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WORKING CAPITAL MANAGEMENT
Vishwa Infrastructures & Services Private Limited
PROJECT REPORT
Submitted in partial fulfilment of the requirement for the award of
Two year full time, Masters in Business Administration.
By
DEVI NARASIMHA RAO
Submitted to:
PROFESSOR RAJ KUMAR PILLAY
M.Sc., M.Phill., MBA., (Ph.D)
DEPARTMENT OF MANAGEMENT
NOVA BUSINESS SCHOOL
HYDERABAD (2011-2013)
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DECLARATION
I hereby declare that the thesis entitled “An Empirical Study of Working Capital
and A Study Vishwa Infrastructures & Services Private Limited ”, is a result of
research carried out by me under the guidance of PROF. RAJ KUMAR
PILLAY, Nova Business School .
I further, declare that this thesis has not been submitted previously for the award of
any degree in this University or any other University.
DEVI NARASIMHA RAO.M
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CERTIFICATE
Certified that this thesis entitled “An Empirical Study of Working Capital and A
Study Vishwa Infrastructures & Services Private Limited ”, is a bonafide
research work carried out by DEVI NARASIMHA RAO .M independently under
my guidance and supervision.
Mr. Govardhan Reddy PROF. RAJ KUMAR PILLAY
Director of Finance M.Sc., M.Phill., MBA., (Ph.D)
Nova Business School
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Acknowledgement
Whatever we do and whatever we achieve during the course of our limited life is
just not done only by our own efforts, but by efforts contributed by other people
associated with us indirectly or directly. I thank all those people who contributed
to this from the very beginning until its successful end.
I sincerely thank Mr. Govardhan Reddy (Director of Finance, Vishwa
Infrastructures & Services Private Limited), person of amiable personality, for
assigning such a challenging project work which has enriched my work experience
and getting me acclimatized in a fit and final working ambience in the premises of
Vishwa Infrastructures & Services Private Limited.
Prof.Raj kumar pillay and Prof. Vijay Sagar of Roots business school are
guided my project on working capital management of Vishwa Infrastructures &
Services Private Limited.
I acknowledge my gratitude to Mr. Anil kumar, for his extended guidance,
encouragement, support and reviews without whom this project would not have
been a success. Last but not the least I would like to extend my thanks to all the
employees at Vishwa Infrastructures & Services Private Limited and my friends
for their cooperation, valuable information and feedback during my project.
DEVI NARASIMHA RAO
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TABLE OF CONTENTS
Chapter - I
1. EXECUTIVESUMMARY
2. INDUSTRY PROFILE
Chapter - II
3. ABOUT THECOMPANY
a. Company profile
b. Mission & Vision
c. Company Leadership
d. Current Projects
e. Competitors
f. SWOT Analysis of Vishwa Infrastructures
4. OBJECTIVES OF THE STUDY
5. SCOPE OF STUDY
6. RESEARCH METHDOLOGY
Chapter - III
7. WORKING CAPITAL MANAGEMENT
Chapter - IV
8. WORKING CAPITAL RATIO
Chapter - V
9. FINDINGS
10. SUGGESTIONS
11. APPENDICES
12. BIBILOGROPHY
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Chapter – I
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1. Executive Summary
The project on Working Capital Management has been a very good experience. Every
manufacturing company faces the problem of Working Capital Management in their day-to-day
processes. An organization's cost reduced and the profits increased only if it is able to manage its
Working Capital efficiently. At the same time, the company can provide customer satisfaction
and hence can improve their overall productivity and profitability.
This project is a sincere effort to study and analyze the Working Capital Management of Vishwa
Infrastructures. The project focused on making a financial overview of the company by
conducting a Working Capital analysis of Vishwa Infrastructures group for the years 2009 to
2012 and Ratios & various components of working capital & format emphasizing on Working
Capital.
The internship is a bridge between the institute and the organization. This made me to be
involved in a project that helped me to employ my theoretical knowledge about the myriad and
fascinating facets of finance. Moreover, in the process I could contribute substantially to the
organization's growth. The experience that I gathered over the past two months has certainly
provided the orientation, which I believe will help me in shouldering any responsibility in future.
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2. Industry Profile
The Construction industry of India is an important indicator of the development as it creates
investment opportunities across various related sectors. The construction industry has
contributed an estimated 670,778 crore to the national GDP in 2011-12 (a share of around 8%).
The industry is fragmented, with a handful of major companies involved in the construction
activities across all segments; medium sized companies specializing in niche activities activities;
and small and medium contractors who work on the subcontractor basis and carry out the work
in the field. The sector is labor-intensive and, including indirect jobs, provides employment to
more than 35 million people.
HISTORY
The period from 1950 to mid 60’s witnessed the government playing an active role in the
development of these services and most of construction activities during this period were carried
out by state owned enterprises and supported by government departments. In the first five-year
plan, construction of civil works was allotted nearly 50 per cent of the total capital outlay.
The first professional consultancy company, National Industrial Development
Corporation (NIDC), was set up in the public sector in 1954. Subsequently, many architectural,
design engineering and construction companies were set up in the public sector (Indian
Railways Construction Limited (IRCON), National Buildings Construction Corporation
(NBCC), Rail India Transportation and Engineering Services (RITES), Engineers India
Limited (EIL), etc.) and private sector (M N Dastur and Co., Hindustan Construction Company
(HCC), Ansals, etc.).
In India Construction has accounted for around 40 per cent of the development investment
during the past 50 years. Around 16 per cent of the nation's working population depends on
construction for its livelihood. The Indian construction industry employs over 3 crore people and
creates assets worth over 20,000 crore.
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It contributes more than 5 per cent to the nation's GDP and 78 per cent to the gross capital
formation. Total capital expenditure of state and central govt. will be touching 8,02,087 crores
in 2011-12 from 1,43,587 crores (1999-2000).
The share of the Indian construction sector In total gross capital formation (GCF) came down
from 60 per cent in 1970-71 to 34 per cent in 1990-91. Thereafter, it increased to 48 per cent in
1993-94 and stood at 44 per cent in 1999-2000. In the 21 st century, there has been an increase in
the share of the construction sector in GDP and capital formation.
GDP from Construction at factor cost (at current prices) increased to 1,74,571 crores (12.02%
of the total GDP ) in 2004-05 from 1,16,238 crores (10.39% of the total GDP) in 2000-01.
The main reason for this is the increasing emphasis on involving the private sector infrastructure
development through public-private partnerships and mechanisms like build-operate-
transfer (BOT), private sector investment has not reached the expected levels.
The Indian construction industry comprises 200 firms in the corporate sector. In addition to these
firms, there are about 1,20,000 class A contractors registered with various government
construction bodies. There are thousands of small contractors, which compete for small jobs or
work as sub-contractors of prime or other contractors. Total sales of construction industry have
reached 42,885.38 crores in 2004 05 from 21,451.9 crores in 2000-01, almost 20% of which
is a large contract for Benson & Hedges.
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Chapter – II
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3. About the Company
a. Company Profile
Vishwa Infrastructures & Services Private Limited is a major player in the infrastructure projects
industry in India. The company started off as a partnership entity in 1992 (VISHWA
Construction Company) and rapidly evolved into a private limited company by 2004, and the
rest as they say is history.
We provide engineering, procurement and construction activities for infrastructure projects on
turnkey basis. We specialize in executing water supply & sewerage infrastructure projects with
backward integration including all allied civil engineering works like manufacturing PSC pipes,
MS pipes, RCC pipes, executing pipeline contracts, construction of water treatment plants
(WTP) sewage treatment plants (STP), reservoirs (ELSR, GLSR), pump houses, and installation
of electro-mechanical equipments (pumping machinery). We are present across India and have a
strong reputation for delivering concept to commissioning solutions. Deploying high-end
infrastructure manned by skilled experts and using cutting edge methodologies have given us a
distinct advantage.
b. Vision
"We shall achieve leadership position in our business by delivering high quality products and
services. We shall be a vibrant learning organization striving for the overall growth of our
employees, shareholders and society. We shall be a modern, model corporate citizen."
c. Company Leadership
 ML SRIDHAR REDDY, Executive Director
 J. VIKRAM, Director
 K. VIJAY, Director
 M. GOVERDHAN REDDY, Director – Finance
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d. Current Projects
WATER SUPPLY SEWERAGE OTHERS
GVMC Delhi Jal Board Highway Division, RITES
Ltd
Municipal Corporation of
Khandwa
Thane Municipal
Corporation
N.H. Circle, P.W.D., Kanpur
CMWSSB HMWSSB MPPKVV Company
Indore.Lot XII,XVIII & XIX
BUIDCO CMWSSB AP TRANCO
Public Health Division,
Narasaraopet
Kolhapur Municipal
Corporation
South Eastern Coalfields
Limited, Bilaspur
PHED Bihar Erode City Municipal
Corporation
Western Coalfields Limited,
Nagpur
PIU,Uttarakhand Urban
Sector Development
Investment Prog. Majra
PWSSB
NMDC Limited BWSSB
GMDA
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e. SWOT Analysis of Vishwa Infrastructures
Strengths
Diversified order book: VISHWA has diversified order book with presence across multiple
verticals. This provides a unique hedge to the company in case of slowdown in orders from any
particular segment.
Working capital cycle: Construction is a working capital intensive industry. It should be noted
that VISHWA has one of the best working capital cycle in the industry after Simplex
Infrastructure.
Healthy share of private contracts: Higher share of private contracts ensue higher margins as
they are bagged on a negotiated basis. Private contracts also allow better working capital
management.
Weakness
Slowdown in international operations: The recent slowdown in the construction activity in
Middle East markets may impact the top-line of the company in the near term.
Exposure to Andhra Pradesh: Although the exposure to Andhra Pradesh is just 10% of the
order book, (immaterial) the company faces execution issues haunting top-line.
Opportunities
New divisions: New divisions present a great opportunity for the company to cash in on the
incremental business.
Transportation: VISHWA revenue share from the transportation segment has witnessed a
secular decline from FY06. Considering the recent policy thrust on infrastructure and roads in
particular, VISHWA has enough headroom to tap in on this laggard business.
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Threats
Competition: The industry operates at wafer thin margins. Unviable bidding by competitors in
order to just gain an entry into the business can impact the top-line of the company.
Weaker government finance: Weaker government finances can impact the order inflows of the
company
f. Competitors
Name Last Price
Market
Cap.
Sales
Net Profit Total Assets
(Rs. cr.) Turnover
Unitech 24.4 6,383.77 1,206.32 327.11 12,154.83
Mahindra Life 365 1,490.65 468.95 120.16 1,229.98
Ashoka Buildcon 186 979.31 1,337.95 104.49 1,064.07
Hind Constr 14.25 864.42 3,988.01 -222.25 4,700.90
Gammon Infra 10.8 814.72 102.99 32.94 792.44
NCC 31.2 800.54 5,250.47 35.98 4,466.80
Man Infra 155 767.25 379.48 66.53 536.92
IVRCL 19.75 606.1 6,177.96 18.08 4,740.44
J Kumar Infra 199.95 555.89 931.59 69.81 583.7
Simplex Infra 112 554.09 5,906.76 89.19 3,295.43
Pratibha Ind 39.05 394.62 1,503.44 83.24 1,199.85
Patel Eng 56.25 392.78 2,640.27 63.49 3,300.26
Noida Toll 20.6 383.56 92.95 45.32 543.68
Atlanta 47 383.05 170.22 18.88 460.31
ILandFS Engg 39.8 357.35 2042.56 -135.31 1689.1
Supreme Infra 210.7 352.76 1505.91 92.62 1069.81
Ramky Infra 58.65 335.47 2730.52 157.36 1823.05
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4. OBJECTIVES OF THE STUDY
The objectives of the study are as follows:
 To analyze the working capital management of the company.
 To determine the gross and net operating cycle of the unit.
 To know the future need of working capital in the running organization.
 To render recommendations for the effective management of working capital.
5. SCOPE OF THE STUDY
The study is conducted at “Vishwa Infrastructures” for 6 weeks duration. The study of W.C.
management is purely based on secondary data and all the information is available within the
company itself in the form of records. To get proper understanding of this concept, I have done the
study of the balance sheets, profit and loss A/c’s, cash accounts, trial balance, and cost sheets. So,
scope of the study is limited up to the availability of official records and information provided by
the employees. The study is supposed to be related to the period of last five years.
6. RESEARCH METHDOLOGY
INTRODUCTION:
Research methodology is a way to systematically solve the research problem. It May be
understood as a science of studying now 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.
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“The procedures by which researcher go about their work of describing, explaining and predicting
phenomenon are called methodology”.
TYPE OF RESEARCH:
This project “A Study on Working Capital Management of Vishwa Infrastructures &
Services Private Limited” is considered as an analytical research.
Analytical Research is defined as the research in which, researcher has to use facts or information
already available, and analyze these to make a critical evaluation of the facts, figures, data or
material.
SOURCE OF RESEARCH DATA:
There are mainly two through which the data required for the research is collected.
PRIMARY DATA:
The primary data is that data which is collected fresh or first hand, and for first time which is
original in nature.
In this study the Primary data has been collected from Personal Interaction with Finance manager
i.e., Mr. Govardhan Reddy and other staff members.
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SECONDARY DATA:
The secondary data are those 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 efforts to collect the data.
The major source of data for this project was collected through annual reports, profit and loss
account of 4 year period from 2009-2012 & some more information collected from internet and
text sources.
SAMPLING DESIGN
Sampling unit : Financial Statements.
Sampling Size : Last four years financial statements.
Tool Used for calculations: - MS-Excel.
TOOLS USED FOR ANALYSIS OF DATA
The data were analyzed using the following financial tools. They are
Ratio analysis.
Statement of changes in working capital.
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Chapter – III
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THE ORTICAL BACKGROUND OF WORKING CAPITAL MANAGEMENT
What is working capital?
Working capital refers to the investment by the company in short terms assets such as cash,
marketable securities. Net current assets or net working capital refers to the current assets less
current liabilities.
Symbolically, it means, Net Current Assets = Current Assets - Current Liabilities.
DEFINITIONS OF WORKING CAPITAL:
The following are the most important definitions of Working capital:
1) “Working capital is the difference between the inflow and outflow of funds. In other words it
is the net cash inflow”
2) Working capital represents the total of all current assets. In other words it is the “Gross
working capital”, it is also known as “Circulating capital” or “Current capital” for
current assets is rotating in their nature.
3) Working capital is defined as “The excess of current assets over current liabilities and
provisions”. In other words it is the “Net Current Assets or Net Working Capital”
IMPORTANCE OF WORKING CAPITAL
Working capital may be regarded as the lifeblood of the business. Without insufficient working
capital, any business organization cannot run smoothly or successfully.
In the business the Working capital is comparable to the blood of the human body. Therefore the
study of working capital is of major importance to the internal and external analysis because of its
close relationship with the current day to day operations of a business. The inadequacy or
mismanagement of working capital is the leading cause of business failures.
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To meet the current requirements of a business enterprise such as the purchases of services, raw
materials etc. working capital is essential. It is also pointed out that working capital is nothing but one
segment of the capital structure of a business.
In short, the cash and credit in the business, is comparable to the blood in the human body like finance s
life and strength i.e. profit of solvency to the business enterprise. Financial management is called upon
to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not
allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore
the management of working capital is essential in each and every activity.
WORKING CAPITAL MANAGEMENT
INTRODUCTION:
Working Capital is the key difference between the long term financial management and short term
financial management in terms of the timing of cash.
Long term finance involves the cash flow over the extended period of time i.e 5 to 15 years, while
short term financial decisions involve cash flow within a year or within operating cycle.
Working capital management is a short term financial management.
Working capital management is concerned with the problems that arise in attempting to manage the
current assets, the current liabilities & the inter relationship that exists between them. The current
assets refer to those assets which can be easily converted into cash in ordinary course of business,
without disrupting the operations of the firm.
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Composition of working capital
Major Current Assets
1) Cash
2) Accounts Receivables
3) Inventory
4) Marketable Securities
Major Current Liabilities
1) Bank Overdraft
2) Outstanding Expenses
3) Accounts Payable
4) Bills Payable
The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the
satisfactory level of working capital is maintained. If the firm cannot maintain the satisfactory level
of working capital, it is likely to become insolvent & may be forced into bankruptcy. To maintain
the margin of safety current asset should be large enough to cover its current assets.
Main theme of the theory of working capital management is interaction between the current assets
& current liabilities.
CONCEPT OF WORKING CAPITAL:
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There are 2 concepts:
 Gross Working Capital
 Net Working Capital
The gross working capital is the capital invested in the total current assets of the enterprises
current assets are those
Assets which can convert in to cash within a short period normally one accounting year.
CONSTITUENTS OF CURRENT ASSETS
1) Cash in hand and cash at bank
2) Bills receivables
3) Sundry debtors
4) Short term loans and advances.
5) Inventories of stock as:
a. Raw material
b. Work in process
c. Stores and spares
d. Finished goods
6. Temporary investment of surplus funds.
7. Prepaid expenses
8. Accrued incomes.
9. Marketable securities.
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In a narrow sense, the term working capital refers to the net working. Net working capital is the
excess of current assets over current liability, or, say:
NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.
Net working capital can be positive or negative. When the current assets exceeds the current
liabilities are more than the current assets. Current liabilities are those liabilities, which are
intended to be paid in the ordinary course of business within a short period of normally one
accounting year out of the current assts or the income business.
CONSTITUENTS OF CURRENT LIABILITIES
1. Accrued or outstanding expenses.
2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation, if it does not amt. to app. Of profit.
6. Bills payable.
7. Sundry creditors.
The gross working capital concept is financial or going concern concept whereas net working
capital is an accounting concept of working capital. Both the concepts have their own merits.
The gross concept is sometimes preferred to the concept of working capital for the following
reasons:
1. It enables the enterprise to provide correct amount of working capital at correct time.
2. Every management is more interested in total current assets with which it has to operate
then the source from where it is made available.
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3. It take into consideration of the fact every increase in the funds of the enterprise would
increase its working capital.
4. This concept is also useful in determining the rate of return on investments in working
capital. The net working capital concept, however, is also important for following
reasons:
It is qualitative concept, which indicates the firm’s ability to meet to its
operating expenses and short-term liabilities.
IT indicates the margin of protection available to the short term creditors.
It is an indicator of the financial soundness of enterprises.
It suggests the need of financing a part of working capital requirement out of
the permanent sources of funds.
CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified in two ways:
On the basis of concept.
On the basis of time.
On the basis of concept working capital can be classified as gross working capital and net working
capital. On the basis of time, working capital may be classified as:
Permanent or fixed working capital.
Temporary or variable working capital
PERMANENT OR FIXED WORKING CAPITAL
Permanent or fixed working capital is minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to
maintain a minimum level of raw material, work- in-process, finished goods and cash balance.
This minimum level of current assets is called permanent or fixed working capital as this part of
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working is permanently blocked in current assets. As the business grow the requirements of
working capital also increases due to increase in current assets.
TEMPORARY OR VARIABLE WORKING CAPITAL
Temporary or variable working capital is the amount of working capital which is required to meet
the seasonal demands and some special exigencies. Variable working capital can further be
classified as seasonal working capital and special working capital. The capital required to meet the
seasonal need of the enterprise is called seasonal working capital. Special working capital is that
part of working capital which is required to meet special exigencies such as launching of extensive
marketing for conducting research, etc.
Temporary working capital differs from permanent working capital in the sense that is required for
short periods and cannot be permanently employed gainfully in the business.
Implications of Net Working Capital:
Net working capital is necessary because the cash outflows and inflows do not coincide. In general
the cash outflows resulting from payments of current liability are relatively predictable. The cash
inflows are however difficult to predict. More predictable the cash inflows are, the less NWC will
be required. But where the cash inflows are uncertain, it will be necessary to maintain current
assets at level adequate to cover current liabilities that are there must be NWC.
 Investments in current asset represent a substantial portion of total investment.
 Investments in current asset and level of current liability have to be geared quickly to
change in sales.
Business undertaking required funds for two purposes:
 To create productive capacity through purchase of fixed assets.
 The finance current assets required for running of the business.
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The importance of WCM is reflected in the fact that financial manager spend a great deal of time in
managing current asset and current liability.
The extent to which profit can be earned is dependent upon the magnitude of sale. Sales are
necessary for earning profit. However, sales do not for evaluating NWC position, an important
consideration is trade off between probability and risk.
The term profitability is measured by profits after expenses. The term risk is defined as the
profitability that a firm will become technically insolvent so that it will not be able to meet its
obligations when they become due for payment. The risk of becoming technically insolvent is
measured by NWC.
If the firm wants to increase profitability, the risk will definitely increase. If firm wants to reduce
the risk, the profitability will decrease.
PLANNING OF WORKING CAPITAL:
Working capital is required to run day to day business operations. Firms differ in their requirement
of working capital (WC). Firm s aim is to maximize the wealth of share holders and to earn
sufficient return from its operations.
WCM is a significant facet of financial management. Its importance stems from two reasons:
 Investment in current asset represents a substantial portion of total investment.
 Investment in current assets and level of current liability has to be geared quickly to change
in sales.
Business undertaking required funds for two purposes:
 To create productive capacity through purchase of fixed assets.
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 To finance current assets required for running of the business. The importance of WCM is
reflected in the fact that financial managers spend a great deal of time in managing current
assets and current liabilities.
The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are
necessary for earning profits. However, sales do not convert into cash instantly; there is invariably
a time lag between sale of goods and the receipt of cash. WC management affect the profitability
and liquidity of the firm which are inversely proportional to each other, hence proper balance
should be maintained between two.
To convert the sale of goods into cash, there is need for WC in the form of current asset to deal
with the problem arising out of immediate realization of cash against good sold. Sufficient WC is
necessary to sustain sales activity. This is referred to as the operating or cash cycle.
WORKING CAPITAL CYCLE:
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A firm requires many years to recover initial investment in fixed assets. On contrary the investment
in current asset is turned over many times a year. Investment in such current assets is realized
during the operating cycle of the firm.
Each component of working capital (namely inventory, receivables and payables) has two
dimensions ... TIME ......... and MONEY. When it comes to managing working capital -TIME IS
MONEY. If you can get money to move faster around the cycle (e.g. collect dues from debtors
more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to
sales), the business will generate more cash or it will need to borrow less money to fund working
capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free
money available to support additional sales growth or investment. Similarly, if you can negotiate
improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively
create free finance to help fund future sales.
It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If
you do pay cash, remember that this is now longer available for working capital. Therefore, if cash
is tight, consider other ways of financing capital investment -loans, equity, leasing etc. Similarly, if
you pay dividends or increase drawings, these are cash outflows and, like water flowing down a
plughole, they remove liquidity from the business.
If you Then
Collect receivables (debtors) faster. You release cash from the cycle.
Collect receivables (debtors) slower. Your receivables soak up cash.
Get better credit (in term of duration or
amount) from suppliers.
Your increase your cash recourse.
Shift inventory (stocks) faster. You free up cash.
Move inventory (stocks) slower. You consume more cash.
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Operating cycle:
The working capital cycle refers to the length of time between the firms paying the cash for
materials, etc., entering into production process/stock & the inflow of cash from debtors (sales),
suppose a company has certain amount of cash it will need raw materials. Some raw materials will
be available on credit but, cash will be paid out for the other part immediately. Then it has to pay
labour costs & incurs factory overheads. These three combined together will constitute work in
progress. After the production cycle is complete, work in progress will get converted into sundry
debtors. Sundry debtors will be realized in cash after the expiry of the credit period. This cash can
be again used for financing raw material, work in progress etc. thus there is complete cycle from
cash to cash wherein cash gets converted into raw material, work in progress, finished goods and
finally into cash again. Short term funds are required to meet the requirements of funds during this
time period. This time period is dependent upon the length of time within which the original cash
gets converted into cash again. The cycle is also known as operating cycle or cash cycle.
Working capital cycle can be determined by adding the number of days required for each stage in
the cycle. For example, company holds raw material on average for 60 days, it gets credit from the
supplier for 15 days, finished goods are held for 30 days & 30 days credit is extended to debtors.
The total days are 120, i.e., 60 -15 + 15 + 15 + 30 + 30 days is the total of working capital.
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Thus the working capital cycle helps in the forecast, control & management of working capital. It
indicates the total time lag & the relative significance of its constituent parts. The duration may
vary depending upon the business policies. In light of the facts discusses above we can broadly
classify the operating cycle of a firm into three phases viz.
1 Acquisition of resources.
2 Manufacture of the product and
3 Sales of the product (cash / credit).
First and second phase of the operating cycle result in cash outflows, and be predicted with
reliability once the production targets and cost of inputs are known.
However, the third phase results in cash inflows which are not certain because sales and collection
which give rise to cash inflows are difficult to forecast accurately.
Operating cycle consists of the following:
 Conversion of cash into raw-materials;
 Conversion of raw-material into work-in-progress;
 Conversion of work-in-progress into finished stock;
 Conversion of finished stock into accounts receivable through sales; and
 Conversion of accounts receivable into cash.
In the form of an equation, the operating cycle process can be expressed as follows:
Operating cycle = R + W + F + D-C
R = Raw material storage period
W = Work in progress holding period
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F = Finished goods storage period
D = Debtors collection period
C = Credit period availed
(1) Raw Material Conversion Period (RMCP) = Average Raw Material Stock
Average Raw Materials consumed during the year
105.25
156.51
193.73
59.88
0.00
50.00
100.00
150.00
200.00
250.00
12-11 11-10 10-09 09-08
RMCP
Particulars 12-11 11-10 10-09 09-08
Average Raw
material Stock
33065118 33352213.5 20819151 13076063
Raw Material
consumed
during the
year
314166.03 213093.45 107464.04 218371.65
RMCP 105.25 156.51 193.73 59.88
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(2) Work in Progress Conversion Period (WIPCP) = Average stock in progress
Average Cost of Production
(3) Finished Goods Conversion Period (FGCP) = Average finished goods inventory
Average cost of sold goods
41.03
37.93
28.76
26.77
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
12-11 11-10 10-09 09-08
WICP
Particulars 12-11 11-10 10-09 09-08
Average stock in
progress
7834151.5 8313099.5 5586013 4818821.5
Avg cost of
production
190952.86 211273.02 194248.64 180015.22
WICP 41.03 37.93 28.76 26.77
33
Particulars 12-11 11-10 10-09 09-08
Average finished
goods inventory
14911159 13149905.5 5004497 6396225
Cost of goods
sold
1955523.98 1648540.72 1398222.17 1260173
FGCP 7.63 7.98 3.58 5.08
(4) Debtors' Conversion Period (DCP) = Days in year company operating
Debtor’s turnover
Particulars 12-11 11-10 10-09 09-08
Days in year company
operating
360 360 360 360
Debtors' turnover
21.66 22.89 18.41 15.82
DCP 16.62 15.73 19.55 22.76
7.63 7.98
3.58
5.08
0.00
2.00
4.00
6.00
8.00
10.00
12-11 11-10 10-09 09-08
FGCP
34
(5) Credit Conversion Period (CCP) = Days in year company operating
Creditors’ turnover
Particulars 12-11 11-10 10-09 09-08
Days in year
company operating
360 360 360 360
Creditors’ turnover
27.15 26.02 39.5 22.77
CCP 13.26 13.84 9.11 15.81
16.62 15.73
19.55
22.76
0.00
5.00
10.00
15.00
20.00
25.00
12-11 11-10 10-09 09-08
DCP
13.26 13.84
9.11
15.81
0.00
5.00
10.00
15.00
20.00
12-11 11-10 10-09 09-08
CCP
35
GROSS OPERATING CYCLE FOR Vishwa Infrastructures:
year RMCP WICP FGCP DCP GOC
12-11 105.25 41.03 7.63 16.62 170.52
11-10 156.52 37.93 7.98 15.72 218.15
10-09 193.73 28.76 3.58 19.55 245.62
09-08 59.88 26.77 5.08 22.76 114.48
NET OPERATING CYCLE:
year GOC CCP NOC
12-11 170.52
13.26 157.26
11-10 218.15 13.84 204.31
10-09 245.62 9.11 236.51
09-08 114.48 15.81 98.67
170.52
218.15
245.62
114.48
0.00
50.00
100.00
150.00
200.00
250.00
300.00
12-11 11-10 10-09 09-08
GOC
36
ANALYSIS
It claimed that gross operating cycle of Vishwa Infrastructure is increasing in year 2007-08 and
in the year 2008-09 it decreasing up to certain extent. In year 2007-08, it is 129.88 days then it
decreased to 114.48 days in year 2009-08 due to contraction in raw material. In 2010-09, it is on
the highest point of 245.62 days. The main reason of increasing gross operating cycle in 2010-09
is due to more availability of raw material in the stores. In year 2010-09 the company purchased a
bulk of raw material due to market variations the GOC is increased. However, when we came to
year 2011-10 the GOC for Vishwa infrastructures has shown a significant decrement of 204.31
days from the year 2010-09 to 245.62. When in next year 2012-11, it came out to be 170.52 days.
The GOP for satisfactory as it Varies as the market requirements and changes in form of meet the
customer's requirements largely.
But when we came to the NOC of Vishwa infrastructures it we can see that Creditor's payment
period OR Average payment period of Vishwa infrastructures is on a average of 15 days in each
(5) five years so does not make more effect on GOC. Therefore, it is somehow near of the GOC.
That is why the company's NOC 98.67, 236.51, 204.31, and 157.26 in the years 2009, 2010, 2011
and 2012. Therefore, we can say that there is a significant change in the NOC of the Vishwa
infrastructures.
157.26
204.31
236.51
98.67
0.00
50.00
100.00
150.00
200.00
250.00
12-11 11-10 10-09 09-08
NOC
37
Chapter – IV
Working Capital Ratio
38
RATIO ANALYSIS
Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process
of establishing and interpreting various ratios for helping in making decisions. It only means of
better understanding of financial strengths and weaknesses of a firm. The main emphasis has been
on calculating the ratios related to a working capital management.
LIQUIDITY RATIOS: These are the ratios which measures the short term solvency or financial
position of a firm. In other words, it refers to the ability of a concern to meet its current
obligations as and when these become due. To measure the liquidity of a firm, the following ratios
can be calculated.
CURRENT RATIO:
It may be defined as the relationship between current assets and current liabilities. This ratio is
also known as working capital ratio and measures the ability of the firm to meet current liabilities.
High current ratio indicates firm is liquid and has the ability to pay its current obligations in time
as and when they become due.
A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is
considered to be satisfactory.
Current Ratio = Current Assets
Current Liabilities
Year Current assets
Current
liabilities
Current
Ratio
2012 7,13,36,89,252 5,41,95,52,265 1.32
2011 5,20,10,96,577 3,99,07,99,155 1.30
2010 3,11,14,57,035 2,59,92,13,099 1.20
2009 1,70,39,28,805 1,39,17,79,068 1.22
39
Interpretation:-
The current ratio of the vishwa infrastructure is above the standard and it guarantees the payment
of dues in time. The current ratio of the company has been considerably high because they had
made over investment in inventories, which is the main reason for the high ratio of current assets.
Inventories are high because of seasonal availability of raw material. The overall position of
current ratio for vishwa infrastructure is satisfactory.
The current ratio of dye house has shown a remarkable increment from 1.22 in 2009-08 to 1.20 in
2010-09 to 1.30 in 2011-10 and then to 1.32 in 2012-11. The ratio was satisfactory especially for
the year 2012-11.
LIQUID RATIO:
This ratio is also known as quick ratio or acid test ratio. It is a more rigorous test of liquidity than
the current ratio. It is based on those current assets which are highly liquid. Inventory and prepaid
expenses are excluded because they are deemed to be least liquid component of current assets. A
high quick ratio is the indication that the firm is liquid and has the ability to meet its current
liabilities in time and on the other hand low ratio represents liquidity position is not good.
Quick Ratio = Quick or Liquid Assets
Current liabilities
1.32%
1.30%
1.20%
1.22%
1.10%
1.15%
1.20%
1.25%
1.30%
1.35%
2012-11 2011-10 2010-09 2009-08
Current Ratio
40
Quick Assets = Current Assets – Inventory – Prepaid Expenses
Year
Quick assets (
Current Assets
- Inventory)
Current
liabilities
Quick
Ratio
2012 6,89,16,35,655 5,41,95,52,265 1.27
2011 5,07,73,98,551 3,99,07,99,155 1.27
2010 2,33,65,61,351
2,59,92,13,099
0.90
2009 1,45,76,95,538 1,39,17,79,068 1.05
Interpretation:-
According to rule of thumb, it should be 1:1. For vishwa infrastructure, the liquid ratio present a
uneven change over the past three years. It was 1.05 in 2009-08 and decreased to 0.90 in 2010-09
and increased to 1.27 in 2011-10 and then to 2012-11. The decrement in the ratio is not
satisfactory, however the ratio 0.90 in 2010-09 is more than the rule of thumb but it should be
quite more than the rule of thumb.
1.27% 1.27%
0.90%
1.05%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
2012-11 2011-10 2010-09 2009-08
Quick Ratio
41
WORKING CAPITAL TURNOVER RATIO:
Working capital turnover ratio indicates the velocity of the utilization of net working capital. This
ratio measures the efficiency with which the working capital is being used by a firm.
Working Capital Turnover Ratio = COGS OR Sales
Net Working Capital
Year Sales / Revenue
Net Working
Capital
WCTR
2012 6,32,46,67,720 1,71,41,36,987 3.69
2011 6,13,73,22,172 1,92,02,97,422 3.20
2010 4,06,88,667 1,25,86,543 3.23
2009 2,24,214 1,28,675 1.74
3.69%
3.20% 3.23%
1.74%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
2012-11 2011-10 2010-09 2009-08
WCTR
42
Interpretation:-
A high working capital turnover ratio indicates efficiency in utilization of resources and the ratio
has improved from 1.74 in 2009-08 to 3.69 in 2012-11. Hence we can see that the component of
working capital is consistently reducing which is considered as a positive sign from the point view
of the finance
STOCK TURNOVER RATIO
This ratio tells the story by which stock is converted into sales. A high stock turnover ratio reveals
the liquidity of the inventory i.e., how many times on an average, inventory is turned over or sold
during the year.
STOCK OR INVENTORY TURNOVER RATIO = COGS OR SALES
AVERAGE STOCK
Year Sales Average Stock STR
2012 703988635 55810428.5 12.61
2011 593474659.7 23981268.5 24.75
2010 503359979.5 31409661 16.03
2009 453662278.7 24291109 18.68
43
INTERPRETATION: -
By analyzing the four-years data it seen, that it follows an uneven trend. We see that from the year
2009 to 2008, it moves on a slow pace means, the ratio is increased in very nominal figures i.e.
(2.65) times, which has been rectified in the year 2011-10. In 2011-10 there is a huge increase in
inventory due to this ratio the company maintains is very high in 2011-10 and the company is
required to take measures to lower down this ratio as it affects the working capital cycle of
company and the flow of cash in the company. In 2012, we saw company take measure to lower
down its ratio which is good for company because a low stock turnover ratio reveals un desirable
accumulation of obsolete stock.
Inventory Turnover Ratio:
Inventory turnover ratio is the ratio, which indicates the number of times the stock is turned over
i.e., sold during the year. This measures the efficiency of the sales and stock levels of a company.
A high ratio means high sales, fast stock turnover and a low stock level. A low stock turnover
ratio means the business is slowing down or with a high stock level.
Inventory Turnover Ratio = Net Sales
Closing Inventory
12.61
24.75
16.03
18.68
0.00
5.00
10.00
15.00
20.00
25.00
30.00
2012-11 2011-10 2010-09 2009-08
STR
44
Year
Total Sales
Average
Inventory
ITR
2012 6,32,46,67,720 31,20,53,597 0.20
2011 6,13,73,22,172 45,36,98,026 0.14
2010 4,06,88,667 77,48,95,684 0.001
2009 2,24,214 24,62,33,267 0.00001
INTERPRETATION: -
It is seen from the above chart that During the year 2009-08 the Inventory t/o ratio is 0.000009
times, in the year 2010-09 it increased to 0.001 times. There was a subsequent increase in the year
2011-10 and 2012-11 to 0.14 times and 0.20 times respectively.This shows the company has more
sales.
Total Asset Ratio:
The total asset turnover ratio measures the ability of a company to use its assets to efficiently
generate sales. This ratio considers all assets, current and fixed. Those assets include fixed assets,
like plant and equipment, as well as inventory, accounts receivable, as well as any other current
assets.
0.20
0.14
0.001 0.000009
0.00
0.05
0.10
0.15
0.20
0.25
2012-11 2011-10 2010-09 2009-08
ITR
45
Total Assets Ratio = Total Sales / Total Assets
Year Total Sales Total Assets TAR
2012 6,32,46,67,720 8,90,03,19,337 0.01
2011 6,13,73,22,172 6,26,34,54,935 0.01
2010 4,06,88,667 1,80,89,18,784 0.0002
2009 2,24,214 1,04,59,93,207 0.000002
Interpretation: -
There is a continuous increase in sales. In the year 2010-09 there was an increase in average total
assets, so the ratio increased from 0.000002 to 0.0002, in 2011-10 and 2012-11 there is a change
in average assets and increase)in average total assets, so ratio increased from 0.01 to 0.01.
0.01
0.01
0.0002 0.000002
0.00
0.00
0.00
0.01
0.01
0.01
0.01
2012-11 2011-10 2010-09 2009-08
TAR
46
Debt Equity Ratio:
A measure of a company's financial leverage calculated by dividing its total liabilities by
stockholders' equity. It indicates what proportion of equity and debt the company is using to
finance its assets.
Debt Equity Ratio = Total Debts / Equity
Year Total debt Equity DER
2012 5,421 3,587 1.51
2011 6,599 3,446 1.91
2010 7,377 3,361 2.20
2009 7,697 3,324 2.32
Interpretation: -
The D/E ratio is 1:1; it implies that for every rupee of outside liability. In case of our organization
there is an improvement in the D/E ratio year by year. There is continuous decrease in total debt
and there is continuous increase in shareholder s equity (i.e. Reserves and Surpluses) with
increasing rate so the ratio is decreasing from 2.32 to 2.20 in 2010-09, to 1.91 in 2011-10 and to
1.51 in 2012-11.
1.51
1.91
2.20
2.32
0.00
0.50
1.00
1.50
2.00
2.50
2012-11 2011-10 2010-09 2009-08
DER
47
Chapter – V
48
FINDINGS.
Working capital of the Vishwa Infrastructure & Service Pvt Ltd. was increasing and showing
positive working capital per year.
The Vishwa Infrastructure & Service Pvt Ltd has higher current and quick ratios are i.e., 1.32
and 1.27 respectively.
 Inventory turnover ratio is very low in the year 2010-09. In the year 2011-10 it has increased by
0.134 times as compared to 2010-09 and in the last year 2012-11 it has again increased by 0.067
times as compared to 2011-10.
Working capital turnover ratio is very low in the year 2009-08. In the year 2010-09 it has
increased by 1.49 times as compared to 2009-08 and in the last year 2012-11 it has again increased
by 0.46 times.
SUGGESTIONS.
 Working capital of the company has increasing every year. Profit also increasing every year this is
good sign for the company. It has to maintain it further, to run the business long term.
 The Current and quick ratios are almost up to the standard requirement. So the Working capital
management. Vishwa Infrastructure & Service Pvt Ltd. is satisfactory and it has to maintain it
further.
 The company has sufficient working capital and has better liquidity position. By efficient utilizing
this short-term capital, then it should increase the turnover.
49
 The company should take precautionary measures for investing and collecting funds from
receivables and to reduce the bad debts.
 The company has sufficient working capital and has better liquidity position. By efficient utilizing
this short-term capital, then it should increase the turnover.
 The company is utilizing working capital effectively this is good for the company. It has to
maintain it further.
CONCLUSIONS.
The study on working capital management conducted in Vishwa Infrastructure & Service Pvt Ltd. to
analyze the financial position of the company. The company’s financial position is analyzed by using the
tool of annual reports from 2009-08 to 2012-11.
The financial status of Vishwa Infrastructure & Service Pvt Ltd. is good.
In the last year the inventory turnover has increased, this is good sign for the company.
The company’s liquidity position is very good With regard to the investments in current assets there are
adequate funds invested in it. Care should be taken by the company not to make further investments in
current assets, as it would block the funds, which could otherwise be effectively utilized for some
productive purpose. On the whole, the company is moving forward with excellent management.
50
Appendices
51
Vishwa Infrastructure Limited
Audit for the year ended 31 March 2012 and 31 March 2011
Planning analytical
Source of information
As at As at
31 Mar 2012* 31 Mar 2011
EQUITY AND LIABILITIES
Shareholders' funds
Share capital 14,35,45,060.00 14,35,45,060.00
Reserves and surplus 2,65,48,90,110.00 2,46,58,75,010.00
Money received against share warrants 1,81,81,697.00
2,81,66,16,867.00 2,60,94,20,070.00
Non-current liabilities
Long-term borrowings 63,64,49,675.00 34,35,08,107.00
Deferred tax liabilities (net) 2,38,47,429.00 2,68,80,781.00
Long-term provisions 38,53,101.00 28,46,822.00
66,41,50,205.00 37,32,35,710.00
Current liabilities
Short-term borrowings 2,46,71,19,355.00 91,84,79,278.00
Trade payables 1,83,63,33,102.00 1,80,77,10,092.00
Other current liabilities 1,08,71,09,263.00 53,83,27,109.00
Short-term provisions 2,89,90,545.00 1,62,82,676.00
5,41,95,52,265.00 3,28,07,99,155.00
8,90,03,19,337.00 6,26,34,54,935.00
52
ASSETS
Non-current assets
Fixed assets:
(a) Tangible assets 1,18,48,40,773.00 64,41,30,239.00
(b) Intangible assets 56,54,347.00 30,01,630.00
(c) Capital work-in-progress - 17,91,868.00
(d) Intangible assets under
Development 6,36,31,304.00 -
1,25,41,26,424.00 64,89,23,737.00
Non-current investments 3,84,00,000.00 4,08,00,000.00
Long-term loans and advances 41,67,17,794.00 17,36,99,658.00
Other non-current assets 5,73,85,867.00 19,89,34,963.00
1,76,66,30,085.00 1,06,23,58,358.00
Current assets
Current investment - 5,00,10,117.00
Inventories 31,20,53,597.00 12,36,98,026.00
Trade receivables 2,13,84,76,493.00 2,18,40,67,041.00
Cash and bank balances 58,60,08,875.00 44,95,61,062.00
Short-term loan and advances 38,61,94,344.00 37,83,62,833.00
Other current assets 3,71,09,55,943.00 2,01,53,97,498.00
7,13,36,89,252.00 5,20,10,96,577.00
8,90,03,19,336.99 6,26,34,54,934.99
Note:
1. We have considered 31 December 2012 figures for Balance Sheet ratios.
2. We have extrapolated 31 December 2012 to 31 March 2013 based on previous years trend for
profitability analysis.
53
Vishwa Infrastructures and Services Private Limited
Balance Sheet as at 31 March 2010 and 31 March 2009
(All amounts in Indian Rupees, except share data and where otherwise stated)
As at As at
Schedule 31 March 2010 31 March 2009
SOURCES OF FUNDS
Shareholders' funds
Share capital 1
12,77,55,000 4,25,85,000
Reserves and surplus 2
1,08,51,25,969 89,00,97,898
Loan funds
Secured loans 3
57,31,44,929 8,63,62,482
Unsecured loans 4 - 2,55,000
Deferred tax liability (net) 20 (3)
2,28,92,886 2,66,92,827
1,80,89,18,784 1,04,59,93,207
APPLICATION OF FUNDS
Fixed assets 5
Gross block
35,00,76,800 27,01,27,468
Less: Accumulated depreciation
(9,38,14,260) (4,23,02,176)
Net block
25,62,62,539 22,78,25,292
Capital work-in-progress (including capital
advances)
21,12,309 60,18,178
25,83,74,848 23,38,43,470
54
Investments
6
3,83,00,000
-
Current assets, loans and advances
Inventories 7
77,48,95,684 24,62,33,267
Sundry debtors 8
1,27,06,01,462 81,00,22,080
Cash and bank balances 9
47,41,60,803 28,48,85,938
Loans and advances 10
59,17,99,086 36,27,87,520
3,11,14,57,035 1,70,39,28,805
Current liabilities and provisions
Current liabilities 11
1,56,27,09,638 88,04,15,806
Provisions 12
3,65,03,461 1,13,63,262
1,59,92,13,099 89,17,79,068
Net current assets 1,51,22,43,936 81,21,49,737
1,80,89,18,784 1,04,59,93,207
55
Vishwa infrastructures and service private limited
Statement of Profit & Loss 31 March 2012 and 31 March 2011
(All amount in Indian rupees, expect share data and where otherwise stated)
Note
For the year ended 31
March 2012
For the year ended 31
March 2011
Income
Revenue from operations 2.18 6,32,46,67,720 6,13,73,22,172
Other income 2.19 9,00,65,656 4,57,14,373
Total Revenue 6,41,47,33,376 6,18,30,36,545
Expenses :
Materials and supplies consumed 1,36,21,05,603 2,22,89,60,078
Contract expenses 2.20 3,69,02,62,970 2,72,28,05,391
Employee benefits expense 2.21 26,86,64,688 16,68,72,996
Finance costs 2.22 43,42,10,114 22,81,51,259
Depreciation and amortization
expense 2.90 15,59,51,371 7,12,47,821
Other expenses 2.23 23,92,12,724 13,83,96,295
Total expenses 6,15,04,07,470 5,55,64,33,840
Profit before tax 26,43,25,906 62,66,02,705
Tax expense 2.24
- Current tax 7,83,44,158 20,42,67,732
- Deferred tax -30,33,352 39,87,895
7,53,10,806 20,82,55,627
Profit after tax 18,90,15,100 41,83,47,078
Earning per equity share - par value
of Rs. 10 per share 2.27
- Basic 13.17 32.14
- Diluted 13.15 32.14
56
Vishwa Infrastructures and Services Private Limited
Profit and Loss Account for the year ended 31 March 2010 and 31 March 2009
(All amounts in Indian Rupees, except share data and where otherwise stated)
For the year ended For the year ended
Schedule 31 March 2010 31 March 2009
Income
Contract revenues 13 4,06,88,66,709 2,24,21,38,864
Less: Excise duty (64,56,902) (1,31,78,585)
Income from operations 4,06,24,09,807 2,22,89,60,279
Other income 14 3,46,43,248 3,14,87,492
4,09,70,53,055 2,26,04,47,771
Expenditure
Contract costs 15 3,30,02,65,447 1,80,54,57,358
Personnel costs 16 9,56,10,499 5,13,21,939
Administrative and other expenses 17 7,86,36,727 5,57,43,483
Finance charges 18 12,38,05,890 7,38,67,170
Depreciation 5 5,15,49,364 3,07,19,590
Less: Effect of change in accounting policy from
WDV to SLM (Refer note 13 of Schedule 20) - (1,69,30,242)
3,64,98,67,927 2,00,01,79,297
Profit before tax 44,71,85,128 26,02,68,474
Tax expense 19 15,70,22,593 9,55,27,444
Profit after tax 29,01,62,535 16,47,41,029
Balance in profit and loss account brought forward 29,41,83,902 13,94,07,337
Amount available for appropriation 58,43,46,437 30,41,48,366
Appropriations:
Interim dividend 85,17,000 85,17,000
Tax on interim dividend 14,47,464 14,47,464
Transferred to general reserve 2,17,62,190 -
Balance carried forward to balance sheet 55,26,19,783 29,41,83,902
Earnings per share
Basic and diluted - par value of Rs. 10 per share 20(4) 22.71 12.90
57
58
Vishwa Infrastructures and Services Private Limited
Cash flow statement for the year ended 31 March 2010 and 31 March 2009
(All amounts in Indian rupees, except share data and where otherwise stated)
For the year ended
31 March 2010
For the year
ended
31 March 2009
Cash flows from operating activities
Profit before tax 44,71,85,128 26,02,68,474
Adjustments:
Depreciation 5,15,49,364 1,37,89,348
Interest income (1,74,19,587) (1,09,11,631)
Finance charges 12,38,05,890 7,38,67,170
Loss / (profit) on disposal of fixed assets (3,000) 1,08,925
Operating cash flows before working capital
changes and other assets 60,51,17,795 33,71,22,285
(Increase) / decrease in sundry debtors (46,05,79,382) (66,95,26,543)
(Increase) / decrease in loans and advances (22,02,43,660) (24,47,98,692)
(Increase) / decrease in inventories (52,86,62,417) 3,58,83,842
59
Increase / (decrease) in current liabilities and
provisions 68,23,55,286 51,54,89,686
Cash generated from operations 7,79,87,622 (2,58,29,422)
Income taxes paid, net (14,04,28,431) (6,63,52,019)
Net cash used in operating activities (6,24,40,809) (9,21,81,441)
Cash flows from investing activities
Purchase of fixed assets (7,99,86,611) (16,61,17,494)
Sale of fixed assets 3,000 1,17,984
Investements (3,83,00,000) -
Interest received 1,72,42,191 1,00,18,787
Net cash used in investing activities (10,10,41,420) (15,59,80,723)
Cash flows from financing activities
Proceeds from issue of share capital - 20,00,05,616
Acceptance of secured loan 50,19,60,349 7,24,51,745
Repayment of secured loan (1,51,77,902) (1,14,98,940)
Repayment of unsecured loan (2,55,000) (31,14,381)
Dividends paid (including dividend tax) (99,64,464) (99,64,464)
Finance charges paid (12,38,05,890) (7,38,67,170)
Net cash generated from financing activities 35,27,57,093 17,40,12,406
Net increase / (decrease) in cash and cash
equivalents 18,92,74,865 (7,41,49,759)
Cash and cash equivalents at the beginning of the
year 28,48,85,938 35,90,35,697
Cash and cash equivalents at the end of the year
(Note 1) 47,41,60,803 28,48,85,938
60
Notes:
As at As at
1. Cash and cash equivalents comprise: 31 March 2010 31 March 2009
Cash in hand 4,43,104 2,56,399
Balances with scheduled banks
- in current accounts 24,66,32,016 13,35,99,457
- in deposit accounts 22,61,46,915 15,10,30,082
Balances with non-scheduled banks
- in current accounts 9,38,768 -
47,41,60,803 28,48,85,938
61
BIBLIOGRAPHY
62
TEXT BOOKS
 M.Y.Khan / P.K Jain, Financial Management Text, Problem’s Cases, 5TH
Edition,Tata
McGraw –Hill Publishing Company Limited, New Delhi, 2007.
 Prasanna Chandra, Financial Management Theory and Practice, 5TH
Edition, Tata
McGraw –Hill Publishing Company Limited, New Delhi, 2001.
 Annual Report of Vishwa Infrastructures & Services Private Limited
WEB SITE VISITED
 www.google.com
 www.wikipedia.org
 www.transtutors.com

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Vishwa

  • 1. 1 WORKING CAPITAL MANAGEMENT Vishwa Infrastructures & Services Private Limited PROJECT REPORT Submitted in partial fulfilment of the requirement for the award of Two year full time, Masters in Business Administration. By DEVI NARASIMHA RAO Submitted to: PROFESSOR RAJ KUMAR PILLAY M.Sc., M.Phill., MBA., (Ph.D) DEPARTMENT OF MANAGEMENT NOVA BUSINESS SCHOOL HYDERABAD (2011-2013)
  • 2. 2 DECLARATION I hereby declare that the thesis entitled “An Empirical Study of Working Capital and A Study Vishwa Infrastructures & Services Private Limited ”, is a result of research carried out by me under the guidance of PROF. RAJ KUMAR PILLAY, Nova Business School . I further, declare that this thesis has not been submitted previously for the award of any degree in this University or any other University. DEVI NARASIMHA RAO.M
  • 3. 3 CERTIFICATE Certified that this thesis entitled “An Empirical Study of Working Capital and A Study Vishwa Infrastructures & Services Private Limited ”, is a bonafide research work carried out by DEVI NARASIMHA RAO .M independently under my guidance and supervision. Mr. Govardhan Reddy PROF. RAJ KUMAR PILLAY Director of Finance M.Sc., M.Phill., MBA., (Ph.D) Nova Business School
  • 4. 4 Acknowledgement Whatever we do and whatever we achieve during the course of our limited life is just not done only by our own efforts, but by efforts contributed by other people associated with us indirectly or directly. I thank all those people who contributed to this from the very beginning until its successful end. I sincerely thank Mr. Govardhan Reddy (Director of Finance, Vishwa Infrastructures & Services Private Limited), person of amiable personality, for assigning such a challenging project work which has enriched my work experience and getting me acclimatized in a fit and final working ambience in the premises of Vishwa Infrastructures & Services Private Limited. Prof.Raj kumar pillay and Prof. Vijay Sagar of Roots business school are guided my project on working capital management of Vishwa Infrastructures & Services Private Limited. I acknowledge my gratitude to Mr. Anil kumar, for his extended guidance, encouragement, support and reviews without whom this project would not have been a success. Last but not the least I would like to extend my thanks to all the employees at Vishwa Infrastructures & Services Private Limited and my friends for their cooperation, valuable information and feedback during my project. DEVI NARASIMHA RAO
  • 5. 5 TABLE OF CONTENTS Chapter - I 1. EXECUTIVESUMMARY 2. INDUSTRY PROFILE Chapter - II 3. ABOUT THECOMPANY a. Company profile b. Mission & Vision c. Company Leadership d. Current Projects e. Competitors f. SWOT Analysis of Vishwa Infrastructures 4. OBJECTIVES OF THE STUDY 5. SCOPE OF STUDY 6. RESEARCH METHDOLOGY Chapter - III 7. WORKING CAPITAL MANAGEMENT Chapter - IV 8. WORKING CAPITAL RATIO Chapter - V 9. FINDINGS 10. SUGGESTIONS 11. APPENDICES 12. BIBILOGROPHY
  • 7. 7 1. Executive Summary The project on Working Capital Management has been a very good experience. Every manufacturing company faces the problem of Working Capital Management in their day-to-day processes. An organization's cost reduced and the profits increased only if it is able to manage its Working Capital efficiently. At the same time, the company can provide customer satisfaction and hence can improve their overall productivity and profitability. This project is a sincere effort to study and analyze the Working Capital Management of Vishwa Infrastructures. The project focused on making a financial overview of the company by conducting a Working Capital analysis of Vishwa Infrastructures group for the years 2009 to 2012 and Ratios & various components of working capital & format emphasizing on Working Capital. The internship is a bridge between the institute and the organization. This made me to be involved in a project that helped me to employ my theoretical knowledge about the myriad and fascinating facets of finance. Moreover, in the process I could contribute substantially to the organization's growth. The experience that I gathered over the past two months has certainly provided the orientation, which I believe will help me in shouldering any responsibility in future.
  • 8. 8 2. Industry Profile The Construction industry of India is an important indicator of the development as it creates investment opportunities across various related sectors. The construction industry has contributed an estimated 670,778 crore to the national GDP in 2011-12 (a share of around 8%). The industry is fragmented, with a handful of major companies involved in the construction activities across all segments; medium sized companies specializing in niche activities activities; and small and medium contractors who work on the subcontractor basis and carry out the work in the field. The sector is labor-intensive and, including indirect jobs, provides employment to more than 35 million people. HISTORY The period from 1950 to mid 60’s witnessed the government playing an active role in the development of these services and most of construction activities during this period were carried out by state owned enterprises and supported by government departments. In the first five-year plan, construction of civil works was allotted nearly 50 per cent of the total capital outlay. The first professional consultancy company, National Industrial Development Corporation (NIDC), was set up in the public sector in 1954. Subsequently, many architectural, design engineering and construction companies were set up in the public sector (Indian Railways Construction Limited (IRCON), National Buildings Construction Corporation (NBCC), Rail India Transportation and Engineering Services (RITES), Engineers India Limited (EIL), etc.) and private sector (M N Dastur and Co., Hindustan Construction Company (HCC), Ansals, etc.). In India Construction has accounted for around 40 per cent of the development investment during the past 50 years. Around 16 per cent of the nation's working population depends on construction for its livelihood. The Indian construction industry employs over 3 crore people and creates assets worth over 20,000 crore.
  • 9. 9 It contributes more than 5 per cent to the nation's GDP and 78 per cent to the gross capital formation. Total capital expenditure of state and central govt. will be touching 8,02,087 crores in 2011-12 from 1,43,587 crores (1999-2000). The share of the Indian construction sector In total gross capital formation (GCF) came down from 60 per cent in 1970-71 to 34 per cent in 1990-91. Thereafter, it increased to 48 per cent in 1993-94 and stood at 44 per cent in 1999-2000. In the 21 st century, there has been an increase in the share of the construction sector in GDP and capital formation. GDP from Construction at factor cost (at current prices) increased to 1,74,571 crores (12.02% of the total GDP ) in 2004-05 from 1,16,238 crores (10.39% of the total GDP) in 2000-01. The main reason for this is the increasing emphasis on involving the private sector infrastructure development through public-private partnerships and mechanisms like build-operate- transfer (BOT), private sector investment has not reached the expected levels. The Indian construction industry comprises 200 firms in the corporate sector. In addition to these firms, there are about 1,20,000 class A contractors registered with various government construction bodies. There are thousands of small contractors, which compete for small jobs or work as sub-contractors of prime or other contractors. Total sales of construction industry have reached 42,885.38 crores in 2004 05 from 21,451.9 crores in 2000-01, almost 20% of which is a large contract for Benson & Hedges.
  • 11. 11 3. About the Company a. Company Profile Vishwa Infrastructures & Services Private Limited is a major player in the infrastructure projects industry in India. The company started off as a partnership entity in 1992 (VISHWA Construction Company) and rapidly evolved into a private limited company by 2004, and the rest as they say is history. We provide engineering, procurement and construction activities for infrastructure projects on turnkey basis. We specialize in executing water supply & sewerage infrastructure projects with backward integration including all allied civil engineering works like manufacturing PSC pipes, MS pipes, RCC pipes, executing pipeline contracts, construction of water treatment plants (WTP) sewage treatment plants (STP), reservoirs (ELSR, GLSR), pump houses, and installation of electro-mechanical equipments (pumping machinery). We are present across India and have a strong reputation for delivering concept to commissioning solutions. Deploying high-end infrastructure manned by skilled experts and using cutting edge methodologies have given us a distinct advantage. b. Vision "We shall achieve leadership position in our business by delivering high quality products and services. We shall be a vibrant learning organization striving for the overall growth of our employees, shareholders and society. We shall be a modern, model corporate citizen." c. Company Leadership  ML SRIDHAR REDDY, Executive Director  J. VIKRAM, Director  K. VIJAY, Director  M. GOVERDHAN REDDY, Director – Finance
  • 12. 12 d. Current Projects WATER SUPPLY SEWERAGE OTHERS GVMC Delhi Jal Board Highway Division, RITES Ltd Municipal Corporation of Khandwa Thane Municipal Corporation N.H. Circle, P.W.D., Kanpur CMWSSB HMWSSB MPPKVV Company Indore.Lot XII,XVIII & XIX BUIDCO CMWSSB AP TRANCO Public Health Division, Narasaraopet Kolhapur Municipal Corporation South Eastern Coalfields Limited, Bilaspur PHED Bihar Erode City Municipal Corporation Western Coalfields Limited, Nagpur PIU,Uttarakhand Urban Sector Development Investment Prog. Majra PWSSB NMDC Limited BWSSB GMDA
  • 13. 13 e. SWOT Analysis of Vishwa Infrastructures Strengths Diversified order book: VISHWA has diversified order book with presence across multiple verticals. This provides a unique hedge to the company in case of slowdown in orders from any particular segment. Working capital cycle: Construction is a working capital intensive industry. It should be noted that VISHWA has one of the best working capital cycle in the industry after Simplex Infrastructure. Healthy share of private contracts: Higher share of private contracts ensue higher margins as they are bagged on a negotiated basis. Private contracts also allow better working capital management. Weakness Slowdown in international operations: The recent slowdown in the construction activity in Middle East markets may impact the top-line of the company in the near term. Exposure to Andhra Pradesh: Although the exposure to Andhra Pradesh is just 10% of the order book, (immaterial) the company faces execution issues haunting top-line. Opportunities New divisions: New divisions present a great opportunity for the company to cash in on the incremental business. Transportation: VISHWA revenue share from the transportation segment has witnessed a secular decline from FY06. Considering the recent policy thrust on infrastructure and roads in particular, VISHWA has enough headroom to tap in on this laggard business.
  • 14. 14 Threats Competition: The industry operates at wafer thin margins. Unviable bidding by competitors in order to just gain an entry into the business can impact the top-line of the company. Weaker government finance: Weaker government finances can impact the order inflows of the company f. Competitors Name Last Price Market Cap. Sales Net Profit Total Assets (Rs. cr.) Turnover Unitech 24.4 6,383.77 1,206.32 327.11 12,154.83 Mahindra Life 365 1,490.65 468.95 120.16 1,229.98 Ashoka Buildcon 186 979.31 1,337.95 104.49 1,064.07 Hind Constr 14.25 864.42 3,988.01 -222.25 4,700.90 Gammon Infra 10.8 814.72 102.99 32.94 792.44 NCC 31.2 800.54 5,250.47 35.98 4,466.80 Man Infra 155 767.25 379.48 66.53 536.92 IVRCL 19.75 606.1 6,177.96 18.08 4,740.44 J Kumar Infra 199.95 555.89 931.59 69.81 583.7 Simplex Infra 112 554.09 5,906.76 89.19 3,295.43 Pratibha Ind 39.05 394.62 1,503.44 83.24 1,199.85 Patel Eng 56.25 392.78 2,640.27 63.49 3,300.26 Noida Toll 20.6 383.56 92.95 45.32 543.68 Atlanta 47 383.05 170.22 18.88 460.31 ILandFS Engg 39.8 357.35 2042.56 -135.31 1689.1 Supreme Infra 210.7 352.76 1505.91 92.62 1069.81 Ramky Infra 58.65 335.47 2730.52 157.36 1823.05
  • 15. 15 4. OBJECTIVES OF THE STUDY The objectives of the study are as follows:  To analyze the working capital management of the company.  To determine the gross and net operating cycle of the unit.  To know the future need of working capital in the running organization.  To render recommendations for the effective management of working capital. 5. SCOPE OF THE STUDY The study is conducted at “Vishwa Infrastructures” for 6 weeks duration. The study of W.C. management is purely based on secondary data and all the information is available within the company itself in the form of records. To get proper understanding of this concept, I have done the study of the balance sheets, profit and loss A/c’s, cash accounts, trial balance, and cost sheets. So, scope of the study is limited up to the availability of official records and information provided by the employees. The study is supposed to be related to the period of last five years. 6. RESEARCH METHDOLOGY INTRODUCTION: Research methodology is a way to systematically solve the research problem. It May be understood as a science of studying now 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.
  • 16. 16 “The procedures by which researcher go about their work of describing, explaining and predicting phenomenon are called methodology”. TYPE OF RESEARCH: This project “A Study on Working Capital Management of Vishwa Infrastructures & Services Private Limited” is considered as an analytical research. Analytical Research is defined as the research in which, researcher has to use facts or information already available, and analyze these to make a critical evaluation of the facts, figures, data or material. SOURCE OF RESEARCH DATA: There are mainly two through which the data required for the research is collected. PRIMARY DATA: The primary data is that data which is collected fresh or first hand, and for first time which is original in nature. In this study the Primary data has been collected from Personal Interaction with Finance manager i.e., Mr. Govardhan Reddy and other staff members.
  • 17. 17 SECONDARY DATA: The secondary data are those 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 efforts to collect the data. The major source of data for this project was collected through annual reports, profit and loss account of 4 year period from 2009-2012 & some more information collected from internet and text sources. SAMPLING DESIGN Sampling unit : Financial Statements. Sampling Size : Last four years financial statements. Tool Used for calculations: - MS-Excel. TOOLS USED FOR ANALYSIS OF DATA The data were analyzed using the following financial tools. They are Ratio analysis. Statement of changes in working capital.
  • 19. 19 THE ORTICAL BACKGROUND OF WORKING CAPITAL MANAGEMENT What is working capital? Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities. Symbolically, it means, Net Current Assets = Current Assets - Current Liabilities. DEFINITIONS OF WORKING CAPITAL: The following are the most important definitions of Working capital: 1) “Working capital is the difference between the inflow and outflow of funds. In other words it is the net cash inflow” 2) Working capital represents the total of all current assets. In other words it is the “Gross working capital”, it is also known as “Circulating capital” or “Current capital” for current assets is rotating in their nature. 3) Working capital is defined as “The excess of current assets over current liabilities and provisions”. In other words it is the “Net Current Assets or Net Working Capital” IMPORTANCE OF WORKING CAPITAL Working capital may be regarded as the lifeblood of the business. Without insufficient working capital, any business organization cannot run smoothly or successfully. In the business the Working capital is comparable to the blood of the human body. Therefore the study of working capital is of major importance to the internal and external analysis because of its close relationship with the current day to day operations of a business. The inadequacy or mismanagement of working capital is the leading cause of business failures.
  • 20. 20 To meet the current requirements of a business enterprise such as the purchases of services, raw materials etc. working capital is essential. It is also pointed out that working capital is nothing but one segment of the capital structure of a business. In short, the cash and credit in the business, is comparable to the blood in the human body like finance s life and strength i.e. profit of solvency to the business enterprise. Financial management is called upon to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore the management of working capital is essential in each and every activity. WORKING CAPITAL MANAGEMENT INTRODUCTION: Working Capital is the key difference between the long term financial management and short term financial management in terms of the timing of cash. Long term finance involves the cash flow over the extended period of time i.e 5 to 15 years, while short term financial decisions involve cash flow within a year or within operating cycle. Working capital management is a short term financial management. Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities & the inter relationship that exists between them. The current assets refer to those assets which can be easily converted into cash in ordinary course of business, without disrupting the operations of the firm.
  • 21. 21 Composition of working capital Major Current Assets 1) Cash 2) Accounts Receivables 3) Inventory 4) Marketable Securities Major Current Liabilities 1) Bank Overdraft 2) Outstanding Expenses 3) Accounts Payable 4) Bills Payable The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the satisfactory level of working capital is maintained. If the firm cannot maintain the satisfactory level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To maintain the margin of safety current asset should be large enough to cover its current assets. Main theme of the theory of working capital management is interaction between the current assets & current liabilities. CONCEPT OF WORKING CAPITAL:
  • 22. 22 There are 2 concepts:  Gross Working Capital  Net Working Capital The gross working capital is the capital invested in the total current assets of the enterprises current assets are those Assets which can convert in to cash within a short period normally one accounting year. CONSTITUENTS OF CURRENT ASSETS 1) Cash in hand and cash at bank 2) Bills receivables 3) Sundry debtors 4) Short term loans and advances. 5) Inventories of stock as: a. Raw material b. Work in process c. Stores and spares d. Finished goods 6. Temporary investment of surplus funds. 7. Prepaid expenses 8. Accrued incomes. 9. Marketable securities.
  • 23. 23 In a narrow sense, the term working capital refers to the net working. Net working capital is the excess of current assets over current liability, or, say: NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES. Net working capital can be positive or negative. When the current assets exceeds the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assts or the income business. CONSTITUENTS OF CURRENT LIABILITIES 1. Accrued or outstanding expenses. 2. Short term loans, advances and deposits. 3. Dividends payable. 4. Bank overdraft. 5. Provision for taxation, if it does not amt. to app. Of profit. 6. Bills payable. 7. Sundry creditors. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits. The gross concept is sometimes preferred to the concept of working capital for the following reasons: 1. It enables the enterprise to provide correct amount of working capital at correct time. 2. Every management is more interested in total current assets with which it has to operate then the source from where it is made available.
  • 24. 24 3. It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital. 4. This concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for following reasons: It is qualitative concept, which indicates the firm’s ability to meet to its operating expenses and short-term liabilities. IT indicates the margin of protection available to the short term creditors. It is an indicator of the financial soundness of enterprises. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds. CLASSIFICATION OF WORKING CAPITAL Working capital may be classified in two ways: On the basis of concept. On the basis of time. On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time, working capital may be classified as: Permanent or fixed working capital. Temporary or variable working capital PERMANENT OR FIXED WORKING CAPITAL Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of
  • 25. 25 working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets. TEMPORARY OR VARIABLE WORKING CAPITAL Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business. Implications of Net Working Capital: Net working capital is necessary because the cash outflows and inflows do not coincide. In general the cash outflows resulting from payments of current liability are relatively predictable. The cash inflows are however difficult to predict. More predictable the cash inflows are, the less NWC will be required. But where the cash inflows are uncertain, it will be necessary to maintain current assets at level adequate to cover current liabilities that are there must be NWC.  Investments in current asset represent a substantial portion of total investment.  Investments in current asset and level of current liability have to be geared quickly to change in sales. Business undertaking required funds for two purposes:  To create productive capacity through purchase of fixed assets.  The finance current assets required for running of the business.
  • 26. 26 The importance of WCM is reflected in the fact that financial manager spend a great deal of time in managing current asset and current liability. The extent to which profit can be earned is dependent upon the magnitude of sale. Sales are necessary for earning profit. However, sales do not for evaluating NWC position, an important consideration is trade off between probability and risk. The term profitability is measured by profits after expenses. The term risk is defined as the profitability that a firm will become technically insolvent so that it will not be able to meet its obligations when they become due for payment. The risk of becoming technically insolvent is measured by NWC. If the firm wants to increase profitability, the risk will definitely increase. If firm wants to reduce the risk, the profitability will decrease. PLANNING OF WORKING CAPITAL: Working capital is required to run day to day business operations. Firms differ in their requirement of working capital (WC). Firm s aim is to maximize the wealth of share holders and to earn sufficient return from its operations. WCM is a significant facet of financial management. Its importance stems from two reasons:  Investment in current asset represents a substantial portion of total investment.  Investment in current assets and level of current liability has to be geared quickly to change in sales. Business undertaking required funds for two purposes:  To create productive capacity through purchase of fixed assets.
  • 27. 27  To finance current assets required for running of the business. The importance of WCM is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities. The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are necessary for earning profits. However, sales do not convert into cash instantly; there is invariably a time lag between sale of goods and the receipt of cash. WC management affect the profitability and liquidity of the firm which are inversely proportional to each other, hence proper balance should be maintained between two. To convert the sale of goods into cash, there is need for WC in the form of current asset to deal with the problem arising out of immediate realization of cash against good sold. Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or cash cycle. WORKING CAPITAL CYCLE:
  • 28. 28 A firm requires many years to recover initial investment in fixed assets. On contrary the investment in current asset is turned over many times a year. Investment in such current assets is realized during the operating cycle of the firm. Each component of working capital (namely inventory, receivables and payables) has two dimensions ... TIME ......... and MONEY. When it comes to managing working capital -TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect dues from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales. It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment -loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plughole, they remove liquidity from the business. If you Then Collect receivables (debtors) faster. You release cash from the cycle. Collect receivables (debtors) slower. Your receivables soak up cash. Get better credit (in term of duration or amount) from suppliers. Your increase your cash recourse. Shift inventory (stocks) faster. You free up cash. Move inventory (stocks) slower. You consume more cash.
  • 29. 29 Operating cycle: The working capital cycle refers to the length of time between the firms paying the cash for materials, etc., entering into production process/stock & the inflow of cash from debtors (sales), suppose a company has certain amount of cash it will need raw materials. Some raw materials will be available on credit but, cash will be paid out for the other part immediately. Then it has to pay labour costs & incurs factory overheads. These three combined together will constitute work in progress. After the production cycle is complete, work in progress will get converted into sundry debtors. Sundry debtors will be realized in cash after the expiry of the credit period. This cash can be again used for financing raw material, work in progress etc. thus there is complete cycle from cash to cash wherein cash gets converted into raw material, work in progress, finished goods and finally into cash again. Short term funds are required to meet the requirements of funds during this time period. This time period is dependent upon the length of time within which the original cash gets converted into cash again. The cycle is also known as operating cycle or cash cycle. Working capital cycle can be determined by adding the number of days required for each stage in the cycle. For example, company holds raw material on average for 60 days, it gets credit from the supplier for 15 days, finished goods are held for 30 days & 30 days credit is extended to debtors. The total days are 120, i.e., 60 -15 + 15 + 15 + 30 + 30 days is the total of working capital.
  • 30. 30 Thus the working capital cycle helps in the forecast, control & management of working capital. It indicates the total time lag & the relative significance of its constituent parts. The duration may vary depending upon the business policies. In light of the facts discusses above we can broadly classify the operating cycle of a firm into three phases viz. 1 Acquisition of resources. 2 Manufacture of the product and 3 Sales of the product (cash / credit). First and second phase of the operating cycle result in cash outflows, and be predicted with reliability once the production targets and cost of inputs are known. However, the third phase results in cash inflows which are not certain because sales and collection which give rise to cash inflows are difficult to forecast accurately. Operating cycle consists of the following:  Conversion of cash into raw-materials;  Conversion of raw-material into work-in-progress;  Conversion of work-in-progress into finished stock;  Conversion of finished stock into accounts receivable through sales; and  Conversion of accounts receivable into cash. In the form of an equation, the operating cycle process can be expressed as follows: Operating cycle = R + W + F + D-C R = Raw material storage period W = Work in progress holding period
  • 31. 31 F = Finished goods storage period D = Debtors collection period C = Credit period availed (1) Raw Material Conversion Period (RMCP) = Average Raw Material Stock Average Raw Materials consumed during the year 105.25 156.51 193.73 59.88 0.00 50.00 100.00 150.00 200.00 250.00 12-11 11-10 10-09 09-08 RMCP Particulars 12-11 11-10 10-09 09-08 Average Raw material Stock 33065118 33352213.5 20819151 13076063 Raw Material consumed during the year 314166.03 213093.45 107464.04 218371.65 RMCP 105.25 156.51 193.73 59.88
  • 32. 32 (2) Work in Progress Conversion Period (WIPCP) = Average stock in progress Average Cost of Production (3) Finished Goods Conversion Period (FGCP) = Average finished goods inventory Average cost of sold goods 41.03 37.93 28.76 26.77 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 12-11 11-10 10-09 09-08 WICP Particulars 12-11 11-10 10-09 09-08 Average stock in progress 7834151.5 8313099.5 5586013 4818821.5 Avg cost of production 190952.86 211273.02 194248.64 180015.22 WICP 41.03 37.93 28.76 26.77
  • 33. 33 Particulars 12-11 11-10 10-09 09-08 Average finished goods inventory 14911159 13149905.5 5004497 6396225 Cost of goods sold 1955523.98 1648540.72 1398222.17 1260173 FGCP 7.63 7.98 3.58 5.08 (4) Debtors' Conversion Period (DCP) = Days in year company operating Debtor’s turnover Particulars 12-11 11-10 10-09 09-08 Days in year company operating 360 360 360 360 Debtors' turnover 21.66 22.89 18.41 15.82 DCP 16.62 15.73 19.55 22.76 7.63 7.98 3.58 5.08 0.00 2.00 4.00 6.00 8.00 10.00 12-11 11-10 10-09 09-08 FGCP
  • 34. 34 (5) Credit Conversion Period (CCP) = Days in year company operating Creditors’ turnover Particulars 12-11 11-10 10-09 09-08 Days in year company operating 360 360 360 360 Creditors’ turnover 27.15 26.02 39.5 22.77 CCP 13.26 13.84 9.11 15.81 16.62 15.73 19.55 22.76 0.00 5.00 10.00 15.00 20.00 25.00 12-11 11-10 10-09 09-08 DCP 13.26 13.84 9.11 15.81 0.00 5.00 10.00 15.00 20.00 12-11 11-10 10-09 09-08 CCP
  • 35. 35 GROSS OPERATING CYCLE FOR Vishwa Infrastructures: year RMCP WICP FGCP DCP GOC 12-11 105.25 41.03 7.63 16.62 170.52 11-10 156.52 37.93 7.98 15.72 218.15 10-09 193.73 28.76 3.58 19.55 245.62 09-08 59.88 26.77 5.08 22.76 114.48 NET OPERATING CYCLE: year GOC CCP NOC 12-11 170.52 13.26 157.26 11-10 218.15 13.84 204.31 10-09 245.62 9.11 236.51 09-08 114.48 15.81 98.67 170.52 218.15 245.62 114.48 0.00 50.00 100.00 150.00 200.00 250.00 300.00 12-11 11-10 10-09 09-08 GOC
  • 36. 36 ANALYSIS It claimed that gross operating cycle of Vishwa Infrastructure is increasing in year 2007-08 and in the year 2008-09 it decreasing up to certain extent. In year 2007-08, it is 129.88 days then it decreased to 114.48 days in year 2009-08 due to contraction in raw material. In 2010-09, it is on the highest point of 245.62 days. The main reason of increasing gross operating cycle in 2010-09 is due to more availability of raw material in the stores. In year 2010-09 the company purchased a bulk of raw material due to market variations the GOC is increased. However, when we came to year 2011-10 the GOC for Vishwa infrastructures has shown a significant decrement of 204.31 days from the year 2010-09 to 245.62. When in next year 2012-11, it came out to be 170.52 days. The GOP for satisfactory as it Varies as the market requirements and changes in form of meet the customer's requirements largely. But when we came to the NOC of Vishwa infrastructures it we can see that Creditor's payment period OR Average payment period of Vishwa infrastructures is on a average of 15 days in each (5) five years so does not make more effect on GOC. Therefore, it is somehow near of the GOC. That is why the company's NOC 98.67, 236.51, 204.31, and 157.26 in the years 2009, 2010, 2011 and 2012. Therefore, we can say that there is a significant change in the NOC of the Vishwa infrastructures. 157.26 204.31 236.51 98.67 0.00 50.00 100.00 150.00 200.00 250.00 12-11 11-10 10-09 09-08 NOC
  • 37. 37 Chapter – IV Working Capital Ratio
  • 38. 38 RATIO ANALYSIS Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making decisions. It only means of better understanding of financial strengths and weaknesses of a firm. The main emphasis has been on calculating the ratios related to a working capital management. LIQUIDITY RATIOS: These are the ratios which measures the short term solvency or financial position of a firm. In other words, it refers to the ability of a concern to meet its current obligations as and when these become due. To measure the liquidity of a firm, the following ratios can be calculated. CURRENT RATIO: It may be defined as the relationship between current assets and current liabilities. This ratio is also known as working capital ratio and measures the ability of the firm to meet current liabilities. High current ratio indicates firm is liquid and has the ability to pay its current obligations in time as and when they become due. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory. Current Ratio = Current Assets Current Liabilities Year Current assets Current liabilities Current Ratio 2012 7,13,36,89,252 5,41,95,52,265 1.32 2011 5,20,10,96,577 3,99,07,99,155 1.30 2010 3,11,14,57,035 2,59,92,13,099 1.20 2009 1,70,39,28,805 1,39,17,79,068 1.22
  • 39. 39 Interpretation:- The current ratio of the vishwa infrastructure is above the standard and it guarantees the payment of dues in time. The current ratio of the company has been considerably high because they had made over investment in inventories, which is the main reason for the high ratio of current assets. Inventories are high because of seasonal availability of raw material. The overall position of current ratio for vishwa infrastructure is satisfactory. The current ratio of dye house has shown a remarkable increment from 1.22 in 2009-08 to 1.20 in 2010-09 to 1.30 in 2011-10 and then to 1.32 in 2012-11. The ratio was satisfactory especially for the year 2012-11. LIQUID RATIO: This ratio is also known as quick ratio or acid test ratio. It is a more rigorous test of liquidity than the current ratio. It is based on those current assets which are highly liquid. Inventory and prepaid expenses are excluded because they are deemed to be least liquid component of current assets. A high quick ratio is the indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand low ratio represents liquidity position is not good. Quick Ratio = Quick or Liquid Assets Current liabilities 1.32% 1.30% 1.20% 1.22% 1.10% 1.15% 1.20% 1.25% 1.30% 1.35% 2012-11 2011-10 2010-09 2009-08 Current Ratio
  • 40. 40 Quick Assets = Current Assets – Inventory – Prepaid Expenses Year Quick assets ( Current Assets - Inventory) Current liabilities Quick Ratio 2012 6,89,16,35,655 5,41,95,52,265 1.27 2011 5,07,73,98,551 3,99,07,99,155 1.27 2010 2,33,65,61,351 2,59,92,13,099 0.90 2009 1,45,76,95,538 1,39,17,79,068 1.05 Interpretation:- According to rule of thumb, it should be 1:1. For vishwa infrastructure, the liquid ratio present a uneven change over the past three years. It was 1.05 in 2009-08 and decreased to 0.90 in 2010-09 and increased to 1.27 in 2011-10 and then to 2012-11. The decrement in the ratio is not satisfactory, however the ratio 0.90 in 2010-09 is more than the rule of thumb but it should be quite more than the rule of thumb. 1.27% 1.27% 0.90% 1.05% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 2012-11 2011-10 2010-09 2009-08 Quick Ratio
  • 41. 41 WORKING CAPITAL TURNOVER RATIO: Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio measures the efficiency with which the working capital is being used by a firm. Working Capital Turnover Ratio = COGS OR Sales Net Working Capital Year Sales / Revenue Net Working Capital WCTR 2012 6,32,46,67,720 1,71,41,36,987 3.69 2011 6,13,73,22,172 1,92,02,97,422 3.20 2010 4,06,88,667 1,25,86,543 3.23 2009 2,24,214 1,28,675 1.74 3.69% 3.20% 3.23% 1.74% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 2012-11 2011-10 2010-09 2009-08 WCTR
  • 42. 42 Interpretation:- A high working capital turnover ratio indicates efficiency in utilization of resources and the ratio has improved from 1.74 in 2009-08 to 3.69 in 2012-11. Hence we can see that the component of working capital is consistently reducing which is considered as a positive sign from the point view of the finance STOCK TURNOVER RATIO This ratio tells the story by which stock is converted into sales. A high stock turnover ratio reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned over or sold during the year. STOCK OR INVENTORY TURNOVER RATIO = COGS OR SALES AVERAGE STOCK Year Sales Average Stock STR 2012 703988635 55810428.5 12.61 2011 593474659.7 23981268.5 24.75 2010 503359979.5 31409661 16.03 2009 453662278.7 24291109 18.68
  • 43. 43 INTERPRETATION: - By analyzing the four-years data it seen, that it follows an uneven trend. We see that from the year 2009 to 2008, it moves on a slow pace means, the ratio is increased in very nominal figures i.e. (2.65) times, which has been rectified in the year 2011-10. In 2011-10 there is a huge increase in inventory due to this ratio the company maintains is very high in 2011-10 and the company is required to take measures to lower down this ratio as it affects the working capital cycle of company and the flow of cash in the company. In 2012, we saw company take measure to lower down its ratio which is good for company because a low stock turnover ratio reveals un desirable accumulation of obsolete stock. Inventory Turnover Ratio: Inventory turnover ratio is the ratio, which indicates the number of times the stock is turned over i.e., sold during the year. This measures the efficiency of the sales and stock levels of a company. A high ratio means high sales, fast stock turnover and a low stock level. A low stock turnover ratio means the business is slowing down or with a high stock level. Inventory Turnover Ratio = Net Sales Closing Inventory 12.61 24.75 16.03 18.68 0.00 5.00 10.00 15.00 20.00 25.00 30.00 2012-11 2011-10 2010-09 2009-08 STR
  • 44. 44 Year Total Sales Average Inventory ITR 2012 6,32,46,67,720 31,20,53,597 0.20 2011 6,13,73,22,172 45,36,98,026 0.14 2010 4,06,88,667 77,48,95,684 0.001 2009 2,24,214 24,62,33,267 0.00001 INTERPRETATION: - It is seen from the above chart that During the year 2009-08 the Inventory t/o ratio is 0.000009 times, in the year 2010-09 it increased to 0.001 times. There was a subsequent increase in the year 2011-10 and 2012-11 to 0.14 times and 0.20 times respectively.This shows the company has more sales. Total Asset Ratio: The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. This ratio considers all assets, current and fixed. Those assets include fixed assets, like plant and equipment, as well as inventory, accounts receivable, as well as any other current assets. 0.20 0.14 0.001 0.000009 0.00 0.05 0.10 0.15 0.20 0.25 2012-11 2011-10 2010-09 2009-08 ITR
  • 45. 45 Total Assets Ratio = Total Sales / Total Assets Year Total Sales Total Assets TAR 2012 6,32,46,67,720 8,90,03,19,337 0.01 2011 6,13,73,22,172 6,26,34,54,935 0.01 2010 4,06,88,667 1,80,89,18,784 0.0002 2009 2,24,214 1,04,59,93,207 0.000002 Interpretation: - There is a continuous increase in sales. In the year 2010-09 there was an increase in average total assets, so the ratio increased from 0.000002 to 0.0002, in 2011-10 and 2012-11 there is a change in average assets and increase)in average total assets, so ratio increased from 0.01 to 0.01. 0.01 0.01 0.0002 0.000002 0.00 0.00 0.00 0.01 0.01 0.01 0.01 2012-11 2011-10 2010-09 2009-08 TAR
  • 46. 46 Debt Equity Ratio: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Debt Equity Ratio = Total Debts / Equity Year Total debt Equity DER 2012 5,421 3,587 1.51 2011 6,599 3,446 1.91 2010 7,377 3,361 2.20 2009 7,697 3,324 2.32 Interpretation: - The D/E ratio is 1:1; it implies that for every rupee of outside liability. In case of our organization there is an improvement in the D/E ratio year by year. There is continuous decrease in total debt and there is continuous increase in shareholder s equity (i.e. Reserves and Surpluses) with increasing rate so the ratio is decreasing from 2.32 to 2.20 in 2010-09, to 1.91 in 2011-10 and to 1.51 in 2012-11. 1.51 1.91 2.20 2.32 0.00 0.50 1.00 1.50 2.00 2.50 2012-11 2011-10 2010-09 2009-08 DER
  • 48. 48 FINDINGS. Working capital of the Vishwa Infrastructure & Service Pvt Ltd. was increasing and showing positive working capital per year. The Vishwa Infrastructure & Service Pvt Ltd has higher current and quick ratios are i.e., 1.32 and 1.27 respectively.  Inventory turnover ratio is very low in the year 2010-09. In the year 2011-10 it has increased by 0.134 times as compared to 2010-09 and in the last year 2012-11 it has again increased by 0.067 times as compared to 2011-10. Working capital turnover ratio is very low in the year 2009-08. In the year 2010-09 it has increased by 1.49 times as compared to 2009-08 and in the last year 2012-11 it has again increased by 0.46 times. SUGGESTIONS.  Working capital of the company has increasing every year. Profit also increasing every year this is good sign for the company. It has to maintain it further, to run the business long term.  The Current and quick ratios are almost up to the standard requirement. So the Working capital management. Vishwa Infrastructure & Service Pvt Ltd. is satisfactory and it has to maintain it further.  The company has sufficient working capital and has better liquidity position. By efficient utilizing this short-term capital, then it should increase the turnover.
  • 49. 49  The company should take precautionary measures for investing and collecting funds from receivables and to reduce the bad debts.  The company has sufficient working capital and has better liquidity position. By efficient utilizing this short-term capital, then it should increase the turnover.  The company is utilizing working capital effectively this is good for the company. It has to maintain it further. CONCLUSIONS. The study on working capital management conducted in Vishwa Infrastructure & Service Pvt Ltd. to analyze the financial position of the company. The company’s financial position is analyzed by using the tool of annual reports from 2009-08 to 2012-11. The financial status of Vishwa Infrastructure & Service Pvt Ltd. is good. In the last year the inventory turnover has increased, this is good sign for the company. The company’s liquidity position is very good With regard to the investments in current assets there are adequate funds invested in it. Care should be taken by the company not to make further investments in current assets, as it would block the funds, which could otherwise be effectively utilized for some productive purpose. On the whole, the company is moving forward with excellent management.
  • 51. 51 Vishwa Infrastructure Limited Audit for the year ended 31 March 2012 and 31 March 2011 Planning analytical Source of information As at As at 31 Mar 2012* 31 Mar 2011 EQUITY AND LIABILITIES Shareholders' funds Share capital 14,35,45,060.00 14,35,45,060.00 Reserves and surplus 2,65,48,90,110.00 2,46,58,75,010.00 Money received against share warrants 1,81,81,697.00 2,81,66,16,867.00 2,60,94,20,070.00 Non-current liabilities Long-term borrowings 63,64,49,675.00 34,35,08,107.00 Deferred tax liabilities (net) 2,38,47,429.00 2,68,80,781.00 Long-term provisions 38,53,101.00 28,46,822.00 66,41,50,205.00 37,32,35,710.00 Current liabilities Short-term borrowings 2,46,71,19,355.00 91,84,79,278.00 Trade payables 1,83,63,33,102.00 1,80,77,10,092.00 Other current liabilities 1,08,71,09,263.00 53,83,27,109.00 Short-term provisions 2,89,90,545.00 1,62,82,676.00 5,41,95,52,265.00 3,28,07,99,155.00 8,90,03,19,337.00 6,26,34,54,935.00
  • 52. 52 ASSETS Non-current assets Fixed assets: (a) Tangible assets 1,18,48,40,773.00 64,41,30,239.00 (b) Intangible assets 56,54,347.00 30,01,630.00 (c) Capital work-in-progress - 17,91,868.00 (d) Intangible assets under Development 6,36,31,304.00 - 1,25,41,26,424.00 64,89,23,737.00 Non-current investments 3,84,00,000.00 4,08,00,000.00 Long-term loans and advances 41,67,17,794.00 17,36,99,658.00 Other non-current assets 5,73,85,867.00 19,89,34,963.00 1,76,66,30,085.00 1,06,23,58,358.00 Current assets Current investment - 5,00,10,117.00 Inventories 31,20,53,597.00 12,36,98,026.00 Trade receivables 2,13,84,76,493.00 2,18,40,67,041.00 Cash and bank balances 58,60,08,875.00 44,95,61,062.00 Short-term loan and advances 38,61,94,344.00 37,83,62,833.00 Other current assets 3,71,09,55,943.00 2,01,53,97,498.00 7,13,36,89,252.00 5,20,10,96,577.00 8,90,03,19,336.99 6,26,34,54,934.99 Note: 1. We have considered 31 December 2012 figures for Balance Sheet ratios. 2. We have extrapolated 31 December 2012 to 31 March 2013 based on previous years trend for profitability analysis.
  • 53. 53 Vishwa Infrastructures and Services Private Limited Balance Sheet as at 31 March 2010 and 31 March 2009 (All amounts in Indian Rupees, except share data and where otherwise stated) As at As at Schedule 31 March 2010 31 March 2009 SOURCES OF FUNDS Shareholders' funds Share capital 1 12,77,55,000 4,25,85,000 Reserves and surplus 2 1,08,51,25,969 89,00,97,898 Loan funds Secured loans 3 57,31,44,929 8,63,62,482 Unsecured loans 4 - 2,55,000 Deferred tax liability (net) 20 (3) 2,28,92,886 2,66,92,827 1,80,89,18,784 1,04,59,93,207 APPLICATION OF FUNDS Fixed assets 5 Gross block 35,00,76,800 27,01,27,468 Less: Accumulated depreciation (9,38,14,260) (4,23,02,176) Net block 25,62,62,539 22,78,25,292 Capital work-in-progress (including capital advances) 21,12,309 60,18,178 25,83,74,848 23,38,43,470
  • 54. 54 Investments 6 3,83,00,000 - Current assets, loans and advances Inventories 7 77,48,95,684 24,62,33,267 Sundry debtors 8 1,27,06,01,462 81,00,22,080 Cash and bank balances 9 47,41,60,803 28,48,85,938 Loans and advances 10 59,17,99,086 36,27,87,520 3,11,14,57,035 1,70,39,28,805 Current liabilities and provisions Current liabilities 11 1,56,27,09,638 88,04,15,806 Provisions 12 3,65,03,461 1,13,63,262 1,59,92,13,099 89,17,79,068 Net current assets 1,51,22,43,936 81,21,49,737 1,80,89,18,784 1,04,59,93,207
  • 55. 55 Vishwa infrastructures and service private limited Statement of Profit & Loss 31 March 2012 and 31 March 2011 (All amount in Indian rupees, expect share data and where otherwise stated) Note For the year ended 31 March 2012 For the year ended 31 March 2011 Income Revenue from operations 2.18 6,32,46,67,720 6,13,73,22,172 Other income 2.19 9,00,65,656 4,57,14,373 Total Revenue 6,41,47,33,376 6,18,30,36,545 Expenses : Materials and supplies consumed 1,36,21,05,603 2,22,89,60,078 Contract expenses 2.20 3,69,02,62,970 2,72,28,05,391 Employee benefits expense 2.21 26,86,64,688 16,68,72,996 Finance costs 2.22 43,42,10,114 22,81,51,259 Depreciation and amortization expense 2.90 15,59,51,371 7,12,47,821 Other expenses 2.23 23,92,12,724 13,83,96,295 Total expenses 6,15,04,07,470 5,55,64,33,840 Profit before tax 26,43,25,906 62,66,02,705 Tax expense 2.24 - Current tax 7,83,44,158 20,42,67,732 - Deferred tax -30,33,352 39,87,895 7,53,10,806 20,82,55,627 Profit after tax 18,90,15,100 41,83,47,078 Earning per equity share - par value of Rs. 10 per share 2.27 - Basic 13.17 32.14 - Diluted 13.15 32.14
  • 56. 56 Vishwa Infrastructures and Services Private Limited Profit and Loss Account for the year ended 31 March 2010 and 31 March 2009 (All amounts in Indian Rupees, except share data and where otherwise stated) For the year ended For the year ended Schedule 31 March 2010 31 March 2009 Income Contract revenues 13 4,06,88,66,709 2,24,21,38,864 Less: Excise duty (64,56,902) (1,31,78,585) Income from operations 4,06,24,09,807 2,22,89,60,279 Other income 14 3,46,43,248 3,14,87,492 4,09,70,53,055 2,26,04,47,771 Expenditure Contract costs 15 3,30,02,65,447 1,80,54,57,358 Personnel costs 16 9,56,10,499 5,13,21,939 Administrative and other expenses 17 7,86,36,727 5,57,43,483 Finance charges 18 12,38,05,890 7,38,67,170 Depreciation 5 5,15,49,364 3,07,19,590 Less: Effect of change in accounting policy from WDV to SLM (Refer note 13 of Schedule 20) - (1,69,30,242) 3,64,98,67,927 2,00,01,79,297 Profit before tax 44,71,85,128 26,02,68,474 Tax expense 19 15,70,22,593 9,55,27,444 Profit after tax 29,01,62,535 16,47,41,029 Balance in profit and loss account brought forward 29,41,83,902 13,94,07,337 Amount available for appropriation 58,43,46,437 30,41,48,366 Appropriations: Interim dividend 85,17,000 85,17,000 Tax on interim dividend 14,47,464 14,47,464 Transferred to general reserve 2,17,62,190 - Balance carried forward to balance sheet 55,26,19,783 29,41,83,902 Earnings per share Basic and diluted - par value of Rs. 10 per share 20(4) 22.71 12.90
  • 57. 57
  • 58. 58 Vishwa Infrastructures and Services Private Limited Cash flow statement for the year ended 31 March 2010 and 31 March 2009 (All amounts in Indian rupees, except share data and where otherwise stated) For the year ended 31 March 2010 For the year ended 31 March 2009 Cash flows from operating activities Profit before tax 44,71,85,128 26,02,68,474 Adjustments: Depreciation 5,15,49,364 1,37,89,348 Interest income (1,74,19,587) (1,09,11,631) Finance charges 12,38,05,890 7,38,67,170 Loss / (profit) on disposal of fixed assets (3,000) 1,08,925 Operating cash flows before working capital changes and other assets 60,51,17,795 33,71,22,285 (Increase) / decrease in sundry debtors (46,05,79,382) (66,95,26,543) (Increase) / decrease in loans and advances (22,02,43,660) (24,47,98,692) (Increase) / decrease in inventories (52,86,62,417) 3,58,83,842
  • 59. 59 Increase / (decrease) in current liabilities and provisions 68,23,55,286 51,54,89,686 Cash generated from operations 7,79,87,622 (2,58,29,422) Income taxes paid, net (14,04,28,431) (6,63,52,019) Net cash used in operating activities (6,24,40,809) (9,21,81,441) Cash flows from investing activities Purchase of fixed assets (7,99,86,611) (16,61,17,494) Sale of fixed assets 3,000 1,17,984 Investements (3,83,00,000) - Interest received 1,72,42,191 1,00,18,787 Net cash used in investing activities (10,10,41,420) (15,59,80,723) Cash flows from financing activities Proceeds from issue of share capital - 20,00,05,616 Acceptance of secured loan 50,19,60,349 7,24,51,745 Repayment of secured loan (1,51,77,902) (1,14,98,940) Repayment of unsecured loan (2,55,000) (31,14,381) Dividends paid (including dividend tax) (99,64,464) (99,64,464) Finance charges paid (12,38,05,890) (7,38,67,170) Net cash generated from financing activities 35,27,57,093 17,40,12,406 Net increase / (decrease) in cash and cash equivalents 18,92,74,865 (7,41,49,759) Cash and cash equivalents at the beginning of the year 28,48,85,938 35,90,35,697 Cash and cash equivalents at the end of the year (Note 1) 47,41,60,803 28,48,85,938
  • 60. 60 Notes: As at As at 1. Cash and cash equivalents comprise: 31 March 2010 31 March 2009 Cash in hand 4,43,104 2,56,399 Balances with scheduled banks - in current accounts 24,66,32,016 13,35,99,457 - in deposit accounts 22,61,46,915 15,10,30,082 Balances with non-scheduled banks - in current accounts 9,38,768 - 47,41,60,803 28,48,85,938
  • 62. 62 TEXT BOOKS  M.Y.Khan / P.K Jain, Financial Management Text, Problem’s Cases, 5TH Edition,Tata McGraw –Hill Publishing Company Limited, New Delhi, 2007.  Prasanna Chandra, Financial Management Theory and Practice, 5TH Edition, Tata McGraw –Hill Publishing Company Limited, New Delhi, 2001.  Annual Report of Vishwa Infrastructures & Services Private Limited WEB SITE VISITED  www.google.com  www.wikipedia.org  www.transtutors.com