A study of working capital management in ajanta pharma limited

A
PROJECT REPORT ON
A STUDY OF WORKING CAPITAL MANAGEMENT IN
“AJANTA PHARMA LIMITED”
SUBMITTED BY
SONALI ARJUN RAUT
IN THE PARTIAL FULFILLMENT OF DEGREE
MASTER OF COMMERCE
PROJECT GUIDENCE OF
DR. VIJAY NARAYAN GAIKWAD
SUBMITTED TO
“SAVITRIBAI PHULE PUNE UNIVERSITY”
THROUGH
P.E.S. MODERN COLLEGE OF ARTS, SCIENCE AND COMMERCE,
SHIVAJINAGAR,
PUNE 411005
ACADEMIC YEAR 2018-19

INDEX
SR.NO CONTENT PAGE NO
1 Introduction 1-20
1.1 Meaning and Definition
1.1.1 Meaning
1.1.2 Definition
1.2 Concept
1.3 Types of Working Capital
1.3.1 Gross Working Capital and Net Working Capital
1.3.2 Permanent working capital and variable working
capital
1.3.3 Negative Working capital
1.4 Objectives and Importance
1.5 Main Constituents of Working Capital
1.6 Difference between current assets and current
liabilities
1.7 Net Working Capital and Its implications
1.8 Need & Importance of working capital
1.8.1.
1.8.2.
1.8.3
1.8.4.
1.8.5.
1.8.6.
Strengthen The Solvency
Enhance Goodwill.
Easy Obtaining Loan
Regular Supply Of Raw Material
Smooth Business Operation
Ability To Face Crisis
1.9 Working Capital Cycle
1.10 Factors affecting working capital management
1.10.1.
1.10.2.
1.10.3.
Nature of Business
Size of Business
Time and Complexities of Manufacturing Process

1.10.4.
1.10.5
1.10.6
10.10.7
1.10.8
1.10.9
1.10.10
1.10.11
1.10.12
1.10.13
1.10.14
Manufacturing Cost
Growth and Expansion
Terms of Purchase and Sales
Conditions of Supply
Market Conditions
Business Cycle
Operating Cycle
Rate of Turnover
Cash Requirements
Seasonal Variations
Other Factors
1.11 Financing the working capital requirement
1.12 Working Capital Management
1.12.1 Cash Management
1.12.2 Management of Inventories
1.12.3 Management of Accounts receivable
1.13 Consequences of Inadequate working capital
1.14 Consequences of over working capital
2 Company Profile 21-31
2.1 Company Profile
2.2 About Ajanta Pharma Ltd
2.2.1 Mission and Philosophy
2.3 SWOT analysis of Ajanta Pharma Ltd
2.4 Products of Ajanta Pharma Ltd
2.5 Milestones
2.6 Management & Key Persons
2.7 Corporate Values
3 Research Methodology 32-34
3.1 Introduction of Study
3.2 Objectives of Study
3.3 Scope of Study

3.4 Importance of Study
3.5 Sources of Data Collection
3.5.1 Secondary Data Collection
3.6 Limitations of Study
3.7 Tools used for analysis of Data
4 Review of Literature 35-37
5 Data Analysis and Interpretation 38-62
5.1 Net Working Capital
5.2 Statement Showing change in working capital
5.3 Ratio analysis
5.3.1 Liquidity Ratios
5.3.2 Turnover ratios
6 Findings, Conclusion and suggestions 63-65
6.1 Findings
6.2 Conclusions
6.3 Suggestions
Bibliography 66

LIST LO TABLES
Sr.No Title Page No
1.1 Difference between Current assets and current liabilities 6
2.1 General information about Ajanta Pharma Ltd. 21
2.2 Management & Key Persons 30
5.1 Net Working Capital 38
5.2 Statement showing change in working capital in the year 2014 and 2015 40
5.6 Current Ratio 49
5.7 Quick Ratio 50
5.8 Inventory Turnover ratio 53
5.9 Inventory Holding Period 55
5.10 Debtors/Accounts receivable turnover ratio 56
5.11 Debtors Collection period 58
5.12 Working Capital turnover ratio 61

LIST OF GRAPHS
Sr. NO Title Page no
5.1 Working Capital 39
5.2 Current Ratio 49
5.3 Quick Ratio 51
5.4 Inventory Turnover ratio 53
5.5 Inventory Holding Period 55
5.6 Debtors/Accounts receivable turnover ratio 56
5.7 Debtors Collection period 58
5.8 Working Capital turnover ratio 61

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1.1Meaning and Definition
1.1.1 Meaning
Working Capital can be defined in simple words as that part of the total capital, which
is required for aired for daily working of the business. It is the capital with which the business
is worked over. According to Shubin "Working capital is the amount of funds necessary to
cover the cost of operating the enterprise. Thus, the funds required by the business for
conducting the day-to-day operations. e. g. purchase of raw material or finished goods,
payment of expenses like salary , wages , freight , rent etc. and carrying out production, for
investment in stocks and stores, receivables and cash on hand etc. form the working capital of
the business. This capital is also known as circulating capital, because it starts with cash and
ultimately results in cash after completing the cycle. Cash is converted into stock of goods,
later the goods are sold, sale of goods creates debtors and bills receivables and finally they
are turned into cash. In the words of Gerstenberg “circulating capital means current assets of
a company that are changed in the ordinary course of business from one form into another, as
for example , from cash to inventories , inventories to receivables and receivables into cash.”
1.1.2 Definition
The term ‘Working Capital’ is also defined as, ‘Excess of current assets over current
liabilities.’ This concept of working capital is useful to know, whether the current assets are
sufficient or not to meet the current liabilities, i.e. the short - term solvency of the business is
Sound or questionable.
1.2 Concept of Working Capital
In accounting, "Working capital is the difference between the inflow and outflow of
funds. In other words, it is the net cash inflow. It is defined as the excess of current assets
over current liabilities and provisions. In other words, it is "net current assets or net working
capital. This definition of working capital is qualitative in character.
Chapter 1
Introduction

2
A study of working capital is of major importance to internal and external analysis
because of its close relationship with the day-to-day operations of a business. As pointed out
by Ralph, Kennedy and Steward Mc Muller the inadequacy or mismanagement of working
capital is the leading cause of business failures. Working capital is the portion of the assets of
a business which are used on or related to current operations, and represented at any one time
by the operating cycle of such items as against receivables, inventories of raw materials,
stores, work-in-process and finished goods, merchandise, notes or bill receivables and cash.
The assets of this type are relatively temporary in nature.
Working capital comprises current assets which are distinct from other assets. In the
first instance, current assets consist of these assets which are of short duration. For example,
cash is held idle for a week or so, accounts receivables may not have a life span of more than
three months and inventories may be held for one to three months. The actual duration of
each of these assets is contingent upon the time required in the activities relating to
procurement, production, sales and collection and degree of synchronisation among them.
Another distinguishing characteristic of current assets is that they change their
character swiftly. For instance, cash is used to buy raw materials which in turn are
transformed into workin-progress and then in finished goods. With the sale of the
merchandise, finished goods turn into accounts receivable when goods are sold on credit
term. Collection of the receivables generates cash. A part of the cash is used for defraying
operating expenses, to pay creditors, pay taxes and dividends and the rest is put into
circulation again. This is why working capital is also called Circulating capital.
Working capital may be regarded as the life blood of a business. Its effective
provision can do much to ensure the success of a business while its inefficient management
can lead not only to loss of profit but also to the ultimate downfall of what otherwise might
be considered as a promising concern.
Broadly speaking, the term working capital is understood in two different but
interlinked sense, working capital refers to sum total of all current assets employed in the
business process. This is known as Gross working capital concept. This is also known as
going concern concept since finance manager is highly concerned with the management of
these assets with a view to bringing about productivity from other assets. The gross concept
of working capital is considerably useful in making correct estimate of working capital needs

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of the firm. Working capital is also understood in terms of net concept according to which
excess of current assets over current liabilities represents working capital.
Both the gross and net concepts are not to be regarded us mutually exclusive. Each
has its relevance in specific situations. Gross working capital concept focuses on the
problems of managing individual current assets in day-to-day operations. It is in the nature of
a quantitative definition that highlights attention on the levels of current assets for given
activity.
This emphasis, however, shifts when we consider the net working capital concept.
This is a definition which highlights the character of the sources from which the funds have
been procured to support that portion or current assets which is in excess of current liabilities.
Working capital represents the total of all current assets. In other words it is "gross
working capital" It is also known as circulating capital for current assets are rotating in their
nature. Where current liabilities and provisions exceed current assets, the difference is
referred to as, negative working capital. Working capital is rightly an adjunct of fixed capital
investment. It is a financial lubricant which keeps business operations going. In fact working
capital management is concerned with handling problems arising in course of managing
interrelationships between current assets and current liabilities. Those, who are to pay off
current liabilities and the quantum of funs which will be required by the firm to fund the
excess portion of current assets, will find the net concept significantly useful.
1.3 Types of Working Capital
1.3.1 Gross Working Capital and Net Working Capital
When the term ‘Working Capital’ is used to denote the Total Current Assets, It is
stated as 'Gross Working Capital' and when it is used to denote Net Current Assets ( i.e.,
current assets less current liabilities ), it is Stated as Net working Capital. However, normally
the term Working Capital means, Net working Capital, as the concept Gross Working Capital
is not in general use.
1.3.2 Permanent Working Capital and Variable Working capital
Permanent or regular working capital is that minimum amount of working capital,
which is required to be kept always on hand to carry out the business activities. In the
absence of this minimum amount, the circulation of the capital will be blocked. As a result,

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operations of the business will be interrupted and the business may run the risk of insolvency
or liquidation.
1.3.3 Negative working capital
When current liabilities exceed current assets, negative working capital emerges. Such a
situation occurs when a firm is nearing a crisis of some magnitude.
The Working Capital that varies with the volume of production is called variable
working capital. In the case of seasonal business, the demand for production increases
considerably during the season. To meet this increased demand additional working capital is
required. As this amount varies with the quantity of production, it is called variable capital.
1.4 Objective and Importance
If the importance of working capital is to be stated in one sentence, it can be said, that
the working capital is the life-blood or heart of the business. Just as sufficient supply and
constant flow, circulation of blood is essential for any alive being to survive, sufficient and
constant supply of working capital is necessary to survive the business. Its inadequacy or
weakness may prove to be detrimental to the successful working of the business. It will not
be an exaggeration to say that it is the working capital that keeps the wheels of the machinery
moving or revolving
If the fixed assets in the business are to be utilised to their fullest capacity and the
business operations are to result in maximum profitability, adequate and constant flow of
working capital is necessary. In the absence of adequate and timely supply of working
capital, the factory cannot carry out its regular operations like purchase of raw materials,
stores, goods etc. payment of routine expenses like transportation charges, salaries, wages,
commission, interest, rent etc. and this in turn will keep the fixed assets idle, however costly
and up-to-date they may be. It means the price paid for purchase of fixed assets will not be an
investment, but it will be a wasteful expenditure. Working capital feeds the machines and
keeps them running
If it is properly calculated and sufficient cash balance is maintained, the business can
avail of the facility of cash discount, can provide funds for unforeseen emergencies, can
establish its credit in the market and can successfully go through the period of crisis. It is also
an index of short-term solvency of the business i.e. it shows whether the business is in a

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position to pay off short-term or current liabilities out of its current assets. In short, it can be
stated that every activity of the business is related to the availability of the working capital. It
is like a main spring in the clock. Inadequacy of working capital may, thus, lead the business
to bankruptcy in spite of huge profits earned by the business
1.5 Main Constituents of Working Capital
The Net working capital represents current assets minus current liabilities. Current assets
refer to those assets which are used for day-to-day activities of the firm.
A) Current Assets:
These assets constitute the following
i) Inventories: Inventories represent raw materials and components workin
progress and finished goods.
ii) Trade debtors: Trade debtors comprise credit sale is to customers.
iii) Prepaid expenses: These are those expense which have been paid for goods
and service whose benefits have yet to be received.
iv) Loans and advances: They represent loans and advances given by a firm to
other firms for a short period of time.
v) Investment: These assets comprise short-term surplus funds invested in
government securities, share and short-term bond.
vi) Cash and bank balance: These assets represent cash in hand and at bank
which is used for meeting operational requirements. This kind of current assets
is purely liquid but non productive.
B) Current Liabilities
Current liabilities represent that part of obligations which the firm has to clear to the
outside parties in a short-period, generally within a year. These liabilities comprise the
following
1) Sundry creditors : These liabilities stem out of purchase of raw materials on
credit terms usually for period of one to two month
2) Bank overdrafts: These include withdrawals in excess of credit balance, standing
in the firm’s current accounts with banks.
3) Short-term loans: Short-term borrowings by the firm from banks and others form
part of current liabilities as short-term loan.

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4) Provisions: These include provisions for taxation, proposed dividends and
contingencies.
1.6 Difference between Current assets and current liabilities
Table no 1.1 Difference between Current assets and current liabilities
Current Assets Current Liabilities
Cash and bank balances Short term borrowings (including bills
purchased and discounted from banks and
other)
Investment (Marketable securities),
Government and other trustee securities
(other than for long-term purpose.
E.g.Sinking funds, Gratuity fund etc.)
Unsecured loans maturing within one year.
Fixed deposits with banks (Maturing
within one year)
Public deposits maturing within one year.
Receivables arising out of sales other
than deferred receivable (including bills
purchased and discounted by bankers)
Sundry creditors (trade) for raw material and
consumable store and spares.
Instalments of deferred receivable due
within one year.
Interest and other charges due for payment.
Raw materials and components used in
the process of manufacturing including
those in transit.
Advanceprogress payments from customer
Finished goods including goods in
transit.
Instalments on term loan, deferred payment
credits, debentures and long term deposites
payable within one year.
Other consumable spares Statutory liabilities
Advance payment for tax Provident fund dues.

7
Prepaid expenses. Provision for taxation
Advance for purchase of raw materials.
Components and consumable stores.
Sales-tax, excise etc.
Deposits kept with public bodies etc. for
normal business operation (e.g. earnest
deposit kept by construction companies
etc. maturing within the normal operating
cycle)
Statutory obligations towards workers.
Miscellaneous current liabilities
a. Dividends
b. Liabilities for expenses
c. Gratuity payable within one year.
d. Any other payment due with 12
months
Money receivable from contracted sale of
fixed asset during the next 12 months.
The task of the financial manager in managing working capital efficiently is to ensure
sufficient liquidity in the operations of the enterprise. The liquidity of business firm is
measured by its ability to satisfy short term obligations, as they become due.the three basic
measures of a firm’s overall liquidity are (i) current ratio, (ii) the acid-test ratio, and (ili) the
net working capital. In brief, ratios are very useful in inter-firm comparisons of liquidity. Net
Working Capital (NWC),as a measure of liquidity, is not very useful for comparing the
performance of different firms, but is is quite useful for internal control.
The NWC helps in comparing the liquidity of the same firm over time. NWC can be
said to measure the liquidity of the firm. In other words, the goal of working capital
management is to manage the current assets and current liabilities in a such way that an
acceptable level of Net Working Capital is maintained.
1.7 Net Working Capital and its Implications
NWC is commonly defined as the difference between current assets and current
liabilities. The Efficient working capital management requires that firms should operate with
some amount of NWC, the exact amount varying from firm to firm and depending, among
other things, on the nature of industry. The theoretical justification for the use of NWC to

8
measure liquidity is based on the premise that the greater the margin by which the current
assets cover the short-term obligations, the more is the ability to pay obligations when they
become due for payment. The NWC is necessary because the cash outflows and inflows do
not coincide. In other words, it is the non-synchronous nature of cash flows that makes NWC
necessary. In general, the cash outflows resulting from payment of current liabilities are
relatively predictable. The cash inflows are, however, difficult to predict. The more
predictable the cash inflows are, the less NWC will be required.
1.8 NEED AND IMPORTANCE OF WORKING CAPITAL
Working capital is the life blood and nerve centre of business. Working capital is very
essential to maintain smooth running of a business. No business can run successfully without
an adequate amount of working capital. The main advantages or importance of working
capital as follows:
1.8.1. Strengthen The Solvency
1.8.2. Enhance Goodwill
1.8.3. Easy Obtaining Loan
1.8.4. Regular Supply Of Raw Material
1.8.5. Smooth Business Operation
1.8.6. Ability To Face Crisis
1.8.1. Strengthen The Solvency
Working capital helps to operate the business smoothly without any financial problem
for making the payment of short-term liabilities. Purchase of raw materials and
payment of salary, wages and overhead can be made without any delay.
Adequate working capital helps in maintaining solvency of the business by providing
uninterrupted flow of production.
1.8.2. Enhance Goodwill
Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining goodwill.
Goodwill is enhanced because all current liabilities and operating expenses are paid
ontime.

9
1.8.3 Easy Obtaining Loan
A firm having adequate working capital, high solvency and good credit rating can
arrange loans from banks and financial institutions in easy and favorable terms.
1.8.4. Regular Supply of Raw Material
Quick payment of credit purchase of raw materials ensures the regular supply of raw
materials fro suppliers. Suppliers are satisfied by the payment on time. It ensures
regular supply of raw materials and continuous production.
1.8.5. Smooth Business Operation
Working capital is really a life blood of any business organization which maintains
the firm in well condition. Any day to day financial requirement can be met without
any shortage of fund. All expenses and current liabilities are paid on time.
1.8.6. Ability To Face Crisis
Adequate working capital enables a firm to face business crisis in emergencies such
as depression
1.9 Working Capital Cycle
(1) The duration of time required to complete the following cycle of events in case of a
manufacturing firm is called the operating cycle (Working Capital Cycle):
i. Conversion of cash into raw materials.
ii. Conversion of raw materials into work in process.
iii. Conversion of work in process into finished goods.
iv. Conversion of finished goods into debtors and bills receivables through sales
v. Conversion of debtors and bills receivables into cash.
Factors which decide the approximate amount of working capital, can be easily observed
in the Operating Cycle' of any manufacturing firm

10
Every business firm requires to have
a. Minimum cash in hand for daily transactions (i.e. for ready liquidity).
b. Minimum stock of raw material for avoiding production stoppage or problem of
scarcity of material in market
c. Minimum day’s time required for production process i.e. for conversion of a raw unit
into a finished unit. Such process also consumes wages and production overhead
d. Minimum stock of finished goods for avoiding loss of sales due to stakeout (Stack-out
means a situation of inadequate stock of finished goods in the warehouse to cater the
demand fully. Hence, it causes 'loss of sales' leading ultimately to ‘loss of profit’ and
‘loss of reputation’ in market)
e. Minimum days of credit to be given to customers. This involves block-up of funds for
the days of credit
(2) The operating cycle of a trading firm has the following cycle of events:
(i) Cash into inventories
(ii) Inventories into accounts receivable.
(iii) Account receivables into cash.
Therefore in the case of a “Trading firm”, the operating cycle will include the length
of time required to convert.
Operating
cycle of
Manufacturi
ng firm
ii. Raw
Material
s
iii. Work
in
Progress
iv.
Finished
goods
v.
Debtors
i. Cash

11
Operating Cycle of a Trading Firm is as follows
(3) In the case of service and financial firms the operating cycle includes the length of
time taken for:
i) Conversion of cash into debtors and
ii) Conversion of debtors into cash
1.10 Factors affecting Working Capital Requirement
1.10.1. Nature of Business
1.10.2. Size of Business
1.10.3. Time and Complexities of Manufacturing Process
1.10.4. Manufacturing Cost
1.10.5. Growth and Expansion
1.10.6. Terms of Purchase and Sales
1.10.7. Conditions of Supply
1.10.8. Market Conditions
1.10.9. Business Cycle
1.10.10. Operating Cycle
1.10.11. Rate of Turnover
1.10.12. Cash Requirements
iii. Accounts
Receivable
ii. Stock of
Finished goods
i. Cash

12
1.10.13. Seasonal Variations
1.10.14. Other Factors
1.10.1. Nature of Business
The amount of working capital required depends on the kind or nature of business a company
performs:
1. In case of public utilities, less capital is required. It is so, since, they don't have any
stock in trade and they sell on a cash basis.
2. Companies involved in trading and providing services require more working capital
because they have to keep a lot of stock-in-trade. They also have to maintain a lot of
liquid cash, bills receivable, so on.
3. Manufacturing companies need more working capital to continue production if they
use imported and costly raw materials.
4. Labour intensive industries also require more working capital because they have to
spend a lot of money on giving wages and salaries to workers or employees.
5. Capital intensive industries need less working capital because they have to depends
more on machines and less on the workers.
1.10.2. Size of Business
A size of business determines the amount of working capital that is needed.
For, e.g., bigger companies require more working capital than smaller ones.
1.10.3. Time and Complexities of Manufacturing Process
The time and complexities involved in the manufacturing process affect the amount of
working capital that is required:
1. If the manufacturing process is long and complicated, then more working capital is
required. For example, companies manufacturing automobiles need more working
capital.
2. If the manufacturing process is short and simple, then less working capital is required.
For example, companies involved in manufacturing soaps requires less working
capital.

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1.10.4. Manufacturing Cost
The manufacturing cost is another factor that determines how much working capital is
needed.
For example, if production cost of a product is high then working capital required is also
more and vice versa.
1.10.5. Growth and Expansion
If a company is growing and expanding its business activities, then it will need more working
capital to maintain its growth.
1.10.6. Terms of Purchase and Sales
The working capital requirements of a company depends on its terms of purchase and sales:
1. If it makes a purchase on credit and sells on a cash basis, then it requires less working
capital.
2. Conversely, if it buy with cash and sells on credit, then it will need more working
capital.
1.10.7. Conditions of Supply
The working capital requirements of the company depends on the conditions of supply:
1. If the supply of raw materials is regular, then the company can keep less inventory
(stock). So, it will require less working capital.
2. But, if the supply is irregular then the company has to hold more stock. Therefore, in
such a case, it will need more working capital.
1.10.8. Market Conditions
The working capital requirements of a company depends on the degree of competition in the
market.

14
If the competition is intense, then the company has to spend a lot of money on running
advertising campaigns and sales promotion. It will also have to keep more stock and sell on
credit. So, it will require more working capital.
1.10.9. Business Cycle
The working capital requirements of a company depends on the business cycle.
Business cycle consists of a boom and recession period:
1. During the boom period, the sales are very high. So, in this time, the company has to
spend a lot of money on raw material, wages, etc. So, it requires more working
capital.
2. But, during the recession period, the sales decline as people tend to buy less. Thus, in
this phase, the company needs less working capital.
1.10.10. Operating Cycle
A service company usually has a short operating cycle or period. It also sells on a cash basis.
So, it requires less working capital. For example, electricity and transport companies.
A manufacturing company usually has a long operating cycle. It also sells on a credit basis.
Therefore, it requires more working capital. For example, machine tools companies.
1.10.11. Rate of Turnover
The working capital requirements of a business depends on the rate of turnover or sales. If the
sales are very fast, then less working capital is required and vice versa.
1.10.12. Cash Requirements
A company needs cash for paying salaries, rent, taxes, so on. If the company's cash needs are
high, then it requires more working capital. In other words, higher the cash requirement,
greater will be the working capital required and vice versa.
1.10.13. Seasonal Variations
The seasonal variations also influence the working capital:

15
1. During the busy season, more working capital is required.
2. During the slack (less busy) season less working capital is required.
1.10.14. Other Factors
Additional factors influencing working capital requirements:
• Transport facilities,
• Changes in price level,The credit standing of the company, etc.
1.11 Financing the Working Capital requirement
i. Fixed/ Permanent Capital:
The following sources may be utilized for financing fixed working capital.
a. Issue of Shares
b. Issue of debentures
c. Ploughing back of profit
ii. Variable/seasonal/special working capital
The following sources may be used
a) Credit from financial institutions
b) Retained earnings
c) Sales of shares
d) Trade creditors
e) Allowing cash discount to debtors to collect prompt cash.
f) Bank loan against hypothecation of stock-in-trade or mortgage of fixed asset
etc.
Short-term credit is generally used as a means of financing circulating assets and
meeting operating expenses of the business. Borrowing from short-term sources in
often an advantageous way of financing the temporary expansion of floating assets.
Short-term financial requirements can be met by the commercial banks. They
provide finance on liberal terms and conditions and bring flexibility in financial
planning for short period. Besides this, other sources of short term credit include
customers’ advances, instalment credit, trade credit accounts receivable, financing etc.

16
a) Borrowings from Banks: The commercial banks meet the financial requirements
in any of the following ways.
i. Cash Credit: This is the most popular way of providing short term working
capital. A company has to furnish a security of tangible assets such as
stock of raw material, stock of semi-finished goods or finished. In the
absence of security, a borrower gives promissory note sign by two sureties.
ii. Line of Credit: The bank agrees to allow the company to borrow up to
certain amount. A company has to keep certain amount of deposit with the
bank as security.
iii. Discounting of Bills: Companies discount their bills or promissory notes
or hundies with their banks.
iv. Overdraft: Banks provide overdraft facilities up to certain amount.
v. Term loans: Term loans mean advances granted for a period of more than
one year or so.
(b)Trade Credit: A company gets credit from its suppliers. Trade credit facilitates
payment. No interest is charged. The period of trade credit depends upon the financial
resources of the supplier, nature of product, location of the customer, traditions of trade,
degree of competition in the market, and the eagerness of the supplier to sell his stock.
(c) Instalment Credit: This is known as consumer credit. Some portion of the price is
paid in cash and the balance is paid in instalments. Interest is charged on the outstanding
balance
(d) Customer Advances: Many times the suppliers manufacturers of goods insist on
advance from customers along with orders.
(e) Accounts Receivable Financing: The accounts receivables of a business concern are
bought by financing company or money is advanced against security of accounts receivables.
(f)Public Deposits: Deposits are invited and accepted by companies from public for
periods ranging from 6 months to 5 years or so. Rate of interest varies according to period.
However, it is more by 2 % or so than that of banks. To secure finance by this method
depends upon the creditworthiness of the company. The public must feel their deposits back
on their maturity

17
(g) Shares, Debentures and Ploughing Back of Profit: Though these sources are mainly
meant for financing fixed capital, some amount is used also for meeting the needs of working
capital, especially permanent working capital.
1.12 Working capital management
Managing Working Capital: The management of working capital basically involves two
processes:
i. Forecasting the amount of working capital.
ii. Determining the sources of working capital.
i. Forecasting the amount of Working Capital: The amount of working capital
needed by a firm is estimated by taking into consideration several factors, such as
production policies, nature of business, length of manufacturing process, rapidity
of turnover, seasonal fluctuations etc
ii. Determining the sources of Working Capital: The working capital requirements
should be met both from short-terms as well as from long term sources of funds. It
will be appropriate to finance the permanent working capital requirements from
long-term sources. The variable working capital requirements should be financed
from short-term sources.
The finance manager has to use both long-term and short-term sources
working capital in such a way, that the overall cost of working capital is the least
and the funds are available for the period they are really required.
1.12.1 Cash Management
Unnecessarily large balances of cash should be discouraged as cash produces
nothing The bank overdrafts and loans often fulfil a vital need of cash. With
borrowings a high degree of flexibility is introduce in to the financial structure.
The permanent capital can provide the normal requirements and the short-term
funds from borrowings can meet any unusual need. The additional amount of cash
required to meet seasonal needs may be borrowed, but only temporary shortage of
cash should be cover by borrowing. The cash management involves
i. meeting the cash disbursement as per the payment schedule
ii. minimising the amount locked as cash balance

18
It, in other words, means that on one hand the business should not suffer from
shortage of cash and on the other hand excess cash should not lie ideal in the
business, as it involves loss of interest to the business.
Basic Problems Involved in Cash Management
Following are the basic problems
a. Controlling level of cash.
b. Controlling inflows of cash
c. Controlling outflows of cash.
d. Optimum investment of surplus cash.
1.12.2 Management of Inventories
Inventories often form a major element of total working capital of a firm and are
therefore, an important concern of the financial manager. He has to follow a policy which on
the one had minimises the investment in inventories and on the other hand ensure sufficient
stock of inventories, so that the production is not held-up for want of raw material or no delay
is caused in meeting the orders of the customers for finished goods. Generally much attention
is not paid to the levels of stock carried, the adoption of maximum and minimum stocks
levels, ordering levels. It is said that overstocking is grave yard of the business.
Management of inventories therefore, involves basically two problems.
i. Maintaining a sufficiently large size of inventory for efficient and smooth
production and sales operations.
ii. Maintaining a minimum investment in inventories to minimise costs relating
to holding inventories, such as locking up of capital, storage costs, storage
losses etc.
Techniques of Inventory Management
Effective control over inventories can be achieved by adopting the following
techniques
a. Determination of Economic Order Quantity
b. Determination of Optimum Production Quantity
c. Determination of Re-order Level
d. ABC Analysis and

19
e. Aging Schedule of Inventories
f. lnventory Turnover Ratio
1.12.3 Management of Accounts Receivables
Accounts Receivables arise from credit sales. By offering credit facilities sales are
increased, and in turn profits are increased. However, it is necessary to have only reasonable
amount of sales on credit, because credit sales involves capital cost, administrative cost,
collection cost defaulting cost i.e. bad debts. Thus, investment in accounts receivable
involves both benefits and costs. Higher investment in receivables results in higher cost while
larger volume of sales results in higher profitability. It is necessary, therefore, lay down the
credit policy on comparing benefits & costs resulting from credit sales. Once the credit policy
is adopted, Debtors Turnover Ratio should be examined from time to time to see that the
collection from debtors is made within the credit period allowed. If it is noticed that the
collection takes longer period than the credit allowed steps should be taken, to bring the
period let down. The collection department should warned to credit period allowed. Rate of
cash discount may, if required, be increased appeal should be made in writing to the
customers, telephone calls should be made, personal calls should be arranged and where
necessary, threat of legal action should be given.
1.13 Consequences of Inadequate Working Capital
Consequences effects of inadequate working capital can be summarised as under:
i. It leads to shortage raw material, which in turn results in non utilization of full
production capacity of the business concern.
ii. Because of shortage of cash raw material can not be purchased in bulk quantities
This results in non-getting sufficient trade discount, in paying heavy transport
charges and other incidental charges. Similarly, loss of cash discount due to non-
payment of bills of suppliers within the time limit laid down.
iii. The banks and financial institutions are reluctant to grant credits, as repayment of
credits is not ensured.
iv. Obsolete plants and machineries are required to be used in the absence of cash, to
replace the old plants and machinery. Even regular repairs cannot be carried out to

20
the existing plants and machineries. This affects production both in quantity and
quality
v. The concern cannot take the advantage of favourable and profitable markets due
to shortages of funds.
vi. Highest rates of interest are to be given, if funds are to be borrowed. This results
in fall of profits.
vii. Government dues cannot be paid in time, which in turn results in payment of
penalties.
viii. Sales are reduced as the concern is not in a position to extend credit facilities to its
customers.
ix. Wages of workers and salaries of staff members cannot be paid in time. This
creates unrest among the workers and staff members.
If the inadequacy of working capital continues for a longer period, the net effect
of all above stated consequences is the liquidation of the concern.
1.14 Consequences of over Working Capital
i. Over investment in working capital makes capital less productive and may reduce
return on investment.
ii. Working capital is very essential for success of business and therefore needs efficient
management and control. Each of the components of working capital needs proper
management to optimize profit.
iii. Excess of working capital may result in unnecessary increase of inventories.

21
2.1 COMPANY PROFILE
Table No 2.1 General information about Ajanta Pharma Ltd.
Name of the Company AJANTA PHARMA LIMITED
Year establishment 1973
Type of Company Public
M.D. Mr. Yogesh Agrawal
Certification WHO GMP certified
Headquarters Mumbai, Maharashtra
Turn Over 2155 Cr
Web Site http://www.ajantapharma.com
Employee 6,500+
Industry Pharmaceuticals, Drugs & Healthcare
Chapter 2
COMPANY PROFILE

22
2.2 About Ajanta pharma limited
Ajanta pharma limited is an multinational company based in India engaged in
development, manufacturing and marketing of pharmaceuticals formulations. It has a
presence in India, the United States of America and about 30 countries in Africa, Asia, and
Middle East. It was established in 1973.
Ajanta Pharma is a leading specialty pharmaceutical Company engaged in
development, manufacturing and marketing of quality finished dosages. Driven by
innovation-led approach, execution agility and technological expertise; we are continuously
striving to “Serve Global Healthcare Needs through Empathy, Innovation and Technology.”
We have a geographically de-risked operations with branded generics offering in the
domestic markets of India as well as other markets in Asia and Africa.We also have a
meaningful presence in select generics space in the USA.
Ajanta Pharma has over 1,400 products registered currently in various countries and equal
number of products are under approval. In India, the company is a branded generic company
focused on a few high growth specialty therapies in ophthalmology, dermatology, cardiology,
and pain management.
Ajanta Pharma exports products to over 30 countries in Asia and Africa. In these markets, the
company serves a wide range of therapeutic products in the areas of antimalarial,
cardiovascular, gastrointestinal, antibiotic, dermatology, antihistamine, multivitamin,
gynecology, and pain management.
Ajanta Pharma has recently stepped up its presence in the United States with a select product
portfolio, which includes niche and complex technology products. Currently, the company
has 21 products in the US market
Ajanta Pharma’s India business continued to perform well steered by strong focus on high
growth speciality segments. While roll-out of the GST impacted operations across the
industry, the Company’s readiness enabled it to transition seamlessly to the new tax regime.
As per IMS MAT March 2018, the Company grew at par with Indian Pharmaceutical Market
(IPM) at 6%. Within the speciality segments that the Company operates in, except for
Dermatology all segments recorded higher than industry growth. Corrective measures have
been taken, and the Company is optimistic about reviving growth in the Dermatology

23
segment. The Company continues to strengthen product portfolio through new launches,
many of them being first-to-market products offering significant patient benefits. Apart from
new launches, many of the Company’s existing products continue to grow their market share.
The Company has a comprehensive system of Internal Controls to safeguard its assets against
loss from unauthorised use and ensure reliability of financial reporting. It maintains a system
of internal controls designed for effectiveness and efficiency of operations, compliance and
regulations. All operations are governed through automated internal business controls,
centralised global process framework and integrated key support functions. Quarterly
tracking of annual quality objectives is done using QMS (quality management software), and
any concerns are immediately flagged for effective addressing
Ajanta Pharma operates seven manufacturing facilities; six within India and one in Mauritius.
In India, five facilities manufacture finished formulations, including Dahej and Paithan plants
which is approved by US FDA and Guwahati plant which caters to domestic and emerging
markets. Another plant manufactures active pharmaceutical ingredients (APIs) primarily for
captive consumption.
Ajanta Pharma operates seven manufacturing facilities; six within India and one in Mauritius.
In India, five facilities manufacture finished formulations, including Dahej and Paithan plants
which is approved by US FDA and Guwahati plant which caters to domestic and emerging
markets. Another plant manufactures active pharmaceutical ingredients (APIs) primarily for
captive consumption.
2.2.1 Mission and Philosophy of the Ajanta pharma limited
2.2.1.1Mission
Our mission is to Serve Global Healthcare needs through Empathy, Innovation and
Technology. We believe that to ensure sustained growth, we need to clearly understand our
customer's needs and use cutting edge technology to present innovative solutions.
2.2.1.2Philosophy
At Ajanta, we believe in the art of first creating opportunities and then optimizing them to the
fullest. In this manner, we identify the unmet medical needs across therapies in different
markets and capitalize on them to optimum levels ahead of competition.

24
2.3 SWOT Analysis of Ajanta Pharma Ltd
2.3.1 Strengths
➢ Brands catering to different customers segments within Biotechnology & Drugs
segment - Ajanta Pharma Ltd extensive product offerings have helped the company to
penetrate different customer segments in Biotechnology & Drugs segment. It has also
helped the organization to diversify revenue streams.
➢ Talent management at Ajanta Pharma Ltd and skill development of the employees -
Human resources are integral to the success of Ajanta Pharma Ltd in Biotechnology
& Drugs industry.
➢ Wide geographic presence - Ajanta Pharma Ltd has extensive dealer network and
associates network that not only help in delivering efficient services to the customers
but also help in managing competitive challenges in Biotechnology & Drugs industry.
➢ High margins compare to Biotechnology & Drugs industry's competitors - Even
though Ajanta Pharma Ltd is facing downward pressure on profitability, compare to
competitors it is still racking in higher profit margins.
➢ Market Leadership Position - Ajanta Pharma Ltd has a strong market leadership
position in the Biotechnology & Drugs industry. It has helped the company to rapidly
scale new products successes.
2.3.2 Weaknesses
➢ Declining market share of Ajanta Pharma Ltd with increasing revenues - the
Biotechnology & Drugs industry is growing faster than the company. In such a
scenario Ajanta Pharma Ltd has to carefully analyze the various trends within the
Healthcare sector and figure out what it needs to do to drive future growth.
➢ Extra cost of building new supply chain and logistics network - Internet and
Artificial Intelligence has significantly altered the business model in the Healthcare
industry and given the decreasing significance of the dealer network Ajanta Pharma
Ltd has to build a new robust supply chain network. That can be extremely expensive.

25
➢ Business Model of Ajanta Pharma Ltd can be easily imitated by the competitors in
the industryname industry. To overcome these challenges companyname needs to
build a platform model that can integrate suppliers, vendors and end users.
➢ Niche markets and local monopolies that company’s like Ajanta Pharma Ltd able to
exploit are fast disappearing. The customer network that Ajanta Pharma Ltd has
promoted is proving less and less effective.
➢ Low investments into Ajanta Pharma Ltd's customer oriented services - This can
lead to competitors gaining advantage in near future. Ajanta Pharma Ltd needs to
increase investment into research and development especially in customer services
oriented applications.
➢ High turnover of employees at the lower levels is also a concern for the Ajanta
Pharma Ltd . It can lead to higher salaries to maintain the talent within the firm.
2.3.3 Opportunities
➢ Lowering of the cost of new product launches through third party retail partners
and dedicated social network. Ajanta Pharma Ltd can use the emerging trend to start
small before scaling up after initial success of a new product.
➢ Increasing customer base in lower segments - As customers have to migrate from
un-organized operators in the Healthcare industry to licensed players. It will provide
Ajanta Pharma Ltd an opportunity to penetrate entry level market with a no-frill
offering.
➢ Opportunities in Online Space - Increasing adoption of online services by customers
will also enable Ajanta Pharma Ltd to provide new offerings to the customers in
Biotechnology & Drugs industry.
➢ Customer preferences are fast changing - Driven by rising disposable incomes,
easy access to information, and fast adoption of technological products, customers
today are more willing to experiment / try new products in the market. Ajanta Pharma
Ltd has to carefully monitor not only wider trends within the Biotechnology & Drugs
industry but also in the wider Healthcare sector.
➢ Increasing government regulations are making it difficult for un-organized players
to operate in the Biotechnology & Drugs industry. This can provide Ajanta Pharma
Ltd an opportunity to increase the customer base.

26
➢ Trend of customers migrating to higher end products - It represents great
opportunity for Ajanta Pharma Ltd, as the firm has strong brand recognition in the
premium segment, customers have experience with excellent customer services
provided by Ajanta Pharma Ltd brands in the lower segment. It can be a win-win for
the company and provides an opportunity to increase the profitability.
2.3.4Theats
➢ Distrust of institutions and increasing threat of legal actions for Ajanta Pharma Ltd -
As the WTO regulations and laws are difficult to enforce in various markets. Legal
procedures have become expensive and long drawn process. It can lead to less
investment into emerging markets by Ajanta Pharma Ltd thus resulting in slower
growth.
➢ Competitive pressures - As the new product launch cycles are reducing in the
Healthcare industry. It has put additional competitive pressures on players such as
Ajanta Pharma Ltd. Given the large customer base, Ajanta Pharma Ltd can't respond
quickly to the needs of the niche markets that disruptors are focusing on.
➢ Growing technological expertise of local players in the export market - One of the
biggest threat of tie-up with the local players in the export market for Ajanta Pharma
Ltd is threat of losing IPR. The intellectual property rights framework is not very
strong in emerging markets especially in China.
➢ Competitors catching up with the product development - Even though at present
the Ajanta Pharma Ltd is still leader in product innovation in the Biotechnology &
Drugs segment. It is facing stiff challenges from international and local competitors.
➢ Changing demographics - As the babyboomers are retiring and new generation
finding hard to replace their purchasing power. This can lead to higher profits in the
short run for Ajanta Pharma Ltd but reducing margins over the long run as young
people are less brand loyal and more open to experimentation.
➢ Trade Relation between US and China can affect Ajanta Pharma Ltd growth plans -
This can lead to full scale trade war which can hamper the potential of Ajanta Pharma
Ltd to expand operations in China.

27
2.4 Products of Ajanta Pharma Ltd.
At Ajanta, produce a comprehensive range of specialty products targeting different
therapeutic segments for treatment of patients, customised to each market ajanta is present in.
Ajanta clearly understands our customer's needs and use cutting edge technology to present
innovative solutions.
Some Domastic Brands

29
2.5 Ajanta Pharma Ltd. Milestones
Years Milestone
1973 - Ajanta started with re-packing of generic products
1979
- Launched branded OTC (Over The Counter) products
- 1stManufacturing Facility set up in India – (Chikalthana)
1986 - Started production at 2nd manufacturing facility in India – (Paithan)
1989 - Launched block buster OTC product '30+' in India
1992 - Foray in international market
1995 - Established subsidiary in Mauritius with manufacturing facility
2000
- Got listed on National Stock Exchange (NSE) and Bombay Stock
Exchange (BSE)
2005
- Strategic shift from OTC to Innovative Specialised Prescription Products in
Ophthal, Dermatology & Cardiology
2007 - Set-up dedicated fully equipped R&D facility in Mumbai
2009
- Bought a manufacturing facility at Chitegaon to fuel company's growth
- API facility set up in Waluj for captive consumption
- 1st
Generic Company in the world to get WHO Geneva Pre-qualification for
Anti-Malarial Drug
2010
- Entered Philippines market with unique product portfolio through
Ajanta Pharma Philippines Inc.
2011
- Emerged as a strong speciality player in domestic market in
Ophthalmology, Dermatology and Cardiology with many
brands holding leadership positions
2012 - Ranked among the Top 10 Pharma companies in Franco Africa
2013 - Began Sales in the USA
2014
- Income growth of 30% and profit growth of 62% CAGR over last 5 years
- 2nd
Dedicated R&D centre Set up in Kandivli for India and Emerging Markets
- Inaugurated a New Facility in Dahej, Bharuch, Gujarat, India
2017
- Inaugurated & commissioned 1st phase at a New Facility in Guwahati,
Assam, India

30
- Dahej facility receives successful US FDA approval.
2018 - Commissioned Ajanta's 1st ever Derma facility in Guwahati
2.6 Management & Key Persons
Table no 2.2 Management & Key Persons
Chairman Mr. Mannalal Agrawal
Vice Chairman Mr. Purushottam Agrawal
Vice Chairman Mr. Madhusudan Agrawal
Managing Director Mr. Yogesh M Agrawal
Joint Managing Director Mr. Rajesh M Agrawal
Independent & Non-Executive Director Mr. Chandrakant M Khetan
Independent & Non-Executive Director Mr. K.H. Vishwanathan
Independent & Non-Executive Director Dr. Anil Kumar
Independent & Non-Executive Director Mr. Prabhakar Dalal
Independent & Non-Executive Director Dr. Anjana Grewal

31
2.7 CORPORATE VALUES
Performing Right
Our focus on doing the right things at the right time has enabled us to create compelling
and sustainable value for our shareholders. Adopting meaningful strategies and practices
have yielded clear results; our net profit has risen consistently and so have the returns on
invested capital. We manage our products portfolio successfully with financial discipline.
At Ajanta Pharma, we do not just aim for excellence, we drive it.
From strengthening our branded generic business in spite of challenges, continuing
investment in R&D to continuously enhancing our manufacturing capabilities, we are in
pursuit of excellence to deliver sustained value to our stakeholders.

32
3. RESEARCH METHODOLOGY
Research methodology is the specific procedures or techniques used to identify, select,
process, and analyze information about a topic. The process used to collect information and
data for the purpose of making business decisions.
3.1 Introduction of Study
Working capital is money available to a company for day-to-day operations. Working
capital is common measures of company’s overall health. Working capital is a common
measure of a company's liquidity, efficiency, and overall health.
Because it includes cash, inventory, accounts receivable, accounts payable, the portion
of debt due within one year, and other short-term accounts, a company's working capital
reflects the results of a host of company activities, including inventory management, debt
management, revenue collection, and payments to suppliers.
Working capital is also called revolving, circulating or short term capital. Every
business require the funds for its establishment which is called fixed capital and require funds
to carry out its day to day operations like purchase of raw material, payment of wages etc.
which is called working capital. Thus, working capital is the capital required to finance the
short term or current assets such as cash, securities, debtors, stock.
3.2 OBJECTIVE OF STUDY
1. To study of trend of working capital of AJANTA PHARMA LIMITED
2. To find out every year net working capital of AJANTA PHARMA LIMITED
3. To study how the company manage their working capital
4. To study the different working capital ratios.
CHAPTER 3
RESEARCH METHODOLOGY

33
3.3 SCOPE OF STUDY
The scope of the study is to study of working capital position of the company. The
study is based on last 5 years annual reports of AJANTA PHARMA LIMITED. The
study is limited up to AJANTA PHARMA LIMITED Only.
The main scope of the study is to get knowledge of various methods of working
capital management, effective tools for credit policies and the components which is
effecting in working capital. The study of working capital is based on tools like
ration analysis, statements of changes in working capital.
3.4 IMPORTANCE OF STUDY
Working capital is the life blood and nerve centre of business. Working capital is very
essential to maintain smooth running of a business. No business can run successfully without
an adequate amount of working capital.
Positive working capital generally indicates that a company is able to pay off its short-
term liabilities almost immediately. Negative working capital generally indicates a company
is unable to do so. This is why analysts are sensitive to decreases in working capital; they
suggest a company is becoming overleveraged, is struggling to maintain or grow sales, is
paying bills too quickly, or is collecting receivables too slowly. Increases in working capital,
on the other hand, suggest the opposite. There are several ways to evaluate a company's
working capital further, including calculating the inventory-turnover ratio, the receivables
ratio, days payable, the current ratio, and the quick ratio.

34
3.5 SOURCES OF RESEARCH DATA
The object of any scientific investigation is to draw the useful conclusion in the light of the
objectives of the study. In order to arrive at the conclusion it inessential for the investigator to
adopt appropriate method and procedure. Keeping this in view, this chapter has been devoted
to explain methodology adopted to fulfill the objectives under study. It deals with the
procedure used for selection of sample, method of data collection, type of data collected,
source of data and analytical procedure used in study to gather result as per the objectives of
the study. The data is collected from the record maintained by AJANTA PHARMA
LIMITED.
3.5.1 SECONDARY DATA
The secondary data are those, which have already collected and stored.
It can get from records, annual reports etc
3.5.1.1 COLLECTION OF SECONDARY DATA
1. Data for the previous years was obtained from the records of the company.
2. In this project, i have collected data through books and internet that known as secondary
data. Company’s annual report is collecting the data and analysis of working capital
management.
Annual reports of AJANTA PHARMA LIMITED
3.6 LIMITATIONS OF THE STUDY
1. The study will be based on five annual reports only.
2. The information from annual reports is insufficient to calculate few reports.
3.7 TOOLS USED FOR ANALYSIS OF DATA
The data were analyzed by using following financial tools
Ratio analysis
Statements of changes in working capital.

35
Working capital management is the key area of financial management and plays an
important role in any industry. A number of researchers have conducted research on the
subject and its various components. This Chapter is an overview of the research that has been
carried out on the subject. Some of the most relevant articles have been reviewed here as a
part of my research work.
NCEAR (1966):
The National council of applied Economic Research (NCEAR) in 1966 first time formal
study was conducted on working capital management in India. The council published a
structure of working capital" which was limited analysis of the creation of working capital
with special attention to the fertilizers, and cement and sugar industries the main objective of
this study was emphasized on come out with findings that working capital management
practices were extremely unplanned and hence need to develop proper accounting policies
like inventory management, debtors management as above. And the study suggested
developing suitable working capital policies required in the success of business.
Widely touches upon a method of appraising working capital finance applications of
large manufacturing concerns. It states that similar methods need to be devised for other
sectors such as agriculture, trade etc. The author is of the view that banks while providing
short-term finance, concentrate their attention on adequacy of security and repayment
capacity. On being satisfied with these two criteria they do not generally carry out any detail
appraisal of the working of the concerns. Bhatt V. V. (1972)
Believes that Research which concerns shorter range or working capital decision making
would appear to have been less productive. The inability of financial managers to plan and
control properly the current assets and current liabilities of their respective firms has been the
CHAPTER 4
REVIEW OF LITERATURE

36
probable cause of business failure in recent years. Current assets collectively represent the
single largest investment for many firms, while current liabilities account for a major part of
total financing in many instances. This paper covers eight distinct approaches to working
capital management. The first three - aggregate guidelines, constraints set and cost balancing
are partial models; two other approaches - probability models and portfolio theory, emphasize
future.
uncertainty and interdepencies while the remaining three approaches - mathematical
programming, multiple goals and financial simulation have a wider systematic focus. Smith
Keith V. (1973)
Natarajan Sundar (1980) is of the opinion that working capital is important at both, the
national and the corporate level. Control on working capital at the national level is exercised
primarily through credit controls. The Tandon Study Group has provided a comprehensive
operational framework for the same. In operational terms, efficient working capital consists
of determining the optimum level of working capital, financing it imaginatively and
exercising control over it. He concludes that at the corporate level investment in working
capital is as important as investment in fixed assets. And especially for a company which is
not growing, survival will be possible only so long as it can match increase in operational
cost with improved operational efficiency, one of the most important aspects of which is
management of working capital.
Kaveri V. S. (1985) has based his writing on the RBI‟s studies on finances of large public
limited companies. This review of working capital finance refers to two points of time i.e.,
the accounting years ending in 1979 and 1983 and is based on the data as given in the
Reserve Bank of India on studies of these companies for the respective dates. He observes
that the Indian industry has by and large failed to change its pattern of working capital
financing in keeping with the norms suggested by the Chore Committee. While the position
of working capital management showed some investment between 1975-79 and 1979-83,
industries have not succeeded in widening the base of long-term funds to the desired extent.
The author concludes with the observation that despite giving sufficient time to the industries
to readjust the capital structure so as to shift from the first method to the second method,
progress achieved towards this end fell short of what was desired under the second method of
working capital finance.

37
Observe the strong and weak points of conventional techniques of working capital analysis.
The result has been obviously mixed while some of the conventional techniques which could
comprehend the working capital behavior well; others failed in doing the job properly. The
authors have attempted to evaluate the efficiency of working capital management with the
help of conventional techniques i.e., ratio analysis. The article concludes prodding future
scholars to search for a comprehensive and decisive yardstick in evaluating the working
capital efficiency. Rao K.V. and Rao Chinta (1991)

38
5.1 Net Working Capital
An analysis of the Net Working Capital will be very helpful for knowing the operational
efficiency of the company. The following table provides the dat relating to the Net Working
Capital of Ajanta Pharma Ltd.
Table No 5.1 Net Working Capital
Year
Current Assets
(Cr.)
Current
Liabilities(Cr.)
Working
Capital(Cr.)
2013-14 453.65 263.96 189.69
2014-15 573.03 244.63 328.4
2015-16 763.88 271.47 492.41
2016-17 850.6 246.66 603.94
2017-18 1223.62 346.05 877.57
CHAPTER 5
DATA ANALYSIS AND INTERPRETATION
Net Working Capital = Current Assets – Current Liabilities

39
Graph 5.1 Working Capital
Interpretation: Table 5.1 no and graph no 5.1 shows that the working capital of the Ajanta
pharma Ltd. Working capital raises continuously from the year 2013-14 to 2017-18. Working
capital was 189.69 cr in the year 2013-14, 328.4 cr in ther year 2014-15, 492.41 cr in the year
2015-16, 603.94 cr in the year 2016-17, 877.57 cr in ther year 2017-18.
189.69
328.4
492.41
603.94
877.57
2013-14 2014-15 2015-16 2016-17 2017-18
Working Capital(Cr.)
Working Capital(Cr.)

40
5.2 Statement showing change in working capital
The purpose of preparing this statement is for finding out increase and decrease in working
capital and to make comparison between two financial years.
Table No 5.2 Statement showing change in working capital in the year 2014 and 2015
Particulars
Year
2014
Year
2015
Changes
(Increase)
Changes
(Decrease)
Current Assets
a. Inventories 148.77 153.05 4.28
b. Financial Assets
i. Current Investment 55 19.46 35.54
ii. Trade Receivable 177.09 240.85 63.76
iii. Cash and cash equivalent 29.08 105.69 76.61
iv. Other Bank Balances
v. Short Term loans and advances 43.09 45.04 1.95
c. Current tax assets (Net) 0.62 8.94 8.32
d.Other Current Assets
Total Current Assets 453.65 573.03
Current Liabilities
a. Short term borrowings 60.54 17.9 42.64
b.Trade Payables 110.9 108.12 2.78
i. Due to micro and small
enterprises
ii. Due to others
c. other current liabilities 49.81 54.51 4.7
d. Short term provisions 42.71 64.3 21.59
Total Current Liabilities 263.96 244.83
Net Working Capital 189.69 328.2
Increase/ Decrease In Working
Capital 138.51 138.51
Total 328.2 328.2 200.34 200.34

41
Interpretation: Table 5.2 reveal that the changes in the working capital in the year 2014 and
2015. Statement shows that the accountable increased in the current asset i.e. increased in the
trade receivable i.e63.76 cr increased and cash & equivalent i.e. 76.61cr increased. Statement
also shows that the remarkable decrease in the current liabilities i.e decrease in the short term
provisions, i.e. 21.59 cr. The company has well maintained working capital.

42
Particulars
Year
2015
Year
2016
Changes
(Increase)
Changes
(Decrease)
Current Assets
a. Inventories 159.03 204.58 45.55
b. Financial Assets
i. Current Investment 19.46 66.39 46.93
iv. Other Bank Balances
v. Short Term loans and advances 50.46 64.87 14.41
d.Other Current Assets
Current Liabilities
a. Short term borrowings 17.9 57.83 39.93
b.Trade Payables
i. Due to micro and small
enterprises 1.2 1.59 0.39
ii. Due to others 107.86 143.98 36.12
c. other current liabilities 58.33 56.72 1.61
d. Short term provisions 64.3 11.35 52.95
Capital 108.59 108.59
Total 492.41 492.41 275.04 275.04

43
Interpretation: Table no 5.3 gives the idea about changes in the working capital over the
year 2015 and 2016. Statement show that the increase current assets in the 2016 over 2015.
There was accountable increase in the inventories, trade receivable and current investment.
There was decrease in the cash by 8.8 cr. Statement also shows that the considerable
decrease in the trade payble which is beneficial to the firm.

44
Particulars
Year
2016
Year
2017
Changes
(Increase)
Changes
(Decrease)
Current Assets
a. Inventories 204.58 211.02 6.44
b. Financial Assets
iv. Other Bank Balances 1.95 4.12 2.17
v. Other current financial assets 0.71 1.24 0.53
d.Other Current Assets 47.84 63.68 15.84
Current Liabilities
a. Financial Liabilities 46.25 5.53 40.72
i. Trade Payables 145.57 139.57 6
ii. Other Current Financial
Liabilities 40.51 25.52 14.99
b. Other Current Liablities 16.21 39.99 23.78
c. Current Provisions 11.35 12.8 1.45
d. Current Tax Liabilities (Net)
Capital 119.82 119.82
Total 623.2 623.2 201.97 201.97

45
Interpretation: Table no 5.4 shows that changes in working capital over 2016 and 2017.
There was remarkable increase in the current investment in the year 2017. There was slightly
increase in the inventories, cash and bank balances. There was remarkable decrease in the
trade receivable.

46
Particulars Year 2017
Year
2018
Changes
(Increase)
Changes
(Decrease)
Current Assets
a. Inventories 211.02 350.63 139.61
b. Financial Assets
iv. Other Bank Balances 4.12 2.45 1.67
v. Other current financial assets 1.24 0.12 1.12
c. Other Current assets 63.68 105.38 41.7
Current Liabilities
a. Financial Liabilities
i. Trade Payables 178.18 249.63 71.45
ii. Other Current Financial
Liabilities 38.43 55.31 16.88
b. Other Current Liablities 7.9 8.64 0.74
c. Current Provisions 14.11 28.75 14.64
d. Current Tax Liabilities (Net) 8.04 3.72 4.32
Net Working Capital 603.94 877.57 273.63
Capital 273.63
Total 877.57 877.57 380.13 380.13

47
Interpretation: Table no 5.5 reveal that the changes in working capital over the year 2017
and 2018. There was remarkable increased in trade receivable i.e. increased by 168.87 cr.
There was heavy increased in the inventories, i.e. increased by 139.61 cr. There was slightly
increased in current investment, cash and other current assets. There was slight decrease in
bank balance. There was remarkable decrease in the trade paybles, i.e. decreased by 71.45 cr.

48
5.3 Ratio Analysis
Ratio Analysis is the relationship between two terms of financial data expressed in the
form of ratios and then interpreted with a view to evaluating the financial condition and
performance of a firm.
Ratio Analysis can also help us to check whether a business is doing better this year than it
was last year; and it can tell us if our business is doing better or worse than similar type of
business.
5.3.1 LIQUIDITY RATIOS
Liquidity is the short term solvency of the enterprise. i.e. the ability of the business
enterprise to meet its short term obligation as and when they are due. The liquidity ratios,
therefore, are also called the short- term solvency ratios.
The most common ratios which measure the extent of liquidity or the lack of it are:
a)Current ratio
b) Quick ratio Acid test ratio
a) Current Ratio
Current ratio establishes the relationship between current assets and Current liability; It
measures the ability of the firm to meet its short term obligation as and when they become
due. It is calculated as:
Current assets include cash and those assets which can be converted into cash within a
year. Current assets will therefore include cash, bank, stock (raw materials, work in progress
Current ratio= Current Assets /Current liabilities

49
and finished goods), debtors(less provision), bills receivable, marketable securities, prepaid
expenses, short term loans and advances and accrued incomes.
Current liability includes all those liabilities maturing within one year. Current
liabilities include creditors, bills payable, outstanding expenses, income received in advance,
bank overdraft, short-term loans, provision for tax, proposed dividend and unclaimed
dividend.
Table No 5.6 Current ratio
Year
Current Assets
(Cr.)
Current
Liabilities(Cr.)
Current
Ratio
2013-14 453.65 263.96 1.72
2014-15 573.03 244.63 2.34
2015-16 763.88 271.47 2.81
2016-17 850.6 246.66 3.45
2017-18 1223.62 346.05 3.54
Graph 5.2 Current Ratio
1.72
2.34
2.81
3.45 3.54
2013-14 2014-15 2015-16 2016-17 2017-18
Current Ratio
Current Ratio

50
Interpretation: Table no and graph no 5.2 indicate the ability of firm to clear off the short
term obligation effectively. The current ration was continuously increases from the year
2013-14 to 2017-18. Current ratio was 1.72 times in the year 2013-14, 2.34 times in the year
2014-15, 2.81 in the year 2015-16, 3.45 times in the year 3.45 and 3.54 times in the year
2017-18. It shows that effective in the clear off the short term obligations.
b. Quick Ratio / Acid test ratio/ Liquid ratio
Quick ratio establishes the relationship between quick/liquid assets and current and current
liabilities. It measures the ability of the firm to meet its short term obligations as and when
they become due without relying upon the realization of stock. It is calculated as:
The quick assets are defined as those assets which can be converted into cash
immediately or reasonably soon without a loss of value. For calculating quick assets we
exclude the closing stock and prepaid expenses from the current assets.
Generally, a liquid ratio of 1:1 is considered satisfactory.
Table No 5.7 Quick Ratio
Year Quick Assets (Cr.) Current Liabilities(Cr.)
Quick
Ratio
2013-14 304.88 263.96 1.16
2014-15 419.98 244.63 1.72
2015-16 559.3 271.47 2.06
2016-17 639.58 246.66 2.59
2017-18 872.99 346.05 2.52
Quick ratio = Quick Assets / Current Liabilities

51
Graph no 5.3 Quick ratio
Interpretation:Table No 5.7 and graph no 5.3 indicate ability of the firm to meet short term
obligations with quick assets. The current ratio was increases from 2013-14 to 2016-17.
Current ratio was in the year 2013-14 was 1.16 times, in the year 2014-15 was 1.72 times, in
the year 2015-16 & 2016-17 was 2.06 & 2.59 respectively. Current ratio slightly decreased in
the year 2017-18 i.e 2.52. the expenses on inventories was increased.
1.16
1.72
2.06
2.59 2.52
2013-14 2014-15 2015-16 2016-17 2017-18
Quick Ratio
Quick Ratio

52
5.3.2 Turnover Ratios
The Activity (or Turnover) Ratios measures how well the facilities at the disposal of
the concern are being utilized. They are known as turnover ratios as they indicate the speed
with which the assets are being converted or turned over into sales. A proper balanced
between sales and assets generally reflects tat assets are being managed well. They are
expressed as 'number of times'. Some of the important activity ratios are:
1. Inventory Turn-over ratio;
2. Debtors (Receivable) Turnover ratio;
3. Creditors (payable) Turnover ratio;
4. Working Capital Turnover ratio.

53
1. Inventory Turnover Ratio
It establishes a relationship between Net sales and average inventory. It determines the
efficiency with which stock is converted into sales during the accounting period under
consideration.
a. In Times
Inventory turnover ratio indicates how many times inventory is sold and replaced in
the financial year. In other word, ratio gives the frequency of conversion of inventory
into cash in a given financial year. Normally higher ratio is considered good as it
suggest better inventory management.
Table no 5.8 Inventory Turnover Ratio
Year Net sale(Cr)
Average
inventory(cr)
Inventory turnover ratio (in
times)
2013-14 1215.99 146.14 8.32
2014-15 1367.85 157.22 8.70
2015-16 1567.15 171.42 9.14
2016-17 2001.64 207.8 9.63
2017-18 2130.86 280.83 7.59
Graph no 5.4 Inventory turnover ratio
8.32 8.70 9.14
9.63
7.59
2013-14 2014-15 2015-16 2016-17 2017-18
Inventory turnover ratio (in times)
Inventory turnover ratio (in times)
Inventory Turnover Ratio = Net Sale/Average Inventory

54
Interpretation: Table no 5.8 and graph no 5.4 shows that inventory turnover ration of the
Ajanta Pharma Ltd. Inventory turnover ratio was increasing slightly from the year 2013-14 to
2016-17. In the year 2013-14, inventory turnover ratio was 8.32 times. In the year 2014-15 is
was 8.70 times and in the year 2015-16 & 2016-17, it was 9.14 times & 9.63 times
respectively. In the year 2017-18, it decreases i.e. 7.59 times. Because, In 2017-18 year
closing stock was more than the opening stock.

55
b. In Days /Inventory Holding Period
Table no 5.9 Inventory Holding Period
Year Days in Year
Inventory
turnover
ratio(Times)
Inventory holding
period(Days)
2013-14 365 8.32 43.87
2014-15 365 8.70 41.95
2015-16 365 9.14 39.93
2016-17 365 9.63 37.90
2017-18 365 7.59 48.09
Graph no 5.5 Inventory holding period
Interpretation: Table no and graph no 5.5 indicates that the inventory holding period of the
Ajanta Pharma Ltd. Inventory holding period was decreases from the year 2013-14 to 2016-
17 i.e 43 days in the year 2013-14, 41 days in the year 2014-15, 39 days in the year 2015-16
and 37 days in the year 2016-17. Inventory holding period increased in the year 2017-18 i.e.
48 days. There was slow change in the inventory holding period.
0.00
10.00
20.00
30.00
40.00
50.00
60.00
2013-14 2014-15 2015-16 2016-17 2017-18
Inventory holding period(Days)
Inventory holding period
Inventory Holding Period= Days in year/ Inventory Turnover Ratio(times)

56
2. Debtors/Accounts receivable turnover ratio:
a.)Times
Debtors/Accounts receivable turnover ratio indicates the velocity of company’s debt
collection. The number of times average receivable are turn over during a year. This
ratio determines how quickly collect outstanding cash balances from its customer
during accounting period.
Table no 5.10 Debtors/Accounts receivable turnover ratio
Year Net Sales(Cr) Debtors(Cr) Debtor turnover ratio
2013-14 1215.99 177.09 6.87
2014-15 1367.85 258.76 5.29
2015-16 1567.15 350.48 4.47
2016-17 2001.64 321.84 6.22
2017-18 2130.86 492.02 4.33
Graph no 5.6 Debtors/Accounts receivable turnover ratio
Interpretation: Table no 5.10 and graph no 5.6 shows the debtors/accounts
receivable turnover ratio. the debtors/accounts receivable turnover ratio in the year
2013-14 was 6.87, in the year 2014-15 was 5.29, in the year 2015-16 was 4.47 times,
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
2013-14 2014-15 2015-16 2016-17 2017-18
Debtors turnover ratio
Debtor turnover ratio
Debtors/Accounts receivable turnover ratio= Net Sales/Debtos

57
in the year was 6.22 times and in the year 2017-18 was 4.33 times . Debtors turnover
ratio was decrease from the year 2013-14 to 2014-15. Then in the year 2016-17, it
was increase and then in the year 2017-18 decreases. This indicates the satisfactory
performance of the company while collecting trade receivables.

58
b) In Days/ (Debtors collection period)
The term debtor’s collection period indicates the average time taken to collect trade
debts. In other word reducing period of time is an indicator of increasing efficiency.
Debtors period collection measure the quality of debtors since it measures rapidly or
the slowness with which money is collected from them. A Shorter collection period
implies prompt payment by debtors.
Table no 5.11 Debtors collection period
Year Days in year
Debtors
turnover
ratio
Debtors collection
period(days)
2013-14 365 6.87 53.13
2014-15 365 5.29 69.00
2015-16 365 4.47 81.66
2016-17 365 6.22 58.68
2017-18 365 4.33 84.30
Graph no 5.7 Debtors collection period(days)
53.13
69.00
81.66
58.68
84.30
2013-14 2014-15 2015-16 2016-17 2017-18
Debtors collection period(days)
Debtors collection period(days)
Debtors collection period= Days in year/Debtors turnover ratio

59
Interpretation: Table no 5.11 and graph no 5.7 shows that the debtors collection period in
days. In the year 2013-14, debtors turnover is was 53 days which is least in compare to
succeeding years. Then it rises from 69 days to 81 days in the 2014-15 and 2015-16
respectively. Debtors collection period then decreases in the year 2016-17 i.e. 58 days. In the
year 2017-18, debtors turnover ratio indicates the increase i.e. 84 days. This indicates the
satisfactory debtors collection period. It may be reduced.

60
3. Creditors/ accounts payable turnover ratio
Creditors/ accounts payable turnover ratio is the ratio of net credit purchases of a
business to its average accounts payable during the period. It measures short term
liquidity of business, since it shows how many times during a period and amounts
equals to average account payable 9is paid to suppliers by a business.
Creditors/ accounts payable turnover ratio= Net Purchases/ Average Creditors

61
4. Working capital turnover ratio
This ratio establishes the relationship between net Sale and working capital. It
determines the efficiency with which the working capital is being utilized.
Table no 5.12 Working capital turnover ratio
Year
Net
sales
(Cr.)
Net working
capital(Cr.)
Working capital
turnover ratio
2013-14 1215.99 189.69 6.41
2014-15 1367.85 328.4 4.17
2015-16 1567.15 492.41 3.18
2016-17 2001.64 603.94 3.31
2017-18 2130.86 877.57 2.43
Graph no 5.8 Working capital turnover ratio
Interpretation: Table no 5.8 shows that the working capital turnover ratio of the Ajanta
Pharma Ltd. From year 2013-14 to 2017-18. Working capital turnover ratio is high in the
6.41
4.17
3.18 3.31
2.43
2013-14 2014-15 2015-16 2016-17 2017-18
Working capital turnover ratio
Working capital turnover ratio
Working capital turnover ratio= Net Sale/Net Working Capital

62
year 2013-14 and ration declining from 2013-14 to 2017-18. The working capital turnover
ratio in the year 2017-18 is 2.43.
The working capital indicates that from last four years, company untilizing working capital
effectively.

63
FINDINGS
➢ Working capital of the company was showing positive during the study period. There
was higher working capital of Rs.877.57 cr in F.Y. 2017-18.
➢ Statement showing changes in working capital in the study period, shows there
remarkable increased in the current assets.
➢ There was continuously increased in current and quick ratio. Highest current was 3.54
times in the year 2017-18. Highest quick ratio was 2.59 in the year 2016-17.
➢ Inventory turnover ratio was fluctuating over the period of study. Highest inventory
turnover ratio was 9.63 times in the year 2016-17.
➢ Debtors turnover ratio is also fluctuating over the period of study. Highest debtors
turnover ratio was 6.87 times in the year 2013-14 and lowest was 4.33 times in the
year 2017-18.
➢ Debtors collection period shows average credit collection performance which was
gone up to 84 days in the year 2017-18.
➢ Working capital turnover ratio was continuously decreasing over the period of study.
Highest turnover ratio was 6.41 times and lowest was 2.43 times in the year 2017-18.
CHAPTER 6
FINDINGS, CONCLUSION AND SUGGESTIONS

64
CONCLUSIONS
The study on working capital management conducted in Ajanta Pharma Ltd. To
analyze the working capital position and working capital management position of the
company. The company’s working capital position is analyzed by using the tools of ratio
analysis through annual reports from 2013-14 to 2017-18.
The current ratio and quick ratio of the company is gives the effective management of
current assets and current liabilities to clear off the short term obligations of the company.
The Inventory turnover ratio is increased every year but decreased in the last financial
year, this is good sign for the company.
The company’s liquidity position is very good in regards to the investments in current
assets, there are adequate funds invested in it.
On whole, the company is moving foreward with excellent management.

65
SUGGESTIONS
➢ Working capital of the company has increasing year by year, this is good sign
for the company. It has to maintain it further, to run the business for long time.
➢ The company should take precautionary measures for investing and collecting
funds from receivables.
➢ The company is utilizing working capital effectively; this is good for the
company. But it there is some amount of working capital it is to be invested in
some other beneficial purpose.

66
Books
1. Management Accounting, M.G.Patkar, Phadke Prakashan, Kolhapur
2. Financial Management, M.Y. Khan P.K.Jain, McGraw Hill Education (India) Pvt.
Ltd. New Delhi
3. Management Accounting Dr. Mahesh Kulkarni Dr. Suhas Mahajan, Nirali Prakashan
4. International Journal of Advance Research (IJAR) ISSN 2320-5407 5(12), 336-342
Research Article on Literature Review on Working Capital Management, Ms Divya
P. Solanki
WEBSITE
1. www.ajantapharma,com
2. www.businessworld.in
3. www.wikipedia.org
4. www.moneycontrol.con
5. www.shodhganga.in
BIBLIOGRAPHY
Annexure

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