Final Project1

Modern Collections Pvt.
Ltd
1.1 GENERAL INTRODUCTION

It would be worthwhile to recall what Henry ford once remarked Money is an arm or a leg; you either can use it or lose it. This statement throws light on the significance of money or finance. A budding concern may need a small amount of money and yet it may be difficult for it to commence business simply because it is not in the position to get required funds. A firms success and survival mainly depends upon its ability to generate sufficient funds when need arises. Finance holds the key to all the activities. The role of financial manager, that is, the one who is incharge of the finance function, is difficult because he has to play that role and relate it to the role of other managers. Financial management is mainly concerned with maximizing the companys net worth. Financial management helps in monitoring the effective development of funds in fixed assets and in the day-to-day cash management. The project studying Working Capital Management procedures of Modern Collection Pvt Ltd is of major importance to the external and internal analysis due to its close relationship with the day-to-day operations of the business.
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Modern Collections Pvt. Ltd
1.2 THEORETICAL BACKGROUND

INTRODUCTION TO WORKING CAPITAL Empirical observations show that the financial managers have to spend much of their time to the daily internal operations relating to current assets and current liabilities of the firms. As the largest portion of the managers time is devoted to working problems, it is necessary to manage working in the best possible way to get maximum benefit. The effective management of the business, among other things primarily depends upon the manner in which the short-term assets and short run sources of financing are managed. The management or current assets management consists of inventories, accounts receivable and cash & bank balances as the major components. There is a difference between current assets and fixed assets in terms of their liquidity. A firm requires many years to recover the initial investments in fixed assets such as plant and machinery and land and buildings. On the contrary, investments in current assets are turned over many times a year. Investments in current assets such as inventories and book debts are realized during the firms working capital cycle, which is usually less than a year. Working capital is that proportion of a companys total capital, which is employed in short-term operations. Even though, it is one segment of the capital structure of a business, it constitutes an inter-woven part of the total integrated business system. Therefore, neither it can be regarded as an independent entity, nor, can the working capital decisions be taken in isolation. Thus, a study in this field is of major importance to both internal and external analysis, for its close relationship with the day-to-day operations of a business. There are many aspects of working capital management, which form an important function of a financial manager: Working management represents a large portion of the firms investment in assets. Working management has greater significance not only for small firms but also for large firms. The need for working capital is directly related to sales growth.
Modern Collections Pvt. Ltd Most of the work dealing with working capital management in confined to the balance sheet, which is directed towards optimizing the levels of cash and marketable securities, receivable and inventories. For the most part, optimization of these current assets is isolated from the optimization of the other current assets and the overall valuation of the firm. The decision concerning cash and resources, receivable, investments and current liabilities is with an objective of maximizing the overall value of the firm. Once decisions are reached these areas, the levels of working capital are also reduced. An appropriate level of working capital is to be maintained as the excessive working capital interrupts the smooth flow of the business activity and curbs profitability. Also, there are a lot of circumstances where shortage of working capital has proved to be the major factor for business failure. Operating plans are out of control and the corporate objectives get blurred. The suppliers and the creditors give the firm an adverse credit rating and tighten up credit terms. The problem of managing working capital has got a separate entity as against different decision-making issues concerning current assets individually. Working capital has to be regarded as one of the conditioning factors in the long run operations of a firm, which is often inclined to treat it as an issue of short-run analysis and decision-making. The management of working capital hence involves constant vigilance to ensure that the right quantum is available on a continuing basis to support and promote the activities. Sound financial and statistical techniques, supported by judgment, should be used to predict the quantum of working capital needed at different time periods.
Modern Collections Pvt. Ltd DEFINITIONS OF WORKING CAPITAL Working capital has been in several ways as given below. Operating capital: - As the working capital is the capital required to operate the business and is the capital invested in the current assets, it is called as operating capital. Circulating capital: - Interchangingly used word for working is circulating capital. Gerestenberg gas suggested this item circulating capital as all the assets of business change from one form to another.
CONCEPTS OF WORKING CAPITAL Conceptually, working capital is either explained as: - Net Working Capital or Gross Working Capital. These concepts are not exclusive; rather they have equal significance from management viewpoint. Gross working capital refers to the firms investment in current assets. Net working capital refers to the difference between current assets and current liabilities. GROSS WORKING CAPITAL CONCEPT It is called as qualitative aspect of working capital and focuses attention on two aspects of current assets management: 1. Optimum investment in current asset It is conventional rule to maintain the level of current assets twice the level of current liabilities to constitute a margin or buffer for maturing obligation of a business. 2. Financing of current asset Another aspect of gross working capital points to the need of arranging funds to finance current assets. Alliance Business Academy
NET WORKING CAPITAL CONCEPT Net working capital can be positive or negative. A positive net working capital will arise when current assets exceed current liabilities. A negative net working capital mean excess current liabilities over current assets.net working capital being the difference between current assets and current liabilities, is qualitative concept and hence it: 1. Indicates the liquidity position of the firm: - A weak liquidity position poses a threat to solvency of the company and makes it unsafe and unsound. 2. Suggests the extent to which working capital needs may be financed by permanent sources of funds:- i.e., it covers the question of judicious mix of long term and short term funds for financing current assets. Thus, it may be emphasized that both gross and net concepts of working capital are equally important for the efficient management of working capital.
NEED FOR WORKING CAPITAL FINANCE The need for working capital finance is over-emphasized. Every business needs some amount of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in the sales and realization of cash. There are time gaps between purchase of raw materials & production, production & sales and realization of cash. Thus, working capital is needed for the following purposes. For the purpose of raw materials, components and spares. To pay wages and salaries. To incur day-to-day expenses and overhead costs such as fuel, power and office expenses, etc. To meet the selling costs as packing, advertising etc. To provide credit facilities to the customers. To maintain the inventories of raw materials, work in progress, stores And spares and finished stock.
OPERATING CYCLE Operating cycle indicates the length of time between firms paying for materials entering into stock and receiving the cash from sale of finished goods. In other words, the duration of the required time to complete the sequence of events is called operating cycle. The operating cycle may take the following sequence: 1. In a manufacturing concern Conversion of cash into raw materials. Conversion of raw materials into work in progress. Conversion of work in progress into finished goods. Conversion of finished goods into debtors.
The following figure shows the operating cycle of a manufacturing concern. Cash Raw materials
Accounts receivable
Work in progress
(or) Work in process
Finished goods
2. In a trading concern a) Cash into inventories b) Inventories into debtors and bills receivables c) Debtors and bills receivables into cash
Modern Collections Pvt. Ltd The following figure shows the operating cycle of a trading concern Account receivables
Cash
Inventories TYPES OF WORKING CAPITAL The working capital is classified in to two types. They are I. Permanent working capital II. Temporary working capital Permanent working capital: Permanent or fixed working capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. This investment if of a permanent type and as the size of the firm expands the requirement of working capital also increases. Temporary working capital: Temporary working capital is also called as the fluctuating or variable working capital, which varies according to the problem and sales. It is the capital required in addition to the working capital. Net working capital: It is the difference between current assets and liabilities. It is the excess of current assets over current liabilities. This concept enables a firm to determine the exact amount available at its disposal for operational requirements. Gross working capital: It refers to the total current assets of the business. It is also known as circulating capital, because the current assets are rotating in their nature.
Modern Collections Pvt. Ltd Negative working capital: When a current liability exceeds current assets, it is called as negative working capital. NEED FOR MAINTENANCE OF ADEQUATE WORKING CAPITAL An adequate or optimum working capital balance refers to the desired working capital where a firm will not have excess or shortage of working capital and indicates both profitability and liquidity for the firm. It is necessary to maintain an optimum cash balance, an optimum level of inventory and an optimum level of debtors and receivable. DANGERS OF EXCESS WORKING CAPITAL It results in unnecessary accumulation of inventory in the form of raw material or work in progress or finished goods, leading to a high cost of storage, space, Insurance, increased theft, deterioration in the quality of goods, etc. Also, it is an indication of defective credit policy and slack collection period. Excess cash in hand indicates idle cash and even though the liquidity position of the company is good, it lacks profitability. Excessive working capital makes the management complacent, which degenerates into managerial inefficiency. DANGERS OF INADEQUATE WORKING CAPITAL The production process will be obstructed if there is shortage of working capital. Fixed assets are not efficiently utilized if there is lot of working capital funds, which leads to deterioration in profits. The firm loses its reputation when it is not in a position to honor its short-term obligations. Ultimately it leads to the reduction in sale, as the firm cannot meet the demand of the customers.
Modern Collections Pvt. Ltd EFFECT 1) 2) 3) 4) OF INADEQUATE WORKING CAPITAL ON DECISION
MAKING:Stagnates the growth of the firm, Threatens the solvency of the firm, Creates difficulties in implementing the operating plans, Renders the firm unable to avail the attractive credit opportunities
EFFECTS OF EXCESS WORKING CAPITAL ON DECISION MAKING Impairs firms profitability through idle cash and Makes dividend policy liberal, Creates difficulties to cope with the future, on the failure of the estimated speculative profits. 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. 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.
Modern Collections Pvt. Ltd 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. FACTORS INFLUENCING WORKING CAPITAL Nature of business The working capital requirement of a firm basically depends upon the nature of its business public utility undertakings like electricity, water supply and railways need very little working capital because they offer cash sales only and supply services, not products and such no funds are tied up in inventories and receivables. The manufacturing undertakings also require sizable working capital along with fixed investments because they have also to build up inventories. Size of business The working capital requirements of a concern are directly influenced by the size of its business, which may be measured in terms of scale of operations. Greater the size of business unit, generally, larger will be the requirements of working capital. However in some cases, even a smaller concern may need more working due to high overhead charges, inefficient use of available resources and other economic disadvantages of small size. Production capacity In certain industries the demand is subject to wide fluctuations due to seasonal variations. The requirements of working capital in such cases depend on the production policy. Manufacturing process In manufacturing business the requirements of working capital increase in direct proportion to length of manufacturing process. Longer the process period of manufacture, larger is the amount of working capital required. Alliance Business Academy 10
Modern Collections Pvt. Ltd Seasonal variations In certain industries, raw material is not available through out the year. They have to buy raw materials in bulk during the season to ensure an uninterrupted flow and process them during the entire year. A huge amount is, thus, blocked in the form of material inventories during such season, which gives rise to more working capital requirements. Working capital cycle In a manufacture concern, the working capital starts with the purchase of raw materials and ends with the realization of cash from the sale of finished products. The speed with which the working capital completes one cycle determines the requirements of working capital. Longer the period of cycle, larger is the requirement of working capital. Rate of stock turn over There is a high degree of inverse correlation ship between the quantum of working capital and the velocity or speed with which the sales are affected. A firm having as high rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover. Credit policy The credit policy of a concern in its dealings with debtors and creditors influences considerably the requirements of working capital. A concern that purchases its requirements on credit sells its products/services on cash requires lesser amount of working capital. Business cycle Business cycle refers to alternate expansion and contraction in general business actively. In a period of boom i.e., when the business is prosperous, there is a need for larger amount of working capital due to increase in sales, rise in prices, optimistic expansion of business, etc. on the contrary, in the times of depression i.e., when there is a down swing of the cycle, the business contracts, sales decline, difficulties are faced in collections from debtors and firms may have a large amount of working capital lying idle. Rate of growth of business The working capital requirements of a concern increase with the growth and expansion of its business activities. Alliance Business Academy 11
Modern Collections Pvt. Ltd Earning capacity and dividend policy Some firms have more earning capacity than others due to quality of their products, monopoly conditions, etc. such firms with high earning capacity may generate high cash profits from operations and contribute to their working capital. The dividend policy of a concern also influences the requirement of its working capital. Price level changes Changes in the price level also affect the working capital requirements. Generally, the rising prices will require the firm to maintain larger amount of working capital, as more funds will be required to maintain the same current assets. The effect of rising prices will be different for different firms. Some firms may be affected much while some may not be affected at all by the rise in prices. Other factors Certain other factors such as operating efficiency, management ability, irregularities of supply, import policy, asset structure, importance of labour, banking facilities, etc., also influence the requirements of working capital. SOURCES OF WORKING CAPITAL The various of working capital for the financing of working capital are as follows: Sources of working capital
Permanent or fixed 1) Shares 2) 3) 4) Public deposits Ploughing back of profits Loans from financial institutions
Temporary or variable 1) Commercial banks 2) Indigenous bank 3) Trade credits 4) Installment credit
5) Accounts receivables
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2.1 STATEMENT OF PROBLEM

Working capital is an important requirement for any business, without which no business can survive. Every activity of the business is related to the availability of the working capital. That is, arranging short-term financing, negotiating favorable credit terms, controlling the movement of cash, administering the account receivable and monitoring the investment in inventories. All this consumes a great deal of time of finance managers. Also the obstacles inhabiting the effective working capital management throws open challenges to the finance managers in managing working capital. Initially American companies were the core customers through which the garment business of Modern Collections Pvt. Ltd.was carried on, but in the year 2000, economy of America came down, and a recession in the garment industry there, reduced the buying power of American customers, thereby reducing the demand for garments. Due to which the sales of Modern Collections Pvt. Ltd.came down which affected the profitability of the company directly. As profitability effects the working capital management of a firm, it created an opportunity to prepare a case study at Modern Collections Pvt. Ltd.
2.2 OBJECTIVES OF THE STUDY

The study was conducted mainly to understand and analyze the issue of working capital management, being practically employed in Modern Collections Pvt. Ltd. To understand the practical difficulties faced by managing the working capital. To analyze the various external and internal factors effecting working capital management in Modern Collections Pvt. Ltd. To understand and learn the various policies framed by Modern Collections Pvt. Ltd.for effective management of working capital.
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2.3 SCOPE OF THE STUDY

The study of working capital management is limited to the specific company, Modern Collections Pvt. Ltd. The study period covered in this case study is for 4 financial years i.e., from 20002001, 2001-2002, 2002-2003, 2003-2004.
2.4 REVIEW OF LITERATURE

BOOKS Financial management Principles of corporate finance Mc Graw Hill, New York JOURNALS & MAGAZINES Annual reports of Modern Collections Pvt. Ltd.. Business Standard, By. S.K.R. Paul By. Brealy & Myers
WEB SITE www.moderncollectionsindia.com
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2.5 OPERATIONAL DEFINITIONS OF CONCEPTS

Some of the concepts used in different senses from time to time in the literature of financial management are discussed below in order to make the study clear and meaningful. WORKING CAPITAL It is the fund, which is used to finance its day to day activities of business, and it has to be employed in short term operations. There are two concepts of working capitalgross concept and net concept. WORKING CAPITAL MANAGEMENT It means administration of current assets and current liabilities. Objects in managing working capital profitability and liquidity PROFITABILITY It is the ability of the firm to meet the claims of suppliers of short-term capital for building up of current assets and also means short-term debt repaying capacity of enterprise, in a limited sense. OPERATING CYCLE It is a period involved from the time cash is invested in inventory till the time cash is recovered from sales of goods.
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2.6 RESEARCH METHODOLOGY

Research is organizations inquiry designed and carried out to provide information to solve the problem. In fact is the scientific investigation of a certain problem. Research is the process of systematically obtaining accurate answer to significant and pertinent question by the use of scientific method in gathering and interpreting information. Research design refer to the system consisting of enunciating two problems. Collecting the fact or Data, analyzing the fact and reaching certain conclusion. There are various type of studies in diagnostic and analytical method The different step in the Research design following here are: Collection of information to understand the competition in this line of activity Interaction with the finance department to understand the means of cash management Collection of companys details. Identification means enhancing of cash management for the company Finally, forwarding certain recommendation and conclusion to the company.
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2.7 DATA COLLECTION TOOLS

Data is collection of necessary detail to gain further information. These type of data can be classified into : Primary Data: Primary Data can be called as collection of the first time and which may not have been collected from others Questioning the executives of the company. Detail discussions were also held with officials of the company to understand the problems and requirements. Secondary Data: Secondary data was collected mainly from various sources which includes financial journals, other published textbooks and various web sites. And comparative balance sheets and Ratio analysis. Interpretations of the result as been done on graphical representation through bar graphs.
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2.8 OVERVIEW OF THE REPORT

This project is divided into 5 chapters scheme and consists of the following. Chapter 1. Introduction This in turn is divided into general introduction and theoretical background of the study. Chapter 2. Design of the study This chapter deals with the research method used in the study. It also throws light on the objectives, scope and limitations of the study. It includes review of literatures also. Chapter 3. Profile This chapter includes profile of the company, its origin, growth and the present status of the organization. Chapter 4. Analysis This is mainly analytical in nature and here; primary data are analyzed as per the stated objectives. Results are shown both narration and graphical form for each parameter separately. Chapter 5. Conclusions / Suggestions This chapter contains executive summary of the dissertations, valid findings of the study, conclusions and suggestions made for the dissertation. At the end of the report, Bibliography and all annexure is attached.
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2.9 LIMITATIONS OF STUDY

This report is based on the annual reports, which are provided by the company that cannot be relied upon. The collection of data for analysis is restricted to Modern Collections Pvt. Ltd. only and Time was major limiting factor to the study.
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3.1 PROFILE OF MODERN COLLECTIONS PVT. LTD.ORIGIN AND DEVELOPMENT

In the achievement of the strategic objectives of a self-reliant and dynamic economy, the government considers a substantial expansion in export earnings to be of great importance. In order to achieve national objectives, the government has adopted new and scientific approach to its export policy. Depending upon the tax paid by the company government calculates and provides certain incentives to all the Indian exporters. Modern Collections Pvt. Ltd. is one among such exporters. Modern Collections is a private limited company, which is involved in manufacturing and exporting of finished garments. Mr. Ramesh Kothari established this company on 12th February 1996. At the initial stages his father Mr.Rupesh Kothari and uncle Mr. Vikram Ranka were the promoters of liberty brand of garments in Mumbai, but there business did not reach a higher level due to which they had to start a separate export business in Mumbai. By 1990 Ramesh Kothari took over the export business. He was then forced to shift the business to Bangalore due to labour unrest. After this Ramesh strived hard and has gained success in bringing his export business to a top most level which was commenced in most critical circumstances. Modern Collections Pvt. Ltd. has its office in Jayanagar and its manufacturing unit, located in BTM Layout& Peenya. Modern Collections Pvt. Ltd. was first started with a rental premises but today it has its own premises where in a capacity of 100 machines have increased to 450 machines. Earlier there was no washing plant and today there is a washing plant along with the latest technology production plant. In the factory there are about 1100 laborers working with subject to a regular bonus and other benefits. It is very tough to start a company from the scratch in spite of facing hurdles, but still Ramesh Kothari managed to do so with a success and as a result Modern Collections Pvt. Ltd. is one of the major exporters to companies such as: GAP in US DECABHLON in FRANCE MATALON in UK etc.
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Modern Collections Pvt. Ltd The organization also supplies and designs materials for various Indian brands such as: Allen Solly Van Heusen Peter England Scullers Lee Pepe Proline Levis The above materials are received from major suppliers like: Arvind Mills Pvt Ltd. Ahmedabad Krishna Mills Pvt Ltd Bangalore Premier Mills Pvt Ltd Bangalore
COMPETITION As there are various exporters of garments in Bangalore, Modern Collections Pvt. Ltd. has to go through a cutthroat competition and make sure that it overcomes this competition with ease. Some of the major competitors of Modern Collections Pvt. Ltd. are: ZENITH EXPORTS MNS EXPORT ORIVATE LIMIITED LT KARLE EXPORTS LIMITED SAI LAKSHMI INDUSTRIES etc.
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Modern Collections Pvt. Ltd In order to overcome this competition the company has adopted the following techniques: Charging reasonable price as per the range of the product. Maintaining the quality of the product and making sure that it is as per the demand of the customers. delay. Providing discounts to the customers. Retaining the customers Timely delivery of the product to the overseas buyer without any
RANGE OF PRODUCTS SHIRTS TROUSERS T-shirts
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3.2 ORGANISATION STRUCTURE

Organization structure is basic framework with in which the managers decisionmaking behaviour takes place. The structure gives an established pattern of relationship among the various components of an organization. It is a vital tool for providing information about organizational relationships. Modern Collections Pvt. Ltd. follows top to bottom chart, which is as follows
ORGANIZATION CHART
Mr. Ramesh Kothari (Managing Director)
Mr. Chandrashekhar Cutting Department Batch Department
(Production Mgr)
(Chief Executive Officer)
Mr. Mahesh Kothari
Mr. Rajesh Kothari Gabrial (Finance Mgr) (General Mgr)
Mr. L Rughuraj (Marktg Mgr)
Washing Department Finishing Department Q C Department Accounts Dept Marketing Dept
Personnel Dept.
Maintenance Dept Shipping Dept
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3.3 FUNCTIONAL DEPARTMENTS OF THE ORGANISATION

1. MARKETING The marketing department takes care of the market development activities, network expansions, sales and collections, and marketing accounts. 2. FINANCE AND ACCOUNTS Finance and accounts department deals with corporate finance, account matters related to employees, company infrastructure, investments and assets. 3. MATERIALS The materials department arranges materials related to the product from various suppliers by negotiating prices and ensuring quality. 4. PRODUCTION This department takes care of the production and related activities to meet the target. 5. QUALITY Quality department ensure material quality to deliver a finished goods for supply. 6. R & D R & D will carry out research on new designs and carry out appropriate developments on the product before certifying satisfactory performance to the management.
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4.1 ANALYSIS OF WORKING CAPITAL MANAGEMENT AND RATIOS OF MODERN COLLECTIONS PVT. LTD.
Working capital is looked as a driving seat of finance manager in Modern Collections Pvt. Ltd. As it involves manufacturing activity it requires efficient amount of working capital to meet its day-to-day needs. The long-term working capital needs are for building, plant, furniture, etc., and the short-term needs are cash, inventories, securities, etc. The balances sheet shows the financial position of a company at a given point of time. It provides a snapshot and is regarded as a static picture. The income statement or the profit and loss statement reflects the performance of a company over a period of time. The significant accounting policies followed by Modern Collections Pvt. Ltd. are as follows; SIGNIFICANT ACCOUNTING POLICIES Basis of preparing financial statements The financial statements of Modern Collections Pvt. Ltd. are prepared under the historical cost convention on an accrual basis. Fixed assets Fixed assets are stated at their original cost of acquisition and subsequent improvement thereto, including taxes, duties, freight and other incidental expenses related to acquisition, construction and installation of asset(s) concerned. Depreciation Depreciation on fixed assets is provided at rates prescribed on written down value basis in schedule XIV of the companies act of 1956 on a prorata basis from the date of acquisition of the asset. Inventories Inventories are valued at lower of cost or net realizable value. Cost is determined on first in first out basis and includes an appropriate portion of production and factory related overheads
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Long-term investments Long-term investments are accounted at cost, and no provision has been made for dimunition in the value of the same. Foreign exchange transactions Foreign exchange transactions are dealt with in accordance with the accounting standards on accounting for effects of changes in foreign exchange rates (AS11) issued by institute of chartered accountant of India. Gratuity Provision of gratuity is made on an estimated basis as per the provision of the payment of gratuity act 1972. Research and development Research and development expenditure is charged to profit and loss account in the year of incurrence. Fixed assets acquired for the purpose of research and developments are capitalized. Share capital Out of the equity shares issued, 15000 shares of Rs.100 each were allotted as fully paid up. The current assets and current liabilities of Modern Collections Pvt. Ltd. are given below. CURRENT ASSETS INVENTORIES Raw materials and packing materials. Work in progress. Finished goods. Finished goods in transit. Packing material. Scrap. Alliance Business Academy 26
SUNDRY DEBTORS (unsecured considered good) Debts outstanding for a period exceeding 6 months Others CASH AND BALANCES Current account with scheduled banks. Current account with deutsche bank. Margin deposit account. Cash in hand. LOANS AND ADVANCES (unsecured considered good) Advances receivable in cash or kind. Deposits. CURRENT LIABILITIES AND PROVISIONS CURRENT LIABILITIES Sundry creditors. Advance from customers. Liability for expenses. PROVISIONS For taxation (net of Advance income tax). For gratuity. For leave encashment. By studying the working capital in Modern Collections Pvt. Ltd., one can know the factors influencing the growth prospects of the company. Let us understand gross and net working capital changes of Modern Collections Pvt. Ltd.over the years.
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SOURCES OF WORKING CAPITAL TO MODERN COLLECTIONS PVT. LTD. Shares: Issues of shares is the most important source for raising the permanent or long-term capital. Modern Collections Pvt. Ltd. has 15000 equity shares of RS 100, each which are fully paid up. Loans: Financial institutions such as commercial banks, life insurance Corporation, industrial finance corporation of India, state financial corporation etc provides long term, short term, and medium term loans to the companies. 1. Secured loans: Modern Collections Pvt. Ltd. gets secured loans by borrowing money from banks. Borrowings from banks are generally secured by the following; Hypothecation of stocks, sundry debtors and machineries. Personal guarantee of all the directors. Mortgage of title deeds in respect of land and building belonging to an associate firm. 2. Unsecured loans: Modern Collections Pvt. Ltd. gets unsecured loans from the directors of the company, from shareholders and from Bangalore fashion apparels private limited. Directors who grant unsecured loans are as follows: Sushil Kothari Dilip Kothari Niraj Kothari Manoj Kothari Suraj Ranka is the shareholder who grants unsecured Loans to Modern Collections Pvt. Ltd. Companies that grant loans are: Bangalore fashion apparels private limited and Karnataka financial service limited.
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Modern Collections Pvt. Ltd TABLE - 01 TABLE SHOWING GROSS WORKING CAPITAL CHANGE OF MODERN COLLECTIONS PVT. LTD. Particulars Current Assets Inventories Sundry Debtors Cash &Balance Loans advances Gross Working Capital 18450170 5239150 2863563 9264595 35817478 22444998 11818945 1034108 10509307 45807358 17500270 4174430 1952882 9301065 32928647 29520878 5947413 2011974 8741638 46221903 2000-2001 2001-2002 2002-2003 2003-2004
INFERENCE The gross working capital has fluctuated with the growth of the business over a series of years. There is an increase in the current assets of the company.
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Modern Collections Pvt. Ltd TABLE 02 TABLE SHOWING NET WORKING CAPITAL CHANGE OF MODERN COLLECTIONS PVT. LTD. Particulars Gross Working Capital Current Liabilities Net Working Capital 2000-2001 35817478 10004325 25813153 2001-2002 45807358 21128392 24678966 2002-2003 32928647 11339964 21588683 2003-2004 46221903 25537988 20683915
INFERENCE The net working capital table indicates that excess current asset is available at the disposal of the company for the operational requirements. OPERATING CYCLE OF MODERN COLLECTIONS PVT. LTD. Operating cycle is one of the important determinants of working capital requirements. In most of the companies, cash inflows and cash outflows are not synchronized. Therefore, Modern Collections Pvt. Ltd. holds the stock of finished goods, to meet the demand of the customers and also make an adequate investment in inventories and cash balance for a smooth and uninterrupted production and sales, while book debts are created since the goods are sold on credit basis for marketing sand competitive reasons. The operating cycle of Modern Collections Pvt. Ltd , can be divided into two broad phases, which are as follows: Inventory conversion period: - It is requirement of time to produce and sell the product and includes conversion period of raw material, work-in-progress and finished goods. Book debts conversion period: - It is the time required to collect sales receipt from customers.
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Modern Collections Pvt. Ltd TABLE - 03 TABLE SHOWING STATEMENT OF COST OF MODERN COLLECTIONS PVT. LTD. Sl no 01 Particulars Opening stock 2000-2001 8175307 43303740 7481660 43997387 139625 239433 44376445 12453261 69952.17 3153437.82 439861.53 60492958 63599110 5577575 61275294 9714821 690939.81 127467.44 36553.61 35639.83 500193.94 72701667 4694511 5057710 72338468 2001-2002 7481660 24383562 8907507 22957715 49369 309140 23316224 7553167 91593.97 3707471.55 474952.98 35143410 5577575 5054229 35666756 6683649 888069.77 163329.35 49102.85 540532.51 584159.53 44575599 5057710 8205812 41427497 2002-2003 8907507 30274949 5350148 33832308 5658 387719 34225686 8941795 112154 4280630 510224 48070489 5054229 6535267 46589451 7154488 1006348 184063 58403 676995 643786 56313534 8205812 5047149 59472197 2003-2004 33832308 65882129 10373012 60859265 ------------731840 61591105 8451148 131686 5034385 538760 75747084 6535267 7057849 75224502 7926537 1077315 203059 65295 778128 700437 85975273 5047149 11137287 79885135
02 Purchase of raw materials Closing 03 raw material inventory 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Raw material consumed (1+2-3) Exgratia Freight inwards PRIME COST (4+5+6) Factory Overheads Depreciation on Buildings Depreciation on Machinery Depreciation on Electrical (7+8+9+10+11) Opening work in progress Closing work in progress WORKS COST (12+13+14) Office Overheads Depreciation on Computer Depreciation on Office equipments Depreciation on motorcycle Depreciation on Motorcar Depreciation on Furniture & Fittings COST OF PRODUCTION 22 23 24 25 (15+16+17+18+19+20+21) Opening stock of finished goods Closing stock of finished goods COST OF GOODS SOLD (22+23-24) Alliance Business Academy
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Modern Collections Pvt. Ltd 26 27 28 Selling Overheads Labour Charges COST OF SALES (25+26+27) Notes; Factory overheads include; wages, production incentives, EL encashment, repairs and maintenance of machinery and electrical, power and electricity, repairs and maintenance of dg set, fabric and processing charges, repairs and maintenance building. Office overheads include; audit fees, bonus, conveyance, council charges, entertainment, ESI contribution, gratuity, PF contribution, insurance, membership and subscription, printing and stationery, professional fees, rates and taxes, rent, salaries, staff welfare, water charges, courier charges. Selling overheads include; claims on export sales, commission, traveling expenses, vehicle maintenance, freight outwards, sales promotion, service charges, donations, bad debts written off. 4414936 11718355 88471759 4038567 8094779 53560843 5771556 2160423 67404176 3566365 1621333 85072833
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Modern Collections Pvt. Ltd TABLE - 04 TABLE SHOWING SALES AND DEBTORS OF MODERN COLLECTIONS PVT. LTD. Particulars Sales Opening debtors Closing debtors Opening creditors Closing creditors INFERENCE From the above table, it is evident that the sales of the Modern Collections have increased over a period of time and this increases the size and components of working capital. There is also an increase in the debtors, which is apparent from the table, which implies that the company is running short of cash or there is inadequate cash in the hands of the company. To understand the operating cycle concept better and to analyze how exactly it affects working capital, let us study the table showing the operating cycle calculations. 2000-2001 82298796 16929055 5239150 11912242 4776658 2001-2002 48397521 5239150 11818945 4776658 12827919 2002-2003 62649553 11818945 4174430 1287919 7452623 2003-2004 90124131 4174430 5947413 7452623 20032834
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Modern Collections Pvt. Ltd TABLE - 05 TABLE SHOWING OPERATING CYCLE CALCULATION OF MODERN COLLECTIONS PVT. LTD. SL NO 01 A B C D 02 A B C D 03 A B C D 04 A B C D 05 A B C D PARTICULARS Raw material 2000-2001 2001-2002 2002-2003 2003-2004
consumption period Raw material consumption 43997387 Raw material consumption 120540.78 per day Raw material inventory Work-in-progress conversion period Cost of production Cost of production per day Work-in-progress 72701667 199182.64 5577575 7481660 62 Days
22957715 62897.84 8907507 142 Days
33832308 92691.25 5350148 58 Days
60859265 166737.71 10373012 62 Days
44575599 122124.92 5054229 41 Days
55845068 153000.18 6535267 43 Days
85149868 233287.30 7057849 30 Days
inventory Work-in-progress holding 28 Days days Finished goods conversion period Cost of goods sold Cost of goods sold per day Finished goods inventory Finished goods inventory holding days Collection period Credit sales Sales per day Book debts Book debts outstanding days Payment deferral period Credit purchases Purchases per day Creditors Credit holding days 72338468 198187.58 5057710 26 Days
41427497 113499.99 8205812 72 Days
59003731 161654.05 5047149 31 Days
79059730 216602 11137287 51 Days
82298796 225476.15 5239150 23 Days
48397521 132595.94 11818945 89 Days
62649553 171642.61 4174430 24 Days
90124131 246915.42 5947413 24 Days
44491045 121893.27 4776658 39 Days
25501189 69866.27 12827919 184 Days
32984848 90369.44 7452623 82 Days
69718267 191008.95 20032834 105 Days
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Modern Collections Pvt. Ltd Formulae used to get the proper data in the above table are as follows: 1. Raw material Inventory = Raw material ------------------------------------- * 365 Holding days Raw material consumption
2.
Work-in-progress Inventory
work-in-progress = -------------------------------------- * 365 Holding days Cost of production
3.
Finished Goods Inventory
Finished Goods = -------------------------------------- * 365 Holding days Cost of goods sold
4.
Book debts Outstanding =
Book Debts -------------------------------------- * 365 Credit Sales Days
5.
Creditors Holding
Creditors = --------------------------------------- * 365 Days Credit Purchases
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Modern Collections Pvt. Ltd ANALYSIS OF OPERATING CYCLE CALCULATIONS From the table number 30 the raw material inventory level in the year 2000-2002 to 8907507 when compared to 2000-2001 which stood as 7481660, indicating that the company has good production and does not have any uncertainty in supply of raw materials, but in the year 2003-2004 raw material inventory has increased to 10373012 when compared to year 2002-2003 which fallen down to 5350148 when compared to its previous year which is satisfactory. There has been an increase in the level of work in progress inventory and hence it is a satisfactory level, also Modern Collections has maintained an increasing level of finished goods inventory to meet the demand of the customers. In the case of collection period the book debts have increased by 2.25 times more than in the year 2000-2001, and by 1.42 times in the year 2002-2003. This indicates that Modern Collection has been extending its credit facilities to the customers in order to avoid competition. The companys creditors are increased to 20032834 in 2003-2004 and payment deferral period as accordingly increased in order to decelerate the cash outflows. In the view of the companys financial position in paying more interest Modern Collections has to reduce its creditors, and it has done the same in the year 2003-2004
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Modern Collections Pvt. Ltd TABLE 06 TABLE SHOWING SUMMARY OF OPERATING CYCLE CALCULATION OF MODERN COLLECTIONS PVT. LTD. NO 01 A B C 02 03 04 05 PARTICULARS Inventory conversion period Raw material Work-in-progress Finished goods Receivable conversion period Gross Operating Cycle (1+2) Payment Deferral period Net Operating Cycle (3-4) 2000-2001 62 Days 28 Days 26 Days 23 Days 139 Days 39 Days 100 Days 2001-2002 2002-2003 142 Days 41 Days 72 Days 89 Days 344 Days 184 Days 160 Days 58 Days 43 Days 31 Days 24 Days 156 Days 82 Days 74 Days 2003-2004 62 Days 30 Days 51 Days 24 Days 167 Days 105 Days 62 Days
INFERENCE
According to the above table the operating cycle takes 62 days to convert raw materials into cash. The net operating cycle has increased from 100-160 days in the year 2001-2002 and has decreased to 72 days in the year 2002-2003. The following reasons can be highlighted about these fluctuations.
In the year 2002-2003 raw material holding days have increased by 4 days this is because raw material consumption has increased to 60859265 and at the same time the level of raw material inventory has increased to 10373012.
One reason would be the policy of company, to reduce the inventory holding to bring the cost down, but there is an increase in the work in progress holding days when compared to that of the year 2000-2001, due to fluctuations of demand for the companys product in the market. Alliance Business Academy 38
Collection period is reduced so as to increase the cash inflows, where as the payment deferral period is increased to 105 days in the year 2003-2004 when compared to 39 days in the year 2000-2001, and 82 days in 2002-2003. This indicates that the company has to take necessary steps to control disbursements for maximum availability of cash.
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Modern Collections Pvt. Ltd RATIO ANALYSIS 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. CLASSIFICATION OF ACCOUNTING RATIOS The use of ratio analysis is not confined to financial manager only. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. In view of various users of ratio which can be calculated from the information given in the financial statement.
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Modern Collections Pvt. Ltd Ratios
Traditional classification
Functional classification
Significance ratios
1. 2. 3.
Balance sheet ratios Revenue statement ratios Mixed ratios
1. 2. 3. 4.
Liquidity ratios Leverage ratios Activity ratios Probability ratios
1. 2.
Primary ratios Secondary ratios
CLASSIFICATION ACCORDING TO TESTS
Liquidity ratios
Long-term solvency ratios
Activity ratios
Probability ratios
1. 2. 3.
Current ratio Acid test ratio Absolute
1. 2. 3. 4. 5.
Debt equity ratio Proprietory ratio Capital gearing ratio Fixed assets to net worth Current assets to net worth
1. 2. 3. 4. 5. 6. 7. 8. 9.
Stock turn over ratio Debtors turnover ratio Debt-collection period Creditors turnover ratio Debt-payment period Fixed assets turnover ratio Total assets turnover ratio Working capital turnover ratio proprietory fund turnover ratio
1. 2. 3. 4. 5. 6.
Gross profit ratio Net profit ratio Operating profit ratio Return on capital employed Return on total resources Return on equity
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Modern Collections Pvt. Ltd LIQUIDITY RATIOS CURRENT RATIO Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as working capital ratio. It is calculated by dividing the total current assets by total current liabilities. Current Assets Current ratio = ------------------------Current Liabilities Current assets include cash in hand, cash at bank, bills receivable, sundry debtors, inventory, prepaid expenses, outstanding incomes temporary investments and advances. Current liabilities include bills payable, sundry creditors, bank overdraft, unclaimed dividend, outstanding expenses, provision for taxation and proposed dividend etc. TABLE 01 TABLE SHOWING CURRENT RATIO Year 2000-2001 2001-2002 2002-2003 2003-2004 Current Assets 25813153 24678965 21588683 20683915 Current Liabilities 10004325 21128392 11339964 25537988 Current Ratio 2.58 1.16 1.90 0.80
Source: Secondary Data INFERENCE The current ratio decreased to 1.16 in the year 2001-2002 , when compared to the year 2000-2001, and again it is increased to 1.90 in 2002-2003, later it is again fallen down to 0.80. This shows that there is no improvement in the shortterm solvency of the company for the year 2003-2004. Alliance Business Academy 42
GRAPH 01 GRAPH SHOWING CURRENT RATIO
3 2.5 Current Ratio 2 1.5 1 0.5 0
2.58 1.9
1.16 0.8
2 Year
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ACID TEST RATIO Acid test ratio may be defined as the relationship between liquid assets and liquid liabilities. It is also known as liquid ratio or quick ratio. Liquid assets include all current assets except inventory and prepaid expenses. Liquid liabilities include all current liabilities except bank overdraft. Liquid Assets Acid test ratio = ---------------------------Liquid liabilities TABLE 02 SHOWING THE LIQUID RATIO Year 2000-2001 2001-2002 2002-2003 2003-2004 Source: Secondary Data INFERENCE The liquid ratio is decreased to 1.10 in the year 2001-2002 when compared to the previous year 2000-2001, and again it is increased to 1.36 in the year 2002-2003. This further confirms that there are fluctuations in the short-term liquidity of the company. Liquid assets 17367308 23362359 15428377 16701025 Liquid liabilities 10004325 21128392 11339964 25537988 Liquid ratio 1.73 1.10 1.36 0.65
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GRAPH 02 GRAPH SHOWING LIQUID RATIO
1.73 1.8 1.6 1.4 Liquid ratio 1.2 1 0.8 0.6 0.4 0.2 0 2000-2001 2001-2002 2002-2003 2003-2004 0.65 1.1 1.36
Year
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ABSOLUTE LIQUID RATI0 Absolute liquid ratio may be defined as the relationship between Absolute liquid assets and liquid liabilities. Absolute liquid assets include cash in hand, cash at bank and marketable securities. The absolute liquid ratio can be calculated by dividing absolute liquid assets by liquid liabilities. Thus, Absolute liquid assets Absolute Liquid Ratio = --------------------------------Liquid liabilities TABLE 03 SHOWING ABSOLUTE LIQUID RATIO Year 2000-2001 2001-2002 2002-2003 2003-2004 Liquid Assets 22720507 23493785 18659035 18302726 Liquid Liabilities 10004325 21128392 11339964 25537988 Absolute Liquid Ratio 2.27 1.11 1.64 0.71
Source: Secondary Data
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Modern Collections Pvt. Ltd INFERENCE The absolute liquid ratio is increased to 1.64 when compared to 1.11 in the year 20012002, but again it shows a fall in the year 2003-2004 which stands at 0.71
GRAPH 03 GRAPH SHOWING ABSOLUTE LIQUID RATIO
2.5 Absolute Liquid Ratio 2 1.5 1 0.5 0
2.27 1.64 1.11 0.71
2000-2001
2001-2002
2002-2003
2003-2004
Year
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LONG TERM SOLVENCY RATIO DEBT-EQUITY RATIO Debt-Equity Ratio, also known as External-Internal Equity ratio is calculated to measure the relative claims of outsiders and owners against the firms assets. The Debt-Equity ratio can be calculated by dividing the total Debts by equity. Thus, Total debts Debt-Equity ratio = ---------------------Equity A total debt equals all long term debts plus current liabilities and provisions and equity includes share capital, reserves and surplus minus capital losses TABLE 04 TABLE SHOWING DEBT-EQUITY RATIO Year 2000-2001 2001-2002 2002-2003 2003-2004 Total debt 62072358 74357442 55024148 70288556 Equity 28620421 28416205 28057713 30391887 Debt-Equity Ratio 2.16 2.61 1.96 2.31
Source: Secondary Data INFERENCE Debt equity ratio has increased to 2.61 in 2002-2003 when compared to 2000-2001 and again it is increased to 2.31 in the year 2002-2003 though it was decreased to 1.96 in the year 2001-2002. 7This shows that there is improvement in the long-term solvency position of the company.
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GRAPH- 04 GRAPH SHOWING DEBT-EQUITY RATIO
Debt Equity Ratio
3 2.5 2 1.5 1 0.5 0 2.16
2.61 1.96
2.31
20002001
20012002
20022003
20032004
Year
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PROPRIETORY RATIO The ratio that expresses the relationship between proprietors fund and total assets is called Proprietory ratio. This ratio can be calculated as under. Equity Proprietory Ratio = ---------------------Total Asset TABLE 05 TABLE SHOWING PROPRIETORY RATIO Year 2000-2001 2001-2002 2002-2003 2003-2004 Equity 28620421 28416205 28057713 30391887 Total Assets 52068033 53229050 43684184 44750568 Proprietory Ratio 0.54 0.53 0.64 0.67
Source: Secondary Data INFERENCE This ratio is decreased in the year 2001-2002 to 0.53 when compared to 2000-2001 and further increased to 0.67 in the year 2003-2004 when compared to 2000-2001. this shows that there is an increase in the long-term solvency of the business.
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GRAPH - 05 TABLE SHOWING PROPRIETORY RATIO
0.7 Propritetory Ratio 0.6 0.5 0.4 0.3 0.2 0.1 0
0.64 0.54 0.53
0.67
20002001
20012002
20022003
20032004
Year
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FIXED ASSETS TO NETWORTH RATIO The ratio, which establishes the relationship between fixed assets and shareholders funds, is called fixed assets to Net worth ratio. This ratio can be calculated as follows Fixed Assets (After depreciation) Fixed assets to Net worth Ratio = ------------------------------------Shareholders funds TABLE 06 TABLE SHOWING FIXED ASSETS TO NETWORTH RATIO Year 2000-2001 2001-2002 2002-2003 2003-2004 Fixed Asset 6335879 6079307 5378748 7775901 Net worth 28620421 28416205 28057713 30391887 Fixed assets to Net worth Ratio 0.22 0.21 0.19 0.25
Source: Secondary Data INFERENCE The ratio of fixed assets to net worth ratio is found to be fluctuating in the year 20012002 and 2002-2003. But it is slightly increased in the year 2003-2004 to 0.25.
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GRAPH 06 GRAPH SHOWING FIXED ASSETS TO NETWORTH RATIO
0.25
Fixed Assets to Net Worth Ratio
0.22
0.21
0.25 0.19
0.2 0.15 0.1 0.05 0
2000-2001 2001-2002 2002-2003 2003-2004

Year
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Modern Collections Pvt. Ltd RATIO OF CURRENT ASSETS TO SHARREHOLDERS FUND The ratio which establishes the relationship between current assets and shareholders funds is called ratio of current assets to shareholders fund ratio. The ratio can be calculated as follows. Current Assets Current assets to Net worth ratio = -------------------------Shareholders funds TABLE 07 TABLE SHOWING RATIO OF CURRENT ASSETS TO SHAREHOLDERS FUND RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Current Assets 25813153 24678965 21588683 20683915
Net worth 28620421 28416205 28057713 30391887
Current Assets to Net worth Ratio 0.90 0.86 0.76 0.68
Source: Secondary Data INFERENCE The above table shows that the current assets to net worth ratio in the year 2001-2002 has come down to 0.86 when compared to the year 2000-2001 and the current asset ratio is on a declining trend in subsequent years.
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GRAPH 07 GRAPH SHOWING RATIO OF CURRENT ASSETS TO SHAREHOLDERS FUND RATIO
1
Current Assets to Net Worth Ratio
0.9
0.86
0.76
0.8 0.6 0.4 0.2 0
0.68
2000-2001 2001-2002 2002-2003 2003-2004

Year
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CAPITAL GEARING RATIO Capital gearing ratio is a ratio, which expresses relationship between fixed interest and dividend bearing securities and equity share capital. This ratio is calculated as follows. Fixed interest and dividend bearing Securities Capital Gearing Ratio = -------------------------------------------Equity share capital TABLE 08 TABLE SHOWING CAPITAL GEARING RATIO Fixed interest and Year 2000-2001 2001-2002 2002-2003 2003-2004 Source: Secondary Data INFERENCE Capital gearing ratio is constant in the year 2000-2001 and 2003-2004 but it has decreased in 2001-2002 and , to 1.01 and 1.03 respectively. dividend bearing securities 1627673 1528950 1548490 1621805 Equity share capital 1500000 1500000 1500000 1500000 Capital gearing ratio 1.08 1.01 1.03 1.08
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GRAPH - 08 GRAPH SHOWING CAPITAL GEARING RATIO
1.08 1.06 Capital Gearing Ratio 1.04
1.08
1.08
1.03 1.01
1.02 1 0.98 0.96 2000-2001 2001-2002 Year 2002-2003 2003-2004
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ACTIVITY RATIOS 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. Sales Stock Turnover Ratio = ---------------Inventory TABLE 09 TABLE SHOWING INVENTORY TURNOVER RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Sales 82298796 483975 21 62649553 90124231
Inventory 18450170 22444998 17500270 29520878
Stock turnover Ratio 4.46 2.15 3.57 3.05
Source: Secondary Data INFERENCE Inventory turn over ratio has decreased to 2.15 in the year 2001-2002 when compared to 2000-2001 and again increased in the year 2002-2003 to 3.57 but in the year 20032004 it shows a fall that is 3.05.
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GRAPH 09 GRAPH SHOWING INVENTORY TURNOVER RATIO
4.5 4 Stock Turnover Ratio 3.5 3 2.5 2 1.5 1 0.5 0 2000-2001
4.46 3.57 3.05 2.15
2001-2002
2002-2003
2003-2004
Year
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DEBTORS TURNOVER RATIO Debtors turnover rate is in between credit sales and debtors. In other words, it indicates the number of times the debts are collected in a year. This ratio is calculated as follows. Credit Sales Debtors Turnover Ratio = ----------------------Debtors TABLE - 10 TABLE SHOWING DEBTORS TURNOVER RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Credit Sales 82298796 48397521 62649553 90124131
Debtors 5239150 11818945 4174430 5947413
Debtors Turnover Ratio 15.70 4.09 15.0 15.15
Source: Secondary Data INFERENCE The debtors turn over ratio has decreased to 4.09 in the year 2001-2002 and again has increased to 15.15 in the year 2003-2004
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GRAPH 10 GRAPH SHOWING DEBTORS TURNOVER RATIO
16 Debtors Turnover Ratio 14 12 10 8 6 4 2 0 2000-2001
15.7
15
15.15
4.09
2001-2002
2002-2003
2003-2004
Year
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DEBT COLLECTION PERIOD RATIO Debt collection period ratio is the ratio, which shows the average time taken by the firm to collect the debts. This is calculated as follows. Debtors Debt collection period ratio = ----------------------- * 365 days Credit Sales TABLE 11 TABLE SHOWING DEBT COLLECTION PERIOD RATIO Year 2000-2001 2001-2002 2002-2003 2003-2004 Debtors 5239150 11818945 4174430 5947413 Credit Sales 82298796 48397521 62649553 90124131 Debt collection Ratio 23 Days 89 Days 24 Days 24 Days
Source: Secondary Data INFERENCE The debt collection period ratio remains constant in the 2002-2003 and 2003-2004 but has increased in the year 2001-2002 to 89 days when compared to that of 23 days in the year 2000-2001
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GRAPH 11 GRAPH SHOWING DEBT COLLECTION PERIOD RATIO
90 Fixed Assets TurnOver Ratio 80 70 60 50 40 30 20 10 0
89 Days
23 Days
24 Days
24 Days
2000-2001
2001-2002
2002-2003
2003-2004
Year
CREDITORS TURNOVER RATIO Alliance Business Academy 64
Creditors turnover ratio is the ratio, which indicates the number of times the debts are paid in the year. This ratio is calculated as follows. Credit purchase Credit Turnover Ratio = --------------------Average creditors TABLE -12 TABLE SHOWING CREDITORS TURNOVER RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Credit purchase 44491045 25501189 32984848 69718267
Creditors 4776658 12827919 7452623 20032834
Creditors turn over Ratio 9.31 1.98 4.42 3.48
Source: Secondary Data INFERENCE The creditors turnover ratio has decreased to 1.98 in 2001-2002 when compared to 2000-2001 and again it is increased to 4.42 in 2002-2003 but again there is slight fall in the year 2003-2004 to 3.48.
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GRAPH 12 GRAPH SHOWING CREDITORS TURNOVER RATIO
10 9 8 7 6 5 4 3 2 1 0
9.31
Creditors TurnOver Ratio
4.42 3.48 1.98
2000-2001
2001-2002 Year
2002-2003
2003-2004
DEBT PAYMENT PERIOD RATIOS Alliance Business Academy 66
Debt payment ratio is a ratio, which shows the average time taken by the firm to repay the debt. This ratio is calculated as follows. Creditors Debt payment period ratio = ------------------ * 365 Days Credit purchase TABLE 13 TABLE SHOWING DEBT PAYMENT PERIOD RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Creditors 4776658 12827919 7452623 20032834
Credit purchases 44491045 25501189 32984848 69718267
Debt payment period Ratio 39 Days 184 Days 82 Days 105 Days
Source: Secondary Data INFERENCE The debt payment period increased to 184 days in 2001-2002 and also in the year 2003-2004 to 105 days when compared to 39 days in the year 2000-2001, 2002-2003.
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GRAPH 13 GRAPH SHOWING DEBT PAYMENT PERIOD RATIO
200 180 160 140 120 100 80 60 40 20 0
184 Days
Fixed Assets TurnOver Ratio
105 Days 82 Days 39 Days
2000-2001
2001-2002
2002-2003
2003-2004
Year
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FIXED ASSETS TURNOVER RATIO The ratio, which expresses the relationship between the sales and total assets, is known as Fixed assets turnover ratio. Sales Fixed assets turnover ratio = -----------------Fixed Asset TABLE 14 TABLE SHOWING FIXED ASSETS TURNOVER RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Sales 82298796 48397521 62649553 90124131
Fixed Assets 6335879 6079307 5378248 7775901
Fixed assets turn over Ratio 12.98 7.96 11.64 11.59
Source: Secondary Data INFERENCE Fixed assets turnover ratio has decreased to 7.96 in the year 2001-2002 when compared to 2000-2001 and more or less remains constant in the years 2002-2003 and 2003-2004 with slight variations standing at 11.64 and 11.59.
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GRAPH 14 GRAPH SHOWING FIXED ASSETS TURNOVER RATIO
14 Fixed Assets TurnOver Ratio 12 10 8 6 4 2 0
12.98 11.64 7.96 11.59
2000-2001
2001-2002
2002-2003
2003-2004
Year
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CURRENT ASSETS TURNOVER RATIO The ratio, which expresses the relationship between the current assets to sales, is called as Current assets turnover ratio. It is calculated as follows. Sales Current Assets Turnover Ratio = ------------------Current Assets TABLE 15 TABLE SHOWING CURRENT ASSETS TURNOVER RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Sales 82298796 48397521 62649553 90124131
Current Assets 25813158 24678965 21588683 20683915
Current assets turn over Ratio 3.18 1.96 2.90 4.35
Source: Secondary Data INFERENCE The current assets turnover ratio has increased to 1.96 in 2001-2002 and also in the year 2002-2003 to 2.90 when compared to the previous year 2000-2001 and subsequent year 2003-2004.
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GRAPH 15 GRAPH SHOWING CURRENT ASSETS TURNOVER RATIO
4.35 4.5 Current Assets TurnOver Ratio 4 3.5 3 2.5 2 1.5 1 0.5 0 2000-2001 2001-2002 2002-2003 2003-2004 1.96 3.18 2.9
Year
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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 Sales Working capital turnover ratio = -------------------Working capital TABLE 16 TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Sales 82298796 48397521 62649553 90124131
Working capital 25813153 24678966 21588683 20683915
Working capital turn over ratio 3.18 1.96 2.90 4.35
Source: Secondary Data INFERENCE Working capital turnover ratio has decreased to 1.96 in 2001-2002 when compared to 2000-2001 and again it is further decreased to 2.90 when compared to that of the year 2003-2004 which stands at 4.35.
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GRAPH 16 GRAPH SHOWING WORKING CAPITAL TURNOVER RATIO
4.5 Working capital turnOver Ratio 4 3.5 3 2.5 2 1.5 1 0.5 0 2000-2001 2001-2002 2002-2003 1.96 3.18 2.9
4.35
2003-2004
Year
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Modern Collections Pvt. Ltd PROPRIETORY FUND TURNOVER RATIO This is a ratio, which expresses the relationship between the proprietory fund and sales, is called as Proprietory fund turnover ratio. It is calculated as follows. Sales Proprietory fund turnover ratio = --------------------Proprietory fund TABLE 17 TABLE SHOWING PROPRIETORY FUND TURNOVER RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Sales 82298796 48397521 62649553 90124131
Equity 28620421 28416205 28057713 30391887
Proprietory fund turn over Ratio 2.87 1.70 2.23 2.96
Source: Secondary Data INFERENCE This ratio has increased to 2.96 when compared to that of all the previous ratios in the year 2003-2004.
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GRAPH 17 SHOWING PROPRIETORY FUND TURNOVER RATIO
Proprietoty Fund Turn Over Ratio
3 2.5 2 1.5 1 0.5 0
2.87 2.23 1.7
2.96
2000-2001
2001-2002
2002-2003
2003-2004
Year
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PROFITABILITY RATIOS Profitability ratios are calculated to determine the operating efficiency of the company. Profit is the difference between total revenues and expenses over a period of time. It is the ultimate output of the company without which the company has no future. Therefore, the financial manager should continuously evaluate efficiency of the company on terms of profits. Profitability ratios can be determined on the basis of sales or in relation to investments. Generally, two major types of profitability ratios are calculated. Profitability in relation to sales. Profitability in relation to investment.
PROFITABILITY IN RELATION TO SALES Generally, the following profitability ratios are calculated in relation to sales
GROSS PROFIT RATIO Gross profit ratio, is the ratio which expresses the relationship between gross profit and sales expressed in percentage. It is calculated as follows. Gross profit Gross profit ratio = ----------------------- * 100 Sales
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TABLE 18 TABLE SHOWING GROSS PROFIT RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Gross profit 1434421 ------------3711530 2736963
Sales 82298796 48397521 62649553 90124131
Gross profit Ratio 1.74% -------5.92% 3.03%
Source: Secondary Data INFERENCE Gross profit ratio has increased in the year 2002-2003 to 5.92% having no profits in the year 2001-2002 and shows a fall in 2003-2004 to 3.03%.
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GRAPH 18 GRAPH SHOWING GROSS PROFIT RATIO
6.00% Gross Profit Ratio 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2000-2001 1.74
5.92
3.03
0 2001-2002 2002-2003 2003-2004
Year
79
NET PROFIT RATIO It is the ratio, which expresses the relationship between net profit and sales expressed in percentage. It is calculated as follows. Net profit Net profit ratio = ------------------- * 100 Sales TABLE 19 TABLE SHOWING NET PROFIT RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Net profit 1359421 --------------------2334174
Sales 82298796 48397521 62649553 90124131
Net profit Ratio 0.61% ------------0.02%
Source: Secondary Data INFERENCE The net profit ratio has decreased in the year 2001-2002 to 0.02% having no profit in the immediate previous years when compared to that of profits of 2001-2002 to 0.61%. This shows there is decline in the profitability of the company.
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GRAPH 19 GRAPH SHOWING NET PROFIT RATIO
0.70% 0.60% Net Profit Ratio 0.50% 0.40% 0.30% 0.20% 0.10% 0.00%
0.61
0 2000-2001 2001-2002
0 2002-2003
0.02 2003-2004
Year
81
OPERATING RATIO The ratio, which expresses the relationship between operating cost and sales expresses in percentage, is called as Operating ratio. This ratio is calculated as follows. Operating cost Operating ratio = ------------------------ * 100 Sales TABLE 20 TABLE SHOWING OPERATING RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Operating cost 24171616 15647946 11102218 21072481
Sales 82298796 48397521 62649553 90124131
Operating Ratio 29.37% 32.33% 17.72% 23.38%
Source: Secondary Data INFERENCE The operating ratio in the year 2001-2002 increased to 32.33% when compared to 2000-2001. But it is increased in the year 2003-2004 to 23.38% when compared to that of 17.72% in the year 2002-2003. So this is the reason for decline in the net profit of the company.
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GRAPH 20 GRAPH SHOWING OPERATING RATIO
35.00% 30.00% Operating Ratio 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%
29.37
32.33 23.38 17.72
2000-2001
2001-2002
2002-2003
2003-2004
Year
83
Modern Collections Pvt. Ltd OPERATING PROFIT RATIO The ratio, which expresses the relationship between operating profit and sales expressed in percentage, is called as Operating profit ratio. It is calculated as follows. Operating profit cost Operating profit ratio = ---------------------------- * 100 Sales TABLE 21 TABLE SHOWING OPERATING PROFIT RATIO
Year 2000-2001 2001-2002 2002-2003 2003-2004
Operating profit 1400467 39457 3463897 2661924
Sales 82298796 48397521 62649553 90124131
Operating profit Ratio 1.70% 0.08% 5.52% 2.95%
Source: Secondary Data INFERENCE The operating profit ratio has increased to 5.52% in the year 2002-2003 when compared to both the previous years, 2000-2001 and 2001-2002. But it is decreased to 2.95% in the year 2003-2004. This is further confirmed that the increase in operating cost is the main reason for decrease in operating profit.
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GRAPH 21 GRAPH SHOWING OPERATING PROFIT RATIO
6.00% Operating Profit Ratio 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 20002001 1.70 0.08 20012002
5.52
2.95
20022003
20032004
Year
PROBABILITY IN RELATION TO INVESTMENT Alliance Business Academy 85
RETURN ON PROPRIETORS FUND The ratio between net profit after tax and proprietors fund is called return on proprietors fund. It is calculated as follows. Net profit after tax Return on proprietors fund = ------------------------ *100 Equity TABLE 22 TABLE SHOWING RETURN ON PROPRIETORS FUND
Year 2000-2001 2001-2002 2002-2003 2003-2004
Equity 28620421 28416205 28057713 30391887
Profit after tax 1359421 ------------------2334174
Return on proprietors fund 4.74% ------------7.68%
Source: Secondary Data INFERENCE The ratio of return on proprietors fund has increased to 7.68% when compared to 2000-2001 having no return on proprietors fund because of no profits in the year 2002 and 2003 when compared to 2000-2001 having 4.74%. This is because of decline in the profitability due to more operating cost.
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GRAPH 22 GRAPH SHOWING RETURN ON PROPRIETORS FUND
8.00% Return on Proprietor's fund 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 0 0 4.74
7.68
2000-2001 2001-2002 2002-2003 2003-2004 Year
RETURN ON TOTAL RESOURCES
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Modern Collections Pvt. Ltd The ratio between net profit after tax and total assets is called as Return on total resources. It is calculated as follows. Net profit after tax Return on total resources = ------------------------- * 100 Total assets TABLE 23 TABLE SHOWING RETURN ON TOTAL RESOURCES
Year 2000-2001 2001-2002 2002-2003 2003-2004
Net profit after tax 1359421 --------------------2334174
Total assets 52068033 53229050 43684184 44750568
Return on total resources 2.61% --------------5.21%
Source: Secondary Data INFERENCE The return on total resources increased to 5.21% in the year 2003-2004 nothing in the year 2001-2002 and 2002-2003 when compared to that of 2000-2001.
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GRAPH 23 SHOWING RETURN ON TOTAL RESOURCES
6.00% Return on Total Resources 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 0 0 2.61
5.21
2000-2001 2001-2002 2002-2003 2003-2004 Year
89
RETURN ON CAPITAL EMPLOYED The ratio between net profit before interest and tax and capital employed is called as return on capital employed. It calculated as followed Net profit before tax Return on capital employed = ---------------------------- * 100 Capital employed TABLE 24 TABLE SHOWING RETURN ON CAPITAL EMPLOYED
Year 2000-2001 2001-2002 2002-2003 2003-2004
Profit before tax 1434421 -107398 3711530 2736963
Capital employed 19918044 22470777 16717253 16290752
Return on capital employed 7.20% ------22.20% 16.80%
Source: Secondary Data INFERENCE The return on capital employed ratio shows nil return on capital employed in the year 2001-2002 because of losses incurred by the company in that year. In the next year it reaches to 22.20% which is 5.40% more when compared to the one in the year 20032004.
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GRAPH - 24 GRAPH SHOWING RETURN ON CAPITAL EMPLOYED
25.00% Return on Capital Employed 20.00% 15.00% 10.00% 5.00% 0.00% 7.20 0
22.20 16.80
2000-2001 2001-2002 2002-2003 2003-2004 Year
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EARNING PER SHARE (EPS) The ratio between net profit after tax and number of equity shares is called as Earning per share. Net profit after tax Earning per share = ------------------------------- * 100 Number of equity shares TABLE 25 TABLE SHOWING EARNING PER SHARE (EPS)
Year 2000-2001 2001-2002 2002-2003 2003-2004
Number of equity shares 15000 15000 15000 15000
Profit after tax 1359421 --------------------2334174
Earnings per share 0.60% --------------1.03%
Source: Secondary Data INFERENCE
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Modern Collections Pvt. Ltd The earnings per share have increased to 1.03% in the year 2003-2004 when compared to all the remaining previous years earnings per share.
GRAPH 25 GRAPH SHOWING EARNING PER SHARE (EPS)
1.20% Earnings Per Share 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 0 0 0.60
1.03
2000-2001 2001-2002 2002-2003 2003-2004 Year
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5.1 FINDINGS
The analysis and interpretation of the data gathered, has revealed the following facts: Operating cycle of Modern Collections has increased from 100 days in the year 2000-2001 to 160 days in the year 2001-2002 but decreased to 74 days 2002-2003, and is again decreased to 62 days in the year 2003-2004.this is due to the holding of finished goods inventory and work in progress inventory for more days and also due to increased raw material consumption. The finished goods inventory conversion period has increased from 26 days in the year 2000-2001 to 72 days in 2001-2002, again in the year 2002-2003 it has been decreased to 31 days and in the year 2003-2004 it has increased to 51 days. Also the work in progress inventory conversion period has increased from 28 days in the year 1998-1999 to 41 days; again it is increased to 43 days in 2002-2003 with a decrease of 30 days in 2003-2004. The receivable conversion period has increased from 23 days to 89 days in 2001-2002; it is decreased to 24 days in 2002-2003 and again in the year 2003-2004 it remains stable. At the same time the company is increased its payment deferral from 39 days to 184 days in the year 2001-2002, it is decreased to 82 days in the year 20022003 and again increased by 105 days in the year 2003-2004. This shows that the company has to control the cash disbursements to enhance the availability of cash. The current ratio of the company has come down from 2.58 to 1.16 in the year 2001-2002.In the next year it has increased to 1.90 but again it is decreased to 0.80 in the year 2003-2004. This indicates that the company is not able to meet the standard of 2:1 the downfall represents that the companys short-term liquidity position is not satisfactory.
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Modern Collections Pvt. Ltd The debt equity ratio is increased to 2.61 in 2001-2002 when compared to 2000-2001, and gain in the year 2003-2004 it is increased to 2.31 when compared to the year 2002-2003. This shows that there is an improvement in the long-term solvency position of the company. Current assets to net worth ratio show a declining trend in all the years. The debt collection period ratio has increased to 81 days in the year 20012002. But has remained constant in the future i.e., 24 days. The working capital turn over ratio has decreased to 1.96 in the year, but from there on it has kept on increasing in the future. Gross profit ratio has increased in the year 2002-2003 to 5.92% having no profits in the year 2001-2002 and shows a fall in 2003-2004 to 3.03%. The net profit ratio has decreased in the year 2003-2004 to 0.02% having no profit in the immediate previous years when compared to that of profits of 2002-2003 to 0.61%. This shows there is decline in the profitability of the company. The operating ratio in the year 2001-2002 increased to 32.33% when compared to 1998-1999. But it is increased in the year 2003-2004 to 23.38% when compared to that of 17.72% in the year 2002-2003. So this is the reason for decline in the net profit of the company. The operating profit ratio has increased to 5.52% in the year 2002-2003 when compared to both the previous years, 2000-2001 and 2001-2002. But it is decreased to 2.95% in the year 2003-2004. This further confirms that the increase in operating cost is the main reason for decrease in operating profit.
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Modern Collections Pvt. Ltd The ratio of return on proprietors fund has increased to 7.68% when compared to 2001-2002 having no return on proprietors fund because of no profits in the year 2002 and 2003 when compared to 2003-2004 having 4.74%. This is because of decline in the profitability due to more operating cost. The return on total resources increased to 5.21% in the year 2003-2004 nothing in the year 2001-2002 and 2002-2003 when compared to that of 20002001. The return on capital employed ratio shows nil return on capital employed in the year 2001-2002 because of losses incurred by the company in that year. In the next year it reaches to 22.20%, which is 5.40% more when compared to the one in the year 2003-2004. The earnings per share have increased to 1.03% in the year 2003-2004 when compared to all the remaining previous years earnings per share.
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5.2 CONTRIBUTION OF THE STUDY

The study has helped the company to understand its strengths and weaknesses. The company has understood the criteria of proper investments of funds. The study also revealed that the operating and other expenses of the company has to be cut down to make it more profitable. The study urges the company to reduce the time in its operating cycle.
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5.3 CONCLUSION / SUGGESTIONS

CONCLUSION In spite of incurring losses in the year 2001-2002, it has successfully managed to overcome this by making profits in future, which is a good sign of prosperity to the company. The long-term solvency position of the company has shown a recurrent increase. The sales of the company has increased in the year 2000-2001 which indicates that the foreign companies are well satisfied with the companys product, which is a good sign to companys prosperity.
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Modern Collections Pvt. Ltd SUGGESTIONS Modern Collections should make proper financial planning so that the available funds are utilized in more efficient and effective manner. The company must try to maintain its short-term liquidity position, by investing only in those investments, which are easily convertable into cash. Modern Collections must cut down the operating and other expenses with out reducing the quality of its products. The company should reduce the idle capacity in order to increase the efficiency in the operations. Modern Collections must take immediate measures to reduce the length of the Operating cycle
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Modern Collections Pvt. Ltd BALANCE SHEET AS ON 31ST MARCH 2001 2000-2001 1) SOURCES OF FUNDS SHAREHOLDERS FUNDS Share Capital Reserves and surplus LOAN FUND Secured loans Unsecured loans TOTAL 2) APPLICATION OF FUNDS FIXED ASSETS Gross Block Less: Depreciation Net Block INVESTMENTS CURRENT ASSETS LOANS AND ADVANCES Less: CURRENT LIABILITIES AND PROVISIONS Net Current Assets MISCELLANEOUS EXPENDITURE Preliminary expenses TOTAL 965 52068033 25813153 10004325 5817478 11710682 5374803 6335879 19918044 18074612 5373000 23447612 52068033 1500000 27120421 28620421
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Modern Collections Pvt. Ltd BALANCE SHEET AS ON 31ST MARCH 2002 2001-2002 1. SOURCES OF FUNDS SHAREHOLDERS FUNDS Share Capital Reserves & surplus LOAN FUND Secured loans Unsecured loans TOTAL 2. APPLICATION OF FUNDS FIXED ASSETS Gross Block Less: Depreciation Net Block INVESTMENTS CURRENT ASSETS LOANS & ADVANCES Less: CURRENT LIABILITIES AND PROVISIONS Net Current Assets TOTAL 24678965 53229050 21128392 45807357 12578520 6499213 6079307 22470777 18339845 6473000 24812845 53229050 1500000 26916205 28416205
102
Modern Collections Pvt. Ltd BALANCE SHEET AS ON 31ST MARCH 2003 2002-2003 1. SOURCES OF FUNDS SHAREHOLDERS FUNDS Share Capital Reserves & surplus Loan fund Secured loans Unsecured loans TOTAL 2. APPLICATION OF FUNDS FIXED ASSETS Gross Block Less: Depreciation Net Block INVESTMENTS CURRENT ASSETS LOANS AND ADVANCES Less: CURRENT LIABILITIES AND PROVISIONS Net Current Assets TOTAL 21588683 43684184 11339964 32928647 12850851 7472603 5378248 16717253 9653471 5973000 15626471 43684184 1500000 26557713 28057713
103
Modern Collections Pvt. Ltd BALANCE SHEET AS ON 31ST MARCH 2004 2003-2004 1. SOURCES OF FUNDS SHAREHOLDERS FUNDS Share Capital Reserves and surplus LOAN FUND Secured loans Unsecured loans TOTAL 2. APPLICATION OF FUNDS FIXED ASSETS Gross Block Less: Depreciation Net Block INVESTMENTS CURRENT ASSETS LOANS AND ADVANCES Less: CURRENT LIABILITIES AND PROVISIONS Net Current Assets TOTAL 206839015 4475056 25537988 46221903 16304966 8529065 7775901 1629075 8385681 5973000 14358681 44750568 1500000 288918887 303918887
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Modern Collections Pvt. Ltd PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2001 2000-2001 INCOME Sales Other income Accretion in stock of Finished goods & WIP Goods TOTAL (A) EXPENDITURE Consumption of raw materials Operating and other expenses Administration, Selling & Distribution Expenses Interest & Financial Charges Depreciation TOTAL (B) Profit from operations (A-B) Share of profit/loss (-) as partner in a firm Prior year adjustment (-) Provision for taxation Profit/loss (-) after tax Add: surplus of previous year Profit transferred to balance sheet (75000) 1359421 25761000 27120421 14129757 3651289 1167061 91511194 14004687 39954 ------48391470 24171616 -419137 92611661 82298796 11032002
105
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2002 2001-2002 INCOME Sales Other income Accretion in stock of Finished& WIP Goods TOTAL (A) EXPNEDITURE Consumption of raw materials Operating and other expenses Administration, Selling & Distribution Expenses Interest & Financial charges Depreciation TOTAL (B) Profit from operations (A-B) ZShare of profit/loss (-) as partner in a firm Prior year adjustment (-) Provision for taxation Profit/loss (-) after tax Add: surplus of previous year Profit transferred to balance sheet (97818) (204216) 27120421 26916205 3410119 1124409 56939644 39457 (145855) -------26034954 15647946 10722216 2635556 56979102 48397521 5946024
106
Modern Collections Pvt. Ltd PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2003 2002-2003 INCOME Sales Other income Accretion in stock of Finished & WIP Goods TOTAL (A) EXPENDITURE Consumption of materials Operating & other expenses Administration, Selling & Distribution Expenses Interest & Financial charges Depreciation TOTAL (B) Profit from operations (A-B) Add: share of profit/loss (-) as partner in a firm Less: loss on sale of shares Less: prior year adjustment (-) Provision for taxation Profit/loss (-) after tax Add: profit of previous year Profit transferred to balance sheet 3411673 973391 68148670 3463897 247633 3285750 109272 675000 -358492 26916205 26557713 39735344 11102218 12926044 -1685375 71612567 62649553 10648389
107
Modern Collections Pvt. Ltd PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2004 2003-2004 INCOME Sales Other income Accretion/decretion in stock of Finished & WIP Goods TOTAL (A) EXPENDITURE Consumption of materials Operating and other expenses Administration, Selling & Distribution expenses Interest & Financial charges Depreciation TOTAL Profit from operations (A-B) Add: share of profit/loss (-) as partner in a firm Less: loss on sale of shares Less: prior year adjustment (-) Provision for taxation Profit/loss (-) after tax Add: profit of previous year Profit transferred to balance sheet 11492902 3035678 1056462 104991487 2661924 75039 ----------402789 2334174 26557713 28891887 68333964 21072481 6721344 107653411 90124131 10807936
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BIBLIOGRAPHY
BOOKS Financial management Principles of corporate finance Mc Graw Hill, New York Financial Management Theory & Practice Tata Mc Graw Hill Publishing Company Limited By. Prasanna Chandra By. S.K.R. Paul By. Brealy & Myers
JOURNALS & MAGAZINES Annual reports of Modern Collections Pvt. Ltd.. Business Standard,
WEB SITE www.moderncollectionsindia.com
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Modern Collections Pvt.

1.1 GENERAL INTRODUCTION

Alliance Business Academy

Modern Collections Pvt. Ltd

1.2 THEORETICAL BACKGROUND

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Modern Collections Pvt. Ltd

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Modern Collections Pvt. Ltd

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Modern Collections Pvt. Ltd EFFECT 1) 2) 3) 4) OF INADEQUATE WORKING CAPITAL ON DECISION

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Modern Collections Pvt. Ltd

2.1 STATEMENT OF PROBLEM

2.2 OBJECTIVES OF THE STUDY

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2.3 SCOPE OF THE STUDY

2.4 REVIEW OF LITERATURE

WEB SITE www.moderncollectionsindia.com

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2.5 OPERATIONAL DEFINITIONS OF CONCEPTS

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2.6 RESEARCH METHODOLOGY

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2.7 DATA COLLECTION TOOLS

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2.8 OVERVIEW OF THE REPORT

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2.9 LIMITATIONS OF STUDY

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3.1 PROFILE OF MODERN COLLECTIONS PVT. LTD.ORIGIN AND DEVELOPMENT

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RANGE OF PRODUCTS SHIRTS TROUSERS T-shirts

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Modern Collections Pvt. Ltd

3.2 ORGANISATION STRUCTURE

Mr. Chandrashekhar Cutting Department Batch Department

(Chief Executive Officer)

Mr. Mahesh Kothari

Mr. Rajesh Kothari Gabrial (Finance Mgr) (General Mgr)

Mr. L Rughuraj (Marktg Mgr)

Washing Department Finishing Department Q C Department Accounts Dept Marketing Dept

Maintenance Dept Shipping Dept

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Modern Collections Pvt. Ltd

3.3 FUNCTIONAL DEPARTMENTS OF THE ORGANISATION

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Modern Collections Pvt. Ltd