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EXECUTIVE SUMMARY

The project has been under taken under as the part of master of business administration course as per the direction of Karnataka university dharwad. The second year MBA students will take part in this project were the summer inplant project for the period of two months and the project is related to finance and the topic of this project is The study of working capital management The Gadag co-operative textile mill ltd established in 1972 by late shri.K.H.Patil at Hulkoti in Gadag district. It is producing main product as yarn. The company started with a production cost of RS.220lakhs.It is started producing yarn in the year 1973. A G.C.T.M has an arrangement of different department of the dependent parts of functions and their interrelation in the structure form to provide the necessary efforts of groups of individuals will be directed towards a common objective. So as to identify the problems of such a title and give suggestions and conclusions. In addition to this concept studying the over all organization role of different department functions of their respective departments, procedures and policies. The project is mainly focuses on the industry profile, company profile, SWOT analysis, annual report and about working capital and ratios. this project studies different department at the Gadag co-operative textile mill ltd. The functions of each department and the organization in the company along with it covers the duties and responsibilities of all the staff members type of decision making followed by the mill and it also includes quality policy export oriented unit etc of the mill.

DESIGN OF THE STUDY Title of the study


To study on working capital management at D R CLOTHING EXPORTERS PVT LTD.

OBJECTIVES OF THE STUDY: 1) To study the working capital management. 2) To know the sources of working capital. 3) To study the different components of working capital of the company. 4) To calculate the operating cycle of an organization. 5) To calculate the working capital of an organization. 6) To study the liquidity position of the company with the help of ratios.

METHODALOGY
PRIMARY DATA: The information collected from personal interaction with manager and other staffs SECONDERY DATA: The annual report of the company and company website

INDUSTRY PROFILE

The Indian Textile Industry occupies an important place in the Economy of the Country because of its contribution to the Industrial Output, Employment Generation and Foreign Exchange Earnings. At present, the contribution of the textile Industry to GDP is about 4 percent. The textile industry provides direct employment to about more than 35 million people and is the second largest employment provider in India next to agriculture. The contribution of this industry to gross export earnings is about 31% of the country. The Textile Industry is a self-reliant industry from the production of raw materials to the delivery of final products with considerable value addition at each stage of processing. The industry was delicensed in 1991 and under the current policy no prior government approval is necessary to set up textile mills. The per capita cloth availability in the country has increased from 24.1 square meters in 1991 to 30.7 square meters in 2000-01.The textile sector including the garment sector has a continual increase in the FDI inflow from Rs.80.99 million to Rs.234.73million. From growing its own raw material (cotton, jute, silk and wool) to providing value added products to consumers (fabrics and garments), the textile industry covers a wide range of economic activities, including employment generation in both organized and unorganized sectors. Manmade fibers account for around 40 per cent share in a cotton dominated Indian textile industry. India accounts for 15% of world's total cotton crop production. And it is the second largest employer after the agriculture sector in both rural and urban areas. India has a large pool of skilled lowcost textile workers, experienced in technical skills. Almost all sectors of the textile industry have shown significant achievement. India's cotton textile industry has a high export potential. Cost competitiveness is driving the penetration of Indian basic yarns and grey fabrics in international commodity markets. Besides natural fibers such as

cotton, jute and silk, synthetic raw material products such as polyester staple fiber, polyester filament yarn, acrylic fiber and viscose fiber are produced in India. From 1st January 2005, all textile and clothing products would be traded internationally without quota-restrictions. And this impending reality brings the issue of competitiveness to the fore for all firms in the textile and clothing sectors, including those in India. With the dismantling of quotas in 2004 under mandate from the Agreement in Textile and Clothing of the WTO, the focus has clearly shifted to the future of the Indian textile and clothing exports. It is imperative to understand the true competitiveness of Indian textile and clothing firms in order to make an assessment of what lies over a period of time.

Global trade in Textile and clothing -Indias performance


During the MFN period, the textile exporters from industrial countries and those from developing countries merely changed shares between themselves during 24 years .The share of industrial countries declined by almost as much (19.2%) as was the gain in the share of developing countries (18.8%). Clothing exporters, however, exhibit significant changes, with the share of top exporters having declined by 13.8%. New entrants have come in as well as some old ones have been knocked out. Of these new entrants, most- if not all- are from developing countries, since the share of industrial countries has declined during the period, and that of developing countries has increased. The countries that are gaining share in clothing exports are the ones whose industries are integrated to one or the other advanced country through some policy-induced preferential arrangements. Mexico, Caribbean region, East European countries and Mediterranean countries are capturing much of the space vacated. There has been a much deeper globalization in clothing than in textiles. Indeed, that has been one of the principal reasons for the developed countries agreeing to an eventual phase-out in the UR of negotiations. While in textiles, there was an inexorable shift away from developed countries in 1973 to1997 and to developing countries at large, in clothing the shift away from developed countries is increasingly being grabbed by preferred developing countries. Thus, in clothing, the non-preferred group of developing countries is fighting amongst themselves for a pie that is increasingly declining.

One should expect a much higher level of intra-industry and intra-firm trade in clothing than in textiles. This is entirely compatible with the fact that it is the trade in Clothing that is growing faster than that in textile. And this trend is likely to deepen, as Clothing retailers consolidate, and Outward Processing Trade (OPT) traffic increases. The Opportunity clearly lies much more in clothing, though the caveat is the exporting. Country would have to achieve the preferred status, and integrate its manufacturing with that of an importing country in order to continue exporting to the restricted markets. The pressure to export would intensify in the years to come since 80% of additional output during 1995-2005 is expected to be located in developing countries. On the other hand, only 50% of the additional fibre consumption would originate in developing countries.

COMPANY PROFILE COMPANY DETAILS:

Name of the mill Famous name Address

: - The D R Clothing Exporters Pvt Ltd. : - The D R Clothing Exporters. : - The D R Clothing Exporters Pvt Ltd. Noida DR Clothing B - 3 B, Sector - 63 Noida - 201 306, Uttar Pradesh, India Telephone: +(91)-(120)-4606110 Fax: +(91)-(120)-4606120

Registered office

: - DR Clothing B - 3 B, Sector - 63 Noida - 201 306, Uttar Pradesh, India

Registration

:-

Registration No Establishment

::7

Production began Sales turn over Nature of business

:: - 40-100 crore approx. :-

Background of the company We, DR Clothing are one of the reliable manufacturers and exporters of the most sought after range of Woven Garments, Leather Garments, Leather Jackets, Ladies Woven Garments & Leather Bags. These products are designed and developed by making sue of the finest grade materials and fabric, coupled with latest technology. We have developed state of the art infrastructure facility. It is further divided into different unit such as manufacturing unit, quality control department, warehousing and packaging unit and research and development department. These units are efficiently managed by a team of highly experienced and professional experts. They are well-trained in their respective domain and offer the best quality range of products. Being a quality committed organization; it is our constant endeavor to offer only the best quality range of products. For that purpose, we have developed a fully furnished quality control department. It is equipped with latest and sophisticated tools and equipment to carry our various quality tests on the entire range. We have appointed a team of highly qualified and experienced team of quality controllers. We have adopted client friendly payment options, coupled with transparent and ethical business practices, thus, we are able to gain a good reputation in the international arena.
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Our company is successfully guided and managed by Mr. Chris Robinson (Director). With his high business acumen and enriched business experience, we are able to gain a good position in the international market segments.

BASIC CONCEPTS USED IN TEXTILE MILL Fiber . Kapas Lint Ginning : Cotton with seeds and impurities : Cotton free from seeds and impurities : The mechanical process of separating the cotton Fiber from seeds Bale : A bundle or packages of cotton compressed and Bound with cord or wire weight round about 170 Kgs. Spinning : The process of drawing out and twisting the fiber of cotton, Wool etc. Into thread or yarn either by hand or machine. Spindles : The rods or pins of spinning machine known as The ring frame holding the bobbins on the which yarn wound as it is spun . Such spinning is expressed in terms of the number or spindles or rotors. Rotors : In the modern of spinning known as the open end spinning instead of spindles rollers are used. Yarn : A textile thread obtained by twisting of 10 : A slender filament ; a fine thread like part of a substance

consecutively Disposed and Straightened ultimate composite fibers. Hank & cones: Yarn is supplied to the market in to different forms hank yarn and cone yarn Hank yarn is convenient form of bleaching, and transport but needs winding before placing on the loanIt is used by hand loom weavers .Cone yarn however eliminates the Need form winding and can be directly used in power looms . Count : A count is measure of thickness or fitness of yarn The various counts groups manufactured are 10s, 20s, 24s, 30s,32s,34s,40s, 60s, 80s 100s both in Hank and Cone. Lower counts indicates coarse yarn and higher counts indicates fine Yarn

Objectives of the company


To satisfy customers by integrating their needs in the mill yarn. To sustain a mill of able and committed employees and provide opportunities for growth and development. 11

To improve the process of managing mill affairs through proper planning, timely improvement of plan and performance review. To faster culture innovation with the application of new ideas and methods to solve the business problems. To provide the employment opportunities to Men& women of rural area

Nature of business carried


The first step the company purchases the raw material i.e. cotton from the farmers then it mixes it with different quality of cotton according to the quality of yarn they needed. The next step is cleaning the minor part and spraying the water to it. Then it kept one day in cool place. Next step it goes to the major cleaning part it goes to all the cleaning of the cotton. The next process is carding here the cotton will become smoothly and white. Next goes to the simplex method in this method cotton becomes big layers and it makes the group of layers The next process is procedure is rolling and grilling here the big layers are rolled and it is separated from the group and comes in the form of loose thread and next process is drafting and twisting and the thread becomes strong and it comes layer by layer in the form of thin yarn. The next is nothing here if thread goes into two parts the machine will join it and it is called noting process. Finally after all these process the raw material is converted into the finished goods which are in the form of yarn.

VISION MISSION QUALITY

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VISION: To be a premier textile company with a clear focus to become globally


competitive, through growth and technology up gradation committed to excellence in quality service and co-operatives

MISSION: To purchase the creation of values for all its customers, share holders,
employees and society at large

QUALITY POLICY:

Our company is highly appreciated in the industry for

following total quality control policy. In this aspect, we have installed some of the latest tools and equipment to administer various quality tests. These tests are based on the latest trends and standards set by the industry. We follow 100% metal detection procedure for the garments before packing to ensure make our garments are metal free. In order to keep our product range free from any defect these products are examined by our quality controllers to eradicate all the flaws. We administer the following quality tests on our entire range : Shrink proof Color fastness Quality of the fabric Durability

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PRODUCT PROFILE The following table indicates the production performances/ progress since 2003-04 to 2007-08
sl A. 1. 2. 3. Particulars Production Cotton consumed kgs in lakhs Value in lakhs Rs. Yarn produced in lakhs 1894.90 28.01 1812.25 29.57 1375.00 26.80 1460.90 27.53 165615 27.83 33.37 35.20 32.31 32.49 32.39 2003-04 2004-05 2005-06 2006-07 2007-08

kgs B. Cac capacity Utilization an productivity 1. 2. Spdl utilization % Production (converted to 40s)in gram per spindle 63.57 84.00 71.39 82.37 73.49 82.15 73.97 83.15 69.81 86.20

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COMPETITORS INFORMATION
The competitors for G.C.T.M are Banhatti co-operative spinning mill. Banhatti. Raitara sahakari noolina girani. Rannebennur. The farmers co-operative spinning mill ltd. Hulkoti. Sangoola mills solapur.

INFRASTRUCTURE FACILITY Head office: The head office of G.C.T.M is located in hulkoti the function of finance,
marketing and raw material procurement are carried by head office only it doesnt have its branch.

Land: The mill is established in the rural area near gadag at village hulkoti with
approval of the site selection committee. The total area covered is of 90528.25 sq ft out of which build up area is 643.45 sq mt. there is the beautiful garden plantations pollution free and healthy environment in the mill area.

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Other facilities: The mill has provided an quarters facilities to the workers and there
is an rest room for workers and drinking water facility and also cultural activities in independence day, republic day, and workers day will be held and there is also an canteen facility provided by the mill

AWARDS
The mills has got an some awards for continuously three years in the year 1978-79, 1979-80, 1980-81, the mill has ranked first for India and second for Asia. The two awards were pretend to the mill as per the techno-economic data presentation which is made by the mill in the Pune on 10th April 2005 the award for the operating net profit per installed spindle and operating cash profit per installed spindle has got

WORK FLOW OF MILL MIXING:


Bales of different counts are mixed along with usable wastes, on

different percentage in the mixing bins, cotton bales of different quality are opened and stacked, called stock mixing, 24 Hours for conditioning before it is process further.

BLOW ROOM:

Cotton in losses form is spending on mixing bale openers and into Lap form of different length, weigh per yard,

taken further of different cleaning points where the cotton is beaten and trash is extracted. Finally converted depending on the count.

CARDING: Lap form Blow room feed to Cards where the cotton is converted from
Lap form to sliver form. During this process trash, short fibers and other impurities are 16

extracted the different cleaning points, like licker in, Flats section Units. The sliver is produced of different Hank depending on the counts.

PREPARATORY: Cards sliver is drawn through different drafting Rollers and the
sliver is elongated and increasingly the length of the sliver and radiating in the cross section by passing through different drafting rollers and convert into a suitable package by giving little twist to the material called Rove and wound on a Bobbin.

SPINNING: The bobbins from the Preparatory process are feed to the drafting rollers
as final treatment to the material and further increasing the length and reduction the cross section of the material. This process the material process through Ring and Traveler and would on the bobbin to form a suitable package the giving optimum of the twist depending on count of the yarn.

CONE WINDING: Here the yarn spun is cleaned by passing through cleaning
devise called slub catcher and would through suitable package of required length and weight in the form of a Cone.

DOUBLING: Here two yarn of the same count are doubled by giving necessary
twist in the form of package called bobbins.

REELING: Here single yarn or doubled yarn are wound on the swifting of the
machine called Reel in the form of Hank and are make in the form of Knots. There are two types, a Plain or Cross Reel.

BUNDLING & BALING: Here the number of knots plain or cross is in a press
depending on the count and weight of the boundless are as per requirements. Bundles are pressed in the form of Bale depending on the count, Plain or Cross as per the requirement from the market.

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PACKING: Here number of cones or cheeses is bagged depending on the count of


the yarn number of cones and weight of the cones. Depending on the requirement of the market.

PROCESS OF PRODUTION MIXING:


Bales of different counts are mixed along with usable wastes, on

different percentage in the mixing bins, cotton bales of different quality are opened and stacked, called stock mixing, 24 Hours for conditioning before it is process further.

BLOW ROOM:

Cotton in losses form is spending on mixing bale openers and into Lap form of different length, weigh per yard,

taken further of different cleaning points where the cotton is beaten and trash is extracted. Finally converted depending on the count.

CARDING: Lap form Blow room feed to Cards where the cotton is converted from
Lap form to sliver form. During this process trash, short fibers and other impurities are 18

extracted the different cleaning points, like licker in, Flats section Units. The sliver is produced of different Hank depending on the counts.

PREPARATORY: Cards sliver is drawn through different drafting Rollers and the
sliver is elongated and increasingly the length of the sliver and radiating in the cross section by passing through different drafting rollers and convert into a suitable package by giving little twist to the material called Rove and wound on a Bobbin.

SPINNING: The bobbins from the Preparatory process are feed to the drafting rollers
as final treatment to the material and further increasing the length and reduction the cross section of the material. This process the material process through Ring and Traveler and would on the bobbin to form a suitable package the giving optimum of the twist depending on count of the yarn.

CONE WINDING: Here the yarn spun is cleaned by passing through cleaning
devise called slub catcher and would through suitable package of required length and weight in the form of a Cone.

DOUBLING: Here two yarn of the same count are doubled by giving necessary
twist in the form of package called bobbins.

REELING: Here single yarn or doubled yarn are wound on the swifting of the
machine called Reel in the form of Hank and are make in the form of Knots. There are two types, a Plain or Cross Reel.

BUNDLING & BALING: Here the number of knots plain or cross is in a press
depending on the count and weight of the boundless are as per requirements. Bundles are pressed in the form of Bale depending on the count, Plain or Cross as per the requirement from the market.

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PACKING: Here number of cones or cheeses is bagged depending on the count of


the yarn number of cones and weight of the cones. Depending on the requirement of the market. The mill has 32.39 lakh kg of cotton has consumed in 2007-08 and 27.86 lakh kgs of yarn is produced and 69.81% of spindle has been utilized

SWOT ANALYSIS

STRENGTHS
1) 2) 3) 4) 5) 6) 7) 8) Good reputation in the market Good network of dealers Well connected with roads Well established in infrastructure facilities 45% share capital given by the government New specialized types of machines Good support from the farmers as well as from the society Financially strong

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WEAKNESSES
1) 2) 3) 4) 5) 6) 7) No nation wide brands Less sales promotion activities Large work force Partly automated Lack of R&D Low labour productivity Not concentrating towards competition

OPPORTUNITIES

1) 2) 3) 4) 5) 6)

Land is available for expansion Company can tie with other reputed company Existence of a large market Possibility of 100% automations Market expansion They are shortly getting the ISO 9001

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THREATS

1) 2) 3) 4) 5)

Decreasing in agricultural production Globalization and liberalization Cut through the competition Taste and fashion of customers turning towards the ready Made Garments Negligence of Government as well as less guidance and low Support from the Government

WORKING CAPITAL MEANING AND DEFINITION OF WORKING CAPITAL Working capital is the amount of funds which a company has to finance its day to day operations it can be regards as the part of capitals which the capitals is basically classified into fixed and working. Fixed capital is normally invested in fixed assets and working capital in current assets. It is used in day to day operations. These are the funds that are invested in current assets. The form of these current assets keeps on changing. Ex: Raw material to work in progress to finished product. , so it is also called circulating capital. A study of working capital is of major part of the external and internal analysis because of its close relationship with the current day to day operation of the business. Working capital consists of broadly for that the assets of a business that are used at related current operation and is represented by raw material, stores, work in progress, and finished goods merchandise, bills receivable. 22

Definition of working capital


Gerstenberg working capital means current assets of company that are changed in the ordinary course of business from one form to another, ex: from cash to inventories, inventories to receivables, receivables into cash Shubin Working capital is the amount of funds necessary to the cost of operating the enterprise. Operating expenses involve investment in current assets, payment towards overhead and expenses. Investment made in these heads is classified as working capital. J. smith The sum of the current assets is the working capital of the business WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITY

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CONCEPT OF WORKING CAPITAL


There are two concepts of working capital that are: 1) Balance sheet concept 2) Operating cycle concept.

1)

Balance sheet concept: Working capital as per this defined in terms of current assets and current liabilities.

Balance sheet concept further classifies working capital into a) gross and b) net working capital. a) Gross working capital: it refers to total investment made in current assets. It is also called circulating rotating from one head to another. Ex. Cash to raw material, raw material to finished products, finished products to debtors, and debtors to cash. This concept stresses on quantity aspect; i.e. to refer to total investment made in different current assets. Bonneville and beway have defined gross working capital as any fund received which increases the current assets. b) Net Working capital: as per this concept working capital is the difference between current assets and current liabilities. This concept stresses on quality aspect of working capital. The difference between current assets highlights on liquidity aspect

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and quality of current assets. A firm that has excess of current assets over liabilities is said to possess adequate liquidity. On the contrary firm that has excess of current liability over current assets means it does not have adequate liquidity. It means that part of current assets of such firm are financed through fixed assets.

2) Operating cycle concept: Operating Cycle or Working Capital Cycle indicates the length of time between affirms paying for raw materials entering into finished stock and receiving cash on the sales of such Finished Stock. This operating cycle differs from firm to firm. Longer the operating cycle greater will be the amount of Working Capital required and vice versa. Thus it plays an important role in determining the Working Capital needs of a firm.

OPERATING CYCLE CHART

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Cash

Raw Materials

Debtors

Sales

Finished good

Work In Process

Operating Cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The operating cycle of a G.C.T.M involves three phases. 1. Acquisition of resources such as raw material, labour, power and fuel etc. 2. Manufacture of the product which includes conversion of raw material into work-In- progress into finished goods. 3.Sales of the product either for cash or on credit. Credit sales creates book Debts for collection. In the THE D R CLOTHIN EXPORTERS PVT LTD (manufacturing concern), the working capital operating cycle starts with the purchase of raw materials and ends with the realization of cash from the sale of finished products. It is also called as cash conversion cycle, production cycle etc. It involves the purchase of raw materials and stores, its into stocks of finished goods through the work-in-Progress 26

with the progressive increment of labor and service costs, conversion of finished goods (Yarn Products) into sales, Debtors and receivables and ultimately realization of cash and this cycle continuous again from cash to purchases of raw material and so on.

CLASSIFICATION OF WORKING CAPITAL Working capital can be classified on the basis of concept and on the basis of time. Various types of working capital are as follows

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KINDS OF WORKING CAPITAL

1. ON THE BASIS OF CONCEPT

2. ON THE BASIS OF TIME

GROSS WORKING CAPITAL

NET WORKING CAPITAL

PERMANEN T OR FIXED

TEMPORAR Y OR VARIABLE

REGULAR 1) A) On the basis of concept :

RESERVE

SEASONAL

SPECIAL

Working capital on this basis of concept is classified into Gross working capital: It refers to total investment made in current asset. Current assets are the asset which can be converted into cash within a short period of an accounting year. Current assets include cash, debtors, bills receivables and short term securities etc. B) Net working capital: It is the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be positive or negative. Positive net working capital will arise when current asset exceeds current liabilities. A negative net working capital occurs when current liabilities are in excess of current assets.

2)

On the basis of time : Classification of working capital in this case is made on the basis of time for which investment is required. Kinds of working capital in

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this category are: 1) Permanent : Some portion of working capital always remain permanent or fixed. This refers to minimum investment a firm has to make and keep in certain current assets. Firm has to always maintain minimum cash balance, inventory, debtors etc. as there current assets are required permanently. They are normally financed through long term capital. Such permanent working capital is further classified into a) regular and b) reserve a) Regular: regular permanent working capital is used in routine business operations. b) Reserve: reserve working capital refers to some portion of working capital that is kept as reserve to meet any contingency.

2) Temporary working capital: required of such capital varies or fluctuates depending on season. Its requirement is not continous it is normally finance through short term sources, like overdraft, cash credit and other short term liabilities. Temporary working capital is further classified into: A) Seasonal working capital: requirement of working capital is based on particular seasons ex; winter, summer or festival seasons etc during these seasons there will be additional demand for the products. To meet out such demand firm has to make additional arrangement of working capital. B) Special working capital: requirement of such working capital is necessitated to meet demands of special occasions ex. Occasion of world cup cricket, Olympics, kumba mela, elections. During these special occasions demand for goods and service will increase. To meet such special demand firm has to make temporary arrangement of working capital

DETERMINANTS OF WORKING CAPITAL

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Requirement of working capital differs from one firm to other. This is because of business conditions and policies of conducting business differ. Working capital required by each from is determined by following factors. 1) Nature of business: important factor that determines requirement of working capital is nature of business a firm is undertaking. Firm that are engaged in production and marketing need more working capital compared to the firm that are in trading or service oriented business. This is because manufacturing units need more current assets compared to service oriented units. 2) Size of business: Size of the business obviously determines the requirement of the working capital bigger the size more is the requirement of the working capital. Larger the scale of operations, larger the investment required in current assets. 3) Operating cycle: Operating cycle means period from which investment is locked up in different operations. Longer the period of inventory holding, work in progress, finished goods etc more is the investment needed in the operations. This necessities more investment in current assets. 4) Stock turn over: stock turnover refers to number of times stock is turned over that is it refers to sales. Quicker the stock turn over (quick sales) less is the working capital. Slow pace of stock turnover demands more investment is locked up in operation. 5) Credit policy: Credit policy of the firm will influence requirements of working capital. Firms that offer liberal credit to the debtor have make more investment in production operations. Such firms need more working capital to keep their production operation continuous. Requirement of working capital will be much more if the firm buys on cash and sells on credit. On the contrary firms that buy on credit and sell on cash basis need less working capital. 6) Production policy: Firms that undertakes all production operations within the organization need more working capital. Such firms have to make investment to manufacture every component or part. On the contrary, firms which undertake outsourcing that is buying some of the components or parts from out side agencies need less working capital. 7) Growth of business: Firms that are experiencing growth need more working capital. Such firms have to constantly increase their production levels. To meet rising needs of sales targets. They need to continuously increase investment in current assets. 8) Earning capacity and its appropriation: firms that earn sufficient profits and invest a portion of profit in business needs less working capital. Ploughing back of profits and accumulated reserves will minimize dependency on external capital for working capital 30

needs. On the contrary firms that follow liberal divided policy are firms that do not have adequate surplus need to borrow more to meet regular working capital needs. Needs of Working Capital: The need for working capital to run the day-to-day business activities cannot be overemphasized. We will hardly find a business firm which does not required any amount of working capital. Indeed, firms differ in their requirements of the working capital. The firms aim is that maximizing the wealth of shareholders. Earning a steady amount of profit requires successful sales activity. The firm has to invest enough funds in current assets for generating of sales activity. Current assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash. Therefore Working Capital required for: 1) To meet the cost of inventories including total of raw materials purchased parts, operating Supplies, work in progress, finished goods. 2) To pay wages, salaries, for indirect labor, clerical staff, managerial and supervision staff. 3) To meet overhead costs, including those of maintenance services activities, fuel, power charges, taxes and general expense administration. 4) To bear the expansion (with regard to promotion of sales) e.g. expenses on packing, advertisement, salesmanship, Sales Servicing, After requires, Credit Facilities, Delivery Services, etc. IMPORTANCE OF WORKING CAPITAL Even though the skills for maintaining the working capital are somewhat unique, the goals are the same-viz. to make an efficient use of funds for minimizing the risk of loss to attain profit objectives.

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Firstly, the adequate of working capital contributes a lot in raising the credit-standing of a corporation in terms of favorable rates of interest on bank loan, better terms on goods purchased, reduced cost of production on account of the receipt of cash discounts, etc. Secondly, a company with sufficient working capital is always in a position to take the advantage of any favorable opportunity either to purchase raw materials or to execute a special order or to wait for better market position. In the third place, the ability to meet all reasonable demands for cash without inordinate delay is a great psychological factor to improve the all rounds efficiency of the business. Lastly, during slump the demand for working capital, instead of coming down, shoots up. A good amount of working capital is locked up in the inventories and book debts. Concerns having ample resources can tide over that period of depression. Thus, working capital is regarded as one of the conditioning factors in the long run operations of the firm, which is often inclined to treat it as an issue of short run analysis and decision making.

Components of Working Capital: There are two components of Working Capital A. Current Assets B. Current Liabilities A) Current Assets: Components of Current Assets are as follows: 1. Cash & Bank Balance 2. Stock of Raw Material at cost- work in process and Finished Goods. 3. Advanced Recoverable in Cash or kind or kind or for value to

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be received. 4. Deposits under the company scheme. 5. Advanced payment of income takes credit certificates.. 6. Outstanding debts for a period exceeding six months. 7. Balance with central excise authorities. B) Current Liabilities: Components of Current Liabilities are as follows: 1. Sundry Creditors for the goods and expenses. 2. Income tax deducted at sources from contractors. 3. Expenses Payable. 4. Unclaimed Dividend. 5. Security Deposits. 6. Liabilities for bills discounted. 7. Bank Overdraft Acceptance.

Working Capital Management concerned with the following aspects: 1. Cash Management: Cash is the important current asset for the operation of the business. cash is the basic input needed to keep the business running on a continuous basis; it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash is the liquid form of an asset. It is the ready money available in the firm or with the business, essential for its operations. A firm needs the cash for the following three purposes: (a) The Transaction Motive: (b) The Precautionary Motive: (c) The Speculative Motive: 2. Receivables Management:

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Receivable represents amounts owed to the firm as a result of sale of goods or services on the ordinary course of business. These are claims of the firm against its customers and form part of its current assets. These receivables are carried for the customers. The period of credit and extent of receivables depends upon the credit policy followed by the firm. The main purpose of maintaining or investing in receivables is to meet competitors, to increase sales, and to maintain a cordial relationship with the clients.

3. Inventory management: Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. There is, generally a time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher the requirements for inventory. The unforeseen fluctuations in demand and supply of goods necessitate the need for inventory. Moreover, it provides a cushion for future price fluctuations.

ANALYSIS AND INTERPRETATION Statement of changes in working capital

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Particulars

As @ 31/3/05

As @ 31/3/06

Effect of wc Increase decrease

A. Current assets Cash on hand Cash at bank F.D with bank Deposits Sundry debtors Pre university college Loan to FCSM Advances Other receivables Closing stock Total current assets B. Current liabilities Current liabilities Bonus provision payable Other payables Total current liability Net working capital(A-B) Increase or decrease in working capital Total working capital 81651878 81651878 25896588 25896558 40050746 1254248 2090328 43395322 81651878 49098335 1280042 2713579 53091956 74532655 7119223 18777364 7119223 25896587 9047589 25794 623252 15143 5027449 16051822 4628150 35371142 255296 8500000 1616172 633633 52948390 125047200 41550 4634497 246822 4630150 51579031 255296 8500000 4062468 631633 53043163 127624611 94773 2446296 2000 2000 16207888 26407 392952 15805000

INTERPRETATION

35

The statement shows that the changes in working capital in the year 2004-05 and 2005-06. It shows how the current assets and current liabilities are changes in two years the different between current asset and current liabilities i.e. net working capital of two years 2004-05 and 2005-06 is Rs 81651878 and Rs 74532655 respectively it shows the working capital decreases of Rs 7119223 in 2005-06 which compare to 2004-05. Here due to decrease the firm is not satisfactory with its working capital

In current assets
1. cash in hand increases of Rs 26407 2. cash at bank is decreasing of Rs 392953 3. F.D with banks is also decreased Rs 15805000 4. deposits has increased of Rs 2000 5. sundry debtors has increased of Rs 16207888 6. advances has increased to Rs 2446296 7. other receivables has decreases of Rs 2000 8. closing stock has increased to Rs 94773

In current liabilities
1. bonus provision is increasing of Rs 25794 2. other payables is increasing of Rs 623252 3. other liabilities are increased to Rs 9047589

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Statement of changes in working capital

Particulars

As @ 31/3/06

As @ 31/3/07

Effect of wc Increase Decrease

A. Current assets Cash on hand Cash at bank F.D with bank Deposits Sundry debtors Pre university college Loan to FCSM ltd Advances Other receivables Closing stock Total current assets B. Current liabilities Current liabilities Bonus provision payable Other payables Total current liability Net working capital(A-B) Increase or decrease in working capital Total working capital 84615654 84615654 24232454 24232454 49098335 1280042 2713579 53091956 74532655 10082999 58462247 1395879 2972036 62830162 84615654 9363912 115837 258457 24232454 14149456 10082999 41550 4634497 246822 4630150 51579031 255296 8500000 4062468 631633 53043163 127624611 20530 18446450 265078 4630150 47320434 255297 8500000 5151421 500000 62356456 147445816 1088953 131633 9313293 21020 13811952 18256 4258597

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INTERPRETATION
This statement shows that the changes in working capital in the year 2005-06 and 2006-07. it shows the current assets and current liabilities i.e net working capital of two years is 2005-06 and 2006-07 is rs 74532655 and rs 84615654 respectively. It shows the working capital increases Rs 10082999 in the year 2006-07 compare to 2005-06 by increasing the firm is satisfactory with its working capital.

In current assets
1. cash in hand has decreased by Rs 21020 2. cash at bank is increased to Rs 13811952 3. F.D with bank is increasing of Rs 18256 4. there is no increase or decrease in deposits 5. sundry debtors is decreased to Rs 4258597 6. advances paying increased to Rs 1088953 7. other receivables has decreased to r 131633 8. closing stock is increased to Rs 9313293

In current liabilities
1. bonus provision is increased of Rs 115837 2. other payable is also increased of Rs 258457 3. other liabilities is increased to Rs 9363912

Statement of changes in working capital

38

Particulars

As @ 31/3/07

As @ 31/3/08

Effect of wc Increase decrease

A. Current assets Cash on hand Cash at bank Fd with bank Deposits Sundry debtors Pre university college Loan to fcsm ltd hulkoti Advances Other receivables Closing stock Recvd from NCDC Total current assets B. Current liabilities Current liabilities Bonus provision payable Other payables NCDC payable Total current liability Net current assets(A-B) Increase or decrease in working capital Total working capital
-

20530 18446450 265078 4630150 47320434 255297 8500000 5151421 500000 62356456
--------------------------

40460 16228726 275078 4431466 51709943 255297 8500000 5687379 535374 58071755 1319412 147054890 49593596 1564000 2971114 1319412 55448122 91606768

19930 2217724 10000 198684 4389509

535958 35374 4284700 1319412

147445816 58462247 1395879 2972036 62830162 84615654 6991114

8868651 168121 922 1319412 15179756 8188641 6991114

91606768

91606768

15179756

15179756

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INTERPRETATION
The statement shows that the changes in working capital in the year 2006-07 and 2007-08 it shows how the current assets and current liabilities are changes in the two years the difference between current assets and current liabilities i.e. net working capital of the two years is 2006-07 and 2007-08 is Rs 84615654 and 91606768 respectively. It shows the working capital increases of Rs 6991114 in the year 200708 compare to 2006-07 by the increase in the net working capital firm is satisfactory with its working capital

In current asset
1. cash in hand increased of Rs 19930 2. cash at bank increased of Rs 2217724 3. F.D. with bank has increased of Rs 10000 4. deposits has decreased to Rs 198684 5. sundry debtors has increased to Rs 4389509 6. advances paying is increased to Rs 535958 7. other receivables also increases of Rs 35374 8. closing stock has decreased of Rs 4284700 9. there is a receivables from NCDC of Rs 1319412

In current liability
1. bonus provision has increased of Rs 168121 2. other payable has decreased of Rs 922 3. payable of received of NCDC of Rs 131912 4. other liabilities has decreased to Rs 8868651

Statement of changes in working capital

40

Particulars

As @ 31/3/08

As @ 31/3/09

Effect of wc Increase decrease

A. Current assets Cash on hand Cash at bank Fd with bank Deposits Sundry debtors Pre university college Loan to fcsm ltd hulkoti Advances Other receivables Closing stock Recvd from NCDC Total current assets B. Current liabilities Current liabilities Bonus provision payable Other payables NCDC payable Total current liability Net working capital (A-B) Increase or decrease in working capital Total working capital 91606768 91606768 19695992 19695992 49593596 1564000 2971114 1319412 55448122 91606768 52486226 1227535 4744789 1319412 58458550 77170370 14436398 5259595 14436398 19695992 2892630 336465 1773675 40460 16228726 275078 4431466 51709943 255297 8500000 5687379 535374 58071755 1319412 147054890 277094 19346310 275078 4052950 51003132 255297 8500000 4858428 1021508 46289123 ----------135628920 828951 486134 11782632 1319412 13366 3117584 378516 706810

INTERPRETATION

41

The statement shows that the changes in working capital in the year 2007-08 and 2008-09 it shows how the current assets and current liabilities are changes in the two years the difference between current assets and current liabilities i.e. net working capital of the two years 2007-08 and 2008-09 is Rs 91606768 and Rs 77170370 respectively it shows the decreasing of Rs 14436398 in 2008-09 which compare to 2007-08 by decreasing in net working capital the firm is not satisfactory with its working capital

In current assets
1. 2. 3. 4. 5. 6. 7. 8. 9. cash in hand has decreased of Rs 13366 cash at bank is increased of Rs 3117584 F.D with bank has no changes deposits has been decreased of Rs 378516 sundry debtors has decreased to Rs 706810 advances is decreased of rs828951 other receivables has increased of Rs 486134 closing stock is decreased to Rs 11782632 received from NCDC of Rs 1319412 is decreased

In current liability
1. 2. 3. 4. bonus provision is decreased to Rs 336465 other payables is increases of Rs 1773675 NCDC payables in decreased of Rs 1319412 other liabilities has increased of Rs 2892630

CALCULATION OF OPERATING CYCLE OF THE D R CLOTHING CO.

42

Investment in working capital is influenced by four key events in the production and sales cycle of the D R CLOTHING Purchases of raw materials Payment of raw materials Sale of finished goods Collection of cash for sale

The firm begins with the purchase of raw material which are paid for after a delay which represent the account payable period. The firm converts the raw material into finished goods and then sells the same. The time lag between the purchase of raw materials and sale of finished goods is the inventory period customers pay there bills some time after the sales. The period that elapses between the date of sales and date of collection of receivable is the accounts payable period. The time that elapses between the purchase of raw materials and the collection of cash for sales is referred to as the operating cycle. Where as the time length between the payment for raw material purchases and the collection of cash for sales is referred to as the cash cycle. The operating cycle is the sum of the inventory period and the accounts receivable period, whereas the cash cycle is equal to the operating cycle less the accounts payable period. From the financial statement of the firm we can estimate the inventory period, the accounts receivable period and accounts payable period.

Inventory period =

average inventory Annual cost of goods sold/365

Average receivable period =

average accounts receivable Annual sales average accounts payable Annual cost of goods sold/365

Accounts payable period =

Financial information of THE G.C.T.M. Ltd 2005-2006

Particulars

P&l a/c data

Particular

Beginning

Ending
43

Sales 231390442 Cost of 206149519 goods sold

Inventory A/c receivable A/c payable

46919052 633633 1254248

46274537 631633 1280042

Sales =

sales + yarn sales + other sales 228943400 + 700864 + 1746178 = 231390442

Cost of production Add opening stock of finished goods Less closing stock of finished goods Cost of goods sold

210628618 20107336 230735954 24586435 206149519

Inventory period = = = =

average inventory Annual cost of goods sold/365 46596794 206149519/365 46596794 564793 82.50

Average receivable period =

average accounts receivable Annual sales

44

= = =

632633 231390442/365 632633 633946 0.99

Accounts payable period =

average accounts payable Annual cost of goods sold/365 1267145 206149519/365 1267145 56479320 2.24

= = =

Operating cycle = inventory period + accounts receivable period = 82.50 + 0.99 = Cash cycle = = = 83.49

operating cycle accounts payable period 83.49 2.24 83.49

Financial information of THE G.C.T.M. Ltd 2006-2007

Particulars

P&l a/c data

Particular

Beginning

Ending
45

Sales Cost of goods sold

254655866 Inventory 215192439 A/c receivable A/c payable

46274537 631633 1280042

50785141 500000 2972036

Sales =

sales + yarn sales + other sales 3484623 + 250490529 + 680714 = 254655866 220852642 24586435 245439077 30246638 215192439

Cost of production Add opening stock of finished goods Less closing stock of finished goods Cost of goods sold

Inventory period = = = =

average inventory Annual cost of goods sold/365 48529839 21519439/365 48529839 589568 82.31

Average receivable period = =

average accounts receivable Annual sales 565816 254655866/365

46

= =

565816 697687 0.81

Accounts payable period =

average accounts payable Annual cost of goods sold/365 2126039 215192439/365 2126039 589568 3.60

= = =

Operating cycle = inventory period + accounts receivable period = 82.31 + .81 = Cash cycle = = = 83.12 operating cycle accounts payable period 83.12 3.60 79.52

Financial information of THE G.C.T.M. Ltd 2007-2008

Particulars

P&l a/c data

Particular

Beginning

Ending

47

Sales Cost of goods sold

274253348 Inventory 244014252 A/c receivable A/c payable

55889767 500000 2972036

50785141 1854786 4290526

Sales =

sales + yarn sales + other sales 262156033 + 1131833 + 10965481 = 274253348 235780335 30246638 266026973 22012721 244014252

Cost of production Add opening stock of finished goods Less closing stock of finished goods Cost of goods sold

Inventory period = = = =

average inventory Annual cost of goods sold/365 106674908/2 244014252/365 53337454 668532 79.78

Average receivable period = = =

average accounts receivable Annual sales 2354786/2 274253348/365 1177393


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751379 = 1.56

Accounts payable period =

average accounts payable Annual cost of goods sold/365 7262562/2 244014252/365 3631281 668532 5.43

= = =

Operating cycle = inventory period + accounts receivable period = 79.78 + 1.56 = Cash cycle 81.34

= operating cycle accounts payable period = 81.34 5.43 = 75.91

Financial information of THE G.C.T.M. Ltd 2008-2009

Particulars

P&l a/c data

Particular

Beginning

Ending

49

Sales Cost of goods sold

256739185 Inventory 231802183 A/c receivable A/c payable

50785141 1854786 4290526

39186088 1021508 5972323

Sales =

sales + yarn sales + other sales 13609228 + 242486231 + 643726 = 256739185 233038800 22012721 255051521 23249338 231802183

Cost of production Add opening stock of finished goods Less closing stock of finished goods Cost of goods sold

Inventory period = = = =

average inventory Annual cost of goods sold/365 89971229/2 231802183/365 44985614 635074 70.83

Average receivable period = = =

average accounts receivable Annual sales 2876294/2 256739185/365 1438147

50

703395 = 2.04

Accounts payable period =

average accounts payable Annual cost of goods sold/365 10262849/2 231802183/365 5131424 635074 8.08

= = =

Operating cycle = inventory period + accounts receivable period = 70.83 + 2.04 = Cash cycle 72.87

= operating cycle accounts payable period = 72.87 8.08 = 64.79

Years

Inventory Account period receivable period 2005-06 82.50 0.99 2006-07 82.31 0.81 2007-08 79.78 1.56

Account payable period 2.24 3.60 5.43

Operating cycle 83.49 83.12 81.34

Cash cycle 81.25 79.52 75.91


51

2008-09 70.83

2.04

8.08

72.87

64.79

operating cycle
86 84 82 80 78 76 74 72 70 68 66 2005-06 2006-07 2007-08 2008-09 years

days

Series1

INTERPRETATION : Here the firms operating cycle has continuously decreased from 83 days during 2005-06 to 73 days during 2008-09. The operating cycle of the firm is satisfactory because it has come down by 10 days. The firms cash cycle is also satisfactory as it has decreased from 82 days to 65 days during 2005-06 to 2008-09. However it is also observed that the debtors collection period has increased from 0.99 days to 2.08 days during the same time period.

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RATIO ANALYSIS

53

INTRODUCTION

The ratio analysis is one of the most important and powerful tools of financial analysis. It is the process of establishing and interpreting various ratios. It is with the help of ratios that the ratios that the financial statement can be analyzed more clearly and decisions made from such analysis.

CONCEPT OF RATIO

A 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 Accountants handbook by Wixonkell and Bedford, a ratio is an expression of the quantitative relationship between two numbers.

RATIO ANALYSIS

Ratio analysis is the technique of calculation of number of accounting ratios from the data found in the financial statements, the comparison of the accounting ratios with those of the previous years or with those of other concerns engaged in similar line of activities or with those of standard ratios and the interpretation of the comparison.

CURRENT RATIO

54

The current ratio of a unit measures firms short-term solvency, that is, its ability to meet short-term obligations. It is the ratio of total current assets to total current liabilities. The current ratio measures the ability of the firm to meet its current liabilitiescurrent assets get converted into cash in the operating cycle of the firm and provide the funds needed to pay current liabilities. It is calculated by dividing total current assets by total current liabilities:

CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITES

Sl.no 1 2 3 4 5

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Current assets 125047200 127624611 147445816 147054890 135628920

Current liability 43395322 53091956 62830162 55448122 58458550

Current ratio 2.88 2.40 2.34 2.65 2.32

current ratio
3.5 3 2.5 ratio 2 1.5 1 0.5 0 200405 200506 200607 years 200708 200809 Series1

55

INTERPRETATION: The standard for current ratio is 2:1 but the firms current ratios are more than the standard the highest ratio is 2.88 in the year 2004-05 and the lowest ratio is 2.31 in the year 2008-09. And also it found that there is an excess amount in current assets its shows that the firm is not utilizing the funds from current assets properly the firm need to concentrate on its excess amount.

QUICK RATIO This ratio is also termed as Acid-test ratio. A Quick ratio is concerned with, the relationship between quick assets and current liabilities. It is a measure of liquidity calculated dividing current assets minus inventory and prepaid expenses by current liabilities. The Quick Ratio is the ratio between quick current assets and current liabilities. It is calculated by dividing the Quick Current Assets by the Current Liabilities.

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QUICK RATIO = QUICK ASSETS/QUICK LIABILITES Quick asset = current assets inventory, prepaid expenses Quick liability = current liability bank overdraft Sl.no 1 2 3 4 5 Years 2004-05 2005-06 2006-07 2007-08 2008-09 Quick assets 72098810 74581448 85089360 88983135 89339797 Quick liability 30847985 53091956 62830162 55448122 58458550 Quick ratio 2.33 1.40 1.35 1.60 1.52

quick ratio
2.5 2 ratio 1.5 Series1 1 0.5 0 200405 200506 200607 years 200708 200809

INTERPRETATION: The standard ratio for quick ratio is 1:1 but the firms quick ratio are more than the standard the highest quick ratio is 2.33 and lowest quick ratio is 1.35 so it found that there is quick ratio is more than the standard by having more the ratio it shows that th. So the has to concentrate for collection of funds.

57

INVENTORY TURNOVER RATIO Inventory turnover ratio is the ratio, which indicates the number of times the stock is turned over i.e., sold during the year. In other words, it is the ratio between the cost of goods sold and closing stock. This ratio can be calculated as follows.

INVENTORY TURNOVER =

COST OF GOODS SOLD AVERAGE INVENTORY

Sl.no 1 2 3 4 5

years 2004-05 2005-06 2006-07 2007-08 2008-09

Cost of goods sold 256843587 206149519 215192439 244014252 231802183

Average Inventory 46438421 46596794 51082152 53337454 44985614

Ratio 5..53 4.42 4.21 4.57 5.15

58

inventory turnover ratio


6 5 4 ratio 3 2 1 0 200405 200506 200607 years 200708 200809 Series1

INTERPRETATION: The inventory turnover ratio shows how the inventory is turning into receivables through sales. Here in the firm highest inventory turnover is 5.53 in 200405. it indicates that there was a good inventory management in 2004-05 whereas in the year 2006-07 there is low inventory turnover which implies that in 2006-07 there was excessive inventory levels than warranted by production and sales activity. In the year 2008-09, the inventory turnover is 5.15.

GROSS PROFIT RATIO. The gross profit ratio reflects the efficiency with which management produces each unit of product. This ratio indictes the average spread between the cost of goods sold and the sales revenue

GROSS PROFIT RATIO = GROSS PROFIT /SALES

Sl.no

years

GROSS PROFIT

SALES

RATIO

59

1 2 3 4 5

2004-05 2005-06 2006-07 2007-08 2008-09

2536378 15767888 27291869 10816537 4049865

269932512 231390442 254655866 274253348 256739185

0.93 6.81 10.71 3.94 1.57

RATIO 12 10 RATIOS 8 6 4 2 0 200405 200506 200607 YEARS 200708 200809 RATIO

INTERPRETATION: . The gross profit ratio is not satisfactory because this ratio is not stable it is fluctuating widely by year by year from the year 2004-05 to 2008-09. the highest ratio is 10.71 and the lowest ratio is 0.93 here the firm has higher the sales in 2006-07 so the ratio is high and due to lower the sales or higher the cost of good so in the year 2004-05 it is low.

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WORKING CAPITAL TURNOVER RATIO

The ratio, which expresses the relationship between the working capital and sales, is called as Working capital turnover ratio. It is calculated as follows

NET CURRENT ASSETS TURNOVER = SALES/ NET CURRENT ASSETS

Sl.no 1 2 3 4 5

Years 2004-05 2005-06 2006-07 2007-08 2008-09

Sales 269932512 231390442 254655866 274253348 256739185

Net current assets 81651878 74532655 84615654 91606768 77170370

Net current asset ratio 3.30 3.10 3.00 2.99 3.32

61

Net current asset ratio 3.4 3.3 3.2 ratio 3.1 3 2.9 2.8 2004- 2005- 2006- 2007- 200805 06 07 08 09 years Net current asset ratio

INTERPRETATION: A working capital turnover ratio indicates that of high working capital turnover and low net working capital here in the firm there is an continuous decrease for 4 years but in last year it has been increased in working capital turnover ratio. The firm is satisfactory with its last year turnover ratio. The firm has to maintain in increasing the working capital turnover ratio.

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FINDINGS AND SUGGESTION


1. The current ratio of the firm is not satisfactory because the firm is not utilizing available recourses properly. The highest ratio is 2.88 recorded in the year 2004-05 and the lowest ratio is 2.31 recorded in the year 2008-09. So the current ratio is not satisfactory. The firm needs to concentrate on current assets. By utilizing the available resources properly the firm may improve the current ratio. 2. The quick ratio of firm is not satisfactory because in the firms quick assets there excess amount than requirement it shows that the company is not utilizing available resources properly. The highest quick ratio is 2.33 recorded in the year 2004-05 and the lowest ratio 1.35 recorded in the year 2006-07. The company needs to concentrate on quick assets. By utilizing quick assets properly the firm may improve this ratio. 3. the inventory turnover ratio is satisfactory because from the year 2004-05 it is go on decreasing but in the year 2008-09 it increased to 5.15 from 4.57 in the year 2007-08 so this ratio is satisfactory. The highest ratio 5.53 recorded in the year 2004-05 and lowest is 4.21 recorded in the year 2006-07. 4. .The gross profit ratio is not satisfactory because this ratio is not stable it is fluctuating widely by year by year from the year 2004-05 to 2008-09. the highest ratio is 10.71 and the lowest ratio is 0.93 here the firm has higher the sales in 2006-07 so the ratio is high and due to lower the sales or higher the cost of good so in the year 2004-05 it is low. 5. A working capital turnover ratio indicates that of high working capital turnover and low net working capital here in the firm there is an continuous decrease for 4 years but in last year it has been increased in working capital turnover ratio. The firm is satisfactory with its last year turnover ratio. The firm has to maintain in increasing the working capital turnover ratio.

6. Here the firms operating cycle has continuously decreased The

63

operating cycle of the firm is satisfactory because it has come down by 10 days. The firms cash cycle is also satisfactory as it has decreased from 82 days to 65 days during 2005-06 to 2008-09. However it is also observed that the debtors collection period has increased from 0.99 days to 2.08 days during the same time period 7. The changes in working capital of 2004-05 and 2005-06 is 81651878 and 74532655 respectively it shows working capital decreased to 7119223 in 2005-06 which compare to 2004-05 here the decreasing the net working capital firm may not satisfactory with its working capital. 8. the changes in working capital of 2005-06 and 2006-07 is 74532655 and 84615654 respectively it shows the working capital increased of 10082999 in the year 2006-07 compare to 2005-06. By increasing net working capital the firm may satisfactory with its working capital. 9. the changes in working capital of 2006-07 and 2007-08 is 84615654 and 91606768 respectively it shows the working capital increased of 6991114 in the year 2007-08 compare to 2006-07. By increasing in net working capital the firm may satisfactory with its working capital. 10. the changes in working capital of 2007-08 and 2008-09 is 91606768 and 77170370 respectively it shows the working capital decreased of 14436398 in the year 2008-09 compare to 2007-08. By decreasing net working capital the firm is satisfactory with its working capital.

64

SUGGESTIONS
1. To improve the current ratio and quick ratio the company need to concentrate on current assets by utilysing available resources in the current assets the company may improve its current ratio and quick ratio 2. The gross profit ratio is not satisfactory because there is more fluctuating in the ratios so company need to concentrate in its profits 3. during the year 2005 and 2006 the companies working capital is decreased due to less current assets and more liability so it has to make proper use of its current assets and to make improve. 4. during the year 2008 and 2009 the companies working capital again decreased so the firm has to has to concentrate on its current assets to maintain the business transaction .

65

CONCLUTION:
This study helps to know that the companies financial position. The sale of the company is decline in the year 2009. There is an increases cost in some years so it is needs to reduce its costs. As the study helps to know that the changes in financial statements i.e. increase or decrease in the liabilities and assets. By the ratio analysis we come to know that the companies solvency. The company have to take some measures to control the costs. By working capital we comes to know its working capital management This study helps us to know that the companies financial position is not appreciable because there is loss in the present year due to high expenses. so it has to control the costs. By the analysis of financial statements I conclude that, overall financial performance of the company is not satisfactory. The company can try to take a some measures to increase profit i.e. proper utilization of available resources.

BIBLIOGRAPHY
66

BOOKS : FINANCIAL MANAGEMENT : KHAN AND JAIN FINANCIAL MANAGEMENT : I.M.PANDEY

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