A STUDY

On

The project is submitted IN PARTIAL FULFILLMENT AT THE DEGREE OF Master in Business Administration BPUT, Rourkela.

Submitted by

Debayoti MohantyRegd. No. 0606277049

Under the Guidance of

Centre for Management Studies

Company GuideMr. H. Suresh

A.G.M (Finance)Tube Products of India

Faculty GuideMr. B. P. Chhatoi

Faculty (CMS)

OEC, BHUBANESWAR

1

ACKNOWLEDGEMENT

I here by tender my hearty acknowledgement

to the following esteemed persons for rendering

their helping band, co-operation and guidance to

great extend for preparation of this report.

I am very grateful to Mr. H. Suresh (A.G.M.,

Finance) for their wise consent and inspiration to

under the project report, at Tube Products of India,

Chennai.

Finally I acknowledge every one of TI and my

friends for the co-operation and help to complete

this project successfully.

Debayoti MohantyCMS, (OEC),

Bhubaneswar

2

DECLARATION

I do hereby declare that this project entitled

“Working capital Management in TI” is the result of

my training at “Tube Products of India, Chennai”

which has been carefully prepared and submitted

by me as a partial fulfillment of Master of Business

Administration under the guidance of Mr. H. Suresh

(A.G.M., Finance) and Mr. B.P. Chhatoi (Faculty

Finance).

All the data and analytic statement being

stated in the project that is submitted by may be

accepted as fully authentic genuine.

Debayoti MohantyCMS, (OEC),

Bhubaneswar

3

PREFACE

Management of current assets and current

liabilities and the relationship chat exists between

them is turned as working capital management.

Technically working capital management is an

integral part of the overall financial management.

This project work is based on the study

undertaken by me at TI a division of Tube Product

of India, Chennai.

This project work is dividend into various

sections and each section deals with different

aspects of financial management.

Debayoti MohantyCMS, (OEC),

Bhubaneswar

4

CONTENTS

CHAPTER – 1

Introduction

CHAPTER – 2

Scope of Study

Object of Study

Methodology

Tools & Technique used for Study

CHAPTER – 3

Company profile

CHAPTER – 4

Subject presentation & Analysis of Data

CHAPTER – 5

Finding, Suggestion & Conclusions

Bibliography

5

INTRODUCTION

6

INTRODUCTION

“Working Capital Management” means managing the current

assets of a business firm. Current assets are those assets, which can

be converted within a short period of time i.e. one year. It is the

outcome of a need for proper management of funds in a business.

Funds can be involved for permanent purpose such as

acquisition of fixed asset, expansion and diversification of business,

modernization of plant machinery, research and development etc.

funds are also required for temporary purpose such as day – to –

day activities of a business like purchase of row materials, payment

of salaries & wages, other short-term expenses etc. which is known

as working capital. It refers to the excess of current assets over

current liabilities and the inter. Relation that exists between them.

Working Capital = Current Assets – Current liabilities

There is hardly a business enterprise that does not require

working capital. As a company’s primary objective is to increase the

wealth of its shareholders, which depends on the efficient

management of funds, hence, proper analysis and efficient

management of funds (both short-term and long term) is very

important.

Working capital management is to a very sensitive area in the

field of financial management. It deals with the management of

current assets i.e. deciding on the amount and composition of

current assets and various means of financing these assets. It is

very often noticed that profitable companies have succumbed due

to inefficient management of working capital or inadequate liquidity.

Over emphasis on profitability forces them to ignored cash outflow

areas like wages, dividends, trade debtors that ultimately creates a

7

cash run-out situation. Hence, management of working capital not

only means efficient utilization of funds but also includes

identification of important areas of cash inflow and cash outflow.

Therefore working capital management has become as one of

the vital activities in a business organization.

8

SCOPE OF STUDYOBJECT OF STUDYMETHODOLOGY

TOOLS & TECHNIQUE USED FOR STUDY

9

SCOPE OF STUDY

This is study of working capital management with particular

reference to Tube Products of India is a large public sector company

engaged in production of various grades of Tube products. Being a

capital intensive manufacturing concern, this particular company is

selected for this project study.

A two year period is covered in the study, which extends form

financial year 2005-06 & 2006-07. The study was restricted to

different components of working capital like case management,

inventory management, management of receivables and financing

of current assets.

2.1 OBJECTIVE OF THE STUDY

The following are the main objectives of this project study.

(a) To study the challenges of working capital management

(b) To study the present system of working capital in the

organization.

(c) To determine the working capital tube product of India and

work out the various ratios to working capital.

(d) To make an item-wise study of the various components of

working capital with the help of trend analysis and graph.

(e) To suggest steps that should be taken to increase the

efficiency in management of working capital.

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2.2 METHODOLOGY

Data were collected from both primary and secondary

sources. These data have been analyzed with a view to arrive at

conclusions regarding the practice of different methods by the

management for effective control of working capital.

The financial data were collected from various sources like:

(i) Annual financial report of the company for two year

period form 2005-06 & 2006-07.

(ii) Internal reports.

(iii) Manual report regarding management decisions on

different aspects of working capital.

(iv) Printed material carrying the policies of the

organization.

2.3 LIMITATION OF THE STUDY

The study at hand is an empirical one and hence we faced

some difficulties mostly in the area of data collection for analysis.

However, with patience the difficulties were overcome to some

extent and the stuffy is presented as in the present shape or in the

form.

2.4 TOOLS & TECHNIQUES USED FOR THE STUDY

The following tools and technique of financial analysis were

used to measure the degree of efficiency in management of working

capital.

Ratio analysis

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Trend analysis

Percentage

Cash management

Inventory management

Management of receivables

12

COMPANY PROFILE

13

COMPANY PROFILE

MURUGAPPA COMPANIES

The USD 2 billion Murugappa Group has 29 companies — it is one of the biggest Indian conglomerates, operating in diverse areas like engineering, abrasives, sanitaryware, fertilisers, finance, bio-products and plantations.

Well known for its

dedication to constantly

improving and sustaining

the quality of the

products and services it provides, the Murugappa Group is the next

emerging name in the global arena of business.

The major companies of the Group are:

Carborundum Universal LimitedCholamandalam DBS Finance Limited

Cholamandalam MS General Insurance

Coromandel Fertilisers Limited

EID Parry India Limited Godavari Fertilisers Limited

Parry Agro Industries Limited Parryware ROCA Private Limited

Tube Investments of India Limited

 

 

14

The other companies are:

Ambadi Enterprises Ltd Cholamandalam Distribution Services Ltd

Cholamandalam Mutual Cholamandalam MS Risk Services Ltd (CMSRSL)

Cholamandalam Securities Ltd Coromandel Engineering Company Ltd

Kadamane Estates Company Laserwords Pvt Ltd

Murugappa Morgan Thermal Ceramics Ltd

Net Access India Pvt Ltd

New Ambadi Estates Pvt Ltd Parry Enterprises India Ltd

Parry Murray and Co Ltd Placon (India) Pvt Ltd

Polutech Ltd Prodorite Anticorrosives Ltd

Southern Energy Development Corporation

Sterling Abrasives Ltd

Wendt India Ltd  

International alliances

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Worldwide presence

Our international associates

Coromandel Fertilisers Limited (CFL) and Gujarat State Fertiliser

Corporation (GSFC) signed a joint venture agreement with Groupe

Chimique Tunisien of Tunisia for the manufacture of phosphoric

acid, a critical raw material in the manufacture of phosphatic

fertilisers and DAP.

In February 2005, Coromandel Fertilisers acquired a 2.5 per cent

stake for Rs.27 crore in Foskor Limited, a South African fertiliser

company. The Indian company will also advise Foskor on operational

issues to enable it to improve its financial performance.

EID Parry (India) Ltd and Cargill International S.A., Geneva have

announced their plans to enter into a joint venture to set up a port-

based stand-alone sugar refinery in Kakinada, Andhra Pradesh

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Parryware ROCA Private Limited, India's No. 1 bathroom solutions

provider and Spain's ROCA, the world's leading bathroom ceramics

company, will join hands to charter a new growth in the Indian

sanitaryware segment.

This is a joint venture between EID Parry India Limited and ROCA of

Spain, the world's leading bathroom Ceramics Company.

Murugappa Group and DBS Bank, Singapore became equal partners

in the joint venture Cholamandalam Investment and Finance

Company Ltd. (CIFCL). CIFCL has been renamed Cholamandalam

DBS Finance Ltd.

Group company Wendt India Limited is a joint venture with Wendt,

West Germany, a niche player in the abrasives industry. It makes

diamond and CBN grinding wheels and tools.

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Murugappa Morgan Thermal Ceramics Ltd is a joint venture

between Carborundum Universal (CUMI) and Morgan Crucible Co plc

of the UK. It produces ceramic fibres.

Cholamandalam MS General Insurance Co Ltd is a joint venture with

Japanese insurance giant Mitsui Sumitomo. Cholamandalam MS

General Insurance Co Ltd is a joint venture with Japanese insurance

giant Mitsui Sumitomo.

The Group has a joint venture with Borg Warner Morse Tec of the

US, a global leader in the design and manufacture of automotive

chain systems and components for engine timing, to manufacture

silent chains and associated systems.

TUBE PRODUCTS OF INDIA

Market Position

18

Tube Products of India is an undisputed leader in the Indian

market for precision Welded ERW and CDW steel Tubes with the

widest variety and also manufactures wide range of CRCA (Cold

Rolled Closed Annealed) Strips catering to international

standards

Products

Precision Tubes

Market leader in Telescopic Front Fork Inner tubes and Cylinder bore

tubes for shock absorber and gas spring applications.

Propeller shaft tubes for Automotive segment.

Other Speciality products include Rear Axle Tubes, Side Impact

Beams, Tie Rods, Drag links. Heavy thick steering shafts and

Hydraulic Cylinder tubes

CRCA Strips

A wide range of CRCA strips including special extra deep drawing,

high tensile, medium carbon, high carbon finding application in

industries such as Bearings, Automobile, Auto Ancillaries and

General Engineering.

Certifications

ISO-TS 16949 : EOU plant has already been certified, Shirwal plant has been recommended

ISO 9001 - 2000 : All plants

ISO 14001 : Avadi Plant & EOU Plant

Self-certification for boiler tubes by the central boiler board

Winner of the Sword of honour for outstanding safety performance

from the British Safety council

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Locations

Plants : Chennai (South India), Shirwal (Western India) & Mohali

(Northern India)

Business Partners / Customers

Maruti Udyog Ltd

Hyundai Motor Ltd

Toyoto Kirloskar Automobiles Limited

Mahindra & Mahindra

Ashok Leyland

Tata Motors

Hero Honda

TVS Motor Company

Bajaj Auto Limited

Yamaha Motor

Thermax

Kayaba, Malaysia

Dana Australia

Delphi - India

CORPORATE PROFILE

A Reputed Engineering Company

in India, driving excellence in work

and part of the US $ 2 billion

Indian conglomerate,

The Murugappa Group

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Tube Investments of India Limited is the flagship Company of Rs.

8500 crore Murugappa Group. It manufactures precision steel tubes

and strips, car doorframes, automotive and industrial chains and

bicycles.

The Company has 13 manufacturing/assembly units spread across

the country. These units are ably supported by marketing offices

that act as interface between customer requirements and

production team. The Company’s shares are listed on the National,

Mumbai and Chennai stock exchanges within India and GDRs on the

Luxembourg Stock Exchange. The Company’s product segments are

- Engineering, Metal Formed Products and Cycles.

TI is the market leader in precision tubes with 61 percent

market share by virtue of its quality and application

engineering capabilities.

TI is the market leader in roll formed car doorframes with 57

percent market share by virtue of its cost efficiency,

association with key auto majors and roll forming capabilities.

TI is a leading player in automotive chain with 35 percent

market share by virtue of its quality, cost and delivery and

association with two wheeler majors.

TI is a leading player in bicycle segment with 30 percent

market share by virtue of its brand equity, product

development capability and proximity to the markets.

21

The Company also has an interest in the services sector through its

investments in Cholamandalam Investment and Finance Company

Ltd. and Cholamandalam MS General Insurance Co. Ltd.

BOARD OF DIR ECTORS

Mr. M M Murugappan,ChairmanProfile 

Mr. Amal Ganguli,Non-Executive DirectorProfile

22

Dr. D Jayavarthanavelu,Non-Executive DirectorProfile

Mr. Pradeep Mallick,Non-Executive DirectorProfile

Mr. Ram V Tyagarajan,Non-Executive DirectorProfile

Mr. S Sandilya,Non-Executive DirectorProfile

Mr. R Srinivasan,Non-Executive DirectorProfile

Mr. N Srinivasan,DirectorProfile

Mr. Tapan Mitra,Non-Executive DirectorProfile

CORPORATE GOVERNANCE

Good corporate governance has consistently been TI’s cornerstone

for sustained superior financial performance, and quality service to

all its stakeholders. At TI, we firmly believe that the fundamental

objective of corporate governance is enhancement of long-term

shareholder value, while keeping the interests of all stakeholders in

view.

23

Dedicated to the highest standards of corporate governance in all its

activities and processes, the Company is committed to discipline,

willingness, transparency and fairness. Key elements in TI’s

corporate governance include :

Transparency

Disclosure

Supervision and internal controls

Risk management

Internal and external communications

High standards of safety, health, accounting fidelity, product

and service quality [

Besides drawing on the various legal provisions, group practices are

continuously benchmarked in terms of the Confederation of Indian

Industry Code and international studies. The entire process begins

with the functioning of the Board of Directors, with leading

professionals and experts serving as independent directors and

represented in the various board committees. The Board has

empowered an efficient team of experts to implement its policies

and guidelines and has set up adequate review processes  to ensure

continual value generation.

WHISTLEBLOWER POLICY

Policy Title Whistleblower Policy

Version Number MHRPOL2/1/2006

Effective Date 1/4/2006

Initiated By Group Director HR

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Authorised By Company Statutory Board

Number of Revisions (since 1/1/2006)

Nil

Last Revised Date N.A.

Next Revision Date 1/4/2008

 

Policy Whistleblower Policy

Objective To provide employees, customers and vendors an

avenue to raise concerns, in line with Tube

Investments of India Limited’s commitment to

the highest possible standards of ethical, moral

and legal business conduct and its commitment to

open communication. To provide necessary

safeguards for protection of employees from

reprisals or victimization, for whistleblowing in

good faith.

Scope All permanent employees, customers and vendors

of Tube Investments of India Limited

Coverage Tube Investments of India Limited including

Associate Companies and Joint Ventures.

Main Features Improper Practice

The whistleblowing policy is intended to cover

serious concerns that could have a large impact

on Tube Investments of India Limited such as

actions (actual or suspected) that :

May lead to incorrect financial reporting ;

Are not in line with applicable company

25

policy ;

Are unlawful or,

Otherwise amount to serious improper conduct.

Complainant

(Whistleblower)

An employee/customer/vendor making a

disclosure under this policy is commonly

referred to as a complainant (whistleblower).

The complainant’s role is as a reporting party,

he/she is not an investigator.. Although the

complainant is not expected to prove the truth

of an allegation, the complainant needs to

demonstrate to the Ombudsperson, that there

are sufficient grounds for concern.

Safeguards Harassment or Victimisation

Harassment or victimistion of the complainant

will not be tolerated and could constitute

sufficient grounds for dismissal of the concerned

employee.

Confidentiality

Every effort will be made to protect the

complainant’s identity, subject to legal

constraints.

Anonymous Allegations Complainants must

put their names to allegations as follow-up

questions and investigation may not be possible

unless the source of the information is identified.

Concerns expressed anonymously WILL NOT BE

usually investigated BUT subject to the

seriousness of the issue raised the

Ombudsperson can initiate an investigation

26

independently.

Malicious Allegations Malicious allegations by

employees may result in disciplinary action.

Ombudsperson The Ombudsperson will be a person, including a

full-time senior employee, well respected for

his/her integrity, independence and fairness.

S/he would be authorized by the Statutory Board

of the company for the purpose of receiving all

complaints under this policy and ensuring

appropriate action.

Reporting The whistleblowing procedure is intended to be

used for serious and sensitive issues. Serious

concerns relating to financial reporting,

unethical or illegal conduct should be reported

to the Ombudsperson. Annexure I provides the

necessary contact details.

Investigation All complaints received will be recorded and

looked into. If initial enquiries by the

Ombudsperson indicate that the concern has no

basis, or it is not a matter to be pursued under

this policy, it may be dismissed at this stage and

the decision documented Where initial enquiries

indicate that further investigation is necessary,

this will be carried through either by the

Ombudsperson alone, or by a Committee

nominated by the Ombudsperson for this

purpose. The investigation would be conducted

in a fair manner, as a neutral fact-finding

27

process and without presumption of guilt. A

written report of the findings would be made.

Investigation

Result

Based on a thorough examination of the findings,

the committee (or Ombudsperson) would

recommend an appropriate course of action to

the CEO / MD of Tube Investments of India

Limited. Where an improper practice is proved,

this would cover suggested disciplinary action,

including dismissal, if applicable, as well as

preventive measures for the future. All

discussions would be minuted and the final report

prepared.

Investigation

Subject

The investigation subject is the person / group of

persons who are the focus of the enquiry /

investigation. Their identity would be kept

confidential to the extent possible

Reporting by

Ombudsperson

The Ombudsperson will provide quarterly reports

to the Chairman of the Statutory Board with a

copy to the Group Director HR.

Communication with Complainant

The complainant will receive acknowledgement

on receipt of the concern.

The amount of contact between the complainant

and the body investigating the concern will

depend on the nature of the issue and the clarity

of information provided. Further information may

be sought from him/her.

28

Subject to legal constraints, s/he will receive

information about the outcome of any

investigations.

Changes to

Policy

This policy can be changed, modified, rescinded

or abrogated at any time by Tube Investments

of India Limited.

ACCOUNTABILITIES Employees / Customers / Vendors

1. Bring to early attention of the

company any improper practice they

become aware of. Although they are

not required to provide proof, they

must have sufficient cause for

concern.

2. Avoid anonymity when raising a

concern.

3. Co-operate with investigating

authorities, maintaining full

confidentiality.

4. The intent of the policy is to bring

genuine and serious issues to the fore

and it is not intended for petty

complaints. Malicious allegations by

employees may attract disciplinary

action.

5. A complainant has the right to

protection from retaliation. But this

does not extend to immunity for

complicity in the matters that are the

subject of the allegations and

investigation.

6. In exceptional cases, where the

29

complainant is not satisfied with the

outcome of the investigation carried

out by the Ombudsperson, s/he can

make a direct appeal to the Chairman

of the Audit Committee of Tube

Investments of India Limited.

Ombudsperson1. Ensure that the policy is being

implemented.

2. Ascertain prima facie the credibility of

the charge. If initial enquiry indicates

further investigation is not required,

close the issue.

3. Document the initial enquiry.

4. Where further investigation is

indicated carry this through,

appointing a Committee if necessary.

5. Provide quarterly reports to the CEO

of Tube Investments of India

Limited with a copy to the Group

Director HR.

6. Acknowledge receipt of concern to the

complainant, thanking him/her for

initiative taken in upholding the

company’s business conduct

standards.

7. Ensure that necessary safeguards are

provided to the complainant.

Ombudsperson/

Committee

1. Conduct the enquiry in a fair,

unbiased manner

2. Ensure complete fact-finding.

3. Maintain strict confidentiality.

30

4. Decide on the outcome of the

investigation, whether an improper

practice has been committed and if so

by whom.

5. Recommend an appropriate course of

action suggested disciplinary action,

including dismissal, and preventive

measures.

6. Minute Committee deliberations and

document the final report.

CEO 1. Table the quarterly reports from the

Ombudsperson with the Statutory

Board.

2. Ensure necessary actioning of

recommendations of the

Ombudsperson / Committee.

Investigation

Subject

1. Provide full co-operation to the

Investigation team.

2. Be informed of the outcome of the

investigation.

3. Accept the decision of the

Ombudsperson.

4. Maintain strict confidentiality.

31

IMPROPER PRACTICES

Serious concerns that would have impact on Tube Investments of

India Limited, such as actions (suspected or actual) that:

May lead to incorrect financial reporting ;

Are not in line with applicable company policy ;

32

Are unlawful or, Otherwise amount to serious improper

conduct.

SAFEGUARDS

Harassment or Victimisation : Harassment or victimisation

of the complainant will not be tolerated and could constitute

sufficient grounds for dismissal of the concerned employee.

Confidentiality : Every effort will be made to protect the

complainant’s identity, subject to legal constraints.

Anonymous Allegations : Complainants must put their

names to allegations as follow-up questions and investigation may

not be possible unless the source of the information is identified.

Concerns expressed anonymously WILL NOT BE usually investigated

BUT subject to the seriousness of the issue raised the

Ombudsperson can initiate an investigation.

Malicious Allegations : Malicious allegations by employees may

result in disciplinary action.

AWARDS AND CERTIFICATES

Prestigious national and international awards and certificates adorn

the Murugappa portfolio and reinforce its execellence in its

businesses. A quick glance at some of them:

33

The Murugappa Group has won the IMD Distinguished Family

Business Award 2001

Company awards

CUMI was ranked third in ICWAI award for Excellence in Cost

Management in the 2004

The bonded abrasives business has been conferred the CII-Exim

Award 2005 for Business Excellence for strong commitment

to excel

Frost & Sullivan award for manufacturing excellence -

managing change

Forbes names CUMI as one of Asia's best 200 companies under

a billion

Almost all CUMI plants are ISO 9002 certified

For the ninth time the FAI Best

Production Performance Award for

2006, to the phosphoric acid plant in

Vizag

Award for Best Energy

Conservation in the Fertiliser sector

for 2005-06, received by Vizag Plant

on 14 December 2006, National

Energy Conservation Day

'National Energy Conservation

Award for 2006' from the Ministry of

Power, New Delhi, in appreciation of

34

efforts in energy conservation in the

fertiliser sector — won for the third

time

The FAI Best Video Film Award for 2006, to the film on

'Gromor Sulphur' for the fifth time

National award (1st prize) for the house journal, 2006, from

the Public Relations Society of India, New Delhi, received for The

Voice (house journal) for the second consecutive year

National Award (2nd prize) for video film, 2006, from the

Public Relations Society of India, New Delhi, to the Marketing

Department (Fertilisers) for the film Cheyutha (helping hand)

British Council 'Five Star' rating for safety management

systems in 1998

First prize for safety, among 162 fertiliser companies in the

International Fertiliser Industries Sectional Contest

Andhra Pradesh Pollution Control Board's award for 'Waste

Minimisation at Source and Adopting Cleaner

Technologies' for 2001-02

FAI award for 'Environmental Protection in NP / NPK Fertiliser

Plant Category' for 1995-96

Adjudged one of the 'Ten Greenest Companies in India' by a

joint survey of Tata Energy Research Institute (TERI) and

Business Today magazine

Several other awards from the central and state governments,

as well as other institutions like the Jawaharlal Nehru Award for

Pollution Control and Energy Conservation

Received a commendation certificate for a 'Strong

Commitment to HR Excellence' from the Confederation of

35

Indian Industries (CII)

CFO Deal of the Year Award, 2005, for the Business

Assistance Agreement with Foskor Limited, South Africa

The Visakhapatnam Plant was awarded ISO 14001:1996 first in

2002 and again in 2004. The company is also the recipient of

OHSAS 18001:1999 certificate.

SUBJECT PRESENTATION & ANALYSIS OF DATA

36

37

WORKING CAPITAL

The part of long term finance locked in and used for

supporting current activities i.e, to maintain the productivity of fixed

assets i.e, without the for current activities for fixed asset are

valuables. The amount blocked for or locked for the current

activities is really working capital.

Those assets which can concentrated into cash or cash

equivalent within a short period i.e., the assets which are ultimately

converted into cash i.e., which are required to meet the day to day

operation is current asset.

MEANING OF WORKING CAPITAL

Capital required for a business can be classified under two

main categories.

Fixed Working

Capital Capital

Fixed capital : The capital which is blocked on a permanent or

fixed basis is called fixed capital.

Example – Long term funds

Working capital : Funds which are needed for short term purpose

for the purpose of raw materials, payment of wages & other day to

day exp. Are knows as working capital.

Working capital is defined as the excess of current assets over

current liabilities.

Current assets are those assets which will be converted into

cash which is the current a/c period. They are cash or near cash

resources these include.

38

Current Assets – Current Liabilities

Cash & bank balance

Receivables.

Inventory

o Raw materials, stores & spares.

o Work-in-progress

o Finished good

Prepaid exp

Short term advances

Temporary investments

Current liabilities are the debts of the firms that have to be

paid during the current a/c period or within a year.

Creditors for goods purchased.

O/S Expenses i.e. exp doe but not paid.

Short term borrowings

Advances receive against sales.

Working capital is also know as circulating capitals fluctuating

capital and revolving capital.

Circulation of current assets

Cash

Inventories

Receivables

OBJECTIVE OF WORKING CAPITAL

The basic objective of working capitals are as follows:

39

By optimizing the investment in current assets & by reducing

the level of current liabilities.

The second imp objective of working capital management is

that the company should always be in a position to meets its

current obligations.

The firm 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.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital gross concept & net

concept.

Gross Working Capital refers to the firm’s total investment

on current assets.

Net Working Capital: is the difference be in current asset &

current liabilities.

The gross working capital is a financial or going concern

concept where as net working capital is an a/c concept of working

capital.

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified into two categories

40

Working Capital

On the basic of concept

On the basic of time

Gross working capital

Net working capital

Fixed working capital

Temporary or variable working

capital

Regular working capital

Reserve working capital

Seasonal working capital

Special working capital

PERMANENT WORKING CAPITAL

Fixed or permanent working capital is the amount of funds

required for production of goods & services to satisfy the demand.

41

For example every firm has to maintain a minimum level of

raw materials, work-in-progress, finished goods & cash balance.

The minimum level of current assets is called permanent or

fixed working capital as this part of capital is permanently blocked

in current assets.

TEMPORARY WORKING CAPITAL

Temporary or variable working capital is the amount of

working needed over & above the minimum level of working capital

to meet the special demands & some special agencies.

IMPORTANCE OF WORKING CAPITAL

Working capital is very essential to maintain the smooth

running of a business. No business can run success fully without an

adequate amount of working capital.

Solvency of the business: Adequate working capital helps

in maintaining solvency of the business by providing

uninterrupted flow of productions.

Good will

Easy loans

Cash discount

Regular supply or raw materials

Regular payment of salaries & wages.

Ability to face crisis

Quick & regular return on investment

High moral

DISADVANTAGE INSUFFICIENT WORKING CAPITAL

42

Trade discounts are lost

Cash discount are lost

The advantages of being able to offer a credit line to customer

are forgone

Financial reputations are lost.

NEED OF WORKING CAPITAL

The need for working capital due to the time gap bet

production & realization of cash.

For the purchase of raw materials, components & spares.

To pay wages salaries

To insure day-to-day expenses.

To meet the selling cots.

To provide credit facilities.

To maintain the inventories of raw materials, work in progress.

FACTOR DETERMINING THE WORKING CAPITAL

REQUIREMENTS

Nature of business

Manufacturing cycle

Business cycle fluctuation

Sales of operation

Credit policy

Growth & diversification of business

Supply situation

Operating efficiency of performance

SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT

43

Principles of risk variation

Principles of cost of capital

Principles of equity potion

Principles of maturity of payment

Operating Cycle

Concept :

Operating cycle: The blockage of

resources in the product cycle due to the time factor, which

consists of there activities.

44

Purchasing resources: i.e., procumbent of

raw materials and other.

Producing the product: i.e., the working

progress and finished product which consists material, labour and

other expenses.

Distributing the product: i.e., sale of

finished product either in cash or credit and converting the credit

sale into cash.

To maintain liquidity and factoring properly the firm has to invest

various certain assets like cash balance to pay the bill, investing

stocks for production and sale and invest in sale to allow credit.

Operating cycle: the conversion periods of

current asset to absolute liquid asset. i.e, cash or cash

equivalent.

Mathematically expressed: It is the sum

of inventory conversion period and receivable conversion period,

i.e, inventory conversion period + receivable conversion period.

(It is the represent of gross working capital)

Operating cycle

Operating cycle consists of time duration starting from

procurement of raw material, ended at sales realization i.e, the time

gap between the first event and the last event i.e, the cash

conversion period i.e, converting cash to other current asset and

other current asset to cash.

45

Cash

Raw material

Labour & factory over head work-in-progress

Bill receivable

(Credit) Sale

Finished goods

Figure in operating cycle

PROCESS OF OPERATING CYCLE

Initial cash requirements

Procurement of raw material

Payment of labour and factory over head

i.e, conversion of raw material to working progress.

Convert working progress to finished goods.

i.e., charge or pay administrative expenses

Convert finished good to sale

If credit sale convert bills receivable

(debtion) to cash.

Operating cycle period is the length or time duration of

operating cycle. i.e, it is the sum of inventory conversion period

(ICP) and receivable conversion period (RCP) i.e. the gross operating

46

cycle. i.e, the gross operating cycle. i.e. ICP + RCP = gross

operating cycle inventory conversion period (ICP) = Raw material

conversion period (RMCP) + Work in progress conversion period

(WPCP) + finished good conversion period (FGCP),

i.e.

Receivable conversion period (RCP)

The time period required to convert credit sale into cash.

Cash Management

Introduction

Cash is the important current assets and is the basic input

needed to keep the business running on a continuous basis. Thus

47

the company should keep sufficient cash, neither less nor more. The

cash includes cash in hand and cash at bank. The entire

businessman wants cash but he is not ready 0 hold it as cash-in-

hand which is a non-earning asset.

Effective cash management involves an effort to minimize

investment in cash without affecting the liquidity of the

organization. It is a proper balancing between liquidity and

profitability.

CASH MANAGEMENT CYCLE

Motives for Holing Cash

a. Transaction Motive

The transactions motive requires a company to hold cash to

conduct its business in the ordinary course. The firm needs cash

48

Business Operation

Cash Collection

Deficit Surplus

Borrow Invest

Information and Control

Cash Payment

primarily to make payments for purchases, wages and salaries,

other operating expenses, taxes, dividends etc.

b. Precautionary Motives

The precautionary motive is the need to hold cash to meet

contingencies in future or un predictable situation. The cash

maintained for contingency needs is not productive or remain ideal.

However, such cash may be invested in short period or low-risk

marketable securities, which may provide cash as and when

necessary.

c. Speculative Motive

The speculative motive relates to the holding of cash for

investing in profit making opportunities as and when they arise. The

firm may speculate on securities, which depends on interest rates.

The firm may also speculate on material's prices.

Thus the primary motive to hold cash and marketable

securities are the transaction and precautionary motive.

c. Compensative Motive

The motive for holding, near cash to compensate bank

for providing certain services or loans.

For the services like cheke, clearance transfer funds the

banks charges some direct fee or commission. But for the

loan & other services the bank needs minimum balance of

cash at bank, which is called compensating balance.

Compensating balance = Absolute minimum balance

and average minimum balance.

CASH MANAGEMENT

49

Management of cash involves three things:

A. Managing cash flows into and out of the firm.

B. Managing the cash flow with the firm.

C. Financing deficit or investing surplus cash and thus

coordinating cash balance at a point of time.

In case of well managed profitable companies like NALCO, the

total amount of cash inflow for the year is usually higher than the

total amount of cash outflows.

CASH PLANNING

It is a technique to plan and control the use of cash. Cash

planning may be doe daily, weekly or monthly basis. The period and

frequency of cash planning generally depends upon the size and

policy of management of the firm. Larger firm often prepare cash

forecasts on daily or weekly basis. As a firm grows and business

operations became complex, cash planning becomes inevitable for

its continuing success.

CASH FORECASTING AND BUDGETING

A cash budget is a summary statement of the firm's expected

cash inflows and outflows over a projected time period. It is the

most significant device to plan and control cash receipts and

payments. It gives information on the timing and magnitude of

expected cash flows and cash balances over the projected period.

50

Cash forecasts are needed to prepare cash budgets. Cash

forecasting may be done one year or less are considered as short-

term.

Both Short-term and lon8-term forecasts can be made with the help

of the two most commonly used methods i.e.

1. The receipt and disbursement method.

2. Adjusted net income method.

Though, these cash forecasts do not reflect the exact figures

yet they enable the planners to make necessary arrangement for

requirement.

CASH REPORTS: TOOLS OF CONTROL

Cash report is an important tool of cash management, which

provides a comparison of actual development with forecast figures.

It is very much helpful in reviewing cash forecasts on continuous

basis and thus exercising effective control in cash flows. The cash

reports include daily cash report.

MANAGEMENT OF CASH FLOWS

After ascertaining the probable cash flows, efforts should be

made to procure or arrange the cash required for the smooth

running of the organization.

Cash management will be successful only if the cash

collections are accelerated and cash disbursements are delayed. As

far as possible, some popular methods adopted by different

51

organizations for cash inflows and retardation of cash out flows are

listed below;

Methods of accelerating of cash inflows

1) Prompt collections of cash from customers by

prompt billing and mailing.

2) Quick conversion of payments into cash by prompt

presentation of cheques or drafts to bank.

3) Decentralizing collections by opening collection

centers at different places.

4) Adopting a .lock box system under which a bank is

authorized to collect cheques etc. directly from the post

box of the company, set up for the purpose.

Methods for slowing down of cash out flows

i) Making payments on due date/ last date

ii) Paying through drafts instead of cheques

iii) Centralization of payments.

iv) Inter bank transfers, when the company has accounts in

more than one bank.

v) Making use of flow amount.

vi) Adjusting pay roll fund according to the needs of the

organization. .

INVENTORY MANAGEMENT

52

Inventory constitutes the most significant par t of current

assets of a large majority of companies in India. On an average

inventories are approximately 60% of current assets in public

limited companies and any effort in stock control will bring major

benefits for the enterprise. An efficient management of inventory is

an essential requirement for the success of the enterprises.

Classification of inventories:

Raw materials: it includes direct material used in

the manufacture of a product and it also includes the

components, fuels etc. used in the manufacture.

Work - in- progress: it includes partly finished

goods and materials sub-assemblies etc held between

manufacturing stages. Stocks of work in -progress are in the

process of production.

Finished goods: The goods ready for sale or

distribution will come under this category.

Need to hold inventories

Transaction motive emphasizes the need to

maintain inventories to facilitate smooth production and sales

operation.

Precautionary motive necessitates holding

inventories to guard against the risk of unpredictable changes

in demand and supply forces and other factors.

53

Speculative motive influences the decisions to

increase or reduce inventory levels to make advantage of

price fluctuation.

Objective of inventories management

To minimize the delay in production through

regular supply of raw materials, storages, spares, tools and

other equipments as and when required.

To avoid unnecessary capital being locked of in

inventory.

To exercise economies in ordering and obtaining

supplied and storage material.

Inventories determinants

In Tube Products of India the inventory determinants are:

1) Load Period: it is the period between need and

its fulfillment. During this period, no inflow of material is done

and the production is supplied by existing inventory. Increase in

lead time requires more inventory and decrease in lead time

decreases the inventory level. So lead period is the some of

time taken for identifying the needs & placing order to supplier,

procuring from supplier, transport, receipt and inspection of

material.

2) Cost of holding inventory: In order to avoid

risk, the inventory management should balance the various

costs so that the total cost is minimized. The different cost are

material cost, cost of ordering cost of holding & carrying the

inventory, under stocking and over stocking.

54

3) Re-order Point: It is the time when the order

should be placed. It depends on assumption rate and the

duration of lead period. So this point is fixed basing on

consumption of lead period plus safety stock.

4) Kind of stock: It is of different kind i.e. safety

stock, reserve stock buffer stock etc. buffer stock provides for

normal consumption during an average lead time. The reserve

stock provides for an increase consumption rate, stock is for an

increasing lead time. As lead period is not constant, always

safety stock is required.

Inventory Management Techniques

Company having large inventories have the problem that the

management can not give attention to all items. In Nalco to avoid

these, they follow mainly these type of methods

i. ABC (Always Better Control) - For raw materials.

ii. VED (Vital, Essential, Desirable) - For Spare parts.

iii. FNSD (Fast moving, Non moving, Slow moving, Dead)

iv. EOQ (Economic Ordering Quantity)

v. JIT (Just In Time)

ABC ANALYSIS

Here the important of items depends on its value. The high

valued items are classified as 'A'; less valued as 'C' and in between

them is 'B'. This is done in the following steps

a) Classification of the items of inventories, determining

expected use in units and price per unit for each items.

b) Determination of total value of each item.

55

c) Ranking the items according to their values.

d) Computation of percentage of number of units in each items

to the total units of all items and percentage of total value of

each item to total value of all items.

e) Combination of items on the basic of their relative value to

form three categories i.e. A,B,C.

VED ANALYSIS

The demand for spare parts depends on the performance of

equipments. The vital spare parts stored adequately for adverse

situation. Essential parts are stocked rather sparingly and the

desirable items are stored on basing on lead time. This is mainly

followed in CPP, production Department.

FNSD ANALYSIS

The, items are classified basing on their consumption rate &

helps the management to take decisions about storing of different

inventories.

ECONIMIC ORDETRING QUANTITY

Economic ordering quantity is an optimum quantity of

materials to be ordered after consideration of the following three

categories of costs.

Ordering cost are the costs which are associated

with the purchasing or ordering of materials.

56

Carrying cost are the costs for holding the

inventories. These costs will be incurred if the inventories are

not carried.

Stock-out cost are the costs associated with

running out of costs. The EOQ is the optimum size of order for

a particular item of inventory calculated at a point where the

total inventory costs are at a minimum for that particular

stock item.

It is an optimum size of either a normal outside

purchase order or an internal production order that minimizes

total annual holding and ordering costs of inventory.

JUST IN TIME INVENTORY MANAGEMENT

JIT focus upon the idea of producing in response to need

rather than as a consequence of plans and forecast. Instead of

pushing inventory into the system in order to make products, they

turned the process round and used the pull from the market place

or the next operation as a way of making the system more directly

responsive and eliminating unnecessary wastes due to over

production and so on. It attempts to minimize inventories through

small incremental reductions rather than prescribe particular

technology or methodology.

Inventory proportion ratio =

MANAGEMENT OF RECEIVABLES

To achieve growth in sales and to meet competition in the

industry .A firm may resort to credit sales. Receivables arise from

the sale of goods and services on credit basis. Sales on credit

depend upon the nature of business. To increase the sales volume,

57

generally the credit facility will be offered to the customer which

result in investment in receivables to maximize return on capital

employed. The balance in receivable account is determined by the

number of customers, length of credit, amount of credit allowed to

each customer etc.

Objective:

To maintain the optimum volume of sales.

To control the cost of credit and keep it at

minimum.

To maintain the optimum level of investment in

receivables.

Keep down the average collection period.

Cost of extending credit :

Capital cost includes the interest on capital

blocked in the receivables balances.

Administration cost associated with the credit

decision making and controlling of debtor balances, cost

of keeping the records of credit sales, cost of collection

of payment from customers, opportunity cost of capital

that can be employed else where than in receivables

management.

Default cost are associated with the risk of default

i.e. a certain portion of receivables will never pay, and

will become 'bad debt's which has to be written off the

profits of the firm.

CREDIT POLICY OF TI

58

In TI the credit and col1ection policy changes from time to

time. The responsibility to administer credit and collection policy is

assigned to the financial executive and marketing executives. The

effective control of receivable management has divided credit

control into different steps.

Allocation of authority for granting credit and

collection

Selection of proper credit term

Credit investigation before granting credit.

Sound collection policies and procedures.

Credit policy can be divided into three variables:

1) Credit standard

2) Credit term

3) Collection policy

Credit standard:

It is the criteria which a firm follows in selecting customers for

the purpose of credit extension. It may be loose or strict. In TI they

prefer strict credit standard i.e to extend credit to reliable and

financially strong customers. This helps in minimizing the bad dents

and cost of credit administration. Through the credit standard is

strict, but management never allow it to be a negative strategy for

sales growth. The following points are taken into consideration by TI

to grant credit to any customer

59

A. Capacity to pay

B. Company's repu ta tion

C. Past experience

D. Economic condition

E. Bank reference

Credit term:

The stipulation under which the firm sells on credit to

customer is called credit. These includes credit period cash discount

and credit limit’s

Credit period is the length of time for which credit

is extended to customer. In TI the credit period varies

from 30 to 75 days. The period is different for different

customers basing on the faith on the customer.

Cash discount is the reduction in payment offered

to customer to induce them to repay entire obligation

within a specified period of time which is less than the

normal credit period. It is usually as a percentage of

sales.

Credit limit is the maximum amount of credit

which can be extended to particular customers.

Management always fixed the limit basing on the

quantity purchased by the customer and financial

condition of the customer. For frequent buyer customer

permanent credit limit is maintained.

Collection Policy:

The purpose of this is to speed up the collection of dues. The

company has laid down collection procedure for the individual

60

accounts i.e. customer wise book maintaining system. The collection

procedure for past due or delinquent accounts should also be

established in very clear terms.

Accounts receivables reports are prepared for maintaining the

debt. Company has also not allowing any sales through dealer

special consideration.

Working capital management in TI

Here the study is as the management of working capital in TI

which induce analysis of investment in different components of

current assets like inventories, debtors cash & bank etc. Analysis or

financial control measures taken by the company.

The total analysis was conducted on the following heads.

1) Analysis or over all efficiency in mgt of no cap in TI. 2) Cash mgt. 3) Inventory mgt.4) Mgt of receivable 5) Financing of no cap.

Trend analysis of working capital of TI. Gross working capital (Rupees in Crores)

Year Current asset or working capital

2004-05 516.90

2005-06 525.90

2006-07 596.62

61

It shows that company is maintaining its level C.A. properly

according to its changing business activity.

Table: net working capital

Year C.A C. Lia Net working cap

2004-05 516.91 302.49 214.42

2005-06 525.90 325.92 199.98

2006-07 596.62 352.82 243.80

Net working capital = Current Assets – Current Liabilities

If we analyze the net working capital trend form the three

years, it is having a going motion that is here is a decrease in 2005-

06 in comparison to 2004-05 and suddenly increases in 2006-07.

Gross working capital Vs Net working capital

62

516.91 525.9

596.62

214.42 199.98243.8

0

100

200

300

400

500

600

700

2004-05 2005-06 2006-07

C.A Net working cap

Working capital ratios

Working capital ratio indicate the ability of a business concern

in meeting it current obligations as well as its efficiency in managing

the current asset for generation of sales. These ratios are applied to

evaluate the efficiency with which the company manage & utilize its

C.A. The following three categories of ratios are used for efficient

mgt of working capital.

1) Efficiency ratio

2) Liquidity ratio

3) Structural he3alth ratio

1. Efficiency ratio

Working capital to sales

63

Year G. Sales Working Capital Ratio

2004-05 1562.58 214.42 7.28

2005-06 1584.18 199.98 7.92

2006-07 1761.84 248.80 7.08

The ratio helps to measure the efficiency of the utilization of

net working capital. It signifies that for an amount of sales, a

relative amount working capital in needed. This ratio helps the mgt

to maintain the adequate level of working capital. The mgt has

maintain adequate level of working capital with the increase in

sales.

0

200

400

600

800

1000

1200

1400

1600

1800

2000

G. Sales WorkingCapital

Ratio

2004-05

2005-06

2006-07

2.

Year Sales Inventory Ratio

64

2004-05 1562.58 149.79 10.43

2005-06 1584.18 165.72 9.55

2006-07 1761.84 205.80 8.56

This ratio indicates the effectiveness & efficiency of the

inventory mgt. the ratio shows how speedily the inventory is turned

into a/c receivable through sales. The higher the ratio, the more

efficiency the inventory is said to be managed.

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Sales Inventory Ratio

2004-05 2005-06 2006-07

3. current assets turnover ratio – sales/current assets

Year Sales Current assets Ratio

65

2004-05 1562.58 516.91 3.02

2005-06 1584.18 525.90 3.01

2006-07 1761.84 596.62 2.95

This ratio indicates the efficiency with which C.A turn into

sales. A higher ratio implies by & large a more efficient use of funds.

Thus a higher turn over rate indicates reduced loch-up of funds in

C.A turn over ratio.

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Sales Current assets Ratio

2004-05 2005-06 2006-07

II. Liquidity ratio of TI

1.

66

Year C. Assets & Loans &

Advanced

Currents Lia. & Provision

Ratio

2004-05 516.91 302.49 1.70

2005-06 525.90 325.92 1.61

2006-07 596.62 352.82 1.69

This ratio indicates the extent of the soundness of the current

financial position at an undertaking & the degree of safety provided

to the creditors. A.C.A ratio of 2: indicates a highly solvent position

A.C Ratio of V – 33.1 is considered by banks as minimum acceptable

for providing W. Capital Finance. In TI should take necessary steps

to improve it.

0

100

200

300

400

500

600

700

C. Assets &Loans &

Advanced

Currents Lia. &Provision

Ratio

2004-05 2005-06 2006-07

2)

Year Current Assets Inventory C. Lia Ratio

67

2001-02 516.91 149.79 302.49 1.21

2002-03 525.90 165.72 325.92 1.1

2003-04 596.62 205.82 352.62 1.1

This ratio shows the extent of cushion of protection provided from

the quick asset to the current creditors. A quick ratio of 1:1 is

usually considered satisfactory though it is agin a rule of thumb

only.

0

100

200

300

400

500

600

700

Current Assets Inventory C. Lia Ratio

2001-02 2002-03 2003-04

Balance SheetRs. in CroresAs at 31st March, Schedule 2007 2006SOURCES OF FUNDSShareholders’ Funds(a) Share Capital 1 36.95 36.95(b) Reserves and Surplus 2 618.90 495.15655.85 532.10Loan Funds(a) Secured Loans 3 138.81 171.85(b) Unsecured Loans 4 67.64 72.45

68

206.45 244.30Deferred Tax Liability (Net) 41.83 41.50(Refer Note 9 of Schedule 18)904.13 817.90APPLICATION OF FUNDSFixed AssetsGross Block 5 734.06 626.01Less : Depreciation 369.82 324.44Net Block 364.24 301.57Capital Work-in-Progress at Cost (including Capital Advances) 105.54 80.49(Refer Note 4 of Schedule 18)469.78 382.06Investments 6 190.55 235.86Current Assets, Loans and Advances(a) Inventories 7 205.80 165.72(b) Sundry Debtors 8 277.23 206.35(c) Cash and Bank Balances 9 17.25 91.91(d) Loans and Advances 10 96.34 75.64596.62 539.62Less : Current Liabilities and Provisions 11(a) Current Liabilities 296.82 300.35(b) Provisions 56.00 39.29352.82 339.64Net Current Assets 243.80 199.98904.13 817.90Significant Accounting Policies 17Notes on Accounts 18The Schedules referred to above form an integral part of the Accounts.As per our report of even date attachedFor Deloitte Haskins & SellsChartered Accountants On behalf of the BoardK Sai Ram M M MurugappanPartner ChairmanM. No. 022360Chennai S Suresh K Balasubramanian N Srinivasan27th April 2007 Company Secretary Chief Financial Officer Director35

Profit and Loss AccountRs. in CroresFor the year ended 31st March, Schedule 2007 2006IncomeSales and Processing Charges 1761.84 1584.18Less : Excise Duty on Sales 146.80 123.24Net Sales and Processing Charges 1615.04 1460.94Other Income 12 92.74 134.041707.78 1594.98ExpenditureRaw Materials Consumed (Net) 13 976.72 888.92

69

Accretion to Stock 14 (13.82) (21.87)Employee Cost 15 115.07 97.31Operating and Other Costs 16 372.82 323.53Depreciation 50.39 48.56Interest - Debentures and Fixed Loans 7.13 7.44- Others 4.16 5.4611.29 12.901512.47 1349.35Profit Before Taxes 195.31 245.63Provision for TaxationIncome Tax- Current Year 35.00 47.50- Prior Years - 3.62Deferred Tax (Net) (Refer Note 9 of Schedule 18) 2.59 8.79Fringe Benefit Tax 1.94 2.79Profit After Taxes 155.78 182.93Add : Balance Brought Forward from Previous Year 143.66 119.75Add : Dividend on Own Shares held through Trust 4.77 -(Refer Note 5 of Schedule 18)Profit Available for Appropriation 304.21 302.68Appropriations:Transfer to General Reserve 15.58 60.00Special Interim Dividend @ Nil (Previous year 175%) - 64.67Tax on Special Interim Dividend - 9.07Dividend Proposed - Final @ 75% (Previous year 60%) 27.71 22.17Tax on Final Dividend 4.71 3.1148.00 159.02Balance Carried Over to Balance Sheet 256.21 143.66Earnings per Share of Rs. 2/- each (Basic / Diluted) - (in Rs.) 8.43 9.90(Refer Note 20 of Schedule 18)Significant Accounting Policies 17Notes on Accounts 18The Schedules referred to above form an integral part of the Accounts.As per our report of even date attachedFor Deloitte Haskins & SellsChartered Accountants On behalf of the BoardK Sai Ram M M MurugappanPartner ChairmanM. No. 022360Chennai S Suresh K Balasubramanian N Srinivasan27th April 2007 Company Secretary Chief Financial Officer Director36

Rupees in Crores

Particulars 1996-97

1997-98

1998-99

1999-00

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

70

Operating Results

                    

Sales (Including Excise Duty)

600.05 607.93 677.35 979.93 1,090.02 1,074.47 1,197.13 1,257.34 1,562.58 1,584.18

Profit before Depreciation,Interest & Tax

64.53 60.21 65.69 92.80 104.09 98.53 105.82 147.39 178.50 307.37

Profit before Interest & Tax

48.37 40.52 43.46 63.22 70.50 70.72 77.65 117.79 140.69 258.81

Profit before tax (PBT)

24.11 17.44 21.50 41.34 50.91 55.34 62.45 105.30 126.18 245.63

Profit after Tax (PAT)

21.45 16.01 21.08 32.84 36.16 36.27 45.89 82.49 98.55 182.93

Dividends 6.16 4.92 6.16 9.85 12.31 13.54 16.63 18.47 25.87 86.84

Dividend Tax 0.62 0.49 0.65 1.08 1.26 - 2.13 2.37 3.63 12.18

Retained Profits

14.67 10.60 14.27 21.91 22.59 22.73 27.13 61.65 69.05 83.91

Sources and Application of Funds

                   

Sources of funds:

                   

Share Capital 24.62 24.62 24.62 24.62 24.62 24.62 18.47 18.47 36.95 36.95

Reserves & Surplus

308.54 318.96 318.59 340.33 362.75 347.01 315.18 376.83 411.24 495.15

Net Worth 333.16 343.58 343.21 364.95 387.37 371.63 333.65 395.30 448.19 532.10

Debt 150.98 145.09 137.73 181.16 174.27 174.25 262.20 215.64 228.12 244.30

Deferred Tax Liability (Net)

- - - - - 35.82 31.98 31.79 32.71 41.50

Funds Employed

484.14 488.67 480.94 546.11 561.64 581.70 627.83 642.73 709.02 817.90

Application of funds:

                    

Gross Fixed Assets

259.12 310.55 368.30 391.68 419.06 418.72 406.08 432.30 566.43 626.01

Depreciation 85.88 102.64 124.06 139.02 164.41 175.46 180.75 206.65 282.96 324.44

Net Fixed Assets

173.24 207.91 244.24 252.66 254.65 243.26 225.33 225.65 283.47 301.57

Capital Work-In-Progress

60.34 35.38 5.01 6.68 9.85 2.14 2.93 13.66 21.42 80.49

Investments 91.11 83.16 52.68 66.21 58.58 97.13 174.55 204.17 189.71 235.86

Gross Current Assets

278.00 283.83 288.18 393.48 392.41 412.17 449.78 440.77 516.91 525.90

Current liabilities & Provisions

118.55 122.97 118.20 178.76 165.67 205.96 256.46 262.95 302.49 325.92

Net Current Assets

159.45 160.86 169.98 214.72 226.74 206.21 193.32 177.82 214.42 199.98

Deferred Revenue Expenditure

- 1.36 9.03 5.85 11.82 32.96 31.70 21.43 - -

Net Assets 484.14 488.67 480.94 546.11 561.64 581.70 627.83 642.73 709.02 817.90

71

Employed

Ratios :                    

ROCE (%) # 9.99 8.29 9.04 11.58 12.55 12.16 12.37 18.33 19.84 31.64

PBT TO SALES (%)

4.02 2.87 3.17 4.22 4.67 5.15 5.22 8.37 8.08 15.51

Return on Networth (%) (+)

6.55 4.75 6.41 9.27 9.75 10.71 15.20 22.06 21.99 34.38

Earnings Per Share (Rs.)

8.71 6.50 8.56 13.34 14.69 14.73 19.46 22.32 26.67 49.50

Dividend Per Share (Rs.)

2.50 2.00 2.50 4.00 5.00 5.50 9.00 10.00 7.00 23.50

Book Value Per Share (Rs.)

133.05 136.80 133.64 143.83 150.58 137.55 163.46 202.39 121.28 143.98

Debt Equity Ratio (%) @ (+)

46.08 43.07 41.85 51.15 47.00 51.45 86.83 57.68 50.90 45.91

Fixed Assets Turnover (times)

3.46 2.92 2.77 3.88 4.28 4.42 5.31 5.57 5.51 5.25

Net working capital turnover (times)

3.76 3.78 3.98 4.56 4.81 5.21 6.19 7.07 7.29 7.92

 

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FINDINGS, SUGGESTION & CONCLUSIONSBIBLIOGRAPHY

FINDING & SUGGESTIONS

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After studying the components of the working capital

management system of TI it is found that the company has an

effective policy. How ever the following suggestions are made with

the hope that implementation of these can add to the performance

& efficiency of the systems followed at present.

As the company is moving into the seller market,

it should initiate process to do away with the credit

facility extended to some customers.

Collection procedure should be developed to do

away with or reduce the bad debts.

The collection procedure may some one tight or as

per the expert opinion.

More important should be given regarding the

quality checking or raw materials and \finished goods.

MIS – is better from other organization.

There is no difficulties regarding the raw

materials.

CONCLUSION

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After a detailed and intensive study on the working capital

management of TI. I came with the conclusion that TI had adopted

to use more and more improves techniques for managing its

working capital with an expectation of continue.

BIBLIOGRAPHY

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This project report has been prepared with the help of

following materials.

Annual financial report of TI for the year –

2004-05,2005-06

Internal reports of TI

Management accounting - Sharma and Gupta

Financial Management – I.M. Pandey

Financial Management – R.P. Rustagi

Web Site:

www.murugappa.com

www.tiindia.com

www.tubeproductsindia.com

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