A Comparative Study on Working Capital Management of Select Paint Companies in India

Transcription

1 A omparative Study on Working apital Manageme of Select Pai ompanies in India Merajud Din Drangay, Dr. N. Periyasami Research Scholar, Associate Professor, Departme of ommerce, Annamalai university, India. Abstract - The study has been done to know the comparative position of pai companies namely, Asian pai ompany, Nerolac Pai ompany Shalimar Pai company. in working capital manageme by applying various analyses such as compone - wise analysis, ratio analysis by taking data from the year 0-3 to 0-. The study reveals that Asian Pai company has highest growth of net working capital during holding period followed by Nerolac Pai company. Average Accou ollection period is highest with Shalimar Pai company i.e. 0. days followed by Nerolac Pai company.3 days the lowest Average collection period of Asian pai is.3 days. It is observed that the lowest Accou collection period is found in Asian pai company. A low collection period means prompt collection better manageme of receivables in Asian pai company than other two sample companies. The highest Accou collection period is found in Shalimar pai company. The longer collection period may negatively affect the short-term debt paying ability of the business. Key words: Working apital, compone wise analysis, Accou payable Accou ollection. I. INTRODUTION Working capital is the life blood nerve system of any business. Just as circulation of blood is esseial in the human body for maiaining life, working capital is also esseial to maiain the smooth running of the business. Working capital refers to the excess of curre assets over curre liabilities. Manageme of working capital therefore, is concerned with the problems that arise in attempting to manage the curre assets, the curre liabilities the ier-relationship that exists between them. The basic goal of working capital manageme is to manage the curre assets curre liabilities of a firm in such a way that a satisfactory level of working capital is maiained so that it is neither inadequate nor excessive. This is so because both inadequate as well as excessive working capital positions are bad for any business. Inadequacy of working capital may lead the firm to insolvency excessive working capital implies idle funds which earn no profit for the business. Working capital manageme policies of a firm have a great effect on its profitability, liquidity structural health of the organization. II. OVER VIEW OF PAINT INDUSTRY India is the second largest pai market in Asia with an annual dem of over two million tonnes. The Indian pai industry has been growing constaly over the last decade. Growth has been consta with the GDP growth rate in various years even higher. Over the past few years, the Indian pai market has extensively grown caught the atteion of many iernational players. The coury coinues to have a healthy growth rate compared to other economies, backed by the increasing level of disposable income, dem from infrastructure, industrial automotive sectors. On the back of such advocacy, it is aicipated that the sector post a AGR (ompound Annual Growth Rate) of around 5 per ce during 0 to 05, The Indian Pai Industry posted a AGR of around. perce during 03- to 05- in India. The emergence of the middle class in India, growing infrastructure, increase in the tendency to spend growing young population inclined towards lavish lifestyle are the reasons that spurred the Indian pai industry to new heights. In Financial year 05, the pai industry stood at Rs 0,00 crore with per capita consumption increasing to over kgs, out of which the decorative segme coributed nearly 3 per ce at Rs,3 crore, while the remaining Rs 0, crore was coributed by the industrial segme. Objectives of the study Following are the Objectives of the prese Study.. To study the manageme of working capital compones of select pai companies. To study the structure of the working capital of select pai companies.. III. METHODOLOGY OF THE STUDY The research methodology is one of the significa concepts in any research study. To compare the key working capital IJREAMV0I000 DOI : 0.3/ , IJREAM All Rights Reserved.

2 compones ratios of selected companies, the exploratory analytical research design is used for their calculation. The sample select pai companies for this study are Asian Pai ompany, Nerolac Pai ompany Shalimar Pai ompany. This study is totally based on the secondary data which have been collected from differe sources like newspapers, journals, articles annual reports of the companies etc. The study is done on basis of data for the period of 5 years from the financial year 0-3 to 0-. IV. DATA ANALYSIS AND INTERPRETATION The analysis of working capital manageme of select pai companies is arranged in the following parts:. ompone - wise analysis of Working apital. Ratio analysis Information found in published financial statemes is often not enough to form conclusive judgmes about company s performance, financial statemes to provide importa clues about what needs to be examined in greater detail. Analysis of financial statemes is of ierest to lenders, investors, security analysts, managers, regulators others. Financial stateme analysis may be done through various techniques like horizoal analysis, vertical analysis etc. but ratio analysis is a widely used tool for analysis. It enables the stakeholders to mark trends in a business to compare its performance with competitors. This research uses a ratio analysis to examine working capital position manageme of pai companies in India. Table ompone Wise Analysis of Working apital of Asian Pai ompany from 0-3 to 0- Yea r Mea n Inveo ry urre Invest. Sundr y Debto rs ash Balan ce urre Advanc es urre Liabiliti es & Provisio ns Worki ng apital S.D In rores Source: omputed from the Annual Reports of Asian pai Ierpretation Table shows compones Analysis of working capital of Asian Pai ompany from 0-3 to 0-. It is observed that the Inveory holds major portion in total curre assets. On an average, Inveory holds. perce in total curre assets whereas, curre Investmes holds. perce, Sundry Debtors & cash bank balance hold.3 perce &.03 perce portion of total curre assets respectively. & advances other curre assets hold 3.0 perce.3perce respectively. The average urre assets of Asian pai company from 0-3 to 0- was 0., whereas average curre liabilities was 5.. The average net working capital of Asian pai company is 5.3 the SD is.. Table ompone Wise Analysis of Working apital of Nerolac Pai ompany from 0-3 to 0- Yea r Inveo ry urre Invest. Sundr y Debto rs ash Balan ce urre Advanc es urre Liabiliti es & Provisio ns In rores Worki ng apital IJREAMV0I000 DOI : 0.3/ , IJREAM All Rights Reserved.

3 Mea n S.D Source: omputed from the Annual Reports of Nerolac Pai Table shows compone wise Analysis of working capital of Nerolac Pai ompany from 0-3 to 0-. It is observed that the Inveory holds major portion in total curre assets. On an average, Inveory holds 0.3 perce in total curre assets whereas, curre Investmes holds 3. perce, Sundry Debtors & cash bank balance hold 3. perce &. perce portion of total curre assets respectively. & advances other curre assets hold. perce. perce respectively. The average urre assets of Nerolac pai company from 0-3 to 0- was 5., whereas average curre liabilities is 5.. The average net working capital of Nerolac pai company is. the SD is So after the compones wise analysis of curres assets it is observed that that the net working capital is shown as increasing trend. Table 3 ompones Wise Analysis of Working apital of Nerolac Pai ompany from 0-3 to 0- In rores Year Inveory Sundry Debtors ash Balance urre Advances urre Liabilities & Provisions Working apital Mean S.D Source: omputed from the Annual Reports of Shalimar Pai. In table 3 of compone wise analysis of Shalimar pai company, it is observed that the Sundry Debtors holds major portion in total curre assets. On an average, sundry debtors holds.3 perce in total curre assets whereas curre inveory holds 3. perce, cash bank balance hold. perce portion of total curre assets respectively. & advances other curre assets hold 3. perce 0.5 perce respectively. The average urre assets of Shalimar pai company from 0-3 to 0- was 30., whereas average curre liabilities was.. The average net working capital of Shalimar pai company is 3. the SD is.. So the compone wise analysis of curres assets we observe that the net working capital is shows decreasing trend as in the first year of study period it is crores but at the end of the 0- it is -.. Table Average Growth of Working apital ompones during Holding Period from 03 to 0 ompones Asian Pai Nerolac Pai Shalimar Pai Inveories urre Investmes Trade Receivable ash Balance Advances urre urre..0.0 urre Liabilities IJREAMV0I000 DOI : 0.3/ , IJREAM All Rights Reserved.

4 Provisions urre Liabilities Working apital Source: omputed from the Annual Reports of (i) AP Asian Pai (ii) NP Nerolac Pai (iii) SP Shalimar Pai. From table of Average Growth Rate of Working apital ompones of select pai companies during the period from 0-3 to 0-, it is observed that the Asian pai has highest growth of NW during holding period followed by Nerolac Pai ompany the low net working capital is with Shalimar pai company of.3 perce. Average growth rate of curre liabilities is highest with Asian pai company which is 3.3 perce followed by Shalimar pai company of.3 perce. The Average Growth Rate of inveories is more in Asian pai company by. perce followed by Nerolac pai company by.0 perce, but it is negative in Shalimar pai company by -.5 perce. Table 5 Working apital Ratio Analysis of Asian Pai ompany from 03 to 0 Ratios Mean SD AGR urre to Ratio Accou Receivable Turnover Ratio Average ollection Period (Days) Accou Payable Turnover Ratio Average Payable Period (Days) Source: omputed from the Annual Reports of Asian Pai Table 5 reveals the working capital analyses of Asian pai company from the year 0-3 to 0-. In this table it is observed that the average curre assets to total assets ratio of Asian pai company is 0.5 during the study period. The highest curre assets to total assets ratio is 0.5 in the year 03- & 0-5 the lowest is 0.5 in 05-. The Average Accou Receivable Turnover Ratio is. the co-efficie of Variation is.3 perce. The highest Accou Receivable Turnover ratio is.5 in the year 0-5 lowest is.3 in 0-. Average collection Period shows fluctuating trend during study period it is highest by 5.5 days in the year 0- lowest by 0. days in the year 0-5. The mean value of Accou Payable Turnover Ratio is.5 the SD is 0.30 perce with the AGR of -. Average Payable Period also shows fluctuating trend it remains on an average.3 days in last five years. The highest Payable Period is 3.5 days in 03- lowest is. days in 0-5. Table Working apital Ratio Analysis of Nerolac Pai ompany from 03 to 0 Ratios Mean SD AGR urre to Ratio Accou Receivable Turnover Ratio Average ollection Period (Days) Accou Payable Turnover Ratio Average Payable Period (Days) Source: omputed from the Annual Reports Nerolac Pai ompany. Table shows the working capital analyses of Nerolac pai company from the year 0-3 to 0-. This table depicts that the average curre assets to total assets ratio of Nerolac pai company is 0.5 during the study period. The highest curre assets to total assets ratio is 0. in the year 05- the lowest is 0.5 in 0-3. The Average Accou Receivable Turnover Ratio is. the co-efficie of Variation is.3 perce. The highest Accou Receivable Turnover ratio is.03 in the year 0-5 lowest is.0 in 0-. The Average collection Period shows fluctuating trend during study period it is highest is. days in the year 03- lowest is 5. days in the year 05-. The mean value of Accou Payable Turnover Ratio is. the SD is 0. perce with the AGR of -3. Average Payable Period also shows fluctuating trend it remains on an average.0 days in last five years. The highest Payable Period is 0.3 days in 05- lowest is 5.5 days in 0-5. Table WORKING APITAL RATIO ANALYSIS OF SHALIMAR PAINT OMPANY Ratios Mean SD AGR urre to Ratio Accou Receivable Turnover Ratio Average ollection Period Accou Payable Turnover Ratio Average Payable Period Source: omputed from the Annual Reports Shalimar Pai ompany. V V V 30 IJREAMV0I000 DOI : 0.3/ , IJREAM All Rights Reserved.

5 Table shows the working capital analyses of Shalimar pai company from the year 0-3 to 0-. In this table it is observed that the average curre assets to total assets ratio of Shalimar pai company is 0.0 during the study period. The highest curre assets to total assets ratio is 0. in the year 0-3 the lowest is 0. in 0-3. The Average Accou Receivable Turnover Ratio is 3.30 the co-efficie of Variation is.0 perce. The highest Accou Receivable Turnover ratio is 3. in the year 0-3 lowest is 3.3 in 0-5. The Average collection Period shows fluctuating trend during study period the highest is. days in the year 0-5 lowest is 00. days in the year 0-3. The mean value of Accou Payable Turnover Ratio is. the SD is 0.3 perce with the AGR of -. Average Payable Period also shows fluctuating trend it remains on an average. days in last five years. The highest Payable Period is 5. days in 0- lowest is 3. days in 0-3. V. FINDINGS. The average annual growth rate of Inveory of the Asian pai is. perce that is the highest compared to other companies, whereas negative inveory is with the Shalimar pai company.. Trade Receivable annual growth rate of the Asian pai company has 5.3 perce is highest which shows more effective in the manageme of debtors, but negative is with Shalimar pai company. 3. The average of net working capital of Asian pai company is 33. perce which is highest as compared to the other companies, whereas it is lowest to Shalimar pai company as.3 perce.. The Mean of Accou collection period is highest in Shalimar pai company which is 0 days the lowest is with the Asian pai company of.3 days. 5. The Average of accou payable period of Shalimar pai company is. days that is highest as compared to other companies, while the Nerolac pai company has.3 days. VI. SUGGESTIONS. The Annual Growth Rate of Shalimar Pai ompany is negative, so they have to concerate on the sales strategies by implemeing the various marketing activities that leads to increase the profit.. working apital of Shalimar pai company is low as compared to other two companies which means company s curre liabilities exceeds its curre assets that may affect the growth of the company. So they have to work on curre assets over curre liabilities to improve its net working position much better. 3. Shalimar pai company needs to lower average collection period. However average collection period of Asian Pai company was very less. It may have negative impact on credit sales. Therefore proper care should be taken for collection policy. VII. ONLUSION Decision relating to working manageme involves managing the relationship between a firms short term assets its short term liabilities. The goal of working capital manageme is to ensure that the firm is able to coinue its operations that it has sufficie cash flow to satisfy both maturing short term debt upcoming operation expenses. Relating to the study of the comparative working capital manageme of differe pai companies, the net working capital is good with Asian Pai ompany Nerolac Pai ompany but low in Shalimar Pai ompany as compared to other sample companies that indicate that company has a obstacle in day to day operation. So the Shalimar pai company should improve their net working capital.the overall study shows that working capital manageme is satisfactory. REFERENES [] M Y Khan P K Jain Financial Manageme Fifth Edition: The McGraw Hill ompanies. [] Pey I M Financial Manageme Delhi: Vikas Publication Pvt. Ltd. [3] Narayanswamy, R. (00). Financial Accouing: A Managerial Perspective. Delhi: PHI Publication Ltd. [] Nasr, A. r. (00). Working capital Manageme & Profitability -ase of Pakistani Firms. Iernational Review of Business Research Papers. [5] Pey, I. M. (00). Financial Manageme. Delhi: Vikas Publication Pvt. Ltd. [] Singh, D. &. (00). Manageme of Working apital in IFFO & KRIBHKO- A omparative Study. Indian Journal of Finance. [] Visscher, H. J. (). Industry Practice Relating to Aggressive onservative Working apital Policies. Journal of Finance & Strategic Decisions. [] Akoto, R. K. (03). Working capital manageme profitability. Journal of economics iernational finance. [] Ebenezer, A. B. (03). The Relationship between Working apital Manageme Profitability of Listed Manufacturing ompanies in India. Iernational journal of business social research. [0] Moradi, M. (0). A omparison on Working apital Manageme of hemical Medicine Listed ompanies in Tehran Stock Exchange. Iernational journal of business behavioral science. [] Indian pai Industry Outlook IJREAMV0I000 DOI : 0.3/ , IJREAM All Rights Reserved.