Academica Science Journal
Economica Series
No. 2 (5) – 2014
ISSN: 2285 - 8067
WORKING CAPITAL MANAGEMENT IN INDIAN OIL & GAS
INDUSTRY - A CASE STUDY OF RELIANCE INDUSTRIES LTD
Sankar THAPPA,
University of Science & Technology, Meghalaya, India
Abstract: Working capital is the lifeblood of the business organization. Merely having the
investment in fixed assets does not determine the success of a business organization, it is
also important to have efficient management of working capital. The objective of working
capital management is to maintain a satisfactory level of working capital through the
management of current assets and current liabilities. If a satisfactory level of working
capital is not maintained the organization is likely to become insolvent and may even be
forced to bankruptcy. Therefore, for the smooth running of the business efficient
management of working capital is required. This paper highlights on concepts of working
capital, working capital policy, component of working capital and factors affecting working
capital of Reliance Industries Ltd.(RIL), during the last ten years and identify which factors
are responsible for the improvement of working capital of the company.
Keywords: Working Capital, Liquidity, Liquidity Rank
1. INTRODUCTION
Working Capital Management is the lifeblood of a business. Just as circulation of blood is essential in the
human body for maintaining life, working capital is essential to maintain the smooth running of business. No
business can run successfully without an adequate amount of working capital. Working capital refers to a
firm’s investment in short term assets. Working capital can also be regarded as that portion of the firm’s total
capital, which is employed in current operations. It refers to all aspects of current assets and current
liabilities. Current assets are those assets, which in the ordinary course of business can be or will be
converted into cash within one year without undergoing a diminution in value and without disrupting the
operations of the firm. The major current assets are cash, marketable securities, accounts receivables and
inventory. Current liabilities are those liabilities, which are intended at their inception to be paid in the
ordinary course of business within a year out of the current assets or earnings of the concern. The basic
current liabilities are: accounts payable, bills payable, bank overdraft and outstanding expenses.
The movement of funds from working capital to income and profits and back to working capital is one of the
most important characteristics of business. This cyclical operation is concerned with utilisation of funds with
the hope that they will return with an additional amount called income. If the operations of a company are to
run smoothly a proper relationship between fixed capital and current capital has to be maintained.
Sufficient liquidity is important and must be achieved and maintained to provide the funds to pay off
obligations as they arise or mature. The adequacy of cash and other current assets together with their
Page 34
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Academica Science Journal
Economica Series
No. 2 (5) – 2014
ISSN: 2285 - 8067
efficient handling virtually determine the survival or demise of the company. A businessman should be able
to judge the accurate requirement of working capital and should be quick enough to raise the required fund
to finance the working capital needs.
Because if its close relationship with day to day operations the management of working capital is very
important for a business firm. It is being increasingly realized that inadequacy or mismanagement of working
capital is the leading cause of business failures. Neglect of management of working capital may result in
technical insolvency and even liquidation of a business unit. Inefficient working capital management may
cause either inadequate or excessive working capital, which is dangerous.
Working capital management is concerned with the management of firm’s current accounts, which include
current assets and current liabilities. The goal of working capital management is to manage the current
assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained
i.e. it is neither inadequate nor excessive. This is so because both inadequate as well as excessive working
capital position is bad for any business. Inadequacy of working capital may lead the firm to insolvency and
excessive working capital implies idle funds, which earn no profits for the business.
In this article, a modest effort has been made to analyze the working capital management of Reliance
Industries Ltd(RIL) during the period of 2001-02 to 2010-11.
2. PROFILE OF THE COMPANY
Reliance Industries Ltd(RIL) was incorporated in 1973 in Karnataka State as a public Ltd Co. The RIL is a
Fortune Global 500 company and is the largest private sector company in India. Presently the core activities
of the RIL are exploration and production of Oil & gas, petroleum, refining and marketing, petrochemicals
(polyester, fibre intermediates, plastics and chemicals) etc. RIL enjoys global leadership in its business,
being the largest polyester and fibre producer in the world and among the top five to ten producers in the
world in major petrochemicals product. In 2013-14 RIL attained largest profit growth in its history with record
operating and financial results from each of the three core segments of petrochemicals, refining & marketing,
and Oil & gas. RIL achieved record turnover exceeding Rs. 4,01,200 crore and higher net profit of Rs.
21,984 crore.
3. LITERATURE REVIEW
The importance of working capital management is not new to the finance literature. Over twenty years ago,
Largay and Stickney (1980) reported that the then-recent bankruptcy of W.T. Grant, a nationwide chain of
department stores, should have been anticipated because the corporation had been running a deficit cash
flow from operations for eight of the last ten years of its corporate life. As part of a study of the Fortune 500’s
financial management practices, Gilbert and Reichert (1995) find that accounts receivable management
models are used in 59 per cent of these firms to improve working capital projects, while inventory
management models were used in 60 per cent of the companies. Shin and Soenen(1998) in their study
found that the management of working capital is correlated in a positive way to firm size. Farragher, Kleiman
and Sahu (1999) find that 55 per cent of firms in the S&P Industrial index complete some form of a cash flow
assessment, but did not present insights regarding accounts receivable and inventory management, or the
variations of any current asset accounts or liability accounts across industries. Thus, mixed evidence exists
concerning the use of working capital management techniques. Deloof(2003) carried out a research on the
relationship between working capital management and the performance of Belgian companies. Chiou and
Chang (2006) reviewed the impact of Working Capital Management Company within 19180 America
companies for the period 1996-2004. The result of this study indicated that debt ratio and operating cash
flow had negative impact on Working capital management, whereas company size had a positive impact on
it. However, business cycle, the industry and sale growth does not affect the Working capital management.
Rahman and Naser(2007) in their study of Pakistani companies suggested that profitability and company
size had a negative significant effect on cash conversion cycle. Uyar(2009) in his study of working capital
management of Taiwanese companies suggested that the relationship between company size and
profitability and cash conversion cycle was negative.
Page 35
Copyright  2014 Academica Science Journal. All rights reserved.
Academica Science Journal
Economica Series
No. 2 (5) – 2014
ISSN: 2285 - 8067
4. OBJECTIVES OF THE STUDY
i)
To assess significance of working capital by selecting few important parameters such as current
ratio, working capital ratio, acid test ratio, current assets to total assets ratio, current assets to sales ratio,
inventory turnover ratio, age of inventory, debtors turnover ratio, and average collection period etc.
ii )
To make item wise analysis of the elements or component of working capital.
iii)
To identify the items responsible for changes in working capital. I
iv)
To study liquidity position of the company by taking four measures at time namely: inventory to
current assets, debtors to current assets, cash & bank to current assets and loan & advances to current
assets.
5. SCOPE OF THE STUDY
The scope of the study will cover all the components of current assets and current liabilities. The liquidity
ranking and liquidity position of the company are also being covered under the study.
6. LIMITATION OF THE STUDY
i)
The study is limited to ten years (2004-05 to 2013-14) performance of the company.
ii)
The data used in this study have been taken from published annual reports only. As per the
requirement and necessity some data are grouped and sub grouped.
iii)
For making a clear-cut opinion ratio technique of financial management has been used.
7. SOURCES OF DATA
The data of Reliance Industries Ltd. for the years (2004-05 to 2013-14) used in this study have been taken
from secondary sources e.g. published annual report of the company.
8. METHODOLOGY OF THE STUDY
The editing, classification and tabulation of the financial data, which are collected from the above mentioned
sources, have been done as per the requirement of the study. For assessing performance of the working
capital position in this study the techniques of ratio analysis have been used.
The collected data have been analyzed in the following way:
i)
Analysis of liquidity ratio.
ii)
Analysis of liquidity position.
iii)
Item wise analysis of component of gross working capital.
iv)
Liquidity ranking.
For assessing the behavior of ratios, statistical techniques have also been used e.g. mean, growth rate,
standard deviation, correlation co-efficient, Least squares, Trend analysis, chi-square test, in this study.
9. FINDINGS AND ANALYSIS
Current Ratio:
As per Table-1 current ratio of Reliance India Ltd.(RIL) is always below than their ideal standard 2:1
throughout the study period between 2004-05 and 2013-14. The current ratio is always between 1.39 times
Page 36
Copyright  2014 Academica Science Journal. All rights reserved.
Academica Science Journal
No. 2 (5) – 2014
Economica Series
ISSN: 2285 - 8067
to 1.92 times during the study period which shows that the company had not maintained sufficient current
assets against the current liabilities . Overall average of current ratio is 1.61 times and standard deviation is
.16 times during the study period which is not very much satisfactory from liquidity point of view.
Table-1 Selected Liquidity Ratios of Reliance Industries Ltd. ( From 2004-05 to 2013-14)
Year
Current
Ratio
Liquid
Ratio
Absolute
Liquid
Ratio
Inventory
Turnover
Ratio
Age
of
Inventory
Debtors
Turnover
Ratio
Average
Collection
Period
Working
Capital
Turnover
Ratio
Current
Asset to
Total
Assets
Ratio
Current
Assets
to Total
Sales
Ratio
2004-05
1.66
1.23
0.99
9.02
41
18.56
20
6.27
0.45
0.43
2005-06
1.49
0.88
0.63
9.26
39
20.07
18
8.36
0.32
0.3
2006-07
1.61
0.96
0.76
10.04
36
28.29
13
11.48
0.3
0.27
2007-08
1.78
1.19
0.93
10.12
36
26.79
14
8.84
0.34
0.32
2008-09
1.53
1.12
0.99
9.75
37
26.27
14
7.49
0.26
0.39
2009-10
1.54
0.88
0.59
9.21
40
23.71
15
9.39
0.3
0.32
2010-11
1.36
0.94
0.7
8.74
42
17.06
21
8.37
0.41
0.37
2011-12
1.92
1.4
1.13
10.03
42
18.4
20
6.55
0.44
0.4
2012-13
1.73
1.22
1.07
9.43
36
24.49
15
5.98
0.45
0.39
2013-14
1.42
0.97
0.86
9.37
38
35.6
10
7.99
0.45
0.34
Mean
1.60
1.08
0.87
9.50
38.70
23.92
16.00
8.07
0.37
0.35
0.1719
0.1777
0.187631
0.4703
2.4518
5.683599
3.5901099
1.6465034
0.075248
0.050783
0.065
-0.082
-0.1996
-0.1056
0.0421765
0.379908
-0.57929
-0.2931
SD
Correllation
Coefficient
0.2436
-0.256
Source: Compiled from Annual Reports of Reliance Industries Ltd ( From 2004-05 to 2013-14)
Liquid Ratio:
As per Table-1 the liquid ratio of RIL is always more than their ideal standard 1:1 except in the years 200506,2006-07,2009-10,2010-11 and 2013-14. Highest ratio during the study period is 1.39 times in 2011-12
and lowest ratio is 0.88 times in the years in 2005-06 and 2009-10. Overall average during the study period
is 1.08 times and standard deviation is 0.17 times which is comfortable as per the requirement.
Absolute Liquid Ratio:
The absolute liquid ratio of RIL is not very consistent and not showing a very sound liquidity position. The
highest absolute ratio is 1.13 times in 2011-12 and lowest ratio is 0.59 times in 2009-10. Overall average
during the study period is 0.86 times and standard deviation is 0.18 times which not a very comfortable
position is for the company.
Inventory Turnover Ratio
As per Table-1 the inventory turnover ratio has been showing a decreasing trend in all the years except in
2005-06, 2006-07,2007-08 and 2011-12 which shows a slow moving of stock during the study period .
Age of Inventory:
As per Table-1 age of inventory decreases from 40 days to 39 days between 2004-05 and 2013-14. With an
average of 39 days it shows that the company had not been able to control the age of inventory during the
study period resulting in slow movement of stock.
Debtors Turnover Ratio:
Page 37
Copyright  2014 Academica Science Journal. All rights reserved.
Academica Science Journal
No. 2 (5) – 2014
Economica Series
ISSN: 2285 - 8067
As per Table-1 it is clear that Debtors turnover ratio had been increasing from 18.56 times in 2004-05 to
35.59 times in 2013-14. This shows that the company has been able to accelerate the collection policy and
shows efficiency in receivable management during the study period.
Average Collection Period:
As per Table-1 it is clear that the average collection period of the RIL had been decreased from 19 days to
10 days between 2004-05 and 2013-14 with an average of 16days. It indicates the efficient collection policy
of the company.
Working Capital Turnover Ratio:
As per Table-1 it is clear that working capital turnover ratio fluctuated from 6.27 times to 11.48 times between
2004-05 and 2013-14. Lowest ratio is 5.97 times in 2012-13 and highest ratio is 11.48 times in 2006-07 with
an average of 7.41 times which shows that working capital is used seven times in a year during the study
period.
Current Assets to Total Assets:
From Table-1 it is evident that on an average near about 35% are current assets. It indicates that during the
study period one third portion of total investment had been made for working capital purpose. It also shows
that in the last few years investment in current assets in total assets is decreasing as compared to the initial
years.
Current Assets to Total Sales:
As per Table-1 ratio of current assets to total sales the highest is .43 in 2004-05 and lowest is .26 in 2006-07
with an overall average of .38 times which is not very positive from efficiency point of view.
Liquidity Position of Reliance Industries Ltd.:
Table-2 Liquidity Position of Reliance Industries Ltd.( From 2004-05 to 2013-14)
(Rs.in Crores)
Year
Current Assets
Liquid Asseets
Current Liablities
Working Capital
Increase/decrease
2003-04
22709.77
15478.55
12955.22
9754.55
2004-05
28452.51
21039.63
17131.52
11320.99
1566.44
2005-06
24574.45
14454.63
16454.48
8119.97
-3201.02
2006-07
29913.35
17776.84
18578.4
11334.95
3214.98
2007-08
42885.84
28638.3
24038.09
18847.75
7512.8
2008-09
54712.27
39875.55
35701.9
19010.37
162.62
2009-10
62379.1
35397.48
40414.83
21964.27
2953.9
2010-11
95,877
66051.62
70,484
25393
3428.73
2011-12
1,32,344
96389
68,888
63456
38063
2012-13
1,43,976
101247
83,286
60690
-2766
2013-14
1,35,333
92401
95,566
39767
-20923
75044.752
51327.105
47054.322
27990.43
3001.245
SD
45239.73055
32754.6184
28349.75576
19034.59451
13799.00946
Growth
Rate
375.6452067
339.1759741
457.8372497
251.2678661
Mean
Source: Compiled from Annual Reports of Reliance Industries Ltd ( From 2004-05 to 2013-14)
Page 38
Copyright  2014 Academica Science Journal. All rights reserved.
Academica Science Journal
No. 2 (5) – 2014
Economica Series
ISSN: 2285 - 8067
It is observed from the Table-2 that current assets had been increased from Rs. 28452.51 crores to Rs.
1,35,333 crores between 2004-05 and 2013-14. Mean of current assets is Rs. 75044.752 crores with a
growth rate of 375%. Standard deviation is Rs. 45239.73 crores which shows a steady growth of current
assets during the study period.
Liquid assets had also been increased from Rs. 21039.63 crores to Rs. 92401 crores between 2004-05 and
2013-14 with an average of Rs. 51327.105 crores. The growth rate is 339% which shows that the company
had sufficient liquid assets for maintaining its liquidity position during the study period. The standard
deviation is Rs. 32754.61 crores.
Current Liabilities had been increased from Rs. 17131.52 crores to Rs. 95,566 crores between 2004-05 and
2013-14 with a growth rate of 457 % during the study period. The average is Rs. 47054.322 crores and
standard deviation is Rs. 28349.75 crores. The growth rate of current liabilities is much higher than the
growth rate of current assets and liquid assets.
Working Capital had been increased from Rs. 11320.99 crores to Rs. 39767 crores between 2004-05 and
2013-14 with an overall average of Rs. 27990.43 crores. It registered a growth rate of 251 % with standard
deviation of Rs. 19034.59451 crores. It showed a positive trend always during the study period except only in
2005-06, 2012-13 and 2013-14.
Composition of Working capital:
Out of the five elements of working capital the element namely inventory contributed highest in gross working
capital between 2004-05 and 2013-14 with an average of 33.26%. Whereas the loan & advances contributes
the second highest portion with an average of 23.91 % during the study period between 2004-05 and 201314.
Table-3 Component of Working Capital with Respective Percentage of Reliance Industries Ltd. ( From
2004-05 to 2013-14)
(Rs. In Crores)
Year
Inv to CA
Debt
CA
%
%
to
Cash &
Bank to
CA %
Other CA
to CA %
Loan
ADV
CA
&
to
%
2004-05
26.05
13.81
12.68
7.33
40.12
2005-06
41.18
16.94
8.73
0.1
33.04
2006-07
40.57
12.48
6.14
0.01
40.81
2007-08
33.22
14.52
9.98
0.17
42.11
2008-09
27.12
8.36
40.53
0.09
23.91
2009-10
43.25
18.69
21.58
0.15
16.33
2010-11
31.11
18.19
28.3
0.21
17.7
2011-12
27.17
13.92
29.92
0.19
8.38
2012-13
29.68
8.25
34.41
0.33
7.62
2013-14
31.72
7.88
27.06
0.34
8.33
33.107
13.304
21.933
0.892
23.835
6.019239
3.850993
11.33356
2.148175
13.44699
Mean
SD
Source: Compiled from Annual Reports of Reliance Industries Ltd ( From 2004-05 to 2013-14)
Page 39
Copyright  2014 Academica Science Journal. All rights reserved.
Academica Science Journal
No. 2 (5) – 2014
Economica Series
ISSN: 2285 - 8067
During the study a remarkable change in share of different elements of working capital took place. The share
of Loan and advances in gross working capital decreased from 40.12% to 23.91 % between 2004-05 and
2013-14. This shows that the company had been able to control its investment in loans and advances.
Whereas the inventory to working capital increased from 26.05 % to 33.26 % which shows that the company
had increased its investment in inventory during the study period. Debtors to gross working capital also
decreased from 13.80% to 7.88% which shows that the company is being good in manging credit policy
during the study period. The company maintained necessary cash and bank balance during the study period
and this definitely affects positively the profitability of the company.
Liquidity Ranking:
Table-4 shows that the years 2004-05 registered the most sound liquidity and were followed by 2010-11,
2011-12, 2008-09, 2007-08,2012-13,2013-14,2009-10,2005-06 and 2006-07. The fluctuation in the liquidity
position over different year’s of the study may be a point for investigation in the financial efforts of the
concern.
Table-4 Liquidity Ranking in order of Liquidity of Reliance Industries Ltd.( From 2004-05 to 2013-14)
Year
Inv to CA
Debt
CA
%
%
to
Cash
Bank
CA %
&
to
Other CA
to CA %
Loan
ADV
CA
&
to
Liquidity Ranking
Total
%
1
2
3
4
5
Overall
Ranking
2004-05
26.05
13.81
12.68
7.33
40.12
1
6
7
1
3
18
1
2005-06
41.18
16.94
8.73
0.1
33.04
9
3
9
8
4
33
9
2006-07
40.57
12.48
6.14
0.01
40.81
8
7
10
10
2
37
10
2007-08
33.22
14.52
9.98
0.17
42.11
7
4
8
6
1
26
5
2008-09
27.12
8.36
40.53
0.09
23.91
2
8
1
9
5
25
4
2009-10
43.25
18.69
21.58
0.15
16.33
10
1
6
7
7
31
8
2010-11
31.11
18.19
28.3
0.21
17.7
5
2
4
4
6
21
2
2011-12
27.17
13.92
29.92
0.19
8.38
3
5
3
5
8
24
3
2012-13
29.68
8.25
34.41
0.33
7.62
4
9
2
3
10
28
6
2013-14
31.72
7.88
27.06
0.34
8.33
6
10
5
2
9
32
7
33.107
13.304
21.933
0.892
23.835
6.019239
3.850993
11.33356
2.148175
13.44699
Mean
SD
Source: Compiled from Annual Reports of Reliance Industries Ltd ( From 2004-05 to 2013-14)
Estimation of Working Capital:
Table-5 shows that there was a shortage of working capital except in the years 2004-2005, 2007-08, 201112 and 2012-13. The shortage of working capital in 2005-2006 was Rs. 782.60 crores which increased to
Rs. 12083.50 crores in 2013-14. On the other hand, the excess of working capital mode is decreased from
Rs. 7190.50 crores in 2003-04 to Rs. 13611.60 crores in 2012-13.
Page 40
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Academica Science Journal
No. 2 (5) – 2014
Economica Series
ISSN: 2285 - 8067
Table-5 Estimation of Working Capital on the basis of Trend Analysis
Year
Coded
Value
(X)
Working
Capital(Y)
(O)
X2
Estimated
Working
Capital(E)
XY
Difference
(O-E)
Chi-Test
2004-05
-5
11320
25
-56600
4129.50
7190.50
12520.47
2005-06
-4
8119
16
-32476
8901.60
-782.60
68.80
2006-07
-3
11334
9
-34002
13673.70
-2339.70
400.34
2007-08
-2
18847
4
-37694
18445.80
401.20
8.73
2008-09
-1
19010
1
-19010
23217.90
-4207.90
762.62
2009-10
1
21964
1
21964
32762.10
-10798.10
3558.96
2010-11
2
25,393
4
50786
37534.20
-12141.20
3927.32
2011-12
3
63456
9
190368
42306.30
21149.70
10573.13
2012-13
4
60690
16
242760
47078.40
13611.60
3935.47
2013-14
5
39767
25
198835
51850.50
-12083.50
2816.00
27990
∑x2=110
524931
∑X=0
21247.24
* Yc stands for computed values of working capital based on the least squares equation in the form of Yc = a
+ bX, where the equation comes to Yc = 27990 + 4772.1 X with origin at the year 2004-05; X unit = 1 year
and Y unit = rupees in crore.
To test the significance between the differences of the actual values and trend values of working capital in
the company, χ2 test has also been applied. It can be observed that the tabulated value of χ2 is 11.10 at 5%
level of significance, while the calculated value of χ2 is 21247.24. As the calculated value of χ2 is more than
the tabulated value of χ2 test, It shows that difference between estimated and actual working capital is
fluctuating and large.
Impact of Working capital on Profitability
The co-efficient of correlation between the profitability ratio and current ratio of the company is 0.065. This
indicates that there is a comparatively low degree of positive correlation between the two variables. The coefficient of correlation between the profitability ratio and quick ratio (LR) stands at-0.08. This indicates that
there is a very low degree of negative correlation between the two variables. The co-efficient of correlation
between the profitability ratio and Absolute liquid ratio stands at -0.19. This indicates that there is low degree
of negative correlation between the two variables. The correlation between profitability and working capital
turnover ratio (WTR) is 0.38 that indicates a low positive correlation between the variables. The correlation
between Inventory turnover ratio and profitability is with 0.24 which indicates that there is positive correlation
between inventory turnover and profitability as the results indicate. The correlation co-efficient between the
Debtors turnover ratio and Profitability ratio is -0.11 which indicates a low negative correlation between these
two variables. The above observations indicate a low positive correlation between current ratio and
profitability and strong negative correlation between Debtors Turnover ratio and profitability. (See Table-6)
Table-6 Working Capital and Profitability- Correlation Analysis
Year
Current
Ratio
Liquid
Ratio
Absolute
Liquid
Ratio
Inventory
Turnover
Ratio
Age
of
Inventory
Debtors
Turnover
Ratio
Average
Collection
Period
Working
Capital
Turnover
Ratio
Current
Asset
to Total
Assets
Ratio
Current
Assets
to Total
Sales
Ratio
PBT
2001-02
2.53
1.88
1.53
11.57
32
21.83
17
5.29
0.4
0.46
10.52
2002-03
2.1
1.41
1.14
7.35
50
16.11
23
3.87
0.43
0.5
10.84
2003-04
1.75
1.2
0.95
7.03
52
16.8
22
4.77
0.39
0.44
12.16
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Academica Science Journal
No. 2 (5) – 2014
Economica Series
ISSN: 2285 - 8067
2004-05
1.66
1.23
0.99
9.02
41
18.56
20
6.27
0.45
0.43
13.73
2005-06
1.49
0.88
0.63
9.26
39
20.07
18
8.36
0.32
0.3
13.18
2006-07
1.61
0.96
0.76
10.04
36
28.29
13
11.48
0.3
0.27
13.00
2007-08
1.78
1.19
0.93
10.12
36
26.79
14
8.84
0.34
0.32
17.24
2008-09
1.53
1.12
0.99
9.75
37
26.27
14
7.49
0.26
0.39
12.99
2009-10
1.54
0.88
0.59
9.21
40
23.71
15
9.39
0.3
0.32
10.68
10.17
2010-11
1.69
1.14
0.82
8.74
42
17.06
21
8.37
0.4
0.37
Correlation
Coefficient
-0.31
-0.24
-0.17
0.20
-0.26
0.49
-0.44
0.30
-0.23
-0.39
Source: Compiled from Annual Reports of Reliance Industries Ltd ( From 2004-05 to 2013-14)
CONCLUSIONS
From the view point of conventional standard of current ratio, working capital ratio, liquid ratio, absolute test
ratio. The short term liquidity is not very much satisfactory.
i)
The mean percentage of current assets to total is decreasing from 45% to 37% which shows that the
company has been trying to control its capital blocked in current assets.
ii)
The age of inventory decreased from 41 days to 38 days which reflects a slow turnover of stock
which is not very much positive from liquidity point of view.
iii)
Average collection period of Debtors also decreased from 20 days to 10 days which shows the
efficient collection policy of the company.
iv)
The element wise analysis of working capital reveals that in the initial years inventory constituted
highest amount of gross working capital but in the later years loans and advances constituted the highest
amount of gross working capital as compared to other components.
In this study it is clear that only the liquid ratio is showing sound liquidity position of the company. The overall
working capital position is not very much satisfactory. The management of the company has to take steps to
control the increase in current liabilities. The growth rate of which is very much higher than the growth rate of
current assets and liquid assets. It has to also brings efficiency in its receivables management.
AUTHOR
Dr. Sankar THAPPA is Associate Professor at Department of Business Administration, School of Business
Science, University of Science & Technology,Meghalaya, 9th Mile, Ri-bhoi District, Meghalaya,India
Email:sankarbhakta@yahoo.com
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ISSN: 2285 - 8067
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