AUGUST 2011

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ANNA UNIVERSITY OF TECHNOLOGY CHENNAI

BONAFIDE CERTIFICATE

Certified that this project titled is the bonafide work of Mr. / Ms.. who carried out the research under my supervision. Certified further that to the best of my knowledge the work reported herein does not form part of any other project or dissertation on the basis of which a degree or award was conferred on an earlier occasion of this or any other candidate.

Mr M.MARTIN SELVAKUMAR Lecturer Department of Management Studies Anna University of Technology Chennai, Chennai, Chennai-600 113.

Dr.S.N.GEETHA Supervisor/Professor Department of Management Studies Anna University of Technology

Chennai- 600 113.

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ACKNLOWLEDMENT
I express my Sincere and Profound thanks to Dr. S.N.Geetha M.com., M.phil., PhD. H.O.D Department of management studies, Anna university of Technology, Chennai for having given all the facilities and resource in bringing this work successfully. I sincerely acknowledge the contribution of my guide Mr.M. Martien Selvakumar., M.Phil., for the guidance and invaluable suggestions to completion of the project work. Without his help and contribution I could not have been completed the project work. I express my heartful thanks to the Integral Coach Factory for allowing me to do the summer project and also i thank MS.Vijayalakshmi for guiding me in successfully completing my project.

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CONTENTS

Chapter No

Title

Page No

INTRODUCTION

II

COMPANY PROFILE

III

REVIEW OF LITERATURE

13

IV

RESEARCH METHODOLOGY

18

DATA ANALYSIS &INTERPREATIONS

19

VI

FINDINGS &SUGGESTION

54

VII

CONCLUSION

VIII

BIBLIOGRAPHY

57

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INTRODUCTION
Working capital management is an integral part of overall corporate management. Management is an art of anticipating and preparing for risks and uncertainties and overcoming obstacles. For the finance manager who is ready to play his role and has a working knowledge of the tools and techniques he can employ to carry out his tasks, the working capital sphere throws open a welcome challenge and an opportunity. Working capital is a simple term is the account of funds which a company must have to finance its day to day operation. In practice a firm has to employ short term funds as short term assets. The management of such assets described as working capital management the problems involved in the management of working capital differ from those in fixed assets. The purpose of this project is to provide an insight into the problem of working capital management is discussed in subsequent chapters.

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INDUSTRY PROFILE
The first railway on Indian sub continent ran over a stretch of 21 miles from Bombay to thane. The idea of a railway to connect Bombay with thane, kalyan and with the thane and Bhore ghats inclines first occurred to George clark, the chief engineer of Bombay government, during a visit to Bhandup in 1843. The formal inauguration ceremony was performed on april 1853 when 14 railway carriage about 400 guests bori bunder. The first passenger train streamed out of howrah station destined for Hooghly a distance of 24 miles on 15 th august 1854. Thus the first section of east Indian railways opened to public traffic inaugurating the beginning of railway transport on eastern side of sub continent. In south,the first line was opened on 1st july1856 by the madras railway company . it ran between vyasarpadi and walajah broad(arcot) a distance of 63 miles. In the north, a length of 119 miles of line was laid from Allahabad to Kanpur on 3rd march,1959. The first section from hathras road to Mathura cantonment was opened to traffic on 19th October,1875. These were the small beginnings which is in due course developed into a network of railway lines all over the country by 1880. The Indian railway system had a route mileage of about 9000 miles. Indian railways, the premier transport organisation of the country is the largest rail network in asia and the worlds second largest under one management.

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RAILWAY ZONES
Western railway South east central railway Central railway East central railway East coast railway Eastern railway North central railway North eastern railway North western railway North east frontier railway Northern railway South central railway South eastern railway South western railway Southern railway

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PRODUCTION UNITS
Chittarajan loco works Diesel loco Modernisation works diesel locomotive works Integral coach factory Rail wheel factory

CORPORATION UNDER INDIAN RAILWAYS

Central organization for modernisation of workshops centre for railway information system Container corporation of india ltd Indian railways catering and tourism corporation ltd Indian railways finance corporation Mumbai railway vikas corporation Railtel corporation of india ltd RITES ltd

OTHER ORGANIZATION UNDER INDIAN RAILWAYS

Rail Vikas Nigam Ltd., Central Organization For Railway Electrification Delhi Metro Rail Corporation Federation Of Railway Officer Association Indian Railway Accounts Service Association
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 Indian Railway Accounting Reforms Indian Railway Central Organization For Telecom Indian railway stores services Indian railway welfare organization Indian railway institute of electrical engineering Institute of railway transport National rail museum Railway board Railway recruitment board Railway staff college baroda Research design and standards organization Indian railway institute of mechanical and electrical engineering

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COMPANY PROFILE INAUGRATION

The Integral Coach Factory at Chennai is the first of its kind to be established after Independence for the manufacture of light weight, all steel and of welded Integral railway passenger coaches. The factory was set up in 1955 with Swiss Collaboration.

PRODUCTION
ICFs initial plan was to produce 30 Board Gauge Third Class shells (unfurnished body of the Railway Coaches) only, which were to be furnished by the Zonal Railways Workshops. Later, in view of the sever limitation of capacity of the Railway Workshops and also take advantage of mass production, a separate Furnishing Division was added on 2nd October, 1962. The capacity was progressively expanded from the initial 350 shells to 750 fully furnished coaches per annum by 1973- 74 with additional inputs. This was enhanced to thousand coaches during 1986-87. The production belt was modernized at a cost of Rs. 63 Crores with view to augment production to 1000 coaches per annum. During 1990-91, against a target of 1000 coaches, ICF turned 1013 coaches.

DESIGN FEATURES

By, design, the roof, side wells, end walls and the under frame are joined together by welding, to form a fully integral coach shell. The end wall construction has been made
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especially strong to make it anti-telescopic safety to passengers. From the basic design handed down by the collaborators. ICF has diversified having established its expertise and skills in this field, to design and manufacture more than 127 different types of coaches for Indian Railways and export market. Every time a new type of coaches is launched, emphasis is laid on improving passengers comfort, passenger safety and higher speeds. ICF follows standard inspection procedures to ensure quality from raw material stage to the finished coach.

PRODUCT RANGE

ICF has been meeting the needs of the Indian Railways for varied types of coaches however sophisticated the type may be. Some of the important types are: 1. SELF PROFELLED

Electric multiple Units for suburban services in Metropolitan cities; Diesel Rail Cars; Metro Coaches for Calcutta underground Metro Railways; Diesel Electric Multiple Units & Diesel Hydraulic Multiple Units for non-electrified routes and Mainline Electric Multiple Units for long distance inter-city commuter ship.

2. SPECIAL COACHES

Air-conditioned & Non-air-conditioned Pantry Cars. High capacity Power Cars for Shatabdi & Rajdhani Express trains. Air-Conditioned Military Ward Cars for Indian Army. Air-conditioned Saloon Cars, Dining Cars of the luxurious Palace-on-wheels train.

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EXPORT

ICFs achievement on the export front has been enviable since its inception. Against stiff international competition from more advanced countries like Japan, etc., ICF secured several export orders most of which are repeat orders. So far, 359 bogies and 485 coaches including air-conditioned coaches have exported to 11 Afro-Asians countries. ICF has bagged a number of awards for Export Excellence also.

DESIGN & DEVELOPMENT EFFORTS

Complementing the existing design capacities and facilities, a fully computerized Design & Development Cell has been set up with sophisticated state of the art Computer designing facilities and testing equipments for coach components and raw materials.

FOR BETTER TRAVEL

ICF has carved a niche of the Indian Railway system by constantly improving the quality of travel through its passenger coach design which has undergone a sea-change from the days of bye-gone era of mere transport of passengers. There has been a steady growth both in the quality and quantity of its production. As a milestone in this endless travel, ICF has obtained the ISO.9001 certificate for the quality systems from M/s.TUV, Germany. ICF is also on the anvil of implementing the total quality systems management in every sphere of its activity. All this has been made possible through ICFs commitment to progress and improvement with its decided work force functioning in a contented atmosphere in pleasant surroundings and working conditions. Several welfare schemes like staff quarters, adequate clean water supply, improved medical facilities, encouragement in sports activities, etc., are provided.

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NEED FOR THE STUDY

Working capital analysis is a powerful mechanisms of determining working capital position of the firm Analysing financial statements is a process of evaluating the component part of financial statement to obtain a better understanding of firms position and performance The purpose of working capital analysis is to diagnose the information contained in financial statement and to judge the working capital soundness of the firm Working capital management refers to the administration of all aspects of current assets and current liabilities The annual report of company constitutes he most important source of data for judging the working capital position of integral coach factory

OBJECTIVE OF THE STUDY

To evaluate the effectiveness of working capital management in ICF To study the liquidity position through various ratios To evaluate the cost structure of the organization To evaluate the effective utilization of resources To perform the trend analysis

LIMITATIONS OF THE STUDY

The primary data collected is restricted in integral coach factory Time limit was the major constraint for the researcher, hence a wide and deep study cannot be possible Only few datas is available for analysis. This causes a major limitation in analyzing various ratios The main limitation of the study is that the datas are mostly secondary in nature as it was taken from financial statements, annual reports etc.

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REVIEW OF LITERATURE
Meaning of working capital management Working capital management is the amount of funds that are needed for short term purpose for the purchase of raw materials, payment of wages and other day to day expenses etc. These funds are known as working capital, working capital refers to a part of the firms capital which is required financing short form or current assets such as cash, marketable securities, debtors etc, hence it is also known as revolving or circulating capital or short term capital.

DEFINITION
According to shubin, working capital is the amount of funds necessary to cover the cost of operating enterprise

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital; 1. Gross working capital 2. Net working capital

GROSS WORKING CAPITAL

The gross working capital is the capital invested in the total current assets of an enterprise.

NET WORKING CAPITAL

Net working capital is the excess of current assets over current liabilities

NEED FOR WORKING CAPITAL

A firm should aim at maximizing the wealth of shareholder and a firm should earn sufficient return from its operations. The firm has to invest enough finds in current assets for generating sales. Current assets are needed because sales do not convert into cash immediately

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MANAGEMENT OF WORKING CAPITAL

Working CAPITAL MANAGEMENT policies of a firm have a great effect on its profitability, liquidity and structural health of organization Working capital management is concerned with problem that arise in attempting to manage the current assets, current liabilities and the inter relationship between them

TYPES OF WORKING CAPITAL

There are two types of working capital are as follows: 1. Permanent or fixed working capital 2. Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

It is the minimum amount which is required to ensure an effective utilisation of fixed facilities and her maintaining the circulation of current assets. There is always a minimum level of current assets which is continuously required by the enterprise to carry out its normal business operations.

TEMPORARY OR VARIABLE WORKING CAPITAL

It is amount of working capital which is required to meet the seasonal demand and some special contingencies. It keeps on fluctuating from time to time on the basis of business activities.

COMPONENTS OF WORKING CAPITAL

Current assets Current assets are those assets which are convertible into cash within a period of one year and those which are required to meet day to day operations of the business. These includes i. ii. iii. iv. Cash and bank balance Temporary investment Short term advances Prepaid expenses
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v. vi. vii.

Receivable Inventory of raw material stores and spares Inventory of work in progress

Current liabilities These are those liabilities which are intend to be paid in ordinary course of business within a short period of normally one accounting year out of the current assets or the income of the business Creditors for supplies and service Liabilities for employee payments include provident fund provision for sales tax, excise duty etc. Short term loans and borrowings including bank overdraft Advance received and deferred payment

IMPORTANCE OF ADEQUATE WORKING CAPITAL

i. ii. iii. iv. v. vi. vii. Solvency of the business Goodwill Easy loans Cash discounts Regular supply of raw material Regular payment of salaries, wages and other day to day commitments Quick and regular return on investment

DETERMINANTS OF WORKING CAPITAL

A large number of factors, each having a different importance influence working capital needs of firm the important among them are Nature of business Sales and demand conditions Technology and manufacturing policy Credit policy
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 Availability of credit Operating efficiency Price level changes

ISSUES IN WORKING CAPITAL MANAGEMENT

Working capital represents a large portion of total investment in assets Working capital management has a greater significance for all firms but it is very critical for small firms The need for working capital is directly related to the firms growth

MAIN COMPONENTS OF WORKING CAPITAL

Cash Inventory Receivables

SOURCES OF WORKING CAPITAL

The working capital requirement should be met both from short term as well as long term sources of funds. The financing of working capital through short term sources of funds has the benefit of lowest cost and establishing close relationship with bank Financing of working capital from long term resource provides the following benefits; It reduces the risk since the need to repay loans at frequent intervals is eliminated It increase liquidity since the firm has not worry about the payment of these funds in near future

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The following are the general principles of a sound working capital management Principle of risk variation Principle of cost of capital Principle of equity position Principle of maturity of payment

It is concerned with the relation between the level of working capital and others The type of working capital directly affects the amount of risk that a firm assumes as well as the opportunity for gain or loss and cost of capital The greater disparity between maturities of firm short term debt instrument and its flow of internally generated funds the greater the risk and vice versa

STEPS INVOLVED IN EFFICIENT MANAGEMENT OF WORKING CAPITAL

Proper financial set up with appropriate authority and responsibility Co-ordination between the following functional areas Production planning and control Sales credit control Material management Optimum utilization of fixed plant and machinery together with other facilities Acquiring plant and machinery Cost reduction programme

Financial planning and control for achieving increased profitability to have adequate internal source of finance Proper cash management through projection of cash flow sources and application of funds Estimating appropriating information and reporting system

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RESEARCH METHODOLOGY DEFINITION

According to Ridman and Mory , it is defined as a systematic effort to gain knowledge. It has been defined as a careful investigation or inquiry especially through search for new facts in any branch of knowledge

AIM OF THE STUDY

The aim of the study is to examine the factors affecting the working capital requirements in integral coach factory and to compare the last working capital requirement with the current year working capital requirement

RESEARCH DESIGN
Based on the nature of the study, the researcher has selected the exploratory and analytical research design. The historical research design study was also made as most of past figures are used for research

PERIOD OF STUDY
The study was carried out for a period of one month (july 2011)

SOURCES OF DATA
There are two types of sources data. They are: Primary data Secondary data The primary data are those which are collected afresh and for first time and thus it happen to be original in character The information which is collected from any published sources is called secondary data. In this study secondary data are collected from annual reports of ICF also the data was collected through journals, magazines etc..

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TOOLS FOR DATA ANALYSIS

Ratio Analysis Changes in working capital Trend Analysis Correlation Analysis Comparative balance sheet

RATIO ANALYSIS

The Ratio Analysis is one of the most powerful tools of financial analysis. It is the process of establishing and interpreting various ratios. The financial statements can be analysed more clearly and decisions are made from such Analysis. Ratios help to summaries large quantities of financial data and to make qualitature Judgement about the firm financial performance the main ratios used for the analysis are Liquidity Ratios

Activity Ratios

Liquidity Ratios These Ratio are also termed as working capital ratio or short term solvency ratio. An enterprise must have adequate working capital to run its days to days operation, inadequacy of working capital my bring the entire business operation to a grinding halt because of inability of enterprise to pay for wages materials and other regular expenses. The most common liquity ratios are Current Ratio Quick Ratio

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Current Ratio

The current ratio is a measure of the firms short term solvency current assets including cash and those assets which can be converted in to cash with in a year. All expense are maturing within a year are included in current liabilities. The current ratio is calculated as follows

Current Ratio = Current Assets/ Current Liabilities

Quick Ratio

This Ratio is also termed as acid test ratio or liquidity ratio. This ratio is ascertained as a relationship between quick or liquid assets and current liabilities. An assets is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Quick assets are debtors and bills receivable inventories are considered to be less liquid. The Quick Ratio is found out as follows

Quick Ratio = Current Assets-Inventories/Current Liabilities

ACTIVITY RATIOS: Activity Ratios are employed to evaluate the efficiency with which the firm manages and utilize its Asset. These Ratios are also called Turnover Ratios because they indicate the speed with which assets are being converted or turned in to sales several activity ratios can be calculated to judge the effectiveness of asset utilization, there are several activity ratios. They are as follows Inventory Turnover Ratio Debtors Turnover Ratio Creditors Turnover Ratio Working Capital Turnover Ratio Fixed Assets Turnover Ratio
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Capital Turnover Ratio INVENTORY TURNOVER RATIO: Inventory Turnover Ratio indicates the efficiency of the firm in producing and selling its products. It is calculated by dividing the cost of Goods Sold by the Average Inventory. Cost of Goods Sold Inventory Turnover Ratio= ----------------------------Average Inventory Average Inventory is the opening and closing balance of Inventory DEBTORS TURNOVER RATIO Debtors constitute an important constituents of current assets and therefore a quality of debtors to a great extent determines a firms liquidity.

Credit sales Debtors turnover Ratio= ----------------------Average debtors CREDITORS TURNOVER RATIO Creditors Turnover Ratio indicates the speed with which the payments for credit purchase are made to the creditors. The ratio can be computed as follows: Credit Purchase Creditors turnover ratio= -----------------------Average creditors WORKING CAPITAL TURNOVER RATIO Working capital ratio measures the effective utilization of working capital. The ratio establishes relationship between cost of sales and working capital. Working capital turnover ratio is calculated with help of following formula. Sales Working capital Turnover Ratio =--------------------------Net Working Capital
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FIXIED ASSETS TURNOVER RATIO This ratio determines efficiency of utilization of Fixed Assets and profitability of a business concern higher the ratio more is the efficiency in utilization of fixed assets. A lower ratio is the under utilization of fixed assets. Sales Fixed assets turnover ratio= ------------------------------Net fixed assets CAPITAL TURNOVER RATIO Managerial efficiency is also calculated by establishing the relationship between cost of sales with the amount of capital invested in the Business capital turn over ratio is calculated with help of the following formula sales Capital turnover ratio= ---------------------------Capital employed CHANGES IN WORKING CAPITAL Probable associate with excess and inadequate working capital. Both the excessive and inadequate working capital positions are dangerous from firms point of view. Excess working capital results in ideal funds which do not earn any return for the firm and shortage of working capital affects the firms profitability. COMPARATIVE BALANCE SHEET Comparative balance sheet as on two or more different dates can be used for comparing assets and liabilities and finding out any increase or decrease in these items. TREND ANALYSIS Comparing the past data over a period of time with a base years called Trend Analysis under this techniques information for a number of year is taken up and one year usually the first year is taken as a base year and on that basis the percentage is to show the direction of the change in upward or downward. The trend percentages are generally computed for major items in the statement. CORRELATION ANALYSIS The statistical tool with help of which these relationship between two or more than one variable are studied is called correlation the correlation refers to the techniques used for measuring the various variable.

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The value of coefficient shall always lie between It means there is a positive correlation between variable It means there is a perfect negative correlation between variable. It means there is no relationship between the two variable.

RATIO ANALYSIS

Table 1.1 Table showing current ratio for five consecutive years YEARS 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 CURRENT ASSETS 1665705026 1976529595 2806068953 3870055543 5053680042 CURRENT LIABILITIES 1196306538 1450533740 1591220981 2063097393 2647040395 RATIO 1.39 1.36 1.76 1.87 1.90

Current ratio= current assets/current liabilities

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2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1 2 3 4 5 6 7 8 9 10 YEARS CURRENT RATIO

INTERPRETATION
The current ratio has been fluctuating during the past five years. The ratio has decreased from 1.39 to 1.90. The current ratio is above 1 for all the years. This indicates that short term solvency of the organisation is satisfactory.

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Table 1.2 Table showing the quick ratio for the five consecutive years YEARS CURRENT ASSETS INVENTORY QUICK ASSETS CURRENT RATIO LIABILITIES

200506 200607 200708 200809 200910

1665705026 740925711 1976529595 890343607

924779325

1196306538

0.77 0.75 0.72 0.73 0.72

1086185987 1450533740

2806068953 1655726690 1150342263 1591220981 3870055543 2351627647 1518427896 2063097393 5053680042 3137616020 1916064022 2647040395

Quick ratio= (current assets-inventories)/current liabilities

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10 9 8 7 6 QUICK RATIO 5 4 3 2 1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 YEARS

INTERPRETATION
According to the above table in the year 2005-08 there is a decrease in quick ratio but there is an slight increase in the year of 2008-09. The quick ratio for all the years are above 0.3 indicating that liquidity position of the organisation is satisfactory.

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Table 1.3 Table showing the inventory turnover ratio for the five year

YEARS

SALES

AVERAGE INVENTORY

2005-06 2006-07 2007-08 2008-09 2009-10

6678179606 7755278040 9084052393

INVENTORY TURNOVER RATIO 598523284.5 11.16 815634659 9.51

DAY OF INVENTORY HOLDING 32 38 50 62 63

1273035148 7.14

1177000000.03 2003677169 5.87 15810000000.2 2744621384 5.76

Inventory turnover ratio= sales/average inventory

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12

10

YEARS INVENTORY TURNOVER RATIO

0 1 2 3 4 5 6 7 8 9 10

INTERPRETATION
The inventory turnover ratio is to reflect the efficiency of inventory management. The inventory holding period can be upto 30 days. In case of ICF the inventory holding period for 2010 is 63 days indicating that is not within then acceptable limit. The inventory turnover ratio is declining over the years. This is mainly due to increase in holding inventories for export of goods every year.

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DEBTORS TURNOVER RATIO YEARS CREDIT SALES AVERAGE DEBTORS 1047758859 DEBTORS TURNOVER RATIO 6.37 AVERAGE COLLECTION PERIOD 57 47 44 35 39

2005-06 6678179606 2006-07 7755278040 2007-08 9084052393

1004649112.5 7.72 1109084913 8.19 14.4 9.2

2008-09 1177000000.03 814723026 2009-10 15810000000.2 1715241184

Debtors turnover ratio= credit sales/average debtors

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16 14 12 10 8 6 4 2 0 1 2 3 4 5 6 7 8 9 10 DEBTORS TURNOVER RATIO YEARS

INTERPRETATION
The debtors turnover ratio reveals the quickness with which the debtors clears the debt owing to the firm in ICF the average collection period of 30 days is normal. But in ICF all the years have more than 30 days except 2008-09 indicating that the organisation is not able to collect its debt in time.

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CREDITORS TURNOVER RATIO YEARS CREDIT PURCHASE 4457640296 AVERAGE CREDITORS CREDITORS TURNOVER RATIO 1179707039 3.77 AVERAGE PAYMENT PERIOD 97 41 36 31 26

2005-06 2006-07 2007-08 2008-09 2009-10

5773937015.57 652203083.5 8.85 7040181897.14 705288281.5 9.98 8750000000.45 746347388 11910000000.8 835121599 11.72 14.26

Creditors turnover ratio= credit purchase/average creditors

16 14 12 10 8 6 4 2 0 1 2 3 4 5 6 7 8 9 10 CREDITORS TURNOVER RATIO YEARS

INTERPRETATION
The creditors turnover ratio indicates the speed with which payment for credit purchase are made to creditors for an assembly organisation

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WORKING CAPITAL TURNOVER RATIO

The below table indicates that the working capital turnover ratio of ICF over the year is reducing. This is due to high volume of sales and Relatively small amount of working capital which indicates effective utilization of working capital of the company

Table showing working capital turnover ratio for five years YEARS SALES WORKING CAPITAL WORKING CAPITAL TURNOVER RATIO 14.23 14.74 7.48 6.51 0.6

2004-05 2005-06 2006-07 2007-08 2008-09

6678179606 7755278040 9084052393 1177000000.03

469398498 525995854 1214847972 1806958150

15810000000.16 24066399647

WORKING CAPITAL TURNOVER RATIO =SALES/WORKING CAPITAL

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WORKING CAPITAL TURNOVER RATIO

16 14 12 10 8 6 4 2 0 2005-06 2006-07 2007-08 2008-09 2009-10 WORKING CAPITAL TURNOVER RATIO

INTERPRETATION
The above table indicates that the working capital turnover ratio of ICF over the year is reducing. The is due to high volume of sales and relatively small amount of working capital which indicates effective utilisation of working capital of the company.

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FIXED ASSETS TURNOVER RATIO

YEARS

SALES

FIXED ASSETS

2005-06 2006-07 2007-08 2008-09 2009-10

6678179606 7755278040 9084052393

2081337873 2569823785 3455052598

FIXED ASSETS TURNOVER RATIO 3.2 3.0 2.6 2.7 2.9

1177000000.03 4267731379 15810000000.2 5430349629

Fixed assets turnover ratio= sales/net fixed assets

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10 9 8 7 6 5 4 3 2 1 0 1 2 3 4 YEARS FIXED ASSETS TURNOVER RATIO

INTERPRETATION
Fixed assets turnover indicates the extent of utilisation of fixed assets efficiency in management a steady growing fixed assets turnover indicates that the ICF over the year is moving upward and then reducing in the year 2005. The fixed assets turnover ratio is high which indicates more efficiency in utilisation of fixed assets.

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CAPITAL TURNOVER RATIO YEARS SALES CAPITAL EMPLOYED 1809810660 2205476032 3014173880 CAPITAL TURNOVER RATIO 3.68 3.52 3.01 3.04 3.15

2005-06 2006-07 2007-08 2008-09 2009-10

6678179606 7755278040 9084052393

1177000000.03 3870094963 15810000000.2 5018996566

Capital turnover ratio= sales/capital employed

4 3.5 3 2.5 2 1.5 1 0.5 0 1 2 3 4 5 6 7 8 9 10 CAPITAL TURNOVER RATIO YEARS

INTERPRETATION
The above table indicates that the capital turnover ratio of ICF is declining over the year in the year 2005-06 the capital turnover ratio is high which indicates the efficiency in usage of capital is high.

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SOLVENCY RATIO

YEARS 2005-06 2006-07 2007-08 2008-09 2009-10

TOTAL ASSETS 3006117198 3656009772 4605394861 8137786922 10484029671

TOTAL DEBTS 6309455853 7390342084 8679508662 10251128420 12098708088

SOLVENCY RATIO 2.10 2.02 1.88 1.25 1.15

Solvency ratio= total debts/total assets

2.5 2 1.5 YEARS 1 0.5 0 1 2 3 4 5 6 7 8 9 10 SOLVENCY RATIO

INTERPRETATION
The above table indicates that the solvency ratio of ICF over the years is moving downwards it indicates that the greater risk and lower safety to the organisation.

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MATERIAL COST OF TOTAL TRANSFER COST

YEARS

STORES

TRANSFER COST 6678179606 7755278040 9084052393 10526617973 12111974443

2005-06 2006-07 2007-08 2008-09 2009-10

4457640296 5773937015.5 7040181897 8787234117 1156274992

STORES TOTAL TRANSFER COST 66.74 74.45 77.50 83.50 95.65

Stores

Material Cost to Total Transfer cost

= -----------------------x100
Transfer Cost

100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 STORES TOTAL TRANSFER COST YEARS

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INTERPRETATION
In this above table the proportion of materials cost to total transfer cost is increasing over the years of 2005-2010.

LABOUR COST TO TOTAL TRANSFER COST

YEARS

LABOUR COST

TRANSFER COST

2005-06 2006-07 2007-08 2008-09 2009-10

1909762002 2011682396 2159293177.5 2295839606 3499014466

6678179606 7755278040 9084052393 10526617973 12111974443

LABOUR COST TO TOTAL TRANSFER COST 28.59 25.93 23.77 21.81 28.88

Labour cost to total transfer cost= labour cost/transfer cost *100

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35 30 25 20 15 10 5 0 1 2 3 4 5 6 7 8 9 10 YEARS LABOUR COST TO TOTAL TRANSFER COST

INTERPRETATION
The labour cost of the organisation for the year 2010 is 28.88% of total transfer cost for ICF which is labour intensive, the labour cost of 28.88% is acceptable. The proportion of labour cost to total transfer cost is fluctuating over the year indicating that the organisation is able to the labour even in a inflationary situation.

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SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2006-2010

PARTICULARS

2005

2006

CHANGES IN WORKING CAPITAL INCREASE DECREASE

CURRENT ASSETS Debtors Inventory Cash in hand Total (A) CURRENT LIABILITIES Sundry creditors Expenses outstanding Total (B) WORKING CAPITAL(A-B) Increase in working capital GRAND TOTAL

1171620957 456120858 20804713 164854528

923896761 740925711 882564 1665705036

247724196 284804853 19922149

559152426 825752943 1384905369 263641159 205757339

650554613 575751925 1196306538 469398498 250001018

61402187

205757339

469398498

469398498

534805871

534805871

INTERPRETATION
In the year 2006, it has been noticed that there is an incease in inventory and also due to decrease in expenses outstanding. Thus it shows an increase in working capital of Rs.205757339

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PARTICULARS

2006

2007

CHANGES IN WORKING CAPITAL INCREASE DECREASE

CURRENT ASSETS Debtors Inventory Cash in hand Total (A) CURRENT LIABILITIES Sundry creditors Expenses outstanding Total (B) WORKING CAPITAL(A-B) Increase in working capital GRAND TOTAL

923896761 740925711 882564 1665705036

1085401464 890343607 784523 1976529594

161504703 149417896 98041

620554613 575751925 1196306538 469398498 56597356

683851554 766682186 1450533740 525995854

63296941 190930261

56597356

525995854

525995854

310922599

310922599

INTERPRETATION
The above schedule clearly states that there is an increase in Debtors and inventory. This is the reason which made an increase in working capital of Rs.56597356.

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Schedule of changes in working capital for the years 2008 PARTICULARS 2007 2008 CHANGES IN WORKING CAPITAL INCREASE DECREASE

CURRENT ASSETS Debtors Inventory Cash in hand Total (A) CURRENT LIABILITIES Sundry creditors Expenses outstanding Total (B) WORKING CAPITAL(A-B) Increase in working capital GRAND TOTAL

1085401464 890343607 784523 1976529594

1132768362 1655726690 17573901 2806068953

47366898 765383083 16789378

683851554 766682186 1450533740 525995854 688852118

726725009 864495972 1591220981 1214847972

42873455 97813786

688852118

1214847972

1214847972

829539359

829539359

INTERPRETATION
The main cause for increase in working capital are due to increase in debtors, inventory and cash in hand and also increase in current liabilities results an increase in working capital of Rs.688852118.

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Schedule of changes in working capital for the years 2009 PARTICULARS 2008 2009 CHANGES IN WORKING CAPITAL INCREASE DECREASE

CURRENT ASSETS Debtors Inventory Cash in hand Total (A) CURRENT LIABILITIES Sundry creditors Expenses outstanding Total (B) WORKING CAPITAL(A-B) Increase in working capital GRAND TOTAL

1132768362 1655726690 17573901 2806068953

1576169190 2351627647 2258706 3870055543

383400828 695900957 15315195

726725009 864495972 1591220981 1214847972 592110178

765969767 1297127626 2063097363 1806958150

39244758 432631654

592110178

1806958150

1806958150

1079301785

1079301785

INTERPRETATION
In this year inventories increased and current liabilities also increased this causes a main reason for increase in working capital of Rs.592110178.

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Schedule of changes in working capital for the years 2009 PARTICULARS 2009 2010 CHANGES IN WORKING CAPITAL INCREASE DECREASE

CURRENT ASSETS Debtors Inventory Cash in hand Total (A) CURRENT LIABILITIES Sundry creditors Expenses outstanding Total (B) WORKING CAPITAL(A-B) Increase in working capital GRAND TOTAL

1576169190 2351627647 2258706 3870055543

1914313178 3137616020 1750844 5053680042

398143988 785988373 507862

765969767 1297127626 2063097363 1806958150 599681497

904273431 1742766964 2647040395 2406639647

138303664 445639338

599681497

2406639647

2406639647

1184132361

1184132361

INTERPRETATION
In this year there is a increase in debtors and cash in hand where there is a increase in current liabilities. This causes a main reason for increase in working capital of Rs.599681497.

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COMPARATIVE BALANCE SHEET PARTICULARS CURRENT ASSETS Debtors Inventory Cash in hand TOTAL Fixed assets Investment TOTAL Total assets CURRENT LIABILITIES Creditors Expenses outstanding TOTAL Capital Reserves and surplus TOTAL Total liabilities 2005 2006 AMOUNT %

1171620957 456120858 20804713 1648546528 1675794651 3246889773 4922684424 6571230952

923896761 740925711 882564 1665705036 2081337873 3651483491 5732831364 7398526400

-247724196 284804853 -19922149 17158508 405543222 404593718 810136940 827295448

-21.14 62044 -95.75 1.04 24.2 12.46 16.45 12.58

559152426 825752943 1384905369 1483314952 3703010631 5186325583 6571230952

650554613 575751925 1196306538 1809810660 4392409202 6202219862 7398526400

61402187 -250001018 -188598831 326495708 689398571 1015894279 827295448

10.98 -30.27 -13.6 22.01 18.6 19.5 12.5

INTERPRETATION
In the above balance sheet of 2005 and 2006. It indicate that there is a decrease in Debtors and cash in hand and increase in assets where there is decrease in current liabilities and in 2006 the company have planned to minimise the expenses by full utilisation of current assets.

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PARTICULARS CURRENT ASSETS Debtors Inventory Cash in hand TOTAL Fixed assets Investment TOTAL Total assets CURRENT LIABILITIES Creditors Expenses outstanding TOTAL Capital Reserves and surplus TOTAL Total liabilities

2006

2007

AMOUNT

923896761 740925711 882564 1665705036 2081337873 3651483491 5732831364 7398526400

1085401464 890343607 784523 1976529594 2569823785 4053051599 662875375 8599404969

161504703 149417896 -98041 310824558 488485912 401568099 4176394011 1200878569

17.48 20.16 -11.10 18.66 23.46 10.99 170.7 16.23

650554613 575751925 1196306538 1809810660 4392409202 6202219862 7398526400

683851554 766682186 1450533740 2205476032 4943395197 7148871229 8599404969

63296941 190930261 254227202 395665372 550985995 946651367 1200878569

10.20 33.16 21.25 21.86 12.54 15.26 16.23

INTERPRETATION
In the above table, when compared to 2005 and 2007. It indicate that there is an increase in debtors and inventory but there is a decrease in cash in hand and there is an increase in assets and liabilities.

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PARTICULARS CURRENT ASSETS Debtors Inventory Cash in hand TOTAL Fixed assets Investment TOTAL Total assets CURRENT LIABILITIES Creditors Expenses outstanding TOTAL Capital Reserves and surplus TOTAL Total liabilities

2007

2008

AMOUNT

1085401464 890343607 784523 1976529594 2569823785 4053051599 662875375 8599404969

1132768362 1655726690 175753901 2806068953 3455052598 4342386191 7797438789 10603507742

47366898 765383083 174969378 829539359 -22243185 2893334601 1174563414 2004102771

4.36 85.96 23.02 41.96 -86.5 7.13 17.3 23.3

683851554 766682186 1450533740 2205476032 4943395197 7148871229 8599404969

726725009 864495972 1591220981 3014173880 5998112879 9012286759 10603507742

42873455 97813786 140687241 808697848 1054717682 1863415530 2004102771

6.26 12.75 9.69 36.6 21.3 26.0 23.3

INTERPRETATION
In the above table, it is said that in 2007 and 2008 it indicate that there is an increase in current assets and increase in current liabilities.

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PARTICULARS CURRENT ASSETS Debtors Inventory Cash in hand TOTAL Fixed assets Investment TOTAL Total assets CURRENT LIABILITIES Creditors Expenses outstanding TOTAL Capital Reserves and surplus TOTAL Total liabilities

2008

2009

AMOUNT

1132768362 1655726690 175753901 2806068953 3455052598 4342386191 7797438789 10603507742

1516169190 2351627647 2258706 3870055545 4267731379 4684010709 8951742088 12821797631

383400828 695900957 -15315195 1063986590 812678781 341624518 1154303299 2218289890

33.84 42.02 -87.14 37.9 23.5 7.8 14.8 20.9

726725009 864495972 1591220981 3014173880 5998112879 9012286759 10603507742

765969767 1297127626 2063097393 3870094963 6888605274 10758700237 12821797631

39244758 432631654 471876412 855921083 6288793987 1746413476 2218289890

5.4 50.04 29.6 28.3 48.4 19.37 20.9

INTERPRETATION
In the above table, it is compared to 2008 and 2009. It indicate that there is an increase in current assets and increase in current liability it due to current assets and current liability is fully utilised.

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PARTICULARS CURRENT ASSETS Debtors Inventory Cash in hand TOTAL Fixed assets Investment TOTAL Total assets CURRENT LIABILITIES Creditors Expenses outstanding TOTAL Capital Reserves and surplus TOTAL Total liabilities

2009

2010

AMOUNT

1516169190 2351627647 2258706 3870055545 4267731379 4684010709 8951742088 12821797631

1914313178 3137616020 1750844 5053680042 5430349629 4923840651 10354190280 1540787032

398143988 785988373 -507862 1183624499 1162618250 239829942 1402448192 -112810106

26.25 33.43 -22.48 30.58 27.2 5.12 15.6 -87.98

765969767 1297127626 2063097393 3870094963 6888605274 10758700237 12821797631

904273431 1742766964 2647040395 5018996566 -3912743203 -1106253364 1540787032

138303664 445639338 583943002 1148901603 -1080134848 -1186495419 -112810106

18.05 34.35 28.3 29.68 -15.6 -110.28 -87.98

INTERPRETATION
When compared to 2009 and 2010 it indicate that all current assets and fixed assets have increased but cash in hand have slightly decreased. There is an increase in current liability and there is a decrease in reserves. So the present company position is satisfactory in maintenance of assets and liability.

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TREND PERCENTAGE FOR THE YEAR 2006-2010 PARTICULARS Current assets Sundry debtors Inventory Cash in hand TOTAL Current liabilities Sundry creditors Expense o/s TOTAL Amount (Rs. In lakhs) 2006 07 08 9238 7409 8825 25472 09 10 Trend % base year 2006 2006 07 08 09 117 122 120 22.3 89 20 108 58 164 10 207

10854 11327 15161 19143 100 8903 1655 2351 3137 100 7845 1757 2258 1750 100 27602 14739 19770 24030 100

31.73 42.3 26 20 78 94

6205 5757 11962

6838

7267

7659

9042

100

110 117

123

146 31 90

7666 8644 1297 14505 15911 8956

1742 100 10784 100

133 15+0 23 121 133 75

INTERPRETATION
For all the years under analysis the liquidity position is highly satisfactory. The growing trend in working capital is satisfactory. During the year 2010 cash in hand has been decreased to 20% and inventory has been increased to 42%. The above table also indicate that there is an increase in sundry creditors and expense outstanding in the year 2010.

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TREND ANALYSIS OF WORKING CAPITAL FOR THE YEAR 20112015 YEAR WORKING CAPITAL(y) 469398498 525995854 1214847972 1806958150 24066399647 2808360011 DEVIATIONS FROM MIDDLE(x) -2 -1 0 1 2 0 X2 4 1 0 1 4 10 Xy -938796996 -525995854 0 1806958150 4813267992 5155433292

2006 2007 2008 2009 2010 TOTAL

a = y/n =2808360011/5 =561672002 b = xy/x^2 =5155433292/10 = 515543329 yc = a+bx 2006: 561672002+515543329(-2) = -469414656

2007: 561672002+515543329(-1) = 510117673 2008: 561672002+515543329(0) = 561672002 2009: 561672002+515543329(1) = 613226331 2010: 561672002+515543329(2) = 664780660 2011: 561672002+515543329(3) = 716334989
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2012: 561672002+515543329(4) = 767889318 2013: 561672002+515543329(5) = 819443647 2014: 561672002+515543329(6) = 870997976 2015: 561672002+515543329(7) = 922552305

1E+09 900000000 800000000 700000000 600000000 500000000 400000000 300000000 200000000 100000000 0 1 2 3 4 5 922552305 870997976 819443647 767889318 716334989 YEAR TREND VALUE Linear (TREND VALUE)

INTERPRETATION
The trend analysis of working capital for the next 5 years from 2011-2015 would be Rs.716334989, Rs. 767889318,Rs. 819443647,Rs. 870997976, and Rs. 922552305

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CORRELATION BETWEEN NET PROFIT AND FIXED ASSETS YEAR 200506 200607 200708 200809 200910 TOTAL NET PROFIT(x) 542490595 FIXED ASSETS(y) X2 2081337873 2.942960457 1.105569547 Y2 Xy 4.331967342 1.129106221 6.603994286 2.702068646 1.193738845 4.31037911 1.821353112 6.497146999 2.948869709 9.775087219

1051460673 256982378

1247558174 3455052598 1.556401398 1522388928 4267731379 2.317668048 1800084320 5430349629 3.240303559

6163982690 1780427526 11.162990301 16.89992329 24.4137882

x / n = 6163982690/5 = 1232796538 = y / n = 1780429526/5 = 356085905.2 x = (1/n) x22

1/5*(11.16290301)-(123796538)2 (11.16290301/5)-1.519787 2.2325-1.519787 0.7127 =0.84 y = (1/n) y22

1/5*(16.89992329)-(356085905)2 = (16.89992329/5)-1.26797 = 1.45 r = (1/n) - . xy

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= (24.4137/5)-(1232796538)(356085905) (0.84)(1.45) =4.88274-4.3898 1.218 =0.40 INTERPRETATION

From the above calculation it clearly states that there is a positive correlation between net profit and fixed assets in ICF.

TABLE SHOWING CORRELATION BETWEEN NET SALES & WORKING CAPITAL YEAR 200506 200607 200708 200809 200910 TOTAL NET SALES(x) 6678179606 7755278040 9084052393 WORKING CAPITAL(y) 469398488 525995854 1214847972 X2 445980825 601443748 825200078 1385329 Y2 220334949 Xy 3134727476

2766716384 4079244096 1475855595 1103574263 3265097756 2126789743 5791915916 3804897783 1.424923336

11770000000 1806958150

15810000000 24066399647 2499561 5.109751004 2.808360011

1.87301277 1.55029351

x / n = 5.109751004/5 = 1.0219 = y / n = 2.808360011/5 = 0.5616 x = (1/n) x2= -0.817 y = (1/n) y2= -2.30
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2 2

r = (1/n) - . xy = -0.15

INTERPRETATION
In the above calculation it is clearly states that there is a negative correlation between net sales and working capital in ICF.

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FINDINGS
The current assets shows an increasing trend from 2006-2010. The working capital turnover ratio was high in 2006-2010 which indicates the working capital activity is more than other years. The organisation quick ratio is decreasing over the year from 2009-2010 which indicates a liquidity position is satisfactory. The inventory turnover ratio was high in 2005 -2006 and 2006 2007, this indicates a good management of inventory in the organisation. The fixed assets turnover ratio in the year 2005-2006 is high which indicates more efficiency in utilisation of fixed assets. Average collection period for the organisation is high which indicate a lower turnover of debtors and inefficient collection procedures. Average payment period is high which indicates that the organisation is not able to pay its payment in time. The percentage of labour cost to transfer cost is decreased to 21.18 in the year 20082009 and there is an increase in the year of 2009-2010. The organisation is able to control the labour cost. The direct cost to total transfer cost is decreased to 1.536 in the year 2009-2010. There is a significant reduction of overhead cost is 7.5112. The companys investment in working capital was increasing every year from 20062010.

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SUGGESTIONS
The organisation is to take adequate steps in maintaining its working capital as well as liquidity position. Working capital requirement of the organisation increases mainly due to increase in debtor and inventory.\ The organisation purchases the materials according to the need as and when arises. This may lead to urgent purchases sometimes it leading to extra payment therefore it is better to follow JIT method for purchase of material. The Material cost of the organisation is also increasing over the year. The organisation should take steps to control the Material cost. The organisation can speed up collection process. The organisation should try to minimise collection period for better utilisation of funds. The inventory holding period not within the acceptable limit hence the organisation should try to minimise the inventory holding period for efficient Management of inventory. The Average payment period for all the years is more than 30 days indicating that organisation is not able to pay its payment in time.Hence the organisation should take steps to make payment in time.

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CONCLUSION
The project was undertaken in ICF, Chennai is to study the detailed analysis on the working capital management of the organisation. The study at ICF provided me an insight in to workings of Coach Factory and to how a firm manages its working capital. The Goal of working capital management is to manage the firms current assets and current and current liabilities. In such a way that satisfactory level of working capital is maintained on the review of the performance of company ratio and other financial statements for the past five years reveals that the company maintained the good solvency positions. Hence it is concluded that ICF is found to be efficiently managing working capital and this study reveals the working capital has been increased through the years it is hoped that the interpretations, findings would support the organization in an efficient way.

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BIBLIOGRAPHY
Books Referred Financial Management 1 IM pandey Financial Management and Policy - V.K. Bhall Principles of Management Accounting Dr.S.N.Maheswari Management Account T.S. Reddy and Y. Hari Prasad Reddy Websites www.icf.gov.in www.indianrailways.org

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