report on working capital management

8/11/2019 report on working capital management

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CHAPTER 1

INTRODUCTION


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1.1 Introduction

In business point of view working capital is money or money value is used in business

regardless of the source of obtaining it. The term working means the circulation of capital

in one from or another during the day-to-day operations of business. Working capital is

defined in the annual survey of the industries to include stock of material, stores, fuel,

semi-finished goods including working progress and finished by products, cash in hand

and algebraic sum of sundry creditors.

Capital invested in the Working or current asset with in the business. It is called

circulating capital or revolving capital. Working capital stands for the part of the capital,

which is required for the financial or Working or current need of the company.

Working capital is regarded as the success of a business while its in efficient

management cannot only loss or profit but also to the ultimate down full of the business.

A study of working capital is important its close relationship with day to day business

operations. Working capital management 1.5% considered with the problem that arises in

attempting to manage the current asset and current liabilities and their inter relation ship

that exist between them. The goal of working capital management is to manage the firmscurrent liabilities in such a way that satisfactory level of working capital management is

maintained. Working capital management policies of a firm has a great effect on its

profitability, liquidity and structural health.


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Importance of working capital management

It is necessary for any organization to provide adequate working capital in

order to run successfully the major thrust of working capital management of current

assets, as it is understandable, that current liabilities arise the context of current asset. If

the size of such asset is relatively large, the liquidity position will improve and

profitability will be adversely affected, as funds will remain idle.

Conversely if holding of such asset are small the overall profitability will no doubt

increase. But it will have an adverse effect on the liquidity position and make the firm

more risky. If the firm cannot maintain a satisfactory level of working capital it is likely

to become insolvent.

The area of working capital management intimately links the functioning of every

department in a business concern. The policy governing the working capital has got a

snow-ball effect on other department like personnel, production, marketing and so on.

That it can be deducted that working capital management has a crucial role to play in the

survival of any business unit and working capital management is an integral part of the

overall corporate management.

The importance of maintaining adequate amount of working capital is as follows:

1. Solvency of the business

2. Goodwill

3. Easy loans

4. Cash discounts

5.

Regular supply of Raw-materials

6. Regular payment of salaries, wages and other day-to-day commitments

7. Exploitation of favorable market conditions

8. Ability to face crisis


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9. Quick and regular return on investments

10.High morale

From the discussions with the company executives, it was identified that

the company has got opportunity to improve the above said essentials.

1.2 Statement of the problem

The problem of working capital management involves the problem of decision making

regarding investment in various current assets with an objective of maintaining the

liquidity of funds of the firm to meet its obligations promptly and efficiently. The

problem for which the study has been undertaken to analyze the working capital

management

1.3 Objectives of study

The need for working capital cannot be over emphasized. Every business need

some amount of working capital. working capital arises due to the time gap

between production and realization of cash from sales.

To study the current assetsand current liability position of the company

To analyze impact of profitability on working capital

To analyze financial position of the company

To analyze the determination of working capital


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1.4 Scope of the study

The scope of the study is evaluating the working capital position of the NACL

Ltd. The study provides conceptual understanding of working capital. It also provides

deep insights into fundamentals of working capital and various forces influencing the

level of working capital Requirement.

The working capital management study has been carried out to determine whether the

company is in a position to raise the cash needed to meet the daily activities. The study

reviews the performance of the company for the period of 5 years from 2006 to 2011, as

revealed by the annual reports and other accounting records of NACL. The study also

provides suggestions based upon findings. They may serve as for drawing cut the future

plans for future.

1.6 Research methodology

Research Methodology is a way to systematically solve the research problem. It is the

science of studying how the research is done scientifically for getting needful information

on a specific topic.Research methodology is required while conducting research,

irrespective of the field in which the research is being conducted. However in the context

of research mehodology in social sciences there are two important things that need to bementioned.

The methodology need not restrict itself to the questions only but should concentrate on

three aspects:

Method of questioning

Method of observation

Method of interpretation

1.7 Research design


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A research design is an arrangement of condition for collection and analysis of

data in manner that aims to combine relevance to the research propose with economy in

procedure. It describes what must be done,what data will be needed , what data gathering

device will be employed how the data will be analysed and conclusions will be drawn.

The nature of research design adopted for the study is analytical .

In analytical research the research has to use the facts and

information already available and analysis of these to make the critical evaluation of the

material.

1.8 TYPES OF RESEARCH

The following combination of research types are used in this study.

Analytical Research

Historical Research

Analytical Research:-

In analytical research one has to use facts or information already available and analyze

these to make a critical evaluation of the material. For this study the data were collected

already available in the organization and use to make an evaluation.

Historical Research:-

A study of past record and other information sources with a view to reconstructing the

origin and development of an organization. In this project study, this type of research was

applied in collecting the details regarding history of Ayurvedic Industry and

organizational profile.


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1.9 Sources of data

The analysis of financial condition and performance of the enterprise necessitates

accurate and reliable data. Therefore the data for the present day is collected with the help

of secondary data.

Secondary data

Secondary data is mainly used for the study. The secondary data are collected

from published annual report of the company journals, periodicals and other literatures

relevant for the study.

1.10 Tools for data analysis

Ratios

Trend analysis

1.11 Study period

Working capital management in NACL for a period of 2 months.

1.12 Limitations of the study

1. Historical data may not represent the true picture of the future.

2. The limitations of the secondary sources hold for this project also.

3. The study was conducted in a short period which was not sufficient to

analyze the entire aspect of the company.

4. The study has been taken only from the published information and hence

analysis can be only macro basis.

5. The limitations of the tools used for the analysis also applies.


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1.13 Chapterisation

CHAPTER ONE:This chapter is dealing with introduction.It consists of

statement of problem,objectives and scope of the study and limitations of the

study.

CHAPTER TWO: This chapter contains the overview of the industry and the

company.

CHAPTER THREE: This chapter describes the relevant theory related to the

problem under study.

CHAPTER FOUR:.This chapter exhibits the analysis and interpretation done.

CHAPTER FIVE: : This chapter shows the findings,suggestions and conclusions

of the study


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CHAPTER 2

Overview Of The Industry And

Company


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INDUSTRY PROFILE

Ayurveda is the knowledge or science of life and longevity has a history as human

civilization. Also know as the Indian system of medicines, Ayurveda is Indians timeless gift to

mankind. The word comes from two words Ayur which means life and Veda which means

knowledge. So Ayurveda means a knowledge of life. It deals with how health of mind and body

can be maintained throughout the life. Ayurveda is defined as a medical science which helps the

human body to keep fit while providing cures from the indigeneous plants, animal products and

minerals for aliments.

Ayurveda is considered as a part of Vedas. The main body of Ayurveda is found in the

fourth veda the Adharva veda, Ayurveda is recognized as an up or supplementary veda ofAdharva veda, Ayurveda has been developed through continuous observations and experiments

of Rishis. Rishis of India had rendered a series of great contribution to the Ayurveda and

thereby to the mankind. Most of the Ayurvedic texts are written by the ancient Rishis.

Ayurveda was really developed by the great Rishis namely charaka, susnitha and

kanada. Charaka was a physician, susrutha was a sovereign, kanada was a scientist who identified

the matter is made up of atoms. Nagarjuna Maharshi were followers of them; they also rendered

their contribution for the development ayurveda.

The most important features of ayurveda is comparison with the other medical

science, such as Allopathy and Homeopathy is that it has no side effect. The ayurvedic

medicines are extracted from plants, animals and minerals. So these would not cause any harm to

body or mind. Another feature of ayurveda is that it starts the treatment from the Root cause and

not from the bud. In ayurvedic medicine the treatment is given on the basis of cause and effect

relationship. Without cause nothing will happen. Over the centuries, ayurveda attained perfection

through a state of mind and a depth hands rendering definite solution to even seemingly incurable

illness. That is too without the harmful side effect invariably associated with the allopathicsystem.

To be the fittest in the market being the aim of each and every company and

competition becomes inevitable and unavoidable part of every business and the privatization and

globalization being the slogan of the day, companies cannot survive by simply doing a job. They

must do an excellent job. They are to succeed in the increasingly global market place.


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the ayurvedic system. Hepioneered the production of ayurvedic medicines on modern times and

ensured that ayurveda occupied the right place among the countrys major medical system.

Ayurveda can be promoted as a complete alternative system of medicine in the world as it is only

one, which is well documented and has the potential for further development.

In order to promote Ayurveda as a system, there should be adequate infrastructure, for

R&D aimed at ensuring quality control, new product development, basic research and product

standardization.

India had a substantial share of the market by promoting ayurveda as a system of

medicine rather than a food supplement alone. The center has already introduced good

manufacturing practices (GMP) for drugs, especially over the counter products has compelled the

centers to keep a vigil on the quality of these drugs and observes good laboratory practice.

Ayurvedic medicines are produced by several thousand of companies. In India though most of

them are quite small, numerous neighborhood pharmacies make their own remedies.

The key suppliers of Ayurveda are Dabur India Ltd, Sri. Baidyanath Ayurvedic Bhawan

Ltd. And Zandu Pharmaceuticals and all put together constitute about 85% of Indias domestic

market. The others are Himalaya Drug Company, charak pharmaceuticals, Vicco Laboratories,

Emami group, Aiirtil Pharmaceuticals Ltd. Viswakeerthi Ayurvedic Pharmacy and soon.

Exports of ayurvedic medicines have reached a value of 100 dollars a year (About 10%

the value of the entire ayurvedic industry in India). About 60% of this crude herbs (to be

manufactured into products outside in india) and about 30% is finished product shipped abroad

for direct sales to consumers and the remaining 10% is partially prepared products to be finished

in the foriegn countries.

In the last few years, Ayurveda the ancient wisdom of heating from the Indian

subcontinent has been on the path of dynamic resurgence as a holistic health care system

attaching world wide attention.The industry is a stream of medical science serves the people

through several activities. Ayurveda medicines are using for care deceases. Various panchakarma

body massages are famous for physical health without any side effects. Ayurveda reviewnating

mind and body in harmony with nature.

In the present world & lot of people are fond of Ayurveda to achieve physical health.

This industry is now up coming along equal importance with homeopathic and allopathy. Other

than allopathy Ayurveda gives permanent cure of deceases but within a time period.


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The ayurvedic products industry involving total turn over of Rs.300 crore. In this

300crores 200 crores for organized sectors and rs.100 crores for c/m organized sector compared

to allopathy products industry has a wide scope.

COMPANY PROFILE

NAGARJUNA AYURVEDIC GROUP

Nagarjuna is a paradigm shift among Ayurvedic companies in that Nagarjuna

was the first corporate House in the Ayurvedic sector in kerala as against the family owned

Ayurvedic organizations. Beginning commercial production in 1986, Nagarjuna has today

notched up a pre-eminent position among frontline Ayurvedic companies, marketing a broad

spectrum of Ayurvedic medicines and has achieved commendable sales with national &

international presence.

Nagarjuna Ayurvedic Group was established with the mission of restoring

Ayurveda as a mainstream health management system. In fulfilling this mission, nagarjuna is at

the forefront of Ayurvedic resurgence by providing pioneering leadership in the manufacture of

quality ayurvedic medicines, establishing health care centres and speciality clinics and

formulating meaningful directions in research in ayurveda. In pursuing this path, nagarjuna has

carved a niche for itself in the real of Ayurvedic healthcare by providing 500 and odd

formulations, which were developed and drawn from the scriptures of ayurvedic exponents.

COMPANY VISION

To be the best solutionsprovide in health care through ayurveda

The Nagarjuna Ayurvedic group a leading name in Ayurveda is limited by the vision to provide a

new lease office through quality medicines which include a range of proprietary products to a

state of the art facility that follows traditions of the ancient Ayurvedic test while meeting modern

standards of hygiene and purity.

Nagarjuna through its quarterly magazine NAGARATNA said that medicine is neither your

friend nor your enemy you can make its neither.


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COMPANY MISSION

Rejuvenating mind and body in harmony with nature is the mission in health care

management system. Train to improve traditional values and strictly adhering to time tested texts.

Nagarjuna herbal concentrates also tries to creating public awareness about the Ayurveda andpromoting herbal cultivation

NAGARJUNA AYURVEDIC CENTRE LTD ( NACL )

NACL is a subsidiary company of NHCL. The center, founded in the year

1996, has an expert panel of Ayurvedic doctors headed by Dr. Krishnan Namboodhiri,

the chief physician, who is the undisputed guru in ayurvedic treatments in Kerala and

who has been regularly visiting countries like Germany, Switzerland, Sweden and

Finland to offer consultations and attend International seminars. This renowned center

boasts of having successfully treated hundreds of people from both India and abroad

including those from Europe, U.S.A and East Asian countries.

NAGARJUNA's full-fledged Ayurvedic Centre located on the banks of the river

Periyar at Kalady in Kerala, provides a complete range of Ayurvedic Treatments strictly

conforming to the traditional practices. Kalady is world renowned as the birthplace of the

great Indian Philosopher Sankaracharya and where the vibrations of the past are still felt.

The place provides the right ambiance for a suitable sojourn in harmony with nature and

is a civilization apart from Modern Life. Set in the lap of scenic nature, the sacred place

exudes serenity and sanctity, instilling divine and spiritual thoughts into one's mind.

The surrounding landscape and the aesthetically designed rooms with all amenities

stimulate the inmates to rediscover life in its entirety. Realizing the mystical curative

powers of Ayurveda, the centre is today a much sought-after destination for people from

world over who seek a better way of life. Nagarjuna Ayurvedic Centre blends deep

ayurvedic insights with traditional skills to provide a range of remedies based on

preventive, curative, rejuvanative and immunization therapies.

Nagarjunas focus on treatment is best reflected in the Treatment centres run by

Nagarjuna in Kerala as well as outside the state. The demonstrative example of this is the

Ayurvedic Treatment Centre at Kalady, near Cochin city, where the entire range of


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Ayurvedic treatments are available strictly according classic texts. This centre specialises

in panchakarma therapy and unique Kerala treatments such as Pizhichil, Kizhi, Dhara,

Sirovasthi and so on.

ADDITIONAL FACILITIES

All forms of Ayurvedic treatments and panchakarma therapies.

Yoga and meditation under expert guidance.

Lectures on Ayurveda, Indian culture, Philosophy, Spirituality etc.

Tasty and nutritious Kerala style Vegetarian food provided in the canteen.

Communication facilities including E-mail, Internet, telephone with ISD.

Services of resident doctor and Lady Doctor.

A well stocked library.

. This Centre Situated on the banks of Keralas longest river Periyar, the centre

has a trees plenty environment that exudes charm and serenity. It has well appointed

rooms with modern amenities for stay and a kitchen serving Kerala style vegetarian

cuisine.

Nagarjuna Ayurvedic Centre Ltd is also the first corporate house in the

ayurvedic sector in kerala. It is also having the certification of ISO 9001-2000.thecompany provides employment to over 1200 persons directly and indirectly.

Nagarjuna state-of-the-art of manufacturing facilities are located at Alakode,

6km from thodupuzha in the idukki district of kerela where traditional values and strict

adhrerence to ancient Ayurveda texts as the law. This place has proximity to the western

ghats, which has abandon resources of herbal plants.

The production facilities are streamlined to incorporate the modern

technology to have the benefits of accuracy, hygiene and speed in mass production

supervised by experts to ayurvedic wisdom as well as by knowledgeable engineers.

The venture has active participation from the kerela state industrial

development corporation, kerala financial corporation and the industrial development

bank of India. The company is promoted by Sri.V.G.Devadas namboothirippadu, first


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time entrepreneur with financial support from the above said financial institutions KSIDC

and IDBI.

An innovative Research and Development division with a 70 lakh research

laboratory and an ever vigilant quality control section ensures that the Nagarjuna

products are of the best quality and true to the Ayurvedic stipulations. These products

numbering over 500 are distributed all over kerala through a network of 800 franchisees

which have the unique features of having the service of ayurvedic doctors to attend to the

needs of the patient consumers in the outlets.

A sister concern of Nagarjuna Research is a charitable institution which is

currently implementing an ambitious programme for promoting the cultivation of

Ayurvedic medical plants and trees, as there cannot be ayurveda without them. In the

few years, lakhs of medicinal plants have been planted under ages of the foundation.

OBJECTIVES OF NAGARJUNA AYURVEDIC CENTRE

Nagarjuns commitment to advance the cause of Ayurvedadoesnt stop at manufacturing

and marketing drugs but, covers a brand operation of activities in the true spirit of

Ayurveda, main among them:

Development of new medications to prevent and cure diseases inherent in the changing

life styles and so combat the omit effects of modern civilization

Cross pollination of the different branches of Ayurveda and moderation of this versatile

science.

Establishment and maintenance of botanical gardens of medical plants and herbs to

eliminate the dearth of drugs.

Identification, production and marketing of disease-related specific drugs through

modern technology and methods and to make these essential drugs available freely for

the alleviation of human suffering.

Comprehensive multi-faceted development of Ayurveda in all its varied aspects and

extensive propagation of its message.


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NAGARJUNA HERBAL CONCENTRATES LTD (NHCL)

Within 16 years commercial production commenced in 1986 Nagarjuna Herbal

concentrates Ltd was become the second largest ayurvedic house in kerala, with a turn over of 20-

25 crores continuously making profit since 1991 and declaring dividends regularly for the last 15

years. The companys loan and interest payment so prompt that is has won the admiration of

financial institutions that support it.

A sister concern of Nagarjuna Research is a charitable institution which is currently

implementing an ambitious programme for promoting the cultivation of Ayurvedic medical plants

and trees, as there cannot be ayurveda without them. In the few years, lakhs of medicinal plants

have been planted under ages of the foundation.

NAGARJUNA AYURVEDIC CENTRE LTD (NACL), they have various other businesses.

They are following ;

1. NAGARJUNA AYURVEDIC RETREAT LTD (NARL)

A holistic healthcare centre which provides alternative therapies besides Ayurveda, including

classes in Indian philosophy and culture, well supported by a well stocked reference library. It

began at its operations in 2006 Moolamkuzhi, east of Malayatoor in Kerala.

2. NAGARJUNA RESEARCH FOUNDATION (NRF)

It is a charitable trust, whose trustees are eminent personalities in society. Besides research

activities , NRF has done yeoman service in popularizing the cultivation of MEDICINAL

PLANTS, through various activities such as planting and distribution of saplings, imparting

technical advice, conducting classes and giving awards yearly (oushadhamithram award). so far

it has distributed over 25 lakhs sapling across kerala.

3. NAGARJUNA SOCIAL SERVICE SOCIETY (NSSS)

It is an NGO established specially to carry out the promotional activities related Medicinal plants

begun by NRF.

4. NAGARJUNA AYURVEDIC INSTITUTE (NAI)

It is a charitable trust, established to conduct educational programme to a variety of target groups,

including international students.


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Nagarjuna has several firsts to its credit. Some of these are ;

The first to create synergy between ayurveda & ashtavaidya schools of thought in

ayurveda.

The first to take the franchise model of business to service health needs, on a wide scale,

across the state of kerala, particularly to the rural areas.

The first to provide consistent focus on R & D activities in Ayurveda sector in kerala and

to establish a full- fledged facility for the same.

The first to create widespred awareness of medicinal plants among people and to make its

cultivation a popular as well as income generating programme.

The first to use modern promotional methods such as TV advertising on a large scale to

propagate Ayurveda.

PROMOTER OF THE COMPANY

PROMOTER Sri.V.G. Devdas Namboodiripad

OWNERSHIP PATTERN

Nominal capital -Rs. 42500000

Authorised : share capital - Rs. 12500000


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COMPETITORS INFORMATION

The main competitors against Nagarjuna Herbal concentrates are the following;

Kottackal Arya Vaidhya sala.

Vydyaratnam Ayurveda pharmacy

Kerala Ayurveda pharmacy

Sitaram ayurveda pharmacy

There is a severe competition between the above all firms with Nagarjuna Ayurvedic Centre Ltd

to overcome and for the existence the NACL has various strategies and policies. It includes many

production strategies, sales or marketing strategies, sales promotion strategies etc.

AWARDS & RECOGNITIONS

GREEN LEAF Accreditation, the highest recognition from Kerala Government for

centers providing traditional treatments with modern facilities and ambience.

BEST TREATMENT CENTRE AWARD for 2003-2004 declared by Government in the

form of an award.

State award for the Best Approved and Classified Ayurvedic Centre from

Government of Kerala

THE HIGHEST TESTIMONIAL, however, is from the visitors to the centre, particularly

from the west. Scores of them visit every year, some of them who have visited 4 years in

succession.

It had received the GMP certification earlier

And also got various other awards are the following:

1. Good manufacturing practices certificate.

2. Recognition of I house Research and Development Unit.

3. Approval for conducting test on Animals.

4. Approval for certifying the Quality and purity of Raw materials and finished

goods.


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ORGANIZATION STRUCTURE OF NAGARJUNA HERBAL CONCENTRATES

Manager

(QC)

Manager

(R&D)

Chemist

Production

Manager

Production

Officer

Productio

n

Supervisor

Marketing

Manager

Kerala

Regional

Manager

Executive

GM

Marketing

Manager

Marketing

(outside)

Executive

C.E.O

Managing Director

Executive Officer

Asst.

MGR

Personnel

Officer

HRExecutive

Manager HR

AGM

HR

Legal

Advisor

Manager

(QC)

Manager

Finance

AGM

Finance

Asst.

Manager

Senior

Commercial

Officer

Commercial

Officer


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PRODUCT PROFILE

Nagarjuna is an oldest follower of the Ayurvedic tradition. But modern technology

has its own contributions to be made by way of hygiene, accuracy and speed. So the companys

manufacturing operation has been mechanized to a large extent. These operators are organized

under the supervision of doctors and health scientists and also Nagarjuna made a determined

entry into the area of patent formulations.

The R & D division of Nagarjuna has evolved strength testing procedure for its

drugs. A significant development recently is the establishment of a modern laboratory set up of a

cost of Rs.70 lakhs. The laboratory has an on-going program of basic research in Ayurveda ,

besides development of new formulation and standardization of drugs.

Nagarjuna has more that 500 products, which can be classified as follows:

A. TRADITIONAL MEDICINES

The important traditional medicines of Nagarjuna are:

o Arishtams

o

Asavams

o Oils

o

Kuzhambus

o Ghruthams

o Lehyams

o Tablets

o Avathis

o

Choornams

o Kashayams

o Kashaya choornams

1. ARISHTAMS

These are fermented decoctions of medicines prepared adding honey, jiggery, sugar and the

powder of some medicines including spices. These preparations have alcohol content within a

range of 6-10% which is generated because of fermentation itself. Self-fermented preparations

using Kashayams are called Arishtams and using boiled and cooled water or juice of herbs called

Asavams.


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1. Abayarishtam

2. Amrutharishtam

3. Asokarishtam

4. Balakarishtam

5. Dasamoolarishtam

6. Dasamoolajeerakam etc

2. AASAVAMS

1) Aravindasavam

2) Bhringarajasam

3) Chandanasavam

4) Kanakasavam

5) Kumarysavam

6) Lohasavam etc

3. OILS

1) Amrutbaadithailam

2) Arimedhasthailam

3) Brahmeethailam

4) Baiaadhaathryadithailam

5) Balaaguloochuaadithailam

These are medicated oils. Decoction juice; milk etc. is added to oils like sesame oil, coconut oil

or caster oil and is heated with powrered raw drug, until the water content evaporates completely.

In this process, the medical extracts of the raw drugs make the oil medicated.

1. KUZHAMBU


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These are only for external application, unique to Kerala, A mixture of sesame oil, ghee

and castor oil substitutes oils base of medicines for external application.

1) Balaaswagandhaadi kuzhambu

2) Dhanwantharam kuzhambu

3) Eladadi kuzhambu

4) Kaarpasaathyaadi kuzhambu etc.

5. GHRUTHAM

Ghrutham are medicated preparations of ghee. Ghee is medicated by adding

decoction, powder,juice etc. and is processed until the becomes medicated add water free.

1) Rhrni ghrutham

2) Gulgulthiklhakam

3) Jaathyadighrutham

4) Phalasarpis etc.

6. LEHYAMS

Lehyams are semi solid preparation of drug, prepared with the addition of jiggeryor sugar candy and boiled with the prescribed liquid and fine powder of drugs, until the correct

constitutency is obtained.

1) Agasthya rasayanam

2) Amruthaprasa rasayanam

3) Dasamoola rasayanam etc.

7. TABLETS

1) Dasaangam gulika

2) Dhanwantharam gulika

3) Shaddharanam gulika


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4) Siva gulikat etc.

8. AAVARTHIES

Aavarthies come under the category of medicated oil. Here the selected quantity of oil is

being medicated by adding medicines repeatedly.

The process of medication is repeated to 7,14,41, or 101 times. This enhances the potency of oil.

1) sahacharaadi

2) Kaarpasthadi

3) Ksheerabala

4) dhanwantharam

9. CHOORNAMS

1) Ashta choornams

2) Elaadigana choornams

3) Hinguvanchadi choornams

4) Raasnadi choornams

5) Taaleespatradi choornams

10. KASHAYAMS

Disintegrated drugs are concentrated and extracted into water. The drugs are

boiled in water and are concentrated.

1) Amruthotharam kashayam

2) Aaragwadham kashayam

3) Balaguloochyaadi kashayam

4) dasamoolam kashayam

11. AHAYA CHOORNAMS

1) Amruthotharam kashaya choornam


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2) Aaragwadham kashaya choornam

3) balaguloochyaadi kashaya choornam

4) Dasamoola kashaya choornam etc.

B. PATENTS PROPRIETARY MEDICINES

The important patents proprietary medicines of Nagarjuna are:

1. Cardostab Tablet

Effective in hypertension due to any cause.

2. Gason

It is a strong anti flatulent drug.

3. Haematone

Ideal medicine for splenetic and hepatic disorder.

4. Halin

Effective in common cold, nasal congestion and sinusitis

5. Nagarjuna Eladasamoola Lehyam

For all kind of cough, sore throat and dysponoea.

6. Nutral tablets

For gas trouble, indigestion etc.

7.Rheumat Balm

External application in rheumatic pains.

8. Smrithi Granules

It improves the normal brain functions, excellent in improving memory, grasping power,

intelligence thinking power especially in children.

9. Thaleespathraadi tablets

Effective for cough, distaste, spruce and sore throat.


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CHAPTER 3

Relevant Theory Related To The

Problem Under Study


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Working capital management

Working capital is the life blood and nerve centre of a business. Just as circulation of

blood is essential in the human body for maintaining life, working capital is very

essential to maintain the smooth running of the business. No business can run

successfully, without an adequate amount of working capital. Working capital refers t

that part of firms capital which is required for financing short term or current assets

such as cash, marketable securities, debtors, and inventories. In other words, working

capital is the amount of funds necessary to cover the cost of operating the enterprise.

3.1 Meaning of working capital

Working capital means the funds [i.e.; capital] available and used for day to dayoperations [i.e.; working] of an enterprise. It consists broadly of assets of a business

which are used in or related to its current operations. It refers to funds, which are using

during an accounting period to generate a current income of a type, which is consistent

with major purpose of a firm existence.

Working capital is a financial metric which represents operating liquidity available to a

business, organization, or other entity, including governmental entity. Along with fixed

assets, working capital is considered a part of operating capital. Net working capital is

calculated as current assets minus current liabilities. It is a derivation of working capital

that is commonly used in valuation techniques such as discounted cash flows. If current

assets are less than current liabilities, an entity has a working capital deficiency, also

called a working capital deficit.

3.2 Objectives of working capital

The basic objectives of working capital management are as follows:-

By optimizing the investment in current asset by reducing the level of current

liabilities, the company can reduce the locking up of fund in working capital thereby;

it can improve the return on capital employed in the business.


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The company should always be in position to meet its current obligations, which

should properly be supported by the current assets available with the company. But

maintaining excess fund in working capital means locking of funds without return.

The company should manage its current assets in such a way that the marginal return

on investment in these assets is not less than the cost of capital employed to finance

the current assets.

For the purchase of raw materials, components and spears.

To pay wages and salaries

To incur day-to-day expenses and overhead costs such as fuel, power, and office

expenses etc.

To provide credit facilities to customers

3.3 Need and importance of working capital

The basic objective of financial management is to maximize the shareholders wealth.

This is possible only when the company earns sufficient profit. The amount of profit

largely depends upon the magnitude of sales. However, sales do not convert into cash

immediately. There is always a time gap between sale of goods and the receipt of cash.

Working capital is not available for this period in order to sustain the sales activity. In

case of adequate working capital is not available for this period; the company will not be

in a position to purchase raw material, pay wages and other expenses required for

manufacturing the goods to be sold. The following discussions highlight the importance

of working capital.

Index Of Sound Liquidity Position:

Adequate working capital is an index of sound liquidity poison of the company.

Sound liquidity poison means sufficient to buy raw material, to pay wages or

salaries bills and to meet other administrative expenses. Short term liquidity is

more important than long term solvency. Short term liquidity is prerequisite for

long term solvency. Adequate working capital means ample cash in hand and

cash at bank and sufficient stock of raw material and finished goods.


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Facility Of Cash Discount:

Facility of cash is available only to those concerns, which have adequate

working capital. Cash discount is discount received on prompt payment; only a

company with sufficient working capital can hope to get this advantage.

Prompt Payment To Suppliers:

Adequate working capital enables a concern to make prompt payment to its

suppliers. This practice enhances the good will of the concern and every supplier

owing to their sound liquidity position welcomes such concerns.

Easy Loans From Banks:

Banks and the other financial institutions have a soft corner in their brains for

concerns having a favorable current position. It is because banks have to look

towards current assets through current liabilities for their loans. Progressive

concerns frequently require loans to finance special business operations. For that,

their current positions should be sound so that banks can grant loan on the basis.

Attractive Dividends:

When a company has no working capital worries, it can afford to pay productive

dividends in the form of cash. Shareholders have invested their savings in thecompany (in the form of shares) in the hope of getting a remunerative return.

Only if the company is having ample cash, it can hope to serve as shareholders,

with rich dividends. Thus, sufficient working capital endures a sure return on the

investment to shareholders.

Creation Of Goodwill:

Adequate working capital makes possible prompt to suppliers, regular pay to

workers and a study rate of dividend to shareholders. These factors help in

creating sound and durable goodwill for the concern. The concern with solid

current position is esteemed high in the eyes of banks, financial institutions and

suppliers. Thus, adequate working capital creates goodwill, a better name and an

enviable reputation.

Meeting Special Needs:


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The course of modern business is highly unpredictable. At any moment, pressing

circumstances may call forth extra finds special needs. This is possible only if

the company is having adequate supply of working capital. It may be necessary

to spend extra amount on streamlining sales.

Survival During Adverse Business Condition:

Every business has to experience ups and downs during its life time. Various

phase of trade cycles put varied pressures on working funds. During depression,

the availability of working capital decreases. Only a concern with sufficient

working funds will be n position to ride over such adverse conditions.

Off-Season Purchasing:

Usually customers are offered off-season discounts by the suppliers. It is seen

that saving in terms of off-season discounts earned is more than the extra storage

cost. Only those concerns will be a position to save on this score, which have

adequate working capital.

High Morale:

Adequate working capital creates an atmosphere of certainty and security. The

workers are confident of getting wages regularly and in time. The suppliers are

sure to get prompt payments and shareholders are certain of a remunerative

return on their holdings. This boosts the morale of management and workers.Only an adequate working capital can ensure ready payments, timely wages and

a steady return. Thus, we can say that ample working capital builds high morale

of employers.

Operating Cycle:

Working capital is required because of the time gap between the sale and their

actual realization of cash. This time gap is technically termed as operating

cycle of the business.

3.4 Sources of working capital

In the case of permanent or fixed working capital:


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There are five important sources of permanent or fixed working capital.

a. Shares

Issue of shares s the most important source for raising the permanent or fixed

working capital. A company can issue various types of shares as equity shares,

preference shares and differed shares. Accounting to Companies Act 1956,

however, a public company cannot issue differed shares. Preference shares carry

preferential rights in respect of dividend at a fixed rate and about the repayment

of capital at the time of winding up of a company. Equity shares do not have any

fixed commitment charge and the dividend on these shares is to be paid subject

to the availability of sufficient profits.

b. Debentures

A debenture is an instrument issued by the company acknowledging its debts to

its creditors. The debenture holders are the creditors of the company. A fixed

rate of interest is paid on debentures. The interest on debentures is a charge

against profit and loss account.

c. Public Deposits

Public deposits are the fixed deposits accepted by a business enterprise directly

from the public. This source of raising short term and medium term finance was

very popular in the absence of banking facilities. Public deposit as a source of

finance have a large number of advantages such as very simple and convenient

source of finance, taxation benefits, trading on equity, no need of securities and

an inexpensive source of finance.

d. Loans From Financial Institution

Financial institutions such as commercial banks, life insurance corporations,

industrial finance corporation of India, state financial bank of India, etc. also

provide short term medium term and long term loans. Interest is charged on suchloans at a fixed rate and the amount of the loan is to be repaid by way of

installments in a number of years.

In the case of temporary or variable working capital:


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There are six important sources of temporary or variable working capital.

a.Indigenous Bankers

Private moneylenders and other country bankers used to be the only source prior

to the establishment of banks. They used to charge very high interest rate and

exploited the customers to the largest extend possible. Now-a-days with the

development of commercial banks they have lost the monopoly.

b.Trade Credit

Trade credit refers to the credit extended by the suppliers of hoods in the normal

course of business. As present day commerce is built upon credit, the trade credit

arrangement of a firm with its suppliers is an important source of short-term

finance.

c. Installment Credit

This is another method by which the assets are purchased and the possession of

goods is taken immediately but the payment is made by installments or pre-

determined period of time. Generally, interest is charged on the unpaid price or it

may be adjusted in the price.

d.Advances

Some business houses get advances from their customers and agents against

orders and this source is a short-term source of finance for them. It is a cheap

source of finance in order to minimize their investment in working capital, some

firms having long production cycle, especially the firms manufacturing industrial

products prefer to take advances from their customers.

e. Accrued Expenses

Accrued expenses are the expenses, which have been incurred but not yet due

and hence not yet paid also. This simply represents a liability that a company hasto pay for the services already received by it. The most important items of

accruals are wages and salaries, interest, and taxes. Wages and salaries are

usually paid on monthly, fortnightly, or weekly basis for the services already

rendered by employees. The longer payment period, the greater is the amount of


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liability towards employees or the funds provided by them. In the same manner,

accrued interest and taxes also constitute a short term source of finance.

f. Commercial Paper

Commercial paper represents unsecured promissory notes by firms to raise short

term funds. In India, the Reserve Bank of India introduced commercial paper in

the Indian money market on the recommendations of the Working Group on

Money Market.

3.5 Factors determining working capital

1. Nature of the Industry

2. Demand of Industry

3. Cash requirements

4. Nature of the Business

5. Manufacturing time

6. Volume of Sales

7. Terms of Purchase and Sales

8. Inventory Turnover

9.

Business Turnover

10.Business Cycle

11.Current Assets requirements

12.Production Cycle

13.Credit control

14.Inflation or Price level changes

15.Profit planning and control

16.

Repayment ability

17.Cash reserves

18.Operation efficiency

19.Change in Technology

20.Firms finance and dividend policy


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3.6 Concepts of working capital

There are two possible interpretations of working capital concept:

3.6.1 Balance sheet concept:

There are two interpretations of working capital under the balance sheet concept.

a. Excess of current assets over current liabilities

b. Gross or total current assets.

Excess of current assets over current liabilities are called the net working capital

or net current assets.

Working capital is really what a part of long term finance is locked in and used

for supporting current activities.

The balance sheet definition of working capital is meaningful only as an

indication of the firms current solvency in repaying its creditors.

When firms speak of shortage of working capital they in fact possibly imply

scarcity of cash resources.

In fund flow analysis and increase in working capital, as conventionally defined,

represents employment or application of funds.

3.6.2 Operating cycle concept:

A companys operating cycle typically consists of three primary activities:

Purchasing resources,

Producing the product and

Distributing (selling) the product.

These activities create funds flows that are both unsynchronized and uncertain. They are

uncertain because future sales and costs, which generate the respective receipts and

disbursements, cannot be forecasted with complete accuracy.


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3.7 Management of working capital

The term working capital stands for current assets over current liabilities. Working

capital management is concerned with the problems that arise in attempting to manage

the current assets, the current liabilities and interrelationships that exist between them.

The basic objective of working capital management is to manage the firms current

assets and current liabilities in such a way that the satisfactory level of working capital is

maintained, that is, neither inadequate nor excessive. The current assets should be

sufficient to cover current liabilities in order to maintain a reasonable safety margin.

Current assets are those assets, which will be converted in to cash within the current

accounting period or within the next year because of the ordinary operations of the

business. They are cash or near cash resource. It includes;

Cash and bank balances

Receivables

Inventory

Prepaid expenses

Short term advances

Current liabilities are the debts of the firms that have to be paid during the current

accounting period or within a year. These include;

Creditors for goods purchased

Short term borrowings

Advances received against sales

Taxes and dividends payable

Working capital is also known as the circulating capital, fluctuating capital and

revolving capital. The management and composition keep on changing continuously in

the course of business.


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3.7.1 Working Capital Cycle

The length of time involved in conversation of into raw materials, raw materials in to

work-in progress, work-in progress in to finished goods, finished goods in to debtors and

debtors in to cash again is called working capital cycle. The way working capital moves

around the business is modeled by the working capital cycle. This shows the cash

coming into the business, what happens to it while the business has it and then where it

goes. Between each stage of this working capital cycle there is a time delay. The

pictorial representation of working capital cycle is as follows;

3.7.2 Techniques for Assessment of Working Capital

There are various techniques for assessment of firms working capital requirement. They

are;

a. Component Of Working Capital:

Since working capital is the excess of current assets over current liabilities,

estimating the amounts of different constituents of working capital requirements.


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b. Percent Of Sales Approach:

This is traditional and simple method of estimating working capital

requirements. According to this method, based on past experience between sales

and working capital requirements, a ratio can be determined for estimating the

working capital requirements in future.

c. Operating Cycle Approach:

The requirement of working capital depends upon the cycle of the business. The

operating cycle begins with the acquisition of raw materials and ends with the

collection of receivables.

3.8 Types of working capital

The graphical representation of the working capital classifications are as follows;

3.8.1 Based on Concept:

1. Gross Working Capital concept


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According to this concept, working capital refers to the firms total investment in

current assets. It is quantitative assets of working capital. This concept focuses

attention on two aspects. They are;

Optimum investment in current assets

Financing of current asset

2. Net Working Capital Concept

According to this concept, working capital refers to the difference between the

current assets and current liabilities. It is the quantitative assets of working

capital.

3.8.2 Based on Time:

1.

Permanent or Fixed Working Capital

Permanent working capital refers to that minimum amount of investment in all

current assets which is required at all times to carry out minimum level of

business activities. In other words I represent the current asset required on a

continuing basis over the entire year. It can be again sub-divided in to two:

a) Regular Working Capital:

Regular working capital is the minimum amount of liquid capital needed to keep

up the circulation of the capital from cash to inventories and again to cash.b)

Reverse Margin Working Capital:

Reverse margin working capital is the excess over the needs or regular working

capital that kept meeting uncertain changes or meeting uncertainties. It

strengthens the capacities of the business to face the challenge in case of

happening of such events.

2. Temporary or Variable Working Capital

Temporary working capital represents additional current assets required at

different times during the operating year. The amount of such working capital

keeps on fluctuations from time to time on the basis of business activities. It

changes with the increase r decrease in production and sales. It can be divided in

to two types;


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a) Seasonal Working Capital:

The working capital required to meet the seasonal liquidity of the business is

called seasonal working capital.

b) Special Working Capital:

The working capital required for financing the special operations such as

extensive marketing campaigns carrying out special jobs orders.

Variable working capital has to be financed through short-term borrowings from the

banks or by the issue of debentures to public. The management of current assets is

important than the management of fixed assets because the most of the business units

very largely depends upon the manner in which their working capital managed.

3.9 ESTIMATION OF WORKING CAPITAL REQUIREMENTS

While estimating the working capital requirements, the following factors should be kept

under consideration.

1. Total costs incurred on materials, wages and overheads.

2. The length of time for which raw materials remain in stores before they are

issued to production.

3. The length of the production cycle.

4. The length of the Sales Cycle during which FG are to be kept waiting for sales.

5. The average period of credit allowed to customers.

6. The amount of cash required to pay day-to-day expenses of the business.

7. The amount of cash required for advance payments if any.

8. The average period of credit to be allowed by suppliers.

9.

Timelag in the payment of wages and other overheads.

Not only has this but the following points also had to remember while forecasting the

working capital.

1. Profits should be ignored while calculating working capital requirements for the

following reasons


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a. Profits may or may not be used as working capital

b.Even if it used, it may be reduced by the amount of Income tax, Drawings,

Dividend paid etc.

2. Calculation of work in progress depends on the degree of completion as regards

to materials, labor and overheads. However, if nothing is mentioned in the

problem, take 100% of the value as work in progress. Because in such a case,

the average period of work in progress must have been calculated as equivalent

period of completed units

3. Calculation of Stocks of Finished Goods and Debtors should be made at cost

unless otherwise asked in the question.

3.10 Adequacy of working capital

Every business concern should have adequate working capital to run its business

operations. It should neither redundant or excess working capital nor inadequate nor

shortage of working capital. Both excess as well as short working capital positions are

bad for any business.

3.10.1 Advantages of adequate working capital

The main advantages of maintaining adequate amount of working capital are:

1. Solvency of business:Adequate working capital helps in maintaining solvency

of the business by providing uninterrupted flow of production.

2. Goodwill: Sufficient working capital enables a business concern to make

prompt payments and hence helps in creating and maintaining goodwill.

3. Easy Loan: A concern having adequate working capital, high solvency andgood credit standing can arrange loans from banks and others on easy and

favorable terms.

4. Cash Discounts: Adequate working capital also enables a concern to avail cash

discounts on the purchase and hence it reduces costs.


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5. Regular payment of wages and other day-to-day commitments:

A company, which has ample working capital, can make regular payment of wages

and other day-to-day commitments, which raise the morale of its employees, incases

their efficiency, reduces wastages and costs and enhances production and profits.

6. Ability To Face Crisis: Adequate working capital enables a concern to face

business crisis in emergencies such as depression because during such periods,

generally, there is much pressure on working capital.

7. Regular Supply Of Raw Materials: Sufficient working capital ensures regular

and continuous supply of raw materials and uninterrupted production

8. Quick And Regular Return On Investment: Every investor wants quick and

regular return on investments. Sufficiency of working capital enables a concern

to pay quick and regular dividends to its inventories, as there may not be much

pressure to plough back profit. This confidence of its investors and creates a

favorable market to raise additional funds in the future.

9. Exploitation Of Favorable Market Conditions:

Only concerns with adequate working capital can exploit favorable market

conditions such as purchasing its requirements in bulk when the prices are lower

and by holding its inventories for higher prices.

3.10.2 Disadvantages of Working Capital

Working capital is vital to a business. Very important to a company to manage its

working capital carefully. This is particularly true where there is a substantial time lag

between making the product and receiving the money for it. But, Working capital

involves certain limitations also. Some of them are as follows;

1. Rate of return on investments also fall with the shortage of working capital.

2. Excess working capital may result into over all inefficiency in organization

3. Excess working capital means idle funds which earn no profits


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4. Inadequate working capital cannot pay its short term liabilities in time

3.11 Working Capital Analysis or Measuring the Working Capital

Working capital is a means to run the business smoothly and profitably, and not an end.

Thus concept of working capital has its own importance in a going concern. A study of

changes in the uses and sources of working capital is necessary to evaluate the efficiency

with which the working capital is employed in the business. This involves the need of

working capital analysis. This can be conducted through number of devices:

Ratio Analysis

A ratio is an arithmetical expression of the relationship of one number to another. The

technique of ratio analysis can be employed for measuring short term liquidity or

working capital position of a firm. The following ratios may be calculated for the

purpose

1. Profitability ratios

2. Liquidity ratios

3.

Activity ratios

4. Solvency ratios

5. Leverage ratios

1. Fund Flow Analysis

It is a technical device designated to study the sources from which additional funds were

derived and the use to which these sources were put. It is an effective management tool

to study the changes in the financial position of a business enterprise between beginningand ending financial statement dates. The fund flow statement consists of

Preparing schedule of changes in working capital

Statement of sources and application of funds.


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2.Working Capital Management

A budget is a financial or quantitative expression of business plans and policies to be

pursued in the future period of time. Working capital budget as a part of total budgeting

process of a business is prepared estimating the future long term and short term working

capital needs and the sources to finance them, and then comparing the budgeted figures

with the actual performance for calculating variances, if any. Its objective is to ensure the

availability of funds as and when required, and to ensure effective utilization of these

resources. The successful implementation of working capital budget involves the

preparing of separate budgets for various elements of working capital, such as cash,

inventories and receivables, etc


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Analysis Of Data

Here the analysis is made with the balance sheet and profit and account of five years.i.e

from 2006 and 2010 by using certain tools with dealt with in the preceding chapter. By

this analysis we can evaluate relationship between the various aspects of financial

statement.

4.1 Ratio analysis

One of the most important financial tools which have come to be very frequently for

analyzing the financial strength and weakness of the enterprise is the ratio analysis . Ratio

analysis is a tool used by individuals to conduct a quantitative analysis of information in

a company's financial statements. Ratios are calculated from current year numbers and

are then compared to previous years, other companies, the industry, or even the economy

to judge the performance of the company. Ratio analysis is predominately used by

proponents of fundamental analysis. The term ratio in it refers to the relationship

expressed in mathematical terms between two individual figures or groups of figures

connected with each other in some logical manner and are selected from financial

statements of the concern. The ratio analysis is based on the fact that a single accountingfigure by itself may not some other figure; it may definitely provide some significant

information. Tile relationship between two or more accounting figures or groups is called

financial ratios. A financial ratio helps to express the relationship between the two

accounting figures in such a way that users can draw conclusions about the performance,

strengths and weakness of a firm.

Ratio can be expressed in any of the following three ways;

Rate, which is the ratio between the numerical facts over a period of time.

Pure ratios or proportions, which are arrived at by the simple division of one

number by another.

Percentage, which is a special type of rate expressing the relationship in hundred.


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The ratios analysis is one of the most powerful tools of financial management. Though

ratios are simple to calculate and easy to understand, they suffer from serious limitations.

1. Limitations of financial statements:Ratios are based only on the information

which has been recorded in the financial statements. Financial statements

themselves are subject to several limitations. Thus ratios derived, there from, are

also subject to those limitations..

2. Comparative study required:Ratios are useful in judging the efficiency of the

business only when they are compared with past results of the business. However,

such a comparison only provide glimpse of the past performance and forecasts for

future may not prove correct since several other factors like market conditions,

management policies, etc. may affect the future operations.3.

Ratios alone are not adequate:Ratios are only indicators, they cannot be taken

as final regarding good or bad financial position of the business. Other things

have also to be seen.

4. Problems of price level changes:A change in price level can affect the validity

of ratios calculated for different time periods. In such a case the ratio analysis

may not clearly indicate the trend in solvency and profitability of the company.

5. Lack of adequate standard: No fixed standard can be laid down for ideal ratios.

There are no well accepted standards or rule of thumb for all ratios which can be

accepted as norm. It renders interpretation of the ratios difficult.

6. Limited use of single ratios:A single ratio, usually, does not convey much of a

sense. To make a better interpretation, a number of ratios have to be calculated

which is likely to confuse the analyst than help him in making any good decision.

7. Personal bias: Ratios are only means of financial analysis and not an end in

itself. Ratios have to interpreted and different people may interpret the same ratio

in different way.

8. Incomparable:Not only industries differ in their nature, but also the firms of the

similar business widely differ in their size and accounting procedures etc. It

makes comparison of ratios difficult and misleading.


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4.1 Liquidity ratios

Liquidity refers the ability of a concern to meet its current obligations as they fall due.

Since liquidity is basic to continuous operation of the firm it is necessary to determine the

degree of liquidity f a firm. Following are the liquidity ratios;

4.1.1Current ratio

Current assets normally mean assets convertible and meant to be converted in to cash

within a year. Current assets usually include cash in hand and bank, debtors, bills

payable, prepaid expenses, inventories, ratio materials, work in progress and finished

goods, marketable securities and short term high quality investments. Current liability

represents the liabilities which fall due for payment within a year. Current ratioestablishes the relationship between the current assets and current liabilities.

Conventional rule, idle current ratio should be 2:1

Current ratio = current assets / current liabilities

Table 1

Table showing current ratio of NACL

Year Current assets Current liabilities Ratio

2006-2007 3589430 3184641 1.1

2007-2008 3048764 3322218 0.9

2008-2009 4908893 3415012 1.4

2009-2010 3832377 2007276 1.9

2010-2011 4820137 2986204 1.6


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Diagram showing the current ratio of NACL

Interpretation

An ideal current ratio is 2:1. Here the current ratio of NACL is less than 2 in all the years,

in the year 2007-2008 it is less than 1. So the current ratio of the concern is not good, the

liquid position of NACL is not satisfactory. Either it should increase current assets or it

should decrease the current liability.

0

0.2

0.40.6

0.8

1

1.2

1.4

1.6

1.8

2

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

Ratio


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4.1.2Quick ratio

This ratio is the measure of quick and acid liquidity. Acid test ratio is the ratio between

the quick asses and current liabilities and is calculated by dividing the quick assets by the

current liabilities. It is also called Acid Test Ratio or Liquidity Ratio. It is determined by

dividing Quick Assets by Current liabilities. The term Quick asset refers to Current

assets, which can be converted into cash immediately. It comprises all Current assets

except stock and prepaid expenses. An Acid Test ratio of 1:1 is considered satisfactory as

a firm can easily meet all its current liabilities. If the ratio is less than 1:1, then the

financial position of the concern shall be deemed to be unsound.

Quick ratio = quick assets / quick liability

Where; Quick assets = Current Assets(Inventories+prepaid expenses)

Quick liability = Current Liabilities- Bank over Draft

Table2

Table showing quick ratio of NACL

Year Quick assets Quick liabilities Ratio

2006-2007 3171417 3184641 0.9

2007-2008 2729,188 3322218 0.8

2008-2009 4751530 3415012 1.3

2009-2010 3584739 2007276 1.7

2010-2011 4425342 2986204 1.4


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Diagram showing quick ratio of NACL

Interpretation

Generally a quick ratio of 1:1 is considered to be satisfactory. The company has achieved

a satisfactory quick ratio in all years except in the years 2006-2007 and 2007-2008.This

shows that the company should be able to meet its short term obligations.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

ratio


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4.2PROFITABILITY RATIOS

4.2.1NET PROFIT RATIO

Net profit ratio establishes the relationship between net profit and sales. It indicates the

efficiency of management in manufacturing, selling, administrative and other activities of

the concern.

Net Profit Ratio = Net Profit / Sales

Table: 3

Table showing net profit ratio of NACL

Year Net profit Sales Ratio

2006-2007 1045950 1818616 0.57

2007-2008 1038511 2619672 0.39

2008-2009 (469082) 1382224 (0.33)

2009-2010 525814 1974002 0.26

2010-2011 44369 2775115 0.01


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Figure: 3

Diagram showing net profit ratio of NACL

Interpretation

The higher the ratio, the more successful the business is. From this table we can

understand that the percentage is very low. So the lower ratio indicates that the concern

has a large amount of manufacturing expenses. The company should try to reduce their

manufacturing selling and distribution expenses so that they can improve their net profit.

-0.4

-0.2

0

0.2

0.4

0.6

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

ratio


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4.2.2RETURN ON CAPITAL EMPLOYED RATIO

Return on capital employed measures the relationship between profits and the capital

employed. The total investment made in a concern is known as capital employed. It may

be: (a) Gross capital employed and (b) net capital employed (c) proprietors net capital

employed.

Return On Capital Employed Ratio= Return/ Capital Employed * 100

Table: 4

Table showing return on capital employed ratio

Year Return Capitalemployed

Ratio Percentage

2006-2007 1045950 9618844 0.01 10

2007-2008 1038511 10409263 0.09 9

2008-2009 (469082) 11650181 (0.04) 4

2009-2010 525814 10465995 0.05 5

2010-2011 44369 10510364 4.22 0.0


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Figure: 5

Diagram showing return on capital employed ratio of NACL

Interpretation

Return on capital employed ratio indicates whether the proprietors funds have been used

properly or not. The higher the ratio greater will be the return for the owners and the

better the profitability, By analyzing 5 years ratio, the company shows a decrease in

return on capital employed ratio. In the year 2010-2011 it became less than 1.

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

ratio


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58

CAPITAL TURN OVER RATIO

Capital turnover ratio is the relationship between cost of goods sold and the capital

employed. It measures the efficiency or effectiveness with which a concern utilizes its

resources. This ratio is a good indicator of overall profitability of a concern.

Capital Turnover Ratio = Cost Of Sales/Networking Capital

Table: 5

Table showing capital turn over ratio

Year Cost of sales Networking capital Ratio

2006-2007 1818616 404789 4.49

2007-2008 2619672 -273454 (9.5)

2008-2009 1382224 1493881 0.9

2009-2010 1974002 1825101 1.0

2010-2011 2775115 1833933 1.5

Interpretation

From the above table we can understand that company shows a better capital turnover

ratio, which indicates efficiency or effectiveness with which the concern utilizes its

resources. In 2008-2009 and 2010-2011 the company shows greater capital turnover

ratio.


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Figure: 5

Diagram showing return on capital employed ratio of NACL

-12

-10

-8

-6

-4

-2

0

2

4

6

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011 Ratio


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NETWORTH RATIO/ RETURN ON SHAREHOLDERS INVESTMENT RATIO

This ratio establishes the relationship between net profits (after tax and interest) and

proprietors fund. This ratio is used to measure the overall efficiency of a concern. The

higher the ratio the better the results will be as this ratio reveals how well the resources of

a concern are being used.

Networth Ratio = Netprofit/ Shareholders Fund

Table:6

Table showing net worth ratio of NACL

Year Net profit Shareholders fund Ratio

2006-2007 1045950 9618844 0.10

2007-2008 1038511 10409263 0.09

2008-2009 (469082) 11650181 (0.04)

2009-2010 525814 10465995 0.05

2010-2011 44369 10510364 4.22

Interpretation

From the table we can understand that the company has less net worth ratio during these

years. In the year 2008-2009 it is loss, and the ratio is less than 1 in all other years. In the

year 2010-2011 the net worth ratio of NACL increased to 4.22.


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ACTIVITY RATIOS

WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the number of times the working capital is turned

over in the course of a year. It measures the efficiency with which the working capital is

being used by a firm. A higher ratio represents efficient utilization of working capital,

and a low ratio represents otherwise.

Working Capital Turnover Ratio = Cost Of Sales / Net Working Assets

Table: 7

Table showing working capital turn over ratio

Year Cost of sales Net working assets Ratio

2206-2007 1818616 3589430 0.50

2007-2008 2619672 3048764 0.85

2008-2009 1382224 4908893 0.28

2009-2010 1974002 3832377 0.51

2010-2011 2775115 4820137 0.57

Interpretation

From above table we can understand that in the year 2006-2007 the ratio is 0.50 and in

the year 2007-2008 it is 0.85 then the ratio is decreased to 0.28, from the year 2009-2010

the ratio started to increase.


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Figure: 7

Diagram showing working capital turnover ratio

0

0.2

0.4

0.6

0.8

1

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

Ratio


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SOLVENCY RATIO

PROPRIETARY RATIO

Proprietary ratio is also known as equity ratio. It shows relationship between shareholders

fund to total assets of the concern. The shareholders funds are equity share capital,

preference share capital, undistributed profits, reserves and surpluses.

Proprietary Ratio= Shareholders Fund/Total Assets

Table: 8

Table showing proprietary ratio of NACL

Year Shareholders fund Total assets Ratio

2006-2007 9618844 17160201 0.56

2007-2008 10409263 19610953 0.53

2008-2009 11650181 20729672 0.56

2009-2010 10465995 18065020 0.57

2010-2011 10510364 17222633 0.61

Interpretation

The higher the ratio the better the long term solvency of the company will be. Here the

ratios are less than one, the long term solvency not so better. Here, the shareholders fund

is less compared to the total asset. So the company should try to increase the shareholders

fund by issuing more number of shares


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66

Figure: 8

Diagram showing proprietary ratio of NACL

0.48

0.5

0.52

0.54

0.56

0.58

0.6

0.62

2006-20072007-20082008-20092009-20102010-2011

ratio


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DEBT EQUITY RATIO

Debt equity ratio is determined to measure the soundness of the long term financial

policies of the concern. It is also known as ExternalInternal Equity Ratio and indicates

the relationship between external equities or the outsiders funds and the internal equities

or the shareholders funds. It measures ultimate solvency of a concern. An appropriate

debt-equity ratio is 0.33

Debt Equity Ratio = Long Term Debts/ Share Holders Fund

Table: 9

Table showing debt equity ratio

Year Outsiders fund Owners fund Ratio

2006-2007 7500000 961884 0.77

2007-2008 7500000 10409263 0.72

2008-2009 7500000 11650181 0.64

2009-2010 7500000 10465995 0.71

210-2011 7500000 10510364 0.71

Interpretation

An appropriate debt equity ratio is 0.33. A ratio higher than this is an indication of risky

financial policies. In all years debt equity ratio of NACL is greater than 0.33. From this

we can understand that the company is adopting risky financial policies.


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Figure: 9

Diagram showing debt-equity ratio

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

Ratio


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FIXED ASSET TO NETWORTH RATIO

Fixed assets to net worth ratio measures the relationship between fixed assets and

shareholders fund. There is no norm for this ratio but 60 to 65 % is considered to be

satisfactory in the case of industrial concerns.

Fixed Asset To Networth Ratio = Fixed Assets/Shareholders Fund

Table: 10

Table showing fixed asset to net worth ratio

Year Fixed assets Shareholders fund Ratio

2006-2007 11520771 9618844 1.19

2007-2008 14512189 10409263 1.39

2008-2009 13770778 11650181 1.18

2009-2010 14232643 10465995 1.35

2010-2011 12357376 10510364 1.17

Interpretation

There is no norm for this ratio. But 60 to 65 percent is considered to be satisfactory. From

the above table we can understand that the fixed asset to net worth ratio of NACL is more

than 100 percent. It shows that owners funds are not sufficient to finance the fixed assets.


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Figure: 10

Diagram showing fixed asset to net worth ratio

1.05

1.1

1.15

1.2

1.25

1.3

1.35

1.4

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

Ratio


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RATIO OF CURRENT ASSETS TO PROPRIETORS FUND

Ratio of current assets to proprietors fund establishes the relationship between the current

assets and shareholders fund. This ratio indicates the extend to which proprietors funds

are invested in current assets.

Ratio Of Current Assets To Proprietors Funds = Current Assets / Shareholders Fund

Table; 11

Table showing ratio of current assets to proprietors fund

Year Current assets Shareholders fund Ratio

2006-2007 3589430 9618844 0.37

2007-2008 3048764 10409263 0.29

2008-2009 4908893 11650181 0.42

2009-2010 3832377 10465995 0.34

2010-2011 4820137 16510364 0.45

Interpretation

Here higher ratio indicates, the involvement of proprietors fund is good in current assets.

The ratio of NACL is less than 1. The involvement of proprietors fund is less in NACL.


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Figure: 11

Diagram showing ratio current assets to proprietors fund

Ratio0

0.1

0.2

0.3

0.4

0.5

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

Ratio


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LEVERAGE OR CAPITAL STRUCTURE RATIOS

RATIO OF CURRENT LIABILITIES TO PROPRIETORS FUND

It establishes the relationship between current liabilities and the proprietors funds.

Ratio Of Current Liabilities To Proprietors Fund = Current Liability/ Shareholders Fund

Table: 12

Table showing ratio of current liabilities to proprietors fund

Year Current liability Shareholders fund Ratio

2006-2007 3184641 9618844 0.33

2007-2008 3322218 10409263 0.312008-2009 3415012 11650181 0.29

2009-2010 2007276 10465995 0.19

2010-2011 2986204 10510364 0.28

Interpretation

The ratio indicates the involvement of proprietors fund in current liabilities. Here the

ratio of the NACL is less than 1 for all the years


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Figure: 12

Diagram showing ratio of current liabilities to proprietors fund

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

206-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

Ratio


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76

Figure: 13

Diagram showing ratio of reserves to equity share capital

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2006-

2007

2007-

2008

2008-

2009

2009-

2010

2010-

2011

Ratio


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77

COMPARATIVE STATEMENT OF WORKING CAPITAL as on 31-03-2006 and 31-

03-2

Particulars 2006 2007 Increase Decrease

(a)Current assets

Inventories

Sundry debtors

Cash & bank

Loans&advances

Advances for

capital

Total(a)

(b)Current

liability

Total (b)

Net working

capital (a-b)

Net increase in

working capital

166297

451400

323644

1477752

76271

418013

335130

566209

1521138

748940

251716

242565

43386

672669

344191

116270

1438257

2495364

4217732

3589430

3873541

4217732

-1722368

1438257

3873541

-284111

-284111 -284111 1554527 1554527

Interpretation

This shows that there is increase of 1438257 in the amount of working capital during the

period 2006-2007


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78

COMPARATIVE STATEMENT OF WORKING CAPITAL as on 31-03-2007 and 31-

03-2008

Particulars 2007 2008 Increase Decrease

(a)Current assets

Inventories

Sundry debtors

Cash & bank

Loans&advances

Advances for

Documents

report on working capital management