“A STUDY ON WORKING CAPITAL MANAGEMENT OF

APOLLO TYRES LTD”

Project report submitted to

CHRIST COLLEGE (AUTONOMOUS) IRINJALAKUDA

In partial fulfilment of the requirements for the award of degree of

BACHELOR OF COMMERCE

Submitted by

AISWARYA MOHANAN

(Reg. No:CCASBCM008)

Under the guidance of

Prof. MUVISH K M

POST GRADUATE DEPARTMENT OF COMMERCE

CHRIST COLLEGE (AUTONOMOUS), IRINJALAKUDA

UNIVERSITY OF CALICUT

MARCH 2021
 CERTIFICATE

This is to certify that the project entitled “ A STUDY ON WORKING CAPITAL

MANAGEMENT OF APOLLO TYRES LTD” is a bonafide record of project done by
AISWARYA MOHANAN, Reg . No CCASBCM008, under my guidance and super
vision in partial fulfilment of the requirement for the award of the degree of
BACHELOR OF COMMERCE and it has not previously formed the basis of any
Degree, Diploma, and Associateship or Fellowship.

DR JOSHEENA JOSE Prof. MUVISH K M

(HEAD OF THE DEPARTMENT) (PROJECT GUIDE)

 DECLARATION

I , AISWARYA MOHANAN, here by declare that the project work entitled” A

STUDY ON WORKING CAPITAL MANAGEMENT OF APOLLO TYRES LTD”
is a record of independent and bonafide project work carried out by me under the
supervision and guidance of Prof. MUVISH K M, Asst. Professor, Post Graduate
Department of Commerce, Christ College , Irinjalakuda.

The information and data given in this report is authentic to the best of my knowledge.
The report has not been previously submitted for the award of any Degree, Diploma ,
Associateship or other familiar title of any other university or institute.

PLACE : IRINJALAKUDA AISWARYA MOHANAN

DATE: CCASBCM008
 ACKNOWLEDGEMENT

I would like to take the opportunity to express my preferred thanks and gratitude to all
people who have helped me with sound advice and able guidance. Above all , I
express my eternal gratitude to the lord Almighty under whose divine guidance; I have
been able to complete this work successfully.

I would like to express my sincere obligation to Rev.Dr. Jolly Andrews for providing
various facilities. I am thankful to Dr. Josheena Jose, Head of the Department, for
providing proper help and encouragement in the preparation of this report.

I express my sincere gratitude to Prof. Muvish K M , whose guidance and support

throughout the training period helped me to complete this work successfully.

I would like to express my preferred gratitude to all the faculties of the department for
their interest and cooperation in this regard.

I extent my hearty gratitude to the librarian and other library staff of my college for
their wholehearted cooperation.

I express my sincere thanks to my friends and family for their support in completing
this report successfully.

Place: Irinjalakuda AISWARYA MOHANAN

Date:
 TABLE OF CONTENTS

Chapters Contents Page No.

List of tables

List of diagrams

Chapter 1 Introduction 1-6

Chapter 2 Review of literature 7-13

Chapter 3 Theoretical framework 14-25

Chapter 4 Data analysis 26-40

Findings , Suggestions and

Chapter 5 41-42
conclusions

Bibliography 43

Appendix 44-45
 LIST OF TABLES

Table no. Title Pg. No

4.1 Components of Current Assets 26

4.2 Current ratio 28

4.3 Quick Ratio 29

4.4 Absolute Liquid Ratio 30

4.5 Gross Profit Ratio 31

4.6 Operating Profit Ratio 32

4.7 Operating Ratio 33

4.8 Net Profit Ratio 34

4.9 Return on Investments 35

4.10 Return on Total Assets 36

4.11 Return on Shareholders Fund 37

4.12 Inventory Turnover Ratio 38

4.13 Working Capital Turnover Ratio 39

4.14 Cash Flow Statement 40

 LIST OF DIAGRAMS

Diagram No. Title Pg. No

4.1 Components of Current Assets 27

4.2 Current ratio 28

4.3 Quick Ratio 29

4.4 Absolute Liquid Ratio 30

4.5 Gross Profit Ratio 31

4.6 Operating Profit Ratio 32

4.7 Operating Ratio 33

4.8 Net Profit Ratio 34

4.9 Return on Investments 35

4.10 Return on Total Assets 36

4.11 Return on Shareholders Fund 37

4.12 Inventory Turnover Ratio 38

4.13 Working Capital Turnover Ratio 39

 CHAPTER 1
INTRODUCTION
1.1 INTRODUCTION

In a perfect world, there would be no necessity for current assets and liabilities
because there would be no uncertainty, no transaction costs, information search costs,
scheduling costs or production and technology constraints. The unit cost of production
would not vary with the quantity produced. Borrowing and lending rates shall be the
same. Capital,labour,and product market shall be perfectly competitive and would
reflect all available information, thus in such environment, there would be no
advantage for investing in short term assets.

However the world we live is not perfect. It is characterized by considerable amount

of uncertainty regarding the demand, market price, quality and availability of own
products and those of suppliers. There are transaction costs for purchasing or selling
goods or securities. Information is costly to obtain and is not equally distributed.
Similarly each organisation is faced with its own limits on the production capacity and
technology.

The real world circumstances introduce problems which require the necessity of
maintaining working capital. For example, an organisation may be faced with an
uncertainty regarding availability of sufficient quantity of crucial inputs in future at
reasonable price. This may necessitate the holding of inventory and other current
assets. Similarly an organisation may be faced with an uncertainty regarding the level
of its future cash flows and insufficient amount of cash may incur substantial costs.
This may necessitate the holding of reserve of short term marketable securities, again
a short term capital asset. In corporate financial management, the term working capital
management (net) represents the excess of current assets over current liabilities.

Working capital management shows the relationship between a firms current assets
and current liabilities. The goal of working capital management is to ensure that a firm
is able to continue its operations and it has the ability to meet short term debts.
Management of working capital involves managing inventories, account
recievables,account payables and cash. A good way to judge a company’s cash flow

1
prospects is to look at it’s working capital management. The company must have
adequate working capital. It should neither be excessive nor inadequate. Excessive
working capital will result in idle fund laying without earning any profit in the
business, where inadequate working capital shows the company doesn’t have
sufficient funds for financing its daily needs. This project entitled ‘A Study on
Working Capital Management of Apollo Tyres Ltd’ is mainly focusing on the
effectiveness of working capital management of the company.

1.2 INDUSTRY AND COMPANY PROFILE

1.2.1 INDUSTRY PROFILE

The origin of tyre industry in India dated back when Dunlop Rubber Ltd set up the
first tyre factory in West Bengal. MRF followed the suit in 1946. Since then the
Indian tyre industry has grown rapidly. Transportation industry and tyre industry go
hand in hand as the two are interdependent. Transportation industry has experienced
10% growth rate year after year with an absolute level of 870 billion tone freight with
an extensive road accounts for over 85% of all freight movement in India.

Tyre industry consumes over 60% of the total rubber production with respect to Indian
economy. But in actuality only just around 52% of the tyre is natural rubber.
Remaining 48% consist of synthetic rubber,carbon,chemicals,etc.

The tyre industry in India is classified under 4 categories based on the year of
commencement of production namely

1.1st Generation Companies which includes Dunlop and Firestone.

2.2nd Generation Companies which includes MRF,CEAT,GoodYear and premier.

3.3rd Generation companies which includes Appolo,Vibrant,Modi Rubber and J.K

Tyres.

4.4th Generation Companies includes the companies started after 1970 and also which
are yet to start production.

2
Indian tyre industry has almost doubled from Rs 30,000 crores in 2010-11 to Rs
59,500 crores in 2017-18 of which 90-95% come from the domestic markets. The top
three companies-MRF,ApolloTyres and JK Tyres have 60% of the market share in
terms of revenue.

1.2.2 COMPANY PROFILE

APOLLO Tyres Ltd is an Indian tyre manufacturing company headquarted in

Gurugram, Haryana. It was incorporated in 1972 and it’s first plant was commissioned
in Perambra,Thrissur,Kerala. The company now has four manufacturing units in India
one in Netherland and one in Hungary. In 2006 it acquired Dunlop Tyres
International. It manufactures tyres, tubes and flaps for commercial and passenger
vehicles. Apollo tyres is the first Indian multinational tyre corporation. It is India’s
largest and ranked 17th the world. It is the market leader in heavy commercial and light
commercial tyres in India and fastest growing in passenger vehicle tyres. Apollo tyres
is the biggest exporter of passenger vehicle tyre from India.

VISION

To be a premier tyre company with a diversified and multinational presence.

MISSION

1) Be a customer obsessed company 24*7

2) Be a green company
3) Be most profitable tyre company in India

VALUES

1. Customer first
2. Business ethics
3. Care for society
4. Empowerment

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 5. Communicate openly
6. One family

1.3 STATEMENT OF PROBLEM

Today financial soundness and profitability of businesses depend upon their working
capital management. If there is shortage in working capital there will not be any funds
for meeting the company’s day to day requirements. If there is excess in working
capital company’s profit will be locked up in that. So it is necessary to identify
whether the company is managing the working capital efficiently. This study is to
analyse whether Apollo Tyres Ltd is managing the working capital efficiently.

1.4 OBJECTIVES OF THE STUDY

• To study the structure of working capital.

• To study the liquidity and profitability of Apollo tyres ltd.
• To analyse the working capital management of Apollo tyres ltd.
• To give suggestions to improve the performance of working capital
management of Apollo tyres Ltd.

1.5 SCOPE OF THE STUDY

The present study is restricted to Apollo Tyres Ltd. The study focuses on the working
capital management of Apollo Tyres Ltd. The study is mainly based on secondary
data.

1.6 RELEVANCE OF THE STUDY

The findings of the study will be useful to the authorities for improving the efficiency
of working capital management because working capital is an important area of
financial management.

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1.7 RESEARCH METHODOLOGY

The study is based on secondary data collected from annual report of the company. the
study is partly descriptive and partly analytical in nature as efforts are taken to to
describe the various areas of working capital management in Apollo Tyres Ltd.

• PERIOD OF STUDY
The study is confined to a period of five years from 2015-2016 to 2019-2020.
• DATA COLLECTION

The secondary data is collected from the published annual documents and the
website of Apollo Tyres Ltd.

• TOOLS FOR ANALYSIS

Ratio analysis

Cash flow statement

Tables and graphs are also used as presentation tools

• ANALYSIS OF DATA
The study is quantitative in nature with secondary data. Here the ratio analysis
is used for analysing the data. Bar graphs and pie charts are used to make data
more understandable to the reader.

Chapterisation

The study of working capital management of Apollo Tyres Ltd is described in five
chapters.

Chapter 1: Introduction

It deals with introduction, organisation profile, research problem, objectives of the

study, research methodology,chapterisation and limitations of the study.

Chapter 2: Review of Literature

5
Chapter 3: Theoretical Framework

Chapter 4: Data Analysis

Chapter 5: Findings Suggestions and Conclusions

1.8 LIMITATIONS OF THE STUDY

1. Due to the time constraints an in-depth study was not possible.

2. The data collected has been restricted to past five years.

3. The information collected for the study is entirely secondary in nature

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 CHAPTER 2
REVIEW OF LITERATURE
2.1 REVIEW OF LITERATURE

Review of literature aims to summarize major studies that have been published on
the topic. It provides theoretical knowledge on the selected topic.

1. Hossain Saiyed Zabid and Akon MD Habibur Rahman(1997) emphazise

the basic objective of working capital management. In order to get a trade off
between liquidity and profitability, working capital funds should be arranged at
the right time,right cost and from right source. The analysis revealed that the
BTMC had followed an aggresive working capital financing policy taking the
risk of liquidity. This study concludes that the BTMC had exploited the entire
short term sources available without considering the actual needs, because
there was an increasing trend of negative net working capital through out the
period of study.
2. Singaravel P (1999) focused on study which revealed the interdependency
among working capital,liquidity and profitability of which liquidity comes in
first preference when compared with others. This article is an indepth analysis
of liquidity and it’s inter relationship with working capital and profitability.
None among this three is dispensable. Excess of stock-in-trade over bank
overdraft and excess of liquid assets over current liabilities other than bank
overdraft generate working capital for business. Also working capital
requirement is made for long term funds which affects the profitability.
3. Jain P K and Yadav Surendra S (2001) studied the corporate practises
related to management of working capital in India,Singapore and Thailand.
Through this study they have tried to understand working capital management
and current assets and current liabilities and their inter relationship. Further the
authors have also done an aggregative analysis of current assets and current
liabilities in terms of major liquidity ratios. They also stated that the working
capital position of various industries with respect to these ratios. Towards the
end the author suggest that serious considerations is to be given by the
government as well as industry groups in these three countries in order to take
corrective measures to take care of and rectify the area of concern.

7
4. Filbeck Greg and Krueger Thomas M(2005) base their study on ratings of
working capital management published in CFO magazines. The findings of
their study gives insights to working capital management, which is explained
by macro economic factors, interest rates,competition etc and their impact on
working capital management. They also studied the impact of working capital
management on stock prices.
5. bThappa Sankar(2007) focuses on working capital management of Sun
Pharmaceuticals Company. They studied about concept of working
capital,working capital policy,components of working capital and factors
affecting working capital in Sun Pharmaceutical Company during the last five
years and identified the factors which are responsible for the improvement of
working capital of the company. They concluded with a warning that if the
company doesn’t maintain proper level of working capital, it will bankrupt.
6. bDinesh M(2008) studied the concepts of working capital,different challenges
faced by the business firms in managing the working capital and strategies to
be adopted for it’s proper management.This study concluded that most of the
business failed not because of lack of profit , but because of lack of cash. The
fast growth in production and sales will increase the need of resources and the
assets such as inventories,acccount receivables will become illiquid.
7. bRahman Mohammad M(2011) studied the inter relationship between
working capital and profitability. An effective working capital management has
a positive impact on profitability of firms. This study also states that textile
industries profitability and working capital management position are up to the
mark.
8. Dr Arbab Ahmed and Dr Matarneh Bashar(2011) found that registration
technique can be a best statistical technique which will help in working capital
forecasting. It helps in making future projections after establishing the average
relationship in the past between sales and working capital and it’s various
components.The analysis can be done with the help of graphic portrayals or
mathematical formulas.

8
9. Chandra H and Selveraj A (2012) analyses the working capital management
of selected steel companies of India for the period from 2000-01 to 2009-10.
They measured the utilisation of working capital by analysing the operating
cycle and cash conversion cycle. This study concluded that the size of a
company plays a vital role in determining the efficiency of working capital
management,.
10. Dr Panigrahi Ashok Kumar(2012) studied the relationship between working
capital management and profitability of ACC Cement Company, the leading
cement manufacturer of the country for assessing the impact of working capital
management on profitability during the period 1999-2000 to 2009-10.This
study is based on secondary data. They conducted this study to find out
whether there is any relationship between working capital management and and
performance of the firm and they found that there is moderate relationship
between working capital management and firm’s profitability.
11. Bagchi B and Khamrul B(2012) studied about the relationship between
working capital management and companies profitability. They conducted an
empirical study using a sample of Indian FMCG companies. This study
concludes that both cash conversion cycle and debt used by the firm are
negatively associated with companies profitability .This study also analysed
that if the companies manage their working capital in more efficient ways it
will ultimately increase their profitability.
12. Joshi Lalithkumar and Gosh sudipta(2012) study the working capital
performance of Cipla Ltd during the period 2004-05 to 2008-08. Financial
ratios have been applied in measuring the working capital performance,and
statistical as well as econometric techniques have been used. It was observed
that the selected ratios show satisfactory performance, and significant negative
relationship between liquidity and profitability is found exist.
13. Singh Moirangthem B and Singh Tejmani N (2013) emphazise on the
efficient management of working capital. According to them it means proper
management of various components of working capital due to which adequate
amount of working capital and liquidity is maintained in the larger interest of

9
 successful running of an enterprise. They also suggests that , the industry
should try to maintain proper level of net working capital by trying to control
the growth rate of current assets as compared to current liabilities to some
extend and also the industry should also try to maintain balance between
liquidity and profitability position by improving current and quick ratio.
14. Kaur harsh V and Singh Sukhdev(2013) analyse empirically BSE 200
manufacturing companies spread over 19 industries for the period 2000 to
2010. The study explores scope to increase the efficiency and profitability of
145 companies by improving the parameters of analysis. The study tests the
relationship between the working capital score and profitability measured by
income to current assets and income to average total assets. This article
concentrates on cash conversion efficiency and planning the operating cycle
days. At the end, the study emphasizes that efficient management of working
capital significantly affects profitability.
15. Joseph Jisha (2014) closely examines the study of working capital
management in Ashok Leyland and points out that the liquidity and
profitability position of the company is not satisfactory, and needed to be
strengthened in order to be able to meet its obligations on time.
16. Hoan-Lan Le,Kieu-Trang Vu,Ngoc-Khanh Du,Manh Dung Tran(2018)
investigated the impact of working capital management on financial
performance by using the data collected from listed firms on Ho Chin Minh
Stock Exchange(HOSE). They used the variable cash conversion cycle as
measurement for working capital management by taking the following
variables in to consideration which includes growth,cash flow,liquidity,risk
,leverage. The results imply that working capital management positively
impacts the financial performance of firms in the sample. Their study also
gives insights to the managers on how to improve the financial performance
with working capital management.
17. Sandip Dhole,Sagarika Mishra,Anada Mohan Pal(2019) examined the
association between efficient working capital management and financial
constraints for a sample of Australian firms. Using a text based measure of

10
 financial constraints,they show that the efficient working capital management
is associated with lower financial constraints in firms in the next two to three
years. They were the first who used this text based measure of financial
constraints for Australian firms. They also show that the negative association
between financial constraints and future share price is significantly weakened
for firms with efficient working capital management.
18. Ben Le(2019) examined the effect of working capital management on firms
valuation,profitability and risk using panel data methodology. He found out a
negative relationship between net working capital and firms
valuation,profitability and risk. The results suggests that in managing working
capital firms managers must make a trade off between their objectives for
profitability and risk control. Working capital management is of particular
importance in firms with less access to capital;it is also important when firms
are expanding their investments during periods of economic recovery.
19. Sawarni KS,Narayanasamy S and Ayyalusamy K(2020) investigated the
impact of the efficiency of working capital management on the performance of
a sample of Indian companies and explore how the nature of the firms business
influences the significance and direction of this impact. The data for this study
was collected for the period of 2012-2018 for 414 non financial firms listed in
Bombay Stock Exchange. Working capital efficiency has a significant impact
on the performance of the sample firms. Non financial Indian firms deliver
better financial performance by maintaining lower Net Trade Cycle. The
significance of relationship varies depending upon the nature of the firm’s
business.

References:-

1) Hossain,Saiyed Zabid and Akon MD & Habibur Rahman,(1997),Financing of

Working Capital: Case Study of Bangladesh Textile Mills Corporation,Journal of
Financial Management and Analysis,10,37-43.

11
2) Singaravel P,(1999),Working Capital-Liquidity-Profitability Triangle,Working
Capital Management,21-25.

3) Jain P K and Yadav Surendra S,(2001), Management of Working Capital: A

Comparative Study of India, Singapore and Thailand,Management and Change,5,339-
355.

4) Filbeck Greg and Krueger Thomas M,(2005), An Analysis of Working Capital

Management Results Accross Industries, American Journal of Business Finance,20,5-
11.

5) Thappa Sankar,(2007), Working Capital Management in Sun Pharmaceutical

Industries Ltd-A Case Study,Tecnia Journal of Management Studies,2,45-52.

6) Dinesh M,(2008), Working Capital Management:Challenges and Strategies,The

Accounting World,ICFAI University Press,37-40.

7) Rahman Mohammad M,(2011),Working Capital Management and Profitability:A

Study on Textiles Industry,ASA University Review,5,115-132.

8) Dr Arbab Ahmed and Dr Matarneh Bashar,(2011),Financial Analysis:The working

Capital,Business and Management Review,1,73-78.

9) Chandra H and Selveraj A (2012), Working Capital Management in Selected Indian

Steel Companies,Indian Journal of Finance,6,5-15.

10) Dr Panigrahi Ashok Kumar,(2012), Impact of Working Capital Management on

Profitability-A Case Study of ACC Ltd, Asian Journal of Management,3,210-218.

11) Bagchi B and Khamrul B ,(2012),Relationship between Working Capital

ManagementAnd Profitability: A Study of Selected FMCG Companies in India,
Business and Economics Journal,2012,1-11.

12) Joshi Lalithkumar and Ghosh Sudipta,(2012),Working Capital Management of

Cipla Limited:An Empirical Study,International Journal of Marketing,Financial
services and Management Research,1,170-186.

12
13) Singh Moirangthem B and Singh Tejmani N (2013), Working Capital
Management : An Essential Tool of Business Finance- A Case Study of National
Plastic Industries Limited, IOSR Journal of Business and Management,12,1-7.

14) Kaur Harsh V and Singh Sukhdev,(2013),Managing efficiency and profitability

Through working capital:An empirical analysis of BSE 200 Companies,Asian Journal
of Business Management, 5 ,197-207.

15) Joseph Jisha (2014), Impact of Working capital management on firm’s

profitability and Liquidity : An empirical Study on Ashok Leyland Ltd, International
Journal of Research in Commerce and Management ,5,32-38.

16)Hoan-Lan Le,Kieu-Trang Vu,Ngoc-Khanh Du and Manh Dung

Tran,(2018),Impact of Working Capital Management on Financial Performance:The
case of Vietnam,International Journal of Applied Economics,3(1),15-20

17) Sandip Dhole,Sagarika Mishra and Ananda Mohan Pal,(2019),Efficient Working

Capital Management,financial;financial constraints and firm value:A text based
analysis,Pacific-Basin Finance Journal ,58.

18)Ben Le,(2019),Working Capital Management and Firms valuation,profitability and

risk:Evidence from a developing market,International Journal of Managerial
finance,2,191-204.

19) Sawarni K.S,Narayanasamy S and Ayyalusamy K,(2020),Working Capital

Management,firm performance and nature of business:An empirical evidence from
India,Internatinal Journal of Productivity and Performance Management,1,179-200.

13
 CHAPTER 3
THEORETICAL FRAMEWORK
3.1 Meaning and definition of working capital

Working capital is the capital required for the day to day working of an enterprise. It
is required for the purchase of raw materials and for meeting the day to day
expenditure on salaries,wages,rents,advertising etc. Working capital is needed for
holding some convertible or current assets such as stock,cash,bills receivable etc. The
firm operates it’s business through these assets. These assets are convertible in the
sense that these change from one form of asset to another. Cash is converted into raw
materials,raw materials into work in progress,work in progress into finished
goods,finished goods into book debts and bills receivable and then book debts and
bills receivable into cash. Thus the amount goes on circulating or revolving from cash
to current asset and current asset to cash. Hence working capital is also called floating
capital. In short working capital is concerned with the management of firm’s current
assets and current liabilities. It is the amount invested in current assets.

The concept of working capital perhaps first evolved by Karl Marx. But he used the
term ‘Variable Capital’ instead of ‘Working Capital’. According to Shubin’working
capital is the amount of funds necessary to cover the cost of operating the enterprise.

Concept of working capital

There are two concepts of working capital.

a) Gross concept
b) Net concept

Gross concept

According to Gross concept working capital refers to the amount of funds invested in
current assets. Thus working capital is equal to current assets. Working capital as per
gross concept is called Gross working capital. This concept is used by management to
evaluate the current working capital position and to ensure the optimum investment in
individual current assets. Gross concept is a quantitative concept.

The gross working capital concept has following advantages:

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 1) This concept is helpful in determining the correct amount of working
capital at the right time.
2) It helps in planning and control of individual current assets.
3) It helps to maximise return on investment
4) It helps in fixation of financial responsibility.

Net concept

According to net concept,working capital refers to excess of current assets over

current liabilities. To be more clearly,working capital equals to total current assets
minus total current liabilities. Thus working capital refers to net current asset. The
working capital as per net concept is called net working capital. The net working
capital is a qualitative concept because it establishes a relationship between current
assets and current liabilities. There is an alternative definition of net working capital.
According to this,the net working capital is that portion of firm’s current assets which
is financed with long term funds. Net working capital can be positive or negative.
When current asset exceeds current liabilities,it is called positive working capital.
When current liabilities exceeds current assets it is called negative working capital.

The net working capital concept has following advantages.

1) It measures the firms liquidity.

2) It enables the creditors and investors to asses the short term solvency of the
firm.
3) It indicates the extent to which working capital can be financed with long term
funds.
4) It is an indicator of the financial soundness of an enterprise.

Types of working capital

Working capital is broadly classified into two types.

a) Permanent working capital

b) Temporary working capital

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Permanent working capital

There is always a minimum amount of working capital which is continuously required

by the enterprise to carry out its normal business operations. This is usually called as
permanent or fixed working capital. Thus permanent working capital is the minimum
amount of working capital required to ensure effective utilisation of fixed assets and
support the normal operation of business. It is that part of capital which is
permanently blocked in fixed assets.

Temporary working capital

It is the volume of working capital which is needed over and above the fixed working
capital in order to meet the unforced market changes and contigencies.Temporary
working capital is the working capital which varies with volume of business. This type
of working capital is generally financed from shorter source of finance like bank
credit because this amount is not permanently required and is usually paid back during
off season or after the contingency.

Factors determining working capital

• Nature of business: The manufacturing or trading concerns require more

amount of working capital because they have to invest heavily in inventories
and debtors. In case of public utilities like transport, electricity undertaking
etc,most of the transactions are on cash basis. Further these concerns do not
require large inventories. Hence they require small amount of working capital.
• Production cycle: Another factor determining working capital is the
production cycle. It simply refers to the time required to manufacture a product.
It covers the time span between the procurement of material and production of
goods. Thus the time involved in the manufacturing process is called
production cycle. The longer the production cycle, the larger will be the
requirement of working capital.

16
 • Size of business: Generally large business concerns are required to maintain
huge inventories. Hence bigger the size,the larger will be the working capital
required and vice versa.
• Turnover: Turnover means the speed with which working capital is recovered
by the sale of goods. If the turnover is higher,it will require less amount of
working capital.
• Terms of trade: A concern which purchases on credit and sells on cash will
require less amount of working capital. If a concern buys everything on cash
and sells on credit,it will need a large amount of working capital.
• Nature and value of the product: If the cost of raw material is a larger
proportion of the total cost of the finished product,working capital required will
be large.
• Seasonal fluctuations: Certain industries manufacture and sells goods only
during certain seasons. Such concern require large amount of working capital
during the season.
• Use of manual labour or machines: In labour intensive industries larger
amount of working capital will be needed than mechanised industries.
• Company policies: Working capital requirements are also influenced by
company policies such as those relating to depreciation,dividents etc.

Need of working capital

The prime objective of the company is to obtain maximum profit through business.
The amount of profit largely depend upon the magnitude of sales. However the sale
does not convert into cash instantaneously. There is always a time gap between sale of
goods and receipt of cash. The time gap between sales and actual realisation in cash is
technically termed as operating cycle. Regular availability of working capital is
inevitable for sustained business operations. If the proper fund is not provided for the
purpose,the business operations will be affected. Working capital is needed in the
form of current assets to deal with the problem arising out of lack of immediate
realization of cash against goods sold. Without working capital a firm cannot operate

17
it’s business. It is must for the purchase of raw material and for meeting the day to day
expenditure on salaries,wages rent,advertising etc.

3.2 Working Capital Management

Meaning of working capital management

Working capital management is a business strategy designed to ensure that a company

operates efficiently by monitoring and using it’s current assets and liabilities to the
best effect. The primary purpose of working capital management is to enable the
company to maintain sufficient cash flow to meet it’s short term obligations. A
company’s working capital is made up of current assets minus current liabilites.
Working capital management commonly involves monitoring cash flow, current
assets, and current liabilities through ratio analysis of the key elements of operating
expenses, including working capital ratio, collection ratio, and inventory turnover
ratio.

Importance of working capital management

Working capital management is significant in financial management due to the fact

that it plays a vital role in keeping the wheel of the business running. Working capital
management ensures that the company possesses appropriate resources for it’s daily
activities for protecting the company’s existence and to ensure that that it can keep
operating as a going concern. Scarce availability of cash, uncontrolled commercial
credit policies, or limited access to short term financing can lead to the need for
restructuring, sale of assets, and even liquidation of company. proper working capital
management facilitate the business to operate smoothly and improves it’s earnings.
The ability to properly manage working capital directly correlate to the growth of a
company. Managing working capital is about more than keeping cash on hand and
having a financially solvent company. Sound working capital management means
ensuring that your business maintains an adequate cash flow on hand. This cash needs
to be able to satisfy any and all operating costs for the short term in addition to any

18
bills or other obligations. Working capital management is important due to following
reasons:

• Improvement in the credit profile and solvency of the company:- If the

company pays off debts on time while generating revenues, then it ensures that
the operating cycle of the company is properly funded, which will likely boost
the credit score of the company. Where as if the company is unable to repay it’s
debts on time and still it is running the business with the low operating costs,
then the creditors will try to get back their funds, and this would lead to a
decrease in the credit score.
The pre-requisite to the long term solvency is the ability of the company to
meet it’s short term obligations. The adequate management of the working
capital will hep the business to pay all of it’s short term obligations on a timely
basis like the salary payment, payment against the purchase of raw materials,
and other such operating expenses of the company.
• Use the fixed assets efficiently:- Proper management of the working capital and
availability of adequate working capital all the time will enable the company to
effectively and efficiently use the fixed assets present. In case because of the
unavailability of working capital, the fixed assets of the company remains idle
then in that case also the depreciation has to be charged and the interest on
capital borrowed is to be paid on fixed assets. That means the company has to
incur the fixed expenses on the fixed assets unnecessarily even though it is not
using it. So with the help of working capital management fixed assets can also
be managed and used in an effective manner.
• Ability to face crisis:- In case there is proper management of the working
capital, then the business concern will be able to face crisis during the
emergency period like depression.
• Expansion :- If any company is planning to expand it’s business, then that
would require additional capital. In case there is adequate amount of working
capital, then that could lead to the implementation of the expansion program
successfully.

19
3.3 Ratio analysis

According to J Batty “ the term accounting ratio is used to describe significant

relationships between figures shown on a balance sheet, in a profit and loss account, in
a budgetary control system or in any part of the accounting organisation.

Ratio analysis is a quantitative procedure of obtaining a look into firm’s functional

effciency,liquidity,revenues,and profitability by analysing it’s financial records and
statements. It helps in interpreting the financial statements in order to make a decision.
It analyse various pieces of financial information in the financial statements of a
business. It can be used to determine whether a company’s financial health is on
upward or downward trend. However ratio analysis is not an end to itself. It is only a
means of better understanding of financial strength or weakness of a firm.

3.3.1 Liquidity ratios

The short term financial position of a firm is measured by analysing the liquidity
position. The term liquidity means the ability to produce cash. A firm is said to be
liquid when it is capable of meeting it’s short term obligations in time. It depends on
its ability to convert current assets into cash and maintain regular cash flows. The
important liquidity ratios are:

1. Current Ratio
2. Quick Ratio
3. Absolute Liquid Ratio

Current ratio

Current ratio is the ratio of a firm’s current assets to current liabilities. It shows the
relationship between current assets and current liabilities. It is also known as working
capital ratio. It is obtained by dividing total current assets by total current liabilities.
The ideal current ratio is 2:1.

Current assets
Current ratio =
Current liabilities

20
Current Assets

1. Cash in hand
2. Cash at bank
3. Short term securities
4. Bills receivable
5. Sundry debtors
6. Stock

Current liabilities

1. Sundry creditors
2. Bills payable
3. Outstanding expenses
4. Short term advances
5. Bank draft

Quick Ratio

Quick ratio is a strict measure of liquidity. It is the ratio of liquid assets to current
liabilities. All items of current assets are not equally liquid. Inventories and prepaid
expenses are less liquid. Therefore it is excluded from current assets. The balance of
items of current assets are called liquid assets or quick assets. Quick ratio is also
called liquid ratio or acid test ratio. The standard quick ratio is 1:1.

Quick assets
Quick ratio =
Current liabilities

Quick assets = Current assets - (Stock + Prepaid expenses)

Absolute Liquid Ratio

It is the ratio of cash and cash equivalents of a company to it’s current liabilities. It is
also known as cash ratio. Standard Absolute Liquid Ratio is 0.5:1. Absolute liquid
assets includes cash in hand, cash at bank and marketable securities.

21
 Cash in hand and Cash at bank+Marketable securities
Absolute Liquid Ratio =
Current liabilities

3.3.2 Profitability Ratios

Profitability ratios measures the ability of the firm to earn an adequate return on
sales,investments and invested capital. There are two types of profitability ratios. First
profitability ratios based on sales which include gross profit ratio,operating profit
ratio,operating ratio, net profit ratio and second profitability ratio based on investment
which includes return on investments,return on shareholders fund,return on total
assets.

Gross Profit Ratio

It is the ratio of gross profit to sales. It indicates gross margin available to the
company on every rupee of sales from which all indirect expenses are recovered
leaving a reasonable amount as net margin. It is calculated by the formula:

Gross profit
Gross Profit Ratio = * 100
Net sales

Operating profit ratio

The operating profit of a business is the profit after meeting all operating expenses
incurred in the regular course of operations. It is a measure of operating efficiency of a
business.

Operating profit or EBIT

Operating Profit Ratio = * 100
Net sales

Operating Ratio

Operating ratio is a cost ratio, not a profit ratio. It is the relationship between
Operating Cost and Net Sales.

Operating Cost
Operating Ratio = * 100
Net Sales

22
Operating Cost = Cost of Goods Sold + Operating Expenses

Net Profit Ratio

Net Profit is the residual profit after considering non-operating expenses and incomes.
In the case of companies Income Tax is also deducted. This ratio shows the
relationship between Net Profit and Net Sales.

Net Profit after Tax

Net Profit Ratio = * 100
Net Sales

Return on Investment

The overall objective of a business is to earn a satisfactory return on capital invested.

Return on Investment shows the relationship between operating profit and capital
employed. It measures the overall profitability. It is also known as Return on Capital
Employed. A high ratio indicates that the capital employed is efficiently utilised.

Operating Profit
Return on Investment = * 100
Capital employed

Return on Total Assets

Return on Total Asset measures the earnings with respect to the total assets of the
company. It shows the relationship between Net Profit after Interest and Tax and total
assets.

Net profit after interest and tax

Return on Total Assets = * 100
Total Assets

Return on shareholders fund

Return on shareholders fund signifies the reward for shareholders for taking the risk of
investing in the business. It is calculated by the formula:

Net Profit after Tax

Return on Shareholders Fund = * 100
Shareholders Fund

23
3.3.3 Activity Ratios

Activity ratios measures whether the company efficiently utilises it’s assets. It indicate
the operational efficiency or how well assets are used by the company. Activity ratio
reflects the speed at which assets are utilised in effecting sales. Activity ratios are also
called Turnover ratio or Operating efficiency ratios. The important activity ratios are
working capital turnover ratio, inventory turnover ratio, debtors turnover ratio,
creditors turnover ratio.

Inventory Turnover Ratio

Inventory turnover ratio shows the relationship between cost of goods sold and
average inventory. It shows how frequently the inventory is converted to sales. It
measures the ability of the company to generate revenue from the sale of it’s
inventory.

Cost Of Goods Sold

Inventory Turnover Ratio =
Average Inventory

Cost of goods sold = Opening stock + Purchase + Direct expense + Wages + Carriage
inward – Closing stock

Opening stock+Closing stock

Average Inventory =
2

Working Capital Turnover Ratio

Working capital turnover ratio indicates the number of times working capital is turned
over during the year. It also signifies the efficiency of the management in the use of
current or short term resources of the firm.

Net Sales
Working capital turnover ratio =
Net Working Capital

3.4 Cash flow statement

24
Cash flow statement can be defined as a statement which explains reasons for changes
in a firm’s cash position during an accounting year. It discloses the sources and uses
of cash during that year and the net change in cash position at the end of the
accounting period. The institute of Cost and Works Accountant of India defines cash
flow statement as “a statement setting out the flow of cash under distinct heads of
sources of funds and their utilisation to determine the requirements of cash during the
given period and to prepare for it’s adequate provision”. A cash flow statement is
prepared to analyse the sources of inflows of cash and uses for which cash flows are
applied.

25
 CHAPTER 4

DATA ANALYSIS
Data Analysis

This chapter deals with analysis and interpretations. Gross working capital is used to
analyse the structure of working capital and ratio analysis is used to analyse the
profitability and liquidity of the company and efficiency of working capital
management.

4.1 Components of Current Assets

Gross working capital is the total of current assets. Working capital management
involves deciding upon the amount and composition of current assets and how to
finance these assets. There should be an optimum investment in each component of
current asset. The solvency of the firm is largely depended upon the optimum use of
current asset. Thus the management should be concerned about the investment in each
of the component of current asset.

Table 4.1 (Amount in Crores)

Particulars 2020 2019 2018 2017 2016 Average

Current
0 0 1339.05 394.44 501.77 447.052
Investments
Inventories 1808.25 2051.48 1721.49 1729.4 1019.75 1666.074

Trade Receivables 445.08 779.5 550.15 386.49 292.76 490.796

Cash and Cash
236.58 217.57 260.52 139.38 290.97 229.004
Equivalent
Short Term Loans
0 0 576.16 175.52 1.82 150.7
and Advances
Other Current
427.63 461.9 429.55 363.77 314.26 399.422
Assets
Total 2917.54 3510.45 4876.92 3189 2421.33 3383.048
(Source: Compiled from published annual reports of the company)

26
Interpretation:

From the table 4.1 it is found that major portion of current asset is in the form of
inventory. Current assets in the form of short term loans and advances has the amount
of investment as compared to others.

Diagram 4.1

Components of current assets

Current Investments

Inventories

Trade Receivables

Cash and Cash

Equivalent
Short Term Loans and
Advances
Other Current Assets

27
4.2 Liquidity Ratios

4.2.1 Current Ratio

It measures the firm’s short term solvency or ability of the firm to pay off it’s current
liabilities out of current assets. The ideal current ratio is 2:1.

Table 4.2 (Amount in Crores)

Current
Current Current
Year
Assets Liabilities Ratio
2015-2016 2421.33 2078.82 1.16
2016-2017 3189 2876.2 1.11
2017-2018 4876.92 3071.67 1.59
2018-2019 3510.44 2649.1 1.33
2019-2020 2917.55 4092.48 0.71
Average 3383.048 2953.654 1.18
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.2 shows the current ratio for the last five years. Current ratio for the year
2017-2018 is higher. It is 1.59 for that year. The financial year 2019-2020 has the
lowest current ratio which is 0.71. the average ratio is 1.18.

Diagram 4.2

Current Ratio
2.00
Current Ratio

1.50

1.00

0.50
Current Ratio
0.00

Year

28
4.2.2 Quick Ratio

It establish the relationship between quick assets and current liabilities. It is a measure
of instant debt paying ability of the firm. The ideal quick ratio is 1:1

Table 4.3 (Amount in Crores)

Liquid Current Quick

Year
Assets Liabilities Ratio
2015-2016 613.08 2078.82 0.29
2016-2017 1137.52 2876.2 0.40
2017-2018 3155.43 3071.67 1.03
2018-2019 1781.04 2649.1 0.67
2019-2020 1897.8 4092.48 0.46
Average 1716.974 2953.654 0.57
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.3 shows the quick ratio for last five years. The financial year 2017-2018
has the highest quick ratio which is 1.03. the financial year 2015-2016 has the lower
quick ratio of 0.29. the average quick ratio is 0.57.

Diagram 4.3

Quick Ratio
1.2
1
Quick ratio

0.8
0.6
0.4
0.2 Quick Ratio
0

Year

29
4.2.3 Absolute Liquid Ratio

Absolute Liquid Ratio is the ratio showing the relationship between cash and cash
equivalents and current liabilities. The ideal absolute liquid ratio is 0.5:1.

Table 4.4 (Amount in Crores)

Absolute Current Absolute Liquid

Year
Liquid Assets Liabilities Ratio
2015-2016 236.58 2078.82 0.11
2016-2017 217.57 2876.2 0.08
2017-2018 260.52 3071.67 0.08
2018-2019 139.38 2649.1 0.05
2019-2020 290.97 4092.48 0.07
Average 229.004 2953.654 0.08
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.4 shows the absolute liquid ratio for the last five financial years. The
highest absolute liquid ratio is for the year 2015-2016 which is 0.11 and the lowest is
for the year 2018-2019 which is 0.05. The average absolute liquid ratio is 0.08 which
is far lesser than the ideal ratio which is 0.5.

Diagram 4.4

Absolute Liquid Ratio

0.12
Absolute liquid ratio

0.1
0.08
0.06
0.04
0.02 Absolute Liquid Ratio

Year

30
4.3 Profitability Ratios
4.3.1 Gross Profit Ratio

It is the ratio of gross profit to sales expressed as percentage. It is also known as gross
margin. A gross profit ratio of 65% is considered as healthy.

Table 4.5 (Amount in Crores)

Gross
Year Gross Profit Net Sales Profit
Ratio
2015-2016 3880.76 8648.51 44.87
2016-2017 3821.62 8816.7 43.35
2017-2018 3839.54 10133.24 37.89
2018-2019 4767.21 12089.58 39.43
2019-2020 4646.92 10832.7 42.90
Average 4191.21 10104.146 41.69
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.5 shows the gross profit ratio for the last five financial years. The higher
gross profit ratio is for the year 2015-2016 which is 44.87% and the lowest ratio is for
the year 2017-2018. The average gross profit ratio is 41.69.

Diagram 4.5

Gross Profit Ratio

46
Gross profit ratio

44
42
40
38
36 Gross Profit Ratio

34

Year

31
4.3.2 Operating Profit Ratio

Operating profit ratio shows the relationship between operating profit and net sales. It
measures the operational efficiency of the firm.

Table 4.6 (Amount in Crores)

Operating Operating
Year Net Sales
Profit Profit Ratio
2015-2016 1416.62 8648.51 16.38
2016-2017 1142.96 8816.7 12.96
2017-2018 968.3 10133.24 9.56
2018-2019 1504.13 12089.58 12.44
2019-2020 1194.57 10832.7 11.03
Average 1245.316 10104.146 12.47
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.6 shows the operating profit ratio for the last five financial years. The
highest operating profit ratio is for the year 2015-2016 which is 16.38% and the
lowest ratio is 9.56 for the year 2017-2018. The average operating profit ratio is
12.47%.

Diagram 4.6

Operating Profit Ratio

18
Operating profit ratio

16
14
12
10
8
6 Operating Profit Ratio
4
2
0

Year

32
4.3.3 Operating Ratio

Operating ratio express the relationship between operating cost and sales. It indicates
the overall efficiency in operating the business. The ideal ratio is 65%.

Table 4.7 (Amount in Crores)

Cost of goods Operating

Year Net Sales
sold+Operating expenses Ratio
2015-2016 7231.89 8648.51 83.62
2016-2017 7673.74 8816.7 87.04
2017-2018 9164.94 10133.24 90.44
2018-2019 10585.45 12089.58 87.56
2019-2020 9638.12 10832.7 88.97
Average 8858.828 10104.146 87.53
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.7 shows the operating ratio for the last five financial years. Highest ratio
is for the financial year 2017-2018 which is 90.44%. lowest ratio is 83.62% for the
financial year 2015-2016. The average ratio is 87.53%.

Diagram 4.7

Operating Ratio
92
90
Operating ratio

88
86
84
82 Operating Ratio
80

Year

33
4.3.4 Net Profit Ratio

Net profit Ratio shows the relationship between net profit and net sales. It measures
the overall profitability as well as efficiency of the business. The ideal net profit ratio
is 5%-10%.

Table 4.8 (Amount in Crores)

Net Profit
Year Net Profit Net Sales
Ratio
2015-2016 1002.15 8648.51 11.59
2016-2017 802.76 8816.7 9.10
2017-2018 622.39 10133.24 6.14
2018-2019 592.11 12089.58 4.90
2019-2020 508.62 10832.7 4.70
Average 705.606 10104.146 7.29
(Source:Compiled from published annual reports of the company)

Interpretation:

The table 4.8 shows the net profit ratio for the last five financial years. Highest ratio is
11.59% for the year 2015-2016 and the lowest ratio is 4.70% for the financial year
2019-2020. The average ratio is 7.29%.

Diagram 4.8

Net Profit Ratio

14
12
Net profit ratio

10
8
6
4
2 Net Profit Ratio
0

Year

34
4.3.5 Return on Investment

It is also known as return on capital employed. It shows the relationship between

profit before interest and tax and capital employed. The ideal return on investment is
15%.

Table 4.9 (Amount in Crores)

Capital Return on
Year Operating Profit
employed Investment
2015-2016 1416.62 5440.73 26.04
2016-2017 1142.96 6999.81 16.33
2017-2018 968.3 10070.91 9.61
2018-2019 1504.13 10999.84 13.67
2019-2020 1194.57 12389.51 9.64
Average 1245.316 9180.16 15.06
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.9 shows the return on investment for the last five financial year. The
highest ratio is 26.04% for the financial year 2015-2016 and the lowest ratio is 9.61%
for the year 2017-2018. The average ratio is 15.06%.

Diagram 4.9

Return on Investment
30
Return on investment

25
20
15
10 Return on
5
Investment

Year

35
4.3.6 Return on Total Asset

Return on total assets measures the earning when compared with total assets of the
firm. It shows the relationship between net profit and total assets.

Table 4.10 (Amount in Crores)

Return on
Year Net Profit Total assets
Total Assets
2015-2016 1002.15 7519.55 13.33
2016-2017 802.76 9876.01 8.13
2017-2018 622.39 13142.58 4.74
2018-2019 592.11 13648.94 4.34
2019-2020 508.62 16481.99 3.09
Average 705.606 12133.814 6.72
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.10 shows the Return on Total asset for the last five financial year. The
highest ratio is 13.33% for the year 2015-2016 and the lowest is 3.09% for the year
2019-2020. The average return on total asset is 6.72%.

Diagram 4.10

Return on Total Assets

14
Return on total assets

12
10
8
6
4 Return on Total
2 Assets
0

Year

36
4.3.7 Return on Shareholders Fund

Return on shareholders fund shows the relationship between net profit and
shareholders fund. It measures the profitability from shareholders point of view.

Table 4.11 (Amount in Crores)

Return on
Share
Share
Year Net Profit Holders
Holders
Fund
Fund
2015-2016 1002.15 4657.84 21.52
2016-2017 802.76 5331.19 15.06
2017-2018 622.39 7260.61 8.57
2018-2019 592.11 7641.16 7.75
2019-2020 508.62 7692.15 6.61
Average 705.606 6516.59 11.90
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.11 shows the Return on Shareholders fund for the last five financial years.
The highest ratio is 21.52% for the year 2015-2016 and the lowest ratio is 6.61% for
the year 2019-2020. The average return on shareholders fund is 11.90%.

Diagram 4.11

Return on Shareholders Fund

25
Return on shareholders fund

20

15

10
Return on Share holders
5
Fund
0

Year

37
4.4 Activity Ratios
4.4.1 Inventory Turnover Ratio

Inventory turnover ratio shows the relationship between cost of goods sold and
average inventory. It shows how frequently the inventory is converted to sales.

Table 4.12 (Amount in Crores)

Inventory
Average
Year Cost Of Goods Sold Turnover
Inventory
Ratio
2015-2016 4767.75 1102.47 4.32
2016-2017 4995.08 1374.575 3.63
2017-2018 6293.7 1725.445 3.65
2018-2019 7322.37 1886.485 3.88
2019-2020 6185.78 1929.865 3.21
Average 5912.936 1603.768 3.74
(Source: Compiled from published annual reports of the company)

Interpretation:

The table 4.12 shows the inventory turnover ratio for the last five financial years. The
highest ratio is 4.32 for the year 2015-2016 and the lowest ratio is 3.21 for the year
2019-2020. The average ratio is 3.74.

Diagram 4.12

Inventory Turnover Ratio

5
Inventory Turnover ratio

4.5
4
3.5
3
2.5
2
1.5 Inventory Turnover
1
Ratio
0.5
0

Year

38
4.4.2 Working Capital Turnover Ratio

Working capital turnover ratio shows the relationship between net sales and net
working capital.

Table 4.13 (Amount in Crores)

Working
Net Working Capital
Year Net Sales
Capital Turnover
Ratio
2015-2016 8648.51 342.51 25.25
2016-2017 8816.7 312.8 28.19
2017-2018 10133.24 1805.25 5.61
2018-2019 12089.58 861.34 14.04
2019-2020 10832.7 -1174.93 -9.22
Average 10104.146 429.394 12.77
(Source: Compiled from published annual reports of the company)

Interpretations:

The table 4.13 shows the working capital turnover ratio for the last five financial
years. The highest ratio is 28.19 for the year 2016-2017. The lowest ratio is -9.22 for
the year 2019-2020. The average ratio is 12.77.

Diagram 4.13

Working Capital Turnover Ratio

35
Working capital turnover ratio

30
25
20
15
10 Working Capital Turnover
5 Ratio
0
-5
-10
-15
Year

39
4.5 Cash Flow Statement

Table 4.14 (Amount in Crores)

2015-
Cash flow 2016-2017 2017-2018 2018-2019 2019-2020
2016
Net profit
1414.53 1085.63 867.31 806.39 581.39
before tax
Net cash flow
from operating 1784.90 329.85 933.34 592.67 1895.37
activities
Net cash used in
-
investing -1395.38 -2754.05 -456.71 -2675.14
1077.60
activities
Net cash used in
financing -640.98 906.05 1933.83 -178.01 807.26
activities
Net increase or
decrease in cash
66.32 -159.48 113.12 -42.05 27.49
and cash
equivalents
Cash and cash
equivalents at 220.16 286.48 127.00 240.11 198.06
beginning
Cash and cash
equivalents at 286.48 127.00 240.11 198.06 225.56
the end
(Source: Compiled from published annual reports of the company)

Interpretations:

The above table shows the cash flow position of the company for the last five years.
Cash and cash equivalents for the year 2015-2016 is the higher amount which is
286.48. cash and cash equivalents for the year 2016-2017 is the lowest which is
127.00. But in the year 2017-2018 it has increased to 240.11 and in the year 2018-
2019 it has decreased to 198.06. for the financial year 2019-2020 cash and cash
equivalents increased to 225.56.

40
 CHAPTER 5

FINDINGS, SUGGESTIONS AND

CONCLUSION
FINDINGS, SUGGESTIONS AND CONCLUSION

This chapter deals with findings , suggestions and conclusion of the study.

5.1 FINDINGS

1. The working capital position of the company is not satisfactory. The company
is showing a downward trend. Most of the current assets are held in the form of
inventory, so the company should maintain a good cash balance.
2. The standard Current Ratio is 2:1. For all the five years current ratio of the
company is below this standard.
3. The standard Quick Ratio is 1:1. It was below this standard for all the five
years except for one year.
4. Absolute liquid ratio is below the standard 0.5:1 for all the years. It is showing
a downward trend for last two years.
5. Gross profit ratio is showing a increasing trend for the last two years.
6. There is an instability in operating profit of the company.
7. Operating Ratio is showing a upward trend.
8. Every year Net Profit ratio is between 80%-90%.Net profit ratio is showing a
downward trend for the last four years.
9. Return on Investment is instable for the last five years. It is showing a
decreasing ternd except for the year 2018-2019.
10. Return on total assets is showing a decreasing trend for the last five years. The
least value is for the year 2019-2020 which is 3.09.
11. Return on Shareholders Fund is showing a decreasing trend for the last five
years.
12. Inventory Turnover Ratio is instable for the last five years. It shows decreasing
trend for the first one year and then it started increasing for the next two years,
after that it started showing an decreasing trend for the last one year.
13. Working Capital Turnover ratio. It is instable for the last five years. It has
become -9.22 for the year 2019-2020.

41
 14. Cash flow position of the company is fluctuating. The company has
satisfactory working capital held in the form of cash and cash equivalents.

5.2 SUGGESTIONS

a) Cash position of the company is satisfactory. The investment in the form of

inventory and should be reduced and appropriate method should be adopted to
make it better.
b) In order to increase the net profit the company should reduce the cost to the
maximum.
c) Better consistency should be maintained by the company in relation with
working capital of the company.
d) The overall performance of the company is not satisfactory. The company
need to adopt good working capital management policy to improve the
performance and to avoid fluctuating trends.

5.3 CONCLUSION

The study was conducted to evaluate the working capital management of Apollo Tyres
Ltd. On the basis of secondary data collected from the annual reports of the company
for five years starting from 2015-2016 to 2019-2020 data was analysed using ratio
analysis and cash flow statement. Through analysing this data it is found out that the
company has enough cash and cash equivalents to meet it’s current obligations. Here
all the ratios are not up to the ideal ratio , and also most of the ratios are showing a
downward trend. Hence the company needs to improve it’s working capital position.

To conclude optimum capital is necessary for the smooth running of the

business. The working capital management is a very important aspect. The
management need to adopt efficient working capital policies to overcome this
position.

42
BIBLIOGRAPHY
BOOKS

➢ Dr S N Maheswari, Cost and Management Accounting, New Delhi: Sulthan

Chandand Sons Publishers, fourth revised edition 1997.
➢ A Vinod, Accounting for Management, Calicut University.
➢ Annual Reports of Apollo Tyres Ltd.
➢ D K Sharma and A K Gupta, Business Reasearch Method, New Delh: Vayu
Education of India.
➢ Bhatt V V,(1972), Working Capital Finance: Criteria of Appraisal, Economic
and Political weekly.

WEBSITES

➢ www.apollotyres.com
➢ www.moneycontrol.com
➢ www.wikipedia.org
➢ www.bseindia.co

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APPENDIX
 Statement of Profit and Loss of Apollo Tyres Ltd

Particulars Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Revenue from operations

Sales 10,832.70 12,089.58 10,388.13 9,806.62 9,651.48

Less excise duty Nil Nil 254.89 989.92 1,002.97

Other operating income 229.33 264.18 166.46 117.07 108.67

Other income 34.9 111.47 121.85 135.33 203.79

Total Income 11,096.93 12,465.24 10,421.55 9,069.10 8,960.97

Expenses
(a) Cost of material
6,072.95 7,583.84 6,281.15 5,313.23 4,641.13
consumed
(b) Purchase of stock in
651.73 735.53 251.76 220.96 224.4
trade
c)Change in inventory of
finished goods , stock in
112.83 -261.47 12.55 -318.15 126.62
trade and work in
progress
(d)Employee benefit
826.12 737.24 709.68 620.78 565.94
expenses
(e) Finance costs 225.7 137.86 137.54 88.78 90.14
(f) Depreciation and
620.71 446.33 364.38 288.2 265.14
amortisation expenses
(g) Other expenses 2,005.52 2,079.51 1,797.18 1,769.68 1,633.06

Total expenses 10,515.54 11,458.84 9,554.23 7,983.47 7,546.44

Profit and loss before tax 581.39 806.39 867.31 1,085.63 1,414.53

Tax expenses 72.76 214.28 244.92 282.88 412.38

profit and loss for the
508.62 592.11 622.39 802.76 1,002.15
period

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 Balance Sheet of Apollo Tyres Ltd

Particulars Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

A. Equity and liabilities
1. Shareholders Fund
Equity share capital 57.21 57.21 57.21 50.9 50.9
Reserves and Surplus 7,634.94 7,583.96 7,203.41 5,280.29 4,606.93
Total shareholders fund 7,692.15 7,641.16 7,260.61 5,331.19 4,657.84
2.Non Current Liabilities
Long term borrowings 3,208.32 2,443.86 1,864.39 834.03 257.29
Deferred tax liabilities 531.27 575.46 544.34 492.73 444.53
Other Long term liabilities 907.44 289.48 356.5 302.7 74.13
Long term provisions 50.33 49.88 45.07 39.17 6.96
3.Current Liabilities
Short term borrowings 1,118.07 292.51 647.42 784 373.72
Trade payables 1,610.72 1,368.66 1,512.57 1,040.75 856.57
Other Current Liabilities 1,183.50 821.95 646.56 728.44 572.67
Short term provisions 180.19 165.98 265.12 322.99 275.87
Total Current liabilities 4,092.48 2,649.10 3,071.67 2,876.20 2,078.82
Total capital and
16,481.99 13,648.94 13,142.58 9,876.01 7,519.55
liabilities
B. Assets
4. Non current assets
Tangible assets 9,253.16 6,368.08 5,679.32 4,770.95 3,286.90
Intangible assets 32.04 31.44 34.55 24.22 12.93.
Capital work in progress 1,272.07 654.9 671.79 621.48 416.37
Fixed assets 10,557.26 7,054.42 6,385.65 5,416.64 3,716.20
Non current investments 2,409.52 2,232.57 1,639.38 1,004.86 1,004.32
Long term loans and
0 0 1.99 1.71 1.28
advances
Other Non current assets 597.66 851.51 238.64 263.8 376.43
Total Non current assets 13,564.44 10,138.50 8,265.66 6,687.02 5,098.23
5. Current assets
Current investments 0 0 1,339.05 394.44 501.77
Inventories 1,808.25 2,051.48 1,721.49 1,729.40 1,019.75
Trade receivables 445.08 779.5 550.15 386.49 292.76
Cash and Cash equivalents 236.58 217.57 260.52 139.38 290.97
Short term loans and
0 0 576.16 175.52 1.82
advances
Other Current Assets 427.63 461.9 429.55 363.77 314.26
Total Current assets 2,917.55 3,510.44 4,876.92 3,189.00 2,421.33
Total Assets 16,481.99 13,648.94 13,142.58 9,876.01 7,519.55

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