1. A STUDY ON WORKING
CAPITAL MANAGEMENT IN
TTPL
Submitted by
Southa
20203081201238
2. THEORERICAL BACKGROUND
MEANING OF WORKING CAPITAL
Those current assets, which are convertible into cash, within a period of one accounting year and those funds needed for meeting
day-to-day operations.
Working Capital means the funds (i.e. capital) available and used for day-to-day operations (ie. working) of an enterprise.
Working capital is defined as the excess of current assets over current liabilities and provisions.
DEFINITION OF WORKING CAPITAL MANAGEMENT
1. According to Prof.K.V.Smith, "Working Capital Management is concerned with the problems that arise in attempting to manage
the current assets, the current liabilities and the inter-relationship that exists betweenthem."
2. James C. Van Horne is of the view that, "Current assets, by definition, are assets normally converted into cash within one year.
Working Capital Management is concerned with the administration of these assets - namely cash and marketable marketable
securities, receivables and inventories.
3. SIGNIFICANCE OF WORKING CAPITAL
It protects a business from the adverse effects of shrinkage of the values of current assets.
It ensures to a greater extent the maintenance of a company's credit standing and provides for such emergencies as strikes, floods, fires, etc.
It permits the carrying of inventories at a level that would enable a business to serve satisfactorily the needs of its customers.
It enables a company to extent favorable credit terms to customers.
It enables a business to withstand periods of depression smoothly.
DANGERS OF INADEQUATE WORKING CAPITAL
It cannot buy its requirements in bulk and cannot avail of discounts, etc.
It becomes difficult for the firm to exploit favourable market conditions and undertake profitable projects due to lack of working capital.
The rate of return on investments also falls with the shortage of working capital.
It is not possible for it to utilize production facilities fully for want of working capital.
The modernization of equipment and even routine repairs and maintenance facilities may be difficult to administer.
A company will not be able to pay its dividends because of the non-availability of funds.
A company may have to borrow funds at exorbitant rate of interest.
Its low liquidity may lead to low profitability in the same way as low profitability results in low liquidity.
4. DATA ANALYSIS AND INTERPRETATION
YEAR CURRENT ASSET CURRENT LIABILITY WORKING CAPITAL
2017 779272351 1648166289 -868893938
2018 972359876 1674398101 -702038225
2019 1210290427 1827432143 -617141716
2020 1231991149 2004693011 -772701862
2021 1093056806 2410547653 -1317490847
WORKING CAPITAL
Working capital = Current asset – Current liability
INFERENCE:
The working capital from 2017 to 2021 is not satisfactory. Low working capital means that the company has not
enough liquid asset to meet day to day expenses.
5. RATIO ANALYSIS
1) LIQUIDITY RATIOS
1.1) Current ratio
The ratio is worked out by dividing the current assets of the concern by its Current liabilities.
Current Ratio = Current Assets/ Current liabilities
INFERENCE:
The above table 1.1 shows that the current ratio of TTPL is not close to the standard ratio. So it is not
satisfactory for the past 5 years.
YEAR CURRENT ASSET CURRENT LIABILITY CURRENT RATIO
2017 779272351 1648166289 0.47
2018 972359876 1674398101 0.58
2019 1210290427 1827432143 0.66
2020 1231991149 2004693011 0.61
2021 1093056806 2410547653 0.45
6. 1.2 QUICK RATIO
Quick ratio = Liquid Assets/Current liabilities
Inference
The above table 1.2 shows that, the quick ratio of TTPL does not shows a satisfactory level as it is close to the low level. It means that the
company does not has sufficient liquid asset to cover the current liabilities. The previous year indicates also a very low financial position and a
low solvency position.
Year Liquid assets Current liabilities Quick ratio
2017 382753434 1648166289 0.23
2018 543097467 1674398101 0.32
2019 668949840 1827432143 0.36
2020 837944333 2004693011 0.41
2021 780890565 2410547653 0.32
7. 2) LEVERAGE RATIOS
2.1 Debt-Equity ratio
Debt-Equity Ratio = Total liabilities/ Shareholders fund
INFERENCE:
The favorable Debt- Equity ratio is 2:1. It is observed in the above table .2.1 that, the shareholders fund is in increasing trend but also
the liabilities also. Debt equity ratio from 2017 to 2020 is not satisfactory but in 2021 the ratio is low and satisfactory.
Year TOTAL LIABILITY SHAREHOLDERS
FUND
DEBT-EQUITY RATIO
2017 1463867691 807684656 1.81
2018 1638917574 630509849 2.59
2019 1842493344 549223640 3.35
2020 1880116859 709665183 2.64
2021 1802905593 1380353211 1.3
8. 2.2PROPRIETARY RATIO
Proprietary Ratio= Shareholders Fund/Total Assets
Inference
It is observed from the above table 2.2 that, the proprietary ratio was fluctuating over the past five years. The total asset
of the company is satisfactory, and it is higher than the shareholders fund, which is actually good. The company
attained the highest proprietary ratio on 2021 and lowest proprietary ratio on 2019 for the past 5 years.
Year SHAREHOLDERS
FUND
TOTAL ASSETS PROPRIETARY
RATIO
2017 807684656 1463867691 0.55
2018 630509849 1638917574 0.38
2019 549223640 1842493344 0.29
2020 709665183 1880116859 0.37
2021 1380353211 1802905593 0.76
9. 3.ACTIVITY RATIOS
3.1 WORKING CAPITAL TURN OVER RATIO
Working Capital Turnover Ratio =Net sales/ working Capital
INFERENCE:
It is observed from the above table 3.1 that, the working capital turnover ratios show major changes over the year. The
working capital turnover ratio keeps decreasing for the past five yeas. The decreasing trend of the sales causes the lower
working capital turnover ratios. So this decreasing trend shows the poor performance of the company. The working
capital turn over ratio is in negative value which means the current liabilities exceed its current income and assets.
Year Net Sales Working Capital Working Capital
Turnover Ratio
2017 153949552 -868893938 -0.17
2018 2021313272 -702038225 -2.87
2019 2086700693 -617141716 -3.38
2020 1777344062 -772701862 -2.3
2021 1656100087 -1317490847 -1.25
10. 3.2 INVENTORY TURNOVER
RATIO
Inventory Turnover Ratio = Cost of goods Sold / Average Inventory
INFERENCE:
It is observed from the above table .3.2 that, the inventory turnover ratios shows a increasing trend over the past five years. That means, the stocks
are moving well and there is a efficient inventory management; and shows a very good improvement on the financial year 2021, which is
satisfactory as compared to the previous years.
YEAR COST OF GOODS
SOLD
INVENTORY INVENTORY TURN
OVER RATIO
2017 1359956023 396518917 3.42
2018 1556140177 429262409 3.62
2019 2028309429 541340587 3.74
2020 1873121283 394046816 4.75
2021 2326203880 312166241 7.45
11. 3.3 DEBTOR-TURNOVER RATIO
Debtor-turnover ratio =Net sales/Average trade recievables
INFERENCE:
From the above table 3.3.3. , it is inferred that the debtors turnover ratios keep varying over the periods. The highest ratio was on 2017 and then later shows a
decreasing trend. But it runs under satisfactory level as the company’s credit policy is effective. It means that your customers are paying on time and TTPL is good
at collecting.
YEAR NET SALES AVERAGE TRADE
RECIEVABLES
DEBTOR TURN
OVER RATIO
2017 1539495522 81830947 18.3
2018 2021313272 135094354 14.9
2019 2086700893 226568170 9.2
2020 1777344062 179993687 9.8
2021 1656100087 133996701 12.3
12. 3.4 FIXED ASSET TURNOVER RATIO
Fixed asset turnover ratio=Net sales / Fixed assets
INFERENCE:
It is observed from the table 3.3.3.4 that, the fixed asset turnover ratios are decreasing in nature. So it is concluded that there is
no effective utilization of fixed asset. The highest ratio was on the period of 2019 and the lowest ratio was on the year 2017 . The
fixed asset turnover ratio of the company is not satisfactory
YEAR NET SALES FIXED ASSET FIXED ASSET
TURNOVER RATIO
2017 1539495522 684595340 2.24
2018 2021313272 666557698 3.03
2019 2086700893 632202918 3.3
2020 1777344062 648125710 2.74
2021 1656100087 708928787 2.33
13. 3.5 CURRENT ASSET TURNOVER RATIO
CURRENT ASSET TURNOVER RATIO = NET SALES /CURRENT ASSET
INFERENCE:
It is observed form the table 3.3.3.5 that, the current asset turnover ratio shows the decreasing trend. The current asset turnover ratio
is highest in the period of 2018 and lowest in the period of 2020, So it is concluded that better to increase the current position.
YEAR NET SALES CURRENT ASSET CURRENT ASSET
TURNVER RATIO
2017 1539495522 779272351 1.97
2018 2021313272 972359876 2.07
2019 2086700893 1210290427 1.72
2020 1777344062 1231991149 1.44
2021 1656100087 1093056806 1.51
14. 4.PROFITABILITY RATIOS
4.1 NET PROFIT RATIO
Net profit ratio = Net Profit / Net Sales×100
• Inference
Higher the ratio is better because it gives improved efficiency of the concern. From the above table 3.3.4.1, it is
observed that during the year 2018 the net profit ratio is high and shows decreasing trend then. So the operational
efficiency of the organization is not effective.
YEAR NET PROFIT NET SALES NET PROFIT RATIO
2017 33164832 1539495522 2.15
2018 192549640 2021313272 9.52
2019 80585865 2086700893 3.86
2020 -68667385 1777344062 -3.86
2021 -635105997 1656100087 -38.34
15. 4.2 Return on Total Asset
Return on Total Asset=Net Profit/Total Asset *100
INFERENCE:
It is inferred from the above table 3.3.4.2 that, the return on total asset shows the decreasing trend as it shows the negative values. Also it indicates the poor performance of the company. The
return on total asset is highest during the period of 2018 and lowest during the period of 2021.
YEAR NET PROFIT TOTAL ASSET RETURN ON TOTAL
ASSET
2017 33164832 1463867691 2.26
2018 192549640 1638917574 11.74
2019 80585865 1842493344 4.37
2020 -68667385 1880116859 -3.65
2021 -635105997 1802905593 -35.22
16. 4.3 Gross Profit Ratio
Gross Profit Ratio=Gross Profit/ Net Sales *100
INFERENCE:
It is observed from the above table 3.3.4.3 that, the gross profit trend is decreasing over the past five years and is not satisfactory. So the company needs to
more concentrate on getting high gross profit.
YEAR GROSS PROFIT NET SALES GROSS PROFIT
RATIO
2017 179539499 1539495522 11.66
2018 465173095 2021313272 23.01
2019 58391464 2086700893 2.79
2020 -95777221 1777344062 -5.38
2021 -670103793 1656100087 -40.46
.
17. FINDINGS, SUGGESTIONS &
CONCLUSION
FINDINGS
The working capital of the company shows a decreasing trend over the past five years and is not satisfactory .The working
capital of the TTPL is in negative values and means that the organization does not have enough capital to meet the day to day
expenses.
The current ratio of TTPL is not close to the standard ratio. So it is not satisfactory for the past 5 years.
The quick ratio of TTPL does not shows a satisfactory level as it is not close to the standard level. It means that the
company doesn’t has sufficient liquid asset to cover the current liabilities The previous year indicates also a very low financial
position and a low solvency position.
Debt equity ratio from 2017 to 2020 is not satisfactory but in 2021 the ratio is low and satisfactory. It is observed that, the
shareholders fund is in increasing trend but also the liabilities also.
The proprietary ratio was fluctuating over the past five years. The total asset of the company is satisfactory, and it is higher than
the shareholders fund, which is actually good. The company attained the highest proprietary ratio on 2021 and lowest
proprietary ratio on 2019 for the past 5 years.
The working capital turnover ratio keeps decreasing for the past five years. The decreasing trend of the sales causes the lower
working capital turnover ratios. So this decreasing trend shows the poor performance of the company.
18. o The inventory turnover ratios shows a increasing trend over the past five years. That means, the stocks are moving well and
there is efficient inventory management; and shows a good improvement on the financial year 2020-21, which is satisfactory
as compared to the previous years.
o The debtors turnover ratios keep varying over the periods. The highest ratio was on 2017 and then later shows a decreasing
trend. But it runs under satisfactory level as the company’s credit policy is effective. It means that your customers are paying
on time and TTPL is good at collecting.
o The highest ratio was on the period of 2019 and the lowest ratio was on the 2017 year. The fixed asset turnover ratio of the
company is not satisfactory.
o The current asset turnover ratio is highest in the period of 2018 and lowest in the period of 2020, so it is concluded that better to
increase the current position.
o It is observed that during the year 2018 the net profit ratio is high and shows decreasing trend then. So the operational efficiency
of the organization is not effective.
o The return on total asset shows the decreasing trend as it shows the negative values. Also it indicates the poor performance of
the company. The return on total asset is highest during the period of 2018 and lowest during the period of 2021.
o The gross profit trend is decreasing over the past five years and is not satisfactory. So the company needs to more concentrate
on getting high gross profit.
19. SUGGESTION
It is observed that the working capital of the organization is not enough and is in negative values because of the
decrease in the sales.
The company should focus on improving its actual sales.
The inventory turnover ratios shows a increasing trend over the past five years.
The company should reform new credit policies as the current ones are not much effective
TTPL should focus on lowering their current liabilities and increasing their assets
The operational efficiency of the organization is not effective, therefore it has to focus on improving its operational
sector
The company should focus on all these aspects to improve its working capital efficiency
20. CONCLUSION
The above study is conducted by the secondary data provided by the company.
Working Capital Management is one of the tending contemporary issue , which the business
enterprises and organizations are facing now-a-days.
So, TTPL should apply the Working Capital Management techniques and prepare smart techniques
for procurement of Working Capital for the growth, profitability and ultimate success of their
business.
The working capital of the TTPL is in declining manner and the management should focus on that.
A proper working capital is needed in order to smoothly operating of the organization.
