the pdf deals with calculation of working capital of reliance industries and its interpretation on the basis of some ratios

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Report
On
Working Capital Analysis
Of Reliance Industries Limited
O.P.Jindal University, Punjipathra
Raigarh (C.G.)
Guided By
PRof. Prabhat Kumar Sahoo
Asst.Professor
School of Management
Submitted By
Kanchan Agrawal
BBA 5th
Semester

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ACKNOWLEDGEMENT
It gives me immense pleasure to express
my deepest sense of gratitude and sincere
thanks to our esteemed guide Professor
Prabhat Kumar Sahoo OP JINDAL
University, Raigarh, for his valuable
guidance , encouragement and help for
completing this project. His useful
suggestions for this whole work and co-
operative behavior are sincerely
acknowledged.
Place: Raigarh
Students Name: Kanchan Agrawal
BBA 5th
semester
Roll No: 02UG16010022

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CERTIFICATE
This is to certify that student of Graduate
Program in Management (BBA), has
worked under my guidance and
supervision. This project report has the
requisite standard and to the best of my
knowledge.
Guided By
Prof. Prabhat Kumar Sahoo
O.P.Jindal University, Punjipathra
Raigarh (C.G.)
Date: 7 December, 2018

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Table of Content
Serial NO. Title Page No.
1 Introduction 05
2 Objective 05
3 Background of the Project 06-08
4 Methodology 09-10
5 Analysis & Interpretation 11-15
6 Conclusion 16

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Introduction
Working Capital refers to that part of the firm’s capital which is required for
financing the short-term or current assets such as cash, marketable securities,
debtors & investments. Funds, thus invested in current assets keep revolving fast
and are being constantly converted into cash and this cash flows out again in
exchange for other current assets. Hence, it is also known as revolving or circulating
capital or short term capital.
The project basically deals with analyzing and understanding the components of
Working Capital of Reliance Industries. Reliance Industries. To finance working
capital of the business Reliance uses sources like commercial papers, commercial
banks and advances from customers and statutory dues. The working capital
requirements decide the liquidity and profitability of a firm and hence affect the
financing and investing decisions. Lesser requirement of working capital leads to
less need for financing and less cost for capital and hence availability of more cash
for shareholders. However the lesser working capital may lead to lost sales and thus
may affect the profitability. The working capital of last five years are identified,
studied and interpreted in the light of company’s performance. Hence it is overall
responsibility of management to see that resource of the firm is used efficiently
and effectively and that firm’s financial position is good. Financial and operational
position of the firm also indicated what can be expected from the firm in future.
Objective of the Project
The main objective of this project is
 To understand the working capital components of Reliance Industries
 To understand the various strategies and policies company uses to maintain
its inventory receivables, payables etc.
 To analyze the working capital efficiency of Reliance Industries Limited
 To analyze the trends of various components of Current assets and Current
Liabilities.
 To study the liquidity position of the firm.
• To study the optimum level of current assets and current liability of company.

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Background of the Project
About Working Capital Management
Any firm, from time to time, employs its short-term assets as well as short-term
financing sources to carry out its day to day business. It is this management of such
assets as well as liabilities which is described as working capital management.
Working capital management is a quintessential part of financial management.
Certain objectives of Working Capital Management are:-
 Maintaining the working capital operating cycle and to ensure its smooth
operation.
 Mitigating the cost of capital
 Maximizing the return on current asset investments
Properties of a healthy working capital management
It is essential for the business to maintain a healthy working capital cycle. The
following points are necessary for the smooth functioning of the working capital
cycle:
 Sourcing of raw material: Sourcing of raw material is the beginning point for
most businesses. It should be ensured that the raw materials that are
necessary for producing the desired goods are available at all times. In a
healthy working capital cycle, production ideally should never stop because
of the shortage of raw materials.
 Production planning: Production planning is another important aspect that
needs to be addressed. It should be ensured that all the conditions that are
necessary for the production to start are met. A carefully constructed plan
needs to be present in order to mitigate the risks and avert unforeseen
issues.
 Selling: Selling the produced goods as soon as possible is another objective
that should be pursued with utmost urgency. Once the goods are produced
and are moved into the inventory, the focus should be on selling the goods
as soon as possible.
 Payouts and collections: The accounts receivables need to be collected on
time in order to maintain the flow of cash. It is also extremely important to

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ensure timely payouts to the creditors to ensure smooth functioning of the
business.
 Liquidity: Maintaining the liquidity along with some room for adjustments is
another important aspect that needs to be kept in mind for the smooth
functioning of the working capital cycle.
About Reliance Industries
 Reliance Industries Ltd. is India's largest private-sector company, generating
revenues of $19.97 billion, or more than 3 percent of India's total gross
domestic product.
 Backward vertical integration has been the cornerstone of the evolution and
growth of Reliance. Starting with textiles in the late seventies, Reliance
pursued a strategy of backward vertical integration - in polyester, fibre
intermediates, plastics, petrochemicals, petroleum refining and oil and gas
exploration and production - to be fully integrated along the materials and
energy value chain.
 The Group's activities span exploration and production of oil and gas,
petroleum refining and marketing, petrochemicals (polyester, fiber
intermediates, plastics and chemicals), textiles, retail, infotel and special
economic zones.
 Reliance enjoys global leadership in its businesses, being the largest
polyester yarn and fiber producer in the world and among the top five to ten
producers in the world in major petrochemical products.

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 Major Group Companies are Reliance Industries Limited, including its
subsidiaries and Reliance Industrial Infrastructure Limited.
Sources of Working Capital of Reliance Industries
Short-Term Sources Long-Term Sources
Commercial Bank
 Foreign Currency Loan
 Rupee Loans
Debentures
Commercial Papers Bonds
Advances from customers and
Statutory dues
Loan from Financial Institution
Current Assets components of Reliance Industry includes:-
 Investments
 Trade Receivables
 Cash and Cash Equivalents
 Loans
 Other Financial Assets
 Other Current Assets
Current Liabilities components of Reliance Industry includes:-
 Borrowings
 Trade Payables
 Other Financial Liabilities
 Other Current Liabilities
 Provisions

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Methodology:-
To analyze the efficiency of working capital management various liquidity
ratios are used-
 Net Working Capital - Net working capital (NWC) is the difference
between a company’s current assets and current liabilities. It is a
liquidity calculation that measures a company’s ability to pay off its
current liabilities with current assets. This measurement is important
to management, vendors, and general creditors because it shows the
firm’s short-term liquidity as well as management’s ability to use its
assets efficiently.
Net Working Capital = Current Assets – Current Liabilities
 Current Ratio - The current ratio is a liquidity ratio that measures
whether or not a firm has enough resources to meet its short-term
obligations.
Current Ratio =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 Liabilities
 Quick Ratio - The quick ratio is an indicator of a company’s short-term
liquidity position, and measures a company’s ability to meet its short-
term obligations with its most liquid assets.
Quick ratio =
(𝐂𝐚𝐬𝐡 𝐚𝐧𝐝 𝐄𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭𝐬 + 𝐌𝐚𝐫𝐤𝐞𝐭𝐚𝐛𝐥𝐞 𝐒𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 + 𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐬 𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞)
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
 Cash Ratio - The cash ratio is the ratio of a company's total cash and
cash equivalents (CCE) to its current liabilities. The metric calculates a
company's ability to pay current liabilities using only cash and cash
equivalents on hand
Cash Ratio =
𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝑐𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
 Inventory Turnover Ratio - Inventory turnover is a ratio showing how
many times a company has sold and replaced inventory during a given

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period. Inventory turnover measures how fast a company
sells inventory and how analysts compare it to industry averages.
Inventory Turnover Ratio =
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
 Debtors Turnover Ratio - The receivables turnover ratio is an
accounting measure used to quantify a firm's effectiveness in
extending credit and in collecting debts on that credit. In essence, it
indicates the efficiency with which a firm collects on the credit it issues
to customers.
Debtors Turnover Ratio =
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
 Creditors Turnover Ratio - The accounts payable turnover ratio is a
short-term liquidity measure used to quantify the rate at which a
company pays off its suppliers. The measure shows investors how
many times per period the company pays its accounts payable.
Creditors Turnover Ratio =
𝑇𝑜𝑡𝑎𝑙 𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑟 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒
Trend Analysis
Trend analysis is based on historical data about the stock's performance given the
overall trends of the market and particular indicators within the market. When
trend analysis is performed, a company is able to see if its financial position is
improving or declining based on the percentage change in the balance sheet
accounts. Trend analysis is useful because it helps management determine if
certain items are impacting the organization in a negative way if they are
consistently decreasing over time. Trend Analysis is done of all the components of
current assets as well as current liabilities of Reliance Industries Limited of past 5
years (2014-2018).
Ratio Analysis of Reliance Industries
2014 2015 2016 2017 2018
Current Ratio 1.31 1.02 0.69 0.62 0.59
Quick Ratio 0.82 0.63 0.44 0.40 0.39
Cash Ratio 0.33 0.09 0.06 0.01 0.01
Receivables Turnover Ratio 46.22 53.10 61.01 50.43 31.95
Receivables Days 7.76 4.71 5.70 9.36 15.59

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Creditors Turnover Ratio 6.57 4.93 3.19 3.11 2.91
Payable Days 55.58 74.03 114.60 117.54 125.22
Inventory Turnover Ratio 6.52 5.35 3.80 4.25 4.68
Inventory Days 55.96 68.18 96.17 85.82 78.02
Net Working Capital 35913 3168 -57369 -88502 -130066
Data Analysis & Interpretation
Net Working Capital
Net Working Capital of Reliance Industries Limited is negative from the past two
years. The main reason behind Negative working capital is sharp increase in both
the other current & financial liabilities which basically includes advances from
customers and statutory dues & current maturities of borrowings.
Negative Working Capital implies that
 The whole of current assets are financed by the current liabilities and
a portion of fixed asset is also financed by them.
 On the other hand, it may be understood that the portion of current
liabilities other than current assets is invested in short-term
investments to earn interest from them.

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Apart from this reliance believes that the group has sufficient working capital
resource for foreseeable requirements. It continuously monitors and optimises its
working capital requirements by leveraging diverse trade financing solutions
covering receivable and payable cycles and executing innovative structured trade
products.
Current Ratio
As it can be implied from the graph that current ratio of Reliance Industries goes
down continuously in the last five years and in the year 2017-18 it reaches 0.58.
 Current Ratio of Reliance Industries is 0.58 which is below 1 and it is a good
sign as company squeezes out short term cash sources to achieve a capital
intensive plan with a longer term outlook.
 Reliance manages its liquidity and funding risk by diversifying its resource base
and tapping new investor pools across different markets.
Quick Ratio
Quick ratio of Reliance Industry also shows a declining trend in the past 5 years. In
the year 2018 quick ratio reaches to 0.39 which is basically due to sharp increase in
other current liabilities and financial liabilities which includes advances from
customers and statutory dues.

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Cash Ratio
Cash ratio of Reliance Industries also shows a declining trend in the last 5 years with
a decline in cash and cash equivalents along with sharp increase in current
liabilities. It also implies a very high liquidity position, the firm does not hold large
amount of cash.
One of the main reason for reliance high liquidity position is tight management of
cash to cash cycle by extending the payables.
Inventory Turnover Ratio
Inventory Turnover Ratio indicates how many times average inventory is turned or
sold during a period.

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Inventory Turnover Ratio of Reliance Industries keeps on fluctuating in the last 5
years. In the year 2018 it is 4.678 and inventory days is 78 days which means that
company does not overspend by buying too much inventory and wastes resources
by storing non-salable inventory as a result it shows its efficiency to sell its
inventory.
Some of the reasons for efficient inventory management by Reliance are
 Digitization and automation initiatives to transform supply chain and deliver
unparalleled customer experience at an unmatched cost basis.
• Utilizing robotics and Artificial Intelligence in product handling, ware-housing
and inventory management.
• Expanding portfolio to advanced materials and composites to diversify RIL’s
market offerings and make RIL future ready.
Receivables Turnover Ratio
Debtors Turnover Ratio of Reliance Industries tends to decrease from the year 2016
which shows that the firm uses liberal credit policy for its customers. It allows
customers more time to pay, this can have a significant drag on a company's
resources, because it is money that is not coming in as quickly.

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Creditors Turnover Ratio
Creditors Turnover Ratio of Reliance Industries tend to decline in the last five years.
In the year 2018 Creditors Turnover Ratio is 2.91. The accounts payable turnover
ratio indicates how many times a company pays off its suppliers during an
accounting period. It also measures how a company manages paying its own bills.
A low ratio of 2.91 indicates slow payment to suppliers for purchases on credit. This
may be due to favorable credit terms and implies that the company has successfully
managed to negotiate better payment terms which allow it to make payments less
frequently, without any penalty.

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Conclusion
The study of Working capital components, structure, policies and management of
Reliance Industry states that it very effective and efficient in managing its working
capital. Reliance believes that the group has sufficient working capital resource for
foreseeable requirements. It continuously monitors and optimizes its working
capital requirements by leveraging diverse trade financing solutions covering
receivable and payable cycles and executing innovative structured trade products.
Following are the conclusion derived from the project-
 The company’s negative working capital states that the whole of current assets
are financed by the current liabilities and a portion of fixed asset is also
financed by them and it’s a very good sign for the company.
 Reliance industry achieves liberal credit policy from its suppliers which in turn
helps the company to use that money in its operating activities. As far as
debtors are concerned it also provides a liberal credit policy to its customers so
as to build a huge customer base.
 Low current and quick ratio of RIL reveals that company squeezes out short
term cash sources to achieve a capital intensive plan with a longer term
outlook.
 Inventory Turnover Ratio of 4.57 states the company’s efficiency in managing
its inventory by using techniques like Artificial Intelligence, Robotics in
inventory management and handling.
 Declining cash ratio also implies a very high liquidity position, the firm does not
hold large amount of cash.
Over all Reliance Industries Limited is very efficient in managing its working capital
which in turn contributes to achieve its objectives in short as well as long term.
Reliance also believes that the group has sufficient working capital resource for
foreseeable requirements. It continuously monitors and optimizes its working
capital requirements by leveraging diverse trade financing solutions covering
receivable and payable cycles and executing innovative structured trade products.
************

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