On the comparison of review of literature we also have to see to the fact that the main thing that they have to maintain in the management of cash is the payment of cash. The working capital is also considered as the minimum investment in the business where it is done for the maintenance of daily business. This is aimed at the long term achievement of goals of business. They do have the investments in the current assets of business. The investment is in the current assets like the cash, inventory, etc. The working capital is used in the business in many ways.
Current ratio: The analysis of current ratio of company shows that the liquidity of company is increasing gradually over the years. In the year 2005 the ratio was 0.70, in the year 2006 it went down slightly to 0.68. But after that there was an increase in the ratios over the years from 0.73 in the year 2007 to 0.80 in the year 2008 and finally in the year 2009 it was 0.93 which shows a massive performance. Thus from this ratio we can say that the performance and liquidity of company is improving over the years.
The maintenance of working capital is the most important part in the development of firm. As this decides in the long run whether the company is functioning properly or not and profitability and liquidity of company can be decided only based on this. The repeated cost that is involved in the business is maintained by the proper control of working capital . Also the control of working capital differs from smaller to the larger firms. The company also had a lot of problems in the control of working capital after the year 2004 which made huge problems in the outstanding payments.
Quick Ratio: Similar to the liquidity of company the quick ratios liquidity is also increasing over the years. The quick ratio of company was 0.44 in the year 2005 and it had a decrease to 0.41 in the year 2006. It got boosted to 0.45 in the year 2007. The ratio again increased to 0.53 in the year 2008 and it increased to 0.62 in the year 2009, thus showing a massive amount of good performance. Thus on the analysis of ratio (both the liquidity and quick ratio) it could be said that the liquidity of company is improving and performance of company is good over the years.
The concept of zero working capital is very popular in the globalised world and this is not very suitcompetent for all the businesses. Since the manufacturing industry uses the concepts like the Just in Time and other advanced technology like the ERP etc that will be of assistance to the management to have the Zero working capital but this is not possible for all the kinds of business like the supermarkets, banks, and for the small scale and medium scale industries. Thus the working capital is compared with the current assets and current liabilities of firm.
Cash Cycle: The stock holding period's average and average receivables processing period is added and average payables processing period is deducted from this which gives the cash cycle of company. For the year 2005 the cash cycle was 35 days and throughout the year there was a massive improvement that the days went negative. The company was competent to get their cash in advance that is before 34 days in the year 2006.35 days before in the year 2007, 36 days before in the year 2008 and 54 days before in the year 2009 which is the huge improvement in the performance of company.
Operating cycle: The operating cycle of company has showed a remark competent improvement over the years. The operating cycle was 182 days in the year 2005; it reduced to 108 in 2006, then to 107 in the year 2007. There was an immense decrease to 97 days in the year 2008 and to 94 days in the year 2009. The lesser the days of operating cycle the better the performance of company as this will prevent the bad debts that can occur for the company in the future due course of time.
When we analyze the working capital in the FMCG sector we could see that they are the sector that has the quick turnover of inventory and other materials. The FMCG products are the one that have a quick turnover, since they include the wide range of products that is regularly used by the people in their daily lives so that it is sold soon. The operational cost that is incurred for the sales in the urban plus the rural area varies. The spending pattern of people in the FMCG is always good, even when the other industries faced the problem the FMCG is the one and only industry that didn't face much loss.
Stock holding period: The stock holding period of company has decreased over the years which are a good performance indicator. It was 73 days in the year 2005, 68 days in the year 2006, in the year it got reduced. In the year 2007 there was a slight increase of one day that is it went up to 69 days. Then in the year 2008 it went down to 66 days and finally in the year 2009 it comes down to 63 days.
Debtor's days: There is a great improvement in the debtor's days of company. In the year 2005, the collection days was 108 days; in the year 2006 the collection days was 39 days, in the year 20057 it reduced to 38 days, in the year 2008 there was a great decrease in the days which reduced to 30 days, the last year there was a slight increase in one day that is 31 days for the recovery in the year 2009.
Creditors Days: The creditor's days have decreased over the years not very immensely but still the days could help the company to maintain their profits and liquidity. In the year 2005 it was 147 days, in the year 2006 it was 142 days in the year 2005 also it remained as 142 days. In the year 2008 it reduced in a large manner to 133 days. The year 2009 it increased to 149 days, which is quite larger and benefit for the company.
Gross Margin: The analysis of gross margin shows that it is very high in the year 2005 which is 29% and then in the year 2006 it has reduced greatly to 12.19%, then in the year 2007 it reduced to 12.90%. , in the year 2008 it had an increase to 17.59%, and finally in the year 2009 it had a steep fall to 12.34%.
The profitability of company can also be measured and research proves that it is the profitability of company that affects the working capital and not the working capital that affects the profitability. The profitability if it goes down then the amount that is being invested on the working capital decreases. The growth rates that the firm has also over the years increases if they have the proper control of working capital . The valuation of firm while they are getting the loan is analyzed by the usage of working capital.
Operating Margin: The operating margin was very high for the company during the year 2005, it was 32.78. It had a huge decline in the operating margin which reduced to 13.64 in the year 2006. In the year 2007 it reduced to 13.05. The margin was high in the year 2008 which had an increase to 17.69, and finally in the year 2009 it again met a steep decrease to 12.61.
Return on Equity: The return that the company is earning from the shareholders equity is 1.06 in the year 2005, and it remains the same in the year 2006 plus the year 2007. In the year 2008 it had a slight decrease to 1.05, and finally in the year 2009 it had an increase to 1.09 when compared to all the previous year.
ROE: (Return on Equity) the analysis shows that the ROE is significantly higher when the creditor's days, quick ratio and current ratio are on the higher side. It is negatively correlated to the operating margin, gross margin, debtor's days, stock holding period, operating cycle, and cash cycle.
OM: (Operating Margin): the analysis shows that the operating margin is significantly higher when the gross margin, debtor's days, stock holding period, operating cycle, and cash cycle are on the higher side. It is negatively correlated with the quick ratio and current ratio.
GM: (Gross Margin): the gross margin is positively correlated with the debtor's days. It is negatively correlated with the quick ratio and current ratio.
CD: (Creditors days): there is no highly positive and highly negative correlation.
DD: (Debtors Days): the debtor's days is highly correlated with the stock holding period, operating cycle, and cash cycle. It is negatively correlated with the quick ratio and current ratio.
SHP: (Stock holding period): the stock holding period is significantly higher when the operating cycle, and cash cycle are on the higher side. It is negatively correlated with the quick ratio and current ratio.
OC: (Operating cycle): the operating cycle is significantly higher when the cash cycle is on the higher side. It is negatively correlated with the quick ratio and current ratio.
CC: (Cash Cycle): It is negatively correlated with the quick ratio and current ratio.
QR: (Quick ratio): It is positively correlated with the current ratio.
The liquidity and profitability of firm are also decided by proper control of working capital. Thus the major objective of working capital is that it has to keep a balance between the liquidity and profitability of firm. Thus the working capital is a chief factor in the firms where they have the very small working capital for the management of their company in their routine day to day operations. Thus the circulation of finance in the business stays an important role in the business. Thus for the long time business the profitability and liquidity must not be dependent on a large rate.
The current assets can be classified as stock, trade debtors, cash which includes the cash, current bank accounts, and short term securities. The control of working capital depends on all these sources. The management of stock is the major reason in the development of stock. It is in the determination of stock, the stock management models, the system of maintenance of stock, and maintenance of stock ratios. The administration of receivables is the other main methods that are very essential in the maintenance of working capital.
The receivables plus the payables is also maintained along the working capital for the proper control of working capital as this is the main thing that determines the working capital needs in a company. The big recessions and inflations that turned down the economy is the subprime crisis in the US and whole world is the improper control of working capital. When the working capital is not utilized properly it will end up in the closing down of firm. The financial analysts also debate on this topic as they deal with the importance of survival of firm.
The repeated cost that is involved in the business is maintained by the proper control of working capital. Also the control of working capital differs from smaller to the larger firms. The company also had a lot of problems in the control of working capital after the year 2004 which made huge problems in the outstanding payments. Since the working capital of firm is also affected by many other factors they do try to balance that. The one of important factor among them are the management of real time information among the stakeholders
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There are also many exterior aspects that create an effect the working capital of firm that is the fluctuations in the business, the transform in the technology, the policy of import, the infrastructural facilities and policy that the company has adopted for the taxation is also involved in deciding the working capital.
There exist many kinds of methods to analyze the working capital and operating cycle of business. There are many benefits that the companies receive on the proper maintenance of working capital. They are the solvency or the easy maintenance of business; they can also get the brand image among the customers and their other stake holders.
It's possible for them to get loan easily since they have the good management of their daily business. They can also get the cash discounts from their creditors through the proper control of working capital. There is furthermore a regular payment of short term commitments like the salaries, wages, etc.
They do have the ability to face the unpredict competent situations where they face the problem. They do have the high morale. Also on the contrary they must not have the excess of working capital as this is going to affect the funds since they would be kept idle. Overall the performance of company is analyzed with the working capital of firm. They decide whether it's going to be positive or the negative.
Thus the firm has to maintain the optimum working capital since the firm will face problem if it is the minimum or the maximum. Thus the working capital must be maintained in an optimum level. The main items that come under the control of working capital is the management of cash that is receivables and payables, the inventories that is maintained.
Among this the control of working capital is the most important concept is the management of inventory. They do adopt many measures for the control of working capital. They do have to manage the cash in the company that is receivables and payables.
