Working Capital Management

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SUMMER TRAINING REPORT

ON

WORKING CAPITAL MANAGEMENT

IN

VINAYAK TEXTILE MILLS

LIMITED

Submitted To:

Mr. M.S.Arora (D.G.M.)

In partial fulfillment of requirement for the award of degree in

MASTER OF BUSINESS ADMINISTRATION

Submitted

AMAN DEEP PASSI

AJAY JAIN

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PREFACE

This report , prepared during the summer training, is life’s greatest treasure. The training held was very gainful as it took me close to real life.

The study aims to analyze the extent to which volume of working capital has been effectively and efficiently utilized in this unit. The report is divided into various parts for the close analyses of different components of working capital. The last part deals with the conclusion and suggestions to improve the working capital management and to make it more effective.

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ACKNOWLEDGEMENT

“

Accomplishment of a task with desired success calls for dedication towards work and prompting guidance, co-operation and deliberation from seniors.”

This report is the outcome of six weeks training that I received at VINAYAK TEXTILE MILLS LTD.

First of all, I wish to express my profound gratitude and sincere thanks to MR. M.S. ARORA(D.G.M, ACCOUNTS DEPARTMENT),Incharge of the project for his constant and tireless guidance and encouragement given during the study and who allowed me to join summer training at VTM.

It gives me immense pleasure to acknowledge my deep sense of gratitude and sincere thanks to Mr. GURNAM SINGH, ACCOUNTS OFFICER for extending the courtesy and for guidance, support and affection throughout the course of this work. I am extremely grateful to MISS. KAWALPREET KAUR and other faculty members for their valuable guidance and glorious teaching.

In last, I express my profound gratefulness and indebtedness to the

esteemed organization for granting me the grand privilege of working on a project under team of experts and professionals in the field of finance.

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CHAPTER 1 THEORETICAL BACKGROUND OF WORKING CAPITAL

MANAGEMENT

CHAPTER 2 HISTORY OF INDIAN TEXTILE INDUSTRY

CHAPTER 3 PROFILE OF THE GROUP AND UNIT

CHAPTER 4 OUTLINE OF THE STUDY

CHAPTER 5 WORKING CAPITAL ANALYSIS

• OPERATING CYCLE ANALYSIS

• ANALYSIS ON THE BASIS OF HISTORICAL DATA

1. RATIO ANALYSIS

2. COMMON SIZE STATEMENT ANALYSIS

3. ANALYSIS ON THE BASIS OF SCHEDULE

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CHAPTER 6 CASH MANAGEMENT

CHAPTER 7 RECEIVABLES MANAGEMENT

CHAPTER 8 MANAGEMENT OF INVENTORY

CHAPTER 9 FINDINGS, SUGGESTIONS, CONCLUSION, BIBLIOGRAPHY

APPENDIX

REFERENCES AND BIBLIOGRAPHY

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EXECUTIVE SUMMARY

STUDY TOPIC:

WORKING CAPITAL MANAGEMENT OF VINAYAK TEXTILE MILLS LTD. ( A UNIT OF VARDHMAN POLYTEX LTD.)

OBJECTIVES OF THE STUDY

:

To analyze the working capital management of the company. To determine the operating cycle of the unit.

To know the future need of working capital in the running organization.

• To render recommendations for effective management of working capital.

TIME SPAN

:

A period of five year i.e. 2004-2008 has been taken for the study.

STUDY INSTRUMENT

:

Annual Reports and other official documents of the selected units of the company.

METHODOLOGY

:

 To recognize the various type of information which are necessary for the study of working capital management.

 Collection of data from various department of VTM to analyze the working capital management of VTM.

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 For understanding the various reports, personal interviews are conducted.

 With the help of various techniques like:

- Operating Cycle analysis

- Ratio Analysis

- Common size statement

- Schedule of changes in working capital

The overall position of VTM is studied and analyzed

 Suggestions are given on the basis of findings for better understanding of working capital management.

SCHEME OF PRESENTATION

:

The project report is prepared in three parts.

First part of the report gives an overview and theoretical background to the subject i.e working capital management.

Second part of the report presents a general profile of VINAYAK TEXTILE MILLS LTD. where the summer training has been undertaken.

Third part of the report deals with the project under study which includes:

- Operating Cycle analysis

- Ratio Analysis

- Common size statement

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Chapter- 1

THEORETICAL BACKGROUND

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M

EANING OF WORKING CAPITAL

:-In simple words working capital means that which is issued to carry out the day to day operations of a business. Capital required for a business can be classified under two main categories

• Fixed capital

• Working capital

Every business needs funds for two purposes, for its establishment and to carry on its day to day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture etc. Investment in these assets represents that part of firm capital, which is blocked on a permanent or fixed basis called fixed capital. Funds are also needed for short term purposes i.e. for the purchase of raw material, payment of wages and other day to day operations of business. These funds are known as working capital. In other words, working capital refers to that firm’s Capital, which is required for short – term assets or current assets. Funds thus invested in current assets keep revolving last and being constantly converted into cash and this cash flow is again converted into other current assts. Hence it is known as circulating or short – term capital.

CONCEPT OF WORKING CAPITAL:

1. Gross Working Capital

It is simply called working capital refers to the firm’s investment in current assets so the total current assets of the firm are known as gross working capital.

2. Net Working Capital

It represents the difference between current assets and current liabilities. Net working capital may be positive or negative. Positive net working capital is that when current assets are more than current liabilities. But when current liabilities become more than current assets than it is negative working capital.

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In brief we can say that working capital is too much necessary for the smooth functioning and proper utilization of fixed assets.

TYPES OF WORKING CAPITAL:

1. Permanent Working Capital:

As the operating cycle is a continuous process so the need for working capital also arises continuously. But the magnitude of current assets needed is not always same; it increases and decreases over time. However there is always a minimum level of current assets. This level is known as permanent or fixed working capital.

2. Temporary Working Capital:

The extra working capital needed to support the changing production and sales activities, is called variable or functioning or temporary working capital. This can be shown in the following

diagram:-Amount of Working

Capital Temporary capital

Permanent Capital Time

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NEED FOR WORKING CAPITAL

:

The need for working capital cannot be overemphasized. The need of working capital arises due to the time gap between production and realization of cash from sales. So the working capital or investment in current assets becomes necessary need for working capital. It arises due to following reasons:-

A. OPERATING CYCLE

“Operating cycle is the time duration requires for converting sales into cash after the conversion of resources into inventories.”

First of all a firm purchase Raw Material, then after some processing it is converted into work–in–progress and after this further processing is done to convert work–in–progress in finished goods. After the raw material is converted into finished goods, sales are made. Sales are no always full cash sales; there are credit sales also. These credit sales after some period are converted into cash. So the whole process takes the time. This time taken is known as the length of operating cycle. So operating cycles includes:-

1. Raw Material conversion period (RMCP)

2. Work–in – progress conversion period (WIPCP) 3. Finished goods conversion period (FCP)

4. Debtors Conversion period (DCP)

So operating cycle can be known as Sales Raw Material Work in Progress Cash Collection from Debtors Finished Goods Credit Sales Cash Sales

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If the length of the operating cycle has short length period then less working capital is required. So working capital requirement is directly related with operating cycle.

Operating cycle may be of two types 1. Gross Operating cycle 2. Net operating cycle

1. Gross Operating cycle

Gross Operating cycle is the total time period from the conversion of Raw Material into finished goods and finished goods into sales and then sales into cash.

GOC =RMCP + WIPCP + FCP + DCP

2. Net Operating Cycle

As we provide period to debtors for the payments, our creditors also provide period to us for payment to them. So this reduces our requirement of working capital. This also affects the operating cycle. Operating cycle’s length reduces with so many days as provided by the creditors to us. The difference between gross operating cycle and period allowed by the creditors for payment is known as net operating cycle.

NOC = GOC – CPP

B. WORKING CAPITAL REQUIREMENT FOR THE ANTICIPATED NEEDS FOR

These needs may be of Raw Material or Finished Goods. Sometimes because of non-availability of Raw Material or due to seasonal non-availability of Raw Material some advances stock of Raw Material becomes necessary for company. In the similar way due to sudden arise of demand of finished goods in future more finished goods are kept in stock. For both reasons more working capital is required because funds will be involve in these safeties stocks.

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DETERMINENTS OF WORKING CAPITAL

:

Followings are the main determinants of working capital.

1. Nature and Size of Business :

The working capital of a firm basically depends upon nature of its business for e.g. Public utility undertakings like electricity; water supply needs very less working capital because offer only cash sales whereas trading & financial firms have a very less investment in fixed assets but require a large sum of money invested in working capital.

The size of business also determines working capital requirement and it may be measured in terms of scale of operations. Greater the size of operation, larger will be requirement of working capital.

2. Manufacturing Cycle:

The manufacturing cycle also creates the need of working capital. Manufacturing cycle starts with the purchase and use of Raw Material and completes with the production of finished goods. If the manufacturing cycle will be longer more working capital will be required or vice versa.

3. Seasonal variation:

In certain industries like VTM raw material is not available throughout the year. They have to buy raw material in bulk during the season to ensure an uninterrupted flow and process them during the year. Generally, during the busy season, a firm requires large working capital than in the slack season.

.

4. Production Policy:

Production policy also determines the working capital level of a firm. If the firm has steady production policy, it may require need of continuous working capital. But if the firms adopt a fluctuating production policy means to produce more during the lead demand season then the more working capital may require at that time but not in other period during a financial year. So the different productions policy arises different type of need of working capital.

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5. Firm’s Credit Policy:

The firm’s credit policy directly affects the working capital requirement. If the firm has liberal credit policy, hence the more credit period will be provided to the debtors so this will lead to more working capital requirement. With the liberal credit policy operating cycle length increases and vice versa.

6. Sales Growth:

Working capital requirement is directly related with sales growth. If the sales are

growing, more working capital will be needed due to arises need of more Raw Material, finished goods and credit sales.

7. Business Cycle:

Business cycle refers to alternate expansion and contraction in general business. In a

period of boom, larger amount of working capital is required where as in a period of depression lesser amount of working capital is required.

8. Earning Capacity & Dividend Policy:

If the firm has enough earnings and it is not paying dividend then it will not be in need of external borrowings. If firm wants to increase its earning power then more working capital will be required also to pay more dividend more profits are needed which give rise to more working capital. Company is paying 42% dividend to its shareholder.

9. Price Level Changes:

Changes in the price level also effects the working capital requirements. Generally, the rising prices will require the firm to maintain larger amount of working capital as more funds will be required to maintain the same current assets.

10. Condition of Supply:

The inventory of raw material, spares and stores depends on the condition of supply.

If the supply is prompt the firm can manage with small inventory. However if the supply is unpredictable then the firm to ensure continuity of production, should

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acquire stocks as and when they are available and have to carry larger inventory on an average.

11. Other Factors:

Certain other factors such as operating efficiency, management ability, irregularities of supply, import policy, asset structure, importance of labour, banking facilities, time lag. etc. also influence the requirement of working capital.

So these are the main determinants of working capital. The importance of influence of these determinants on working capital may differ from firm to firm.

MEANING AND NATURE OF WORKING CAPITAL

MANAGEMENT

The management of working capital is concerned with two problems that arise in attempting to manage the current assets, current liabilities and the inter relationship that asserts between them.

The basic goal is working capital management is to manage current assets and current liabilities of a firm in such a way that a satisfactory of optimum level of working capital is maintained i.e. it is neither inadequate nor excessive. This is so because both inadequate as well as excessive working capital position is bad for business.

MAJOR DECISIONS IN WORKING CAPITAL MANAGEMENT

There are two major decisions management relating to working capital management:-1. What should be ratio of current assets to sales?

2. What should be the appropriate mix of short term financing and long term financing for financing these current assets?

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1.

Current assets in relation to sales

:-If the firm can forecast accurately the factors, which effect the working capital, the investment in current assets, can be designed uniquely. When uncertainty characteristics the above factors, as it usually does the investment in current assets cannot be specified uniquely. In case of uncertainty, the outlay on current assets should consist of base component meant to meet normal requirement and a safety component meant to cope with unusual requirement. The safety component depends upon low conservative or aggressive in the current assets policy of a firm. If the firm purchases a very conservative current asset policy it would carry a high level of current assets in relation to sales. If a firm adopts a moderate current assets policy it would carry moderate level of current assets in relation to sales, finally is a firm follows a highly aggressive current assets policy, it would carry a low level of current assets in relation to sales.

VTM is following current assets policy showing moderate level of current assets in relation to sales as is evident from ratio analysis.

2. Determining a Short Term and Long Term Financing Mix for

Financing of current

assets:-There are three approaches in this regard, which are discussed below:

HEDGING APPROACH

This approach is also called matching approach. In this approach there is a proper matching of expected life of asset with the duration of fund. Usually, according to this approach long-term sources are used for financing permanent current assets and fixed assets & short-term sources are used for financing temporary current assets:

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term financing Fixed Assets Time CONSERVATIVE APPROACH

In this approach there is more reliance on long-term financing in comparison to short-term financing. Even some part of the temporary current comparison to finance from long-term sources because long-term sources are less risky in comparison to short-term sources.

Temporary Current Assets

Short-term financing

Permanent Current Assets Long-term financing

Fixed Assets

Time Permanent current assets Temporary current assets

Short term financing

Long term financing A S S E T S A S S E T S

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AGGRESSIVE APPROACH

In this approach there is more reliance on short term financing and even a part of permanent current assets is financed from short-term finance.

Temporary current assets Short term financing

Permanent current assets Long term financing

Fixed Assets Time

In VTM, the current assets are financed from short term sources as well as long term sources, so they follow conservative approach.

A S S E T S

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Chapter- 2

HISTORY OF THE INDIAN TEXTILE

INDUSTRY

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HISTORY OF THE INDIAN TEXTILE INDUSTRY:

The human need is to eat well for to be alive and shelter to protect them from discomforts

of nature and a place to live in. Human beings also need something to cover their body to protect from diverse climates and to add the appearance. Earlier there was a time when the human being known nothing about the cloth to wear. The human beings first use plant barks, leaves and animal skin to wrap around them. Then as the development of brain took place, they started to explore other possibilities and invent more in this area. There is constant search for clothing and it led to the knowledge of sources from vegetation i.e. Cotton and from animals i.e. wool, which could be knitted and woven to manufacture clothes to wear.

The commercial development of man-made fiber began late in the 19th_Century,

experienced much growth during the 1940’s, expanded rapidly after world War – II and in the 1970’s was still the subject of extensive Research and Development.

The spinning and weaving both are very common and attached with each other in all parts of the world. We talk of the ancient times, when maximum work like weaving of the clothes was done manually, but all the things were being done for the right perspectives. From time to time in this world development had taken place, which has been found to be a continuous process. Similarly considering the developments in the Spinning and Weaving lot of improvements has come-up. Because earlier too was the Cotton crop was grown by the farmers, but its end use was not done in an effective way, which seems good. So much thick fiber was produced and accordingly its impact for the fabric preparation.

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APPARATUS USED FOR SPINNING AND WEAVING DURING

PRE-INDEPENDENCE PERIOD

Before Independence we talk of the political leaders like Mahatma Gandhi, who had always insisted to use Khadi Clothes and even self-spinning and weaving. It is also called as self-dependence for all needs. Such a good initiatives had come-up at India level amongst the followers of the Leader – Mahatma Gandhi. On the other side too such initiatives had been proved very good and had attracted many other western countries to follow such practices and show their excitedness. Though in case we talk of the English rule before the Independence i.e. 1947, it was not appreciated by the English Rulers, but after the freedom these leaders had got very good appreciation particularly for the self spinning and weaving and in an overall manner this sector of Spinning and Weaving was industrialized even after the independence too on the basis of Indian cotton growers.

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It is needless to mention here that through out India, cotton growers belts are available and after independence even English people take their raw material from here and had established themselves with the Spinning and Weaving industries. Overall In India no such preferences for the Spinning and Weaving industries were made, however the Library research reveals that the first Cotton mill had been established in India during 1854 named as Bombay Spinning and Weaving company. Though the Cotton industry had progressed a lot, but in case we say that India alone is heading this world, it is wrong. Though in India Textile Machine manufacturers are there and one or two decades ago they were the market leaders, but with the help of the other parts/people of world i.e. Germany, Switzerland etc., India had made a very good recognition in the yarn market. Because Indian Industrial Organizations have also initiated towards the most modernized machinery produced by Schlafhorsts – Germany, Luwa – Humidification systems, Switzerland. This is just the example of the development, that in India too the most modern machinery is being installed. However, it is an evident that the Indian yarn is always running on the development trend since its Inception of first unit in Bombay, but its position in the international market has not appeared so good. Because many other countries like China as Cotton Textiles has went ahead. Though till today India has achieved a lot in the Textile Industry and almost 700 Textile units are working successfully, because India is having at present more than 20 Million spindles and a weaving capacity of more than 2.5 Lac looms and the total output value of the same is around Rs.1500 Cores, employing more than 10 Lac of workers directly.

The invention and production of man made thirty three fibers that is synthetic fibers like Nylon, Acrylic fibers, Polyester Fiber, Viscose, Filament yarns, Melange yarn, etc., which ultimately had given a good blow to grow for the Cotton Textile Industry and know occupy a major part of consumer acceptance. About 50 countries have been importing such material from India and the description of the Spinning and weaving industry had remained incomplete without referring to the woolen industry.

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Chapter- 3

PROFILE OF THE GROUP AND UNIT

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PROFILE OF THE GROUP AND UNIT

The industrial city- Ludhiana nestles the corporate Headquarters of the Oswal Group of industries. The Oswal Empire comprises of Anshupati Textiles Limited situated in Ludhiana, Vardhman Polytex Limited situated in Bathinda, Vinayak Textile Mills situated in Ludhiana. Oswal group is earning laurels by exporting yarn of international quality to several countries and VPL Bathinda is an ISO 9001-2000 certified company and VTM is granting authorization to use the Trademark USTERIZED “USTER” think quality.

BACK DROP:

OSWAL GROUP is a premier of textile group of northern India having its corporate

office situated at Ludhiana, Punjab,(India). The organization has existence for last 40 year in core competency of spinning. We were earlier part of the Vardhman Group.but after settlement between two brother in 2003, we have named ourselves as Oswal Group has mainly into Spinning and Dyeing of all type of Yarn in different manufacturing of Garments. The group has ambitious plan to diversify in future but in textiles related activities

Oswal Group will achieve a turnover of Rs.500 crores by strengthening its core competencies and capacities in Textile and diversified business to create value for its stakeholders.(USD 110 millions).

The group has very good potential and high presence in the textiles industry with well set manufacturing set up for 100% cotton, Polyester cotton, Worsted Spun Yarn ,Dyed Yarn, and other blended yarns. All the group units have state of the art technology imported from machinery giant in Europe, Japan, China and many other countries. To ensure quality commitment to its valuable customers, the R&D department is well equipped with latest R&D equipments. Continuous efforts are always being made to further improve the

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quality and match the industry standard to meet the actual requirements of its quality conscious customers.

COMPANY STRUCTURE

OSWAL GROUP VPL BATHIND A VTM LUDHIAN A ANSHUPA TI LUDHIANA

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Anshupati Textiles Limited, based at Ludhiana in Punjab, the worsted spinning units in

the Indian subcontinent with 8000 worsted spindles installed, manufactures the Machine Knitting Yarn, Mink Yarn and Fancy yarn, with vast product range, to meet every sort of count combination demand of its prospective customers. The quality yarn in this unit is manufactured using state of art technology imported from Europe, which is fully backed with ultra modern R&D equipment for consistent quality. The yarn manufactured from this unit holds a very strong reputation and demand both in domestic and international market. The present capacity in terms of production is approximately 6.5 ton/Day

Vardhman Polytex Limited, a unit based at Bathinda in Punjab with 105000 cotton

spindles installed, is manufacturing 100% cotton yarn, Polyster cotton yarn and Tyre cord yarn with vast range of count selection varies from NE 10 to 40 both in carded and combed varieties. To ensure quality to its customers the group has received the ISO-9001-2000 certification. This unit is exporting its product to Mauritius, Hong Kong, Singapore, Egypt, Turkey, Bangladesh, China, Taiwan etc. The company keeps on receiving repeat orders, which shows the level of confidence, bestowed by its customers into it. The company had been awarded the Export House status by the Government of India. The present capacity in term of production is around 65 Tons /day. They are also thinking of producing Value added that is (i) Slub yarn (ii) Lyera yarn.

Vinayak Textile Mills, a unit at Ludhiana in Punjab with 50000 cotton spindles installed,

is manufacturing 100% cotton yarn and Polyster yarn with vast range of count selection varies from NE 10s to 40s both in carded and combed varieties. The present capacity in term of production is around 29Tons /Day and 14 -mt dyeing /day.

CURRENT SET UP:

Presently the Company has its corporate office situated at Chandigarh Road, village Mundian, Ludhiana and works at Bathinda &Ludhiana. The day to day operations are looked after by qualified technocrats/professional at plant/work as well as at corporate office having rich experience in their respective fields of management.

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Ashok Oswal himself a Law Graduate has been looking after the textile business in this company since 1987. Uptill family settlement, he was actively associated with the business management of Vardhman group.

PRESENT CAPACITIES

Presently the group has following production capacity and product range at its different manufacturing facilities. Location Installed Capacity (spindles) Production Capacity Product Range Bathinda (existing ) (VPL)

105000 65Tons / Day Cotton, synthetic, blended yarn Ludhiana

(Anshupati Textile)

8000 6.5 Tons/Day Acrylic Yarn Ludhiana (VTM) 50000 29 Tons/Day 14-MT dyeing/Day 100%cotton yarn,Polyester/ Cottonblended

COMPUTERISATION

Presently the unit is operating under “SAP system”. This system is well structured keeping in view the present tax regime like VAT, SERVICE TAX, and TDS etc. The system is functioning to online to finance, raw material, stores and commercial. All the stauratory returns are generated online from the system.

Personal computers have also been provided separately for each department like administration, costing, R&D, Maintenance as well as the production areas.

USTERIZED CERTIFICATION

The unit had been awarded USTER certificate by Uster technologies AG CH-8610 Uster/ Switzerland on April 10, 2007. M/S Vinayak Textile mills, Ludhiana / India fulfil all conditions for using the brand USTERIZED and will be checked regularly at once per year basis.

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PRODUCTION

The unit is producing different types of yarn both for Domestic consumption and Export purpose. The production department is headed by General Manager (G.M.). The VTM has two units. The unit I is concerned with the production of 100% cotton yarn NE 40s, Carded & Combed, Single & Multifold, Dyed , Processed & Polyester yarn NE 10s-40s, Carded & Combed with a capability to offer any blend. The unit-II expansion is concerned with production of Worsted Spun yarn 100% Cotton. .Production capacity of unit –I is 15 ton per day and unit-II is 13 tons per day.

MARKETING

For Marketing of different product, the unit is having a modern marketing department headed by experienced team which covers all the activities for conversion of finished goods into cash. It keeps vigil on the market feed-back on the level competition, market, trend, changing customer needs and modifications. The marketing department deals with domestic sales, while export department of the group manages export sales. The VTM. having the export and domestic ratio is 34:66. The unit is having different channels for distribution of its products.

1. Selling agents at Ludhiana, Amritsar, Delhi, Mumbai and Tirupur. 2. Branches at Delhi and Ludhiana.

3. Direct Dispatches are also made by the units.

ORGNISATION STRUCTURE

A chart showing the organizational structure of VTM Ludhiana is given on the next page. It shows the various hierarchical levels of the organization. It is a department line organization which is divided into various department headed by their respective department heads. All departments operate under the ultimate control of Chief Executive Sh. Ashok Goyal. The orders flow directly from unit head to different departmental heads down the line to respective department subordinates.

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Manufacturing Process Flow Chart of VPL

100% COTTON CARDED/COMBED YARN

Issue of Cotton Bales Laying Down

Blow Room Card

Breaker Draw Frame

Finisher Draw Frame

Unilap Comber Speed Frame Ring Frame Winding Cheese Winding T.F.O Conditioning Packing for Double Yarn Conditioning

Packing for Single Yarn

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MANUFACTURING PROCESS IN VINAYAK TEXTILE MILLS

LIMITED, LUDHIANA

Raw cotton is used as a basic raw material for producing 100% cotton yarn for ring spun.

1. MIXING

The different varieties of cotton are issued as per product mix from the raw material section in bale from. The different varieties of cotton and different lots are mixed together as per the requirement of end product and standard recommended mixings. The material is conditioned in mixing for 24 hours.

2. BLOW ROOM

In this process, the cleaning and opening of fibers is done in a sequence of beaters. Main purpose is to reduce tuft size, remove the trash particles and foreign matter etc, which often comes in the bales.

3. CARDING

In this process, further cleaning of fibers is done and the fibers are opened into single fibers extent i.e. the main purpose is further removal of trash in cotton and the industrialization and parallelization of fibers. From the carding machine, the material is delivered in the form of sliver.

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4. DRAW FRAME

The purpose of this process is to reduce the wt/yard in the card sliver 6 to 8 end of card slivers are doubled together in this process to reduce variations and further drafting is done to reduce the wt/yard of delivered sliver. Two passages are given at the draw frame stage.

In case of combed counts, the card sliver is fed to the precombing draw frame. The purpose of combing draw frame is to reduce the wt/yard variations in the card sliver and to parallelize the fibers. Singles passage is given at the precombing stage.

5. LAP FORMER

20-25 precombed draw slivers are fed together to produce a lap sheets of fibers, which is wound on the spools.

6. COMBERS

The laps prepared on lap former are fed to combers. The main purpose of combing process is to remove the short fibers from the material in the form of noil. The average noil percentage caries from 15% to 18%. The material is delivered in the form of sliver.

7. SPEED FRAME

The finisher draw frame sliver is fed to the speed frames for conversion into the roving form. In this process the wt/yard of the sliver is reduced, slight twist is given to the fleece and the material delivered in the form of roving, wound on the plastic bobbins.

8. RING FRAME

The roving is fed to ring frame for conversion into yarn. In the process, the weight / yd of roving is reduced as per requirement of ultimate user and the delivered yarn is wound on the plastic bobbins.

9. WINDING

In this process, the yarn is wound on paper cones to produce bigger package, as per requirement of the market. The weight / package varies from 1.2 kilogram to 2.1 kilogram. During the process, in addition to the formation of bigger packages, the yarn faults are also removed with help of electronic yarn cleaner.

10. DOUBLING

In the case of type cord the process is same upto cone winding. After cone winding the yarn is fed into Cheese Winding. In the process 2 ply or 4 ply is to be done as per requirement. After the yarn is fed into ring doubling and required T.P.I. is given in 2 ply

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or 4 ply yarn. In the next process in assembly cheese winding is get the package in the package in the required from to be fed into T.F.O. in T.F.O. final yarn is prepared in the form of cheese and required T.P.I. is given to the final yarn in process.

11. PACKING

In this process, the cones / cheese are packed in bags or cartoons as per the requirement of the market. In addition to the packing the material is checked thoroughly to avoid mixing of different materials

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Chapter- 4

OUTLINE OF THE STUDY

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OUTLINE OF THE STUDY

The management of working capital is very important. It involves the study of day to day affairs of the company. The motive behind the study is to develop an understanding about the working capital management in the running business organization and to help the company in developing the efficient working capital management. So it helps in future planning and control decisions.

OBJECTIVES OF THE STUDY

The objectives of the study are as follows:

 To analyze the working capital management of the company.  To determine the operating cycle of the unit.

 To know the future need of working capital in the running organization.  To render recommendations for the effective management of working capital.

SCOPE OF THE STUDY

The study is conducted at “VTM –LUDHIANA” for 6 weeks duration. The study of W.C. management is purely based on secondary data and all the information is available within the company itself in the form of records. To get proper understanding of this concept, I have done the study of the balance sheets, profit and loss a/c’s, cash accounts, trial balance, cost sheets. I have also conducted the interviews with employees of accounts and finance department and stores department. So, scope of the study is limited up to the availability of official records and information provided by the employees. The study is supposed to be related to the period of last four years.

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RESEARCH METHODOLOGY

 To recognize the various type of information which are necessary for the study of working capital management.

 Collection of data from various department of VTM to analyze the working capital management of VTM.

 For understanding the various reports, personal interviews are conducted.  With the help of various techniques like:

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- Operating Cycle analysis - Ratio Analysis

- Common size statement

- Schedule of changes in working capital

The overall position of VTM is studied and analyzed

 Suggestions are given on the basis of findings for better understanding of working capital management.

SOURCES OF INFORMATION

 Primary Data – The personal interview with senior officials and various members

of finance and accounts department and also with other departments and collected the data.

 Secondary Data – All the details necessary for the study was available within the

company itself.

LIMITATIONS OF THE STUDY

 As central purchase office purchase raw material and central marketing yarn make sales. So more detailed information cannot be received about these.

 Cash from debtors are collected by the corporate office through commission agents. So efforts for collection of debtors cannot be clearly known from VTM Ludhiana.

 Investment of funds are also made by corporate office, so it becomes difficult to know that how much investment is made in different ways for continuous availability of funds.

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Chapter- 5

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WORKING CAPITAL ANALYSIS

1.OPERATING CYCLE ANALYSIS

Operating cycle refers to the time period which starts from the raw material purchases and ends with realization of receivable. So it is total time gap between raw material purchases to total debtors’ collection. This is also known as working capital cycle. Operating cycle is therefore expressed in terms of months or weeks or days. The higher the operating cycle period, higher the working capital requirement. It comprises of raw material conversion period, WIP conversion period, FG conversion period and debtors’ conversion period and creditors period. The basic reason for calculating operating cycle is to find out the means for reducing the duration of operating cycle because if duration of operating cycle will be less than working capital requirement will be less.

OC = R + W + F + D – C Where,

R = raw material conversion period W = work in process period

F = finished goods conversion period D = debtor collection period

C = creditors payment period

(1) Raw Material Conversion Period (RMCP)

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Raw Materials consumed during the year

FOR SPINNING MILL:

PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average raw

material stock 183071228.14 227150926.07 218046754.94 328005499.45 Raw material

consumed during the year

385430133.40 309974487.22 410666073.76 495453061.76 RMCP 169.2 DAYS 263.8 DAYS 191.1 DAYS 238.3 DAYS

0 50 100 150 200 250 300 2004-05 2005-06 2006-07 2007-08 RMCP

FOR DYE HOUSE:

PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average raw

material stock - 15012815.54 16023458.66 11108879.34 Raw material

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during the year

RMCP - 43.9 DAYS 21.9 DAYS 11.8 DAYS

0 5 10 15 20 25 30 35 40 45 2004-05 2005-06 2006-07 2007-08 RMCP

(2) Work in Progress Conversion Period (WIPCP)

= Average stock in progress Cost of Production

PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average stock in

progress 4046698.00 3388006 6406842 8595640.40

Cost of

production 500317045.88 426414576.75 608858271.37 751824244.94

WICP 2.91 DAYS 2.9 DAYS 3.8 DAYS 4.1 DAYS

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0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2004-05 2005-06 2006-07 2007-08 WICP

FOR DYE HOUSE:

PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average stock in

progress 1021072 5791673 6692336 4917031.00

Cost of

production 25254802.19 219005634.76 404498734.7 524670967.58

WICP 14.6 DAYS 9.5 DAYS 5.9 DAYS 3.4 DAYS

0 2 4 6 8 10 12 14 16 2004-05 2005-06 2006-07 2007-08 WICP

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= Average Finished good inventory Cost of goods sold

PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average finished goods inventory 18939831.18 9473270 12545845 39817039.68 Cost of goods sold 500317045.88 426414576.75 608858271.37 751824244.94

FGCP 13.6 DAYS 7.9 DAYS 7.4 DAYS 19.1 DAYS

0 5 10 15 20 2004-05 2005-06 2006-07 2007-08 FGCP

FOR DYE HOUSE:

PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average finished goods inventory - 5857416 6745966 10034498 Cost of goods sold - 219005634.76 404498734.7 524670967.58

FGCP - 9.6 DAYS 6 DAYS 6.9 DAYS

X 360 X 360 X 360

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0 2 4 6 8 10 2004-05 2005-06 2006-07 2007-08 FGCP

(4) Debtors’ Conversion Period (DCP)

= Average Debtors Credit Sales

FOR SPINNING MILL :

PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average debtors 37279070.84 37279070.84 92312638.13 29970369.49 Credit sales 596069587.62 543167006.35 588183650.23 730047747.60

DCP 22.4 DAYS 24.7 DAYS 56.5 DAYS 14.8 DAYS

0 10 20 30 40 50 60 2004-05 2005-06 2006-07 2007-08 DCP X 360

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FOR DYE HOUSE:

PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average debtors 247769 28959455.84 48904270.97 99301521.09 Credit sales 212240 202379449.81 492529652.69 610863493.76 DCP 420.3 DAYS 51.5 DAYS 35.7 DAYS 58.5 DAYS

0 50 100 150 200 250 300 350 400 450 2004-05 2005-06 2006-07 2007-08 DCP

(5) Credit Conversion Period (CCP)

= Average Creditors Credit Purchases

PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average creditors 4316518.31 5840979.88 5294945.83 23709393.26 Credit purchases 385430133.40 309974487.22 410666073.76 495453061.76

CCP 4.03 DAYS 6.8 DAYS 4.6 DAYS 1.7 DAYS

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0 1 2 3 4 5 6 7 2004-05 2005-06 2006-07 2007-08 CCP

FOR DYE HOUSE:

0 2 4 6 8 10 12 14 16 2004-05 2005-06 2006-07 2007-08 CCP PARTICULARS 2004-05 2005-06 2006-07 2007-08 Average creditors - 5449322.89 1203818.69 1767614.89 Credit purchases - 122961363.25 263718304.68 338194022.33

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GROSS OPERATING CYCLE FOR SPINNING MILL:

YEAR RMCP WICP FGCP DCP GOC

2004-05 169.2 DAYS 2.91 DAYS 13.6 DAYS 22.4 DAYS 208.1 DAYS 2005-06 263.8 DAYS 2.9 DAYS 7.9 DAYS 24.7 DAYS 299.3 DAYS 2006-07 191.1 DAYS 3.8 DAYS 7.4 DAYS 56.5 DAYS 258.8 DAYS 2007-08 238.3 DAYS 4.1 DAYS 19.1 DAYS 14.8 DAYS 276.3 DAYS

0 50 100 150 200 250 300 2004-05 2005-06 2006-07 2007-08 GOC

NET OPERATING CYCLE FOR SPINNING MILL:

YEAR GOC CCP NOC

2004-05 208.11 DAYS 4.03 DAYS 204.08 DAYS

2005-06 299.3 DAYS 6.8 DAYS 292.5 DAYS

2006-07 258.8 DAYS 4.6 DAYS 254.2 DAYS

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0 50 100 150 200 250 300 2004-05 2005-06 2006-07 2007-08 NOC

GROSS OPERATING CYCLE FOR DYE HOUSE:

YEAR RMCP WICP FGCP DCP GOC

2004-05 - 14.6 DAYS - 420.3 DAYS 434.9 DAYS 2005-06 43.9 DAYS 9.5 DAYS 9.6 DAYS 51.5 DAYS 114.5 DAYS 2006-07 21.9 DAYS 5.9 DAYS 6 DAYS 35.7 DAYS 69.5 DAYS 2007-08 11.8 DAYS 3.4 DAYS 6.9 DAYS 58.5 DAYS 80.6 DAYS

0 50 100 150 200 250 300 350 400 450 2004-05 2005-06 2006-07 2007-08 GOC

NET OPERATING CYCLE FOR DYE HOUSE:

YEAR GOC CCP NOC

2004-05 434.9 DAYS - 434.9 DAYS

2005-06 114.5 DAYS 15.9 DAYS 98.6 DAYS

2006-07 69.5 DAYS 1.6 DAYS 67.9 DAYS

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0 50 100 150 200 250 300 350 400 450 2004-05 2005-06 2006-07 2007-08 NOC ANALYSIS

It is claimed that gross operating cycle of VTM for spinning mill is increasing in year 2004-05 and 2005-06 and it is decreasing for dye house in year 2004-05 and 2005-06. For spinning mill in year 2004-05 it is 208.11 days then it increased to 299.3 days in year 2005-06. In 2006-07, it is decreased to 258.8 days. The main reason of increasing gross operating cycle in 2004-05 and 2005-06 is due to more availability of raw material in the stores but in year 2006-07 there is less GOC due to less availability of raw material in stores. The GOC for dye house has shown a significant decreament from 434.9 days in 2004-05 to 69.5 days in year 2006-07. In year 2007-08, it came out to be 80.6 days. The GOP for dye house is not satisfactory as it has decreased to a great extent.

2.ANALYSIS OF WORKING CAPITAL FROM DIFFERENT ASPECTS ON BASIS OF THE HISTORICAL DATA

There are number of devices to analyze working capital like ratio analysis, common size statement etc. We will discuss them one by one as follows:

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1. RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making decisions. It only means of better understanding of financial strengths and weaknesses of a firm. The main emphasis has been on calculating the ratios related to a working capital management.

LIQUIDITY RATIOS

These are the ratios which measures the short term solvency or financial position of a firm. In other words, it refers to the ability of a concern to meet its current obligations as and when these become due. To measure the liquidity of a firm, the following ratios can be calculated.

CURRENT RATIO – It may be defined as the relationship between current assets and

current liabilities. This ratio is also known as working capital ratio and measures the ability of the firm to meet current liabilities. High current ratio indicates firm is liquid and has the ability to pay its current obligations in time as and when they become due.

A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory.

Current Ratio = Current Assets Current Liabilities Current Ratio of VTM

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO (CR) 2004-05 329780134.40 22952307.82 14.4 2005-06 337914119-55 25398799.03 13.3 2006-07 372031954.03 29553280.08 12.6 2007-08 462706185.06 47891481.92 9.7

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0 2 4 6 8 10 12 14 16 2004-05 2005-06 2006-07 2007-08 CR

FOR DYE HOUSE:

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO (CR) 2004-05 9633007.63 10462522.55 0.9 2005-06 64846029.63 13090777.94 4.9 2006-07 92984361.6 8735151.3 10.6 2007-08 148537709.99 5975377.17 24.9

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0 5 10 15 20 25 2004-05 2005-06 2006-07 2007-08 CR ANALYSIS

The current ratio of the spinning mill is above the standard and it guarantees the payment of dues in time. The current ratio of the company has been considerably high because they had made over investment in inventories which is the main reason for the high ratio of current assets. Inventories are high because of seasonal availability of raw material. The overall position of current ratio for spinning mill is satisfactory.

The current ratio of dye house has shown a remarkable increament from 0.9 in 2004-05 to10.6 in 2006-07 and then to 24.9 in 2007-08. Initially in 2004-05, the ratio was not satisfactory but it is quite satisfactory for the years after 2004-05 and especially for the year 2007-08.

LIQUID RATIO – This ratio is also known as quick ratio or acid test ratio. It is a more

rigorous test of liquidity than the current ratio. It is based on those current assets which are highly liquid. Inventory and prepaid expenses are excluded because they are deemed to be least liquid component of current assets. A high quick ratio is the indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand low ratio represents liquidity position is not good.

Quick Ratio = Quick or Liquid Assets Current Liabilities

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Quick Assets = Current Assets – Inventory – Prepaid Expenses Quick Ratio of VTM

YEAR LIQUID ASSETS CURRENT

LIABILITIES LIQUID RATIO (LR) 2004-05 120598521 22952307.82 5.3 2005-06 89811409.92 25398799.03 3.5 2006-07 127216004.91 29553280.08 4.3 2007-08 81358926 47891481.92 1.7 0 1 2 3 4 5 6 2004-05 2005-06 2006-07 2007-08 LR

FOR DYE HOUSE:

YEAR LIQUID ASSETS CURRENT

LIABILITIES LIQUID RATIO (LR) 2004-05 6123027.86 10462522.55 0.6 2005-06 33218697.57 13090777.94 2.5 2006-07 56812234.26 8735151.3 6.5 2007-08 115776657.53 5975377.17 19.4

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0 5 10 15 20 2004-05 2005-06 2006-07 2007-08 LR ANALYSIS

According to rule of thumb, it should be 1:1. For spinning mill, the liquid ratio has decreased over the past four years. It was 5.3 in 2004-05 and decreased to 4.3 in 2006-07 and then to 1.7 in 2007-08. The decreament in the ratio is not satisfactory, however the ratio 1.7 in 2007-08 matches the rule of thumb but it should be quite more than the rule of thumb.

For dye house,the liquid ratio has shown a significant increament over the past four years. It increased from 0.6 in 2004-05 to 6.5 in 2006-07 and then to 19.4 in 2007-08. The increament in the ratio is quite good for the dye house. This shows that the investment in liquid assets has increased over the past years.

ABSOLUTE LIQUID RATIO – Although receivables are generally more liquid than

inventories yet there may be doubt regarding their realization into cash in time. Absolute liquid ratio shows the relationship between liquid assets which include cash, bank and marketable securities.

Absolute Liquid Ratio = Absolute Liquid Assets

Current Liabilities

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FOR SPINNING MILL: 0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 2004-05 2005-06 2006-07 2007-08 ALR

FOR DYE HOUSE:

YEAR ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES ABSOLUTE LIQUID RATIO (ALR) 2004-05 - - -2005-06 233902 13090777.94 0.01 2006-07 253609 8735151.3 0.02 2007-08 - - -YEAR ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES ABSOLUTE LIQUID RATIO (ALR) 2004-05 435629.36 22952307.82 0.01 2005-06 569656 25398799.03 0.02 2006-07 5210807.58 29553280.08 0.18 2007-08 395884.64 47891481.92 0.01

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0 0.005 0.01 0.015 0.02 2004-05 2005-06 2006-07 2007-08 ALR ANALYSIS

The acceptable standard for this ratio is 0.5:1. Thus spinning mill and dye house, we can say that in all the years, it is below the standard due to very less cash and bank balance maintained because major cash receipts and payments are handled by corporate office. It is very less in 2005-06, 2006-07 due to increased cost of production both for spinning mill and dye house.

WORKING CAPITAL TURNOVER RATIO – Working capital turnover ratio

indicates the velocity of the utilization of net working capital. This ratio measures the efficiency with which the working capital is being used by a firm.

Working Capital Turnover Ratio = Sales

Net Working Capital Working Capital Ratio of VTM

YEAR SALES NET WORKING

CAPITAL WCTR 2004-05 596069587.62 306883587.58 1.9 2005-06 543167006.35 312620335.52 1.7 2006-07 588183650.23 342591885.95 1.7 2007-08 730047747.60 415076656.14 1.8

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1.6 1.65 1.7 1.75 1.8 1.85 1.9 2004-05 2005-06 2006-07 2007-08 WCTR

FOR DYE HOUSE:

YEAR SALES NET WORKING

CAPITAL WCTR 2004-05 - - -2005-06 202379449.81 51755251.69 3.9 2006-07 492529652.69 84249210.4 5.8 2007-08 610863493.76 142581027.83 4.3 0 1 2 3 4 5 6 2004-05 2005-06 2006-07 2007-08 WCTR ANALYSIS

This ratio indicates the number of times the working capital is turned over in the course of a year. A high working capital ratio indicates the effective utilization of working

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capital and less working capital ratio indicates less utilization. For spinning mill, the ratio is quite same for the past four years. It is 1.9 in 2004-05, 1.7 in years 2005-06 and 2006-07 and 1.8 in 202006-07-08. For dye house, the ratio is more than that of spinning mill. It shows increament from 3.9 in 2005-06 to 5.8 in 2006-07 and then decreased to 4.3 in 2007-08. The ratio is satisfactory for dye house but it should not decrease further.

2. COMMON SIZE STATEMENT ANALYSIS

This analysis is mainly to see the composition of working capital. Its purpose is to see the %age of each asset to the total asset and %age of each liability to total liability.

COMMON SIZE STATEMENT FOR SPINNING MILL:

FOR YEAR 2004-05:

PARTICULARS AMOUNT ( IN RS.) % FIXED ASSETS

Net block 570440434.93 62.18 Capital work-in-progress 17200494.12 1.87 Project & Pre-operative

expenses

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-Total fixed assets 587640929.05 64.05 CURRENT ASSETS

Inventories 208195599.41 22.69 Sundry debtors 37039996.26 4.04 Cash & Bank Balances 435629.36 0.05 Loans & Advances 84108909.37 9.17 Total current assets 329780134.4 35.95 Total assets 917421063.45 100 SHARE CAPITAL &

RESERVES

Inter unit balances 567503938.84 61.94 Secured loans 336825183.77 36.76 Reserves & Surplus (9804605.98) (1.07) Total Capital & Reserves 894524516.63 97.64 CURRENT LIABILITIES

Sundry creditors 3014518.31 0.33 Other liabilities 16627112.73 1.81 Interest accrued but not

due

668837 0.07 Security deposits &

Retention money

1339839.78 0.14 Total current liabilities 21650307.82 2.36 Total of liability side 916174824.45 100

FOR YEAR 2005-06:

PARTICULARS AMOUNT (IN RS.) % FIXED ASSETS

Net block 565709880.59 49.8 Capital work-in-progress 227016140.46 20 Project & Pre-operative

expenses 4400478.52 0.39 Total fixed assets 797126499.57 70.23 CURRENT ASSETS

Inventories 246141889.88 21.69 Sundry debtors 37279070.84 3.28 Cash & Bank Balances 569656 0.05 Loans & Advances 53923502.83 4.75 Total current assets 337914119.55 29.77 Total assets 1135040619.12 100 SHARE CAPITAL &

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Inter unit balances 857082196.43 64.30 Secured loans 425924449.39 31.95 Reserves & Surplus 24531788.78 1.84 Total Capital & Reserves 1307538434.6 98.09 CURRENT LIABILITIES

due - -Security deposits &

Retention money 1521329.27 0.11 Total current liabilities 25398799.03 1.91 Total of liability side 1332937233.63 100

FOR YEAR 2006-07:

expenses - -Total fixed assets 913074513.57 71.05 CURRENT ASSETS

RESERVES

Retention money 2938714.93 0.22 Total current liabilities 29553280.08 2.3

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Total of liability side 1285219679.6 100

FOR YEAR 2007-08:

expenses

- -Total fixed assets 850158965.35 64.76 CURRENT ASSETS

RESERVES

due

- -Security deposits &

Retention money

- -Total current liabilities 47891481.92 3.45 Total of liability side 1389071905.7 100

FOR DYE HOUSE: FOR YEAR 2004-05:

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FIXED ASSETS

expenses

Inventories 3247313.77 1.63 Sundry debtors 247769 0.12 Cash & Bank Balances - -Loans & Advances 6137924.86 3.08 Total current assets 9633007.63 4.83 Total assets 199292469.25 100 SHARE CAPITAL &

RESERVES

Inter unit balances 140951705.11 70.73 Secured loans 59872920 (6.02) Reserves & Surplus (11994678.41) 30.04 Total Capital & Reserves 188829946.7 94.75 CURRENT LIABILITIES

due

FOR YEAR 2005-06:

expenses - -Total fixed assets 185097975.73 74.06 CURRENT ASSETS

Inventories 31300541.06 12.52 Sundry debtors 28959170.26 11.59 Cash & Bank Balances 233902 0.09

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Loans & Advances 4352416.31 1.74 Total current assets 64846029.63 25.94 Total assets 249944005.36 100 SHARE CAPITAL &

RESERVES

Inter unit balances 212651256.41 78.34 Secured loans 59872920 5.22 Reserves & Surplus (14177921.30) 22.06 Total Capital & Reserves 258346255.11 95.18 CURRENT LIABILITIES

due

Retention money

819607.13 0.30 Total current liabilities 13090777.94 4.82 Total of liability side 271437033.05 100

FOR YEAR 2006-07:

Net block 220213154.5 70.24 Capital work-in-progress 300237 0.096 Project & Pre-operative

expenses

Inventories 35816899.3 11.42 Sundry debtors 48904270.9 15.59 Cash & Bank Balances 253609 0.08 Loans & Advances 8009581.9 2.55 Total current assets 92984361.1 29.66 Total assets 313497752.6 100 SHARE CAPITAL &

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Inter unit balances 215855702.2 68.9 Secured loans 59872920 92.6 Reserves & Surplus 29033979.4 19.09 Total Capital & Reserves 304762601.6 97.21 CURRENT LIABILITIES

FOR YEAR 2007-08:

expenses

Inventories 32341614.46 9 Sundry debtors 99301521.09 27.63 Cash & Bank Balances - -Loans & Advances 16894574.44 4.70 Total current assets 148537709.99 41.34 Total assets 359334193.13 100 SHARE CAPITAL &

RESERVES

Inter unit balances 236801598.89 55.33 Secured loans 131435332.52 12.56 Reserves & Surplus 53753985.78 30.71 Total Capital & Reserves 421990917.19 98.60 CURRENT LIABILITIES

due

- -Trade deposits and other

Advances 131757.07 0.03 Total current liabilities 5975377.17 1.4

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Total of liability side 427966294.36 100

ANALYSIS

For spinning mill, the major part of current assets involves inventories. It covers more than 50% of total current assets. The debtors also have significant part of current assets. It contributes approximate 11% to 30% part of current assets for all the years from 2004-05 to 2007-08. The least contribution is thus of cash and bank balance. On the other hand, current liabilities consist of mainly creditors and other liabilities. In 2007-08, current assets have increased due to increase in inventories and loans & advances, and current liabilities have also shown increament. So the working capital is more for year 2007-08 as compared to last year’s working capital.

For dye house, the inventories form a good portion of current assets and contribute 30% to 50% of the total current assets over the past years. The sundry debtors also show fluctuating proportions in the total current assets over the years. The proportion is quite less for year 2004-05 but it increased significantly for the next years and contributed about 66% to the total current assets in year 2007-08. The current liabilities mainly consist of sundry creditors and other liabilities. The sundry creditors have decreased over the past years. The other liabilities have shown increament from year 2004-05 to year 2006-07 but it has decreased in year 2007-08.

3. ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL

SCHEDULE OF CHANGES IN WORKING CAPITAL:

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ANALYSIS:

PARTICULARS 2004-05 2005-06 INCREASE DECREASE CURRENT

ASSETS:

Inventories 208195599.41 246141889.88 37946290.47 S. debtors 37039996.26 37279070.84 239074.58 Cash & Bank

Balances 435629.36 569656 134026.64 Loans & Advances 84108909.37 53923502.83 30185406.54 Total current assets (A) 329780134.4 337914119.55 CURRENT LIABILITIES: S. creditors 4316518.31 5840979.88 1524461.57 Other liabilities 16627112.73 18036489.88 1409377.15 Int. accrued but

not due 668837 - 668837 Security deposits & Retention money 1339839.78 1521329.27 181489.49 Total current liabilities (B) 22952307.82 312515320.52 Working capital (A-B) 306827826.58 312515320.52 Net increase in working capital 5687493.94 5687493.94 312515320.52 312515320.52 38988228.69 38988228.69

Working Capital Management

SUMMER TRAINING REPORT

ON