Professional Documents
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Babasabpatilfrepptmba.com Page 1
“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
The Banhatti co-operative spinning mill ltd is located at Banhatti in the area of
Basavanagar, District Bagalkot.
To help the person engaged in weaving profession and who are under clutches of
master weavers exploited by vested interest and to bring outlook in the prosperity &
working of the farmer.
The Government sectioned on lease basic 50 acres of land, out of this Mill has got
permission of 18 acres of in forest near Banahatti. The said land is situated on Banhatti
Jamkhandi road & state highway at Bijapur to Belgaum. Expected cost of land after
necessary development and levelling land lying of internal roads and finance did not
exceed Rs.45 lakhs. In 1980-81 the construction of the building was started and it was
completed in 1984. Actual production of the Mill started in March 1984.
In this study I found out working capital changes and working capital ratio of the
organisation based on that I haven given the suggestion to the organisation. The Mill was
making very good profit at the beginning; it has been incurring loss previously.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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o Primary data
o Secondary data
Primary data: - The data has been collected through questionnaire to all department
managers.
Secondary data: - The project report data is collected through the journals of the
company, magazines, and reference books.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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o Analysis of the data collected from the questions will be made on the assumptions
that data provided by the respondents are accurate.
o Time period for the study will be restricted only for 60 days.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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The purpose of doing this project is to know how distribution helping marketing program.
To know the working capital of the mill, source of capital and how they manage it.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
TABLE OF CONTENT
1 INTRODUCTION
2 PROFILES
3 BACKGROUND
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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7 CONCLUSION
8 BIBLIOGRAPHY
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
In the general scenario where you hear at only a failure in the operative sectors. But
weavers spinning mill at BNT is an exception. The Mill has been doing so well. The
commercial production of cotton yarn of the Banhatti Co-Operative Spinning Mill Ltd is
likely to be commenced during the second week of April 1984 and that a souvenir will be
brought to mark the occasion.
It is needless to say that there is still a need for the creation of such Mill on co-
operative basis to help persons engaged in the profession and who are under clutches of
master of weavers exploited by their interest.
It was established for the need of its 3549 members in JAMKHANDI & MUDHOL
Taluk in the district BAGALKOT. These weavers earlier depend upon the Mills of Salem,
Inchalkaranji for raw-material like yarn & cotton as the supply was inadequate but now it is
Gokak
This Banhatti Co-Operative Spinning Mill Ltd has completed its project and it was
inaugurated by Sri Ramakrishna Hegde, Honourable Chief Minister Govt of Karnataka.
The Agro based Industries are the most famous in order to rise their standard of
living. The spinning Mill is one of them which is helping the cotton growers to raise their
standard of living & to improve their economic condition from centuries together the
cotton growers, one suffering by the middlemen who are purchasing the cotton on throw
way price, but now after commencing of this spinning Mill the cotton growers can get
reasonable price for their production.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
Thus was born the idea of starting the spinning Mill of their own. Construction
began in1981 & completed in 1984, Commercial production began in the same year from
March; the Mill has been undertaken manufacturing of hosiery yarn.
The Mill has laboratory & testing equipment to grade cotton yarn. Strict control has
earned its reputation not only in India but also in abroad, in Italy, Bangladesh & West
Germany except to these countries accounted for Rs. 196.52 lakhs in 1988-89. It also
exported the yarn to China & Japan. The Mill has drawn up a modernization plan with an
outlay of Rs 1.45 crores.
The success story of the Mill is further through in relief as the failure of the other
two co-operative Mills in the District of Bagalkot. This Spinning Mill should run
successfully and to help the cotton growers at the same time weavers who are members of
this Mill.
HISTORY
Industrialization plays a major role in all around development of under developed
countries like INDIA. Small scale & cottage industries have assumed great importance in
India from point of view of employment and contribution to national wealth. Small
industry is a big movement in India is hand- loom sector of textile industry.
The Banhatti Cooperative spinning mill limited was set up in the field of
cooperative and under the Karnataka State cooperative societies act 1959. The mill was
registered in the year 1975 and the actual functioning of the mill was started in the year
1983. The working of the society was extended up to the JAMKHANDI & MUDHOL
Taluk of BAGALKOT.
The Karnataka Govt has provided 50 acres of land for 30 years period to the
society the lease basis. The construction work of the Mill begins in the year 1984. Due to
constructor’s litigation, there was delay in the work. The production of the yarn was
initiated with 15080 spindles.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
The Mill purchases raw material i.e., cotton from local market i.e., JAMKHANDI
MUDHOL and GOKAK Taluk. It also purchases cotton of different quality from Saudatti,
Bailhongal, Dharwad & Nargund & Hirekerur. Other than these the Mill also purchases
cotton from Maharashtra, Gujarat & Tamil Nadu states. The Mill has its marketing centres
in Malegoan, Dahlai, Bombay and Inchalkaranji.
The Banhatti Co-Operative Spinning Mill Ltd was registered under Registration
No. JRBG/3254/785 Dated: 03-02-1975 as Handloom weaver’s co-operative society. The
object of the society was to produce yarn & further process like dyeing, sizing, cloth
production & readymade etc. After registration it has taken almost 5 years to get clearance
from Karnataka state Govt. The share capital collection was started since 1980. The
construction of the building started in the year 1982 on 50 acres forest lease land. The
construction of the company & installation of the machinery was completed & commercial
production started on 25080 spindles during the year 1984. The total project cost was
Rs720 lakhs.
The Mill was earning profits since its inception & financial position was very good.
So the Mill re-paid Share Capital of Rs424.40 lakhs to Karnataka state Govt. The Mill
produces cotton yarn from 10 to 140 counts.
OBJECTIVES OF THE
ORGANISATION
The main purposes of the Banahatti Co-operative Spinning Mill Ltd’s are,
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
o The Mill has the objectives of idea for the expansion programs with
increases in number of spindles and replacing the old machines with new
and highly mechanized machines.
o For the improvement and the well being of the people of the low income
groups the Mill has encouraged women workers by providing work in them.
o Consumer satisfaction; the Mill always satisfied the needs and wants of its
customers in each and every way like by providing quality products, prompt
and timely deliveries.
o Expanding the markets for its products; it has extended their market in
AndraPradesh, Maharashtra, & Tamil Nadu by continuous efforts of the
promoters.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
COMPANY PROFILE
Name of the organisation: Banhatti cooperative spinning mill ltd, BANAHATTI
Proposed products: Cotton yarn in the form of hank and cone, carded
yarn and combed yarn
E-mail: bcsm21@sancharnet.in
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
AWARDS
The Mill has been awarded by “All India Co-operative Spinning Society” for the
production of good quality yarn in the year 1986-87.
The all India federation of co-operative spinning mill ltd (aifcospin) for profitability
Net profit (1991-92)
For earning net profit on each spindle it received award from “All India Federation
Bombay”.
In the year 1992-1993 it received the Best Performance Award from “Karnataka
State”.
The Small and Medium size Export Council of India; Delhi awarded the society by
“Niryat Ratna” by presenting a gold medal in the year 1995.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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PRODUCT PROFILES
The Mill is producing cotton yarn in the form of Hank & Cone. Hanks are packed
in the bales and cones are packed in the cone bags for the marketing purpose, there are two
types of cone.
Hanks & Cones are further divided in the carded & combed yarn. Carded yarn is
less superior compared to combed yarn. Carded yarn is used for weft combed yarn is used
for warp, the yarn is further divided on the basis of counts one count is equal to 840 yards
of yarn.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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Material Department
Store Department
Production Department
Cotton Department
Marketing Department
Finance Department
Purchase Department
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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MATERIAL DEPARTMENT
This department at BCSM LTD ensures that material are obtained at right time
with right quantity of right quality , at right place, from right source and at right cost.
The material department at BCSM LTD has been divided into four sections,
Inventory management
Material handling
Material storing.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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STORE DEPARTMENT
Goods should be stored properly so as to protect them from damages, deterioration,
theft, etc. Hence care should be taken to safeguard the material and maintain up to stores
record.
Fuel stores
Stationery stores.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
Here store ledger account can be maintained to receive the goods on FIFO basis. The
stores department will request the material department to place an order when there is no
stock of raw material asked by the user department. The material department sends the
copy of purchase order to the stores department and they meet according to the user
specification, and prepare the goods received report.
Bin card.
Stores ledger.
Delivery note.
Purchase indent.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
Purchase order
Production department
The production department is the nerves centre of the entire organisation, and the
main objectives of the production department are as follows:
To maintain close and coordinate relationship with all other key department
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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Blow room
Reeling CVT 2
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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Doubling
Packing
Production process
Mixing:
In this process different quality of cotton is mixed in order to reduce the cost of
production and maintaining good quality control. Here mixing can be done as
95% and only 5% of mixed or low quality cotton.
Blow room:
This is the second process of production in which the raw material i.e. cotton is
opened, cleaned and lap is formed. Each lap is of 60 meter length, 17 kg weight.
It is the purification section.
Bale opener
Maxi flow
Multi mixer
Asta
CVT 1
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
CVT 2
Dust Tex
TV 425
Carding:
In this stage the lap is more cleaned and the cleaned cotton is converted in to
slivers look, here also there is 5% waste, so to remove that waste the cotton is
taken to carding department.
Draw Frame:
In draw frame “4” slivers makes it to 1 sliver, 8 slivers is converted into 1 sliver
by which the length of the sliver increases and diameter decreases.
Combing:
Under this stage of combing, 38 slivers are converted to one ribbon roll further
the ribbon are combed to remove the dust. While combing the short fibers are
separated from the ribbon roll and are given less count. The ribbon roll takes the
forms of slivers.
Speed frame:
In this speed frame the slivers are converted into rolling in speed frame there are
3 processes. Those are as follows – Drafting, Twisting and Winding.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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Ring Frame:
Here the finished product is yarn that is obtained from rolling, the yarn is
drafted, twisted and winded.
Reeling:
WEIGHT IN GRAMS
Winding:
Hank yarn:
Cone winding: In cone winding also the yarn is twisted and winded in clockwise and anti-
clockwise so that yarn will be thick. Each cone will be of 1 kg in weight.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
Doubling:
Here the two thin yarns makes one single thin yarn twisted and winded.
Packing:
This is the last process of the production. Here the Hank yarn is packed through
a machine where as long winding is packed in a casual manner.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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COTTON DEPARTMENT
This is yet another department of BCSM & it is very specific department which is
leaded by the three important executive who look after all the day to day transaction & also
has the responsibility of providing of cotton bales according to their requirement of the
production.
Purchasing of cotton:
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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Testing of samples
Ordering to partier
Testing the raw material and also weighing with compare to first one
Types of purchase:
1. spot purchase
2. Mill purchase.
And payments for transportation are done by telegraphic transfer and demand draft.
The purchase of cotton is done by the purchase committee also where committees organises
once in a week % discuss about bales minimum stock presence and exhausting.
Laboratory
Cotton investigator controller tests the quality of the cotton in the laboratory. It is
one of the departments in the spinning mill, which is used for achieving some objectives in
the yarn.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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Marketing department
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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Marketing system
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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1. Local sales
2. Marketing agent
Through marketing agent, cotton yarn are sold X-mill delivery basis against
payment by cash/ DD/ Contract cannot be cancelled because contract is
binding on both side i.e. Seller and buyer. Marketing agent is in the area of
INCHALAKARA NJI, SOLAPUR.
3. Consignment
Sales depots agents are appointed by the mill in Calcutta, Bombay &
mavanathbhanan, goods are dispatched to the sales depot with consultation
of depot agent on the receipt of the goods.
5. Production planning
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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6. Price fixation
Selling price is fixed by the executive committee in the first week of every
month. Sales department collects all the information of the markets and
suggests the rates to the committee; the committee will discuss and fix the
selling price.
7. Major competitors
Laxmi Mill.
Premier Mill.
Precaut Mill.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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HUMAN
RESOURCE DEPARTMENT
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o Conducting seminars sports even for the children of the employee, which is oe of
the appreciable element.
o Individual development.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
According to Beach “Man power / HRP is the process for determining and assuring
the organisation will have an adequate number of qualified persons, available at the proper
time, performing jobs which meet the need of the enterprise and which provide satisfaction
to the individual involved”.
This manpower planning is the process without resources like machines, materials and
motive power etc cannot be put to use.
o Manpower is needed to expand the business i.e. large numbers of workers are required to
be recruited in expansion of the plant.
o Manpower planning is necessary to the organisation in producing the skilled and qualified
workers & trains them very effectively.
o Manpower planning is necessary for taking steps to mould, change and develop the
strength of existing employees in the organisation.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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o Manpower planning is necessary by effective use of manpower & thus reducing the
wastage.
EXECUTIVES 5
STAFF MEMBERS 55
SUPERVISORS 8 68
WORKERS 600
PERMANENT[skilled] 14
CASUAL[semi-skilled] 450
TRAINEES[unskilled] 136
TOTAL 668
DUTIES OF HR MANAGER
a) Finger dexterity
b) Manual dexterity
c) Eye sight
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e) Stamina test
o Labour officer should examine a trainee. If it is reported that the workers efficiency
is less in giving production.
o Record of the trainees along with exercise books & the exams results should be
maintained.
o Labour officer should hold the meeting of spinning master, managing director &
training officer at periodical internal to review the training.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
Recruitment at BCSM, job seekers with need base qualification with experience is
recruited. Here direct recruitment will be adopted. Recruitment can usual be “Contract
Appointment” contract base is adopted even for workers / labourers based on efficiency.
After the man specification is prepared the job contract confirmed the job rate is
fixed and the recruitment salary range determined it becomes necessary to consider the
sources from where such employees will be forth coming. Basically these resources can be
divided into two.
Internal Sources
Retired Employees
External Sources
Campus recruitment
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
Here in BCSM Ltd mainly recruitment & selection are made on the sources that in
internal only by motivating the employees & in the external sources they only go for Door-
to-Door selection & recruitment.
1) ASEMBLING PROCESS
2) INTERVIEVING CANDIDATES
3) PLACEMENT
1) ASSEMBLING PROCESS
Assembling the vacancies arise only when the workers are shortage in the
factory. Then the labour officer inform to the Board of Directors on the
request of the labour officer the Board of Directors give right to labour
officer to appoint the needed workers.
On the bases of the qualification and experience candidates are called for
interview. In the interview process candidates are asked questions regarding
family background and general questions.
3) PLACEMENT
The selected candidates list will be provided to the Board of Directors for
the signature on their form. And the selected candidates list will be
presented on the Notice Board.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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TRAINING
It is the process of imparting the employees’ technical and operating skill and
knowledge. The BCSM has been conducted training programmes by inviting the training
officers from the SITRA [South Indian Textile Research Association] & also it has
appointed managers and officers.
Selected candidates who do not have the required experience shall be given
requisite training in the organisation for a period of one year. This appointment in the
regular scale attached to the post will be made after satisfactory completion of the training.
Especially the SITRA’s training is required for those who directly contact with the
machines for producing good quality of product (Yarn).
This on the job training is conducted for those workers who are quite
educated / uneducated and who are directly engaged in the production process. Here
uneducated workers can have practical training or practical work done.
Here in this type of training consist of the one on which method of work can be
adopted for each particular machine i.e. Ring frame machine, cordial machine, reeling
machine, speed frame , cone winding, Autoscore on these machine what are the method
should be adopted about this training will be given for the employee working in the Mill.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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In this system the worker should be trained about what type of the work
practices is required in carryout in each department.
In this type training is given mainly for those who are quite educated i.e.
It consists of the worker trained about using the correct method in each
working process in the different department like production, Material handling, packing,
etc.
Here work should be trained with the knowing about the importance of
productivity; production, quality and waste level by maintain the right of work.
c) Handling of material: Here workers trained about the careful handling of material.
i) Machine knowledge
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3) Celebration of workers May Day, Ganesh festivals, Conducting sports, & cultural
activities on these occasions.
o For the 3rd shift (night shift) ring frame workers free facility is given i.e. one
tiffin and one tea.
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FINANCE DEPARTMENT
As regarding finance department at Banhatti co-operative spinning mill the account
department is headed by Chief Accountant who is directly below manager heads the
account department. Finance executives and accounts executives who maintains the
accounts of expenditure procurement and expenditure of finance, he prepare annual
financial report and submit to Chief Accountant and who look after day to day financial
needs final accounts of the company.
Chief Accountant also heads Finance department. Below him are executives.
Finance is the corner stone of business every businessman needs accountants attends all
financial transaction of Banhatti co-operative spinning mill ltd.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
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Here all the transactions accrued in the Banhatti co-operative spinning mill with
respective above all financial requirements & other financial item they are maintaining
through Merchandise system or Double entry system they are also prepared.
1. Manufacturing accounts
2. Trading accounts
3. Profit & loss accounts
4. Balance sheet
Accounting system
Cost Audit has been made for Banhatti co-operative spinning mill. Cost Audit report
should be sent to the Company Law Board before 30th September every year. Here product
wise cost sheets are prepared to arrived at the pricing decision, export decision etc. The
costing department will allocate the product wise expenses in regard to raw material,
chemical & packing material. The overheads are apportioned in the cost center wise and
later cost unit wise. The margins for products will be ascertained by costing department &
reported to management periodically. “Cost A/c will later on be recorded with final
accounts”.
Costing system
In the process of costing system for the product manufactured like different types of
yarns on count wise i.e. From 14’s counts to 100’s counts in single / double yarn, carded /
combed & Hank / Cone yarn & Mercerised yarns also.
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Material Costing
The Raw material is used for the production of the different types of yarn are oils,
fats, chemicals which enable proper determination of value of material consumption. Stores
ledger is maintained in respect of each head of material & material is drawn from stores
through authorized “Material Indents / Indent slip” for the consumption of the raw material
like oil fats 7 chemicals the stores department has maintained “ BIN CARD”
Labour Accounting
The total salaries and wages as per the final accounts for the company as a whole
were identifiable with respect to production department in respect of service department
these are appropriately apportioned among production department in accordance with the
services rendered by these employees & given standard production efficiency.
The productions of different types of yarns especially 20’s yarn are exported & to
sell in the market the company [Banhatti co-operative spinning mill] has appointed
different marketing agents. They are in Inchalkaranji, Solapur, Coimbatore & through
different branch / mills sales depots in Bombay, Calcutta, & Mavanathbhavan( UP) . The
Mill appointed same branch in these area that is “m/s LNGS Pvt Ltd Combutor” as depot
agents to look after day to day affairs. The expenses relating to branches have been
allocated among the products requirements / product covered. These expenses have been
taken under the “Selling Overheads” & the same has been apportioned on technical
estimate among production cost center. While arriving at the conversion cost, salaries &
wages, commission to the agents, taxes, sales tax, traveling expenses, administration O/H
& depreciation has been treated as reducing balance.
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DEPRECIATION
Depreciation in relation to plant and machinery, vehicles and miscellaneous
fixed assets are calculated on reducing Balance method.
Assets %Depreciation
Machinery 25%
Vehicles 20%
Buildings 10%
Others 10%
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The shares are collected by dividing in 6 categories. The Mill started with
authorized capital of 7 crores in the year 1983-84. In the first year the issued & paid up
capital of the Mill was Rs 379.22lakhs. This amount increased gradually in the year 1992-
93 the paid up capital of the Mill was Rs 411.25 lakhs.
The numbers of shareholders were decreased from 1986-87 because the Mill has
restricted the issue of share to non members (non share holder).
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PURCHASE DEPARTMENT
While purchasing cotton first they take for sample and test in laboratory. To purchase
cotton and to make decision every Tuesday, there will be a meeting at least twice in a
month. The cotton which is selected for production the related members of that cotton will
be called for meeting. They purchase the only which is necessary for production.
There are different varieties of cotton they are :-
DCH-32
MCH-4
S-4
BUNNY
S-6
LRA
MLCH-1
AK-235
DH-11
BHARMA
They purchase cotton from different states like
KARNATAKA
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ANDHRA PRADESH
MAHARASTRA
MADHYA PRADESH
GUJARATH
TAMIL NADU
RAJASTHAN
The rates are depended on the candy, 1 candy=356kg the candy is converted into
quintal on its related ratio.
If the delivery is made on the spot than the Insurance, transportation charges, and all
other expense is paid by them. If the quality is not as per the sample than per candy will be
decreased or the cotton will be sent back to the related parties.
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Working Capital is defined as the excess of current assets over current liabilities.
Current assets are those assets, which will be converted into cash within the
current accounting period or within the next near as a result of the ordinary operations of
the business. They are cash or near cash resources. These include:
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Prepaid expenses
Short- term advances
Temporary investments
The value represented by these assets circulates among several items. Cash is used
to buy raw- materials, to pay wages and to meet other manufacturing expenses. Finished
goods are produced. These are held as inventories. When these are sold, accounts
receivables are created. The collection of accounts receivable brings cash into the firm.
The cycle starts again.
Current liabilities are the debts of the firms that have to be paid during the current
accounting period or within a year. These include.
- Creditors for goods purchased
- Outstanding expenses i.e., expenses due but not paid
- Short – term borrowings
- Advances received against sales
- Taxes and dividends payable
- Other liabilities maturing within a year.
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Cash
Inventories
Circulation of current assets
Receivables
By optimizing the investment in current assets and by reducing the level of current
liabilities, the company can reduce the locking up of funds in working capital
thereby; it can improve the return on capital employed in the business.
The second important objective of working capital management is that the company
should always be in a position to meet its current obligations, which should
properly be supported by the current assets available with the firm. But maintaining
excess funds in working capital means locking of funds without return.
The firm should manage its current assets in such a way that the marginal return on
investment in these assets is not less than the cost of capital employed to finance the
current assets.
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Generally the working capital has its significance in two perspectives – Gross
working capital and Net working capital’ the term ‘Gross working capital refers to the
firm’s investment in current assets. The term ‘Net working capital’ refers to the excess of
current assets over current liability. These gross working capital and net working capital are
called Balance sheet approach of working capital.
Considering time as the basis of classification, there are two types of working
capital viz. ‘Permanent’ and ‘Temporary’ permanent working capital represents the assets
required on continuing basis over the entire year, whereas temporary working capital
represent additional assets required at different items during the operation of the year. A
firm will finance its seasonal and current fluctuations in business operations through short
term debt financing. For example, in peak seasons, more raw materials to be purchased,
more manufacturing expenses to be incurred, more fund will be locked in debtor’s balances
etc. In such times excess requirement of working capital would be financed from short-
term financing sources.
1) Trade credit
2) Bank credit
Trade credit
Trade credit refers to credit extended to the supplier of the goods and service in the
normal course of transaction /business/sales of the firm. According to the trade practices
the cash is not paid immediately for purchases but after an agreed period of time. Thus,
deferral of payment (trade credit) represents a source of finance for credit purchase.
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Bank credit
The firm gets working capital finance from bank by five ways.
1) cash credit
2) loans
4) letter of credit
Trade discounts are lost. A company with ample working capital is able to
finance large stocks and can therefore place large orders.
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Cash discounts are lost. Some companies will try to customers are foregone.
The advantages of being able to offer a credit line to customers are foregone.
There may be concerted action by creditors and will apply to court for winding
up.
A new concept which is gaining more and more importance in recent years is the
‘operating Cycle concept’ of working capital. The operating cycle refers to the average
time elapses between the acquisition of raw materials and the final cash realization.
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Operating cycle
The aim of every management should be to reduce the length of operating cycle or
the number of operating cycles in a year. Only then the need for working capital decreases.
The following a few remedies may become handy in contrasting the length of operation
cycle period.
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Sound Credit and Collection Policies: Sound credit and collection policies
enable the Finance Manager in minimizing investment in working capital in the form of
book debts. The firm should be discretionary in granting credit terms to its customers. In
order to see that the receivable conversion period is not increased, the firm should follow a
rationalized credit policy based on the credit standing of customers and other relevant facts.
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The firm should be prompt in making collections. Slack collection policies will tie up funds
for long period, increasing length of operating cycle.
These measures, if adhered properly, would go a long way in minimizing not only
the length of operating cycle period but also the firm’s working capital requirements.
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2) Manufacturing Cycle: Time span required for conversion of raw materials into
finished goods is a block period. The period in reality extends a little before and after the
work-in progress. This cycle determines the need of working capital.
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sterile and sticky and thereby they have forfeited the right to be classified as current assets.
In view of such situation in ascertaining quick ratio instead of deducting stock-in-trade we
find it worthwhile to deduct sundry debtors. The other component is credit policy of the
suppliers, their terms and conditions of credit. Trade credit has its historical presence in the
trading world. Availability of normal credit suppliers as well as trade credit facility working
capital supply and reduce the need for bank finance.
9) Environment Factors: Political stability in its wake brings in money market and
trading world. Things mostly go smooth. Risk ventures are possible with enhanced need for
working capital finance, similarly, availability of local infrastructural facilities, road,
transport, storage and market etc., influence business and working capital need as well.
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Working capital ratios indicate the ability of a business concern in meeting its
current obligations as well as its efficiency in managing the current assets for generation of
sales. These rations are applied to evaluate the efficiency with which the firm manages and
utilizes its current assets. The following three categories of ratios are used for efficient
management of working capital: (I) Efficiency ratios (2) Liquidity ratios (3) Structural
health ratios
Efficiency ratio
Sales
a) Net Working Capital turnover ratio = Workingcap ital
This ratio is computed by dividing sales by working capital. This ratio helps to
measure the efficiency of the utilization of net working capital. It signifies that for an
amount of sales, a relative amount of working capital is needed. If any increase in sales is
contemplated, working capital should be adequate and thus, this ratio helps management to
maintain the adequate level of working capital.
Sales
b) Inventory Turnover Ratio = Inventory
This ratio indicates the effectiveness and efficiency of the inventory management.
The ration shows how speedily the inventory is turned into accounts receivable through
sales. The higher the ratio, the more efficiently the inventory is said to be managed vice
versa.
Sales
c) Current Assets Turnover Ratio =
CurrentAss ets
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This ratio indicates the efficiency with which current assets turn over into sales. A
higher ratio implies by and large a more efficient use of fund. Thus, a high turnover rate
indicates reduced lock-up of funds in current assets. An analysis of this ratio over a period
of life time reflects working capital management of a firm.
Liquidity Ratios
This ratio indicates the extent of the soundness of the current financial position of
an undertaking and the degree of safety provided to the creditors. The higher the current
ratio the larger amount of rupee available per rupee of current liability, the more the firm’s
ability to meet current obligations and the greater safety of funds of short-term creditors.
Current assets are those assets, which can be converted into cash within a year. Current
liabilities and provisions are those liabilities that are payable within a year. Current
liabilities and provisions are those liabilities that are payable within a year. A current ratio
of 2:1 indicates a highly solvent position. A current ratio of 1.33: 1 is considered by banks
as minimum acceptable level for providing working capital finance. The constituents of
the current assets are as important as the current assets themselves for evaluation of
company’s solvency position.
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sales
iii) Debtors Turnover Ratio =
Debtors
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This ratio shows the extent of trade credit granted and the efficiency in the
collection of debts. Thus, it is an indicative of efficiency of trade credit management. The
lower the debtors to sales ratio, the better the trade credit management and better the
quality (liquidity) of debtors. The lower debtors mean prompt payment by customers. An
excessively long collection period, on the other hand, indicates a very liberal, ineffective
and inefficient credit and collection policy.
Debtors
iv) Debtor collection Period (in days) = X 365
Sales
Debtor collection period, which measures how long it takes to collect amounts from
Debtors. The actual collection period can be compared with the stated credit terms of the
company. If it longer than those terms, then this indicates some insufficiency in the
procedures for collecting debts.
Baddebts
v) Bad debts to Sales =
sales
This ration indicates the efficiency in the collection procedures of the company. The
actual ratio is compared with the target or norm to decide whether or not it is acceptable.
Creditors
vi) Creditor payment Period (in days) = X 365
Purchases
The measurement of the creditor payment period shows the average time taken to
pay for goods and services purchased by the company. In general the longer the credit
period achieved the better, because delays in payment mean that the operations of the
company are being financed interest free by supplier’s funds. But there will be a point
beyond which, if they are operating in a seller’s market, may harm the company. If too long
a period is taken to pay creditors, the credit rating of the company may suffer, thereby
making it more difficult to obtain suppliers in the future.
Current Assets
Cash 70,941
Bank 1,01,29,880
Debtors 27,19,803
Receivables 30,68,347
Closing stocks 6,96,73,288
Loans and advances 1,23,577
Other Assets 22,66,506
Current liabilities
Creditors 1,77,75,103
Tax 2,94,852
Provision 12,00,000
Current Assets
Cash 68,903
Bank 2,41,75,972
Debtors 1,24,56,152
Receivables 28,53,527
Closing stocks 4,83,08,375
Loans and advances 11,29,216
Other Assets 14,94,158
Current liabilities
Creditors 92,88,624
Tax 2,97,927
Provision 12,00,000
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Current Assets
Cash 34,244
Bank 51,74,124
Debtors 61,04,540
Receivables 28,57,527
Closing stocks 4,11,43,901
Loans and advances 6,05,385
Other Assets 15,50,828
Current liabilities
Creditors 1,53,53,299
Tax 182
Provision 10,00,000
Current Assets
Cash 44,733
Bank 1,15,85,033
Debtors 65,78,000
Receivables 28,57,527
Closing stocks 3,72,97,944
Loans and advances 34,84,000
Other Assets 14,60,000
Current liabilities
Creditors 2,13,72,930
Tax 1366
Provision 10.00,000
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Current liabilities
Creditors 1,77,75,103 92,88,624
Tax 2,94,852 2,97,927
Provision 12,00,000 12,00,000
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Current liabilities
Creditors 92,88,624 1,53,53,299
Tax 2,97,927 182
Provision 12,00,000 10,00,000
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Current liabilities
Creditors 1,53,53,299 2,13,72,930
Tax 182 1366
Provision 10,00,000 10.00,000
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Sales
I. Net Working Capital turnover ratio = Workingcap ital
23,79,61,388
(2003-04) = 6,87,82,382 =3.45
25,31,62,924
(2004-05) = 7,96,99,752 =3.17
18,94,13,902
(2005-06)= 4,11,17,068 =4.60
19,30,70,239
(2006-07) = 4,47,78,898 =4.31
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This ratio is computed by dividing sales by working capital. This ratio helps to
measure the efficiency of the utilization of net working capital. It signifies that for an
amount of sales, a relative amount of working capital is needed. If any increase in sales is
contemplated, working capital should be adequate and thus, this ratio helps management to
maintain the adequate level of working capital.
From the financial year 2003-04 to financial year 2005-06 the ratio is showing
increase in trend which means that they utilized their working capital for making sales
In the financial year 2006-07 the ratio is showing a slight decrease from the
financial year 2005-06. The ratio of 0.29 has been decreased. So the efficiency of
utilization of working capital is coming down.
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Sales
Inventory Turnover Ratio = Inventory
23,79,61,388
(2003-04) = 6,96,73,288 =3.41
25,31,62,924
(2004-05) = 4,83,08,375 =5.24
18,94,13,902
(2005-06)= 4,11,43,901 =4.60
19,30,70,239
(2006-07) = 3,72,97,944 =5.17
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In case of the inventory turnover ratio the higher the ratio the more efficiently the
inventory is said to be managed and vice versa.
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Sales
Current Assets Turnover Ratio =
CurrentAss ets
23,79,61,388
(2003-04) = 8,80,52,342 =2-70
25,31,62,924
(2004-05) = 9,04,86,303 =2.79
18,94,13,902
(2005-06)= 5,74,70,549 =3.30
19,30,70,239
(2006-07) = 6,33,07,237 =3.05
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By and large this ratio indicates the efficiency and effectiveness with which current
assets are turned into sales. The higher turnover rate gives the picture of an efficient ratio
indicating reduced blockage of funds in current assets.
In case, financial year 2003-04, 2004-05, 2005-06 and 2006-07 the ratios were
found to be 2.70, 2.79, 3.30 and 3.05 respectively. A slight decrease has been found in the
ratio of the comparative years. In previous year it was found that a slight decrease in ratio
compared to 2005-06. Hence the current assets are utilized efficiently and effectively by the
mill.
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8,80,52,342
(2003-04) = 1,92,69,955 =4.57
9,04,86,303
(2004-05) = 1,07,86,551 =8.40
5,74,70,549
(2005-06)= 1,63,53,481 =3.51
6,33,07,237
(2006-07) = 2,23,74,296 =2.83
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Current Ratio
In case of current ratio, a ratio of 2:1 is considered as an ideal one. In this case the
current ratio for the financial year 2003-04, 2004-05, 2005-06 and 2006-07 are 4.57, 8.40,
3.51 and 2.30 respectively.
It implies that in 2003-04 for every one rupee of current liabilities, current asset of
Rs 4.57 is available. And for year 2004-05, for every one rupee of current liabilities,
current assets worth Rs 8.40 are available and so on. The standard of 2:1 is met for the four
year in consideration. So it can meet its current liabilities through its current assets
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1,83,79,054
(2003-04) = 1,92,69,955 =0.95
4,21,77,928
(2004-05) = 1,07,86,551 =3.91
1,63,26,648
(2005-06)= 1,63,53,481 =1.
2,21,63,336
(2006-07) = 2,23,74,296 =1.
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Quick Ratio.
The ratio in the financial year 2003-04, 2004-05, 2005-06 and 2006-07 are 0.95,
3.91, 1 and 1 respectively.
Hence in this case it is found that the company meets the above the sets standards
with reference to quick ratio. But in the financial year 2003-04 the ratio was 0.95 which is
almost nearer to “1” so it doesn’t make much difference to the mill.
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sales
Debtors Turnover Ratio =
Debtors
23,79,61,388
(2003-04) = 27,19,803
=87.5
25,31,62,924
(2004-05) = 1,24,56,152 =20.32
18,94,13,902
(2005-06)= =31.03
61.04.540
19,30,70,239
(2006-07) = 65,78,000 =29.35
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Here, in the financial year 2003-04, 2004-05, 2005-06 and 2006-07 the ratio are
87.5, 20.32, 31.03 and 29.35 respectively.
In the financial year 2003-04 the ratio was 87.5, and slowly coming down by this
we can say that company is not doing well over the year. So company has to take some
serious action to increase this ratio
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Debtors
Debtors collection Period (in days) = X 365
Sales
27,19,803
(2003-04) = 23,79,61,388 X 365 = 4 days
1,24,56,152
(2004-05) = 25,31,62,924 X 365 =18 days
61.04.540
(2005-06)= 18,94,13,902 X 365 =12 days
65,78,000
(2006-07) = 19,30,70,239 X 365 =12days
Days 4 18 12 12
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The debtor collection period goes on to show how long it takes for a company to
recover the debt. And hence a decrease or lesser debtor collection period shows a better
performance on the part of company.
In the financial year2003-04, 2004-05, 2005-06 and 2006-07 the debtor collection
period is 4, 18, 12, and 12 days respectively.
It shows that the company needs to re-look and revamp in this area.
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Creditors
Creditors payment Period (in days) = X 365
Purchases
84,14,684
(2003-04) = 19,34,29,524 X 365 = 16 days
92,88,624
(2004-05) = 16,33,13,613 X 365 =21 days
76,85,069
(2005-06)= 11,49,61,812 X 365 = 24 days
2,13,72,930
(2006-07) = 11,01,57,194 X 365 =71 days
Days 16 21 24 71
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The creditor payment period indicates how long the company or the firm has taken
to repay the creditor; a shorter creditor s payment period indicates better paying power and
performance on the part of the company.
In the financial year2003-04, 2004-05, 2005-06 and 2006-07 the creditor payment
period is 16, 21, 24 days and 71 days. So by looking at this the payment policy of mill is
not good, so mill has to pay to its creditors on time.
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Cash Ratio
1,02,00,821
2003-04) = 1,92,69,955 =0.529
2,42,44,875
(2004-05) = 1,07,86,551 =2.24
52,08,368
(2005-06)= 1,63,53,481 =0.31
1,16,29,766
(2006-07) = 2,23,74,296 =0.519
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Cash Ratio:
The standard of 0.5:1 is considered as norms for calculating the cash ratio. This
ratio also indicates liquidity position and company and firms commitment to meet its short
-term liabilities.
The mill is having absolute current asset are sufficient to meet is day to day
requirement. The mill has good cash ratio i.e. in the financial year 2003-04 and financial
year 2004-05 the ratio were 0.529 and 2.24 respectively which satisfies the set norms. In
the financial year 2005-06 the ratio came down to 0.31 which is not good for mill. And in
the year 2006-07 the ratio again increased to 0.519 which shows that mill has made
improvement
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Findings:
1) The cash of the mill is near to 0.5, so it has to look after this so that it won’t
come below the set norms.
2) Working capital turnover ratio of the mill is coming down. This means that
mill’s efficiency of utilising its working capital is coming down.
3) It was found that the current ratio of mill is more than the set norms, which
is more than “2”. It means that mill has utilised its current assets efficiently
and effectively.
4) Mills debtor turnover ratio is decreasing which signifies that mill is not
collecting its debt properly
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SUGGESTIONS:-
1) Try to gain more orders from the outside countries by exporting required quality of
product.
2) The current ratio of BCSM is quite healthy and we can say that it is a sound
concern as its liquidity or short term solvency is satisfactory.
3) Generally a quick ratio of 1:1 is considered ideal and represents a satisfactory
position. Here it shows that BCSM has maintained 1:1 ratio. It can easily handle or
meet its liabilities without any delay.
4) Inventory turnover ratio of BCSM is quite satisfactory because in the financial year
2005-06 and 2006-07 the inventory turnover is 4. 60 and 5.17
5) If too long period is taken to pay creditors, the credit rating of the company suffers,
thereby making it more difficult to obtain suppliers in the future. But the company’s
creditor payment period is more. In the financial year 2005-06 it is24 days and in
year 2006-07 its 71 days. So it has to pay its creditor in time to maintain its good
will
7) Sales of the mill are coming down, so it has to increase its sales by using
promotional activities and can invest more in working capital.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
Babasabpatilfrepptmba.com Page 97
“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
Conclusion
Lastly I conclude that this mill has good opportunity to expand its business
because there are no competitors. BCSM is the only player in Bagalkot district. Initially
there were three mills in Bagalkot district and both of the mills have closed down, so it has
great opportunity to develop.
4) For growth & expansion of the market promotional scheme must be adopted.
7) The company can try to gain more and more orders to improve financial
position.
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“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING
MILL LTD, BANHATTI”
BIBLIOGRAPHY
ANNUAL GENERAL REPORT OF BCSM LTD BANHATTI
Babasabpatilfrepptmba.com Page 99