Summer Intern-ship Project Report on Analysis of Working Capital Management

SUMMER INTERNSHIP PROJECT REPORT

ON

“WORKING CAPITAL MANAGEMENT

IN

MARATHON ELECTRIC INDIA PVT. LTD.”

SUBMITTED IN PARTIAL FULFILLMENT

TOWARDS THE AWARD OF

MASTER OF BUSINESS ADMINISTRATION

(2013 – 15)

SUBMITTED BY:

SUNIL KUMAR

University Roll No. : 138410183

MBA II YEAR (IV TRIMESTER)

INSTITUTE OF BUSINESS MANAGEMENT

1

DECLARATION

I SUNIL KUMAR, student of MBA session 2013-2015, hereby declare that my

work entitled “Analysis ofworking capital management” at Marathon Electric India

Pvt. Ltd. is the outcome of genuine efforts done by me under an able

guidance of MR. MAHESH NAGPAL (Finance Controller) and been

submitted to the GLA University, (Mathura) as a dissertation in partial

fulfillment for the award of the degree of Master of Business Administration

(MBA) comprises only my original work and due toan acknowledgement

has been made in the text to all other material used.

Date: (SUNIL KUMAR)

2

ACKNOWLEDGEMENT

3

Application of theoretical knowledge to a practical situation is the bonanzas of this

survey. Without a proper combination of inspections and perspirations, it’s not

easy to achieve anything. There is always a sense of gratitude, which we express

to others for help and the needy service they render during the different

phases of our lives. We would do it as we really wish to express my

gratitude toward all those who have been helpful to us directly or

indirectly during the development of this training report.

We would like to thank my supervisor Mr. MAHESH NAGPAL (Finance

Controller) who was always there to help and guide us when we

needed help. His perceptive criticism kept us working to make this report

more full proof. We are thankful to him for encouraging and valuable

support. Working under his was an extremely knowledgeable and enriching

experience for me. We are very thankful to him for all the value

additions and enhancement done to me. I also thanks to our Assist. Professor

(Mr.Ankit Saxena) of GLA University.

No words can adequately express our overriding debt of gratitude to my

parents, whose support helps me in all the way. Above all we shall thank our

colleagues who constantly encouraged and blessed me so as to enable us

to do this work successfully.

EXECUTIVE SUMMERY

4

The report basically related to the how to manage working capital in the

company. Cash is the lifeblood of the company without this company

cannot run successfully. In this we find out the shortfalls of working capital

management and to find out the company liquidity, profitability we use

some tools to analyze the financial data of the company for some future

plan. For this study, we collect both types of data primary data, as well as

secondary data also. We use the descriptive method of the research methodology. To

complete this summer training report in a short time my supervisor and my

colleagues also help to me.

INDEX5

SR NO. PARTICULARS PAGE NO.

I Front Page i

II Declaration ii

III Company certificate Iii

IV Acknowledgement iv

V Executive Summery v

VI Index vi

1 Chapter – 1

About the Company Profile1 – 10

2 Chapter – 2

Introduction to the topic11 – 19

3 Chapter – 3

Objective and Methodology20 – 25

4 Chapter – 4

Data analysis and interpretation26 – 47

6 Chapter – 5

Finding & Conclusions48 – 50

7 Limitation for further study 51

8 Appendices vii – xi

6

CHAPTER – 1

INTRODUCTION

&

ABOUT

THE COMPANY PROFILE

COMPANY PROFILE

7

Marathon Electric India Pvt. Ltd. Was established in 1913. Since 1913, Marathon

Electric has been dedicated to providing customers with quality products for targeted

applications.

Headquartered: Wausau, Wisconsin, USA

Regd. Office & Works: Faridabad (Haryana)

Product: Motors

Nature of business: Manufacturing & Assembling

Website: www.marathonelectric.in

INTRODUCTION

8

In India, Marathon Electric delivers efficient mechanical power solutions using AC

electric motors up to 4.5MW. Marathon Electric India has manufacturing facilities,

Marathon Electric India Pvt. Ltd. At Faridabad & Marathon Electric Motors (India)

Ltd in Kolkata. Together, Marathon Electric in India is the Largest

Manufacturer & Exporter of Electric Motors. MEIPL strategic product lines

include Motors and Fans. Our range of Fractional Horsepower motors serves

applications such as Heating, Ventilating, Air-conditioning & Commercial

Refrigeration (HVAC), General Purpose Applications, Evaporative Coolers &

Cooler Kits, and Washing Machines & Wet Rice Grinders. MEIPL Integral

Horsepower motors range up to 11KV serving a wide range of applications such as

pumps, compressors, fans, crushers, conveyors, kilns etc. We also

manufacture Propeller, Axial Flow and Centrifugal Flow type of industrial fans used

for various purposes.

Marathon Electric is part of Regal Beloit

Corporation. The Regal Beloit Corporation is a

leading manufacturer of electrical and mechanical

motion control and power generation products

serving markets throughout the world. Regal

Beloit is headquartered in Beloit, Wisconsin, and

has manufacturing, sales, and service facilities

throughout North America and in Mexico,

Europe, and Asia.

Global Technology Center - India (GTCI)

The Global Technology Center (Marathon) - India, also known as GTCI is

9

located at the ve y heart of the city of Hyderabad, the city of pearls. The

technology center is the global hub for Engineering and Information

Technology.

GTCI has world class facilities with Engineering and IT teams working

collaboratively with Regal Beloit locations globally. This center started its

operations in August 2005. Since then the technological improvements and

world class delivery has made GTCI a truly competitive advantage for Regal

Beloit Corporation.

Our BrandsMarathon in India is also well known for its brands Genteq, AUE & Cool Home.

10

Our Products

AC motors, single / Three phase

Cooler motors and Fans

Air Circulator

Wet Rice Grinder

Cage Induction Motors

Roller Table Motors

ECM Motors

Fitness Equipment Motors

11

Marathon Electric – Business units India Headquarter/ MEIPL Faridabad, Haryana

Manufacturing Unit of Fractional Horsepower Motors

MEMIL Kolkata, West Bengal

Manufacturing unit of Integral Horsepower HVAC Motors

Global Technology Center (Marathon) India – Hyderabad

The technology center is the global hub of Engineering and information

Technology.

Our Vision

We will clearly differentiate our products and services as the best value to our

customers, as measured by our customers. We will maintain a sustainable,

competitive advantage through the excellence of our people and our processes –

creating value for all our stakeholders.

Our Mission

We will live our values, demonstrating integrity in all our actions. We will function

with a high level of personal energy, energizing those around us. We will have the

courage to make difficult decisions and execute to accomplish our vision.

12

Award and recognitions

Safety Award, 2007

Haryana State Safety and Welfare Awards 2007

2008 Annual S.A.F.E. Award

Safety Awareness for Employees Award

13

Award for Export Excellence

ISO 9001:2000

ISO 9001:2008 Certificate from NSF

Award for Excellence in Cost Management

14

Objectives

To deliver world class performance to customers through innovation, quality,

delivery, responsiveness and cost.

Develop, attract,& retain the best people by providing and engaging work

environment while helping them achieves their career goals.

Stand top quartile performance in the diversified industrial sector with respect

to revenue growth, profitability, and cash flow.

Factors of Success

Wide range of motors.

Well advanced manufacturing plant and localization.

Brand value and excellent service after sales.

A developer in FHP motors and hasa major export marketof India.

80 percent market of market share in India for FHP motors.

20 percent market share in IHP motors.

15

SWOT Analysis

16

Strength

Innovative products

Largest manufacturing unit in

India

Best technology

Customized product

Indigenous technology

Weakness

Lack of HRD measure to retain

skilled professional

Complex organization structure

Pricing of products

Opportunities

Power sector growth in India

Global opportunities

Threats

Flood of imports from china

New competitors

SME built duplicate products

CHAPTER – 2

INTRODUCTION,

OBJECTIVE AND SCOPE OF STUDY

17

INTRODUCTION

Meaning of Capital

In the ordinary sense of the word capital means an initial investment invested by a

businessman or owner at the time of commencing the business.

Introduction of Working Capital

It describes about how the company manages its working capital and the various steps

that are required in the management of working capital.

Cash is the lifeline of a company. If this lifeline deteriorates, so does the company’s

ability to fund operations, reinvest, and meet capital requirements and payments.

Understanding a company’s cash flow prospects is to look at its Working Capital

Management.

Thus, in very simple words, working capital may be defined as “capital invested in

current assets.” Here current assets are those assets, which can be converted into cash

within a short period of time and the cash received is again invested in these assets.

Thus, it is constantly receiving or circulating. Hence, working capital is also known as

circulating capital or floating capital.

Meaning of working capital

Working capital means the funds (i.e., capital) available and used for day to day

operation (i.e.; working) of a company. In Accounting

Working Capital = Current Assets – Current Liabilities

Definition of working capital

According to Weston & Brigham

“Working capital refers to a firm’s investment in short term assets - cash, short

term securities, account receivable, and inventories.”

According to Mead Mallett& Field

“Working capital means current assets”

18

The project describes how the management of working capital takes place at

Marathon Electric India Pvt. Ltd.

Classification of working capital

Working capital can be classified are as follows-

On the basis of concept

On the basis of time

According to concepts, there are two types of working capital these are-

Gross working capital

Net working capital

1. Gross working capital

Gross working capitalrefers to investment in all current assets -raw materials, work-

in-progress, finished goods, book debts, bank balance and cash balance. The gross

concept of working capital is significant in the context of measuring working capital

19

Kinds of Working Capital

On the basis of concept

On the basis of time

Gross working capital

Net working capital

Permanent/

Fixed working capital

Temporary /Variable working capital

Regular working capital

Reserve working capital

Seasonal working capital

Special working capital

needed, measuring the size of the business, continued and smooth flow of operations

of the business and the like.

2. Net working capital

Net working capitalrefers to the excess of current assets over current liabilities. That

is, the value of current assets minus the value of current liabilities (currentliabilities

includetrade creditors, bills payable, outstanding expenses such as wages, salaries,

dividend payable and tax payable, bank overdraft, etc.) The net concept of working

capital is significant in the context of financing of working capital, the short term

liquidity aspects of the business, and the like.

Net working capital may be positive or negative. A positive net working capital arises

when current assets exceed current liabilities and a negative working capital occurs

when current liabilities are in excess of current assets. It shows bad liquidity position.

This is a qualitative concept which highlights the character of the sources from which

the funds have been procured to support that portion of the current assets which is in

excess of current liabilities.

According to time there are two kinds of working capital. These are-

Permanent working capital.

Temporary/varying working capital.

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1. Permanent Working Capital

Permanent working capitalrefers to the minimum amount of all current assets

that is required at all times to ensure a minimum level of continuous business

operations. Some minimum level of raw materials, working process, bank

balance, finished goods, etc. a business has to carry all the time irrespective of

the level of manufacturing/marketing operations. This level of working capital

is referred to as core working capital or core current assets. Permanent

working capital is defined as the “amount of current assets required to meet a

firm’s long-term minimum needs”. You should note, that the level of core

current assets is not, however, a constant sum all the times. For a growing

business the permanent working capital will be rising, for a declining business

it will be decreasing and for a stable business it will be remaining more, or

lessstay-put. So permanent working capital perennially needs one though not

fixed in volume. This part of the working capital being a permanent

investment needs to be financed through long-term funds.Depending upon the

changes inthe production and sales, the need for working capital, over and

above the permanent working capital, will fluctuate.

Initial Working Capital :In the initial period of its operation, a firm must

need enough money to pay certain expenses before the business profits. In the

initial years the banks may not funding loans or overdrafts, sales may have to

be made on credit and it may be necessary to pay the creditors immediately.

Therefore the owners themselves have to provide the necessary funds in the

initial period, which may be known as initial working capital.

Regular Working Capital : The firm is always required to keep certain

funds with it to continue the regular business operations, which is called as

Regular Working Capital. It is required to maintain regular stock of raw

materials and work-in-progress and also of the finished goods, which must be

maintained permanently at a definite level. Regular working capital is the

excess of current assets over current liabilities. It ensures smooth operation of

business.

21

2. Temporary or Variable Working Capital

Temporary or variable working capitalvaries with the volume of operations. If

fluctuates with scale of operations. This is the additional working capital required

during up sessions over the above the fixed working capital. During seasons more

production/sales takeplace, resulting in larger working capital needs. The reverse

is true during off-seasons. As seasons alternate, temporary working capital moves

up and down like tides. Temporary working capital is defined as the “amount of

current assets that varies with seasonal requirements”. Temporary working capital

can be financed through short term funds, i.e. current liabilities. When the level of

temporary working capital moved up, the business might use short-term funds and

when the level of temporary working capital recedes, the business might retire its

short term loans.

Seasonal Working Capital :Some business operations require additional

working capital during a particular season. For example, the groundnut oil

producers may have to purchase groundnut in a particular season and have to

employ additional labor for that purpose. These may require additional funds

for a temporary period, which may be called as seasonal working capital.

Special Working Capital: In all enterprises, some unforeseen events do

occur like a sudden increase in demand, downward movement of prices of raw

materials, strike, or natural calamities, when extra funds are needed to tide

over such situation. Such type of extra funds is called as Special working

capital.

Importance of working capital

Working capital is one of the important measurements of the financial position. The

words of H. G. Guthmann clearly explain the importance of working capital.

“Working Capital is the lifeblood and the nerve center of the business.” The object of

working capital management is to manage firm’s current assets and liabilities in such

a way that a satisfactory level of working capital is maintained. If the firm cannot

maintain a satisfactory level of working capital, it is likely to become insolvent

22

andmay even be forced into insolvency. Thus, the need for working capital to run day-

to-day business activities smoothly can’t be overstated.

Requirements of working capital

There are no set rules or formula to determine the working capital requirements of the

firms. A large number of factors influence the working capital need of the firms. All

factors are of different importance and also an important change for the firm over

time. Therefore, an analysis of the relevant factors should be made in order to

determine the total investment in working capital. Generally the following factors

influence the working capital requirements of the firm:

• Nature and size of the business

• Seasonal fluctuations

• Production policy

• Taxation

• Depreciation policy

• Reserve policy

• Dividend policy

• Credit policy:

• Growth and expansion

• Price level changes

• Operating efficiency

Sources of working capital

The financial manager is always interested in obtaining the working capital at the

right time at a reasonable cost and at the best possible favorable terms. A part of the

working capital investment is a permanent investment in fixed assets. These following

23

are the various sources of working capital:-Source of working capital divided into two

parts

Long - term

Short - term

Sources of long term working capital

Issues of share

Floating of debenture

Public deposit

Loans

Sources of short term working capital

Internal source

Depreciation

Taxation

Accrued expense

Ploughing back of profit

External source

Bank credit

Trade credit

Government assistance

Loan from Director

Security of employee

Need of working capital

The need for working capital arises due to the time gap between production and

realization of cash from sales. Working capital is must for every business for

purchasing raw materials, semi-finished goods, stores & spares etc. and the following

purpose

To purchase raw material, spare parts and other components.

To meet overhead expenses.

24

To hold finished and spare parts etc.

To pay selling and distributing expenses.

To repair& maintenance both machinery as well as factory built.

To pay wages, salaries and other charges.

To helpful in maintaining uncertainties involved in business fields.

Working capital management

Working capital management means management or administrating of all aspects of

working capital: current assets and current liabilities.

In other word of Adam Smith; “working capital management is concerned with the

problems that arise in attempting to manage the current assets, current liabilities and

the interrelationship that exist between them”

Structure of Working Capital

The different elements or components of current assets and current liabilities

constitute the structure of working capital, which can be illustrated in the shape of a

chart as follows:-

Structure of Current Assets and Current Liabilities

Current Liabilities Current Assets

Bank Overdraft Cash and Bank Balance

Creditors Inventories: Raw-MaterialsWork-in-progressFinished Goods

Outstanding Expenses Spare Parts

Bills Payable Accounts Receivables

Short-term Loans Bills Receivables

Proposed Dividends Accrued Income

Provision for Taxation, etc. Prepaid ExpensesShort-term Investments

25

CHAPTER – 3

OBJECTIVE, SCOPE

AND

METHODOLOGY

26

Need of the Study

The need of the study is the important part of the project. My purpose of doing this

study is to find out the cause of shortage of working capital. Working capital is the

lifeblood and the nerve center of business. Working capital is very essential to

maintain the smooth running of a business. No business can run successfully without

an adequate amount of working capital. How the business retain their market share as

well as the goodwill of the company. So that company has to maintain its cash to run

the business and accomplishing their day to day expenses.

Objective of the study

To study the Working Capital position of Marathon Electric India Pvt. Ltd.

To study the movement of Working Capital components ( Inventory,

Creditor's, Debtor’s )

To evaluate the cash management performance in terms ( Size, Liquidity

control ) of Marathon Electric India Pvt. Ltd.

27

Scope of the study

The scope of study is identified after and during the study is conducted. The main

scope of the study was to put into practical and theoretical aspect of the study into real

life work experience. The study of working capital is based on tools like Ratio

Analysis, Statement of change in working capital. Further the study is based on the

last four years, i.e. 2009-2010 to 2012-2013 annual report of Marathon Electric India

Pvt. Ltd.

28

INTRODUCTON

The research methodology is a way to systematically solve the research problem. It

may be understood as a science of studying new research is done systematically. In

that various steps, those are generally adopted by a researcher in studying his problem

along with the logic behind them.

The procedure by which a researchergoes about their work of describing, explaining

predicting phenomenon is called methodology.

Research Design

A research design is an arrangement of condition for collection at analysis of data in a

manner that combines relevance to the research purpose with the economy in the

process.

Process of Research

Formulating the objective of the study(What the study is about and why it is

being made)

Designing the method of data collection (What technique of gathering data will

be adopted)

Selecting the sample (How much material will be needed)

Collecting the data (Where can be required data can be found and with what

time period should the data be related)

Processing and analysis the data

Reporting and finding

29

Sampling Design

A sample design is a definite plan for obtaining a sample from a given population. It

refers to the technique or the procedure adopted in selecting items for the sample. The

main constituents of the sampling design below-

Sampling unit

Sample size

Sampling unit

A sampling framework, i.e. developed roe the target population that will be sampled,

i.e. who is to be surveyed

Sample unit taken by me – Financial statement of the company

Sample size

It is the substantial portions of the largest population that are sampled achieve reliable

results.

Sample size – the last four years, i.e. 2009-2010 to 2012-2013 financial

statements of the company.

A tool used for calculation – MS-Excel.

Data collection

The datahave been collected from two types-

Primary data

Secondary data

30

Primary data

Primary data are the data which is collected from first hand, for the first time which is

original in nature.

Secondary data

Secondary data are those data which have already collected and stored. Secondary

data easily get those secondary data from records annual reports of the company, etc.

It will save the time, money and to collect the data.

The major source of data of this project was collected through annual reports, profit

and loss account of the four year period of company, i.e. from 2009-2010 to 2012-

2013 and some more information collected from the internet and text source.

Tools used for Analysis of data

The data were analyzed using the following tools. They are-

Ratio Analysis.

Statement of changes in working capital.

31

CHAPTER – 4

DATA ANALYSIS

AND

INTERPRETATION

32

DATA ANALYIS AND INTERPRETATION

An analysis of working capital will be very helpful for knowing the operation

efficiency of the company. The following table provides data relating to the net

working capital of MIEPL.

(A) Net Working Capital = Current Assets – Current Liabilities

Table showing Net Working Capital

Year Current Assets Current Liabilities Net Working Capital

2009-2010 20,915.61 4,930.54 15,985.07

2010-2011 20,743.18 5,678.34 15,064.84

2011-2012 22,775.58 10,459.17 12,316.41

2012-2013 28,195.36 11,337.50 16,858.86

Source: financial statement (Amount in lakh)

2009-2010 2010-2011 2011-2012 2012-20130

2000

4000

6000

8000

10000

12000

14000

16000

18000

Net Working Capital

Net Working Capital

(Amount in lakh)

33

Interpretation

The above chart shows that during the financial year 2009-2010 the company had Net

Working Capital about Rs.15, 985.07 lakh. Duringthe next year, i.e.2010-2011 it

decreased by Rs.920.23lakh. It was Rs.15, 064.84lakh in the year 2010-11.And in the

year 2011-2012 it was Rs.12, 316.41lakh which again decreased by Rs.2, 748.43 lakh

as compared to last year, i.e. 2011-1012. The above chart interprets that the company

iscontinuingdecrease in the NWC till 2011-2012. But in the year 2012-2013it was

increased by Rs.4, 542.45 lakh. Duringthis year NWC was about Rs.16, 858.86 lakh.

This means that the company is in a positive position in the year 2012-2013 and it

hassufficient capital to pay off its current liabilities.

(B) Ratio Analysis

Introduction

Ratio analysis is a powerful tool financial analysis. Ratio analysis is a process of

comparison of one figure against another, which makes a ratio and the appraisal of the

ratios to make a proper analysis about the strengths and weakness of the firm’s

operations. The term ratio refers to the numerical or quantitative relationship between

two accounting figures. Ratio analysis of financial statement stands for the process of

determining and presenting the relationship of items and group of items in the

statements.

Types of Ratio Analysis

Liquidity Ratio

Turnover/Activity Ratio

34

1. Liquidity Ratios

Liquidity refers to the ability of a firm to meet its current obligations as and when

these become due. The short term obligations are met by realizing amounts of current,

floating, or circulating assets.

Following are the ratios which can help to assess the ability of a firm to meet its

current liabilities

1. Current Ratio

2. Acid Test Ratio /Quick Ratio / Liquidity Ratio

3. Absolute Liquidity Ratio

2. Turnover / Activity Ratios

These are the ratios which indicate the speed with which assets are converted or

turned over into sales.

1. Inventory Turnover Ratio

2. Debtors/Account receivable Turnover Ratio

3. Creditors/Account payable Turnover Ratio

4. Working Capital Turnover Ratio

1.1Current Ratio

The Current ratio is a ratio, which express the relationship between the total current

assets and current liabilities. It measures the firm’s ability to meet its current

liabilities. It indicates the availability of current assets in rupees for every one rupee

of current liabilities. A ratio of greater than one means that the firm’s has more

current assets in the comparison of current liabilities. A standard ratio between them

is 2: 1.

Current Ratio = Current Assets

Current Liabilities

35

Table showing the current ratio

Year Current Assets Current Liabilities Current Ratio

2009-2010 20,915.61 4,930.54 4.24

2010-2011 20,743.18 5,678.34 3.65

2011-2012 22,775.58 10,459.17 2.17

2012-2013 28,195.36 11,337.50 2.48

Source: financial statement (Amount in lakh)

2009-2010 2010-2011 2011-2012 2012-20130

0.51

1.52

2.53

3.54

4.5

Current Ratio

Current Ratio

(Amount in lakh)

Interpretation

The above chart shows that during the financial year2009-2010 the company had a

current ratio of 4.24:1.During the nextyear, i.e.2010-2011 it decreased by 0.59. It was

about3.65:1 in the year 2010-2011. And in theyear 2011-2012 it was again decreased

by 1.48. During this year, i.e. 2011-2012 it was about 2.17:1. These show that the

current ratio was decreased every year.But in the last year,i.e. 2012-2013 the current

ratio was increased to 2.48:1, due to increase in current assets. The current ratio is

greater to the standard ratio, i.e. 2:1. Hence it can be said that there are enough current

assets in Marathon Electric India Pvt. Ltd. to meet its current liabilities.

36

1.2 Acid Test Ratio /Quick Ratio / Liquidity Ratio

The Acid test ratio/Quick ratio/Liquidity ratio establishes a relationship between

quick/liquid assets and current liabilities. It measures the firm’s capacity to pay off the

current obligation immediately. An asset is liquid if it can be converted into cash

immediately without a loss of value; Inventories are considered to be less liquid.

Becauseinventory’snormally require some time for converting into cash. This ratio is

also known as an acid-test ratio. The standard quick ratio is 1:1 is considered

satisfactory.

Quick Ratio = Quick Assets (current assets – Inventory)

Current Liabilities

Table showing Quick Ratio

Year CurrentAssets Inventories Quick Assets Current Liabilities

Quick Ratio

2009-2010 20,915.61 4,213.05 16,702.56 4,930.54 3.38

2010-2011 20,743.18 5,759.21 14,983.97 5,678.34 2.63

2011-2012 22,775.58 5,875.76 16,899.82 10,459.17 1.61

2012-2013 28,195.36 5,240.57 22,954.79 11,337.50 2.02

Source: Financial statement (Amount in lakh)

2009-2010 2010-2011 2011-2012 2012-20130

0.5

1

1.5

2

2.5

3

3.5

4

Quick Ratio

Quick Ratio

(Amount in lakh)37

Interpretation

The above chart shows that during the financial year 2009-2010 the company had a

Quick ratio of 3.38:1. In the next year, i.e.2010-2011 it decreasesby 0.75. It was about

2.63:1 in the year 2010-2011. During the year 2011-2012 the quick ratiowas

againdecreasedby1.02. And it was about1.61:1 in the year 2011-2012 due to increase

in current liabilities and decrease in Quick assets. But in the last year 2012-2013 the

quick ratio increased by 0.41. And it was increased to 2.02:1. The quick ratio of the

company is greater to the standard ratio, i.e., 1:1. Hence it shows that the liquidity

position of the company is adequate.

1.3Absolute Liquidity Ratio

The absolute liquidity ratio may be defined as the relationship between Absolute

liquid assets and current liabilities. Absolute liquid ratio includes cash in hand and

cash at bank. The standard ratio is 0.5:1.

Absolute Liquidity Ratio = Cash & Bank Balance

Current Liabilities

Table Showing Absolute Liquidity Ratio

Year Cash & Bank Balance Current Liability Absolute Liquidity Ratio

2009-2010 4,516.04 4,930.54 0.91

2010-2011 396.01 5,678.34 0.06

2011-2012 1,607.07 10,459.17 0.15

2012-2013 5,098.44 11,337.50 0.44


38

2009-2010 2010-2011 2011-2012 2012-20130

0.10.20.30.40.50.60.70.80.9

1

Absolute Liquidity Ratio

Absolute Liquidity Ratio

(Amount in lakh)

Interpretation

The above chart shows that during the financial year 2009-2010 the absolute liquidity

ratio of the company was about 0.91:1.In the next year 2010-2011 it decreased by

0.85.It was about 0.06:1, in the year 2010-2011.In the year2011-2012 absolute

liquidity ratio increased by 0.09, and it was about0.15:1, in the year 2011-2012. In the

last year,i.e. 2012-2013 it increased by 0.29, and it was about0.44:1. After 2010-2011

the absolute liquidity ratio of the company is increasingevery year. But besides of

2009-2010 the absolute liquidity ratio of the company is less thanto the standard rate

i.e., 0.5:1. Hence it shows that the liquidity position of the company is satisfactory.

2.1.Inventory Turnover Ratio

The Inventory turnover ratio is the ratio, which indicates the number of times the

stock is turned over i.e., sales during the year. This measures the efficiency of the

sales and stock levels of the company. A high ratio means high sales, fast stock

turnover, and a low stock level. A low stock turnover ratio means the business slows

down or with a high stock level.

Inventory Turnover Ratio = Net sales

Closing Inventory

39

Table showing the Inventory turnover ratio

Year Net Sales Closing Inventory Inventory Turnover Ratio

2009-2010 37,102.41 4,213.05 8.80 Times

2010-2011 49,374.65 5,759.21 8.57 Times

2011-2012 52,052.91 5,875.76 8.85 Times

2012-2013 55,254.01 5,240.57 10.54 Times


2009-2010 2010-2011 2011-2012 2012-20130

2

4

6

8

10

12

Inventory turnover ratio

Inventory turnover ratio

(Amount in lakh)

Interpretation

The above chart shows that during the financial year 2009-2010, 2010-2011, and

2011-2012 in all three years there is no major differencein the inventory turnover

ratio, which is in all three years, the inventory turnover ratio was about 8.80

times,8.57 times, and 8.85 times, respectively.But in the last year, i.e. 2012-2013 it

increased by 1.69 times as compared to the previous year, i.e. 2011-2012. And it was

about 10.54 times in the year 2012-2013. It shows that in all three years the company

had general sales, but in the last year 2012-2013 the company increased in its sales as

compared to last three previous years i.e. 2009-2010, 2010-2011, and 2011-2012.

40

2.2 Debtors/Account receivable Turnover Ratio

The Debtors/Account receivable turnover ratio indicates the speed of debt collection

of the firm. This ratio computes the number of times debtors (receivables) has been

turned over during the particular period.

Debtors Turnover Ratio = Net sales

Average Debtors

Note: In MEIPL, we have taken the total net sales instead of the credit sales, because

the credit sales information has not available for the calculation of Debtors Turnover

Ratio.

Table showing the Debtors turnover ratio

Year Net Sales Average Debtors Debtors Turnover Ratio

2009-2010 37,102.41 6,433.77 5.76 Times

2010-2011 49,374.65 7,653.72 6.45 Times

2011-2012 52,052.91 8,461.06 6.15 Times

2012-2013 55,254.01 10,904.96 5.06 Times


2009-2010 2010-2011 2011-2012 2012-20130

1

2

3

4

5

6

7

Debtors turnover ratio

Debtors turnover ratio

(Amount in lakh)

41

Interpretation

The above chart shows that the debtor turnover ratio is fluctuating over the years. It

was about 5.76 times in the year 2009-2010. It increased by 0.69 times in the year

2010-2011. It was about 6.45 times in the year 2010-2011. But in the year 2011-2012

it was decreased by0.30 times, and it was about 6.15 times in the year 2011-2012.

During the next year, i.e. 2012-2013 it was 5.06 which again decreased by 1.09 times

as compared to the last year i.e. 2011-2012. This graph is showing that the company is

not collecting debt rapidly.

2.3. Creditors/Account payable Turnover Ratio

The creditor’s turnover ratio is the ratio, which indicates the number of times the

debts are paid in the year. This ratio is calculatedto be as follows:

Creditors Turnover Ratio = Net Purchases

Average Creditors

Note: In the MEIPL, we have taken the cost of materials consumed instead of credit

purchases, because the credit purchase information has not available for the

calculation of Creditors Turnover Ratio.

Table showing the creditors turnover ratio

Year Net Purchases Average Creditors Creditors Turnover Ratio

2009-2010 21,711.73 4,022.49 5.39 Times

2010-2011 30,560.39 4,416.68 6.91 Times

2011-2012 30,864.81 6,048.81 5.10 Times

2012-2013 30,195.25 4,616.96 6.54 Times


42

2009-2010 2010-2011 2011-2012 2012-20130

1

2

3

4

5

6

7

8

Creditors Turnover Ratio

Creditors Turnover Ratio

(Amount in lakh)

Interpretation

The above chart shows that the creditor’s turnover ratio is fluctuating over the years.

It was about 5.39 times in the year 2009-2010.During the next year, i.e. 2010-2011 it

was increased by 1.52 times.During that year the creditor’s turnover ratio was about

6.91 times. But in the next year 2011-2012 it was decreased by 1.81 times and it was

about 5.10 times in the year 2011-2012. During the last year, i.e. 2012-2013 it was

about 6.54 times, which due to decreasein creditors. This chart is showing that the

company has made prompt payment to the creditors.

2.4. Working Capital Turnover Ratio

TheWorking Capital Turnover Ratio indicates the number of times the working

capital is turned over in the course of the year. This ratio measures the efficiency with

which the working capital is used by the firm. A higher ratio, efficient utilization of

working capital and a low ratio indicates inefficient utilization of the working capital.

But a very high working capital turnover ratio is not a good situation for any

company.

Working Capital Turnover Ratio = Net Sales

Net Working Capital

43

Table showing the working capital turnover ratio

Year Net Sales Net Working Capital Working capital Turnover Ratio

2009-2010 37,102.41 15,985.07 2.32 Times

2010-2011 49,374.65 15,064.84 3.27 Times

2011-2012 52,052.91 12,316.41 4.22 Times

2012-2013 55,254.01 16,858.86 3.27 Times


2009-2010 2010-2011 2011-2012 2012-20130

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Working Capital Turnover Ratio

Working Capital Turnover Ratio

(Amount in lakh)

Interpretation

The above chart shows that the working capital turnover ratio is fluctuating year to

year that was minimum in the year 2009-2010,about 2.32 times. There was a

subsequent increase in the year 2010-2011 from 0.95 times, and it was about 3.27

times. It was again increased in the year 2011-2012 from0.95 times, due to decrease

in net working capital.It was about 4.22 times in the year 2011-2012. But in the last

year i.e. 2012-2013 it was decreased by 0.95 times, due to increase in net working

capital. During that year the working capital turnover ratio was about 3.27 times. This

chart shows that the company is utilizing working capital effectively.

44

(C) Fund Flow Statements

Principles of working capital for calculating purposes

Current Assets

If the current assets increase as a result of this, working capital also increases. If the

current assets decrease as a result of this, working capital also decreases.

Current liabilities

If the current liabilities increase as a result of this, working capital also decreases. If

the current liabilities decrease as a result of this, working capital also increases.

Statement of Change in Working Capital:

The purpose of preparing this statement is for finding out the increase or decrease in

working capital and to make a comparison between two financial years.

45

Table 1:

Statement of Change in Working Capital of the Year

2009-2010

Particulars

AS on

31-03-2009

AS on

31-03-2010

Effect on Working capital

Increase Decrease

CURRENT ASSETS

Inventories 3,728.40 4,213.05 484.65 -

Sundry Debtors 6,397.39 6,433.77 36.38 -

Cash & Bank Balance 7,473.83 4,516.04 - 2,957.79

Loans and Advances 6,421.70 5,752.73 - 668.97

(A) Total Current Assets

24,021.34 20,915.61

CURRENT LIABILITIESCurrent Liabilities 7,444.64 4,099.77 - 3,344.87

Provisions 796.29 830.83 34.54 -

(B) Total current Liabilities

8,240.93 4,930.54

(A)-(B) Net Working Capital 15,780.41 15,985.07 - -

Decrease in Working Capital - 6,416.06 6,416.06 -

TOTAL 32,262.27 32,262.27 6,971.63 6,971.63


46

Interpretation

In the above table, it is seen that during the financial year 2009-2010 there was a net

decrease in working capital of Rs.6, 416.06 lakh which indicates that there is not an

adequate working capital in Marathon Electrical India Pvt. Ltd.

This is because of:-

Increase Current Assets such as Inventories by Rs.484.65lakh and other such

as Sundry debtors by Rs.36.38 lakh.

Decrease in Cash & Bank Balance by Rs.2, 957.79 lakh. And other current

assets such as Loans and Advances by Rs.668.97 lakh.

Decrease in Current Liabilities by Rs.3, 344.87lakh.

Increase in provisions by Rs.34.54 lakh.

47

Table 2:


2010-2011

Particulars

AS on

31-03-2010

AS on

31-03-2011


Increase Decrease

CURRENT ASSETS

Inventories 4,213.05 5,759.21 1,546.16 -

Sundry Debtors 6,433.77 7,653.72 1,219.95 -

Cash & Bank Balance 4,516.04 396.01 - 4,120.03

Loans and Advances 5,752.73 6,934.21 1,181.48 -

(A) Total Current Assets 20,915.61 20,743.18

CURRENT LIABILITIES

Current Liabilities 4,099.77 4,717.48 617.71 -

Provisions 830.83 960.86 130.03 -


4,930.54 5,678.34

(A)-(B) Net Working Capital 15,985.07 15,064.84

- -

Increase in Working Capital

575.37 - - 575.37

TOTAL26,421.52 26,421.52 4,695.33 4,695.33


48

Interpretation


increase in working capital of Rs.575.37 lakh. It indicates that an adequate working

capital in Marathon Electrical India Pvt. Ltd.


Increase in Current Assets such as Inventories by Rs.1, 546.16 lakh, Sundry

debtors by Rs.1, 219.95 lakh, and Loans and advances by Rs.1, 181.48 lakh.

Decrease in Cash and bank balance of Rs.4, 120.03.

Increase in Current Liabilities by Rs 617.71lakh, and Provisions by Rs.130.03

lakh.

49

Table 3:


2011-2012

Particulars

AS on

31-03-2011

AS on

31-03-2012


Increase Decrease

CURRENT ASSETS

Inventories 5,759.21 5,875.76 116.55 -

Trade Receivables 7,653.73 8,461.06 807.33 -

Cash & Bank Balance 396.01 1,607.07 1,211.06 -


Other Current Assets 1,675.73 1,607.83 - 67.90

(A) Total Current Assets 20,743.18 22,775.58 - -

CURRENT LIABILITIES

Trade Payables 4,313.68 4,616.96 303.28 -

Short –term Borrowings - 3,265.20 3,265.20 -

Provisions 960.86 154.64 - 806.22

Other Current Liabilities 403.80 2,422.37 2,018.57 -


5,678.34 10,459.17 - -

(A)-(B) Net Working Capital

15,064.84 12,316.41 - -


6,813.23 - - 6,813.23

TOTAL33,234.75 33,234.75 7,721.99 7,721.99


50

Interpretation


increase in working capital of Rs.6, 813.23 lakh. It indicates that an adequate working

capital in Marathon Electrical India Pvt. Ltd.


Increase in Current Assets such as Inventories by Rs.116.76 lakh, Trade

Receivable by Rs.807.33 lakh, and Loans and advances by Rs.1, 211.06 lakh.

Decrease in Cash and bank balance of Rs.34.64 lakh, and other Current Assets

by Rs.67.90 lakh.

Increase in Current Liabilities, such as Trade Payables by Rs.303.28 lakh,

short-term Borrowing by Rs.3, 265.20 lakh, and other Current Liabilities by

Rs.2, 018.57 lakh.

Decrease in Provisions by Rs.806.22 lakh.

Note:

According to Company Law, there were some changes in Schedule VI. These changes

were effective from 01 April’11. Some changes in Balance Sheet for the financial

year 2011-2012 such as:

In Current Assets, current assets are divided into two parts such as Current

assets and Non-Current assets. Loans and Advances are divided in two parts

such as Short-term loans and advances and Long term loans and advances.

Short-term loans and advances include in Current Assets and Long-term loans

and advances include in noncurrent assets. And added some entries such as

other current assets.

In Current Liabilities added some entries such as Short-term Borrowing and

other current liabilities.

51

Table 4;


2012-2013

Particulars

AS on

31-03-2012

AS on

31-03-2013


Increase Decrease

CURRENT ASSETS

Inventories 5,875.76 5,240.57 - 635.19

Trade Receivables 8,461.06 10,904.96 2,443.90 -

Cash & Bank Balance 1,607.07 5,098.44 3,491.37 -


Other Current Assets 1,607.83 2,358.79 750.96 -

(A) Total Current Assets 22,775.58 28,195.36 - -

CURRENT LIABILITIES

Trade Payables 4,616.96 6,048.81 1,431.85 -

Short –term Borrowings 3,265.20 3,530.58 265.38 -

Other Current Liabilities 2,422.37 1,521.16 - 901.21

Provisions 154.64 236.95 82.31 -


10,459.17 11,337.50 - -

(A)-(B) Net Working Capital

12,316.41 16,857.86 - -


6,298.11 - - 6,298.11

TOTAL39,532.86 39,532.86 8,465.77 8,465.77


52

Interpretation

In the above table, it is seen that during the financial year 2012-2013 there was net

increasing in working capital of Rs.6, 298.11 lakh. It indicates that an adequate

working capital in Marathon Electrical India Pvt. Ltd.


Increase in Current Assets such as Trade Receivable by Rs.2, 443.90 lakh,

Cash, and bank balance of Rs.3, 491.37 lakh. And other Current Assets by

Rs.750.96 lakh.

Decrease in Current Assets such as Inventories by Rs.635.19 lakh, and Loans

and advances by Rs.631.26 lakh.

Increase in Current Liabilities, such as Trade Payables by Rs.1, 431.85 lakh,

Short-term Borrowing by Rs.265.38 lakh, and Provisions by Rs.82.31lakh.

Decrease in other Current Liabilities by Rs.901.21 lakh.

53

CHAPTER – 5

FINDINGS

AND

CONCLUSIONS

54

FINDINGS

Working capital of Marathon Electric India Pvt. Ltd was decreasing every

year showing the negative working capital, besides of 2012-2013. After that

the company is higher than standard rate, i.e. 2:1, and the position of the

company is satisfactory.

The Marathon Electric India Pvt. Ltd. hada higher Current ratio being 4.24:1

and Quick ratio was 3.38:1.

The MEIPL hadan Absolute liquidity ratiovery low in the year 2010-2011.

During the next year, it was increased by 0.09 times as compared to 2010-

2011. And in the last year, i.e. 2012-2013 it was again increased.

The MEIPL had an inventory turnover ratio very low in the year 2010-2011.

During the next year, it was increased by 0.28 times as compared to 2010-

2011.And in the last year, i.e. 2012-2013 it was again increased.

The MEIPL had Debtor’s turnover ratio very high in the year 2010-2011.

During the next year, it was decreased by 0.30 times as compared to 2010-

2011.And in the last year, i.e.2012-2013 it was again decreased.

The Creditor’s turnover ratio of MEIPL was fluctuating year to year. It was

very high in the year 2010-2011. During the next year, i.e. 2011-2012 it was

decreased by 1.81 times as compared to 2010-2011. And in the last year

2012-2013 it was again increased.

The MEIPL hada working capital turnover ratio very low in the year 2009-

2010. During the next two years, i.e. 2010-2011 & 2011-2012, it was

increased by 0.95 & 0.95 times respectively, as compared to the previous

year, i.e.2009-2010. And in the last year, i.e. 2012-2013 it was decreased by

0.95 times as compared to the previous year, i.e. 2011-2012.

55

CONCLUSIONS

The study on working capital management conducted in Marathon Electric

India Pvt. Ltd. to analyze the financial position of the company. The

company’s financial position is analyzed by using the tool of financial

statements from 2009-2010 to 2012-2013.

The financial status of Marathon Electric India Pvt. Ltd is good. In the last

year i.e., 2012-2013 the inventory turnover ratio has increased, this is a good

sign for the company.

The company’s liquidity position is not good with regard to the investment in

current assets as there are adequate funds invested in it.

The company is managing its financial position in a better way. There is a

balance between Current assets and current liabilities and also current ratio is

always above the standard rate.

Further, Company’s creditor’s turnover ratio is not so good because of this

company may face the shortage of the funds to pay off its debts. To avoid such

situation, companies should use their funds in a productive way and there

should be timely payment of creditors.

Company net working capital is decreasing, but in the last year i.e., 2012-2013

it was increased, still the company is in a better management position, and the

company present status of maintaining current liabilities and current assets is

satisfactory.

They are able to manage their cash, funds, and debts. By adopting better

management practices, the company may attain a sound financial position in

the future and will be able to manage its working capital very effectively and

efficiently.

56

LIMITATIONS OF THE STUDY

The study is conducted in very short duration (summer training).

The analysis is limited to just 4 years of data study (from 2009 to 2013) for

financial analysis.

Limited interaction with the concerned head due to their busy schedule.

The findings of the study are based on the information retrieved from the

selected unit.

Very less information and time spent with the company staff.

This study is done on the basis of the historical data not in the actual

workplace.

The financial data sensitive in nature the same could not acquire easily.

Every personhas its own preparation to analyze the financial data so maybe it

varies from person to person.

The companyhas not provided their financial data properly because of it is

confidential in nature.

57

APPENDICES

Balance sheet and

Profit and loss account of the company


Provisional Balance sheet as at 31st March 2012

SOURCES OF FUNDS

CURRENT YEAR (2012)

PREVIOUS YEAR (2011)

Equity and LiabilitiesShareholders’ FundsShare capital 332.00 312.00

Reserves and surplus

27614.01 24630.37

27946.01 24942.37

Non-current liabilitiesLong-term borrowings

- 4.00

Long-term provisions

916.34 823.20

916.34 827.20

Current liabilities

Short-term borrowings

3265.20 5314.36

Trade payables 4616.96 4313.68

Other current liabilities

2422.37 415.54

Short-term provisions

154.64 137.66

Total current liabilities

10459.17 10181.24

Total funds employed

39321.52 35950.81

58

Assets

Non-current assets

Fixed assets

Tangible assets 14107.94 14117.31

Intangible assets 112.64 -

14220.58 14117.31

Capital work in progress

442.57 96.39

14663.15 14213.70

Deferred tax assets (net)

1760.02 799.88

Long-term Loans and advances

1739.84 1968.14

3499.86 2768.02

Current Assets

Inventories 5875.76 5759.21

Trade receivable 8461.06 7653.73

Cash and bank balances

1607.07 396.01

Short-termLoans and advances

3606.79 3484.41

Other current assets 1607.83 1675.73

Net Current Assets 21158.51 18969.09

Total application of Funds

39321.52 35950.81


59


Provisional Balance sheet as at 31st March 2013

SOURCES OF FUNDS CURRENT YEAR

(2013)

PREVIOUS YEAR (2012)

Equity and LiabilitiesShareholders’ FundsShare capital 332.00 332.00

Reserves and surplus 31360.10 27614.01

31692.10 27946.01

Non-current liabilitiesLong-term provisions

994.90 916.34

994.90 916.34

Current liabilities

Short-term borrowings

3530.58 3265.20

Trade payables 6048.81 4616.96

Other current liabilities

1521.16 2422.37

Short-term provisions

236.95 154.64

Total current liabilities

11337.50 10459.17

Total funds employed

44024.50 39321.52

Assets

Non-current assets

Fixed assets

60

Tangible assets 13589.42 14107.94

Intangible assets 71.06 112.64

13660.48 14220.58

Capital work in progress

531.52 442.57

14192.00 14663.15

Deferred tax assets (net)

1409.50 1760.02

Long-term Loans and advances

2132.65 1739.84

3542.15 3499.86

Current Assets

Inventories 5240.57 5875.76

Trade receivable 10904.96 8461.06

Cash and bank balances

5098.44 1607.07

Short-term Loans and advances

2687.59 3606.79

Other current assets 2358.79 1607.83

Net Current Assets 26290.35 21158.51

Total application of Funds

44024.50 39321.52


61

BIBLIOGRAPHY

Following sources have been sought for the preparation this project report-

Company profile

Annual reports of the company from “2009-2010 to 2012-2013”

Direct interaction with the employees of the company.

Internet-

www.marathonelectric.in

www.google.com

www.wikipidea.org

62

http://www.wikipidea.org/

http://www.google.com/

http://www.marathonelectric.in/

Economy & Finance

Summer Intern-ship Project Report on Analysis of Working Capital Management