A STUDY ON ZERO WORKING CAPITAL MANAGEMENT WITH REFERENCE TO TERUMO PENPOL LTD, TRIVANDRUM

BY VIDYA UNNIKRISHNAN 96910631034 PROJECT REPORT Submitted to FACULTY OF MANAGEMENT STUDIES In partial fulfilment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATION In FINANCE

ANNA UNIVERSITY THIRUNELVELI AUGUST 2011

Bonafide Certificate

Certified that this project reported titled A STUDY ON ZERO WORKING CAPITAL MANAGEMENT WITH REFERENCE TO TERUMO PENPOL LTD; TRIVANDRUM, KERALA. the bonafide work of Ms. Vidya Unnikrishnan, 96910631034 who carried out the research under my guidance certified further, that to the best of my knowledge the work reported here in does not form part of my other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Internal Guide

Head of the Department

Ms. M.Barvin Banu, MBA, DCA

Ms. S.Angel Raphella MBA, M.Phil, PhD

Submitted to Project Viva Examination held on

Internal Examiner

External Examiner

VIDYA UNNIKRISHNAN II MBA Department of Management Studies SCAD College of Engineering & Technology Cheranmahadevi Tirunelveli District 627414

DECLARATION

I hereby declare that A Study on Zero Working Capital Management with reference to TERUMO PENPOL LTD, Trivandrum. in partial fulfilment of the requirement for award of the degree of Master of Business Administration to Anna University in my original work done during the period of study in SCAD Engineering College, Tirunelveli District, under the guidance of Miss. Barvin Banu, Lecturer in Department of Management Studies. It has previously not formed the basis for the award of any degree and that work has not been published in any journal or magazine before.

VIDYA UNNIKRISHNAN

96910631034

ACKNOWLEDGEMENT

I express my deepest and sincere thanks to our respected Chairman Dr. Cletus Babu, for providing all required facility for completing the project. I sincerely acknowledge my deep gratitude to Dr. Mohammed Sheriff, Principal, SCAD College of Engineering & Technology, Anna University, Tirunelveli, who gave me an opportunity to submit the project work for the partial fulfilment of my M.B.A program. I acknowledge my sincere gratitude to respected Head of the Department Ms. S. Angel Raphella MBA, Mphil, (Phd) for providing me necessary formal sanctions required for carrying out the study. I also express my sincere gratitude to my project guide Lecture Miss. M.Barvin Banu, MBA,DCA who soluble guidance helped me to complete my study successfully. I express my sincere gratitude to the Management of Terumo Penpol Ltd. For granting me permission to under taken this project. I would like to thanks the entire respondents and friends in Terumo Penpol Ltd for extend their whole hearted Co operation for the completion of my project. I would like to thank Mr. Abilash R, Executive Accounts, who assisted me to complete my training successfully in the company and also remember my parents, friends and relations for the encouragement.

Above all I would like to thanks god, the almighty.

VIDYA UNNIKRISHNAN

INTRODUCTION
Working capital is the comparison of current assets to current liabilities. For most organizations, current assets exceed current liabilities and working capital therefore represents the liquid reserves for meeting current obligations. Creditors prefer high levels of working capital since they are concerned about receiving payment. However, management prefers low levels of working capital since working capital earns an extremely low rate of return. Some companies are now driving working capital to record low levels, so-called Zero Working Capital. By keeping working capital at zero, funds are released for many other opportunities. Zero Working Capital requires major changes in how an organization functions. One way to implement Zero Working Capital is to have a demand-based organization. Demandbased organizations do everything only as they are demanded: Fill customer orders, receive supplies, manufacture products, and other functions are done only as needed. The production facilities run 24 hours a day non-stop according to the demands within the marketplace. There are no inventories; everything is supplied immediately as needed. The end result of this demand driven organization is that little, if any, working capital is necessary to run the business. Companies like GE (General Electric) and Campbell Soup have made Zero Working Capital a major strategic objective for the organization. As more and more businesses find faster ways of servicing customers, the concept of Zero Working Capital will become more mainstream.

1.1 INTRODUCTION TO THE TOPIC

Every business needs funds for two purposes for its establishment and to carry out its day-to-day operations. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day-to-day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short-term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus invested in current asset keep revolving fast and are being constantly converted in to cash and this cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short-term 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

It concerned with the formulation of policies with regard to profitability, liquidity and risk. It is concerned with the decision about the composition and level of current assets. It is concerned with the decision about the composition and level of current liabilities.

Requirement of Working Capital To pay suppliers To pay salary To pay taxes To pay dividend To pay other expenses

CA-CL=Net WC

When CA>CL, it is +ve WC

When CA=CL, it is Zero WC

When CA<CL, it is ve WC

Zero working capital means no fund is used as floating capital. Before making the payment to sub-suppliers; the manufacturer receives payment from buyers. This can be realized as production is scheduled at request of customers. This will result in healthy operation of the enterprise. Some companies are now driving working capital to record low levels, so called Zero Working Capital. By keeping working capital at zero, funds are released for many other opportunities. Zero Working Capital requires major changes in how an organization functions. One way to implement zero working capital is to have a demandbased organization. Demand-based organizations do everything only as they are demanded: fill customer orders, receive suppliers, manufacture products, and other functions are done only as needed. The production facilities run 24 hours a day non-stop according to the demands within the market place. There are no inventories; everything is supplied immediately as needed. The end result of this demand driven organization is that little, if any, working capital is necessary to run the business.

Zero Working Capital Cycle

1 Buy RM on credit No cash out flow

2 Produce and sell to customers on credit No cash inflow

3 4 Pay for original stock out cash outflow Customers pay for goods bought on credit cash inflow

Todays world of intense global competition, working capital management is receiving increasing attention form managers striving for peak efficiency the goal of many leading companies today, is zero working capital. Proponent of the zero working capital concept claims that a movement toward this goal not only generates cash but also speeds up production and helps business make more timely deliveries and operate more efficiently. The concept has its own definition of working capital: inventories+ receivablespayables. The rational here is (i) that inventories and receivables are the keys to making sales, but (ii) that inventories can be financed by suppliers through account payables. Companies use about 20% of working capital for each sale. So, on average, working capital is turned over five times per year. Reducing working capital and thus increasing turnover has two major financial benefits. First every money freed up by reducing inventories or receivables, by increasing payables, results in a one time contribution to cash flow. Second, a movement toward zero working capital permanently raises a companys earnings. The most important factor in moving toward zero working capital is increased speed. If the production process is fast enough, companies can produce items as they are ordered rather than having to forecast demand and build up large inventories that are managed by bureaucracies. The best companies delivery requirements. This system is known as demand flow or demand based management. And it builds on the just in time method of inventory control.

Clearly it is not possible for most firm to achieve zero working capital and infinitely efficient production. Still, a focus on minimizing receivables and inventories while maximizing payables will help a firm lower its investment in working capital and achieve financial and production economies. Advantages of Zero Working Capital Better cash flow Better cash management. Can utilize available funds for profitable activities. Good credit worthiness.

1.2 INDUSTRY PROFILE

Blood Transfusion is an integral part of the Health Care delivery in any country. In fact it is the most important part of the health Care System. In India blood is classified as a drug under the drugs & Cosmetics Act. India requires about 50 lakh unit of blood every year across the country. Blood is collected in blood bags (350ml/450ml) range. The blood collection and issue is done by 1920 blood banks spread across the country. Blood bags are manufactured using medical grade PVC granules under good manufacturing practices (GMP) and standard clean room conditions. Blood bag is a disposable bio-medical device used for collection, storage, transportation and transfusion of human blood and blood components. The system consists of a single or multiple bags connecting with tubing, needle, needle cover, clamp etc. The blood bags are made of plastic materials which are compatible with blood. Blood bags can successfully replace the use of glass bottles for collection, storage, transportation, and transfusion of blood and blood components since bottles require exhaustive cleaning, rinsing, and autoclaving procedures and there are chances of breakage at any stage. Further, use of disposable bags eliminates the possibility of ant contamination. In recent times, blood bags have become a conspicuous item and essential need of hospitals and nursing homes to meet blood infusion emergencies. Blood bags are most ostensibly serving the medical field in crucial hour. As the number of hospitals, the demand for the blood bags too is increasing tremendously. A blood bag system comprising a container holding an inactivator that inactivates a microorganism contained in blood, a container holding an anticoagulant and a connecting tube connected liquid-tightly to the container, wherein inactivator contains as a main component a platinum compound capable of binding to nucleic acid of the microorganism or an aquo complex of the platinum compound; and a tube for introducing a neutralizing agent to neutralize the inactivator is connected with the container holding the inactivator. Indian R & D organization is offering technology for the manufacture of disposable blood bag systems. Blood bag system is a disposable bio-medical device used for collection, storage, transportation and transfusion of human blood and blood components. The system consists of a single or multiple bags connected with tubes, needle, and needle

cover, clamp etc. The blood bags are made of plastic material which is compatible with blood. Blood bags can successfully replace the use of glass bottles for collection, storage, transportation, and transfusion of blood and blood components since bottles require. Blood bags are Plasticized Poly Vinyl Chloride bags (PVC) containers and are a complete system with collection tube, outlet ports & an integral needle. Advantages of Indian technologies: Low capital investment. High employment potential Maximum use of local raw materials and manpower resources. Adaptable levels of sophistication

There are four indigenous manufactures of blood bags in the country and two manufactures from abroad that manufacture outside and sell here in the market. The indigenous manufactures are Terumo Penpol Ltd, J Mitra Ltd, Hindustan Latex Ltd & Eastern Medikit ltd. Globally, approximately 75 million blood bags are collected annually. Major blood bags manufactures globally include Baxter Bioscience, USA; Bayer Corporation, USA and Octapharma AG, Switzerland. With the increasing global demand for blood bags and growth rate of its market being 10 percent annually, the business for the potential investor would need to set up highly standardized plant as the demand for these products largely depend on their quality.

Eastern Medikit Limited Eastern Medikit Limited is amongst the largest and most diverse manufacturers of medical disposables, with exports in over 78 countries. We have consistently surpassed the highest expectations of our customers in terms of truly international product quality (ISO 9001:2000, ISO 13845:2003, CE) and value-pricing. IV Cannula (We are among the largest Indian manufacturer and exporters), blood banking devices, respiratory care devices, blood collection tubes are some of the areas we specialise in. As per the exact requirements of our customers, we incorporate various fabricated range of capacities, sizes & other parameters in our entire product assortment. Today, the

increasing demand of our devices from various medical associations is due to their perfection in terms of our performance, safety & efficiency and the ability to adjust them to unique customer requirements. Our commitment Our valued commitment to our customers is based on our integrity, acquiring excellence and never ending enthusiasm. It gives us a feeling of pride that some of our committed clients are with us since 1990s when they first tried us. It is through some of these bonds with our customers and suppliers that today MEDIKIT and its products are recognized in over 80 countries worldwide.

J Mitra & Co. Private Limited Blood Bags Division: Considering the acute need of blood collection bags in the country, to meet its rising demands, the company decided to set up an indigenous state of the art manufacturing unit at Faridabad for manufacture of blood bags. Accordingly work was commenced in 1995 and the indigenous blood bags manufacture & sale was launched in 1997. MITRA INDUSTRIES (P) LTD is a reputed and established name in the field of Blood Collection Bags and CAPD bags for home dialysis, Products are of high quality and supplied across Asia Europe and parts of African sub-continent. MIPL manufactures and markets CAPD Bags for home dialysis, which are used to remove extra fluid and toxic metabolic waste products from the blood thereby enabling the kidney failure patient to lead a near normal life. MIPL also provides total Blood Banking solutions in the form of wide varieties of blood collection bags and blood bank equipments HLL Lifecare Limited HLL Lifecare Limited (HLL) commenced its journey to serve the Nation in the area of healthcare, on 1st March 1966, with its incorporation as a corporate entity under the Ministry of Health and Family Welfare, Government of India. HLL was set up in the natural rubber rich state of Kerala, for the production of male contraceptive sheaths for the National Family Welfare Programme. HLL commenced commercial operations on 5th April 1969 at Peroorkada in Thiruvananthapuram (formerly Trivandrum). The Plant was established in technical collaboration with M/s Okamoto Industries Inc. Japan.

Two most modern Plants were added, one at Thiruvananthapuram and the other at Belgaum in 1985. Another Plant was added in the early nineties at Aakkulam in Thiruvananthapuram for the production of Blood Transfusion Bags, Copper T IUDs, Surgical Sutures and Hydrocephalus Shunt. HLL has grown today into a multi-product, multi-unit organization addressing various public health challenges facing humanity. HLL had set its sights in 2003 - when it had a turnover of a mere Rs 163 crores - to be a Rs 1000 crore company by the year 2010. On the path of rapid growth, this year (2010) it has not only surpassed this figure but has drawn a clear road map to achieve a five fold growth by the year 2015. HLL is today a Mini Ratna and upgraded as a Schedule B Central Public Sector Enterprise. HLL Lifecare Limited is the only company in the world manufacturing and marketing the widest range of Contraceptives. It is unique in providing a range of Condoms, including Female Condoms, Intra Uterine Devices, Oral Contraceptive Pills - steroidal, non-steroidal and Emergency contraceptive pills; and Tubal Rings. HLL produces today 1.316 billion condoms annually making it one of the worlds leading manufacturers of condoms, accounting for nearly 10 percent of the global production capacity. HLLs Health care product range include: Blood Collection Bags, Surgical Sutures, Auto Disable Syringes, Vaccines, In - Vitro Diagnostic Test Kits, Pharma products for Women, Natural products, Hydrocephalus Shunt, Tissue Expanders, Surgical and Examination Gloves, Blood Banking equipment, Neonatal euipment, Blood Transfusion and Intravenous sets, Vending Machines, Iron and Folic Acid Tablets, Sanitary Napkins, Oral Rehydration Salts and Medicated Plasters. HLLs Blood Bags were launched in Brazil in 2006. HLL also launched its nonsteroidal contraceptive pill under the brand name Ivyfemme in Peru in October 2008. HLL has introduced Closed System Blood Bags that are integrated with Leukocyte Filter - called LD Bags. These bags are intended for leuko-depletion immediately upon collection of blood from donors at blood banks. In collaboration with The Female Health Company (FHC), of US, HLL is marketing FC female condom in India. The female condom is the only female controlled prevention

technology approved by the US FDA and the WHO. HLL launched the nitrile female condom - Velvet in India in Decembrer 2007. Targeted at contemporary Indian women and new age couples, nitrile condoms empower women providing dual protection against unwanted pregnancy and STDs, HIV/AIDS. HLL has also launched several initiatives in the services sector for medical infrastructure development, diagnostic centres and procurement consultancy. These have been conceived to bring about a whole new realm of accessible, affordable healthcare delivery to every citizen. Over the years each of the initiatives taken up by HLL are targeted at reaching quality healthcare at the doorstep of every family. Associate Institutions of HLL namely HLFPPT and LifeSpring Hospitals have ensured this to the nations underserved and vulnerable populace, at an affordable cost. With a vast array of innovative products and social programmes to meet the nations health care needs, HLL Lifecare Limited (HLL) is firmly on track, with its vision of Innovating for Healthy Generations.

1.3 COMPANY PROFILE

Terumo Penpol is Indias largest manufacturer of blood bags. The company is one of the largest producers of blood bags in Asia, other than Japan with a capacity of 13 million blood bags. The company has come a long way since its beginning in 1987. The company pioneered the manufacture of blood bags in India and then successfully launched a range of medical electronic products required for blood transfusion centers. Driven by its strong customer-focus and innovative spirit, the company has been the market leader ever since it introduced blood bags in India. Today, it is more than double size of any other blood bag manufacturer in India. Not only does Terumo Penpol offer customers a wide range of blood bags and blood bank equipment, but also offers tailor made products to meet specific requirements. Terumo Penpol is part of the multi billion dollar Terumo Corporation, a Japanese company having its presence in over 150 countries. Terumo has distinguished itself as a high quality manufacturer of medical products, with 13 factories around the world. The company generates annual sales of about $2.0 billion and employs 12,322 people worldwide. Terumo is pioneering products of future like implantable left- ventricular assist systems, artificial vessels, minimally invasive surgery devices. Terumo Penpol has 700 customers all over India and its blood bags are sold in over 60 countries across the world and its Medical Equipment Division has more than 1900 installations to its credit. Terumo Penpol has its headquarter In Thiruvananthapuram and employs 845 people. The company has an experienced team of marketing and sales professionals covering the whole of India. A well-trained service group further supports the team. Terumo Penpol Ltd (TPL) has opened its new factory premises on 28th may 2008. The new plant will enable Terumo Penpol to double its production capacity from the existing 13 million. A significant portion of this output will be exported. The company has been consistently winning top exporter awards for medical disposables and surgical products. The Plastic Exports Promotion Council has feted TPL as the second best exporter for nine consecutive years from 1999.

Mission Statement Better ways to Better Healthcare Their perception is that todays best will be replaced by something still better tomorrow. Vision statement The manufacturing facility follows an integrated production system from raw materials to finished products, ensuring strict adherence to GMP. The production system ensures careful selection of materials, components, controlled production environment, comprehensive testing of all inputs, intermediate products and finished goods. The main feature of their manufacturing facility is the flexibility it offers. Terumo Penpol offers: Flexibility in Product Features. Flexibility in Minimum Order Quantity. Flexibility in Delivery Schedule. At Terumo Penpol, quality is a way of life. Utmost care and attention is given to each and every stage of production to ensure strict adherence to GMP and CE mark standards. The quality management system of Terumo Penpol is certified according to ISO 9001:2000, ISO 13485, European Standards EN 46001 and European Medical Device Directive 93/42/EEC. Quality Policy It is the policy of Terumo Penpol Ltd, To manufacture high quality products meeting customer and regulatory requirement. To design all products in accordance with international standards. To ensure high quality at all stages of the supply chain. By the above Terumo Penpol will contribute to society through healthcare. Terumo Penpol is committed to continuously review and improve the effectiveness of the quality management system. Certifications obtained and standards followed. The Quality Management system of Terumo Penpol Ltd confirms to the requirement of Medical Device Directive 93/42/EEC (1993) ISO 13485:2003; Quality Management System for medical devices.

 BS EN 554:1994; specifies requirements for the process development, process control and monitoring of the sterilization of medical devices. BS EN 556:2001; requirements for medical devices to be labeled sterile. BS EN 980:2003; specified graphical symbols for use in the information supplied by the manufacturer with medical devices, ISO 9001:2000; this international standard specifies requirements for a quality management system, Indian Pharmacopoeia. US Pharmacopoeia. WHO standard ISO 9002 Certification for Manufacturing and Marketing blood bags (1995). ISO 9001 Certification for Design and manufacturing [Equipment Division] (2000).

PRODUCT PROFILE Product Categories: Blood bags & Accessories. Storage Equipment for Blood Banks. Blood Collection Devices.

Blood Bags. The TERUMO Blood Bag systems are high quality products designed for optimum blood management during collection, separation, preservation and transfusion. Various types of blood bag systems with improved storage period of blood and blood components are available. A new range of Blood Bags provides the Blood Banks with a large choice of safety features. Five types of blood bags catering to various patient needs: Single, Double, Triple, Quadruple and Penta Blood Bags and two options of anticoagulant solution CPD and CPDA-1 are available. Also available Blood Bags with additive solution S.A.G.M.-1 and S.A.G.M.-2 (OPTISOLTM).

Type of Blood Bag Single Bag CPDA 1 Double Bag CPDA 1 Triple Bag CPDA 1 Quadruple Bag CPDA 1 Penta Bag CPDA 1 Triple Bag CPD-SAGM Quadruple Bag CPD SAGM Transfer Bag TACE Sagm Buffy Bags

Volume (ml) 100 150 250 300 350 450

SAMPLING AND SAFETY FEATURES Occupational exposure to blood remains a serious concern during the blood donation process. In order to address the safety issues concerning the blood bank personnel, we have introduced a range of features in our blood bags. The sampling and safety features are available on all configurations of blood bags.

Needle Injury Protector: Reduces the risk of needle stick injury from both donor and sampling needles. It provides immediate shielding of needle on withdrawal from vein. Blood Sampling arm with and without Luer Adaptor and Tube Holder: Facilitates safe in-line sampling. The unique LUER adapter, needle provides for a safer sample collection using vacuum tubes. Pre-donation Sampling Bag: The Pre-donation Sampling Bag enables to divert and to collect the first amount of blood. Initial quantity of blood collected tends to contain skin particles, bacteria present at the site of venepuncture and dust particles. The remaining blood free of impurities is collected in the primary bag. During blood collection blood samples can be collected from the Pre-donation Sampling Bag using vacuum blood collection tubes. Filters Terumo IMUGARD III Terumo IMUGARD III filters utilize highly biocompatible polyurethane material to remove leukocytes from freshly produced or stored blood components. The independent systems of Imugard filters are available in various configurations and for various applications. Typically all these systems are made available with the latest advancements to improve operator comfort and patient safety. Terumo IMUGARD III filters are available for removal of leukocytes from platelet concentrates and red cell concentrates. The IMUGARD III filters are available in bedside and laboratory configurations. The IMUGARD III filters offer the following features: Biocompatible polyurethane filter Unique microporous structure of polyurethane material Hydrophilic filter Unique air-vent TERIFUSION BLOOD ADMINISTRATION SET

Product Features

Terifusion Blood Administration Set Specification 54.2 +/Length 47.5 +/Benifits 5(mm) Easy insertion into Transfusion Pot 5(mm) Tight Fitted in Spike, ensures

Spike Protector

sterility even after taking out of pouch 140 +/2(mm) Allows smooth filtration and Big Double Chamber Length flow of blood Gives perfect grip and flow can Roller Clamp 45 +/- 2(mm) Length be properly controlled 83 Mesh ( 60mm Ensures smooth filtration Filter mesh Lenght) without blocks Drip Chamber Polypropylene Bio Compatible Material Sterility assurance (SAL)Micron Ensured sterility level Quality System EN ISO 13485:2003 Assured as per standards Length Medical Equipments- Collection . TUBE SEALER XS1010 The XS1010 model heavy-duty radio frequency bench top sealer provides wide, reliable, snap-apart seals. This lightweight compact tube sealer conserves space in the work area and has international safety certification of EN61010-1. It produces hermetic seal by waves minimizing contamination and haemolysis of blood and blood components and the sealing head is easy to clean.

Blood Collection Monitor - D601 The D601 model is designed to meet all international safety requirements of EN60601-1. It ensures safety to the donor, user (phlebotomist) and the recipient (patient). The gentle oscillation movement ensures continuous and uniform mixing of blood with anticoagulant to

eliminate blood clots. This model provides step by step instruction for use on the display panel and has provision to pause collection and change programmed volume. It has 8 hour battery backup which ensures smooth operations in blood banks as well as in mobile units.

Donor Station - DC200 The uniquely designed leg position suits the hemodynamic of the human body for ensuring safe and comfortable blood donation and minimizes the onset of vasovagal attacks. The DC200 model is provided with stands for Blood Shaker, BP Apparatus and IV Fluids; which ensure convenience for users as the stands can be swiveled from one side to the other depending on the arm from which blood is drawn. DC200 is designed to meet all international safety requirements of EN60601-1, and ensures safety, comfort and convenience to the donor as well as the phlebotomist.

Blood Weighing Scale CS300 - Intelligent Expressor IE300. CS300/IE300. The CS300 Blood/Component Weighing Scale provides accurate weight and volume of blood and its components. Easy conversion of weight to volume and vice versa. The Compare Mode for comparing the weight of two bags helps in balancing the bags for refrigerated centrifuge. Zero set provision accounts for the weight of the bag. This Blood/Component Weighing Scale has a built-in interface to integrate an Electronic Plasma

Expressor. As the programmed weight or volume is attained the clamp gets activated stopping the process of component transfer into the satellite bag.

Processing Terumo Automatic Component Extractor A highly flexible automatic blood component extractor for the standardized processing of centrifuged blood according to good manufacturing process. The device is designed to be used with all common standard bag systems. Its top angled press with press position detection ensures high stability of layers during extraction. It gives high quality, non contaminated products with maximum component yield and viability with a reduction in leukocytes through buffy method.

Plasma Expressor - E300 The optical sensor heads of the E300 and E250 models of the electronic plasma expressor provides precise separation with minimum contamination. E300 offers same efficiency of separation across different brands of blood bags. Up to 4 plasma expressors can be interconnected from single power source.

TERUMO STERILE TUBING WELDER The TSCD creates strong and consistent sterile welds while maintaining a functionally closed system. With TERUMO's TSCD, sterility is preserved without damage to cells or fluids. This is the only solution to prevent bacterial contamination during the applications of:
. . . . . . . . .

Component Pooling Leukoreduction Collection set modification Component Aliquoting Apheresis set modification. Quality control sampling. Stem Cell processing. Cell Washing. Freezing etc.

Cryo Bath - CB100 The Composafe Cryo Bath is designed for the safe thawing of fresh frozen plasma at 4C for the optimum yield of Cryo precipitate. The microprocessor based controller ensures precise monitoring of temperature. CB100 has a capacity of 12 Plasma bags per cycle. The Cyro Bath CB100 is provided with lockable castor wheels for easy transportation.

Storage Platelet Agitator with Incubator - PA/PI200 The Composafe PA/PI200 is designed to meet all international safety requirements of EN60601-1. This product stores platelet concentrates in continuous motion at controlled temperature. Digital temperature control monitor coupled with a unique air circulation system maintains incubator at a uniform temperature of 22+- 2C within the Incubator chamber as per FDA recommendation. There are visual indications and audio alarms for temperature variation, open door and agitator failure. PA/PI200 Platelet Agitators come in two options: 24 and 48 bag capacities.

Blood Bank Refrigerator - 165L, 300L, 600L The unique forced airflow system ensures uniform temperature to all units of blood with maximum variation of +- 1C in all parts of the cabinet. The refrigerators come with condensate evaporator and automatic defrosting. The temperature recorder has a 2 hour battery backup to record temperature during power failure. The refrigerators are available in 165L, 300L and 600L capacity and with Metal and Glass door option.

Deep Freezer - DF40U

The -40C Deep Freezers are suitable for storage and preservation of plasma and preserving the labile factors during the shelf life. High quality stainless steel interior helps maintain temperature and provides ease of cleaning.

Management Trustees : Name of the Chairman Name of the MD Name of the Finance Manager : : :

Address of the Concern:

ORGANIZATION STRUCTURE

Chairman

Managing Director

Executive

Company

Management

Finance

Administration

HR

CCD

IT

GM Manufact uring

GM Marketing

GM Export

GM Medical System Group

Marketing Domestic

Logistics

Sales & Services

Technical

Production

Personnel

Materials

PPC QAD NPD/PED

Process

Production

Stores

Purchase

SIGNIFICANCE OF THE STUDY Working Capital is usually life blood of a business. The excess working capital creates dead funds which should not be utilized effectively. Zero Working Capital Management helps in the effective utilization of the funds and it helps in the diversification of excess funds into productive resources. The significance of the study focuses on the

effective utilization of funds as per requirements and avoid wastages of unproductive FUNDS.

SCOPE OF THE STUDY The study is an attempt to analyze the applicability of zero working capital management in Terumo Penpol Ltd. The study gave an idea about the importance of working capital in an organization. This study may also help the researcher to develop new ideas, techniques, and methods in respect to the working capital management.

STATEMENT OF PROBLEM In this study the full focus was given to Working Capital Management evaluation of Terumo Penpol Ltd, & the other aspect of financial analysis such as liquidity is also considered. The study is conducted to analyse whether the technique of Zero working capital management could be implemented in the organization and thereby the firm can keep working capital at zero level & thus the funds may be released for further opportunities.

OBJECTIVES OF THE STUDY 1. To determine whether the technique of Zero working capital management could be implemented in Terumo Penpol ltd through the study of current working capital. 2. To find Working Capital Management evaluation of the organization.

3. To analyze the level of Current Assets and Current Liabilities with reference to previous years. 4. To analyze the Liquidity position of the firm. 5. To provide suggestions for betterment of performance.

LIMITATIONS OF THE STUDY. 1. Only financial datas with reference to the last 5 years was taken. 2. Financial statements are generally based on historical or original cost. The current economic conditions are generally ignored.

CHAPTERISATION

The project was undertaken in different steps & analysis of the data both primary and secondary was done to arrive at certain findings.

Chapter I: Deals with introduction which includes the topic, organization profile, significance and scope of the study, statement of problem, objectives and limitation of the study finally the chapterisation. Chapter II: Includes the Review of Literature and Foot notes Chapter III: Includes Research Methodology, introduction to Research Methodology, Sampling Design, data collection, and analytical tools. Chapter IV: Deals with analysis and interpretation. Chapter V: It covers findings, suggestions and conclusions. Finally project winds up with bibliography.

INTRODUCTION TO REVIEW OF LITERATURE A Literature Review is the body of text that aims to review the critical points of current knowledge including substantive findings as well as theoretical and methodological contributions to topic. Literature review are secondary sources and as such, do not report any new or original experimental work.

Most often associated with academic oriented literature, such as theses, a literature review usually precedes a research properly and results section. Its ultimate goal is to bring the reader up to date with current literature on a topic and forms the basis for another goal, such as future research that may be needed in the area. A well structured literature review is characterised by a logical flow of ideas, current and relevant reference with consistent, appropriate referencing style proper use of terminology and an unbiased and comprehensive view of the previous topic on the topic. REVIEW OF LITERATURE ZERO WORKING CAPITAL MANAGEMENT Working capital is the comparison of current assets to current liabilities. For most organizations, current assets exceed current liabilities and working capital therefore represents the liquid reserves for meeting current obligations. Creditors prefer high levels of working capital since they are concerned about receiving payment. However, management prefers low levels of working capital since working capital earns an extremely low rate of return. Some companies are now driving working capital to record low levels, so-called Zero Working Capital. By keeping working capital at zero, funds are released for many other opportunities. Zero Working Capital requires major changes in how an organization functions. One way to implement Zero Working Capital is to have a demand-based organization. Demandbased organizations do everything only as they are demanded: Fill customer orders, receive supplies, manufacture products, and other functions are done only as needed. The production facilities run 24 hours a day non-stop according to the demands within the marketplace. There are no inventories; everything is supplied immediately as needed. The end result of this demand driven organization is that little, if any, working capital is necessary to run the business. Companies like GE (General Electric) and Campbell Soup have made Zero Working Capital a major strategic objective for the organization. As more and more businesses find faster ways of servicing customers, the concept of Zero Working Capital will become more mainstream.

Working capital is the current assets minus current liabilities. Creditors prefer high working capital levels as they signify a stronger ability to meet short term obligations. Still, financial managers prefer minimal working capital. This means a company's assets are not being tied up in daily operations and can be utilized elsewhere. When attempting to minimize working capital a company wants to convert receivables as quickly to cash as possible, they want to fill orders on demand instead of keeping heavy inventory, and they want to hold out on paying payables as long as possible without injuring credit. This requires awesome vendor or supplier relations and constant improvements in servicing clients. Explanation of the Concept What is Zero Working Capital? In financial terms, zero working capital is the state where the total accounts receivable, accounts payable, and inventory is zero. Inventory + Account Receivables Accounts Payables = 0. A company uses its working capital to purchase inventory, sell goods on credit, collects accounts receivable, and then again purchase inventory. The amount of working capital deployed in a cash conversion cycle bases itself as an optimal trade-off between reducing working capital deployed to purchase inventory, and the potential loss of sales owing to reduced inventory levels or higher costs owing to longer periods of deferred payments. Zero working capital tries to minimize the working capital deployed in the cash conversion cycle to the extent possible, and if possible, continuing the process without any working capital at all. Zero working capital is a working capital strategy that closely relates to the Just-in-Time methodology. Both the concepts place emphasis on stocking minimal or zero inventories to reduce waste and minimize the use of resources. [Frank Wood & Alan Sangster; Frank Wood's Business Accounting Volume 1, 11th Edition.]

How it Works There are many ways to operate with zero working capital. Some options include:

Switch over to demand-based functioning, that is undertaking any activity only on demand. Such an organization starts from a different point in the cash conversion cycle. Instead of buying inventory with working capital, it waits for a specific order and purchases inventory by either collecting advance payments from the client or by deferring payment to the supplier.

Outsourcing the entire manufacturing process. The outsourced production supplier drop ships the product to the customer allowing the company to do away with maintaining any inventory, or spend money on manufacturing facilities and overheads. The company makes payments to the outsourced manufacturer only when the customer receives the goods and releases payment.

Financing inventories by suppliers through accounts payables is another feature of using the zero working capital method. Companies stop selling on credit, adopt an aggressive collection policy to collect payments on time, and collect payments in advance, and simultaneously, delays or stretches out payments to suppliers.

Eliminating accounts payable by centralizing operations to reduce multiple rents and other overheads, leasing assets such as machinery instead of purchasing them and making the lease payment out of the accounts receivable, and striking strategic functional area partnerships with other companies to use their resources such as marketing, to avoid expenditures on relevant heads. [John Dyson; Accounting for Non-Accounting Students, 8th Edition]

Application When is the methodology of a zero working capital process used? Companies such as Dell, General Electric, and Campbell Soup have implemented zero working capital to improve their financials. The shift of zero working capital becomes easy when the company's products are in high demand, there are few competing products, and when the company commands a demanding position in the supply chain, with suppliers valuing the company's order.

Advantages

Zero working capital helps the company attain financial and production economies by freeing up blocked cash permanently and thereby, raising the companys earnings, and speeding up the production and sales process to reduce lag in cash inflows. The concept of zero working capital is still in its infancy. As competitive pressure forces companies to make maximum advantage of its resources, more and more companies look into what is zero working capital, and means to attain such a state. Most businesses require working capital to run operations. Zero working capital is an innovative approach where businesses operate without blocking cash in working capital. This approach works in tandem with the Just in Time (JIT) methodology where purchase of the required inputs takes place on an as needed basis, and payments are usually made after receiving payment from the customers. Businesses would do well to adopt such methods and save considerable costs.[ Manish Mittal and Aruna Dhade] Other related business cost reduction ideas include renegotiating contracts for better deals, opting for debt consolidation, and similar financial management initiatives. This is made possible by using different management techniques for each of these elements of working capital: Accounts Receivable The goal in managing accounts receivable is to shorten the time needed for customers to pay the company. This can be done through several approaches: 1. One is to use a very aggressive collections team to contact customers about overdue payments and ensure that payments are made on time. 2. Another approach is to tighten the credit granting process, so that potential customers with even slightly shaky credit histories are kept on a very short credit leash or granted no credit at all. A final approach is to drastically shorten the standard customer payment terms, which can even go so far as requiring cash payments in advance.

Inventory The goal in managing inventory is to reduce it to the bare minimum, which can be achieved in two ways: 1. One is to outsource the entire production operation and have the production supplier drop ship deliveries directly to the companys customers, so that the company never has to fund any inventorythe company never purchases raw materials or work-inprocess. Instead, it pays the supplier when finished goods are delivered to its customers. 2. A different approach is to use a manufacturing planning system, such as just-in-time (JIT). Under this concept, the inventory levels needed to maintain a proper flow of inventory are reduced to the bare minimum through a number of techniques, such as many small supplier deliveries straight to the production line, kanban cards to control the flow of parts, and building to specific customer orders. Accounts Payable The goal in managing accounts payable is to not pay suppliers for as long as possible:
1. One way to do this is to stretch out payments, irrespective of whatever the supplier

payment terms may be. However, this will rapidly irritate suppliers, who may cut off the credit of any company that consistently abuses its designated payment terms.
2. A better approach is to formally negotiate longer payment terms with them, perhaps in

exchange for slightly higher prices. For example: terms of 30 days at a price point of $1.00 per unit may be altered to terms of 60 days and a new price of $1.02 per unit, which covers the suppliers cost of the money that has essentially been lent to the company. Although there is a cost associated with lengthening supplier terms, this may be a good deal for a company that has few other sources of funds. Forcing longer payment terms on suppliers is much easier if a company knows that it comprises a large part of its suppliers sales, which gives it considerable negotiating power over them. The same situation exists with a companys customers if it has a unique product or service that they cannot readily find elsewhere, so they must agree to abide by the short payment terms. If a company does not have these advantages, or if competitive pressures do

not allow it to make use of them, the best option left is the reduction of inventory, since this is an internal issue that is not dependent on the vagaries of suppliers and customers. [Chandra Prasanna, Financial Management, New Delhi, Tata Mc Graw Hill Publishing Company Ltd.] Dell Computer Company has achieved a negative working capital position, which means it makes money from its working capital. It does this by keeping only a day or two of inventory on hand and by ordering more from suppliers only when it has specific orders in hand from customers. In addition, Dell pays its suppliers on longer terms than the terms it allows its customers, many of whom pay by credit card. The result is an enviable situation in which this rapidly growing company can not only ignore the cash demands that normally go along with growth, but actually take in cash from it. Working capital is not the only drain on cash that a company will experience. It must also invest in fixed assets, such as office equipment for its staff, production machinery for the manufacturing operation, and warehouses and trucks for the logistics department. Although these may seem like unavoidable requirements that are an inherent part of doing business, there are a few ways to mitigate or even completely avoid these investments. Centralize Operations If a company adds branch offices or extra distribution warehouses, it must invest in fixed assets for each one. This is a particular concern when extra distribution warehouses are added, since a company must absorb not only the cost of the building but also the cost of the inventory inside it. A better approach for a cash-strapped company is to centralize virtually all operations, even if there is a cost associated with not decentralizing. For example: shifting to a central warehouse will eliminate the cost of a subsidiary warehouse, but will increase the cost of deliveries from the central warehouse, assuming that shipments must now travel a farther distance. Rent Or Lease Facilities And Equipment With so many leasing companies in the market today, as well as manufacturers financing the lease of their own equipment, a company has a wealth of financing choices that allow it to avoid the purchase of its facilities and equipment. These arrangements can be a

straight rental, wherein the company has no ownership interest in the assets it uses (also very similar to an operating lease), or a capital lease, in which the terms of the lease agreement assume that the company will take possession of the asset being leased at the end of the payment term. In either of these cases, the total of the rental or lease payments will exceed the cost of the asset if a company chose to purchase the asset; this is due to the maintenance and interest costs of the lease supplier, as well as its profit. The main advantage is that there is no large lump-sum payment required at the time of asset acquisition. Outsource Operations Some portion of every department can be outsourced to a supplier. Although the main reasons for doing so are related more to strategic and operational issues, you can also make a strong case for outsourcing because it reduces the need for fixed assets. Here are why: 1. By using outsourcing to avoid the hiring of clerical staff, a company no longer has to invest in the office space, furniture, or computer systems that they would otherwise require.
2. Shifting the distribution function to a supplier can completely eliminate a companys

investment in trucking and warehouse equipment, whereas outsourcing production will eliminate the massive fixed asset investment that is common for most manufacturing facilities. 3. Shifting a companys computer operations to the data processing center of a supplier will eliminate its investment in its own data processing center, which may be considerable. By using outsourcing, a company avoids not only an initial investment in fixed assets but also the update and replacement of those same items.

Use Partnerships If a company can enter into a partnership with another company, it may be possible to use the other companys assets to transact business. For example: if a drug research company

has a new drug to market, it should enter into a partnership with an established drug manufacturing firm, so that the research firm does not have to invest in its own production plant. This arrangement works well for both parties: The research company can avoid additional cash investments in fixed assets, while the other company can more fully utilize its existing assets. If a company brings a particularly valuable patent or process to a partnership, it can use this to extract a large share of the forthcoming partnership profits, too. This list includes many cases in which fixed assets could be eliminated, but at the cost of increased variable costs. Examples of this were heightened distribution costs in exchange for eliminating an outlying distribution warehouse, renting equipment rather than buying it, and outsourcing services rather than attempting to operate them in-house. These are acceptable approaches for many companies, and for several reasons: 1. One is that avoiding the fixed costs associated with a fixed-asset purchase will keep a companys total fixed costs lower than would otherwise be the case, which allows it to have a lower break-even point, so that it can still turn a profit if sales take a turn for the worse. 2. Also, if there are few and meager funding sources, the added variable costs will not seem like much of a problem when weighed against the amount of cash that a company has just avoided investing in fixed assets.
3. Finally, the centralization of operations and use of outsourcing will reduce the amount

of management attention that would otherwise be wasted on the outlying locations that are now no longer there or the departments that have been shifted to a supplier. In smaller companies with a dearth of managers, this is a major advantage. [Jain.S.P and Narang .K.L Advanced Accounting, Ludhiana, Kalyani Publications, 2000]

FOOT NOTES

 Frank Wood & Alan Sangster; Frank Wood's Business Accounting Volume 1, 11th

Edition.
John Dyson; Accounting for Non-Accounting Students, 8th Edition.

Manish Mittal and Aruna Dhade. Chandra Prasanna, Financial Management, New Delhi, Tata Mc Graw Hill Publishing Company Ltd. Jain.S.P and Narang .K.L Advanced Accounting, Ludhiana, Kalyani Publications, 2000.

INTRODUCTION TO RESEARCH METHODOLOGY

Research cannot be conducted abruptly. A research has to pass systematically in already planned direction with the help of a number of steps in sequences. Various steps are involved in conducting research. All the research conducting steps, when combined together from the researcher process. If the entire step taker in a systematic manner research conducted becomes effective. Nature of Research: Analytical Research The nature of the research is analytical. Data Used: Secondary Data The data used in this research is secondary. Sources of Data Balance Sheet of Terumo Penpol Ltd. (2006-2010) Trading & Profit & Loss Account of Terumo Penpol Ltd. (2006-2010) Tools for Analysis Ratio Analysis. Schedule of Changes in Working Capital. Comparative Balance Sheet.

Analysing of Zero Working Capital Management Analysis is the process of identifying the financial strength and weakness of the firm by properly establishes a relationship between the items of the balance sheet and profit & loss account. Analysis is used taken by management of the firm or by parties outside the firm, viz owners, creditors, investors, and other analysis of Zero Working Capital relates to the examination of circulation, liquidity level, and structural aspects of working capital. In accounting theory tools namely, Ratio Analysis. Schedule of Changes in Working Capital. Comparative balance Sheet. RATIO ANALYSIS Ratio analysis is one of the techniques of financial performance analyze where ratios are used as a yard stick for evaluating the financial condition and performance of a firm. Analysis and interpretation of various accounting ratios gives a skilled and experienced analyst, a better understanding of the financial condition and performance of the firm than be could have to obtained only through a perusal of financial statements. Ratios are relationships expressed in mathematical terms between figures, which are connected with each other in some manner. Ratio is a simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to Accountantanst Hand book by Wixon, Kell and Bedford, a ratio is an expression of the quantitative relationship between two numbers. In simple language ratio is one number expressed in the terms of another and can be worked out by dividing one number into the other.

ANALYSIS OF SHORT TERM FINANCIAL POSITION OR TEST OF LIQUIDITY. 1. LIQUIDITY RATIOS Liquidity ratio plays the key role in determining the short term financial position of a business.

1.1, Current ratio It is also known as working capital ratio. It shows the relation between the total current assets and current liabilities. Standards ratio is 2:1. It measures the short-term solvency. Current ratio= Current assets Current liabilities 1.2, Quick ratios Quick ratio means the ratio of quick assets to quick liabilities. It is concerned with quick assets and quick liabilities. This ratio is otherwise called acid test ratio or liquidity ratio. Quick assets or liquid assets Quick ratio= current liabilities the term quick asset refers to current assets which can be converted in to cash quickly. It comprises all current assets except stock and prepaid expenses. It measures the firms capacity to pay off its obligations immediately. The standard ratio is 1:1. A higher ratio indicates the sound financial position and vice versa. Quick ratio includes sundry debtors, cash and bank balance, other current assets and loans and advances except inventories. Current liabilities include liabilities, proposed dividends, provision for dividend and provision for taxation. 1.3, Absolute liquid ratio Absolute liquidity is represented by cash and near cash items. Hence, in

the computation of this ratio, only absolute liquid assets are compared with liquid liabilities. cash+ bank + marketable securities Absolute liquid ratio= liquid liabilities

In absolute liquid ratio involved only the assets of cash, bank and marketable securities. A standard of 0.5: 1 is considered on acceptable norm for the ratio. This is also known as position ratio. 1.4, Net working capital ratio Net working capital ratio of affirm is finding through at comparing the net working capital and net assets of a firm, it indicates how much net working capital to net assets. Net working capital Working capital ratio= Net assets Net working capital=Current assets - current liabilities TURN OVER RATIO 1.1, Capital Turnover Ratio This ratio indicates the sales to capital employed. Net sales Capital turnover ratio= Capital employed Capital employed = share holder fund +reserves and surplus + long term liabilities. 1.2, Total Assets Turnover Ratio This ratio relates to total assets to net sales. It helps to find out the productivity of the total assets. The formula for ascertaining total asset turnover ratio is : Net sales Total assets turnover ratio = Total assets

1.3, Working Capital Turnover Ratio. It establishes relationship between the sales to net working capital. This ratio indicates the efficiency of working capital utilization.

The purpose of finding this ratio is to point out what extend the working capital is rotated in the business within a period of one year. Sales Working capital turnover ratio = Net working capital

PROFITABILITY RATIOS The profitability ratios are calculated by relating profits either to sales or to investment. Profitability ratios are based on sales of the firm. 1. Gross profit ratio Gross profit ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit margins and sales.Gross profit is the ultimate result of interaction between the prices, sales, volume and cost. Changes in gross profit can be affected by changes in any of these factors. Gross profit ratio = Gross profit Net sales Gross profit = sales - cost of good sold 2. Net profit ratio This is the ratio of net income or profit after taxes to net sales. This is used as a measure of over all profitability and is useful to the owners. It is both an index of efficiency as well as the profitability of the firm. Net profit Net profit ratio= Net sales Net profit= Sales-(production expenses + interest + depreciation + taxes)

Comparative Balance Sheet Analysis Comparative Financial Statement Analysis:- Reviewing consecutive balance sheets, income statements, or statements of cash flows from period to period. This usually involves a review of changes in individual account balances on a year-to-year and multiyear basis. Comparative analysis also compares trends in related items. Comparative financial statement analysis also is referred to as horizontal analysis given the left-right (or right-left) analysis of account balances as we review comparative statements. Two techniques of comparative analysis are especially popular: year-to-year change analysis and index number trend analysis.

Tools for Representation Tables Charts

ANALYSIS AND INTERPRETATION

4.1 RATIO ANALYSIS 4.1.1 Current Ratio Current Ratio may be defined as the ratio of current asset to current liabilities. It is also called Working Capital Ratio. Standards ratio is 2:1. It measures the short-term solvency. Current ratio= Current assets Current liabilities Table 4.1.1 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Current Asset 2716 2800 2662 6500 4959 Current Liability 799 974 1346 1814 1918 (In lakhs) Ratio 3.4 2.9 2 3.6 2.6

Chart 4.1.1
Current Ratio
4 3.5 3 2.5 ratio 2 1.5 1 0.5 0 2005-2006 2006-2007 2007-2008 Years 2008-2009 2009-2010 Ratio

Interpretation: The ideal current ratio is 2:1. In all the years, the current ratio is above standard. The current asset shows an increasing trend. In 2008-2009 the ratio is high due to high cash and bank balances. In 2007-2008 the ratio seems to be optimal. While comparing with previous year 2008-2009 the current asset has been increased and current liability has been decreased.

4.1.2 Absolute Liquid Ratio Absolute liquidity is represented by cash and near cash items. Hence, in the computation of this ratio, only absolute liquid assets are compared with liquid liabilities. cash+ bank + marketable securities Absolute liquid ratio= position ratio. Table 4.1.2 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Absolute liquid asset 961 744 557 3217 1330 799 974 1346 1814 1918 Chart 4.1.2 1.2 .76 .41 .18 .69 Current Liability Ratio (In lakhs) liquid liabilities A standard of 0.5: 1 is considered on acceptable norm for the ratio. This is also known as

Absolute Liquid Ratio

1.4 1.2 1 Ratio 0.8 0.6 0.4 0.2 0 2005-2006 2006-2007 2007-2008 Years 2008-2009 2009-2010 Ratio

Interpretation: In the year 2005-2006 and 2006-2007, the firms state of affairs shows an absolute ratio of 1.2:1and 0.76:1. The standard ratio is 0.5:1and the organization having absolute liquid ratio that is above the standard ratio and firm having a satisfactory position. In the year 2007-2008 and 2008-2009, the firms state of affairs shows an absolute ratio of 0.41:1 and 0.18:1 respectively. The organization having absolute liquid ratio that is below the standard ratio and firm is showing a weak position.

4.1.3 Liquid Ratio Quick ratio means the ratio of quick assets to quick liabilities. It is concerned with quick assets and quick liabilities. This ratio is otherwise called acid test ratio or liquidity ratio. Quick assets or liquid assets Quick ratio= current liabilities It measures the firms capacity to pay off its obligations immediately. The standard ratio is 1:1. A higher ratio indicates the sound financial position and vice versa. Table 4.1.3 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Quick Asset 2208 2253 1986 5263 3636 Current Liability 799 974 1346 1814 1918 (in lakhs) Ratio 3 2.3 1.5 3 2

Chart 4.1.3 Liquid Ratio

3.5 3 2.5 Ratio 2 1.5 1 0.5 0 2005-2006 2006-2007 2007-2008 Years 2008-2009 2009-2010 Ratio

Interpretation: In the year 2005-2006, the firm is having a liquid ratio 3:1. The standard ratio is 1:1 and the firm having strong liquid ratio for balancing the assets and liabilities. In the year 2006-2007, the firm is having a liquid ratio 2.3:1. The standard ratio is 1:1 and the firm is having for its operation. In the year 2007-2008, the firm is having a liquid ratio 1.5:1. The standard ratio is 1:1 and the firm is having better liquid ratio comparing to standard for its operation.

4.1.4 Net Working Capital Ratio Net working capital ratio of affirm is finding through at comparing the net working capital and net assets of a firm, it indicates how much net working capital to net sales. Net Sales Working capital ratio= Net working capital Table 4.1.4 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Net Sales 4517 5366 5434 7734 9355 Net Working Capital 1916 1826 1316 4685 3040 (in lakhs) Ratio 2.35 3 4.12 1.65 3.07 Net working capital=Current assets - current liabilities

Chart 4.1.4

Net Working Capital Ratio

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2005-2006 2006-2007 2007-2008 Years 2008-2009 2009-2010

Ratio

Ratio

Interpretation: A higher ratio represents efficient utilization of working capital and a low ratio represents otherwise. In the year 2007-2008 & 2009-2010 the firm is holding a net working capital ratio which is high 4.12 & 3.07 respectively, ie, shows effective utilization of working capital. In the year 2008-2009 the firm is having a least working capital ratio.

4.1.5 Capital Turnover Ratio This ratio indicates the sales to capital employed. Net sales Capital turnover ratio= Capital employed Table 4.1.5 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Net Sales 4517 5366 5434 7734 9355 Capital Employed 1879 3549 3479 6912 8269 (in lakhs) Ratio 2.40 1.51 1.56 1.11 1.13 Capital employed = share holder fund +reserves and surplus + long term liabilities.

Chart 4.1.5

Capital Turnover Ratio

3 2.5 2 Ratio 1.5 1 0.5 0 2005-2006 2006-2007 2007-2008 Years 2008-2009 2009-2010 Ratio

Interpretation: In the year 2005-2006, the firms capital turnover ratio 2.4:1. i.e., net sales amount is twice than the capital employed. So the firm is having higher turnover on its capital employed. The capital turnover ratio is satisfactory. In the year 2005-2006, the firms capital turnover ratio 1.51:1, i.e., net sales amount is comparatively higher than the capital employed. So firm is having increased turnover on capital employed. Capital turnover ratio is favourable. In the year 2008-2009, the firms capital turnover ratio 1.11:1, ie. Net sales amount shows a little increase than the capital employed. So the firm is having capital turnover ratio which is not so favourable.

4.1.6 Total Assets Turnover Ratio This ratio relates to total assets to net sales. It helps to find out the productivity of the total assets. The formula for ascertaining total asset turnover ratio is : Net sales Total assets turnover ratio = Total assets Table 4.1.6 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Net Sales 4517 5366 5434 7734 9355 Total Asset 4402 4641 4925 8784 10212 (in lakhs) Ratio 1.02 1.15 1.10 0.88 0.91

Chart 4.1.6

Total Asset Turnover Ratio

1.4 1.2 1 Ratio 0.8 0.6 0.4 0.2 0 2005-2006 2006-2007 2007-2008 Years 2008-2009 2009-2010 Ratio

Interpretation: From the year 2005-2006 to 2007-2008 total assets turnover ratio shows an increasing trend which seems to be consistent & in 2008-2009 it shows a diminishing fluctuation and in 2009-2010 it shows an increasing trend. As per Total Assets Turnover, total assets shows satisfactory productivity.

4.1.7 Working Capital Turnover Ratio It signifies that for an amount of sales, a relative amount of working capital is needed. It may thus compute net working capital turnover by dividing sales by working capital. Working Capital Turnover Ratio= Sales/Net working capital Table 4.1.7 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Sales 4517 5366 5434 7734 9355 Net WC 1968 1826 1316 4685 3040 (in lakhs) Ratio 3 3 4.12 1.65 3.07

Chart 4.1.7

Working Capital Turnover Ratio

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2005-2006 2006-2007 2007-2008 Years 2008-2009 2009-2010

Ratio

Ratio

Interpretation: Working Capital Turnover Ratio of the firm is likely to be good as it is increasing and maintaining a constant position. In 2007-2008 working capital ratio is high i.e., 4.12 and in 2008-2009 it shows a least value. But in 2009-2010 it is emerging to 3.07 i.e., betterment of the situation. 4.1.8 Gross Profit Ratio Gross profit ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit margins and sales. Gross profit is the ultimate result of interaction between the prices, sales, volume and cost. Changes in gross profit can be affected by changes in any of these factors. Gross profit ratio = Gross profit Net sales Gross profit = sales - cost of good sold Table 4.1.8 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Gross Profit 1204 1944 7363 2169 2126 Net Sales 4517 5366 5434 7734 9355 (in lakhs) Ratio 0.26 0.36 1.35 0.28 0.22

Chart 4.1.8 Gross Profit Ratio

1.6 1.4 1.2 Ratio 1 0.8 0.6 0.4 0.2 0 2005-2006 2006-2007 2007-2008 Years 2008-2009 2009-2010 Ratio

Interpretation: As per analysis, in the year 2007-2008 only the firm is having fair gross profit ratio and in the rest of the financial periods the gross profit ratio shows downward fluctuation which was affected by the factors price, volume, sales and cost.

4.1.9 Net Profit Ratio This is the ratio of net income or profit after taxes to net sales. This is used as a measure of over all profitability and is useful to the owners. It is both an index of efficiency as well as the profitability of the firm. Net profit Net profit ratio= Net sales Table 4.1.9 Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Net Profit 2053 2468 2484 3296 3829 Net Sales 4517 5366 5434 7734 9355 Ratio 0.45 0.45 0.45 0.42 0.40 (in lakhs) Net profit= Sales-(production expenses + interest + depreciation + taxes)

Chart 4.1.9

Net Profit Ratio

0.46 0.45 0.44 0.43 0.42 0.41 0.4 0.39 0.38 0.37 2005-2006 2006-2007 2007-2008 Years 2008-2009 2009-2010

Ratio

Ratio

Interpretation: From the year 2005-2006 to 2007-2008, the firm shows a consistent ratio of net profit and in 2008-2009 and in the year 2009-2010 the net profit ratio shows a downward trend to the firm comparing to previous years.

4.2 SCHEDULE OF CHANGES IN WORKING CAPITAL The statement of Changes in Working Capital or simply called Working Capital Statement is prepared with the help of current asset and current liabilities. Table 4.2.1 Schedule of changes in working capital for the year 2005-2006 and 2006-2007 (Rs in lakhs) Statement of changes in working capital for the year 2005-2006 and 2006-2007 Particulars 2005-2006 2006-2007 Changes in WC Increase A) Current Assets Inventories Sundry Debtors Cash & Bank balances Loans & Advances Total of A B) Current Liabilities Current Liabilities Provisions Total of B Total (A-B) Net decrease in WC Total 1916.9 748.3 51.2 799.5 1916.9 831.9 142.9 974.8 1826 90.9 90.9 391.9 391.9 83.6 91.7 509.1 969.1 961.3 276.5 2716.4 547.6 1159.3 744.7 349.2 2800.8 72.7 38.5 189.8 216.6 Decrease

Interpretation: Here the current asset is more than the current liabilities. In 2006-2007, there is an increase in current assets, inventory and debtors is also increased by 38.5 lakh & 189.8 lakh. Moreover the cash & bank balances have also being decreased by 216.6 lakh. Current

liability along with the provisions has also been increased by 83.6 lakh and 91.7 lakh which is a good sign to firm. As the amt of inventory & debtors has been decreased it shows under utilization of current assets & cash balance is not enough to manage the day-to-day activities of the organization.

Table 4.2.2 Schedule of changes in working capital for the year 2006-2007 and 2007-2008 (Rs in lakhs)

Statement of changes in working capital for the year 2006-2007 and 2007-2008 Particulars 2006-2007 2007-2008 Changes in WC Increase A) Current Assets Inventories Sundry Debtors Cash & Bank balances Loans & Advances Total of A B) Current Liabilities Current Liabilities Provisions Total of B Total (A-B) Net decrease in WC Total 1826 831.9 142.9 974.8 1826 1165.9 180.7 1346.6 1316.1 509.9 1826 509.9 638.6 638.6 334 37.8 547.6 1159.3 744.7 349.2 2800.8 676.3 1103.4 557 326 2662.7 128.7 55.9 187.7 23.2 Decrease

Interpretation: Here the current assets is more than the current liabilities. In 2007-2008, there is an increase in current assets, inventory is increased by 128.7 lakh & debtors decreased by 55.9 lakh. Moreover the cash & bank balances have also being decreased by 187.7 lakh. Current liability along with the provisions has also been increased by 334 lakh and 37.8 lakh which is a good sign to firm. As the amt of cash balance & debtors has been decreased it shows under utilization of current assets & cash balance is not enough to manage the day-to-day activities of the organization..

Table 4.2.3 Schedule of changes in working capital for the year 2007-2008 and 2008-2009 (Rs in lakhs) Statement of changes in working capital for the year 2007-2008 and 2008-2009 Particulars 2007-2008 2008-2009 Changes in WC Increase Decrease

A) Current Assets Inventories Sundry Debtors Cash & Bank balances Loans & Advances Total of A B) Current Liabilities Current Liabilities Provisions Total of B Total (A-B) Net increase in WC Total 1165.9 180.7 1346.6 1316.1 3369 4685.1 4685.1 3954.5 1650 164.9 1814.9 4685.1 3369 3954.5 15.8 484.1 676.3 1103.4 557 326 2662.7 1237.2 1820.8 3217.8 224.6 6500.4 560.9 717.4 2660.8 101.4

Interpretation: Here the current assets is more than the current liabilities. In 2008-2009, there is an increase in current assets, inventory is increased by 560.9 lakh & debtors increased by 717.4 lakh. Moreover the cash & bank balances have also being increased by 2660.8 lakh. Current liability decreased by 484.1 lakh & the provisions has also been increased by 15.8 lakh which is a good sign to firm. As the amt of cash balance & debtors has been increased it shows proper utilization of current assets & cash balance is enough to manage the day-to-day activities of the organization. In short the firm shows a sound working capital fund for its operation.

Table 4.2.4 Schedule of changes in working capital for the year 2008-2009 and 2009-2010 (Rs in lakhs Statement of changes in working capital for the year 2008-2009 and 2009-2010 Particulars 2008-2009 2009-2010 Changes in WC Increase A) Current Assets Inventories Sundry Debtors Cash & Bank balances 1237.2 1820.8 3217.8 1322.9 1936.0 1330.3 85.7 115.2 1887.5 Decrease

Loans & Advances Total of A B) Current Liabilities Current Liabilities Provisions Total of B Total (A-B) Net decrease in WC Total

224.6 6500.4

369.7 4958.9

145.1

1650 164.9 1814.9 4685.1

1634.3 284.3 1918.6 3040.3 1645.2

15.7 119.4

361.7 1645.2 2006.9

2006.9

4685.1

4685.1

2006.9

Interpretation: Here the current asset is more than the current liabilities. In 2008-2010, there is an increase in current assets, inventory is increased by 85.7 lakh & debtors increased by 115.2 lakh. Moreover the cash & bank balances have also being increased by 1887.5 lakh. Current liability increased by 15.7 lakh & the provisions has also been increased by 119.4 lakh which is a good sign to firm. As the amt of inventory & debtors has been increased it shows proper utilization of current assets & cash balance is not enough to manage the day-to-day activities of the organization.

4.3 COMPARATIVE BALANCE SHEET Table 4.3.1 Comparative Balance Sheet for the tear 2005-06 and 2006-07 Particulars Inventories Sundry Debtors Cash and bank balances Loans and advances Cl and prov NWC Operating Fixed Assets Total operating assets Capital work in progress Miscellaneous expences Total assets Shareholders fund Long term fund Deffered tax liability Total liability 2005-06 509.1 969.5 961.3 276.5 799.5 1916.7 1664 3580.1 20.8 141 3743.2 1873.1 2006-07 547.6 1159.3 744.7 349.2 974.8 1826 1649.6 3475.6 190.5 3666.1 2316.3 +/Rs (Rs in lakhs) +/%

38.5 189.8 (216.6) 72.7 175.3 (90.7) (14.4) (104.5) 169.7 (141) (77.1) 443.2

7.6 19.6 (22.5) 26.3 21.9 (4.7) (0.9) (2.9) 89 (100) (2.1) 23.7

1731.3 138.8 3743.2

1233.5 116.3 3666.1

(497.8) (22.5) (77.1)

(28.8) (16.2) (2.1)

Interpretation: 1) In the year 2006-2007, the inventory has been increased by 7.6% than in 2005-2006. 2) Sundry debtors have been increased by 19.6% in 2006-2007 than in the previous year. 3) In the year 2006-2007 the cash balance was decreased by 22.5% comparing to previous year 2005-2006. 4) Loans & advances have been increased by 26.3% in the year 2006-2007. 5) Total operating assets was decreased by 2.9% compared to previous year 2005-2006. 6) Net working capital was decreased by 4.7% in 2006-2007 than in previous year. 7) Share holders fund was increased by 23.7% in the year 2006-2007 comparing to preceeding year. 8) Long term fund was decreased by 28.8% in the year 2006-2007.

Table 4.3.2 Comparative Balance Sheet for the tear 2006-07 and 2007-08 (Rs in lakhs) Particulars Inventories Sundry Debtors Cash and bank balances Loans and advances Total ca, loans, and adv Cl and prov NWC Operating Fixed Assets Total operating assets Capital work in progress Total assets Shareholders fund Long term fund Deffered tax liability Total liability 2006-07 547.6 1159.3 744.7 349.2 2800.8 974.8 1826 1649.6 3475.6 190.5 3666.1 2316.3 1233.5 116.3 3666.1 2007-08 676.3 1103.4 557 326 2662.7 1346.6 1316.1 2152.9 3469 109.2 3578.2 2916.4 563.4 98.5 3578.2 +/128.7 (55.9) (187.7) (23.2) (138.1) 371.8 (509.9) 503.3 (6.6) 81.3 (87.9) 600.1 (670.1) (17.80) (87.9) Rs +/23.5 (4.8) (25.2) (6.6) (4.9) 38.1 (27.9) 30.51 (2) (42.7) (2.4) 25.9 (54.3) (15.3) (2.4) %

Interpretation:
1) In the year 2007-2008, the inventory has been increased by 23.5% than in 2006-2007. 2) Sundry debtors have been decreased by 4.8% in 2007-2008 than in the previous year. 3) In the year 2007-2008 the cash balance was decreased by 25.2% comparing to

previous year 2006-2007.

4) Loans & advances have been decreased by 6.6% in the year 2007-2008. 5) Total operating assets was decreased by 2% compared to previous year 2006-2007. 6) Net working capital was decreased by 27.9% in 2007-2008 than in previous year. 7) Share holders fund was increased by 25.9% in the year 2007-2008 comparing to

preceding year.
8) Long term fund was decreased by 54.3% in the year 2007-2008.

Table 4.3.3 Comparative Balance Sheet for the tear 2007-08 and 2008-2009 (Rs in lakhs) Particulars Inventories Sundry Debtors Cash and bank balances Loans and advances Total ca, loans, and adv Cl and prov NWC Operating Fixed Assets Total operating assets Capital work in progress Total assets Shareholders fund Long term fund 2007-08 676.3 1103.4 557 326 2662.7 1346.6 1316.1 2152.9 3469 109.2 3578.2 2916.4 563.4 2008-2009 1237.2 1820.8 3217.8 224.6 6500.4 1814.9 4685.1 2126.3 6811.4 157.2 6968.9 3974.8 2937.6 +/560.9 717.4 2660.8 (101.4) 3837.7 468.3 3369 (26.6) 3342.4 48 3390.7 1058.4 2374.2 Rs +/82.9 65 82.7 (31.1) 59.04 34.8 72 (1.2) 96.4 44 94.8 36.3 81 %

Deffered tax liability Total liability

98.5 3578.2

56.5 6968.9

(42) 3390.7

42.6 94.8

Interpretation:
1) In the year 2008-2009, the inventory has been increased by 82.9% than in 2007-2008. 2) Sundry debtors have been increased by 65% in 2008-2009 than in the previous year. 3) In the year 2008-2009 the cash balance was increased by 82.7% comparing to

previous year 2007-2008.

4) Loans & advances have been decreased by 31.1% in the year 2008-2009. 5) Total operating assets was increased by 96.4% compared to previous year 2007-2008. 6) Net working capital was increased by 72% in 2008-2009 than in previous year. 7) Share holders fund was increased by 36.3% in the year 2008-2009 comparing to

preceding year.
8) Long term fund was increased by 81% in the year 2008-2009.

Table 4.3.4 Comparative Balance Sheet for the tear 2008-09 and 2009-2010 (Rs in lakhs) Particulars Inventories Sundry Debtors Cash and bank balances Loans and advances Total ca, loans, and adv Cl and prov NWC Operating Fixed Assets Total operating assets Capital work in progress Total assets 2008-09 1237.2 1820.8 3217.8 224.6 6500.4 1814.9 4685.1 2126.3 6811.4 157.2 6968.9 10212.7 3243.8 46.5 2009-2010 1322.9 1936.08 1330.3 369.72 4959.1 1918.7 3040.4 +/85.7 115.28 (1887.5) 145.12 (1541.3) 103.9 (1644.7) Rs +/7.0 6.33 (58.65) 64.6 (23.7) 5.7 (35.1) %

Shareholders fund Long term fund Deffered tax liability Total liability

3974.8 2937.6 56.5 6968.9

5099.03 3170.01 25.02

1124.23 232.41 (31.48)

28.28 7.9 (55.7)

Interpretation:
a. In the year 2009-2010, the inventory has been increased by 7% than in 2008-

2009.
b. Sundry debtors have been increased by 6.3% in 2009-2010 than in the c. In the year 2009-2010 the cash balance was decreased by 58.65% comparing

to previous year 2008-2009. d. previous year.

e. Loans & advances have been increased by 64.6% in the year 2009-2010. f. Net working capital was decreased by 35.1% in 2009-2010 than in previous

year.
g. Share holders fund was increased by 28.28% in the year 2009-2010 comparing

to preceding year.
h. Long term fund was increased by 8% in the year 2009-2010

CHAPTER V FINDINGS, SUGGESTIONS, AND CONCLUSIONS

Chapter V FINDINGS, SUGGESTIONS, AND CONCLUSIONS 5.1 Findings.

1. Working Capital increased because of increase in the current asset is more than increase in the current liability. 2. The company was redeeming 10% preference share in the last year 2009-2010. 3. In the year 2006-2007 working capital decreased because of increased price of raw material and manufacturing expenses due to higher inflation rate. 4. Current assets are more than current liabilities indicate that company used long term funds for short term requirement, where long term funds are most costly than short term funds. 5. Companys current assets were always more than requirement it affect the profitability of the company. 6. Terumo Penpol is non-demand based company. Hence the concept of zer working capital is not applicable.

5.2Suggestions

1.

Company should raise the funds through short term sources for short term requirement of funds, which comparatively economical as compare to long term funds. Company should take control on debtors collection period which is major part of current assets. Company has to take control on cash balance because cash is non earning assets and increasing cost of funds.

2. 3.

4.

In order to avoid the uncertainties associated with the supply of raw materials. The company should have a better supplier chain.

5.3Conclusions

The company is one of the largest producers of blood bags in Asia. Driven by its strong customer focus and innovative spirit, the company has been the market leader. When the working capital management of the company was analyzed, the company has good liquidity position and sufficient funds to repayment of liabilities. As inventory was imported, the company holds inventory

as a precautionary motive. The company has to redeem 10% preference share in the last year. So it is difficult for the company to implement zero working capital system. Company has accepted conservative financial policy and thus maintaining more current assets balance. Company is increasing sales volume per year which supports its growth.

BIBLIOGRAPHY. I.M Pandey., Financial Management, New Delhi, Vikas Publishing House Pvt.Ltd, 2005. Bhattachar

APPENDIX

Appendices 1 Balance Sheet (Rs in lakhs) Particulars CA

Inventories Sundry Debtors Cash and bank balances Loans and advances Total CA, loans, and advances CL and provisions NWC Operating Fixed Assets Total operating assets Capital work in progress Miscellaneous expenses Total assets Shareholders fund Long term fund Deferred tax liability

2005-06
509.1 969.5 961.3 276.5 2716.4 799.5 1916.7 1664 3580.1 20.8 141 3743.2 1873.1 1731.3 138.8

2006-07
547.6 1159.3 744.7 349.2 2800.8 974.8 1826 1649.6 3475.6 190.5 3666.1 2316.3 1233.5 116.3

2007-08
676.3 1103.4 557 326 2662.7 1346.6 1316.1 2152.9 3469 109.2 3578.2 2916.4 563.4 98.5

2008-09
1237.2 1820.8 3217.8 224.6 6500.4 1814.9 4685.1 2126.3 6811.4 157.2 6968.9 3974.8 2937.6 56.5

2009-10
1322.9 1936.08 1330.3

369.72 4959.1 1918.7 3040.4 5253 10212 88.5

102121.7 5099.03 3170.01 25.02

Total liability

3743.2

3666.1

3578.2

6968.9

10212.7