A STUDY ON WORKING CAPITAL MANAGEMENT WITH REFERENCE TO AKR

INDUSTRY
T. Dhayagaran, II-MBA, Department of Management, M.Kumarasamy College of Engineering, Karur,
Tamilnadu,[email protected]

ABSTRACT
Working Capital Management in important in all organization. Financial management decision it
refects a organization ability to meet day to day operating expenses short term financial health.
The main purpose of the study is to identify the impact of Working Capital Management on
profitability of AKR Industry secondary data were collected from 2015 to 2019 organization balance
sheet
The business was evaluate by analyzing interpreting the financial statements of the AKR Industry
with the help of Ratio Analysis, changes in Working Capital and Dupont Analysis. In terms of
profitability the organization need to use return on assets to measure their profit position and efficiency.
Keywords: Working Capital , Operating Cycle, Profitability, Operating Profit.

1. INTRODUCTION OF THE STUDY

The accounting principles board of the American institute of certified public accountants, USA,
has defined working capital as follows: - “Working capital, sometimes called net working capital, is
represented by the excess of current assets over current liabilities and identifies the relatively liquid
portion of total enterprise capital which constitutes a margin or buffer for maturing obligations within the
ordinary cycle of the business.
Working capital means the fund available for day to day operations of an enter pries presents the
excess of current assets over current liabilities. It is concerned with the problem that arises in attempting
to manage the current assets, the current liabilities and the inter-relationships that exist between them.

2. REVIEW OF LITERATURE
Bardia (2006) in his study on Liquidity Management of Steel Authority of India Limited, has
analyzed the overall performance of liquidity maintained by steel sector and the amount tied-up in various
components of working capital. This study has found that there was a positive relationship between
liquidity and profitability.
Amalendu Bhunia (2007) studied on liquidity management, analyzed the the short term financial
strength through the analysis of the working capital management of selected iron and steel companies in
India. The study revealed that actual values of working capital have been found to be lower than the
estimated values of working capital for the companies, such as Steel Authority of India Limited (SAIL)
and Indian Iron and Steel Corporation (IISCO). There was a poor liquidity performance existed in case of
both SAIL and IISCO, inefficient inventory management in case of SAIL and inefficient receivable
management in case of both the enterprises. It suggested that increase in additional investment in raw
materials, reduction in the burden of current liabilities were necessary in order to improve the inventory
management and liquidity position of these steel companies.
 Ramakrishnan (2008) has analyzed the liquidity performance of Tata Iron and Steel Company
(TISCO). During the selected period of the study, it was found that the liquidity position of the company,
on the basis of current ratio as well as quick ratio, was not satisfactory. It indicated that the share of
current assets in total assets of the company, on an average, was 29.1 percent during the period of study.
It was suggested that to maintain overall control of liquidity position, the company should give special
attention to the management of current assets. He found that the degree of influence of liquidity on its
profitability was low and insignificant.
Dr. Radhakrishnan (2011) has deeply analyzed short term liquidity management of two market
leader steel companies of India. The study reveals that lack of working capital management with specific
reference to receivables and inventory management, both giant company’s profitability is highly affected
with the help of regression model, relationship of profitability with current ratio, absolute liquid ratio, age
of inventory and age of debtors had been established indicates that there is nearly cent percent
relationship between profitability in terms of return on capital employed and short term liquidity factors
in case of Tata Steel Limited. It further reveals that increase in liquid ratio, debt equity ratio and age of
creditors having negative relationship with the profitability of the firm in case of Tata Steels Limited. In
case of JSW Steels Limited only one co-efficient was associated with profitability of the firm positively
which is current ratio. Inverse relationship has been found between profitability and increase in liquid
ratio, absolute liquid ratio, debt equity ratio, age of inventory, age of debtors and age of creditors.
Inventory management as well as receivable management affects overall short term liquidity of the firm
which creates acute shortage of capital which ultimately results into overall reduction in the profit.
David.R.S (2012) The study concluded that proper composition of net current assets should be
sustained by the means of indexes of Indian Steel Companies as well as any short term finance obtained
should be paid-out within short period of time otherwise it dents out operating profit. However, best
management team could not create any impact on the profitability through better working capital
management. The examination of the said research has ignored seasonal impact on profitability as well as
working capital management. The researcher has not taken into account benchmark ratio of Steel
Industries in deriving any conclusion as well as any changes in the organisation which are highly
affecting short term liquidity are ignored
Zeeshan Hafeez et al (2014) Besides their basic nutritional role, dietary contain bioactive peptides
which are encrypted in their sequence and may modulate different body functions such as digestive,
cardiovascular, immune and nervous systems, and therefore contribute in maintaining consumer health.
Currently, Steel are considered to be the major source of bioactive peptides. The occurrence of these
peptides has already been reported in fermented Steel products such as yogurt, sour Steel or kefir and
some of them have been shown to confer health benefits. This review focuses on different strategies that
could be employed to enhance the production of bioactive peptides from the Steel that will be
consequently used to functionalize the fermented Steel products. Three types of strategies are developed.
The first exploits the proteolytic system of lactic acid bacteria (LAB) or Steel grade enzymes or
combination of both to release the functional peptides from the Steel directly in the fermented Steel
products. The second concerns the supplementation of the fermented Steel products with the bioactive
peptides obtained outside of the product through the hydrolysis of the purified by the same enzyme
sources. Finally, the last consists in the production of the bioactive peptides, initially identified from the
milk-proteins, by microorganisms using recombinant DNA technology.
Darand L. Borneman (2014) The objective of this study was to determine if a correlation exists
between standard plate count (SPC) and somatic cell count (SCC) monthly reported results for Wisconsin
dairy producers. Such a correlation may indicate that Wisconsin producers effectively controlling
sanitation and Steel temperature (reflected in low SPC) also have implemented good herd health
management practices (reflected in low SCC). The SPC and SCC results for all grade A and B dairy
producers who submitted results to the Wisconsin Department of Agriculture, Trade, and Consumer
Protection, in each month of 2012 were analyzed. Grade A producer SPC results were less dispersed than
grade B producer SPC results. Regression analysis showed a highly significant correlation between SPC
and SCC, but the R2 value was very small (0.02–0.03), suggesting that many other factors, besides SCC,
influence SPC. Average SCC (across 12 mo) for grade A and B producers decreased with an increase in
the number of monthly SPC results (out of 12) that were ≤25,000 cfu/mL. A chi-squared test of
independence showed that the proportion of monthly SCC results >250,000 cells/mL varied significantly
depending on whether the corresponding SPC result was ≤25,000 or >25,000 cfu/mL.
Conor J. Doyle et al (2014) Sporeforming bacteria are a significant concern for the international
dairy industry. Spores present in Steel survive heat treatments and can persist during downstream
processing. If they are present in sufficient numbers in dairy products they can cause spoilage or lead to
illness as a result of toxin production. While many reviews have highlighted the threat posed by spores of
aerobic bacteria to the dairy industry, few have focused on problems caused by the array of different
species of anaerobic sporeformers (Clostridium and related genera) that can be found in milk. This is
despite of the fact that members of these bacteria are found throughout the dairy farm environment, and
can be toxigenic, neurotoxigenic or spoilage bacteria. This makes the possible presence of Clostridium
and related spores in bulk tank Steel (BTM) important from both a financial and a public health
perspective. In this review dairy associated anaerobic sporefromers are assessed from a number of
perspectives.
Kwang-SookHuh (2015) This study investigates the impact of acquisitions on the steelmaker's
performances including PER and technical efficiency in the world steel industry over the period 1992–
2011. The study classifies the acquiring firms into two types, steelmakers and financial institutions, to
capture the differences of the effect of acquisitions depending on the type of acquirers. In this context, the
study examines whether acquisitions by financial institutions result in bubbles in the steel industry.
Empirical results demonstrate that steelmakers acquired by financial institutions have achieved relatively
poor or insignificant operating performances, although there is a statistically significant increase of PER.
Kolos Cs.Ágoston ( 2016) Improving the ATM capital management techniques of banks has
already received significant attention in the literature as a separate optimisation problem for banks and the
independent firms that supply capital to automated teller machines. This article concentrates instead on a
further possibility of cost reduction: optimising the capital management problem as one single problem.
Doing so, contractual prices between banks and the capital in transit firms can be in general modified
allowing for further cost reduction relative to individual optimisations. In order to show the pertinence of
this procedure, we have determined possible Pareto-improvement re-contracting schemes based on a
Baumol-type capital demand forecast for a Hungarian commercial bank resulting in substantial cost
reduction.
JingWang (2018) We explore theoretically and empirically the relationship between firm
productivity and liquidity management in the presence of financial frictions. We build a dynamic
investment model and show that, counter to basic economic intuition, more productive firms could
demand less capital assets and hold moreliquid assets compared to less productive firms when financing
costs are sufficiently high. We empirically test this prediction using a comprehensive dataset of Chinese
manufacturers and find that more productive firms indeed hold less capital and more capital. We do not,
however, observe this for US manufacturers. Our study suggests a larger capital misallocation problem in
markets with significant financing frictions than previously documented.
 Kam C. Chan (2019) We study the effect of bank shareholding on corporate capital management
in China. We document that for state-owned enterprises (SOEs) with some of their shares owned by
banks, the market value of capital holdings is less, and the overinvestment of free working capital is more
than those SOEs without bank shareholding. For non-SOEs, we do not find such an adverse impact. We
also find that the adverse impact of bank shareholding is confined to state-owned banks owning SOE
shares and stronger for pyramidal structure than those of non-pyramidal structure SOEs.

3. RESEARCH METHODOLOGY
RESEARCH DESIGN:
Research methodology is a way to systematically solve the problem. A good research methodology is
needed for a successful research activity. A good research plan gives a clear picture about what to do.
Research methodology deals with to do. Research methodology deals with the different step included in
solving the research problem.
SAMPLE DESIGN:
The methodology used in this study is analytical data in nature where the researcher has to use
facts (or) information already available and study the characteristics of a particular group respectively and
there by analyze to make a critical evaluation of the study.
DATA COLLECTION METHOD
Data in study are of two types:
1. Primary data
2. Secondary data
PRIMARY DATA
Primary goal is original and collected by the researcher freshly. In this study primary data was
collected through questionnaire. A questionnaire is a popular means of colleting primary data.
A questionnaire is a list of question for the own.
SECONDARY DATA
Secondary data is the data, which is already available. It can be obtained through company
records, internet and some data collected from the observation method by the researcher.
SOURCE OF DATA:
The secondary data is used for the study and are collected from the annual reports of the
company.
PERIOD OF THE STUDY:
The financial data for a period five years of AKR Industry analyzed for the study.
ANALYTICAL TOOLS USED:
The collection data were tabulated and presented in appropriate places of various chapters. The
performance of the business was evaluated by analyzing and interpreting the financial statements of The
AKR Industry with the help of Ratio Analysis.
RATIO ANALYSIS
A ratio is a simple arithmetic expression of relationship of one number to another. Ratio is an
expression of the quantitative relations between two numbers. Ratio analysis is a technique of analysis
and interpretation of financial statements. It is a process of establishing and interpreting various ratios
which help in making certain decisions.

TREND ANALYSIS

1. Trend analysis is the process of comparing business data over time to identify any consistent
results or trends. You can then develop a strategy to respond to these trends in line with your
business goals.
2. Trend analysis helps you understand how your business has performed and predict where current
business operations and practices will take you. Done well, it will give you ideas about how you
might change things to move your business in the right direction.

4. DATA ANALYSIS AND INTERPRETATION

DATA ANALYSIS

The analysis of data requires a number of closely related operations such as establishment of
categories, the application of these categories to raw data through coding, tabulation and then drawing
inferences. The unwieldy data should necessarily condense into a manageable groups and tables for
further analysis.
Thus, researcher should classify the raw data into some purposeful and usable categories.
Analysis work after tabulation is generally based on the computation of various percentages, coefficients,
etc., by applying various well defined statistical formulae.

INTERPRETATION OF DATA

The real value of research lies in its ability to arrive at certain generalizations. If the researcher
had no hypothesis to start with, he might seek to explain his findings on the basis of some theory. It is
known as interpretation. The process of interpretation may quite often trigger off new questions which in
turn may lead further researches.
4.1 RATIO ANALYSIS

A ratio is a simple arithmetic expression of relationship of one number to another. Ratio is an

expression of the quantitative relations between two numbers. Ratio analysis is a technique of analysis
and interpretation of financial statements. It is a process of establishing and interpreting various ratios
which help in making certain decisions.

4.1.1 CURRENT RATIO

The current ratio of a company measures its short-term solvency, i.e., the ability of a firm to meet
its short-term obligations. As a measure of liquidity, it indicates the rupee value of current assets available
for each rupee of current liquidity. The higher the current ratio, the greater is the safety of funds for short-
term creditors.
Current assets
Current Ratio =
Current liabilities

TABLE 4.1
CURRENT RATIO
Current Assets Current Liabilities
Year Ratio
(Rs) in lakhs (Rs) in lakhs
2014-15 7.64 2.89 2.64
2015-16 10.38 3.88 2.67
2016-17 11.68 3.70 3.16
2017-18 12.77 4.58 2.78
2018-19 16.58 6.08 2.73

Source: Secondary data

INTERPRETATION

The current ratio is a measure of firm’s short term solvency. During the year 2014-15 the current
ratio was 2.64 and the year of 2016-17 is increased to 3.16. From the year of 2017-18 onwards it is
continuously decreased to 2.78and 2.73 in the year 2018-19. The company current ratio is fluctuation in
the five years
 CHART 4.1
CURRENT RATIO

3.16
3.2
3.1
3
2.9 2.78
2.73
Ratio

2.8 2.67
2.64
2.7
2.6
2.5
2.4
2.3
2014-15 2015-16 2016-17 2017-18 2018-19
Year

4.1.2 WORKING CAPITAL TURNOVER RATIO

Working capital ratio measures the effective utilization of working capital. It also measures the
smooth running of business or otherwise. The ratio establishes relationship between cost of sales and
working capital. Working capital turnover ratio is calculated with the help of the following formula
Sales / Cost of sales
Working capital turnover ratio =
Net working capital

TABLE 4.2
WORKING CAPITAL TURNOVER RATIO

Sales Net working capital

Year Ratio
(Rs) in lakhs (Rs) in lakhs
2014-15 21.33 4.75 4.49
2015-16 25.18 6.50 3.87
2016-17 28.96 7.98 3.62
2017-18 35.41 8.19 4.32
2018-19 42.81 10.50 4.07

Source: Secondary data

INTERPRETATION

The data in the below graph represents the fact that the working capital turnover of in the
year 2012-13 it is 4.49 and in the year 2015-16is 3.87. Then in the year 2016-17is decreased to 3.62and
in the year 2017-18the working capital turnover ratio is4.32.In the final year 2018-19 it is 4.07.
CHART 4.2
WORKING CAPITAL TURNOVER RATIO

4.49 4.32
4.5 4.07
3.87
4 3.62
3.5
3
Ratio

2.5
2
1.5
1
0.5
0
2014-15 2015-16 2016-17 2017-18 2018-19
Year

4.1.3 LIQUID RATIO

This ratio is also called ‘Quick’ or ‘Acid test’ ratio. It is calculated by comparing the quick assets
with current liabilities.
Formula:
Quick assets or liquid assets
Liquid ratio =
Currents liabilities

1. Quick or liquid assets refer to assets which are quickly convertible into cash. current assets other
than stock and prepaid expenses are considered as quick assets.
2. The ideal liquid ratio or the generally accepted ‘norm’ for liquid ratio is ‘1’.
3. Comparison of quick ration with current ratio indicates the inventory hold ups.
 TABLE 4.3
LIQUID RATIO
Quick assets Current liabilities
Year Ratio
(Rs) (Rs)
2014-15 5.68 2.89 1.96
2015-16 7.31 3.88 1.88
2016-17 8.22 3.70 2.22
2017-18 10.25 4.58 2.24
2018-19 13.62 6.08 2.24

Source: Secondary data

INTERPRETATION
The data in the below graph represents the fact that the liquid ratio of in the year 2014-15 it is
1.96 and in the year 2015-16is decreased to 1.88. Then in the year 2016-17is increased to 2.22 and in the
year 2017-18the ratio is2.24 and the final year was same ratio in the year of 2018-19 are 2.24
CHART 4.3
LIQUID RATIO

2.3 2.22 2.24 2.24

2.2
2.1
1.96
Ratio

2
1.88
1.9
1.8
1.7
2014-15 2015-16 2016-17 2017-18 2018-19
Year

4.1.4 ABSOLUTE LIQUIDITY RATIO

Absolute liquidity ratio includes cash, bank, and marketable securities. This ratio obtained by
dividing cash, bank and marketable securities by current liabilities.
 Cash + bank +marketable securities
Absolute liquidity ratio =
Current liabilities

TABLE 4.4
ABSOLUTE LIQUIDITY RATIO
Cash & bank balance Current liabilities
Year Ratio
(Rs) in Lakhs (Rs) in Lakhs
2014-15 0.01 2.89 0.003
2015-16 0.21 3.88 0.054
2016-17 0.25 3.70 0.067
2017-18 0.17 4.58 0.037
2018-19 0.04 6.08 0.006

Source: Secondary data

INTERPRETATION
During the year 2014-15Absolute Liquidity Ratio was 0.003, during the year 2015-16 it was
0.054 and in the year of 2016-17 it was 0.067, in the year of 2017-18 it was 0.037. The final year of 2018-
19 was decreased to 0.006. Hence it shows the company liquidity position is not satisfactory.

CHART 4.4
ABSOLUTE LIQUIDITY RATIO

0.067
0.07
0.06 0.054

0.05
0.037
0.04
ratio

0.03
0.02
0.006
0.01 0.003
0
2014-15 2015-16 2016-17 2017-18 2018-19
year
4.1.5 INVENTORY TURNOVER RATIO

This ratio is also called stock velocity ratio. It is calculated to ascertain the efficiency of inventory
management in terms of capital investment. It shows the relationship between the cost of goods sold and
the amount of average inventory. Stock turnover ratio is obtained by dividing the cost of sales by average
stock. The rationale behind establishing the relationship between cost of sales and average stock is that
stock is at the cost price. This ratio is helpful in evaluating and review of inventory policy.
Net sales
Inventory turnover ratio =
Inventory or stock

TABLE 4.5
INVENTORY TURNOVER RATIO

Net sales Inventory or stock

Year Ratio
(Rs) in Lakhs (Rs) in Lakhs
2014-15 19.72 1.96 10.06
2015-16 25.18 3.07 8.20
2016-17 28.96 3.46 8.37
2017-18 31.51 2.52 12.50
2018-19 42.81 2.96 14.46

Source: Secondary data

INTERPRETATION

It is seen from the above table shows during the year 2014-15Inventory turnover Ratio was 10.06,
during the year 2015-16 it was 8.20 and in the year of 2016-17 it was 8.37, in the year of 2015-16 it was
12.50. The final year of 2018-19 was increased to 14.46. This is shows the company has more sale
 CHART 4.5
INVENTORY TURNOVER RATIO

14.46
15 12.5
10.06
8.37
8.2
10
Ratio

0
2014-15 2015-16 2016-17 2017-18 2018-19
Year

4.1.6 INVENTORY HOLDING PERIOD

This period measures the average time taken for clearing the stocks. It indicates that how many
days’ inventories taken to convert from raw material to finished goods.
Days in a year
Inventory Holding Period =
Inventory turnover ratio

TABLE 4.6
INVENTORY HOLDING PERIOD
Inventory Turnover Inventory Holding
Year Days in a Year
Ratio Period
2014-15 365 10.06 36.28 days
2015-16 365 8.20 44.51 days
2016-17 365 8.37 43.08 days
2017-18 365 12.50 29.2 days
2018-19 365 14.46 25.24 days

Source: Secondary data

INTERPRETATION
Inventory holding period is fluctuating over the years. It was 36.28 days in the year of 2014-15 and
the 44.51 days in the year of 2015-16. In the year of 2016-17 is 43.08 days and the next year were
decreased to 29.2 days and the last year was decreased to 25.24 days. This is show the company
minimizing this Inventory holding days thereby to increase the sales.

CHART 4.6
INVENTORY HOLDING PERIOD

50 44.51 43.08
36.28
40
29.2
25.24
30
Ratio

20
10
0
2014-15 2015-16 2016-17 2017-18 2018-19
Year

4.1.7 LIQUID ASSETS TO WORKING CAPITAL RATIO:

Ratio shows difference between the liquid assets and the working capital thus shows the position
of the firm.
Liquid Assets
Liquid Assets to Working Capital = ------------------------
Working Capital

TABLE 4.7
LIQUID ASSETS TO WORKING CAPITAL RATIO
Liquid Assets working capital
Year Ratio
(Rs) in Lakhs (Rs) in Lakhs
2014-15 5.68 4.75 1.19
2015-16 7.31 6.50 1.12
2016-17 8.22 7.98 1.03
2017-18 10.25 8.19 1.25
2018-19 13.62 10.50 1.29

Source: Secondary data

INTERPRETATION
From the above table it was clear the liquid assets to working capital ratiofor the liquid assets to
working capital ratiois 1.19 to 2014-15, the liquid assets to working capital ratiois -1.29 to 2018-19. It
was flexible in the company.
CHART 4.7
LIQUID ASSETS TO WORKING CAPITAL RATIO
44.51 43.08
45
40 36.28
35 29.2
30 25.24
25
Ratio

20
15
10
5
0
2014-15 2015-16 2016-17 2017-18 2018-19
Year

4.1.8 CURRENT ASSETS TO NET WORKING CAPITAL

The following is the formula for calculating current assets to networking capital ratio.

Current Assets
Current Assets to Net Working Capital =
Net Working Capital

TABLE 4.8
CURRENT ASSETS TO NET WORKING CAPITAL
Current Assets working capital
Year Ratio
(Rs) in Lakhs (Rs) in Lakhs
2014-15 7.64 4.75 1.61
2015-16 10.38 6.50 1.59
2016-17 11.68 7.98 1.46
2017-18 12.77 8.19 1.55
2018-19 16.58 10.50 1.57

Source: Secondary data

INTERPRETATION

The ratio between current assets to networking capital is obtained by dividing current assets with
net working capital. The ratio of current assets and net working capital of it is 1.61 in the year 2014-15. In
the year 2015-16it is 1.59. In the year 2016-17it is 1.46. And in the year 2017-18it is 1.55. Finally in the
year 2018-19it is 1.57 of current assets to net working capital.
CHART 4.8
CURRENT ASSETS TO NET WORKING CAPITAL

1.65 1.61
1.59
1.6 1.57
1.55
1.55
Ratio

1.5 1.46
1.45

1.4

1.35
2014-15 2015-16 2016-17 2017-18 2018-19
Year

4.1.9 RETURN ON SHAREHOLDER FUNDS

This ratio determines the profitability from the shareholder’s point of view.

Net profit after interest and tax

Return on shareholders’ funds = X 100
Shareholders fund
The net profit here is net income after payment of interest and tax and it includes net non
operating income also. ( i.e., non – operating income minus non- operating expenses).
Pital employed= Total fixed or current assets and total of long term funds
 TABLE 4.9
CURRENT ASSETS TO NET WORKING CAPITAL
Current Assets working capital
Year Ratio
(Rs) in Lakhs (Rs) in Lakhs
2014-15 7.64 4.75 1.61
2015-16 10.38 6.50 1.59
2016-17 11.68 7.98 1.46
2017-18 12.77 8.19 1.55
2018-19 16.58 10.50 1.57

Source: Secondary data

INTERPRETATION

The ratio between current assets to networking capital is obtained by dividing current assets with
net working capital. The ratio of current assets and net working capital of it is 1.61 in the year 2014-15. In
the year 2015-16 it is 1.59. In the year 2016-17it is 1.46. And in the year 2017-18it is 1.55. Finally in the
year 2018-19it is 1.57 of current assets to net working capital.
CHART 4.9
CURRENT ASSETS TO NET WORKING CAPITAL

1.65 1.61
1.59
1.57
1.6 1.55
1.55
Ratio

1.5 1.46
1.45
1.4
1.35
2014-15 2015-16 2016-17 2017-18 2018-19
Year

4.1.10 OPERATING PROFIT RATIO

It is ratio of profit made form operating sources to the sales, usually shown as a percentage. It
shows the operational efficiency of the firm and is a measure of the management’s efficiency in running
the routine operations of the firm.
 Operating profit
Operating profit ratio = X 100
Sales

Operating expenses include administration, selling and distribution expenses. Finance expenses
are generally excluded.
TABLE 4.10
OPERATING PROFIT RATIO
Operating profit Sales
Year Ratio
(Rs) in Lakhs (Rs) in Lakhs
2014-15 1.89 21.33 0.08
2015-16 1.87 25.18 0.07
2016-17 2.00 28.96 0.06
2017-18 1.92 35.41 0.05
2018-19 3.04 42.81 0.07

Source: Secondary data

INTERPRETATION

The Ratio between Operating Profit Ratios 0.08 in the year 2014-15. In the year 2015-16it is 0.07.
In the year 2016-17it is 0.06. And in the year 2017-18it is 0.05. Finally in the year 2018-19 it is 0.07 of
Operating Profit Ratio.
CHART 4.10
OPERATING PROFIT RATIO

0.08
0.08 0.07 0.07
0.07 0.06
0.06 0.05
0.05
Ratio

0.04
0.03
0.02
0.01
0
2014-15 2015-16 2016-17 2017-18 2018-19
Year
4.1.11 NET PROFIT RATIO

This ratio is also called net profit to sales ratio. It is measures of management’s efficiency in
operating the business successfully from the owner’s point of view. It indicates the return on
shareholders’ investments. Higher the ratio better is the operational efficiency of the business concern.
Net profit after tax
Net Profit ratio = X 100
Net sales
TABLE 4.11
NET PROFIT RATIO
Net profit Net Sales
Year Ratio
(Rs) in Lakhs (Rs) in Lakhs
2014-15 0.91 19.72 4.61
2015-16 0.04 25.18 0.15
2016-17 -0.02 28.96 -0.07
2017-18 -0.04 31.51 -0.13
2018-19 0.89 42.81 2.08

Source: Secondary data

INTERPRETATION

The ratio between Net Profit Ratiois 4.61 in the year 2014-15. In the year 2015-16it is 0.15. In the
year 2016-17it is negative performance -0.07. And in the next year also 2017-18it is -0.13. Finally in the
year 2017-18it is 2.08 of Net Profit Ratio.
CHART 4.11
NET PROFIT RATIO

4.61
5
4
3 2.08
Ratio

2
1 0.15 -0.07 -0.13
0
2014-15 2015-16 2016-17 2017-18 2018-19
-1
Year
4.1.12 RETURN ON TOTAL ASSETS

This ratio is calculated to measure the productivity of total assets. There are two ways of
calculating this ratio.
Net Profit After Tax
Return on Total Assets = X 100
Total Assets

The term fictitious assets refer to preliminary expenses, debit balance of profit and loss Account
and other similar losses shown on balance sheet asset side.
TABLE 4.12
RETURN ON TOTAL ASSETS
Net profit Total Assets
Year Ratio
(Rs) in Lakhs (Rs) in Lakhs
2014-15 0.91 14.05 6.47
2015-16 0.04 15.18 0.26
2016-17 -0.02 16.19 -0.12
2017-18 -0.04 15.74 -0.25
2018-19 0.89 17.66 5.04

Source: Secondary data

INTERPRETATION

The ratio between Return on Total Assets is 6.47 in the year 2014-15. In the year 2015-16 it is
0.26. In the year 2014-15it is negative performance -0.12. And in the next year also 2017-18 it is -0.25.
Finally in the year 2018-19it is 5.04.
CHART 4.12
RETURN ON TOTAL ASSETS

8 6.47
5.04
6
4
Ratio

2 0.26 -0.12 -0.25

0
-2 2014-15 2015-16 2016-17 2017-18 2018-19
Year
4.2 TREND ANALYSIS

Trend analysis is the process of comparing business data over time to identify any consistent
results or trends. You can then develop a strategy to respond to these trends in line with your business
goals.

Trend analysis helps you understand how your business has performed and predict where current
business operations and practices will take you. Done well, it will give you ideas about how you might
change things to move your business in the right direction.
You can use trend analysis to help improve your business by:

 identifying areas where your business is performing well so you can duplicate success
 identifying areas where your business is underperforming
 Providing evidence to inform your decision making.

This guide explains how you can use historical data to analyze trends and improve your business
TABLE NO -4.13
TABLE SHOWING TREND ANALYSIS
CURRENT ASSETS CURRENT LIABILITIES WORKING CAPITAL
AMOUNT TREND AMOUNT TREND AMOUNT TREND
YEAR
in Lakhs % in Lakhs % in Lakhs %

2014-15 7.64 100 2.89 100 4.75 100

2015-16 10.38 135.86 3.88 134.26 6.50 136.84

2016-17 11.68 152.88 3.70 128.03 7.98 168

2017-18 12.77 167.15 4.58 158.48 8.19 172.42

2018-19 16.58 217.02 6.08 210.38 10.50 221.05

Sources: Secondary Data

INTERPRETATION
The Current assets have increased 217.02% over the Five‐years period while the current liabilities
have increased 210.38 and the working capital have 221.05. These trend percentages reflect an
unfavorable impact on net income because costs increased at a faster rate than sales.
 CHART NO -4.13
CHART SHOWING TREND ANALYSIS

250
217.02

200
167.15
152.88
150 135.86
Ratio

CURRENT ASSETS
100
100 CURRENT LIABILITIES
WORKING CAPITAL
50

0
2014-15 2015-16 2016-17 2017-18 2018-19
Year

5. FINDINGS, SUGGENSTIONS, CONCLUSION, BIBLIOGRAPHY AND ANNEXURE

5.1 FINDINGS

1. During the year 2014-15the current ratio was 2.64 and the year of 2015-16 is increased to 3.16.
From the year of 2017-18onwards it is continuously decreased to 2.78 and 2.73 in the year 2018-
19. The company current ratio is fluctuation in the five years.
2. The working capital turnover of in the year 2014-15it is 4.49 and in the year 2015-16 is 3.87.
Then in the year 2016-17 is decreased to 3.62and in the year 2016-17the working capital turnover
ratio is 4.32. In the final year 2018-19 it is 4.07.
3. The liquid ratio of in the year 2014-15 it is 1.96 and in the year 2015-16 is decreased to 1.88.
Then in the year 2016-17 is increased to 2.22 and in the year 2017-18 the ratio is 2.24 and the
final year was same ratio in the year of 2018-19are 2.24.
4. Absolute Liquidity Ratio was 0.003, during the year 2015-16 it was 0.054 and in the year of
2016-17 it was 0.067, in the year of 2017-18 it was 0.037. The final year of 2018-19 was
decreased to 0.006. Hence it shows the company liquidity position is not satisfactory.
5. Inventory turnover Ratio was 10.06, during the year 2015-16 it was 8.20 and in the year of 2016-
17 it was 8.37, in the year of 2017-18 it was 12.50. The final year of 2018-19 was increased to
14.46. This is shows the company has more sales.
 6. Inventory holding period is fluctuating over the years. It was 36.28 days in the year of 2014-15
the last year was decreased to 25.24 days. This is show the company minimizing this Inventory
holding days thereby to increase the sales.
7. The liquid assets to working capital ratio for the liquid assets to working capital ratio is 1.19 to
2014-15, the liquid assets to working capital ratio is -1.29 to 2018-19. It was flexible in the
company.
8. Current assets to networking capital are obtained by dividing current assets with net working
capital. The ratio of current assets and net working capital of it is 1.61 in the year 2014-15.
Finally in the year 2018-19it is 1.57 of current assets to net working capital.
9. The ratio of current assets and net working capital of it is 1.61 in the year 2014-15. In the year
2015-16it is 1.59. In the year 2016-17 it is 1.46. And in the year 2017-18 it is 1.55. Finally in the
year 2018-19it is 1.57 of current assets to net working capital.
10. Operating Profit Ratio is 0.08 in the year 2014-15. In the year 2015-16it is 0.07. In the year 2016-
17it is 0.06. And in the year 2017-18it is 0.05. Finally in the year 2018-19it is 0.07 of Operating
Profit Ratio.
11. Net Profit Ratio is 4.61 in the year 2014-15. In the year 2015-16 it is 0.15. In the year 2016-17 it
is negative performance -0.07. And in the next year also 2017-18it is -0.13. Finally in the year
2018-19it is 2.08 of Net Profit Ratio.
12. Total Assets is 6.47 in the year 2014-15. In the year 2015-16it is 0.26. In the year 2016-17 it is
negative performance -0.12. And in the next year also 2017-18it is -0.25. Finally in the year
2018-19 it is 5.04.

5.2 SUGGESTIONS

1. Cash and bank balance has to be maintained by the company to meet working capital needs.
2. The company can utilize the shareholders fund in proper way.
3. Capital structure efforts must be taken place to provide an adequate amount of working capital.
4. Working capital management is not proper in the unit. Therefore, it is advisable for the
management to consider the working capital policy, in order to ensure the proper utilization of
working capital.
5. The company may also take steps to maintain reasonable stock to improve the productivity.
5.3 CONCLUSION
“Cash is the life blood of business” is the maximum amongst financial managers. Working
capital management refers to the management of current of short-term assets and short-term liabilities
with its sound financial position. It is important that AKR Industry by produce working capital
management and however it facts problems in respect of collecting does from its customers like central
and stare government owned public sector units. In recent years by implementing all the latest
technology and techniques in all areas and employing all the control measures its efficiency in managing
working capital is improving every year. Overall the profitability of the company is good.

BIBLIOGRAPHY

BOOKS:

1. T. Vijayakumar (2010),” Accounting for management”, pp.21.1-23.1

2. M Y Khan, P K Jain (2008), “financial management”, 4th edition, pp 7.1-7.73.
3. I M Pandey,” Financial management” 10th edition, pp 648-660.
4. Premavathy , N. and Inbalakshmi, M.(2008) ‘ Financial Management’, Sri Vishnu
Publications, Chennai.
5. Maheswari, S.N. (1994) ‘ Principles of management Accounting’ , sultan Chan & sons,
Educational publishers, New Delhi.
6. Financial Management, I.M.Paney, Vikas Publishing House Pvt.Ltd., 8 th Edition, 2002.
7. JAMES.C, VAN HORNE, Financial Management Prentice Hall of India, 2003.

ARTICLES
1. Hampton and Wagner (1989) concept of working capital management accounting, pp 4.1-4.2.
2. Dr. K.M. Pandery (1987) kinds of working capital financial management, vikas publishing house,
pp 244-246.
Reddy (1988) in his study stressed that the co-operative Food mills did not mange working capital
properly