MV.P.

Samaj’s
Srimati Vimlaben Khimji Tejookaya
ARTS, SCIENCE & COMMERCE COLLEGE,
Deolali Camp, Nashik-422 401

In the Partial fulfillment of the requirement of the degree of

MASTER OF COMMERCE ([Link])
Submitted to
SAVITRIBAI PHULE PUNE UNIVERSITY
A
PROJECT
ON
“A STUDY ON WORKING CAPITAL MANAGEMENT OF
RADHIKA SPRINGS”

SUBMITTED BY
Aniket Ganesh Kadam
([Link]. II, [Link])
Roll No.23

PROJECT GUIDE
Prof [Link]

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 2020- 2021
STUDENT’S DECLARATION

I undersigned hereby declare that, the project entitled “A study on

working capital management at Radhika springs” is executed as per

the course requirement of two-year full time [Link] program of

Savitribai Phule Pune University. This report has not been submitted by

me or any other person to any other University or Institution for a degree

or diploma course. This is my own and original work.

Place:
Date: Aniket Ganesh
Kadam

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 ACKNOWLEDGEMENT

The project has been a part of internship required during the completion
of [Link] program. I was involved with RADHIKA SPRINGS, satpur
MIDC, Nasik, for 8 weeks and I came across a lot of people who put in
their time and efforts towards settling me with the organizational
environment and culture.

I express my thanks to my company guide Mr. Amol Deshmukh

(Manager) and Mrs. Radhika Deshmukh (owner) who motivated me in
my all efforts.

I am extremely thankful and obliged to Prof. S.V. Shrimali (Internal

project guide) for providing streamed guidelines since inception, till the
completion of the project.

I would also thank “Radhika springs” Employees whom I met during the
course of this project and they added value towards my path of
knowledge, for their support and for providing valuable information
which helped me in completing this project successfully.

Date:

Place: Aniket Ganesh Kadam

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 TABLE OF CONTENTS

Chapter TITLE Page

No. No.
I INTRODUCTION:
1.1 INTRODUCTION TO TOPIC
1.2 NEED AND SIGNIFICANCE OF THE STUDY
1.3 RATIONALE OF THE STUDY
II RESEARCH METHODOLOGY:
2.1 RESEARCH STATEMENT
2.2 OBJECTIVES OF THE STUDY
2.3 TYPE OF RESEARCH DESIGN
2.4 DATA SOURCES AND DATA COLLECTION
METHODS
2.5 DATA ANALYSIS TOOLS
2.6 SCOPE AND LIMITATIONS OF THE STUDY
III LITERATURE REVIEW & THEORETICAL
BACKGROUND OF THE STUDY:
3.1 REVIEW OF RESEARCH PAPERS
3.2 THEORETICAL BACKGROUND OF THE
STUDY
3.3 DETERMINANTS OF WORKING CAPITAL
3.4 TYPES OF WORKING CAPITAL
3.5 SOURCES OF WORKING CAPITAL
3.6 OPERATING & CASH CONVERSION CYCLE
(THEORY)
3.7 RATIO ANALYSIS (THEORY)
IV COMPANY PROFILE
4.1 INTRODUCTION TO RADHIKA SPRINGS
Chapter TITLE Page
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No. No.
4.2 VISION
4.3 MISSION
4.4 PRODUCT PROFILE
4.5 KEY CUSTOMERS
V DATA ANALYSIS AND INTERPRETATION
VI FINDINGS AND CONCLUSION
VII SUGGESTIONS AND RECOMMENDATION
BIBLIOGRAPHY

LIST OF GRAPHS

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Sr. Graph No. Title Of Graph Page
No. No.
1. Graph No. 1 Cash conversion cycle
2. Graph No. 2 Net working capital
3. Graph No. 3 Closing stock
4. Graph No. 4 Excise duty
5. Graph No. 5 VAT deposit
6. Graph No. 6 Loans and advances
7. Graph No. 7 Sundry debtors
8. Graph No. 8 Cash & bank balance
9. Graph No. 9 Provisions
10. Graph No. Sundry creditors
10
11. Graph No. Current ratio
11
12. Graph No. Quick ratio
12
13. Graph No. Absolute liquidity ratio
13
14. Graph No. Working capital turnover ratio
14
15. Graph No. Inventory turnover ratio
15
16. Graph No. Debtors turnover ratio
16
17. Graph No. Average collection period
17

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Sr. Graph No. Title Of Graph Page
No. No.
18. Graph No. Creditors turnover ratio
18
19. Graph No. Average payment period
19

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 LIST OF TABLES
Sr. Table No. Title Of Table Page
No. No.
1. Table No. 1 Company information
2. Table No. 2 Inventory conversion period
3. Table No. 3 Debtors conversion period
4. Table No. 4 Creditors payable period
5. Table No. 5 Calculation of cash conversion cycle
6. Table No. 6 Statement showing changes in working
capital
7. Table No. 7 Closing stock
8. Table No. 8 Excise duty
9. Table No. 9 VAT deposit
10. Table No. 10 Loans & advances
11. Table No. 11 Sundry debtors
12. Table No. 12 Cash & bank balance
13. Table No. 13 Provisions
14. Table No. 14 Sundry creditors
15. Table No. 15 Current ratio
16. Table No. 16 Quick ratio
17. Table No. 17 Absolute liquidity ratio
18. Table No. 18 Working capital turnover ratio
19. Table No. 19 Inventory turnover ratio
20. Table No. 20 Debtors turnover ratio
21. Table No. 21 Average collection period
22. Table No. 22 Creditors turnover ratio
Sr. Table No. Title Of Table Page

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No. No.
23. Table No. 23 Average payment period

LIST OF FIGURES
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Sr. Figure No. Title Of Figure Page
No. No.
1. Figure No. 1 Concepts of working capital
2. Figure No. 2 Types of working capital
3. Figure No. 3 Sources of working capital
4. Figure No. 4 Net operating cycle

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 EXECUTIVE SUMMARY

Working capital management is a significant in Financial

Management due to the fact that it plays a pivotal role in keeping the
wheels of a business enterprise running. Without the ‘oil’ of working
capital the engine of organization will be unable to function. Thus
working capital and its management is a key factor in the company’s long
term success.

Every manufacturing company faces the problem of working

capital management in their day to day processes. An organization’s cost
reduces and the profits increase only if it is able to manage its working
capital efficiently. At the same time, the company can provide customer
satisfaction and hence can improve their overall productivity and
profitability.

This project is a sincere effort to study and analyze the working

capital management of “Radhika springs” the project is focused on
making a financial overview of the company by conducting a working
capital analysis of “Radhika springs” for the years 2022, 2023, 2024 and
ratios and various components of working capital and also by considering
cash conversion cycle for the study.

The project tries to find out the working capital management

approach of “Radhika springs” it also attempts to find the solutions to the
problems faced by the management while dealing with the working
capital.

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 CHAPTER – I
INTRODUCTION

 Introduction to working capital management

Working capital management refers to the administration of all

aspects of current assets, namely cash, marketable securities, debtors and
stock (inventories) and current liabilities. The financial manager must
determine levels and composition of current assets. He must see that right
sources are tapped to finance current assets, and that current liabilities are
paid in time. He must see that right sources are tapped to finance current
assets, and that current liabilities are paid in time.

Investment in current assets represents a very significant portion

of the total investment in assets. Working capital management is critical
for all firms. A small firm may not have much investment in fixed assets,
but it has to invest to in current assets. Small firms in India face a severe
problem of collecting their debtors.

In simple terms working capital means is that the amount of funds

that a company require finance for its day-to-day operations. Working
capital states that the period of debtors, receivables etc. for a company to
raise finance from them at the earliest. Finance manager should develop
sound techniques of managing current assets. Working capital
management involves managing the relationship between a firm's short-
term assets and its short-term liabilities. The goal of working capital
management is to ensure that the firm is able to continue its operations
and that it has sufficient cash flow to satisfy both maturing short-term

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debt and upcoming operational expenses. The following should be
effective in working capital management: Cash management: Identify the
cash balance which allows for the business to meet day to day expenses,
but reduces cash holding costs. Inventory management: Identify the level
of inventory which allows for uninterrupted production but reduces the
investment in raw materials—and minimizes reordering costs—and
hence increases cash flow. Besides this, the lead times in production
should be lowered to reduce Work in Process (WIP) and similarly, the
Finished Goods should be kept on as low level as possible to avoid over
production. Debtors management: Identify the appropriate credit policy,
i.e. credit terms, discounts etc. which will attract customers, such that any
impact on cash flows and the cash conversion cycle will be offset by
increased revenue and hence Return on Capital. Debtors credit period
should be less than 90 days to achieve good working capital ratio and
position of the company.

 Need and significance of the study

 Working capital is said to be a life blood of the 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 profits but also to
the ultimate downfall of what otherwise might be considered as a
promising concern.

 Working capital is essential for smooth running and the functioning of

the business.

 Working capital helps in creating and maintaining the goodwill of the

business as well as of company.

 Importance of working capital is the regular supply of raw material.

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 It has the ability to face the crises of the business into the company.

 Rationale of the study

The ultimate objective of making this project is to develop self-

reliance, learning habit, creating awareness of the special and culture
environment developing appropriate communication skills, application of
knowledge of project and surveys of these programs.

The project also helps to build the skills of analysis. The

contribution of the project is to accept as a great opportunity as one can
apply the knowledge through project surveys etc. and to study the
problem faced by the company.

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 CHAPTER – II
RESEARCH METHODOLOGY

A) RESEARCH STATEMENT:
“TO STUDY THE WORKING CAPITAL MANAGEMENT AT
RADHIKA SPRINGS”

B) OBJECTIVES OF THE STUDY:

 To study the various components of working capital.
 To measure and evaluate the liquidity position of “Radhika
Springs.”
 To study the Working Capital Ratios so as to know the liquidity
position of the company.
 To study the operating cycle of the company.
 To suggest measures for effective management of working capital.

C) RESEARCH DESIGN:

“Descriptive” research design is used for the study as it describes the

problems and aims to achieve the solution.

D) DATA SOURCES AND DATA COLLECTION

METHODS:

Primary Data:
Primary data has been obtained through personal discussions with
managers and senior officials of the organization; observations and
questionnaire both open ended and closed ended

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Secondary Data:

Secondary data has been obtained from published reports like the annual
reports of the company, balance sheets, and profit and loss account,
websites, records such as files, reports maintained by the company.

Data collection methods

Primary data is collected through discussion with the manager and
secondary data is collected through company’s annual reports and
brochure.

E) DATA ANALYSIS TOOLS:

Tables, graphs, charts, working capital ratios are used to analyze the data.

F) SCOPE OF THE STUDY:

The study conducted at “Radhika springs, satpur”. The study of

working capital management is purely based on secondary data and all
the information is available within the company itself in the form of
records

Analysis and interpretation of data has been done with the help of
tables and graphs. So, scope of the study is limited up to the availability
of official records and information provided by the company. The study
is supposed to be related to the period of last three years.

G) LIMITATIONS OF THE STUDY:

 The time period for conducting the research was limited to 8 weeks
only which itself is a major constraint.
 The study is only made on one organization so it does not provide
any scope of comparison with other organizations.

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 The study is based on only last 3-years financial records due to
which the real trends followed in working capital management
couldn’t be known.

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 CHAPTER – III
REVIEW OF LITERATURE &
THEORETICAL BACKGROUND OF
THE STUDY

3.1 REVIEW OF RESEARCH PAPERS

 Review of research paper 1:

Harsh Pratap Singh & Satish Kumar – Detailed content analysis

reveals that most of the research work is empirical and focuses mainly on
two aspects, impact of working capital on profitability of firm and
working capital practices. Major research work has concluded that WCM
is essential for corporate profitability. The major issues with prior
literature are lack of survey-based approach and lack of systematic theory
development study, which opens all new areas for future research. The
future research directions proposed in this paper may help develop a
greater understanding of determinants and practices of WCM.

 Review of research paper 2:

J P Singh and Shishir Pandey (2008) have studied on topic impact of

working capital management on profitability of hidalgo industries
limited. This study is based on secondary data and data are collected
from annual reports of company for 17 Years period i.e. 1990 -2007. The
research methodology used in this paper is ratio analysis, Percentage
method, correlation coefficients and multiple regression analysis.
Regression results of the study show that current ratio, liquid ratio,

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Receivables turnover ratio and working capital to total assets ratio have
statistically significant impact on the profitability of hidalgo industries
limited.

 Review of research paper 3:

Shishir Pandey and Vikas Kumar Jaiswal (2011) analyzed the effect
of working capital management on profitability of manufacturing firms.
The study period for paper was five years i.e. 2005 – [Link] research
methodology apply by author is correlation and regression analysis (two
different method fixed effects model and ordinary least squares model).
The result of correlation analysis show there is negative relationship
between profitability and debtor’s days, inventory days, and creditor’s
days. The results of regression analysis shows cash velocity, size of the
firm, and networking capital leverage are significant both method.

 Review of research paper 4:

Dr. Ashok Kumar Panigrahi, (2012) analyses the impact of working

capital management on profitability of ACC Cement Company. The
study is based on secondary data, data are collected from the websites
money control as well company websites and study periods are for 10
years i.e. 1999-2000 to 2009-2010. The research methodology used in
this paper is correlations coefficient, multiple correlation analysis and
multiple regression analysis. In this paper few variables show a strong
and positive correlation with the profit whereas some others do not
have. The results show that there is moderate relationship between the
efficiency of working capital and the profitability.

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 Review of research paper 5:

Arunkumar O.N. and [Link] (2012) examined the effect of

working capital management on profitability of Indian manufacturing
firms. The study period was of 2005-06 to 2009-10 i.e. for 5years and
methodology used on this study was correlation and regression analysis.
The results of research shows that in correlation analysis profitability has
negative relationship between profitability and debtor day, inventory day
and creditor day. And a result of regression analysis shows that there is
positive relationship between number days of inventory and number of
days of account payables.

3.2 THEORETICAL BACKGROUND OF THE STUDY

 MEANING AND CONCEPT OF THE TOPIC

Business organization requires adequate capital to establish business and
operate their activities. The total capital of a business can be classified as
fixed capital and working capital. Fixed capital is required for the
purchase of fixed assets like building, land, machinery, furniture etc.
Fixed capital is invested for long period, therefore it is known as long-
term capital. Similarly, the capital, which is needed for investing in
current assets, is called working capital.
The capital which is needed for the regular operation of business is
called working capital. Working capital is also called circulating capital
or revolving capital or short-term capital. Working capital is used for
regular business activities like for the purchase of raw materials, for the
payment of wages, payment of rent and of other expenses. Working
capital is kept in the form of cash, debtors, raw materials inventory, stock

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of finished goods, bills receivable etc. Working capital is also called
revolving, circulating or short term capital.

Definitions of working capital:

Working capital is defines as,
“Excess of current assets over current liabilities and provisions”
 It is a part of capital which is required for daily working of the
business.
 It is 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 enterprise”

Working capital is, Working Capital= current assets - current liabilities

1. Gross Concept of Working Capital

According to gross concept, working capital refers to all the current
assets that represent the amount of funds invested in current assets. Thus,

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gross working capital is the capital invested in current assets. Current
assets are those assets which can be converted into cash within the short-
time period.
Gross Working Capital = Total current assets
In this way, gross working capital refers to the firm's investment in
current assets. Gross working capital represents total of current assets
which includes cash in hand, cash at bank, inventory, prepaid expenses,
bills receivable etc.
2. Net Concept of Working Capital
According to the net concept, working capital is the excess of
current assets over current liabilities. In other words, the difference
between current assets and current liabilities is called net working capital.

Net Working Capital = Current Assets - Current liabilities

In this way, net working capital is the difference of current assets and
current liabilities.

 COMPONENTS OF WORKING CAPITAL:

Working capital is composition of various current assets and current

liabilities, which are as follows:

(A) CURRENT ASSETS:

These assets are generally realized within a short period of time, i.e.
within one year.

Current assets include:

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(1) Inventories or Stocks:

 Raw materials
 Work in progress
 Consumable Stores
 Finished goods
(2) Sundry Debtors
(3) Bills Receivable
(4) Pre-payments
(5) Short-term Investments
(6) Accrued Income and
(7) Cash and Bank Balances

(B) CURRENT LIABILITIES:

Current liabilities are those which are generally paid in the ordinary
course of business within a short period of time, i.e. one year.

Current Liabilities include:

(1) Sundry Creditors
(2) Bills Payable
(3) Accrued Expenses
(4) Bank Overdrafts
(5) Bank Loans (short-term)
(6) Proposed Dividends
(7) Short-term Loans
(8) Tax Payments Due.
(9) Provisions

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 NATURE, NEED & IMPORTANCE OF THE
WORKING CAPITAL :
 Nature of Working Capital:
 It is used for purchase of raw materials, payment of wages and
expenses.
 It changes form constantly to keep the wheels of business moving.
 Working capital enhances liquidity, solvency, creditworthiness and
reputation of the enterprise.
 It generates the elements of cost namely: Materials, wages and
expenses.
 It enables the enterprise to avail the cash discount facilities offered
by its suppliers.
 It helps improve the morale of business executives and their
efficiency reaches at the highest climax.
 It facilitates expansion programs of the enterprise and helps in
maintaining operational efficiency of fixed assets.

 Need of Working Capital:

Working capital plays a vital role in business. This capital remains

blocked in raw materials, work in progress, finished products and with
customers.

The needs for working capital are as given below:

i. Adequate working capital is needed to maintain a regular supply of

raw materials, which in turn facilitates smoother running of
production process.

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 ii. Working capital ensures the regular and timely payment of wages
and salaries, thereby improving the morale and efficiency of
employees.
iii. Working capital is needed for the efficient use of fixed assets.
iv. In order to enhance goodwill a healthy level of working capital is
needed. It is necessary to build a good reputation and to make
payments to creditors in time.
v. Working capital helps avoid the possibility of under-capitalization.
vi. It is needed to pick up stock of raw materials even during
economic depression.

vii. Working capital is needed in order to pay fair rate of dividend and
interest in time, which increases the confidence of the investors in the
firm.

 Importance of Working Capital:

It is said that working capital is the lifeblood of a business. Every
business needs funds in order to run its day-to-day activities.
The importance of working capital can be better understood by the
following:
i. It helps measure profitability of an enterprise. In its absence, there
would be neither production nor profit.
ii. Without adequate working capital an entity cannot meet its short-
term liabilities in time.
iii. A firm having a healthy working capital position can get loans
easily from the market due to its high reputation or goodwill.
iv. Sufficient working capital helps maintain an uninterrupted flow of
production by supplying raw materials and payment of wages.

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 v. Sound working capital helps maintain optimum level of investment
in current assets.
vi. It enhances liquidity, solvency, credit worthiness and reputation of
enterprise.
vii. It provides necessary funds to meet unforeseen contingencies and
thus helps the enterprise run successfully during periods of crisis.

3.3 Factors Affecting Working Capital or Determinants Of

Working Capital

Requirements Of working capital depend upon various factors such as

nature of business, size of business, the flow of business activities.
However, small organization relatively needs lesser working capital than
the big business organization. Following are the factors which affect the
working capital of a firm:
1. Size Of Business
Working capital requirement of a firm is directly influenced by the size
of its business operation. Big business organizations require more
working capital than the small business organization. Therefore, the size
of organization is one of the major determinants of working capital.
2. Nature of Business
Working capital requirement depends upon the nature of business carried
by the firm. Normally, manufacturing industries and trading
organizations need more working capital than in the service business
organizations. A service sector does not require any amount of stock of
goods. In service enterprises, there are less credit transactions. But in the
manufacturing or trading firm, credit sales and advance related
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transactions are in large amount. So, they need more working capital.
3. Storage Time or Processing Period
Time needed for keeping the stock in store is called storage period. The
amount of working capital is influenced by the storage period. If storage
period is high, a firm should keep more quantity of goods in store and
hence requires more working capital. Similarly, if the processing time is
more, then more stock of goods must be held in store as work-in-
progress.

4. Credit Period
Credit period allowed to customers is also one of the major factors which
influence the requirement of working capital. Longer credit period
requires more investment in debtors and hence more working capital is
needed. But, the firm which allows less credit period to customers needs
less working capital.
5. Seasonal Requirement
In certain business, raw material is not available throughout the year.
Such business organizations have to buy raw material in bulk during the
season to ensure an uninterrupted flow and process them during the entire
year. Thus, a huge amount is blocked in the form of raw material
inventories which gives rise to more working capital requirements.
6. Potential Growth or Expansion Of Business
If the business is to be extended in future, more working capital is
required. More amount of working capital is required to meet the
expansion need of business.
7. Changes in Price Level
Change in price level also affects the working capital requirements.
Generally, the rise in price will require the firm to maintain large amount
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of working capital as more funds will be required to maintain the sale
level of current assets.
8. Dividend Policy
The dividend policy of the firm is an important determinant of working
capital. The need for working capital can be met with the retained
earnings. If a firm retains more profit and distributes lower amount of
dividend, it needs less working capital.
9. Access to Money Market
If a firm has good access to capital market, it can raise loan from bank
and financial institutions. It results in minimization of need of working
capital.
10. Working Capital Cycle
when the working capital cycle of a firm is long, it will require larger
amount of working capital. But, if working capital cycle is short, it will
need less working capital.
11. Operating Efficiency
The operating efficiency of a firm also affects the firm's need of working
capital. The operating efficiency of the firm results in optimum
utilization of assets. The optimum utilization of assets in turn results in
more fund release for working capital.

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 3.4 TYPES OF WORKING CAPITAL

A) On The Basis Of Concept:

On conceptual basis, working capital is classified as ‘gross
working capital’ and ‘net working capital management’. For the
department of ‘financial management’ of a company this classification is
of paramount importance.
 Gross Working Capital:
The concept of gross working capital refers to the total value of current
assets. In other words, gross working capital is the total amount available
for financing of current assets. However, it does not reveal the true
financial position of an enterprise. How? A borrowing will increase
current assets and, thus, will increase gross working capital but, at the
same time, it will increase current liabilities also.
As a result, the net working capital will remain the same. This
concept is usually supported by the business community as it raises their

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assets (current) and is in their advantage to borrow the funds from
external sources such as banks and the financial institutions.

In this sense, the working capital is a financial concept. As per this

concept:

Gross Working Capital = Total Current Assets

 Net Working Capital:

The net working capital is an accounting concept which represents the

excess of current assets over current liabilities. Current assets consist of
items such as cash, bank balance, stock, debtors, bills receivables, etc.
and current liabilities include items such as bills payables, creditors, etc.
Excess of current assets over current liabilities, thus, indicates the liquid
position of an enterprise.

Thus, in the form of a simple formula:

Net Working Capital = Current Assets-Current Liabilities

B) On the basis of time:

1) Permanent working capital: it is also called fixed working capital. It

means to carry on the day to day expenses the firm is required to
maintain the minimum amount of working capital. For example the firm
is required to maintain the minimum level of raw material, finished goods
or cash balance etc.

 Regular working capital- it means the minimum amount which

the firm has to keep with itself to carry on the day to day operation.

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  Reserve working capital- it means the excess amount over the
regular working capital for uncertain circumstances like strike,
lock out, depression etc.

2) Temporary working capital: it is also called variable working

capital, which is required to meet the seasonal demands as well as for

special purposes.

 Seasonal working capital- it is required to meet the seasonal

needs of the enterprise.

 Special working capital- it is required for some special purposes

of the enterprise. For example advertising the product of the firm

requires special working capital.

Temporary working capital is for short period and fluctuates while

permanent working capital is stable and fixed.

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 3.5 SOURCES OF WORKING CAPITAL

Following are various sources of working capital or short-term finance

1. Public Deposits: is a significant source of working capital. It is an

unsecured loan. It is taken by the company from the depositor for a short
period. The maximum duration is three years. It has a high rate of
interest. It is very popular in India. All types of companies widely use it
because it gives many benefits. The procedure for taking it is simple. It is
very economical. Here, the company can trade on equity, the capital
becomes flexible, so on. However, it is not suitable for all firms and is
only suitable for reputed ones.

2. Bank Credit: is also called bank Loan. It is a well-known source of

working capital. Manufacturing and trading companies use it. It is a

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secured loan. That is, the company first has to give some security to the
bank only then the bank approves the loan. Once approved, later the
company has to pay interest on the loan commercial and co-operative
loans give bank credit. It is given for short and long periods. It is very
lengthy and time-consuming. It involves many formalities. Therefore,
many companies take private loans instead of bank loans. Banks give
credit through following ways:

o Demand Loans,
o Advances
o Overdrafts,
o Cash Credit,
o Letter of Credit,
o Discounting of Bills, etc.
3. Trade Credit: Dealers purchase goods from the company and
sometimes give an advance payment. This advance payment is called
Advance from Dealers or trade Credit. The company uses this money as a
working capital. So, trade credit is another source of working capital. It is
readily available. It is given for 60 to 90 days. Here, the rate of interest is
low. Companies that have a monopoly in the market get this credit. It is
given for the Consumer Durable Goods like scooters, motorbikes, cars,
televisions, refrigerators, etc.

4. Advance from Customers: Sometimes, customers also make an

advance payment to the company. The company uses this money paid in
advance as a working capital. Hence, the advance from customers is a
source of working capital for it. For example, a luxury automobile
manufacturer gets an advance from customers who have booked a car.

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Today, it is difficult to such an advance from customers because of rising
competition in the market.

5. Income from Sales: The Company sells its goods and earns
income. This income later gets used as a working capital. Income earned
from sales is the largest source of working capital for most companies.

6. Self-Financing: The Company does not distribute its all profits to

the shareholders. It saves a part of profits. This saving gets used as a
working capital. So, the company uses own savings as working capital.
Such behavior is called Self Financing or Ploughing Back of Profits.
Self-financing is very economical because there is no need to pay any
interests.

7. Issue of Shares: The Company issues shares to the public. It gets

equity share capital. This equity share capital gets used as a long-term
working capital. Equity share capital is the best source of working capital
because there is no interest payment on it. Also, the company need not
repay the equity share capital.

8. Issue of Debentures: The Company issues different types of

debentures to get debenture capital. The company uses debenture capital
as a working capital. So, the issue of debentures is a significant source of
working capital. In India, debentures are very popular. It receives a good
response from the public. Therefore, most companies use debenture
capital as working capital. However, debenture capital is a borrowed
capital. Therefore, the company has to repay it at a high rate of interest.

9. Cash Credit: is also an important source of working capital. It is a

secured loan. It is similar to Overdraft. The company is allowed to
Page | 34
withdraw money from the bank up to a certain limit. Bank charges
interest on the amount that is withdrawn.

10. Discounting of Bills: is another important source of working

capital. The company sells goods on credit. It gets Bills Receivable from
the debtors. Bank discount these bills. Here, it is not necessary to wait for
the maturity of the bills. So, the company receives money very quickly
from the bank. This money is also a working capital.

11. Packing Credit: is a loan facility given to the exporters by

commercial banks. It is also called Pre-Shipment Finance. This loan is
offered to the exporters only if they have a Letter of Credit. This money
gets used as a working capital.

12. Commercial Paper: is a short-term promissory note. It is

unsecured. Only well-established companies can issue it. Banks and
financial institutions purchase it. It is purchased, at a discount. This
discount is just like interest. The banks provide short-term finance to
established companies in exchange for commercial paper. It is given for a
short period of 90 to 180 days.

3.6 OPERATING AND CASH CONVERSION CYCLE:

Definition
The cash conversion cycle (CCC or Operating Cycle) is the length of
time between a firm's purchase of inventory and the receipt of cash from
accounts receivable. It is the time required for a business to turn
purchases into cash receipts from customers. CCC represents the number
of days a firm's cash remains tied up within the operations of the

Page | 35
business. A cash flow analysis using CCC also reveals in, an overall
manner, how efficiently the company is managing its working capital.

The cash conversion cycle is also referred to as the cash cycle, asset
conversion cycle or net operating cycle.

realisation Purchase
Cash

Raw
Account material
receivable/
debtor

Production process
sale

Work -
Finished in-
goods progress

Production process

CALCULATION (FORMULA)

The cycle is composed of three main working capital components

 days inventory outstanding (DIO),
 Days sales outstanding (DSO)
 Days Payable Outstanding (DPO).

Page | 36
The Cash Conversion Cycle (CCC) is equal to the time it takes to sell
inventory and collect receivables less the time it takes to pay the
company's payables:

Cash Conversion Cycle (CCC) = DIO + DSO – DPO

Inventory Accounts Receivables Accounts Payable

CCC = Cost of Sales + Net Credit Sales
+ Credit purchases
× 365

Norms and Limits:

A short cycle allows a business to quickly acquire cash that can be used
for additional purchases or debt repayment. The lower the cash
conversion cycle, the more healthy a company generally is. Businesses
attempt to shorten the cash conversion cycle by speeding up payments
from customers and slowing down payments to suppliers. CCC can even
be negative; for instance, if the company has a strong market position and
can dictate purchasing terms to suppliers (i.e. can postpone its
payments).

3.7 RATIO ANALYSIS

Ratio Analysis is a form of Financial Statement Analysis that

is used to obtain a quick indication of a firm's financial performance in
several key areas. The ratios are categorized as Short-term Solvency
Ratios, Debt Management Ratios, Asset Management Ratios,
Profitability Ratios, and Market Value Ratios.

Ratio Analysis as a tool possesses several important features. The data,

which are provided by financial statements, are readily available. The
computation of ratios facilitates the comparison of firms which differ in

Page | 37
size. Ratios can be used to compare a firm's financial performance with
industry averages. In addition, ratios can be used in a form of trend
analysis to identify areas where performance has improved or
deteriorated over time.

Because Ratio Analysis is based upon accounting information, its

effectiveness is limited by the distortions which arise in financial
statements due to such things as Historical Cost Accounting and
inflation. Therefore, Ratio Analysis should only be used as a first step in
financial analysis, to obtain a quick indication of a firm's performance
and to identify areas which need to be investigated further.

 DEFINITIONS OF RATIO ANALYSIS:

“A ratio analysis is a technique of ascertaining and interpreting the
numerical relationship of the two relevant items presented in the financial
statement.”

“Single most important technique of financial analysis in which quantities

are converted into ratios for meaningful comparisons, with past ratios and
the ratios of other firms in the same or different industries.”

“Ratio analysis is a fundamental means of examining the health of a

company by studying the relationships of key financial variables.

 CLASSIFICATION OF RATIOS:
The ratios may be classified under various ways, which may use
various criterions to do the same. However for the convenience purpose,
the ratios are classified under following groups. The functional
classification of ratios considers the basis. Aspects of business activity as

Page | 38
under generally ratios are classified on the following functional
classification.

1. LIQUIDITY RATIO: - Liquidity refers to the firm’s ability to

meet its current obligations. The liquidity can be determined by
using current ratio and quick ratio. Liquidity ratios measure the
ability of a firm to meet its short-term obligations, and reflect its
short-term financial strength or solvency.
2. TURNOVER RATIO: - Turnover ratios are used to measure the
firm’s efficiency in utilizing its assets in generating sales, and are
calculated by establishing relationship between sales and assets.
They indicate the speed with which assets are being converted into
sales.
3. PROFITABILITY RATIO: - The profitability of a firm can be
measured by the profitability ratios. Such ratios can be computed
either from sales or investments.
4. LEVERAGE RATIO: - the capital structure leverage ratios throw
light on the long term solvency of a firm. This is reflected in its
ability to assure the long-term creditors with regard to periodic
payment of interest, and the repayment of a loan on maturity or
pre-determined installments at due date.

Page | 39
 CHAPTER – IV
ORGANISATION PROFILE

4.1 INTRODUCTION OF RADHIKA SPRINGS

“Radhika springs” (Spring Division) is basically a subsidiary company of
DTS Logistics owned by Mr. Amrut Deshmukh and it is one of the
leading high qualities and precision spring manufactures in the District of
Nasik. It came into existence in 2003 and established a sophisticated
plant which is fully equipped with modern Spring Making Machines and
other upgraded facilities.

Manpower places is adequate and academically well qualified,

experienced and highly skilled in all areas like Product Development,
Costing, Tool Room, Manufacturing, Quality Control, Marketing and
General Administrator. We have a number of renowned customers in
India on our customer profile.

4.2 VISION OF THE FIRM

“TO BE THE LEADER IN THE MARKET WE SERVE BY

PROVIDING SUPERIOR QUALITY.”

4.3 MISSION OF THE FIRM

Page | 40
 1) Exceed Expectations Of Our Customers
2) Provide Safe And Rewarding Work Environment.
3) Develop Mutually Beneficial Partnerships With Stakeholders.
4) Grow Our Market Share Profitably.

Name of the company M/s Radhika springs

Year of establishment 2003

Nature of business Spring manufacturing

Plant location P-58, Behind Ujjawal Agency,

MIDC, Satpur,nashik-422007

No. of employees 27

Slogan ‘Stretching the limits’

Email ID radhikasprings@[Link]

PRODUCTS OFFERED:
 Compression Springs
 Spring Wire Forms
 Conical Springs
 Tension Springs
 Strip Springs And Forms
 Double wired hose clamps
 Torsion & double torsion springs

Page | 41
4.4 FEW OF THE PRODUCT PROFILE OF THE
COMPANY

Tension spring
Tension springs are tight wound coils that are designed to operate with
tension. The spring stretches to a specific length as the load/force is
applies to it. In an unloaded position, the loops of the spring are touching,
with either a loop or hook attached at one end, and it is when this is
attachment is directed with force that the spring stretches. When these
components are pulled apart, usually from either side, the spring tries to
hold itself together, causing the springing action, until the force is
stropped and it can return to its original form.

Compression Spring
A compression spring is an open-coil helical spring that offers resistance
to a compressive force applied axially. They are usually coiled at a
constant diameter, though they can be coiled in other needed forms such
as conical, concave (barrel), convex (hourglass), or various combinations
of these. Compression springs are used to resist force and/or store energy,

Page | 42
depending upon the application. All our compression springs are
fabricated from round wire.

Double wired hose clamps

Hose clams are made of double strand steel wire with high resistance;
they are coated with a preservative zinc coating which ensures a

practically unlimited durability. In compression with other clams they

have the following advantages:

The stress on the plastic or rubber hose caused by the double stand
clamps in obviously lower – though the clamping action is the same than
the one caused by single wire clams; In fact the radial load is distributed
over a wider surface of the hose. Furthermore the roundness of wire of

Page | 43
which the clams are made allows the cutting action, in when compared
with the one produced by the regular boot camps, to be much lower. It
ensured a longer durability of the flexible hoses and a higher resistance of
blow-off

Torsion & Double Torsion Spring

Torsion springs can sore and release angular energy or statically hold a
mechanism in place by deflecting the legs about the body centerline axis.
They offer resistance to twist or rotationally applied force. A spring of
this type will reduce in body diameter and increase slightly in body
length when deflected in the preferred direction of the fabricated wind.
Depending on the application, torsion springs can be designed to work in
a clockwise or counter –clockwise rotation, thus determining the
direction of the wind. Common torsion springs are those used in a cloth
pin or a garage door.

The initial tension applied to the tension springs can be controlled used
the cold coiled process, in which the wire is formed into a spring shape
using a computer controlled coiling machine, whilst unheated. Cold

coiling gives the tensions springs added flexibility which can be achieved
than the hot coiling production process.

Page | 44
KEY CUSTOMERS:
 Allied Metal Pressing Pvt Ltd.
 Caltherm Thermostats
 Daechang India Seat Co Pvt Ltd
 Jindal Soft Italia Seatings Pvt Ltd
 Everest Traders
 Divine Toolings
 Sumit Precision Fastner

 QUALITY CONTROL POLICY

Radhika springs are committed to provide ultimate customer satisfaction

by maintaining consistent quality in their products and timely delivery
always. They are committed to achieve this by stressing upon continual
improvement, training and advancement in latest technology and
reviewing periodically the effectiveness of the quality management
system.

Page | 45
 CHAPTER – V
DATA ANALYSIS AND
INTERPRETATION

 CALCULATION OF OPERATING / CASH

CONVERSION CYCLE:
1. Inventory conversion period/ Days inventory outstanding:
The inventory conversion period is the time required to obtain materials
for a product, manufacture it, and sell it. Days inventory outstanding
indicates a No. Of days a business takes to convert its inventory into sales
i.e into cash.

Average inventory
Inventory conversion period=
cost of goods sold
× 360
(Amt. In Rs.)

YEAR 2022 2023 2024

Average inventory 7,36,107 5,02,258 2,26,550

Cost of goods sold 79,65,702 81,67,431 1,11,72,500

Inventory conversion period 33 22 07

(days)

2. Debtors conversion period /Days sales outstanding : The

term Debtors Collection Period indicates the average time taken to collect
trade debts. In other words, a reducing period of time is an indicator of
Page | 46
increasing efficiency. It enables the enterprise to compare the real
collection period with the granted credit period.

Average account receivables

Debtors coversion period= ×360
Net Credit sales
(Amt. in Rs.)

YEAR 2022 2023 2024

Average a/c receivable 49,91,369 56,31,487 58,09,880

Credit sales 99,71,632 1,03,81,712 1,43,75,723

Debtor collection 180 195 145

period(days)

3. Creditors payable period/ days payable outstanding: The

Creditor (or payables) days number is a similar ratio to debtor days and it
gives an insight into whether a business is taking full advantage of trade
credit available to it. Creditors days estimate the average time it takes a
business to settle its debts with trade suppliers.

Average account payable

Creditor payable period= ×360
Credit purchases
(Amt. in Rs.)

YEAR 2022 2023 2024

Average a/c payable 12,30,412 10,80,547 30,41,106

Credit purchases 55,36,855 49,79,782 65,23,130

Creditor payable period 80 89 168

CALCULATION OF CASH CONVERSION CYCLE

Page | 47
 (In days)

Particulars 2022 2023 2024

Add:

Cash Conversion Cycle

140
120
100
80
cash conversion cycle
60
40
20
0
-20 2022
2023
2024

Page | 48
[Link] conversion period 33 22 07

[Link] conversion period 180 195 145

[Link] operating cycle (1+2) 213 217 152

Less:

[Link] payable period 80 89 168

Cash conversion cycle (3-4) 133 days 128 days - 16 days

Analysis and Interpretation:

From the above calculation, net operating cycle in year 2016-17

was 133 days, in the year 2022-18 was 128 days and in the year 2023-19
was -16 days.
Cash conversion cycle for Radhika springs is considerably higher
in the year 2016-17 and 2022-18 which means that the company was not
able to convert it cash freely as CCC for those years are almost 4 months.
Reason being, the company was receiving its debts lately but at the same
time it had to pay its debts to its creditors on time. Also there is a huge
gap between debtors collection period and creditors payment period
which led to slow conversion of cash and slow movement of operating
cycle.
On the other hand, for the year 2023-19, CCC period has declined
drastically and went down to -16 days, a negative cash conversion cycle

Page | 49
 means that a firm is generating revenue from its customers before it has
to pay its suppliers for inventory which shows the improvement in the
organizational efficiency in rotating its money.
A negative cash conversion cycle is simply an interest free way to
finance operations through borrowing from suppliers.
But here the alarming sound is for creditors payment period,
because even if company is getting extended period to pay its debts its
ultimate liability is increasing for future & at the same time company is
creating an image of late payer in the minds of its creditors, which is not
good.

STATEMENT SHOWING CHANGES IN WORKING

CAPITAL REQUIREMENT:
(Amt. in Rs)

PARTICULARS 2022 2023 2024

A. Current assets:

Closing Stock 7,79,975 2,24,540 2,28,560

Excise Duty 3,19,620 2,51,754 5,400

Prepaid Insurance Machinery - - 20,550

VAT Deposit 25,000 25,000 25,000

Loans and Advances 2,46,163 3,17,835 5,04,335

Sundry Debtors 49,91,369 56,31,487 58,09,880

Cash & Bank balance 7,21,349 2,18,625 4,95,901

Page | 50
Total Current Assets (A) 7,08,34,76 66,69,241 70,89,627

B. Current liabilities:

Provisions 21,27,142 18,15,570 17,05,736

Sundry creditors 12,30,412 10,80,547 30,41,106

Total current liabilities (B) 33,57,554 28,96,117 47,46,842

Net working capital (A-B) 37,25,922 37,73,124 23,42,785

Net Working Capital

4000000
3500000
3000000
2500000
2000000 Net Working Capital
1500000
1000000
500000
0
2022
2023
2024

Interpretation:

Page | 51
 From the above calculation, working capital of the company in 2016-
17 was 37.25 lakhs. And in the year 2022-18 it increased slightly to 37.73
lakhs but again in 2023-19 it fell down to 23.42 lakhs which shows
inadequacy of working capital availability.
Reason behind this decline in working capital is, increase in the
current liabilities of a firm for the year 2023-19 as the firm is enjoying
higher period availability to pay its bills due to which the amount of
creditors has increased and ultimately lesser amount of working capital
remained in hand to use.

THE DETAILED ANALYSIS OF EACH COMPONENT

OF WORKING CAPITAL:
CURRENT ASSETS COMPONENTS
1. Closing stock
(A
mt. In Rs.)

YEAR 2022 2023 2024

Closing stock 7,79,975 2,24,540 2,28,560

Page | 52
 closing stock
900000
800000
700000
600000
500000 closing stock

400000
300000
200000
100000
0
2022 2023 2024

Interpretation:

From the above graph, we can see that there is a considerable fall in
the closing stock of the company in the year 2023 and 2024 as compared
to 2022, which impact can be seen in the reduced amount of working
capital in the year 2024.

2 .EXCISE DUTY

(Amt. In Rs)

YEAR 2022 2023 2024

Excise duty 3,19,620 2,51,754 5,400

Page | 53
 Excise duty
350000
300000
250000
200000 excise duty
150000
100000
50000
0
2022 2023 2024
Interpretation:
Excise duty receivable i.e. which is billed by a vendor in our
purchase bills) is a current asset. Since credit is available of excise duty
paid while purchasing inputs, duty paid on inputs while purchase is not
an expense but an asset.

3 .VAT DEPOSIT

(Amt. in Rs)

Year 2022 2023 2024

Cash & bank 25,000 25,000 25,000

VAT Deposit
30000
25000
20000 VAT Deposit
15000
10000
5000
0
2022 2023 2024

Page | 54
 Interpretation:
As it can be seen that the VAT Deposit amount is constant every
year, it merely affects the change in working capital of a firm.

4. LOANS & ADVANCES:

(Amt. in Rs)

Year 2022 2023 2024

Short term loans & 2,46,163 3,17,835 5,04,335

advances

Loans & Advances

600000
500000
400000
Loans & Advances
300000
200000
100000
0
2022 2023 2024

Interpretation:
As the amount of loans and advances is increasing year by year, it
is a good sign that it contributes in increasing the gross working
capital of the company.

5. SUNDRY DEBTORS

Page | 55
 (Amt. in Rs)

Year 2022 2023 2024

Sundry debtors 49,91,369 56,31,487 58,09,880

Sundry Debtors
6000000
5800000
5600000
5400000 Sundry Debtors
5200000
5000000
4800000
4600000
4400000
2022 2023 2024

Interpretation:
From the above graph, we can see that the company has very liberal
credit policy while collecting its debts because the debtors are increasing
every year. Maybe this could be their strategy to attract new customers
and increase the sales but there also is a huge danger of non-recovery and
their conversion into bad debts.
Therefore, it is suggested to have a strict receivables policy to ensure
effective running of an organization.
6. CASH AND BANK BALANCE
(Amt. in Rs)

Year 2022 2023 2024

Cash and bank 7,21,349 2,18,625 4,95,902

Page | 56
balance

Cash and Bank balance

800000
700000
600000
500000 Cash and Bank balance
400000
300000
200000
100000
0
2022 2023 2024

Interpretation:
From the graph, it can be seen that cash and bank balance was highest in
the year 2022 which means absolute liquidity was highest in that year.
But in 2023, it went down and again in 2024 the level of cash and bank
balance rose, which is a good indicator and company is suggested to rise
this level furthermore in the coming years or at least stick to the current
level.

CURRENT LIABILITIES COMPONENTS

1 .PROVISIONS

Page | 57
 (Amt. in Rs)

Year 2022 2023 2024

provisions 21,27,142 18,15,570 17,05,736

Provisions
2500000
2000000
1500000 Provisions

1000000
500000
0
2022 2023 2024

Interpretation:

Here, in the graph we can see the decreasing amount of provisions

payable year by year, which means that company has a good control over
its provisions and it is advised to keep this trend go on every year.

2. SUNDRY CREDITORS
(A
mt. in Rs.)

Year 2022 2023 2024

Sundry creditors 12,30,412 10,80,547 30,41,106

Page | 58
 Sundry Creditors
3500000
3000000
2500000
2000000 Sundry Creditors

1500000
1000000
500000
0
2022 2023 2024

Interpretation:

In the graph, it can be seen that there was a slight decrease in

creditors amount in year 2023 from Rs. 12.30 lakh to Rs. 10.80 lakh
which was a good indication that co.’s liabilities are decreasing and less
burden is there on company’s head.
But in the next year i.e. in 2024, creditors went so high to almost 2.5
times greater than previous years. This means company has got good
credit facility from its suppliers and is having a good leverage position
but at the same time, non-repayment of its creditors has increased the
current liabilities of the firm drastically and ultimately leaving smaller
amount of net working capital to use

RATIO ANALYSIS

A)SHORT TERM SOLVENCY / LIQUIDITY RATIOS:

Short-term Solvency Ratios attempt to measure the ability of a firm

to meet its short-term financial obligations. In other words, these ratios
seek to determine the ability of a firm to avoid financial distress in the

Page | 59
 short-run. The two most important Short-term Solvency Ratios are the
Current Ratio and the Quick Ratio.

1 .Current /Working Capital Ratio

The Current Ratio is calculated by dividing Current Assets by

Current Liabilities. Current Assets are the assets that the firm expects to
convert into cash in the coming year and Current Liabilities represent the
liabilities which have to be paid in cash in the coming year. The
appropriate value for this ratio depends on the characteristics of the firm's
industry and the composition of its Current Assets. The ideal ratio of
current ratio is 2:1

current assets
current ratio=
current liabilities

(Amt. in Rs)

Year 2022 2023 2024

Current assets 70,83,476 66,69,241 70,89,627

Current liabilities 33,57,554 28,96,117 47,46,842

Current Ratio 2.11 2.30 1.49

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 Current ratio
2.5

1.5 Current ratio

1

0.5

0
2022 2023 2024

Interpretation:
Current ratio for the year 2022 is 2.11 and for the year 2023 is 2.30
which is satisfactory as the ideal ratio of 2:1 is met in both the years. This
states that the company had enough current assets to meet its liabilities.
Whereas in the year 2024, current ratio was less than the previous year’s
ratios. It was 1.49 despite of the fact that the total current assets for the
year 2024 is the highest among all but because of the greater amount of
current liabilities, the current is lesser.
Therefore, we can say that liquidity position of Radhika springs is
satisfactory for the year 2022 and 2023, but for the 2024 it is alarming.

2. Liquid Ratio/Quick Ratio:

The liquidity ratio is a measure of liquidity designed to overcome this
defect of the current ratio. It is often referred to as quick ratio because it
is a measurement of firm’s ability to convert its current assets quickly
into cash in order to meet its current liability. Therefore it does not
include inventories into current assets and also not include BOD in
current liabilities. The ideal quick ratio is 1:1.

current assets−Inventories
QUICK RATIO=
current liabilities−Bank O/ D

Page | 61
 (Amt. in Rs)

Year 2022 2023 2024

Current assets 70,83,476 66,69,241 70,89,627

Inventories 7,79,975 2,24,540 2,28,560

Current liabilities 33,57,554 28,96,117 47,46,842

Quick Ratio 1.88 2.22 1.44

Quick ratio
2.5

1.5 Quick ratio

0.5

0
2022 2023 2024

Interpretation:

In year 2022 quick ratio was 1.88:1 , in year 2023 it was 2.22:1, and in
year 2024 it was 1.44:1,. This clearly indicates that the liquidity position
of the industry is satisfactory in all the years 2022, 2023 and in 2024
because the liquid ratio is not below the standard ratio of 1:1.
Which means removal of inventory doesn’t affect much to total
current assets. The higher the quick ratio, the better the company’s
liquidity position is.

3. Super Quick / Absolute Liquidity Ratio:

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This ratio goes one step ahead than current ratio and quick ratio as it
considers only pure liquid assets against liabilities. Namely, cash & bank
balance and marketable securities. Super quick ratio helps the company
to know how many times pure liquid assets of company are capable
enough to pay its current liabilities. The ideal ratio is 0.5:1

cash∧bank balance+ marketable securities

Absolute liquidity ratio=
current liabilities

Year 2022 2023 2024

Cash & bank balance 7,21,349 2,18,625 4,95,902

Current liabilities 33,57,554 28,96,117 47,46,842

Super-quick ratio 0.21 0.07 0.10

Absolute liquidity ratio

0.25
0.2
0.15 Absolute liquidity ratio

0.1
0.05
0
2022 2023 2024

Interpretation:

Absolute liquidity ratio for the year 2022 is 0.21:1, for the year 2023 is
0.07:1 and for the year 2024 is 0.10. Overall no year’s ratio is matching
the ideal ratio of 0.5:1 . The cash & bank balance is not sufficient and
comprises a lesser proportion in the total current assets in all 3 years

Page | 63
 therefore it is suggested to increase the cash proportion in the upcoming
years.

B) Activity ratios/Turnover ratios:

To understand if the company’s use of assets and process of running the

operations are efficient or not, the activity ratio analysis is applied. Also
referred as operation ratio analysis, or turnover ratio analysis, it includes
calculating a set of indicators that allow making conclusions on how
effectively the firm uses its inventories, accounts receivable and fixed
assets.

1 .Working Capital Turnover Ratio:

The working capital turnover ratio measures how well a company
is utilizing its working capital to support a given level of sales. A high
turnover ratio indicates that management is being extremely efficient in
using a firm’s short-term assets and liabilities to support sales.
Conversely, a low ratio indicates that a business is investing in too many
accounts receivables and inventory assets to support its sales, which
could eventually lead to an excessive amount of bad debts and obsolete
inventory.
Net sales
WORKING CAPITALTURNOVER RATIO=
Net working capital

(Amt. in Rs)

Year 2022 2023 2024

Sales 99,71,632 1,03,81,711 1,43,75,724

Page | 64
Net working capital 37,25,922 37,73,124 23,42,785

W/C turnover ratio(times) 2.68 2.75 6.14

working capital turnover ratio (times)

7
6
5
working capital turnover
4 ratio (times)
3
2
1
0
2022 2023 2024

Interpretation:

As per the above calculation, working capital turnover ratio in year 2022
was 2.68 times, in year 2023 it was 2.75 times and in year 2024 it was
6.14 times. Here, We can see that the ratio year after year has increased.
Which means company is efficiently utilizing its working capital for the
given period.
But, at the same time a very high ratio is a sign of insufficient quantity of
working capital in the business. Which has happened in the year 2024.
Because even if the sales are highest in 2024, the amount of working
capital is least of all. Therefore, higher working capital ratio is also not
good for the organization.
2. Inventory Turnover Ratio:
Inventory turnover is a ratio showing how many times a
company has sold and replaced inventory during a period. This ratio
helps to determine stock related issues such as overstocking and

Page | 65
overvaluation. It is an important measure of how well a company
generates sales from its inventory.

cost of goods sold

INVENTORY TURNOVER RATIO=
averageinventory

Where,
openinginventory + closing inventory
Average inventory =
2
Cost of goods sold = Sales - Gross Profit

(Amt. in Rs)

Year 2022 2023 2024

COGS 79,65,702 81,67,431 1,l1,72,500

Average inventory 7,36,107 5,02,258 2,26,550

Inventory turnover 10.82 16.26 49.31

ratio (times)

Inventory turnover ratio(times)

60

50

40
Inventory turnover
30
ratio(times)

20

10

0
2022 2023 2024

Page | 66
 Interpretation

As per the above calculation inventory turnover ratio in year 2022

was 10.82 times, in year 2023 it was 16.26 times and in the year 2024 it
was 49.31 times. It can be seen that the ratio is increasing every year
which means company is effectively converting its inventory into sales.
A high ratio indicates that the company generates higher sales per unit of
investment made in stocks.

 Inventory Conversion Days: It calculates how many days needed for

the inventory of a firm to be converted into cash.

365(working days )
Inventory conversion period ( days )=
inventory turnover ratio

Years 2022 2023 2024

Days 365 365 365
Inventory Turnover Ratio 10.82 16.26 49.31
Inventory Conversion Period 34 days 22 days 07 days

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 Inventory conversion period
40
35
30
25
inventory conversion period
20
15
10
5
0
2022 2023 2024

Interpretation:
Here, inventory conversion period has decreased as inventory turnover
ratio has increased. Which states that inventory is rapidly getting
converted into sales.
[Link] Turnover Ratio:
It measure how many times accounts receivable can be turned by
a company into cash. Debtors turnover ratio indicates the efficiency of
the firm to collect its debts back. The higher the value of the debtors
turnover, the more efficient is the management of receivables.
credit sales
Debtors turnover ratio=
average accounts receivable
(Amt. in Rs)

Year 2022 2023 2024

Credit Sales 99,71,632 1,03,81,711 1,43,75,724

Avg. debtors 49,91,369 56,31,487 58,09,880

Debtors turnover 2 times 1.84 times 2.47 times

ratio(times)
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 Debtors turnover ratio
3

2.5

2
Debtors turnover ratio
1.5

0.5

0
2022 2023 2024

Interpretation:

As per the above calculation debtors turnover ratio in year 2022 was 2
times, in year 2023 it was 1.84 times and in the year 2024 is 2.47 times.
Debtors turnover ratio is very less in all the years as almost only 2 times
a year debtors are settling their debts. Therefore company has to have a
strict receivables policy to improve the ratio.
 Average collection period:

Average collection period indicates that how many days on an

average it takes a firm to collect its debts from its customers.
360 (WORKING DAYS)
AVERAGE COLLECTION PERIOD ( DAYS )=
DEBTORS TURNOVER RATIO

Years 2022 2023 2024

Days 360 360 360
Debtors Turnover Ratio 2 1.84 2.47
Average collection Period 180 days 196 days 146 days

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 Average collection Period ( In days)
250

200

150
Average collection
100 Period

50

0
2022 2023 2024

Interpretation:
The firm requires 180 days in 2022, 196 days in 2023, and 146 days
to collect its debts. This is almost 6 months. It can cause a serious
liquidity crisis in an organization hence; a prompt action is required to
improve the collection period.
4. Creditors turnover ratio:
This is another ratio that can be used for performing the activity
analysis of a firm. In opposition to accounts receivable turnover, this
ratio measures the number of times per year a company pays its debt to
suppliers (creditors).
credit purchases
Creditors turnover ratio=
average creditors
(₨.in
crores)

Year 2022 2023 2024

Credit Purchases 55,36,855 43,79,782 65,23,130

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Average creditors 12,30,412 10,80,547 30,41,106

creditors turnover 4.50 times 4.05 times 2.14 times

ratio(times)

creditors turnover ratio(times)

5
4.5
4
3.5
3 creditors turnover
ratio(times)
2.5
2
1.5
1
0.5
0
2022 2023 2024

Interpretation:
As per the calculation, creditors turnover ratio in year 2022 was 4.50
times, in year 2023 it was 4.05 times and in year 2024 it was 2.14
times. This has decreased year by year. it means that company is
getting more time to pay to its suppliers.
 Average payment period:
It measures the number of days that is averagely needed by a
firm to pay the debt to its creditors.
360(working days)
Average payment period ( days )=
creditors turnover ratio

Years 2022 2023 2024

Days 360 360 360
Creditors Turnover Ratio 4.50 4.05 2.14
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Average payment Period 80 days 89 days 168 days

Average payment period (days)

180
160
140
120
100
80 Average payment
period (days)
60
40
20
0
2022 2023 2024

Interpretation:
From the above calculation, it can be seen that creditor’s payment
period is 80, 89 and 168 days which is increasing every year. This
means that suppliers are giving more time for payment. Longer
payment period is beneficial for the company because company can
use its working capital for day to day working of a business.

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 CHAPTER – VI
FINDINGS AND CONCLUSIONS
1. By conducting the study about working capital management at
Radhika springs, it is found out that working capital management of a
firm needs a prompt attention to some areas
2. Suppliers are providing higher credit period to pay the bills.
3. Cash conversion cycle period has become negative much in the year
2022 because of higher credit facility given by suppliers.
4. Amount of working capital has declined in the last year even when the
sales are highest in that year.

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5. Creditors turnover ratio is decreasing every year which has resulted
into higher credit period availability from suppliers.
6. Debtors of a firm are increasing every year which shows that
company has least control over its debtors and it has very liberal
policy for debtors collection.
7. Working capital ratio is in improving stage.
8. Cash & bank balance consist considerably low proportion of total
current assets.
9. Sundry creditors has increased dramatically in the year 2024, resulting
into lesser availability of working capital to use.
[Link] and quick ratios are favorable.

CHAPTER – VII
SUGGESTIONS &
RECOMMENDATIONS

Creditors & payables: The payment to the creditors should be made

on time whenever possible. Even if they are granting more period.
Because ultimately it is going to increase current liabilities only.
Cash and bank balance: Cash & bank balance’s proportion in total
assets has to be increased to ensure more liquidity.

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Working capital: More working capital can be generated either
through realization of the debts from customers or by repaying the
suppliers bills.
Inventory: Inventory management of a firm is on a right path so
company must stick to the inventory management policies.
Debtors: Company should keep reminding its customers about
outstanding amount on a weekly basis.
 Company needs to have a renowned and prompt “receivables
management” policy to maintain a good liquidity and to reduce the
risk of bad debts

Cash conversion cycle: Cash conversion cycle has to be made

positive .this can be achieved by paying off the payables.

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 BIBLIOGRAPHY

ANNUAL REPORTS OF RADHIKA SPRINGS

 Balance Sheet For The Year 2016-17

 Balance Sheet For The Year 2022-18
 Balance Sheet For The Year 2023-19

BOOKS
 “Management Accounting” By Dr. Suhas Mahajan & Dr. Mahesh
Kulkarni (Nirali Prakashan)
 Business Research Method (Thakur Publication)

WEBSITES

 [Link]

 [Link]

 [Link]

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