Professional Documents
Culture Documents
REPORT
ON
WORKING CAPITAL
MANAGEMENT
UNDERTAKEN AT
degree of
DECLARATION
The project report is submitted in partial fulfillment of the requirements for the award of the
degree of Masters of Business Administration, being conducted at CMT, Department of
Management .
Harpreet Singh
ACKNOWLEDGEMENT
First of all I would like to express my heartful gratitude and thanks to Pawan Kumar (Placement
Head ) for referring me to do my industrial training.
A research project is not prepared merely by the singular efforts of the person to whom the
project is assigned, but it also requires the help and guidance of some others who help and co-
operate directly or indirectly in completing the task successfully.
I would like to give my special thanks to R C Kaushal (Accounts Deptt.) project guide for
assigning me such an interesting and worthwhile research project and for helping me throughout
the project with his constant guidance and support .I would also like to thank departmental
guides for his continuous support and advice for the successful completion of the project.
An accomplishment requires the efforts of many people and this work is no different. I feel
obliged in taking the opportunity to thanks “MR. R.M SOOD” (Finance Controller) for his help
& guidance. I also feel thankful to “Mr. R.C.Kaushal” (Accounts Manager), who have helped me
understanding the project & how working capital management is applied at Oswal woollen mils.
I also express my deep sense of obligation to the management of Oswal Woollen Mills
(Ludhiana) for giving me an opportunity to undergo field training in their esteemed organization.
During the training period at OSWAL I have learned that how theoretical concepts are applied in
a real practice in managing working capital. I have also learned a lot about the corporate working
culture and got a exposure to the various documents which are use in arranging working capital
of organization.
TABLE OF CONTENTS
S.No. PARTICULARS PAGE NO.
1. WORKING CAPITAL
2. COMPANY PROFILE
3. SWOT ANALYSIS
5. RESEARCH METHODOLOGY
6. LIMITIONS
7. DATA INTERPERTATION
9. SUZZETIONS
10. CONCLUSION
Gross working capital refers to the amount of funds invested in current assets that are employed
in the business process. This is a going concern concept, since it is these aspects that financial
managers are concerned with if they are to bring about productivity from other assets. The gross
concept is used here, since one of the principal functions of the finance officer is to provide the
current amount of the working capital at the right time in order for the firm to realize the greatest
return on its investment.
Net Working Capital:Net Working Capital concept is different between current assets and
current liabilities. This concept is useful to groups interested in determining the amount and
nature of the assets that may be used to pay the current liabilities. Moreover, the amount that is
left after these debts are paid may be used to meet future operational needs.
current assets. Every firm has to maintain a minimum level of raw material, work-
in-process, finished goods and cash balance. This minimum level of current assts is called
required to meet the seasonal demands and some special exigencies. Variable
working capital in the sense that is required for short periods and
cannot be permanently employed gainfully in the business
WORKING CAPITAL
3. Easy loans: Adequate working capital leads to high solvency and credit
standing can arrange loans from banks and other on easy and favorable terms.
6. Regular Payment of Salaries, Wages and Other Day to Day Commitments: It leads
to the satisfaction of the employees and raises the morale of its employees, increases their
efficiency, reduces wastage and costs and enhances production and profits.
working capital then it can exploit the favorable market conditions such as
purchasing its requirements in bulk when the prices are lower and holdings its inventories
for higher prices.
8. Ability to Face Crises: A concern can face the situation during the depression.
Size of the Business: Greater the size of the business, greater is the requirement of working
capital.
Production Policy: If the policy is to keep production steady by accumulating inventories it will
require higher working capital.
Length of Production Cycle: The longer the manufacturing time the raw material and other
supplies have to be carried for a longer in the process with progressive increment of labor and
service costs before the final product is obtained. So working capital is directly proportional to
the length of the manufacturing process.
Business Cycle: In period of boom, when the business is prosperous, there is need for larger
amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc.
On the contrary in time of depression, the business contracts, sales decline, difficulties are
faced in collection from debtor and the firm may have a large amt. of working capital.
Rate of Growth of Business: In faster growing concern, we shall require large amt. of working
capital.
The various sources for the financing of working capital are as follows:
Sources of
Working
Capital
1) Shares: Issue of shares is the most important source for raising the permanent or long term
capital. A company can issue various types of shares as equity shares, preference shares and
deferred shares. According to companies act a company cannot issue deferred shares. Preference
shares carry preferential rights in respect of dividend at fixed rate and in regard to the repayment
to the capital at the time of winding up the company. Equity shares do not have any fixed
commitment charge and the dividend on these shares is to be paid subject to the availability of
sufficient profits. As far as possible a company should raise the maximum amount of permanent
capital by the issue of shares.
2) Debentures: A debenture is an instrument issued by the company acknowledging its debt to
its holder. It is also an important method of raising long term or permanent working capital. The
debenture holders are the creditors of the company. The interest on debentures is a charge against
profit and loss account. When the debentures are secured they are paid on priority to other
creditors. The debentures may be of various kinds such as naked or unsecured debentures;
secured or mortgaged debentures, redeemable debentures, irredeemable debentures, convertible
debentures and non-convertible debentures.
3)Ploughing Back of Profits: Ploughing back of profits means the reinvestments by concern of
its surplus earnings in its business. It is an internal source of finance and is most suitable for an
established firm for its expansion, modernization and replacement etc. This method of finance
has a number of advantages as it is the cheapest rather cost free source of finance; there is no
need to keep securities; there is no dilution of control; it ensures stable dividend policy and gains
confidence of the public. But excessive resort to Ploughing back of profits may lead to
monopolies, misuse of funds, & speculation, etc.
Financing of Temporary/Variable or Short-Term Working Capital
1) Indigenous Bankers: Private money lenders and other country bankers used to be the only
source of finance prior to the establishment of commercial banks. Inspite of the establishments
new financial institutions indigenous bankers also advance financial help to a few large-scale
industries, particularly during time of stress both for fixed capital and working capital but mainly
they have provided finance to small scale industries. They used to charge a very high rate of
interest and exploited the customers to the largest extent possible.
2) Installment Credit: This is another method by which the assets are purchased and the
possession of goods is taken immediately but the payment is made in installments over a
predetermined period of time. Generally, interest is charged on the unpaid price or it may be
adjusted in the price. But in any case, it provides funds for sometime and is used as a source of
short-term working capital by many business houses which have difficult fund position.
3) Advances: Some business houses get advances from their customers and agents against orders
and this source is a short term source of finance of them. It is a cheap source of finance in order
to minimize their investment in working capital, some firms having long production cycle,
especially the firms manufacturing industrial products prefer to take advances from their
customers.
4) Accrual Expenses and Deferred income: Accrued expenses are the expenses which have
been incurred but not yet due and hence not yet paid also. The major accruals items are wages
and taxes; these are what a firm owes to the employees and to the government Accruals vary
with the level of activity of the firm. When the activity level expands the accruals increases, and
when activity level contracts accrual decreases. Therefore accruals are treated as part of
spontaneous financing.
5) Commercial Paper: Commercial paper is an important money market instrument in advanced
countries like U.S.A. to raise short term funds. In India RBI introduced commercial paper in the
Indian money market on the recommendation of Vaghul Working Group. Commercial paper is a
form of unsecured promissory note issued by the firms to raise short term funds.
I. Current Ratio
II.Quick Ratio
III.Absolute Liquid Ratio
I. CURRENT RATIO
Current Assets
Current Ratio = -----------------------------
Current liabilities
Analysis: A current ratio of more than one indicates that the value of short term assets is
more than short term liability .A current ratio of less than are denote poor liquidity
position. Commercial banks prefer current ratio or equal to 1.33.If we look current assets
of OWM ,then we find that current ratio in 2007 and 2008 is 1.23 and 1.28which has
increased in the year 2009.In 2010 and 2011 it has further increased to 1.51, 1.54
respectively .Since the current ratio of the firm for past years is more than 1.33, therefore
firm has been in good liquid position
II. Liquid Ratio
Liquid Assets
Liquid Ratio = ------------------
Current Liability
Liquid Assets = Current Assets – (Inventory + Prepaid Expenses)
PARTICULARS 2006-07 2007-08 2008-09 2009-10 2010-2011
MAIN .34 .53 .5 .58 .69
TEXTILES
DENIMS .49 .87 .84 1.11 .66
COTTON .007 .11 .35 .32 .2
UNIT
TOTAL .34 .51 .53 .6 .59
Analysis
As a rule of thumb Quick Ratio of 1:1 is considered quiet satisfactory. It is generally
considered that if quick assets are equal to current liabilities then the concern may be able
to meet its current obligations. In the past years 2007-11quick ratios are lower than rule of
thumb which is unsatisfactory ,not good for a companywhich shows that company has less
quick assets than currant liability and in this year company hold lesser current assets
against current liability which is not good for the company
III. Absolute Liquid Ratio
Absolute Liquid Assets
Absolute Liquid Ratio= ----------------------------
Current Liability
Analysis:The acceptable norm as per the rule of thumb is 0.5:1. In the year 2007 the liquidity
ratio is .03which increased in the year 2008,09,10 is .13.,17,.22.but in theyear2011 this ratio has
decreased to .18.
As a convention ,ratio of .5:1 is considered to be satisfactory. For the
2007,08,09,10,11 this ratio of the company it is below satisfactory .This is due to the decreasing
cash balance and increasing debtors i.e. the ability of the firm to realize the debtors has been
decreased. so this conclude that company cannot manage its debtor efficiently
B. Activity Ratios:Activity ratio measures the efficiency of effectiveness with which a firm
manages its resources or assets. These ratios are called turnover ratios because they indicate the
speed with which assets are converted or turned over into sale. Depending upon the purpose, a
number of turnover ratios can be calculated, as debtor turnover, stock turnover, capital turnover
etc.Following are the current assets movement or efficiency ratios:
Inventory Turnover Ratio
II Debtor Turnover Ratio
III Creditor Turnover Ratio
IV Working Capital Turnover Ratio
I Inventory Turnover RatiO
Analysis: Inventory turnover ratio measures the velocity of conversions of stock in to sales .In
the year 2007,08 and 09 stock conversion period was satisfactory. It increased in the year 2010-
11 which shows the inefficiency of stock management. It further increased in the year 2008. So
management should increase its sales efficiency to reduce the stock conversion period to avoid
losses or we sayc ompany is not able to sell its full stock
Analysis: In the year 2007 debtors turnover ratio was low. From year 2008 to 2009 there is an
increase showing improved efficiency of management. It is slightly decreased in the year 2010
and 2011which shows the inefficiency of management.From the year 2008 to 2009average
collection period was very high. It is due to cash sales policy followed by the plant. It shows that
there are less credit sales made by the plant.
III Creditor Turnover Ratio:In the courses of business operation, a film has to make credit
purchases and incur short term liabilities. A supplier of goods i.e. creditors are naturally
interesting in finding out how much time the firm is likely to take in repaying its trade creditors.
The analysis of trade creditor turnover ratio is basically the same as of debtor turnover ratio
except that in place of trade debtor, the trade creditor are taken as the other component of ratio.
Same as debtor turnover ratio, creditor turnover ratio can be calculated in two forms:
a) Creditor Turnover Ratio:Creditor Turnover ratio represent number of times credit payment
has been made to the trade creditor during a year.
Net Purchase
Creditor Turnover Ratio = ----------------
Average Creditor
Net purchase = Cost of Good Sold - Opening Stock + Closing Stock
Weeks in Year
Average Payment Period = --------------------------
Creditor turnover ratio
Analysis
By analyzing the trend in 2 years it can be said that creditors are turned over 5 to 7 times in a
year. The average payment period decreases which is good . This shows that creditors are giving
supplies for credit for the fairly small interval of time. The reason for the small credit may be
goodwill to the group or the low price being charged by creditors..The average payment period
in the financial year 2010 is 69 days after that it declines and reached 47 days in 2011.
Production cycle
Another factor which has a bearing on the quantum of working capital is production cycle. The
term production cycle or manufacturing cycle refers to the time involved in the manufacture of
goods. It covers the time span between the procurement of raw material and the completion of
the manufacturing process leading to the production of finished goods.
OSWAL WOOLEN MILLS LIMITED (OWM)
“Impossible”
Says
“I’m possible.”
Oswal Woolen Mills NAHAR GROUP established in 1949 surges ahead to establish it self as a
reputed industrial conglomerate with a wide ranging portfolio from Worsted Spinning, Cotton
Knitted, and Cotton Woven Garments, Woollen Hosiery Etc.
The group has spinning capacity of 0.4 millions cotton spindles 25000 worsted spindles with turn
over of $500 million inclusive of export turnover of $150 million. Out of total production,
60% of the production is dedicated to exports and the rest 40% for domestic market. The
production facility has been awarded ISO 9001:2000.
Today OWM is the flagship company of the glorious Nahar Empire and a proud owner of widely
loved Super Brand in Knitwear, Monte Carlo and Recognized Super Brand Canterbury. The
company boasts of a product portfolio that is truly large and varied. They include diverse types
of Woollen, Acrylic and Synthetic Blended Yarns, Lambs Wool Yarn, Woollen Viscose &
Acrylic Tops, Textile Fabric, Woollen Knitwear, Hosiery & Cotton Garments.
The markets of NAHAR GROUP are cries crossed allover the globe with major clientele in
Australia, New Zealand, Europe, Middle East, Africa, Russia and Asia. The objective is
meeting the buyer’s expectations with consistent quality backed by R & D divisions equipped
with latest equipment, Cream of highly qualified technocrats and adhering to timely schedules.
Today Oswal Woolen Mills LTD. is a company that owes its strength in the market and solidity
to foresight of its chairman Sh. Jawahar Lal Oswal, the professional inputs of the board of
directors and able to team of highly skilled mangers OSWAL WOOLEN MILLS LTD is the
Flagship Company of over US$500 millions NAHAR GROUP OF COMPANIES.
Starting out as a tiny worsted spinning & hosiery unit in Ludhiana, it was incorporated as Private
Limited Company in December 1980 & became a Public Limited company in 1983. The steady
growth in manufacture & export of woolen/cotton hosiery, knitwear’s & woolen textiles enabled
the company to earn the recognition as an “Export House” followed by a “Recognized Trading
House” by the Government of India in a short span of 8 years. Its turbo-charged performance
brought them a host of fresh laurels… they include the “National Export Trophy” by the Apparel
Export Promotion Council. The latest is the prestigious Status of “Golden Trading House” in
recognition of its continuously outstanding performance accorded by the Government of India.
In 1992, as a measure of backward integration, the company diversified into the Spinning
Industry. Today it has an installed spindlage of 335000 spindles.
Simultaneously the company also established an ultra modern facility to manufacture 12.5
Million pieces of Hosiery Garments. Today Nahar Spinning T-shirts are being exported to
reputed international brands such as GAP, Arrow, Old Navy, Pierre Cardin, Philips Van Heusen,
Izod, Quicksilver, Price Costco…
As a measure of further value addition Nahan Spinning has put up a plant for the manufacture of
fine count mercerized yarn & fabrics catering to both, the domestic hosiery garment market as
well as export markets.
To make use of the emerging opportunities on the Global Textile Scenario and also to have a
focused business approach, the company went in for the Scheme of demerger and arrangement to
restructure its businesses. The Scheme has already been approved by the Hobble Punjab &
Haryana High Court vide its Order DT. 21st December, 2006. As per the scheme, company’s
Investment Activities stand demerged and transferred to Nahar Capital and Financial Services
Limited. This has drawn a visible line between two segment i.e., One Industrial (Textile)
business and Secondly Investment and Financial Activities.
Further as per the scheme “Textiles Business” of Nahar Exports Limited stand demerged and
transferred to the company (post demerger of investment business) in accordance with the terms
of the scheme. Thus upon implementation of the Scheme the spindlage capacity of the company
stand increased to 3.35 Lacks spindles.
DETAILS OF DIRECTORS
• MR J.L OSWAL
• MR SANDEEP JAIN
• MR DINESH GOGNA
• MR AMARJEET SINGH
• MR KAMAL OSWAL
• MR DINESH OSWAL
• MRS H.K BAL
• MR K.S MAINI
• DR.O.P. SAHNI
• DR SURESH KUMAR SINGLA
Due to its excellent export performance the company continues to enjoy the
status of ”GOLDEN TRADING HOUSE ”.The export performance has also
enabled the company to win two trophies for non quota category and the second
one SILVER TROPHY for the highest export of cotton yarn in non quota
category
COTTON GARMENT:
As regards their branded woven garments primarily cotton shirts and trousers, they are new
entrant in already high competitive market, and they face competition from many established
domestic as well as international brands. However, the woven cotton textile industry is
highly competitive and no single company dominates the industry. They seek to compete in
the domestic market on the basis of price, range, and quality of our products, brand name and
our delivery times
COMPETITORS OF THEIR DENIM FABRIC
• ARVIND MILLS LIMITED
• AARVEE DENIMS LIMITED
• RAYMOND LIMITED
FINANCIAL INDEBTEDNESS
Set forth below is a brief summary of major borrowings of our company, as on September
30,2006 together with a brief description of certain significant terms of relevant financing
agreements’
LENDER
• ICICI BANK LIMITED
• STATE BANK OF PATIALA
• CENTRAL BANK OF INDIA
• ALLAHABAD BANK
• PUNJAB AND SIND BANK
SWOT ANALYSIS
The SWOT analyses is a systematic identification of internal strength and weaknesses of the
business and environment opportunities and threats being faced by that business and provide
information that is helpful, in matching the firm’s resources and capabilities to the competitive
environment in which it operates. It is necessary for the organization to analyze its weakness that
can be removed by undertaking the project and what opportunities can be exploited and strengths
can be strengthen more. As such, it is instrumental in strategy formulation and selection. It is
dynamic and useful framework for choosing a staretgy.The following diagram shows how a
SWOT analysis fits into an environmental scan.
Environmental Scan
Internal External
Environment Environment
Internal External
Environment Environment
• Faulty departmentation
• Risks relating to the price volatility in the import of wool.
• We face risk in relation to outsourcing of cotton segments of Monte Carlo.
• We are dependent upon foreign producers for greasy wool.
• Greasy wool have a material adverse effect on our operations.
• Depend on third parties for significant elements of our sales and distribution efforts.
• Operations are subject to a variety of environmental laws and regulations including those
covering hazardous materials.
• The success of our business is substantially dependent on retaining the services of our
Key management.
• Personnel and attracting talented professionals .The loss of the services of any these
persons may adversely affect our business and results of operations
• We have high working capital requirements.
• If the number of multi brand outlets and national chain stores continue to increase or
consolidate , our business could be negatively affected
OPPURTUNITES
With booming retail sector and big players like WALMART, BHARTI entering into that field,
OWM is also stepping ahead with a mission of opening up of 150 retail outlets all over India
under the brand name MONTE CARLO.
• Fabrication for various companies likes NIKE,MARKS AND SPENCER.etc
• Manufacturing of Kids garments
THREATS
• Mushrooming and upcoming of small hosieries in Ludhiana
RESEARCH METHODOLOGY
RESEARCH
Research in common parlance refers to a search for knowledge. One can also define research as a
scientific and systematic search for pertinent information on a specific topic. Research is an
academic activity as such the term should be used in a technical sense. Research refers to:
Defining and redefining problem
Formulating hypothesis or suggested solutions
Collecting, organizing and evaluating data
Making deductions and reaching conclusions
At last carefully testing the conclusions to determine whether they fit the formulating
hypothesis.
Scope of Study
Scope of research is only restricted to the population of OSWAL WOOLLEN MILLS
LUDHIANA.
RESEARCH PROCESS
Research process consists of series of action or steps necessary to effectively carry out research.
These steps are to be followed in the same sequence. These steps are as follows:
Specifying research objective
Preparing a list of needed information
Designing the data collection project
Select a sample size
Organizing and carrying data and reporting the findings.
Research Design
The research design is a pattern or an outline of the research project’s working, it is a statement
of only the essential elements study, those that provide the basic guidelines for the details of the
project. Further a research design is an arrangement of conditions for collection and analysis of
data in that aim to combine relevance to research purpose with economy in procedure. It
constitutes the blueprint for collection, measurement and analysis of data. Research design stands
for advance planning of the methods to be opted for collecting the relevant data and the
techniques to be used in their analysis, keeping in view of the objectives of their research.
The present study, being conducted, followed a Descriptive Design. It produces a picture of
phenomenon in which decision maker is in trusted. As the data would be responses from a
sample containing a large number of sources. Design of descriptive studies includes the nature
and source of the data, the nature of expected results and the analytical method.
The conceptual structure within which this research is conducted descriptive and exploratory in
nature as it brings forward the results concerning the set objectives, though facts, findings and
enquiries, moreover it describes the state of affairs that exists at present.
SOURCES OF DATA
The sources of data means from where we have to get data. There are mainly two sources of
data. These are:
PRIMARY DATA:
Depending upon the nature of the problem, primary data can be collected through various
methods. In this study, personal interviews with senior officials of different departments of
corporate office, with OSWAL WOOLLEN MILLS LIMITED and various members of finance
and accounts department of the company.
SECONDARY DATA:
The secondary data are those data which have already been collected by someone else and which
have already been passed through statistics process. I got published data as maintained by
company like company manuals, annual reports balance sheets etc.
Data collected through websites also.
Interpretation: Raw Material Conversion period of the company in 2009 is 441.86 and then
decreasing in 2010 is 270.47 and in 2011 is again increasing 306.48.
2.Work in Progress Conversion Period:
PARTICULARS 2008-09 2009-10 2010-11
Avg stock of WIP 1819.57 1884.26 3033.03
TOTAL COST OF 121.38 123.78 175.65
PRODUCTION
WIP CONVERSION 14.99 15.22 17.27
PERIOD
Interpretation: Work in progress conversion period of the company has been increasing
from last three years. It means that more days are required for the conversion of WIP. It is a sign
of lower production.
Interpretation: In the year 2009 debtors’ turnover ratio was high. It decreased in the year
2010. It slightly increased in the year 2011 showing improvement in stock management i.e. there
is an increase showing improved efficiency of management
Gross Operating Cycle:
➢ Working capital turnover ratio is increasing year by year which shows improvement in
the efficient utilization of working capital by the management.
SUGGESTIONS
• OWM should finance a major portion of its requirement of working capital short term
sources of finance as they are cheaper than the long term sources .It is financing a part of
its working capital from long term sources of finance as it is cleared from the fixed assets
to total long term fund ratio.
• The Company is not adopting proper inventory systems like A.B.C analysis, V.E.D
analysis etc. This inventory system can make the inventory management more result
oriented .Since ,inventory covers the major portion of OWM’S current assets; it should
be given prime attention.
• The company should do proper Cost-to-Benefit analysis before purchasing the raw
material i.e. wool for following months in the light of its storage cost, current prices,
estimated future prices, further demand etc. along with the opportunity cost of holding
such inventory.
• The short term liquidity of the firm is not satisfactory as it is clear from the quick ratio
.The company should immediate steps towards its improvements.
• The surplus funds of the unit should be invested in some short marketable securities ,
rather than providing it to its subsidiary free of cost, to improve profitability along with
the liquidity.
• The company should reduce its production cycle to decrease its working capital
requirements. As OWM does its production on the job basis , it should not be difficult for
the company to reduce this
CONCLUSION
OWM has opted for a moderate overall working capital policy. This suggests that it is risk
averse. It wants a reasonable profit with a reasonable amount of risk. If it goes in for an
aggressive policy the profits generates could be high but accompanies with the high level of
profits will come high level of risks, which they feel is not appropriate. Since with this policy the
profit is being generated are substantially high a change in the working capital policy is not
called for.
On analyzing the operating cycle it has been found that operating cycle has increased by
approximately 48% as that of previous year. The operating cycle can be reduced to a greater
degree by trying to get a reduction in the raw material conversion period.
Since OWM produces only therefore the inventory requirement for the following months can be
accurately forecasted. Since, the raw material i.e. cotton and wool are a seasonal crop, it should
be stored for following months by analyzing the benefit of storing it, the storage cost associated
with, wool prices, its availability and also further requirements of the company as per its order.
Every month if forecast is made accordingly and order is placed, it would help in bringing down
the time required in the raw material storage period.
BIBLIOGRAPHY
Books:
• Khan M.Y. and Jain P.K., Financial management, Tata Mc-Graw Hill (P)
Limited, New Delhi
• Sharma Gupta, Management Accounting, Kalyani Publishers
✔ REFERANCES
• MR R.M SOOD (FINANCE CONTROLLER)
• MR R.C KAUSHAL(ACCOUNT MANAGER)
Website
• www.google.com
• www.ask.com
• www.wikipedia.com
• www.owmnahar.com
• www.owmnahar.in