A Study On Working Capital Management at Hil: Asan Institute of Management Page

A STUDY ON WORKING CAPITAL MANAGEMENT AT HIL
1.1 INTRODUCTION
As a part of curriculum, every student studying MBA has to undertake a
project on a particular subject assigned to him/her. Accordingly I have been assigned the
project work on the study of working capital management in HINDUSTAN
INSECTICIDES LIMITED, UDYOGAMANDAL.
"Cash is the lifeblood of business" is an often repeated maxim amongst

financial managers. Working capital may be defined as excess of current assets over current
liabilities.Working capital management refers to the management of current or short-term
assets and short-term liabilities. Components of short-term assets include inventories, loans
and advances, debtors, investments and cash and bank balances. Short-term liabilities
include creditors, trade advances, borrowings and provisions. The major emphasis is,
however, on short-term assets, since short-term liabilities arise in the context of short-term
assets. It is important that companies minimize risk by prudent working capital
management. The concept of working capital includes current assets and current liabilities
both. There are two types of working capital they are gross and net working capital.
However, in the overall day-to-day financial management, after the initial

investment, the management gives more importance to managing working capital. If we
look at any financial statement it will be evident that the investment in fixed assets remains
more or less static but the working capital is constantly changing. Thus the study of working
capital management occupies an important place in financial management.
HIL, a Govt. of India Enterprise, under the Department of Chemicals &

Petrochemicals, Ministry of Chemicals & Fertilizers, Govt. of India, was incorporated in
March, 1954 for supplying DDT for National Malaria Eradication Programme launched by
the Govt. of India. Subsequently, the company diversified into agro pesticides to meet the
requirements of agriculture sector and has grown manifold with a turnover of Rs. 2006.00
million rupees in 2006-07. Company has also entered into the field of safe and eco-friendly
botanical and bio-pesticides for public health and plant protection. It has also started
marketing of seeds in the northern, central and western parts of the country. The product
range includes Insecticides, Herbicides, Weedecides, Fungicides etc.
A S A N I N S T I T U T E O F M A N A G E M E N T P a g e 1 | 74
The company has been exporting its agro products to a number of countries
such as Netherland, UK, Jamaica, UAE, Manila, S.Korea, Belgium, Guatemala, France,
Germany, Argentina, Ethiopia, Egypt, Spain, etc. for the last more than a decade and its
products are well-accepted in the world market. Company has a wide network of marketing
throughout the country through its six Regional Sales Offices and good number of dealers.
The company has three manufacturing units located at Udyogamandal, near Kochi
(Southern India), Rasayani near Mumbai(Western India) and Bathinda in Punjab (Northern
India). The company also has a Research & Development complex including an
experimental farm at Gurgaon in Haryana.
HIL is actively involved in CSR activities, it is playing a vital role in

improving the quality of life of the people in its neighborhood. Company has contributed
funds to improve road facilities in its locality , providing stationaries to the students,
supplying Drinking water etc.
1.2 OBJECTIVES OF THE STUDY
i ) PRIMARY OBJECTIVE
To study and analyse liquidity & financial position of the company
ii ) SECONDARY OBJECTIVES
To study the sources & uses of funds at HINDUSTAN INSECTICIDES LTD.
To compare & analyse the working capital changes during the past five accounting
years.
To measure the financial viability of the company.
To measure the firms ability to meet its short term liabilities.
To make suggestions based on the findings of the study.
1.3 PROBLEM OF THE STUDY
This project deals with the study about Working Capital Management in
HINDUSTAN INSECTICIDES LIMITED. A study of working capital management is a
major importance to internal & external analysis because of its close relationship with the
current day to day operations of the business. Presently many insecticides processing units
in the private sector fails to perform well. The major reason behind this is the under
utilization of capacity and inefficient financial management of the units. The working
capital management is concerned with the problems related to utilizing current assets &
current liabilities properly. This study will help to get a practical touch about the theory of
working capital. Efficient management of working capital is the key to success of every
business. In this study an effort has been made to analyze the working capital management
in HIL. Hence the problem is stated as A Study on Working Capital Management at
Hindustan Insecticides Limited
1.4 SCOPE OF THE STUDY
This study covers last 5 years annual reports of HINDUSTAN INSECTICIDES
LIMITED.
The study enables the company to know the level of financial performance by using
Ratio Analysis & Statement of Changes in Working Capital.
To familiarize with the financial structure & functioning of Working Capital
Management of Organization.
The study paves a way to lay a good relationship between Students & Organization,
which is beneficial to the students as well as Organization.
1.5 NEED OF THE STUDY
The study has been conducted for gaining Practical Knowledge about Working
Capital Management.
This study is undertaken as a part of MBA curriculum in the month of May & June.
This study will be helpful for the management in measuring Financial Strength of
the Company.
1.6 LIMITATIONS OF THE STUDY
The duration of the study is short.
The Analysis is based only on last five years financial statements( 2010-2014)
Limited interaction with the concern heads due to their Busy work schedule.
Current year was excluded on account of non availability of data so the current
position of the company as not taken into consideration.
The study uses secondary data for analysis.
2.1 INDUSTRY PROFILE

India is one of the important developing countries in Asia Pacific. Agriculture
is the third largest sector of Indias economy and about 75% population depends on
agriculture. Though the countrys dependence on agriculture has fallen considerably, its
importance cannot be forsaken. Still more than half of the Indian population depends on
this sector for their livelihood. India has emerged as global power in the agriculture sector
by becoming a leading producer of food grains, commercial crops , fruits & vegetables.
Yet, the country will have to increase the yield of crops to feed its ever growing population.
Agriculture is the backbone of Indian economy. Ensuring food security for more
than 1.25 billion Indian populations with diminishing cultivable land resource is a
Herculean task. It necessitates use of high yielding variety of seeds, balance use fertilizers
, judicious use of quality pesticides along with education to farmers and the use of modern
farming techniques.
Modern agriculture depends on the four main factors viz:- water, fertilizers, seed
and pesticides. Pesticides are the integral part of modern agriculture. About 35-45 % crop
production is lost due to insects, weeds and diseases, while 35% crop produces are lost
during storage. Indian Agrochemical Industry size in estimated to grow US$ 6.8 billion in
year 2017. Over the 12th plan period, the segment is expected to grow at 12-13% per
annum. The Indian domestic demand is growing at the rate of 8-9% and export demand at
15%-16%.
PESTICIDE USAGE PATTERN IN INDIA
Figure 2.1.1
THE FIGURE BELOW SHOWS THE

PESTICIDE USE PATTERN IN INDIA
4% 16% HERBICIDES
FUNGICIDES
15%
65% INSECTICIDES
OTHERS
Cotton and paddy are the major crops where pesticides consumption is 50%
and 18%, respectively. Fruits and vegetables account for the significant share of
agrochemicals. Cotton covers only 5% of the cropped area but accounts for 50% of
pesticides. Rice is grown over 24% of the cropped area consume 18% of the pesticides. The
fruits, vegetables account for 18% cropped areas, while cereals, millets and oilseeds cover
58% areas. Sugarcane uses 2% of the pesticides and other crops grown over 6% of the
cropped area account for 1% only.
PERCAPITA USAGE OF PESTICIDES BY COUNTRY
Figure 2.1.2
PERCAPITA USAGE OF PESTICIDES BY

COUNTRY
7% 1%
7% 26%
11%
10%
20%
18%
TAIWAN CHINA JAPAN USA KOREA FRANCE UK INDIA
The per capita consumption of pesticides in India is 0.6 Kg/ha which is the
lowest in the world. The per capita pesticide consumption in China and USA is 13 Kg/ha
and 7 Kg/ha, respectively. The main reason for low per capita consumption of pesticides in
India is low purchasing power of farmers and small land holdings. The majority of
agricultural farm land belongs to Marginal farmers but maximum contribution to the
produce is also from marginal farmers. The large scale farming is increasing and therefore,
there is good scope for increase of per capita consumption of pesticides in India.
Pesticides or agrochemicals are chemicals designed to combat the attack of

various pests on agricultural and horticulture crops. They fall into three major classes (i.e)
Insecticides, Fungicides & Herbicides. Pesticides have made a great on human health,
production & preservation of food, fiber and other cash crops by controlling disease vector.
Even through various methods are used control pests in different pest in different pest
management systems, pesticides continue to be major component of most of the pest
control programme that will remain in the near future.
The first organic insecticide was nicotine that was applied in its natural form
as crushed tobacco leaves for control of aphides as early as 1763. Pytherum is the second
group of insecticides which is a mixture of natural ester extracted from Chrysanthemum
flowers grown first in Kenya. It was introduced in US in 1885. Carbonates the third group
of synthetic constitutes insecticides discovered in 1950s. The first generation insecticides
the chlorinated hydrocarbon is still in use in being banned in developed countries. India has
recently banned DDT and IICII to be used in agriculture. The most important insecticides
still is organ phosphorous compound.
India , being a tropical country , the consumption pattern is also more skewed
towards insecticides which accounted for 52% of the total pesticide consumption in FY10.
Rice is the highest pesticides consuming crop in India forming 19.8% of the total pesticides
consumption followed by cotton. AP is the highest pesticides consuming state followed by
Maharashtra & Punjab.
However , with the onset of the product patent regime in India since 2005, the
Indian companies will need to increase R&D expense to meet the competition from MNCs.
With the advent of the Integrated Pest Management ( IPM) technique, the use of bio
pesticides and Genetically Modified (GM) seed has increased Globally, GM seeds are used
mainly for commercial crops like cotton, maize , soya bean and canola.
CARE Research feels that the demand for pesticides can be augmented only
through sustainable growth in agriculture. With the governments focus on development of
the agriculture sector, the industry may see a better future. Domestic market will be the
growth driver for Indian Pesticides industry in coming-years unlike led by exports in
previous years. Also the Indian pesticide industry is likely to move towards the global
product mix, with increasing use of Herbicides & Fungicides.
USAGE OF PESTICIDES IN INDIA
Table 2.1
SECTOR USAGE
Agriculture Control of pests, weeds, rodents etc
Public Health Control of Malaria & Dengue
Domestic Household & Garden spray
Personal For application of Clothing & Health care
Others Control of vegetation in Forest & Factory site ,
Fumigation of Buildings & Ships
2.2 COMPANY PROFILE
HIL, a Govt. of India Enterprise, under the Deptt. of Chemicals &

Petrochemicals, Ministry of Chemicals & Fertilizers, Govt. of India, was incorporated in
March, 1954 for supplying DDT for National Malaria Eradication Programme launched by
the Govt. of India. Subsequently, the company diversified into agro pesticides to meet the
requirements of agriculture sector and has grown manifold with a turnover of Rs. 2006.00
million rupees in 2006-07. Company has also entered into the field of safe and eco-friendly
botanical and bio-pesticides for public health and plant protection. It has also started
marketing of seeds in the northern, central and western parts of the country. The product
range includes Insecticides, Herbicides, Weedecides, Fungicides etc. It has a pest control
division catering to industry houses and offices.
With the renewed focus on DDT, as a cost effective and efficient tool to fight
Malaria, the company has ventured into export of DDT 75% WDP mainly to African
countries. With US re-starting aid for procurement of DDT and WHO strongly endorsing
usage of DDT for indoor spraying, the company sees a great scope in emerging as the main
DDT supplier to the world as HIL is the world's largest DDT producer. Moreover, the
company has more than 50 years of experience and expertise in the manufacture of DDT.
The company has been exporting its agro products to a number of countries such
as Netherland, UK, Jamaica, UAE, Manila, S.Korea, Belgium, Guatemala, France,
Germany, Argentina, Ethiopia, Egypt, Spain, etc. for the last more than a decade and its
products are well-accepted in the world market. Company has a wide network of marketing
throughout the country through its six Regional Sales Offices and good number of dealers.
The company has three manufacturing units located at Udyogamandal, near Kochi
(Southern India), Rasayani near Mumbai(Western India) and Bathinda in Punjab (Northern
India). The company also has a Research & Development complex including an
experimental farm at Gurgaon in Haryana.
COMPANY PROFILE
Table 2.2
COMPANY NAME HINDUSTAN INSECTICIDES LIMITED
YEAR OF 1954
INCORPORTION
HEAD OFFICE NEW DELHI
BRANCH 6 REGIONAL SALES OFFICE AND 3

MANUFACTURING UNIT & 1 RESEARCH
UNIT
PRODUCTS DDT , DICOFOL , MANEOZEB, MALATHION,

BUTACHLOR AND MOROCCOPTOPHOS
VISION OF THE COMPANY
To be a global player in the field of crop protection and public health
MISSION OF THE COMPANY
To provide quality products through clean and safe technology which would enhance
agricultural productivity and promote Public Health along with increasing product range,
exports, efficiency and productivity of the Company
ORGANIZATIN OF HIL
There are about 8 departments functioning efficiently under companies

administrative wing.
Production department
Personnel administration department
Finance department
Commercial department
Engineering department
Quality control department
Research & Development department
Safety department
UDYOGAMANDAL UNIT OF HIL
The Udyogamandal unit of HIL was the first among the central public sector
under takings, to be setup in Kerala during the second five year plan. The unit manufactures
technical DDT , technical Dicofol, technical mancozeb and their formulate a new 1000TPA
plant to produce a Mancozeb and it has been commissioned recently. HIL unit achieved
award of award for excellence for outstanding contribution to the public sector management
2010, by the Standing Committee on Public Enterprise ( SCOPE ). This award was
conferred by SCOPE under individual leadership category for steering the company out of
its sickness with a restructuring proposal merely through cleanising the balance sheet of
the company without any cash infusion.
RECEIVING SCOPE AWARD FROM HONURABLE EX-PM
FINANCIAL PERFORMANCE
The sales turnover of the company stood at Rs 330.35 cr as compared to Rs

301.11 cr during the last year. But net profit decreased from 2.92 cr to 1.84 cr. This
reduction in net profit is due to increase in interest cost, as the company has to depend on
increased borrowings from the bank due to delay in receipt of dues from ministry of health
& family welfare
PRODUCTS
Agriculture is the backbone of our national economy scientific and technical

advancement in our country ha resulted in remarkable increase of agricultural production
in a short time. For achieving this, our agricultural sector mostly depend on fertilizers ,
pesticides and good seeds. HIL aware of its pioneering role as a public sector enterprise in
insecticides manufacturing in India, has extended its activities from public health to agro
pesticides, to meet this challenges.
A number of technical grade pesticides and formulations are produced by the

company at its existing units. HIL manufactures vital insecticides to meet the requirements
of National Anti-Malaria Programme (NAMP) and produces a large range of insecticides
for its vast requirement of pesticides formulation for the ambitious public health
Programme to eradicate Malaria Encephalitis, Dengue fever and Filarial.
The Udyogamandal unit of HIL is manufacturing DDT , Dicofol and has

recently commissioned its plant to Mancozeb , a Fungicide. The Rasayani unit is
manufacturing DDT, Malathion , Butachlor and Moroceoptophos. The Punjab unit is
manufacturing Vital insecticides like Cyber methane, Fervalcete , Thiopherate methane ,
Ethion , Hydrochloride etc.
The products of the company are distributed over the country are distributed
throughout the country through a network of sales offices located in Delhi , Coimbatore,
Kolkata, Nagpur , Ahmadabad. There is no marketing done in Udyogamandal unit. They
just transfer the products to regional sales offices. Marketing is done from the central office
directly by marketing department headed by a deputy GM.
CORPORATE OBJECTIVES
To be service to the nation and to contribute effectively to its economic well being
and grow the through the production of pesticides and through the acquisitions /
development and dissemination of engineering technology and skills.
To sustain and improve its pioneering role in the development of indigenous
engineering and technology through Research & Development.
To improve productivity and maintain a high standards of quality and adopt
effective measures for controlling cost and minimizing dependence on imports.
To insure for its customers the availability of its products and services on reasonable
terms, for its shareholders a fair return on capital invested for itself, development
of adequate internal resources for continual growth and expansion.
To actively work for rural uplift through guidance , advice and service to the farmers
in cooperation with all other agencies working for agriculture development and
allied activities.
To develop , train and maintain a team of motivated and disciplined personnel with
the required skills and abilities , and to encourage innovation and to create a
condition or their functioning and career development so as to improve their overall
quality of life.
ENVIRONMENTAL PROTECTION AND POLLUTION CONTROL
A centralized effluent treatment plant in which the entire quantity of liquid

effluent generated from all plants are treated and discharged as per the standards. Effluent
treatment system was put up based on the process design by National Environmental
Research Institute ( NEERI). The National authority in the field the engineering at a cost
nearly one crore. The equipmentdesign detailed engineering and erection was done by m/s
Richardsson and crulas ltd. A government of India enterprise. HIL was in a period
incorporated several modification or addition to the system constant vigil exercised in
ensuring the quality of treated effluents discharged by analyzing the sample in the HIL own
quality control laboratory which is approved by the government. A portion of treated water
is reused and balances quantity only is discharged.
2.3 PRODUCT PROFILE
1. DICOFOL
Acaricide
Common Name : Dicofol
Assay : 95%w/w (Min.)
Chemical Name : 4-Chloro- -(4-Chlorophenyl) (trichloromethyl)
benzenemethanol
Empirical Formula : C14H9Cl5O
Form : Brown Viscous oily material.
Production Capacity : 150 MT/ Annum.
Uses : Its formulations are recommended to control phytophagous

mites
of wide range of field crops.
Packing Size : 200 Kg MS Drum.
2.DDT
Public Health Insecticide
Common Name : DDT (Dichlorodiphenyl Trichloroethane)
Chemical Name : Op-DDT: 1 Chloro2-[2,2,2trichloro-1-(4 Chlorophenyle)
ethyl] benzene
Empirical Formula : C14H9Cl5
Form : Waxy Solid
Production Capacity : 6344 MT Annum.
Uses : Its formulations are recommended to control mosquito
vector & other arthropod disease vector in public health.
3. MANCOZEB
Fungicide
Common Name : Mancozeb
Chemical Name : [[ 1,2-ethanediylbis [ carbamodithoato]] (2-)] manganese
mixture with [[1,2-ethanediylbis[carbamodithioato]] (2-)]
Zinc.
Emprical Formula : [C4H6M n N2S4]xZny
Form : Grayish Yellow Free Flowing powder
Production Capacity : 1000 MT/ Annum
Uses : Its formulations are recommended to control fungal
diseases in a wide range of field crops.
Packing Size : 50 Kg. fiber board Drum.
4.MALATHION TECHNICAL
Insectitude for Public Health & Field
Common Name : Malathion
Chemical Name : Diethyl [( dimethoxyphosphinothioyl) thio] butanedioate
Empirical Formula : C10H19O6PS2
Form : Clear to Amber liquid.
Production Capacity : 1800MT/Annum
Uses : Its formulations are recommended to control Mosquito
vector & other arthropod disease vector in public health
programmes , ectoparasites of live stocks, human head and
body lice, household insects , for protection of stored grain
and for controlling insect pests of wide range of field crops.
Packing Size : Available in 200 kg MS drum
5. BUTACHLOR
Herbicide
Common Name : Butachlor
Chemical Name : N-(butoxymethyl)-2-chloro-N-(2,6-diethylphenyl)
acetamide
Empirical Formula : C17H26ClNO2
Form : Light yellow to purple liquid.
Production Capacity : 500 MT/ Annum
Uses : Its formulations are recommended to control weeds in rice
both Seeded & transplanted crops.
Packing Size : 200 kg MS Drum
6. MONOCROTOPHOS
Insecticide
Common Name : Monocrotophos
Assay : 72%w/w (Min)
Chemical Name : (E)-dimethyl 1-methyl 3-(methylamino)-3-oxo-1-
propenylphosphate
Empirical formula : C7H14NO5P
Form : Raddish brown liquid
Production Capacity : 300 MT/Annum
Uses : Its formulations are recommended to control insect pests of
wide range of field crops.
Packing Size : 200 kg HDPE Drum
7.HILCYPERIN
Insecticide
Common Name : Cypermethrin
Uses : Control of wide range insect pests of sucking, chewing,
boring in nature of cotton, paddy, vegetables, soybean, tea,
oilseeds, ornamentals etc.
Mode of Action : Non systemic insecticide with contact & Stomach action.
Also exhibit anti- feeding action.
Packing size : Available in 1 OOml, 250ml, 500 ml, 1 Itr, 5 lit HDPE
Container
8.HILNATE
Common Name : Thiophanate-methyl
Chemical Name : Dimethyl [1,2 phenylenebis(iminocarbonothioyl)]bis

[carbamate]
Empirical formula : C12 H14N4O4S2
Formulation : 70% w/w WP
Activity : Fungicide
Made of Action : Systemic fungicide with protective & curative action.
Uses : Control of various plant diseases like blast, spot, sheath rot,
etc., of various crops like cotton, Paddy, Vegetables, Oil
Seeds, fruit crops etc. It is also used for seed treatment. It
can also be used as a post harvest fruit dip to control apple
& Pear storage moulds.
Packing Size : Available in 100gm, 250gm & 500gm Laminated pouch,
pack.
3.1 LITERATURE REVIEW
The purpose of this chapter is to present a review of literature relating to the

working capital management. Although working capital is an important ingredient in the
smooth working of business entities, it has not attracted much attention of scholars.
Whatever studies have conducted, those have exercised profound influence on the
understanding of working capital management good number of these studies which
pioneered work in this area have been conducted abroad, following which, Indian scholars
have also conducted research studies exploring various aspects of working capital. Special
studies have been undertaken, mostly economists, to study the dynamics of inventory
investment which often represented largest component of total working capital. As such the
previous studies may be grouped into three broad classes (1) studies conducted abroad,
(2) studies conducted in India, and (3) studies relating to determine of inventory investment.
STUDIES ON WORKING CAPITAL MANAGEMENT
Studies adopting a new approach towards working capital management are reviewed here.
Sagan in his paper (1955),1 perhaps the first theoretical paper on the theory of
working capital management, emphasized the need for management of working capital
accounts and warned that it could vitally affect the health of the company. He realized the
need to build up a theory of working capital management. He discussed mainly the role and
functions of money manager inefficient working capital management. Sagan pointed out
the money managers operations were primarily in the area of cash flows generated in the
course of business transactions. However, money manager must be familiar with what is
being done with the control of inventories, receivables and payables because all these
accounts affect cash position.
Thus, Sagan concentrated mainly on cash component of working capital. Sagan

indicated that the task of money manager was to provide funds as and when needed and to
invest temporarily surplus funds as profitably as possible in view of his particular
requirements of safety and liquidity of funds by examining the risk and return of various
investment opportunities. He suggested that money manager should take his decisions on
the basis of cash budget and total current assets position rather than on the basis of
traditional working capital ratios. This is important because efficient money manager can
avoid borrowing from outside even when his net working capital position is low. The study
pointed out that there was a need to improve the collection of funds but it remained silent
about the method of doing it. Moreover, this study is descriptive without any empirical
support.
Realising the dearth of pertinent literature on working capital management,

Walker in his study (1964) made a pioneering effort to develop a theory of working capital
management by empirically testing, though partially, three propositions based on risk-
return trade-off of working capital management. Walker studied the effect of the change in
the level of working capital on the rate of return in nine industries for the year 1961 and
found the relationship between the level of working capital and the rate of return to be
negative. On the basis of this observation, Walker formulated three following propositions:
Proposition I If the amount of working capital is to fixed capital, the amount of risk the
firm assumes is also varied and the opportunities for gain or loss are increased. Walker
further stated that if a firm wished to reduce its risk to the minimum, it should employ only
equity capital for financing of working capital; however by doing so, the firm reduced its
opportunities for higher gains on equity capital as it would not be taking advantage of
leverage. In fact, the problem is not whether to use debt capital but how much debt capital
to use, which would depend on management attitude towards risk and return. On the basis
of this, he developed his second proposition.
Proposition II The type of capital (debt or equity) used to finance working capital
directly affects the amount of risk that a firm assumes as well as the opportunities for gain
or loss. Walker again suggested that not only the debt-equity ratio, but also the maturity
period of debt would affect the risk-return trade-off. The longer the period of debt, the
lower be the risk. For, management would have enough opportunity to acquire funds from
operations to meet the debt obligations. But at the same time, long-term debt is costlier. On
the basis of this, he developed his third proposition.
Proposition III The greater the disparity between the maturities of a firms debt
instruments and its flow of internally generated funds, the greater the risk and vice-versa.
Thus, Walker tried to build-up a theory of working capital management by

developing three prepositions. However, Walker tested empirically the first proposition
only. Walkers Study would have been more useful had he attempted to test all the three
propositions. Weston and Brigham (1972)further extended the second proposition
suggested by Walker by dividing debt into long-term debt and short-term debt. They
suggested that short-term debt should be used in place of long-term debt whenever their
use would lower the average cost of capital to the firm. They suggested that a business
would hold short-term marketable securities only if there were excess funds after meeting
short-term debt obligations. They further suggested that current assets holding should be
expanded to the point where marginal returns on increase in these assets would just equal
the cost of capital required to finance such increases.
Vanhorne in his study (1969)4, recognizing working capital management as an

area largely lacking in theoretical perspective, attempted to develop a framework in terms
of probabilistic cash budget for evaluating decisions concerning the level of liquid assets
and the maturity composition of debt involving risk-return trade-off. He proposed
calculation of different forecasted liquid asset requirements along with their subjective
probabilities under different possible assumptions of sales, receivables, payables and other
related receipts and disbursements. He suggested preparing a schedule showing, under each
alternative of debt maturity, probability distributions of liquid asset balances for future
periods, opportunity cost, maximum probability of running out of cash and number of
future periods in which there was a chance of cash stock-out. Once the risk and opportunity
cost for different alternatives were estimated, the form could determine the best alternative
by balancing the risk of running out of cash against the cost of providing a solution to avoid
such a possibility depending on managements risk tolerance limits. Thus, Vanhorne study
presented a risk-return trade-off of working capital management in entirely new perspective
by considering some of the variables probabilistically. However, the usefulness of the
framework suggested by Vanhorne is limited because of the difficulties in obtaining
information about the probability distributions of liquid-asset balances, the opportunity cost
and the probability of running out of cash for different alternative of debt maturities.
Welter, in his study (1970), stated that working capital originated because of
the global delay between the moment expenditure for purchase of raw material was made
and the moment when payment were received for the sale of finished product. Delay centres
are located throughout the production and marketing functions. The study requires
specifying the delay centres and working capital tied up in each delay centre with the help
of information regarding average delay and added value. He recognized that by more rapid
and precise information through computers and improved professional ability of
management, saving through reduction of working capital could be possible by reducing
the length of global delay by rescuing and/or favourable redistribution of this global delay
among the different delay centres. However, better information and improved staff involve
cost. Therefore, savings through reduction of working capital should be tried till these
saving are greater or equal to the cost of these savings. Thus, this study is concerned only
with return aspect of working capital management ignoring risk. Enterprises, following this
approach, can adversely affect its short-term liquidity position in an attempt to achieve
saving through reduction of working capital. Thus, firms should be conscious of the effect
of law current assets on its ability to pay-off current liabilities. Moreover, this approach
concentrated only on total amount of current assets ignoring the interactions between
current assets and current liabilities.
Lambrix and Singhvi (1979) adopting the working capital cycle approach to
the working capital management, also suggested that investment in working capital could
be optimized and cash flows could be improved by reducing the time frame of the physical
flow from receipt of raw material to shipment of finished goods, i.e. inventory management,
and by improving the terms on which firm sells goods as well as receipt of cash. However,
the further suggested that working capital investment could be optimized also (1) by
improving the terms on which firms bought goods i.e. creditors and payment of cash, and
(2) by eliminating the administrative delays i.e. the deficiencies of paper-work flow which
tended to extend the time-frame of the movement of goods and cash.
Warren and Shelton (1971) applied financial simulationto simulate future

financial statements of a firm, based on a set of simultaneous equations. Financial
simulation approach makes it possible to incorporate both the uncertainty of the future and
the many interrelationships between current assets, current liabilities and other balance
sheet accounts. The strength of simulation as a tool of analysis is that it permits the financial
manager to incorporate in his planning both the most likely value of an activity and the
margin of error associated with this estimate. Warren and Shelton presented a model in
which twenty simultaneous equations were used to forecast future balance sheet of the firm
including forecasted current assets and forecasted current liabilities. Current assets and
current liabilities were forecasted in aggregate by directly relating to firm sales. However,
individual working capital accounts can also be forecasted in a larger simulation system.
Misra (1975) studied the problems of working capital with special reference
to six selected public sector undertakings in India over the period 1960-61 to 1967-68.
Analysis of financial ratios and responses to a questionnaire revealed somewhat the same
results as those of NCAER study with respect to composition and utilization of working
capital. In all the selected enterprises, inventory constituted the more important element of
working capital. The study further revealed the overstocking of inventory in regard to its
each component, very low receivables turnover and more cash than warranted by
operational requirements and thus total mismanagement of working capital in public sector
undertakings.
Agarwal (1983)also studied working capital management on the basis of

sample of 34 large manufacturing and trading public limited companies in ten industries in
private sector for the period 1966-67 to 1976-77. Applying the same techniques of ratio
analysis, responses to questionnaire and interview, the study concluded the although the
working capital per rupee of sales showed a declining trend over the years but still there
appeared a sufficient scope for reduction in investment in almost all the segments of
working capital. An upward trend in cash to current assets ratio and a downward trend in
cash turnover showed the accumulation of idle cash in these industries. Almost all the
industries had overstocking of raw materials shown by increase
in the share of raw material to total inventory while share of semi-finished and finished
goods came down. It also revealed that long-term funds as a percentage of total working
capital registered an upward trend, which was mainly due to restricted flow of bank credit
to the industries. Moreover, future financial statements can be simulated over a range of
different assumptions to portray inherent uncertainty of the future.
3.2 THEORETICAL FRAMEWORK
Working capital is the life blood and nerve of a business. Just as circulation of
blood is essential in the human body for maintaining life, working capital is very essential
to maintain the smooth running of a business. No business can run successfully without an
adequate amount of working capital.
There is operative aspects of working capital i.e. current assets which is known
as funds also employed to the business process from the gross working capital Current
asset comprises cash receivables, inventories, marketable securities held as short term
investment and other items nearer to cash or equivalent to cash. Working capital comes
into business operation when actual operation takes place generally the requirement of
quantum of working capital is determined by the level of production which depends upon
the management attitude towards risk and the factors which influence the amount of cash,
inventories, receivables and other current assets required to support given volume of
production.
Working capital management as usually concerned with administration of the

current assets as well as current liabilities. The area includes the requirement of funds from
various resources and to utilize them in all result oriented manner. It can be stated without
exaggeration that effective working capital management is the short requirement of long
term success.
The importance of working capital management is indisputable; Business

liability relies on its ability to effective management of receivables, inventory, and
payables. By minimizing the amount of funds tied up in current assets. Firms are able to
reduce financing costs or increase the funds available for expansion. Many managerial
efforts are put into bringing non-optimal level of current assets and liabilities back towards
their optimal levels.
3.2.1 MEANING OF WORKING CAPITAL
Working capital means the funds available and used for day to day operations of
an enterprise. It consists broadly of that portion of assets of a business which are used in or
related to its current operations. It refers to funds which are used during an accounting
period to generate a current income of a type which is consistent with major purpose of a
firm existence.
3.2.2 DEFINITIONS:
Many scholars gives many definitions regarding term working capital some of these are
given below.
1) According to Weston & Brigham
Working capital refers to a firms investment in short-term assets cash, short term
securities, accounts receivables and inventories.
2) According to Bonnerille
Any acquisition of funds which increases the current assets increases working capital for
they are one and the same.
3.2.3 OBJECTIVES OF WORKING CAPITAL MANAGEMENT
Effective management of working capital is means of accomplishing the firms goal of

adequate liquidity. It has the main following objectives-
To maximize profit of the firm.
To help in timely payment of bills.
To maintain sufficient current assets.
To ensure adequate liquidity of the firms.
It protects the solvency of the firm.
To discharge current liabilities.
To increase the value of the firm.
To minimize the risk of business.
3.2.4 THE NEED FOR THE WORKING CAPITAL

The need for working capital arises due to the time gap between production
and realization of cash from sales. Working capital is must for every business for
purchasing raw-materials, semi finished goods, stores & spares etc and the following
purposes.
1. To purchase raw materials, spare parts and other component.

A manufacturing firm needs raw-materials and other components parts for the
purpose of converting them in to final products, for this purpose it requires working
capital. Trading concern requires less working capital.
2. To meet over head expenses.

Working capital is required to meet recurring over head expenses such as cost
of fuel, power, office expenses and other manufacturing expenses.
3. To hold finished and spare parts etc.

Stock represents current asset. A firm that can afford to maintain stock of required
finished goods, work in progress & spares in required quantities can operate
successfully. So for that adequate quantity of working capital is required.
4. To pay selling & distribution expenses.

Working capital is required to pay selling & distribution expenses. It includes cost of
packing, commission etc.
5. Working capital is required for repairs & maintenance both machinery as well as
factory buildings.
6. Working capital is required to pay wages, salaries and other charges.
7. It is helpful in maintain uncertainties involved in business field.
3.2.5 TYPES OF WORKING CAPITAL
I ) On The Basis of Concepts
1) Gross Working Capital

Gross working capital is the amount of funds invested in various components
of current assets. Current assets are those assets which are easily / immediately converted
into cash within a short period of time say, an accounting year. Current assets includes Cash
in hand and cash at bank, Inventories, Bills receivables, Sundry debtors, short term loans
and advances..
2) Net Working Capital
This is the difference between current assets and current liabilities. Current
liabilities are those that are expected to mature within an accounting year and include
creditors, bills payable and outstanding expenses.
II ) On The Basis of Concepts
1) Permanent / Fixed Working Capital

Permanent or fixed working capital is minimum amount which is required to
ensure effective utilization of fixed facilities and for maintaining the circulation of current
assets. Every firm has to maintain a minimum level of raw material, work- in-process,
finished goods and cash balance. This minimum level of current assets is called permanent
or fixed working capital as this part of working is permanently blocked in current assets.
As the business grow the requirements of working capital also increases due to increase in
current assets.
2) Temporary / Fluctuating Working Capital
Temporary / Fluctuating working capital is the working capital needed to meet
seasonal as well as unforeseen requirements. It may be divided into two types.
a )Seasonal Working Capital

There are many lines of business where the volume of operations are different
and hence the amount of working capital vary with the seasons. The capital required to
meet the seasonal needs of the enterprise is known as seasonal Working capital.
b) Special Working Capital

The Capital required to meet any special operations such as experiments with
new products or new techniques of production and making interior advertising campaign
etc, are also known as special Working Capital.
3.2.6 DETERMINANTS OF WORKING CAPITAL REQUIREMENTS

In order to determine the amount of working capital needed by the firm a
number of factors have to be considered by finance manager. These factors are explained
below.
1. Nature of Business:
The Nature of the business effects the working capital requirements to a great
extent. For instance public utilities like railways, electric companies, etc. need very
little working capital because they need not hold large inventories and their
operations are mostly on cash basis, but in case of manufacturing firms and trading
firms, the requirement of working capital is sufficiently large as they have to invest
substantially in inventories and accounts receivables .
2. Production Policies:
The production policies also determine the Working capital requirement.

Through the production schedule i.e. the plan for production, production process etc.
3. Credit Policy:
The credit policy relating to sales and affects the working capital. Credit policy
influence the requirement of working capital in two ways:
1. Through credit terms granted by the firm to its customers/buyers.
2. Credit terms available to the firm from its creditors.
The credit terms granted to customers have a bearing on the Magnitude of Working capital
by determining the level of book debts. The credit sales results is higher book debts (re
available) higher book debt means more Working capital. On the other hand, if liberal credit
terms are available from the suppliers of goods [Trade creditors], the need for working
capital is less. The working capital requirements of business are, thus, affected by the terms
of purchase and sale, and the role given to credit by a company in its dealings with
Creditors and Debtors.
4. Changes in Technology
Technology used in manufacturing process is mainly determined need of
working capital. Modernize technology needs low working capital, where as old and
traditional technology needs greater working capital.
5. Size of the Business Unit

The size of the business unit is also important factor in influencing the working
capital needs of a firm. Large Scale Industries requires huge amount of working capital
compared to Small scale Industries.
6. Growth and Expansion

The growth in volume and growth in working capital go hand in hand, however,
the change may not be proportionate and the increased need for working capital is felt right
from the initial stages of growth.
7. Dividend Policy
Another appropriation of profits which has a bearing on working capital is
dividend payment. Payment of dividend utilizes cash while retaining profits acts as a source
as working capital Thus working capital gets affected by dividend policies.
8. Supply Conditions
If supply of raw material and spares is timely and adequate, the firm can get by
with a comparatively low inventory level. If supply is scarce and unpredictable or available
during particular seasons, the firm will have to obtain raw material when it is available. It
is essential to keep larger stocks increasing working capital requirements.
9. Market Conditions
The level of competition existing in the market also influences working capital
requirement. When competition is high, the company should have enough inventories of
finished goods to meet a certain level of demand. Otherwise, customers are highly likely to
switch over to competitors products. It thus has greater working capital needs. When
competition is low, but demand for the product is high, the firm can afford to have a smaller
inventory and would consequently require lesser working capital. But this factor has not
applied in these technological and competitive days.
10. Business Cycle

The working capital requirements are also determined by the nature of the
business cycle. Business fluctuations lead to cyclical and seasonal changes which, in turn,
cause a shift in the working capital position, particularly for temporary working capital the
variations in the business conditions may be in two directions:
1. Upward phase when boom condition prevail,
2. Downswing phase when economic activity is marked by a decline.
11. Profit Level

Profit level also affects the working capital requirements as a concern higher profit
margin results in higher generation of internal funds and more contributing to working
capital.
3.2.7 OPERATING CYCLE OF WORKING CAPITAL:

The working capital cycle reserves to the length of time between the firm paying
cash for materials etc., this working capital also known as operating cycle. Working capital
cycle or operating cycle indicates the length or time between companies paying for
materials entering into stock and receiving the cash from sales of finished goods. The
operating cycle (Working Capital) consists of the following events. Which continues
throughout the life of business
Conversion of cash into raw materials.

Conversion of raw materials into work in progress.
Conversion of work in progress into finished stock.
Conversion of finished stock into accounts receivables(Debtors)through sale and
Conversion of account receivables into cash.
3.2.8 MANAGEMENT OF WORKING CAPITAL
Management of working capital is concerned with the problem that arises in

attempting to manage the current assets, current liabilities. The basic 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 adequate
nor excessive as both the situations are bad for any firm . there should be no shortage of
funds and also no working capital should be ideal. Working capital management policies
of a firm has a great on its probability, liquidity and structural health of the organization.
So working capital management is three dimensional in nature as :-
1) It is concerned with the formulation of policies with regard to profitability , liquidity

and risk.
2) It is concerned with the decision about the composition and level of current assets.
3) It is concerned with the decision about the composition and level of current
liabilities.
Working capital management involves the relationship between a firms short-

term assets and short-term liabilities. The goal of working capital management is to ensure
that a firm is able to continue its operations and that its operations and that it has sufficient
ability to satisfy both maturing short term debt and upcoming operation expenses. The
management of working capital involves managing inventories , account receivables ,
account payables & cash.
3.2.9 ADEQUACY OF WORKING CAPITAL

Working capital should be adequate so as to protect a business from the
adverse effects of shrinkage in the values of current assets. It ensures to a greater extent
the maintenance of a companys credit standing and provides for such emergencies as
strikes, floods, fire etc. It permits the carrying of inventories at a level that would enable a
business to serve satisfactorily the needs of its customers. It enables a company to operate
its business more efficiently because there is no delay in obtaining materials etc; because
of credit difficulties.
3.2.10 INADEQUATE OF WORKING CAPITAL:
When working capital is inadequate, a company faces many problems. It

stagnates the growth and it becomes difficult for the firm to undertake profitable projects
for non-availability of working capital funds. Difficulty in implementing operating plans
and achieving the firms profit targets. Operating inefficiencies creep in when it becomes
difficult even to meet day-to-day commitments. Fixed assets are not utilized efficiently thus
the firms profitability would deteriorate. Paucity of working capital funds renders the firm
unable to avail attractive credit opportunities. The firm loses its reputation when it is not in
a position to honor it short-term obligations thereby leading to tight credit terms.
3.2.11 DANGERS OF EXCESSIVE WORKING CAPITAL:
Too much working capital is as dangerous as too little of it. Excessive working
capital raises problems.
1. It results in unnecessary accumulation of inventories. Thus chances of inventory
mishandling, waste, theft and losses increase.
2. Indication of defective credit policy and slack collection period. Consequently, it
results in higher incidence of bad debts, adversely affecting profits,
3. Makes the management complacent which degenerates in to managerial
inefficiency.
4. The tendencies of accumulating inventories to make a speculative profit, which
tends to liberalize the dividend policy, make it difficult for the concern to cope in
the future when it is not able to make speculative profits.
3.2.12 THE COMPONENTS OF WORKING CAPITALMANAGEMENT
CASH MANAGEMENT
RECEIVABLES MANAGEMENT
INVENTORY MANAGEMENT
CASH MANAGEMENT
Cash is the important current asset for the operation of the business. Cash is the
basic input needed to keep the business running in the continuous basis, it is also the
ultimate output expected to be realized by selling or product manufactured by the firm. The
firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the firms
manufacturing operations while excessive cash will simply remain ideal without
contributing anything towards the firms profitability. Thus a major function of the
financial manager is to maintain a sound cash position. Cash is the money, which a firm
can disburse immediately without any restriction. The term cash includes coins, currency
and cheques held by the firm and balances in its bank account.
RECEIVABLES MANAGEMENT
Receivables or debtors are the one of the most important parts of the current
Assets which is created if the company sells the finished goods to the customer but not
receive the cash for the same immediately. Trade credit arises when a company sales its
products or services on credit and does not receive cash immediately. It is an essential
marketing tool, acting as a bridge for the moment of goods through production and
distribution stages to customers.
INVENTORY MANAGEMENT
Inventories are goods held for eventual sale by a firm. Inventories are thus
one of the major elements, which help the firm in obtaining the desired level of sales.
Inventories includes raw materials, semi finished goods, finished products. In
company there should be an optimum level of investment for any asset, whether it is
plant, cash or inventories. Again inadequate disrupts production and causes losses in
sales. Efficient management of inventory should ultimately result in wealth
maximization of owners wealth. It implies that while the management should try to
pursue financial objective of turning inventory as quickly as possible, it should at the
same time ensure sufficient inventories to satisfy production and sales demand.
4. RESEARCH METHDOLOGY
Research methodology is considered as a blue print of the study. It determines

the strength , reliability and accuracy of the project. It can be said as the method used by
researchers in selecting samples, sample size , data collection and various tools used in data
collection.
4.1 TYPE OF PROJECT

This project A Study on Working Capital Management at Hindustan
Insecticides Ltd, Udyogamandal is considered as an analytical research.
Analytical Research is defined as the research in which, researcher has to use
facts or information already available, and analyze these to make a critical evaluation of
the facts, figures, data or material.
4.2 SOURCES OF DATA

There are mainly two through which the data required for the research is
collected.
4.2.1 PRIMARY DATA

The primary data is that data which is collected fresh or first hand, and for first
time which is original in nature.
In this study the Primary data has been collected from Personal Interaction
with Finance manager.
4.2.2 SECONDARY DATA

The secondary data are those which have already collected and stored.
Secondary data easily get those secondary data from records, annual reports of the company
etc. It will save the time, money and efforts to collect the data.
The major source of data for this project was collected through annual reports,
profit and loss account of 5 year period from 2010-2014 & some more information
collected from internet and text sources.
4.3 SAMPLING DESIGN
Sampling unit : Financial Statements.

Sampling Size : Last five years financial statements.
Tool Used for calculations: - MS-Excel.
4.4 TOOLS USED FOR ANALYSIS OF DATA
The data were analyzed using the following financial tools. They are
Ratio analysis- It is concerned with all the aspect of the firms financial analysis
liquidity solvency, activity, profitability and overall performance , it enables the
interested person to know the financial and operational characteristics of an
organization and take suitable decisions.
Statement of changes in working capital.
RATIO ANALYSIS
5.1 CURRENT RATIO
Current Assets
Current Ratio = -------------------------
Current Liabilities
Current Assets Cash, Marketable Securities , Bills Receivables , Sundry Debtors,

Inventories & Work-in-Progress.
Current Liabilities Short-term provisions, Short-term borrowings, Sundry Creditors,

Outstanding expenses.
Table 5.1
TABLE SHOWING CURRENT RATIO
Year Current Assets Current Liabilities Current Ratio
2009-2010 2180120128 1278982982 1.70
2010-2011 2237395537 1418392691 1.58
2011-2012 2065457264 1154756443 1.79
2012-2013 2389864000 1343407000 1.78
2013-2014 2743917000 2046011000 1.34
Source : Annual Reports
Figure : 5.1
FIGURE SHOWING CURRENT RATIO
CURRENT RATIO
1.8
1.6
1.4
1.2
RATIO
1
1.7
0.8 1.58 1.79
1.78
0.6
0.4 1.34
0.2
0
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
YEAR
INFERENCE
The ideal Current Ratio should be equal or nearer to 2:1 is considered to be

satisfactory. Table no 5.1 shows the Current Ratio for the year 2009-2010, 2010-2011,
2011-2012, 2012-2013, 2013-2014 are 1.70, 1.58, 1.79 ,1.78, 1.34 respectively . Current
Ratio of HIL shows a decreasing trend & it is below the standard level ( 1.34 ). So it is not
considered to be satisfactory.
5.2 QUICK RATIO
QUICK ASSETS
QUICK RATIO = ---------------------------
CURRENT LIABILITIES
Where Quick Assets are:-

Marketable Securities , Cash & Bank balance, Sundry Debtors
Table 5.2
TABLE SHOWING QUICK RATIO
Year Quick Assets Current Liabilities Quick Ratio
2009-2010 1597486372 1278982982 1.25
2010-2011 1618973684 1418392691 1.14
2011-2012 1339823721 1154756443 1.60
2012-2013 1602952000 1343407000 1.19
2013-2014 2066735000 2046011000 1.01
Source : Annual Report
Figure No 5.2
FIGURE SHOWING QUICK RATIO
QUICK RATIO
1.8
1.6 1.6
1.4
1.25
1.2 1.19
1.14
1 1.01
RATIO
0.8
0.6
0.4
0.2
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
YEAR
QUICK RATIO
INFERENCE
Table no 5.2 shows the Quick ratio of HIL, Quick Ratio establishes relation
between the quick assets &current liabilities, 1:1 is considered to be a ideal ratio for quick
assets. Usually high liquidity ratio indicates that a firm is liquid and has the ability to meet
its payments. Here current assets shows a decreasing trend, but it is higher than ideal level.
5.3 ABSOLUTE LIQUID RATIO
ABSOLUTE LIQUID ASSET

ABSOLUTE LIQUID RATIO = ---------------------------------------
CURRENT LIABILITY
Absolute liquid Asset :- Cash & Cash Equivalents
Table 5.3
TABLE SHOWING ABSOLUTE LIQUID RATIO
Year Absolute liquid Current Liabilities Absolute Liquid

Assets Ratio
2009-2010 73032529 1278982982 0.06
2010-2011 54404452 1418392691 0.04
2011-2012 34821429 1154756443 0.03
2012-2013 46027000 1343407000 0.03
2013-2014 41909000 2046011000 0.02
Figure 5.3
FIGURE SHOWING ABSOLUTE LIQUID RATIO
ABSOLUTE LIQUID RATIO

0.07
0.06 0.06
0.05
0.04 0.04
RATIO
0.03 0.03 0.03
0.02 0.02
0.01
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
YEAR
ABSOLUTE LIQUID RATIO
INFERENCE
Table 5.3 shows the Absolute Liquid ratio of HIL. The ratio establish the
relation between cash and current liabilities. Cash is the most or absolute liquid asset for
any firm. The accepted standard ratio is 1:2 . The absolute liquid ratio of HIL was not up
to the mark during all the years . In the year 2013-2014 company had recorded lowest ratio
(i.e) 0.02.
5.4 INVENTORY TO WORKING CAPITAL RATIO
INVENTORY
INVENTORY TO WORKING CAPITAL = ---------------------------
WORKING CAPITAL
Table 5.4
TABLE SHOWING INVENTORY TO WORKING CAPITAL RATIO
Year Inventory Working Capital Inventory to

Working Capital
Ratio
2009-2010 582633756 901137146 0.65
2010-2011 618421853 819002846 0.76
2011-2012 725633543 910700821 0.80
2012-2013 786912000 1046457000 0.75
2013-2014 677182000 697906000 0.97
Figure 5.4
FIGURE SHOWING INVENTORY TO WORKING CAPITAL RATIO
INVENTORY TO WORKING CAPITAL RATIO

1
0.9
0.8
0.7
0.6
RATIO
0.5 0.97
0.4 0.76 0.8 0.75
0.3 0.65
0.2
0.1
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
YEAR
Inventory to Working Capital Ratio
INFERENCE
Table number 5.4 shows the Inventory to Working Capital Ratio of HIL, the
ideal ratio is 1:1. Figure describes that inventory to working capital ratio of the company
was very satisfactory in the year 2013-2014 (i.e) 0.97 , it is very much closer to 1.
5.5 FIXED ASSET TURNOVER RATIO
SALES
FIXED ASSET TURNOVER RATIO = ------------------------
NET FIXED ASSET
Table 5.5
TABLE SHOWING FIXED ASSET TURNOVER RATIO
Year Sales Net Fixed Assets Fixed Asset

Turnover Ratio
2009-2010 2438841008 284556430 8.57
2010-2011 2710379931 315467087 8.59
2011-2012 2572188635 377299656 6.81
2012-2013 2744834000 443129000 6.19
2013-2014 3007755000 519299000 5.79
Figure 5.5
FIGURE SHOWING FIXED ASSET TURNOVER RATIO
FIXED ASSET TURNOVER RATIO

10
9
8.57 8.59
8
7 6.81
6 6.19
5.79
RATIO
5
4
3
2
1
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
YEAR
FIXED ASSET TURNOVER RATIO
INFERENCE
Table 5.5 shows Fixed Asset turnover of HIL. The fixed asset turnover ratio
of the company is higher in the year 2009-2010 ( 8.57 ) & it starts decreasing from the next
year. It is always better to have a high turnover ratio. Fixed asset turn over ratio for the year
2013-2014 is 5.79 which is very low when compared to previous years.
5.6 CURRENT ASSET TO FIXED ASSET RATIO
CURRENT ASSETS
CURRENT ASSET TO FIXED ASSET RATIO = ------------------------------
NET FIXED ASSETS
Table 5.6
TABLE SHOWING CURRENT ASSET TO FIXED ASSET RATIO
Year Current Assets Net Fixed Assets Current Assets to

Fixed Assets Ratio
2009-2010 2180120128 284556430 7.66
2010-2011 2237395537 315467087 7.09
2011-2012 2065457264 377299656 5.47
2012-2013 2389864000 443129000 5.39
2013-2014 2743917000 519299000 5.28
Source : Annual reports
Figure 5.6
FIGURE SHOWING CURRENT ASSET TO FIXED ASSET RATIO
Current Assets to Fixed Assets Ratio
7.66
8 7.09
6 5.47
5.39
RATIO
4 5.28
0
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
YEAR
Current Assets to Fixed Assets Ratio
INFERENCE
Table no 5.6 shows Current Asset to Fixed Asset turnover ratio of HIL, Figure
shows a decreasing trend . The ratio is higher in the year 2009-2010 (i.e) 7.66 & lowest in
the year 2013-2014 (i.e) 5.88.
5.7 CURRENT ASSETS TO TOTAL ASSETS RATIO
CURRENT ASSETS
CURRENT ASSET TO TOTAL ASSET RATIO = ----------------------------
TOTAL ASSETS
TOTAL ASSET = FIXED ASSETS + CURRENT ASSETS
Table 5.7
TABLE SHOWING CURRENT ASSETS TO TOTAL ASSETS RATIO
Year Current Assets Total Assets Current Assets to

Total Assets Ratio
2009-2010 2180120128 1264000752 1.72
2010-2011 2237395537 1222923591 1.82
2011-2012 2065457264 2540525972 0.81
2012-2013 2389864000 2939612000 0.81
2013-2014 2743917000 3357121000 0.82
Figure 5.7
FIGURE SHOWING CURRENT ASSETS TO TOTAL ASSETS RATIO
Current Assets to Total Assets Ratio

2
1.8 1.82
1.6 1.72
1.4
1.2
RATIO
1
0.8 0.82
0.81 0.81
0.6
0.4
0.2
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
YEAR
Current Assets to Total Assets Ratio
INFERENCE
The above figure shows the Current Asset to Total Asset Ratio of HIL. Chart
shows the decreasing trend from the year 2011-2012 , but at the period of 2103-2014 it is
slightly increased . This trend shows that the company has to invest more in firms current
assets. Here the ratio is higher in the year 2010-2011 (i.e) 1.82 and lowest in the year 2011-
2012 & 2012-2013 (i.e) 0.81.
5.8 WORKING CAPITAL TURNOVER RATIO
SALES
WORKING CAPITAL TURNOVER RATIO = ---------------------------
WORKING CAPITAL
Table 5.8
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
Year Sales Working Capital Working Capital

Turnover Ratio
2009-2010 2438841008 9011371466 2.71
2010-2011 2710379931 819002846 3.33
2011-2012 2572188635 910700821 2.82
2012-2013 2744834000 1046457000 2.62
2013-2014 3007755000 697906000 4.31
Figure 5.8
FIGURE SHOWING WORKING CAPITAL TURNOVER RATIO
Working Capital Turnover Ratio

5
4.5 4.31
4
3.5 3.33
3 2.71 2.82
2.62
2.5
2
1.5
1
0.5
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
Working Capital Turnover Ratio
INFERENCE
Table 5.8 shows the Working Capital Turnover Ratio of HIL, this ratio
indicates the number of times working capital is turned over in the course of the year. This
ratio measures the efficiency of working capital. From this table we can interpret that that
the ratio is suddenly increased in the year 2013-2014.
5.9 DEBTORS TURNOVER RATIO
TOTAL SALES
DEBTORS TURNOVER RATIO = ------------------------------
AVERAGE DEBTORS
Table 5.9
TABLE SHOWING DEBTORS TURNOVER RATIO
Year Total Sales Average Debtors Debtors Turnover

Ratio
2009-2010 2438841008 1033824033 2.35
2010-2011 2710379931 1274846880 2.12
2011-2012 2572188635 1265372897 2.03
2012-2013 2744834000 1348580500 2.03
2013-2014 3007755000 1692648000 1.77
Figure 5.9
FIGURE SHOWING DEBTORS TURNOVER RATIO
Debtors Turnover Ratio
2.5
1.5
RATIO
2.35
2.12 2.03 2.03
1 1.77
0.5
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
YEAR
Debtors Turnover Ratio
INFERENCE
The liquidity position of the company depends upon the quality of trade
debtors. Table 5.9 shows the Debtors Turnover of HIL, the ratio is fluctuating over all the
years. Debtors turnover Ratio is higher in the year 2009-2010 & it is lower in the year 2013-
2014.
5.10 AVERAGE COLLECTION PERIOD
NO OF DAYS IN A YEAR
AVERAGE COLLECTION PERIOD = ----------------------------------------
DEBTORS TURNOVER RATIO
Table 5.10
TABLE SHOWING AVERAGE COLLECTION PERIOD
Year No of Days Debtors Turnover Average Collection

Ratio Period
2009-2010 365 2.35 155 days
2010-2011 365 2.12 172 days
2011-2012 365 2.03 179 days
2012-2013 365 2.03 179 days
2013-2014 365 1.77 206 days
Figure 5.10
FIGURE SHOWING AVERAGE COLLECTION PERIOD
Average Collection Period

250
200
150
DAYS
100
50
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
Axis Title
Average Collection Period ( DAYS)
INFERENCE
The Average Collection period represents the average no of days for which a
firm has to wait before its receivables are converted in to cash, this helps to analyze credit
policy of the companyTable 5.10 shows average collection period of HIL, average
collection period is increasing year by year. Collection period was very higher in the year
2013-2014 ( i.e ) 206 days.
5.11 CASH TO CURRENT ASSET RATIO
CASH
CASH TO CURRENT ASSET RATIO = --------------------------
CURRENT ASSETS
Table 5.11
TABLE SHOWING CASH TO CURRENT ASSET RATIO
Year Cash Current Assets Cash to Current

Asset Ratio
2009-2010 73032529 2180120128 0.033
2010-2011 54404452 2237395537 0.024
2011-2012 34821429 2065457264 0.017
2012-2013 46027000 2389864000 0.019
2013-2014 41909000 2743917000 0.015
Figure 5.11
FIGURE SHOWING CASH TO CURRENT ASSET RATIO
Cash to Current Asset Ratio

0.035 0.033
0.03
0.024
0.025
0.019
0.02
RATIO
0.017
0.015
0.015
0.01
0.005
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
YEAR
Cash to Current Asset Ratio
INFERENCE
Cash to Current Assets ratio measures a companys liquidity position. Table

5.11 shows Cash to Current Asset ratio of HIL , which is decreasing year by year. Company
had recorded higher ratio in the year 2009-2010 ( i.e) 0.033 & lower ratio in the year 2.03-
2014 ( i.e ) 0.015. This shows that company is slightly in a unsatisfactory position.
ANALYSIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL
5.12 SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE
YEAR 2009&2010
Table 5.12
Effect on working capital

Particulars 2009 2010 Increase Decrease
Current Assets
Inventories 645882496 582633756 63248740
Sundry Debtors 8156301151 1252017915 436387764
Cash & Bank Balance 61662270 73032529 11370259
Loans & Advance 2655183665 272435928 6917563
TOTAL CURRENT ASSETS 1788693282 2180120128
Current Liabilities
Current liability 1081244030 1278982982 197738952
TOTAL CURRENT LIABILITY 1081244030 1278982982
Net working capital 707449252 901137146

Increase in working capital 193687894 193687894
TOTAL 901137146 901137146 454675586 454675586
INFERENCE
Table No 5.12 shows the changes in working capital for the year 2009&2010.
There is an increase in working capital during the period 2010. The increase in working
capital is due to increase in Current Assets. Sundry Debtors, Cash & Bank Balance ,loans
and advance are increased in this period.
YEAR 2010&2011
Table 5.13

Current Assets
Inventories 582633756 618421853 35788097
Sundry Debtors 1252017915 1297675845 45657930
Loans & Advance 272435928 266893387 5542541
Current Liabilities
Net working capital

901137146 819002846
82134300
Decrease in working capital 82134300
TOTAL 901137146 901137146 163580327 163580327
INFERENCE
Table 5.13 shows that schedule of changes in working capital for the year
2010&2011. There is a decrease in Working Capital for the year 2011, this is due to increase
in Current liabilities of the firm. Here cash & bank balance , loans & advances are decreased
to the greater extent.
YEAR 2011-2012
Table 5.14

Current Assets
Inventories 618421853 725633543 107211690
Sundry Debtors 1297675845 1233069948 64605897
Loans & Advance 266893387 54292306 212601081
Other Current Assets --- 17640038 17640038
Current Liabilities
Net working capital

819002846 910700821
91697975
Increase in working capital 91697975
TOTAL 910700821 910700821 388487976 388487976
INFERENCE
Table 5.14 shows that schedule of changes in working capital for the year
2011&2012. There is a increase in Working Capital for the year 2012, this is due to decrease
in Current liabilities of the firm. In this period the level of inventories & other Current
Assets is increased.
YEAR 2012&2013
Table 5.15

Current Assets
Inventories 725633543 786912000 61278457
Sundry Debtors 1233069948 1462427000 229357052
Loans & Advance 54292306 24165000 30127306
Other current assets 17640038 70333000 52692962
Current liabilities
Short term Borrowings 149274539 368654000 219379461
Sundry Creditors 465088229 503690000 38601771
Other Current Liabilities 353528817 414829000 61300183
Short term provisions 186864858 56234000 130630858

Increase in working capital 135756179 135756179
TOTAL 1046457000 1046457000 485164900 485164900
INFERENCE
There is an increase in working capital during the period 2013. The increase in working
capital is due to increase in Current Assets. Inventories, Sundry Debtors, Cash & Bank
Balance other Current Assets are increased in this period.
YEAR 2013-2014
Table 5.16

Current Assets
Inventories 786912000 677182000 109730000
Sundry Debtors 1462427000 1922869000 460442000
Loans & Advance 24165000 22905000 1260000
Other current assets 70333000 79052000 8719000
Current liabilities
Short term Borrowings 368654000 644053000 275399000
Sundry Creditors 503690000 656916000 153226000
Other Current Liabilities 414829000 674612000 259783000
Short term provisions 56234000 70430000 14196000

Decrease in working capital 348551000 348551000
TOTAL 1046457000 1046457000 817712000 817712000
INFERENCE
There is an decrease in working capital during the period 2014. The decrease in working
capital is due to increase in Current Liabilities. Short term borrowings, sundry creditors,
other current liabilities, short term borrowings are increased during the period.
6.1 FINDINGS
Current assets should be always twice than current liabilities (i.e) 2:1 then their will
be no adverse effect on business operations on business operations when the
payment is made, but here the current ratio is 1.34which is not considered to be
satisfactory.
Ideal quick ratio of the concern is considered to be 1:1, it is good to keep the quick
assets atleast equal to its current liabilities. Here the quick ratio is considered to be
highly satisfactory (i.e) 1.1But it shows a decreasing trend year by year.
The ideal Absolute liquid ratio of the firm is considered to be (1:2), the absolute
liquid ratio shows a decreasing trend & it is not considered to be satisfactory (i.e)
0.02
Inventory should not exceed the amount of Working Capital (i.e) 1:1. Here the
inventory to working capital ratio is 0.97. It is considered to be satisfactory.
Fixed Asset turnover ratio shows a decreasing trend for the last 5 years. Fixed asset
turnover ratio is very lower in the year 2013-2014.
Company has recorded higher Working Capital Turnover Ratio in the year 2013-
2014 (i.e) 4.31, this leads to increase in overall profitability of the firm.
Average collection period depends upon debtors turnover ratio, shorter collection
period implies quick payment by debtors. Average collection period was very high
during the year 2013-2014 (i.e) 206 days.
Cash to current asset ratio shows a decreasing trend (i.e) 0.03 in the year 2009-2010
& 0.015 in the year 2013-2014, so the company cannot able to meet expenses during
emergency situations.
There is decrease in working capital position during the year 2014
6.2 SUGGESTIONS
The firm should take proper measures to maintain Current Ratio at 2:1, so that
company can able to run in a satisfactory position.
The firm should increase the level of Current Assets, inorder to meet its current
liabilities, so that their will be no adverse effect on business when the payment of
current liabilities is made.
The firm should maintain its liquid assets at 1:2 to meet its immediate cash needs
on emergency situations.
It was found that the debtors turnover ratio of the company has decreased which
inefficient management of debtors, so that the company should make proper
measures to improve the same.
Average collection period of the firm is so high, so that a firm should make a proper
policy to minimize the average collection period.
Company has to concentrate on Inventory Management inorder to minimize losses.
Firm should make a proper control over current liabilities inorder to improve its
level of Working Capital.
6.3 CONCLUSION
Working capital may be regarded as lifeblood of a business. Its effective

provision can do much to ensure the success of a business. The Working Capital
Management contributes much in the over all management of the organization affairs,
efficiency of organization operations depend on how it manages its short term business
dealings. Working Capital management contributes for the firm efficiency as well as the
finance manager is proper utilizing the available wealth and maintaining the required
liquidity.
Working capital is considered to be an important tool for progress. Working
capital management techniques are playing significant role in assisting the management for
decision making. The study of working capital management at HINDUSTAN
INSECTICIDES Ltd is found to be very effective. The working capital contains the
management of Cash, Debtors, and creditors. Working capital of the company was
decreased to greater extent in the year 2014 this is due to increase in current liabilities of
the firm.
BIBLIOGRAPHY
Annual Report of Hindustan Insecticides Limited.
Books:
M.Y.Khan / P.K Jain, Financial Management 5Th Edition,Tata McGrawHills Publishing
Company Limited, New Delhi, 2007.
Prasanna Chandra, Financial Management Theory and Practice, 5TH Edition, Tata
McGraw Hill Publishing Company Limited, New Delhi, 2001.
Websites:
www.wikipedia.org
www.transtutors.com
www.hil.gov.in
BALANCE SHEET OF HIL AS ON 31ST MARCH 2010 & 2011
PARTICULARS SCHEDULE AS AT 31-3-2010 AS AT 31-3-2011

SOURCES OF FUNDS
SHARE HOLDERS FUNDS
Share capital 1 913324000 913324000
Reserves & Surplus 2 0 0
LOAN FUNDS
Secured Loans 3 0 92159591
Unsecured Loans 4 350676752 217440000
TOTAL 1264000752 1222923591
APPLICATION OF FUNDS
FIXED ASSETS 5
Gross Block 1140755725 1197816666
Less: Depreciation 865581102 899640910
Net Block 275174623 298175756

Capital working progress 9381807 17291331
284556430 315467087
NEW PROJECT UNDER ERECTION 6 0 25935097

INVESTMENTS 7 20000 520000
CURRENT ASSETS LOANS &
ADVANCES
Inventories 8 582633756 618421853
Sundry debtors 9 1252017915 1297675845
Cash & Bank Balances 10 73035029 54404452
Loans & Advances 11 272435928 266893387
2180122628 2237395537
Less : Current liabilities & provisions 12 1278985482 1418392691
Net Current Assets 901137146 819002846
Miscellaneous Expenditure 13 3412953 2892997

Profit & Loss Account 74874223 59105564
TOTAL 126400752 1222923591
BALANCE SHEET OF HIL AS ON 31ST MARCH 2012 & 2013
PARTICULARS NOTE NO AS AT 31-3-2012 AS AT 31-3-2013
I EQUITY & LIABILITIES
1 )SHAREHOLDERS FUNDS
a. Share Capital 1 913324000 913324000
b. Reserve & Surplus 2 -43066136 -13822000
2 )SHARE APPLICATION MONEY

PENDING ALLOTMENT
3 ) NON CURRENT LIABILIIES

a. Long term Borrowings 3 217440000 235764000
b. Other Long term liabilities 4 0.00 63693000
c. Long term provisions 5 298071665 397246000
4) CURRENT LIABILITIES
a. Short term borrowings 6 149274539 368654000
b. Trade Payable 7 465088229 503690000
c. Other Current Liabilities 8 353528817 414829000
d. Short term provisions 9 186864858 56234000
TOTAL 2540525972 2939612000
II ASSETS
1 ) NON CURRENT ASSETS
a )Fixed Assets
i. Tangible Assets 10 289481196 267330000
ii. Intangible Assets 11 0.00 0.00
iii. Capital work-in-progress 87818460 175799000
b ) Non Current Investments 12 520000 520000
c ) Long term Loans & Advances 13 68227698 69856000
d ) Other Non Current assets 14 29021354 36243000
2 ) CURRENT ASSETS
a )Current Investments 15 0.00 0.00

b )Inventories 16 725633543 786912000
c ) Trade Receivables 17 1233069948 1462427000
d )Cash & Cash Equivalents 18 34821429 46027000
e )Short term Loans & Advances 19 54292306 24165000
f Other Current Assets 20 17640038 70333000
TOTAL 2540525972 2939612000
BALANCE SHEET OF HIL AS ON 31ST MARCH 2014
PARTICULARS NOTE NO AS AT 31-3-2014
I EQUITY & LIABILITIES
1 )SHAREHOLDERS FUNDS
c. Share Capital 1 913324000
d. Reserve & Surplus 2 4641000
2 )SHARE APPLICATION MONEY

PENDING ALLOTMENT
3 ) NON CURRENT LIABILIIES

d. Long term Borrowings 3 42600000
e. Other Long term liabilities 4 65675000
f. Long term provisions 5 284870000
4) CURRENT LIABILITIES
e. Short term borrowings 6 644053000
f. Trade Payable 7 656916000
g. Other Current Liabilities 8 674612000
h. Short term provisions 9 70430000
TOTAL
3357121000
II ASSETS
1 ) NON CURRENT ASSETS
a )Fixed Assets
iv. Tangible Assets 10 339687000
v. Intangible Assets 11 0.00
vi. Capital work-in-progress 179612000
b ) Non Current Investments 12 520000
c ) Long term Loans & Advances 13 70966000
d ) Other Non Current assets 14 22419000
2 ) CURRENT ASSETS
a )Current Investments 15 0.00

b )Inventories 16 677182000
c ) Trade Receivables 17 1922869000
d )Cash & Cash Equivalents 18 41909000
e )Short term Loans & Advances 19 22905000
f Other Current Assets 20 79052000
TOTAL 3357121000

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A Study On Working Capital Management at Hil: Asan Institute of Management Page

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A STUDY ON WORKING CAPITAL MANAGEMENT AT HIL

"Cash is the lifeblood of business" is an often repeated maxim amongst

However, in the overall day-to-day financial management, after the initial

HIL, a Govt. of India Enterprise, under the Department of Chemicals &

HIL is actively involved in CSR activities, it is playing a vital role in

1.2 OBJECTIVES OF THE STUDY

To study and analyse liquidity & financial position of the company

To study the sources & uses of funds at HINDUSTAN INSECTICIDES LTD.

To measure the financial viability of the company.

To measure the firms ability to meet its short term liabilities.

To make suggestions based on the findings of the study.

1.3 PROBLEM OF THE STUDY

1.4 SCOPE OF THE STUDY

This study covers last 5 years annual reports of HINDUSTAN INSECTICIDES

Ratio Analysis & Statement of Changes in Working Capital.

To familiarize with the financial structure & functioning of Working Capital

which is beneficial to the students as well as Organization.

1.5 NEED OF THE STUDY

1.6 LIMITATIONS OF THE STUDY

The duration of the study is short.

position of the company as not taken into consideration.

The study uses secondary data for analysis.

2.1 INDUSTRY PROFILE

PESTICIDE USAGE PATTERN IN INDIA

THE FIGURE BELOW SHOWS THE

PERCAPITA USAGE OF PESTICIDES BY COUNTRY

PERCAPITA USAGE OF PESTICIDES BY

TAIWAN CHINA JAPAN USA KOREA FRANCE UK INDIA

Pesticides or agrochemicals are chemicals designed to combat the attack of

USAGE OF PESTICIDES IN INDIA

2.2 COMPANY PROFILE

HIL, a Govt. of India Enterprise, under the Deptt. of Chemicals &

COMPANY NAME HINDUSTAN INSECTICIDES LIMITED

HEAD OFFICE NEW DELHI

BRANCH 6 REGIONAL SALES OFFICE AND 3

PRODUCTS DDT , DICOFOL , MANEOZEB, MALATHION,

VISION OF THE COMPANY

To be a global player in the field of crop protection and public health

MISSION OF THE COMPANY

There are about 8 departments functioning efficiently under companies

UDYOGAMANDAL UNIT OF HIL

RECEIVING SCOPE AWARD FROM HONURABLE EX-PM

The sales turnover of the company stood at Rs 330.35 cr as compared to Rs

Agriculture is the backbone of our national economy scientific and technical

A number of technical grade pesticides and formulations are produced by the

The Udyogamandal unit of HIL is manufacturing DDT , Dicofol and has

ENVIRONMENTAL PROTECTION AND POLLUTION CONTROL

A centralized effluent treatment plant in which the entire quantity of liquid

2.3 PRODUCT PROFILE

Uses : Its formulations are recommended to control phytophagous

Chemical Name : Dimethyl [1,2 phenylenebis(iminocarbonothioyl)]bis

3.1 LITERATURE REVIEW

The purpose of this chapter is to present a review of literature relating to the

STUDIES ON WORKING CAPITAL MANAGEMENT

Thus, Sagan concentrated mainly on cash component of working capital. Sagan

Realising the dearth of pertinent literature on working capital management,

Thus, Walker tried to build-up a theory of working capital management by

Vanhorne in his study (1969)4, recognizing working capital management as an

Warren and Shelton (1971) applied financial simulationto simulate future

Agarwal (1983)also studied working capital management on the basis of

3.2 THEORETICAL FRAMEWORK

Working capital management as usually concerned with administration of the

The importance of working capital management is indisputable; Business