SUMMER TRAINING REPORT ON WORKING CAPITAL MANAGEMENT

IN

VINAYAK TEXTILE MILLS LIMITED

Submitted To:
Mr M S Aror! "D G M #

In partial fulfillment of requirement for the award of degree in MASTER O$ %USINESS ADMINISTRATION Submitted %&:'
AMAN DEEP PASSI AJAY JAIN "())*'+)#

PRE$ACE

This report , prepared during the summer training, is lifes greatest treasure. The training held was very gainful as it took me close to real life. The study aims to analyze the extent to which volume of working capital has been effectively and efficiently utilized in this unit. The report is divided into various parts for the close analyses of different components of working capital. The last part deals with the conclusion and suggestions to improve the working capital management and to make it more effective.

ACKNOWLEDGEMENT

Accomplishment of a task with desired success calls for dedication towards work and
prompting guidance, co operation and deliberation from seniors.! This report is the outcome of six weeks training that " received at #"$A%A& T'(T")' *"))+ )T,. -irst of all, " wish to express my profound gratitude and sincere thanks to *.. *.+. A./.A0,.1.*, A22/3$T+ ,'4A.T*'$T5,"ncharge of the pro6ect for his constant and tireless guidance and encouragement given during the study and who allowed me to 6oin summer training at #T*. "t gives me immense pleasure to acknowledge my deep sense of gratitude and sincere thanks to *r. 13.$A* +"$17, A22/3$T+ /--"2'. for extending the courtesy and for guidance, support and affection throughout the course of this work. " am extremely grateful to *"++. &A8A)4.''T &A3. and other faculty members for their valuable guidance and glorious teaching. "n last, " express my profound gratefulness and indebtedness to the esteemed organization for granting me the grand privilege of working on a pro6ect under team of experts and professionals in the field of finance.

CONTENTS

C,APTER + T,EORETICAL MANAGEMENT C,APTER ( ,ISTORY O$ INDIAN TEXTILE INDUSTRY C,APTER PRO$ILE O$ T,E GROUP AND UNIT C,APTER . OUTLINE O$ T,E STUDY C,APTER / WORKING CAPITAL ANALYSIS OPERATING CYCLE ANALYSIS ANALYSIS ON T,E %ASIS O$ ,ISTORICAL DATA + RATIO ANALYSIS ( COMMON SI0E STATEMENT ANALYSIS - ANALYSIS ON T,E %ASIS O$ SC,EDULE O$ C,ANGES IN WORKING CAPITAL %ACKGROUND O$ WORKING CAPITAL

C,APTER 1 CAS, MANAGEMENT C,APTER 2 RECEIVA%LES MANAGEMENT C,APTER * MANAGEMENT O$ INVENTORY C,APTER 3 $INDINGS4 SUGGESTIONS4 CONCLUSION4 %I%LIOGRAP,Y APPENDIX REFEREN ES AND !I!"I#$RAP%Y

EXECUTIVE SUMMARY
S&'DY &#PI :
WORKING CAPITAL MANAGEMENT O$ VINAYAK TEXTILE MILLS LTD " A UNIT O$ VARD,MAN POLYTEX LTD #

#!JE &I(ES #F &%E S&'DY)

To !5!6&7e t8e 9or:i5; <!=it!6 m!5!;eme5t o> t8e <om=!5& To determi5e t8e o=er!ti5; <&<6e o> t8e u5it To :5o9 t8e >uture 5eed o> 9or:i5; <!=it!6 i5 t8e ru55i5; or;!5i7!tio5 To re5der re<omme5d!tio5? >or e>>e<ti@e m!5!;eme5t o> 9or:i5; <!=it!6

&IME SPAN:
A =eriod o> >i@e &e!r i e ()).'())* 8!? bee5 t!:e5 >or t8e ?tud&

S&'DY INS&R'MEN&9
A55u!6 Re=ort? !5d ot8er o>>i<i!6 do<ume5t? o> t8e ?e6e<ted u5it? o> t8e <om=!5&

ME&%#D#"#$Y)
To re<o;5i7e t8e @!riou? t&=e o> i5>orm!tio5 98i<8 !re 5e<e??!r& >or t8e ?tud& o> 9or:i5; <!=it!6 m!5!;eme5t Co66e<tio5 o> d!t! >rom @!riou? de=!rtme5t o> VTM to !5!6&7e t8e 9or:i5;

<!=it!6 m!5!;eme5t o> VTM $or u5der?t!5di5; t8e @!riou? re=ort?4 =er?o5!6 i5ter@ie9? !re <o5du<ted Wit8 t8e 8e6= o> @!riou? te<85iAue? 6i:e: O=er!ti5; C&<6e !5!6&?i? R!tio A5!6&?i? Commo5 ?i7e ?t!teme5t S<8edu6e o> <8!5;e? i5 9or:i5; <!=it!6 T8e o@er!66 =o?itio5 o> VTM i? ?tudied !5d !5!6&7ed Su;;e?tio5? !re ;i@e5 o5 t8e b!?i? o> >i5di5;? >or better u5der?t!5di5; o> 9or:i5; <!=it!6 m!5!;eme5t

S %EME #F PRESEN&A&I#N:
T8e =roBe<t re=ort i? =re=!red i5 t8ree =!rt? + ( $ir?t =!rt o> t8e re=ort ;i@e? !5 o@er@ie9 !5d t8eoreti<!6 b!<:;rou5d to t8e ?ubBe<t i e 9or:i5; <!=it!6 m!5!;eme5t Se<o5d =!rt o> t8e re=ort =re?e5t? ! ;e5er!6 =ro>i6e o> VINAYAK TEXTILE MILLS LTD 98ere t8e ?ummer tr!i5i5; 8!? bee5 u5dert!:e5 T8ird =!rt o> t8e re=ort de!6? 9it8 t8e =roBe<t u5der ?tud& 98i<8 i5<6ude?9 O=er!ti5; C&<6e !5!6&?i? R!tio A5!6&?i? Commo5 ?i7e ?t!teme5t S<8edu6e o> <8!5;e? i5 9or:i5; <!=it!6

hapter* + T,EORETICAL %ACKGROUND O$ WORKING CAPITAL MANAGEMENT

MEANING O$ WORKING CAPITAL:'

"n simple words working capital means that which is issued to carry out the day to day operations of a business. 2apital re:uired for a business can be classified under two main categories -ixed capital 8orking capital

'very business needs funds for two purposes, for its establishment and to carry on its day to day operations. )ong term funds are re:uired to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture etc. "nvestment in these assets represents that part of firm capital, which is blocked on a permanent or fixed basis called fixed capital. -unds are also needed for short term purposes i.e. for the purchase of raw material, payment of wages and other day to day operations of business. These funds are known as working capital. "n other words, working capital refers to that firms 2apital, which is re:uired for short ; term assets or current assets. -unds thus invested in current assets keep revolving last and being constantly converted into cash and this cash flow is again converted into other current assts. 7ence it is known as circulating or short ; term capital.

CONCEPT O$ WORKING CAPITAL:

+ Gro?? Wor:i5; C!=it!6 "t is simply called working capital refers to the firms investment in current assets so the total current assets of the firm are known as gross working capital.

Net Wor:i5; C!=it!6 "t represents the difference between current assets and current liabilities. $et

working capital may be positive or negative. 4ositive net working capital is that when

current assets are more than current liabilities. <ut when current liabilities become more than current assets than it is negative working capital. "n brief we can say that working capital is too much necessary for the smooth functioning and proper utilization of fixed assets.

TYPES O$ WORKING CAPITAL:

+ Perm!5e5t Wor:i5; C!=it!6: As the operating cycle is a continuous process so the need for working capital also arises continuously. <ut the magnitude of current assets needed is not always same= it increases and decreases over time. 7owever there is always a minimum level of current assets. This level is known as permanent or fixed working capital. ( Tem=or!r& Wor:i5; C!=it!6: The extra working capital needed to support the changing production and sales activities, is called variable or functioning or temporary working capital. This can be shown in the following diagram:-

Amount of 8orking 2apital Temporary capital

4ermanent 2apital Time

NEED $OR WORKING CAPITAL:

The need for working capital cannot be overemphasized. The need of working capital arises due to the time gap between production and realization of cash from sales. +o the working capital or investment in current assets becomes necessary need for working capital. "t arises due to following reasons9 A OPERATING CYCLE

/perating cycle is the time duration re:uires for converting sales into cash after the conversion of resources into inventories.! -irst of all a firm purchase .aw *aterial, then after some processing it is converted into work;in;progress and after this further processing is done to convert work;in;progress in finished goods. After the raw material is converted into finished goods, sales are made. +ales are no always full cash sales= there are credit sales also. These credit sales after some period are converted into cash. +o the whole process takes the time. This time taken is known as the length of operating cycle. +o operating cycles includes9 >. ?. @. A. .aw *aterial conversion period 0.*245 8ork;in ; progress conversion period 08"4245 -inished goods conversion period 0-245 ,ebtors 2onversion period 0,245

+o operating cycle can be known as following9

.aw *aterial

8ork 4rogress
2ash from ,ebtors 2ollection

in

+ales
-inished 1oods 2redit +ales 2ash +ales

"f the length of the operating cycle has short length period then less working capital is re:uired. +o working capital re:uirement is directly related with operating cycle. /perating cycle may be of two types >. ?. + 1ross /perating cycle $et operating cycle Gro?? O=er!ti5; <&<6e 1ross /perating cycle is the total time period from the conversion of .aw *aterial into finished goods and finished goods into sales and then sales into cash. GOC CRMCP D WIPCP D $CP D DCP ( Net O=er!ti5; C&<6e As we provide period to debtors for the payments, our creditors also provide period to us for payment to them. +o this reduces our re:uirement of working capital. This also affects the operating cycle. /perating cycles length reduces with so many days as provided by the creditors to us. The difference between gross operating cycle and period allowed by the creditors for payment is known as net operating cycle. NOC C GOC E CPP % WORKING CAPITAL REFUIREMENT $OR T,E ANTICIPATED NEEDS $OR $UTURE:' These needs may be of .aw *aterial or -inished 1oods. +ometimes because of non availability of .aw *aterial or due to seasonal availability of .aw *aterial some advances stock of .aw *aterial becomes necessary for company. "n the similar way due to sudden arise of demand of finished goods in future more finished goods are kept in stock. -or both reasons more working capital is re:uired because funds will be involve in these safeties stocks.

DETERMINENTS O$ WORKING CAPITAL9

-ollowings are the main determinants of working capital. + N!ture !5d Si7e o> %u?i5e?? : The working capital of a firm basically depends upon nature of its business for e.g. 4ublic utility undertakings like electricity= water supply needs very less working capital because offer only cash sales whereas trading B financial firms have a very less investment in fixed assets but re:uire a large sum of money invested in working capital. The size of business also determines working capital re:uirement and it may be measured in terms of scale of operations. 1reater the size of operation, larger will be re:uirement of working capital. ( M!5u>!<turi5; C&<6e: The manufacturing cycle also creates the need of working capital. *anufacturing cycle starts with the purchase and use of .aw *aterial and completes with the production of finished goods. "f the manufacturing cycle will be longer more working capital will be re:uired or vice versa. Se!?o5!6 @!ri!tio5:

"n certain industries like #T* raw material is not available throughout the year. They have to buy raw material in bulk during the season to ensure an uninterrupted flow and process them during the year. 1enerally, during the busy season, a firm re:uires large working capital than in the slack season. . . Produ<tio5 Po6i<&: 4roduction policy also determines the working capital level of a firm. "f the firm has steady production policy, it may re:uire need of continuous working capital. <ut if the firms adopt a fluctuating production policy means to produce more during the lead

demand season then the more working capital may re:uire at that time but not in other period during a financial year. +o the different productions policy arises different type of need of working capital. / $irmG? Credit Po6i<&: The firms credit policy directly affects the working capital re:uirement. "f the firm has liberal credit policy, hence the more credit period will be provided to the debtors so this will lead to more working capital re:uirement. 8ith the liberal credit policy operating cycle length increases and vice versa. 1 S!6e? Gro9t8: 8orking capital re:uirement is directly related with sales growth. "f the sales are growing, more working capital will be needed due to arises need of more .aw *aterial, finished goods and credit sales. 2 %u?i5e?? C&<6e: <usiness cycle refers to alternate expansion and contraction in general business. "n a period of boom, larger amount of working capital is re:uired where as in a period of depression lesser amount of working capital is re:uired. * E!r5i5; C!=!<it& H Di@ide5d Po6i<&: "f the firm has enough earnings and it is not paying dividend then it will not be in need of external borrowings. "f firm wants to increase its earning power then more working capital will be re:uired also to pay more dividend more profits are needed which give rise to more working capital. 2ompany is paying A?C dividend to its shareholder. 3 Pri<e Le@e6 C8!5;e?: 2hanges in the price level also effects the working capital re:uirements. 1enerally, the rising prices will re:uire the firm to maintain larger amount of more funds will be re:uired to maintain the same current assets. +) Co5ditio5 o> Su==6&: working capital as

The inventory of raw material, spares and stores depends on the condition of supply. "f the supply is prompt the firm can manage with small inventory. 7owever if the supply is unpredictable then the firm to ensure continuity of production, should ac:uire stocks as and when they are available and have to carry larger inventory on an average. ++ Ot8er $!<tor?: 2ertain other factors such as operating efficiency, management ability, irregularities of supply, import policy, asset structure, importance of labour, banking facilities, time lag. etc. also influence the re:uirement of working capital. +o these are the main determinants of working capital. The importance of influence of these determinants on working capital may differ from firm to firm.

MEANING

AND

NATURE

O$

WORKING

CAPITAL

MANAGEMENT
The management of working capital is concerned with two problems that arise in attempting to manage the current assets, current liabilities and the inter relationship that asserts between them. The basic goal is working capital management is to manage current assets and current liabilities of a firm in such a way that a satisfactory of optimum level of working capital is maintained i.e. it is neither inade:uate nor excessive. This is so because both inade:uate as well as excessive working capital position is bad for business.

MAIOR DECISIONS IN WORKING CAPITAL MANAGEMENT

There are two ma6or decisions management relating to working capital management9 >. ?. 8hat should be ratio of current assets to salesD 8hat should be the appropriate mix of short term financing and long term financing for financing these current assetsD

Curre5t !??et? i5 re6!tio5 to ?!6e?:'

"f the firm can forecast accurately the factors, which effect the working capital, the investment in current assets, can be designed uni:uely. 8hen uncertainty characteristics the above factors, as it usually does the investment in current assets cannot be specified uni:uely. "n case of uncertainty, the outlay on current assets should consist of base component meant to meet normal re:uirement and a safety component meant to cope with unusual re:uirement. The safety component depends upon low conservative or aggressive in the current assets policy of a firm. "f the firm purchases a very conservative current asset policy it would carry a high level of current assets in relation to sales. "f a firm adopts a moderate current assets policy it would carry moderate level of current assets in relation to sales, finally is a firm follows a highly aggressive current assets policy, it would carry a low level of current assets in relation to sales. #T* is following current assets policy showing moderate level of current assets in relation to sales as is evident from ratio analysis.

( Determi5i5; ! S8ort Term !5d Lo5; Term $i5!5<i5; MiJ >or $i5!5<i5; o> <urre5t !??et?:'
There are three approaches in this regard, which are discussed below9 ,EDGING APPROAC, This approach is also called matching approach. "n this approach there is a proper matching of expected life of asset with the duration of fund. 3sually, according to this approach long term sources are used for financing permanent current assets and fixed assets B short term sources are used for financing temporary current assets9

Temporary current assets +hort term financing A + + ' T +

term financing 4ermanent current assets )ong term financing

-ixed Assets Time

CONSERVATIVE APPROAC, "n this approach there is more reliance on long term financing in comparison to short term financing. 'ven some part of the temporary current comparison to finance from long term sources because long term sources are less risky in comparison to short term sources.

Temporary 2urrent Assets A + + ' T + +hort term financing

4ermanent 2urrent Assets

)ong term financing

-ixed Assets

Time

AGGRESSIVE APPROAC, "n this approach there is more reliance on short term financing and even a part of permanent current assets is financed from short term finance.

Temporary current assets A + + ' T +

+hort term financing

4ermanent current assets -ixed Assets Time

)ong term financing

"n #T*, the current assets are financed from short term sources as well as long term sources, so they follow conservative approach.

hapter* , ,ISTORY O$ T,E INDIAN TEXTILE INDUSTRY

,ISTORY O$ T,E INDIAN TEXTILE INDUSTRY:

The human need is to eat well for to be alive and shelter to protect them from discomforts of nature and a place to live in. 7uman beings also need something to cover their body to protect from diverse climates and to add the appearance. 'arlier there was a time when the human being known nothing about the cloth to wear. The human beings first use plant barks, leaves and animal skin to wrap around them. Then as the development of brain took place, they started to explore other possibilities and invent more in this area. There is constant search for clothing and it led to the knowledge of sources from vegetation i.e. 2otton and from animals i.e. wool, which could be knitted and woven to manufacture clothes to wear. The commercial development of man made fiber began late in the >E th 2entury, experienced much growth during the >EAFs, expanded rapidly after world 8ar ; "" and in the >EGFs was still the sub6ect of extensive .esearch and ,evelopment. The spinning and weaving both are very common and attached with each other in all parts of the world. 8e talk of the ancient times, when maximum work like weaving of the clothes was done manually, but all the things were being done for the right perspectives. -rom time to time in this world development had taken place, which has been found to be a continuous process. +imilarly considering the developments in the +pinning and 8eaving lot of improvements has come up. <ecause earlier too was the 2otton crop was grown by the farmers, but its end use was not done in an effective way, which seems good. +o much thick fiber was produced and accordingly its impact for the fabric preparation.

APPARATUS USED $OR SPINNING AND WEAVING DURING PRE'INDEPENDENCE PERIOD

<efore "ndependence we talk of the political leaders like *ahatma 1andhi, who had always insisted to use &hadi 2lothes and even self spinning and weaving. "t is also called as self dependence for all needs. +uch a good initiatives had come up at "ndia level amongst the followers of the )eader ; *ahatma 1andhi. /n the other side too such initiatives had been proved very good and had attracted many other western countries to follow such practices and show their excitedness. Though in case we talk of the 'nglish rule before the "ndependence i.e. >EAG, it was not appreciated by the 'nglish .ulers, but after the freedom these leaders had got very good appreciation particularly for the self spinning and weaving and in an overall manner this sector of +pinning and 8eaving was industrialized even after the independence too on the basis of "ndian cotton growers.

"t is needless to mention here that through out "ndia, cotton growers belts are available and after independence even 'nglish people take their raw material from here and had established themselves with the +pinning and 8eaving industries. /verall "n "ndia no such preferences for the +pinning and 8eaving industries were made, however the )ibrary research reveals that the first 2otton mill had been established in "ndia during >HIA named as <ombay +pinning and 8eaving company. Though the 2otton industry had progressed a lot, but in case we say that "ndia alone is heading this world, it is wrong. Though in "ndia Textile *achine manufacturers are there and one or two decades ago they were the market leaders, but with the help of the other partsJpeople of world i.e. 1ermany, +witzerland etc., "ndia had made a very good recognition in the yarn market. <ecause "ndian "ndustrial /rganizations have also initiated towards the most modernized machinery produced by +chlafhorsts ; 1ermany, )uwa ; 7umidification systems, +witzerland. This is 6ust the example of the development, that in "ndia too the most modern machinery is being installed. 7owever, it is an evident that the "ndian yarn is always running on the development trend since its "nception of first unit in <ombay, but its position in the international market has not appeared so good. <ecause many other countries like 2hina as 2otton Textiles has went ahead. Though till today "ndia has achieved a lot in the Textile "ndustry and almost GFF Textile units are working successfully, because "ndia is having at present more than ?F *illion spindles and a weaving capacity of more than ?.I )ac looms and the total output value of the same is around .s.>IFF 2ores, employing more than >F )ac of workers directly. The invention and production of man made thirty three fibers that is synthetic fibers like $ylon, Acrylic fibers, 4olyester -iber, #iscose, -ilament yarns, *elange yarn, etc., which ultimately had given a good blow to grow for the 2otton Textile "ndustry and know occupy a ma6or part of consumer acceptance. About IF countries have been importing such material from "ndia and the description of the +pinning and weaving industry had remained incomplete without referring to the woolen industry.

hapter* PRO$ILE O$ T,E GROUP AND UNIT

PRO$ILE O$ T,E GROUP AND UNIT

The industrial city )udhiana nestles the corporate 7ead:uarters of the /swal 1roup of industries. The /swal 'mpire comprises of Anshupati Textiles )imited situated in )udhiana, #ardhman 4olytex )imited situated in <athinda, #inayak Textile *ills situated in )udhiana. /swal group is earning laurels by exporting yarn of international :uality to several countries and #4) <athinda is an "+/ EFF> ?FFF certified company and #T* is granting authorization to use the Trademark 3+T'."K', 3+T'.! think :uality. %ACK DROP: OSWAL GROUP is a premier of textile group of northern "ndia having its corporate office situated at )udhiana, 4un6ab,0"ndia5. The organization has existence for last AF year in core competency of spinning. 8e were earlier part of the #ardhman 1roup.but after settlement between two brother in ?FF@, we have named ourselves as /swal 1roup has mainly into +pinning and ,yeing of all type of %arn in different manufacturing of 1arments. The group has ambitious plan to diversify in future but in textiles related activities /swal 1roup will achieve a turnover of .s.IFF crores by strengthening its core competencies and capacities in Textile and diversified business to create value for its stakeholders.03+, >>F millions5. The group has very good potential and high presence in the textiles industry with well set manufacturing set up for >FFC cotton, 4olyester cotton, 8orsted +pun %arn ,,yed %arn, and other blended yarns. All the group units have state of the art technology imported from machinery giant in 'urope, Lapan, 2hina and many other countries. To ensure :uality commitment to its valuable customers, the .B, department is well e:uipped with latest .B, e:uipments. 2ontinuous efforts are always being made to further improve the

:uality and match the industry standard to meet the actual re:uirements of its :uality conscious customers.

COMPANY STRUCTURE

OSWAL GROUP

VPL %AT,IND A

VTM LUD,IAN A

ANSHUPA TI LUDHIANA

A5?8u=!ti TeJti6e? Limited, based at )udhiana in 4un6ab, the worsted spinning units in the "ndian subcontinent with HFFF worsted spindles installed, manufactures the *achine &nitting %arn, *ink %arn and -ancy yarn, with vast product range, to meet every sort of count combination demand of its prospective customers. The :uality yarn in this unit is manufactured using state of art technology imported from 'urope, which is fully backed with ultra modern .B, e:uipment for consistent :uality. The yarn manufactured from this unit holds a very strong reputation and demand both in domestic and international market. The present capacity in terms of production is approximately M.I tonJ,ay V!rd8m!5 Po6&teJ Limited, a unit based at <athinda in 4un6ab with >FIFFF cotton spindles installed, is manufacturing >FFC cotton yarn, 4olyster cotton yarn and Tyre cord yarn with vast range of count selection varies from $' >F to AF both in carded and combed varieties. To ensure :uality to its customers the group has received the "+/ EFF> ?FFF certification. This unit is exporting its product to *auritius, 7ong &ong, +ingapore, 'gypt, Turkey, <angladesh, 2hina, Taiwan etc. The company keeps on receiving repeat orders, which shows the level of confidence, bestowed by its customers into it. The company had been awarded the 'xport 7ouse status by the 1overnment of "ndia. The present capacity in term of production is around MI Tons Jday. They are also thinking of producing #alue added that is 0i5 +lub yarn 0ii5 )yera yarn. Vi5!&!: TeJti6e Mi66?, a unit at )udhiana in 4un6ab with IFFFF cotton spindles installed, is manufacturing >FFC cotton yarn and 4olyster yarn with vast range of count selection varies from $' >Fs to AFs both in carded and combed varieties. The present capacity in term of production is around ?ETons J,ay and >A mt dyeing Jday.

CURRENT SET UP:

4resently the 2ompany has its corporate office situated at 2handigarh .oad, village *undian, )udhiana and works at <athinda B)udhiana. The day to day operations are looked after by :ualified technocratsJprofessional at plantJwork as well as at corporate office having rich experience in their respective fields of management.

Ashok /swal himself a )aw 1raduate has been looking after the textile business in this company since >EHG. 3ptill family settlement, he was actively associated with the business management of #ardhman group.

PRESENT CAPACITIES
4resently the group has following production capacity and product range at its different manufacturing facilities. Lo<!tio5 I5?t!66ed C!=!<it& <athinda 0existing 5 0#4)5 )udhiana 0Anshupati Textile5 )udhiana 0#T*5 "?=i5d6e?# >FIFFF HFFF IFFFF Produ<tio5 C!=!<it& MITons J ,ay M.I TonsJ,ay ?E TonsJ,ay dyeingJ,ay 2otton, synthetic, blended yarn Acrylic %arn >FFCcotton 2ottonblended Produ<t R!5;e

>A *T yarn,4olyesterJ

COMPUTERISATION
4resently the unit is operating under +A4 system!. This system is well structured keeping in view the present tax regime like #AT, +'.#"2' TA(, and T,+ etc. The system is functioning to online to finance, raw material, stores and commercial. All the stauratory returns are generated online from the system. 4ersonal computers have also been provided separately for each department like administration, costing, .B,, *aintenance as well as the production areas.

USTERI0ED CERTI$ICATION
The unit had been awarded 3+T'. certificate by 3ster technologies A1 27 HM>F 3sterJ +witzerland on April >F, ?FFG. *J+ #inayak Textile mills, )udhiana J "ndia fulfil all conditions for using the brand 3+T'."K', and will be checked regularly at once per year basis.

PRODUCTION
The unit is producing different types of yarn both for ,omestic consumption and 'xport purpose. The production department is headed by 1eneral *anager 01.*.5. The #T* has two units. The unit " is concerned with the production of >FFC cotton yarn $' >Fs AFs, 2arded B 2ombed, +ingle B *ultifold, ,yed , 4rocessed B 4olyester yarn $' >Fs AFs, 2arded B 2ombed with a capability to offer any blend. The unit "" expansion is concerned with production of 8orsted +pun yarn >FFC 2otton. .4roduction capacity of unit ;" is >I ton per day and unit "" is >@ tons per day.

MARKETING
-or *arketing of different product, the unit is having a modern marketing department headed by experienced team which covers all the activities for conversion of finished goods into cash. "t keeps vigil on the market feed back on the level competition, market, trend, changing customer needs and modifications. The marketing department deals with domestic sales, while export department of the group manages export sales. The #T*. having the export and domestic ratio is @A9MM. The unit is having different channels for distribution of its products. >. ?. @. +elling agents at )udhiana, Amritsar, ,elhi, *umbai and Tirupur. <ranches at ,elhi and )udhiana. ,irect ,ispatches are also made by the units.

ORGNISATION STRUCTURE
A chart showing the organizational structure of #T* )udhiana is given on the next page. "t shows the various hierarchical levels of the organization. "t is a department line organization which is divided into various department headed by their respective department heads. All departments operate under the ultimate control of 2hief 'xecutive +h. Ashok 1oyal. The orders flow directly from unit head to different departmental heads down the line to respective department subordinates.

M!5u>!<turi5; Pro<e?? $6o9 C8!rt o> VPL

+))K COTTON CARDEDLCOM%ED YARN

"ssue of 2otton <ales )aying ,own <low .oom 2ard <reaker ,raw -rame -inisher ,raw -rame +peed -rame .ing -rame 8inding 2heese 8inding T.-./ 2onditioning 4acking for +ingle %arn 2onditioning 4acking for ,ouble %arn 3nilap 2omber

+torage B ,ispatch

MANU$ACTURING

PROCESS

IN

VINAYAK

TEXTILE

MILLS

LIMITED4 LUD,IANA
.aw cotton is used as a basic raw material for producing >FFC cotton yarn for ring spun. + MIXING The different varieties of cotton are issued as per product mix from the raw material section in bale from. The different varieties of cotton and different lots are mixed together as per the re:uirement of end product and standard recommended mixings. The material is conditioned in mixing for ?A hours. ( %LOW ROOM "n this process, the cleaning and opening of fibers is done in a se:uence of beaters. *ain purpose is to reduce tuft size, remove the trash particles and foreign matter etc, which often comes in the bales. - CARDING "n this process, further cleaning of fibers is done and the fibers are opened into single fibers extent i.e. the main purpose is further removal of trash in cotton and the industrialization and parallelization of fibers. -rom the carding machine, the material is delivered in the form of sliver.

. DRAW $RAME The purpose of this process is to reduce the wtJyard in the card sliver M to H end of card slivers are doubled together in this process to reduce variations and further drafting is done to reduce the wtJyard of delivered sliver. Two passages are given at the draw frame stage. "n case of combed counts, the card sliver is fed to the precombing draw frame. The purpose of combing draw frame is to reduce the wtJyard variations in the card sliver and to parallelize the fibers. +ingles passage is given at the precombing stage. / LAP $ORMER ?F ?I precombed draw slivers are fed together to produce a lap sheets of fibers, which is wound on the spools. 1 COM%ERS The laps prepared on lap former are fed to combers. The main purpose of combing process is to remove the short fibers from the material in the form of noil. The average noil percentage caries from >IC to >HC. The material is delivered in the form of sliver. 2 SPEED $RAME The finisher draw frame sliver is fed to the speed frames for conversion into the roving form. "n this process the wtJyard of the sliver is reduced, slight twist is given to the fleece and the material delivered in the form of roving, wound on the plastic bobbins. * RING $RAME The roving is fed to ring frame for conversion into yarn. "n the process, the weight J yd of roving is reduced as per re:uirement of ultimate user and the delivered yarn is wound on the plastic bobbins. 3 WINDING "n this process, the yarn is wound on paper cones to produce bigger package, as per re:uirement of the market. The weight J package varies from >.? kilogram to ?.> kilogram. ,uring the process, in addition to the formation of bigger packages, the yarn faults are also removed with help of electronic yarn cleaner. +) DOU%LING "n the case of type cord the process is same upto cone winding. After cone winding the yarn is fed into 2heese 8inding. "n the process ? ply or A ply is to be done as per re:uirement. After the yarn is fed into ring doubling and re:uired T.4.". is given in ? ply

or A ply yarn. "n the next process in assembly cheese winding is get the package in the package in the re:uired from to be fed into T.-./. in T.-./. final yarn is prepared in the form of cheese and re:uired T.4.". is given to the final yarn in process. ++ PACKING "n this process, the cones J cheese are packed in bags or cartoons as per the re:uirement of the market. "n addition to the packing the material is checked thoroughly to avoid mixing of different materials

hapter* . OUTLINE O$ T,E STUDY

OUTLINE O$ T,E STUDY

The management of working capital is very important. "t involves the study of day to day affairs of the company. The motive behind the study is to develop an understanding about the working capital management in the running business organization and to help the company in developing the efficient working capital management. +o it helps in future planning and control decisions. O%IECTIVES O$ T,E STUDY The ob6ectives of the study are as follows9 To analyze the working capital management of the company. To determine the operating cycle of the unit. To know the future need of working capital in the running organization. To render recommendations for the effective management of working capital. SCOPE O$ T,E STUDY The study is conducted at #T* ;)3,7"A$A! for M weeks duration. The study of 8.2. management is purely based on secondary data and all the information is available within the company itself in the form of records. To get proper understanding of this concept, " have done the study of the balance sheets, profit and loss aJcs, cash accounts, trial balance, cost sheets. " have also conducted the interviews with employees of accounts and finance department and stores department. +o, scope of the study is limited up to the availability of official records and information provided by the employees. The study is supposed to be related to the period of last four years.

RESEARC, MET,ODOLOGY

To recognize the various type of information which are necessary for the study of working capital management. 2ollection of data from various department of #T* to analyze the working capital management of #T*. -or understanding the various reports, personal interviews are conducted. 8ith the help of various techni:ues like9

/perating 2ycle analysis .atio Analysis 2ommon size statement +chedule of changes in working capital The overall position of #T* is studied and analyzed +uggestions are given on the basis of findings for better understanding of working capital management. SOURCES O$ IN$ORMATION Primar/ Data ; The personal interview with senior officials and various members of finance and accounts department and also with other departments and collected the data. Se0ondar/ Data ; All the details necessary for the study was available within the company itself. LIMITATIONS O$ T,E STUDY As central purchase office purchase raw material and central marketing yarn make sales. +o more detailed information cannot be received about these. 2ash from debtors are collected by the corporate office through commission agents. +o efforts for collection of debtors cannot be clearly known from #T* )udhiana. "nvestment of funds are also made by corporate office, so it becomes difficult to know that how much investment is made in different ways for continuous availability of funds.

hapter* 1 WORKING CAPITAL ANALYSIS

WORKING CAPITAL ANALYSIS

+ OPERATING CYCLE ANALYSIS /perating cycle refers to the time period which starts from the raw material purchases and ends with realization of receivable. +o it is total time gap between raw material purchases to total debtors collection. This is also known as working capital cycle. /perating cycle is therefore expressed in terms of months or weeks or days. The higher the operating cycle period, higher the working capital re:uirement. "t comprises of raw material conversion period, 8"4 conversion period, -1 conversion period and debtors conversion period and creditors period. The basic reason for calculating operating cycle is to find out the means for reducing the duration of operating cycle because if duration of operating cycle will be less than working capital re:uirement will be less. /2 N . O 8 O - O , ; 2 8here, . N raw material conversion period 8 N work in process period - N finished goods conversion period , N debtor collection period 2 N creditors payment period

"+#

R!9 M!teri!6 Co5@er?io5 Period "RMCP# N Average .aw *aterial +tock ( @MF

.aw *aterials consumed during the year

$OR SPINNING MILL: 4A.T"23)A.+ ?FFA FI Average raw material stock >H@FG>??H.>A .aw material consumed during the year .*24 @HIA@F>@@.AF >ME.? ,A%+ ?FFI FM ??G>IFE?M.FG @FEEGAAHG.?? ?M@.H ,A%+ ?FFM FG ?>HFAMGIA.EA A>FMMMFG@.GM >E>.> ,A%+ ?FFG FH @?HFFIAEE.AI AEIAI@FM>.GM ?@H.@ ,A%+

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

$OR DYE ,OUSE: 4A.T"23)A.+ ?FFA FI Average raw material stock .aw material consumed ?FFI FM >IF>?H>I.IA >??EM>@M@.?I ?FFM FG >MF?@AIH.MM ?M@G>H@FA.MH ?FFG FH >>>FHHGE.@A @@H>EAF??.@@

during the year .*24

45 40 35 30 25 20 15 10 5 0

A@.E ,A%+

?>.E ,A%+

>>.H ,A%+

RM CP

2004-05

2005-06

2006-07

2007-08

"(#

Wor: i5 Pro;re?? Co5@er?io5 Period "WIPCP# N Average stock in progress 2ost of 4roduction ( @MF

$OR SPINNING MILL: 4A.T"23)A.+ ?FFA FI Average stock in progress 2ost production 8"24 AFAMMEH.FF of IFF@>GFAI.HH ?.E> ,A%+ A?MA>AIGM.GI ?.E ,A%+ MFHHIH?G>.@G @.H ,A%+ GI>H?A?AA.EA A.> ,A%+ ?FFI FM @@HHFFM ?FFM FG MAFMHA? ?FFG FH HIEIMAF.AF

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 WICP

2004-05

2005-06

2006-07

2007-08

$OR DYE ,OUSE: 4A.T"23)A.+ ?FFA FI Average stock in progress 2ost production 8"24 >F?>FG? of ?I?IAHF?.>E >A.M ,A%+ ?>EFFIM@A.GM E.I ,A%+ AFAAEHG@A.G I.E ,A%+ I?AMGFEMG.IH @.A ,A%+ ?FFI FM IGE>MG@ ?FFM FG MME?@@M ?FFG FH AE>GF@>.FF

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

"-#

$i5i?8ed Good? Co5@er?io5 Period "$GCP#

Average -inished good inventory 2ost of goods sold

( ( @MF @MF

$OR SPINNING MILL: 4A.T"23)A.+ ?FFA FI Average finished goods >HE@EH@>.>H inventory 2ost of goods sold -124 IFF@>GFAI.HH >@.M ,A%+ A?MA>AIGM.GI G.E ,A%+ MFHHIH?G>.@G G.A ,A%+ GI>H?A?AA.EA >E.> ,A%+ ?FFI FM EAG@?GF ?FFM FG >?IAIHAI ?FFG FH @EH>GF@E.MH

20 15 10 5 0

FGCP

2004-05

2005-06

2006-07

2007-08

$OR DYE ,OUSE: 4A.T"23)A.+ ?FFA FI Average ' finished goods inventory 2ost of goods sold -124 ' ' ?>EFFIM@A.GM E.M ,A%+ AFAAEHG@A.G M ,A%+ I?AMGFEMG.IH M.E ,A%+ ?FFI FM IHIGA>M ?FFM FG MGAIEMM ?FFG'FH >FF@AAEH

10 8 6 4 2 0 FGCP

2004-05

2005-06

2006-07

2007-08

".#

Debtor?G Co5@er?io5 Period "DCP# N Average ,ebtors 2redit +ales ( @MF

$OR SPINNING MILL 9 4A.T"23)A.+ Average debtors 2redit sales ,24 ?FFA FI @G?GEFGF.HA IEMFMEIHG.M? ??.A ,A%+ ?FFI FM @G?GEFGF.HA IA@>MGFFM.@I ?A.G ,A%+ ?FFM FG E?@>?M@H.>@ IHH>H@MIF.?@ IM.I ,A%+ ?FFG FH ?EEGF@ME.AE G@FFAGGAG.MF >A.H ,A%+

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

$OR DYE ,OUSE: 4A.T"23)A.+ Average debtors 2redit sales ,24 ?FFA FI ?AGGME ?>??AF A?F.@ ,A%+ ?FFI FM ?HEIEAII.HA ?F?@GEAAE.H> I>.I ,A%+ ?FFM FG AHEFA?GF.EG AE?I?EMI?.ME @I.G ,A%+ ?FFG FH EE@F>I?>.FE M>FHM@AE@.GM IH.I ,A%+

450 400 350 300 250 200 150 100 50 0 DCP

2004-05

2005-06

2006-07

2007-08

"/#

Credit Co5@er?io5 Period "CCP# N Average 2reditors 2redit 4urchases ( @MF

$OR SPINNING MILL9 4A.T"23)A.+ Average creditors 2redit purchases 224 ?FFA FI A@>MI>H.@> @HIA@F>@@.AF A.F@ ,A%+ ?FFI FM IHAFEGE.HH @FEEGAAHG.?? M.H ,A%+ ?FFM FG I?EAEAI.H@ A>FMMMFG@.GM A.M ,A%+ ?FFG FH ?@GFE@E@.?M AEIAI@FM>.GM >.G ,A%+

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

$OR DYE ,OUSE:

4A.T"23)A.+ Average creditors 2redit purchases 224

?FFA FI

?FFI FM IAAE@??.HE >??EM>@M@.?I >I.E ,A%+

?FFM FG >?F@H>H.ME ?M@G>H@FA.MH >.M ,A%+

?FFG FH >GMGM>A.HE @@H>EAF??.@@ >.E ,A%+

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

GROSS OPERATING CYCLE $OR SPINNING MILL: %'A. ?FFA FI ?FFI FM ?FFM FG ?FFG FH .*24 >ME.? ,A%+ ?M@.H ,A%+ >E>.> ,A%+ ?@H.@ ,A%+ 8"24 ?.E> ,A%+ ?.E ,A%+ @.H ,A%+ A.> ,A%+ -124 >@.M ,A%+ G.E ,A%+ G.A ,A%+ >E.> ,A%+ ,24 ??.A ,A%+ ?A.G ,A%+ IM.I ,A%+ >A.H ,A%+ 1/2 ?FH.> ,A%+ ?EE.@ ,A%+ ?IH.H ,A%+ ?GM.@ ,A%+

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

NET OPERATING CYCLE $OR SPINNING MILL: %'A. ?FFA FI ?FFI FM ?FFM FG ?FFG FH 1/2 ?FH.>> ,A%+ ?EE.@ ,A%+ ?IH.H ,A%+ ?GM.@ ,A%+ 224 A.F@ ,A%+ M.H ,A%+ A.M ,A%+ >.G ,A%+ $/2 ?FA.FH ,A%+ ?E?.I ,A%+ ?IA.? ,A%+ ?GA.M ,A%+

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

GROSS OPERATING CYCLE $OR DYE ,OUSE9 %'A. ?FFA FI ?FFI FM ?FFM FG ?FFG FH .*24 A@.E ,A%+ ?>.E ,A%+ >>.H ,A%+ 8"24 >A.M ,A%+ E.I ,A%+ I.E ,A%+ @.A ,A%+ -124 E.M ,A%+ M ,A%+ M.E ,A%+ ,24 A?F.@ ,A%+ I>.I ,A%+ @I.G ,A%+ IH.I ,A%+ 1/2 A@A.E ,A%+ >>A.I ,A%+ ME.I ,A%+ HF.M ,A%+

450 400 350 300 250 200 150 100 50 0 GOC

2004-05

2005-06

2006-07

2007-08

NET OPERATING CYCLE $OR DYE ,OUSE9 %'A. ?FFA FI ?FFI FM ?FFM FG ?FFG FH 1/2 A@A.E ,A%+ >>A.I ,A%+ ME.I ,A%+ HF.M ,A%+ 224 >I.E ,A%+ >.M ,A%+ >.E ,A%+ $/2 A@A.E ,A%+ EH.M ,A%+ MG.E ,A%+ GH.G ,A%+

450 400 350 300 250 200 150 100 50 0 NOC

2004-05

2005-06

2006-07

2007-08

ANALYSIS "t is claimed that gross operating cycle of #T* for spinning mill is increasing in year ?FFA FI and ?FFI FM and it is decreasing for dye house in year ?FFA FI and ?FFI FM. -or spinning mill in year ?FFA FI it is ?FH.>> days then it increased to ?EE.@ days in year ?FFI FM. "n ?FFM FG, it is decreased to ?IH.H days. The main reason of increasing gross operating cycle in ?FFA FI and ?FFI FM is due to more availability of raw material in the stores but in year ?FFM FG there is less 1/2 due to less availability of raw material in stores. The 1/2 for dye house has shown a significant decreament from A@A.E days in ?FFA FI to ME.I days in year ?FFM FG. "n year ?FFG FH, it came out to be HF.M days. The 1/4 for dye house is not satisfactory as it has decreased to a great extent.

( ANALYSIS O$ WORKING CAPITAL $ROM DI$$ERENT ASPECTS ON %ASIS O$ T,E ,ISTORICAL DATA

There are number of devices to analyze working capital like ratio analysis, common size statement etc. 8e will discuss them one by one as follows9 + RATIO ANALYSIS .atio analysis is a techni:ue of analysis and interpretation of financial statements. "t is the process of establishing and interpreting various ratios for helping in making decisions. "t only means of better understanding of financial strengths and weaknesses of a firm. The main emphasis has been on calculating the ratios related to a working capital management. "I2'IDI&Y RA&I#S These are the ratios which measures the short term solvency or financial position of a firm. "n other words, it refers to the ability of a concern to meet its current obligations as and when these become due. To measure the li:uidity of a firm, the following ratios can be calculated. CURRENT RATIO ; "t may be defined as the relationship between current assets and current liabilities. This ratio is also known as working capital ratio and measures the ability of the firm to meet current liabilities. 7igh current ratio indicates firm is li:uid and has the ability to pay its current obligations in time as and when they become due. A ratio e:ual or near to the rule of thumb of ?9> i.e. current assets double the current liabilities is considered to be satisfactory. 2urrent .atio N Current Ratio of VTM $OR SPINNING MILL9 2urrent Assets 2urrent )iabilities

%'A. ?FFA ?FFI ?FFM ?FFG FI FM FG FH

23..'$T A++'T+ @?EGHF>@A.AF @@GE>A>>E II @G?F@>EIA.F@ AM?GFM>HI.FM

23..'$T )"A<")"T"'+ ??EI?@FG.H? ?I@EHGEE.F@ ?EII@?HF.FH AGHE>AH>.E?

23..'$T .AT"/ 02.5 >A.A >@.@ >?.M E.G

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

$OR DYE ,OUSE9 %'A. ?FFA ?FFI ?FFM ?FFG FI FM FG FH 23..'$T A++'T+ EM@@FFG.M@ MAHAMF?E.M@ E?EHA@M>.M >AHI@GGFE.EE 23..'$T )"A<")"T"'+ >FAM?I??.II >@FEFGGG.EA HG@I>I>.@ IEGI@GG.>G 23..'$T .AT"/ 02.5 F.E A.E >F.M ?A.E

25 20 15 10 5 0 CR

2004-05

2005-06

2006-07

2007-08

ANALYSIS The current ratio of the spinning mill is above the standard and it guarantees the payment of dues in time. The current ratio of the company has been considerably high because they had made over investment in inventories which is the main reason for the high ratio of current assets. "nventories are high because of seasonal availability of raw material. The overall position of current ratio for spinning mill is satisfactory. The current ratio of dye house has shown a remarkable increament from F.E in ?FFA FI to>F.M in ?FFM FG and then to ?A.E in ?FFG FH. "nitially in ?FFA FI, the ratio was not satisfactory but it is :uite satisfactory for the years after ?FFA FI and especially for the year ?FFG FH.

LIFUID RATIO ; This ratio is also known as :uick ratio or acid test ratio. "t is a more rigorous test of li:uidity than the current ratio. "t is based on those current assets which are highly li:uid. "nventory and prepaid expenses are excluded because they are deemed to be least li:uid component of current assets. A high :uick ratio is the indication that the firm is li:uid and has the ability to meet its current liabilities in time and on the other hand low ratio represents li:uidity position is not good. Puick .atio N Puick or )i:uid Assets 2urrent )iabilities

Puick Assets N 2urrent Assets ; "nventory ; 4repaid 'xpenses Quick Ratio of VTM $OR SPINNING MILL9 %'A. ?FFA ?FFI ?FFM ?FFG FI FM FG FH )"P3", A++'T+ >?FIEHI?> HEH>>AFE.E? >?G?>MFFA.E> H>@IHE?M 23..'$T )"A<")"T"'+ ??EI?@FG.H? ?I@EHGEE.F@ ?EII@?HF.FH AGHE>AH>.E? )"P3", .AT"/ 0).5 I.@ @.I A.@ >.G

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

$OR DYE ,OUSE9 %'A. ?FFA ?FFI ?FFM ?FFG FI FM FG FH )"P3", A++'T+ M>?@F?G.HM @@?>HMEG.IG IMH>??@A.?M >>IGGMMIG.I@ 23..'$T )"A<")"T"'+ >FAM?I??.II >@FEFGGG.EA HG@I>I>.@ IEGI@GG.>G )"P3", .AT"/ 0).5 F.M ?.I M.I >E.A

20 15 10 5 0

LR

2004-05

2005-06

2006-07

2007-08

ANALYSIS According to rule of thumb, it should be >9>. -or spinning mill, the li:uid ratio has decreased over the past four years. "t was I.@ in ?FFA FI and decreased to A.@ in ?FFM FG and then to >.G in ?FFG FH. The decreament in the ratio is not satisfactory, however the ratio >.G in ?FFG FH matches the rule of thumb but it should be :uite more than the rule of thumb. -or dye house,the li:uid ratio has shown a significant increament over the past four years. "t increased from F.M in ?FFA FI to M.I in ?FFM FG and then to >E.A in ?FFG FH. The increament in the ratio is :uite good for the dye house. This shows that the investment in li:uid assets has increased over the past years.

A%SOLUTE LIFUID RATIO ; Although receivables are generally more li:uid than inventories yet there may be doubt regarding their realization into cash in time. Absolute li:uid ratio shows the relationship between li:uid assets which include cash, bank and marketable securities. Absolute )i:uid .atio N Absolute )i:uid Assets 2urrent )iabilities

Absolute Liquid Ratio of VTM

$OR SPINNING MILL9 %'A. A<+/)3T' )"P3", A++'T+ ?FFA ?FFI ?FFM ?FFG FI FM FG FH A@IM?E.@M IMEMIM I?>FHFG.IH @EIHHA.MA 23..'$T )"A<")"T"'+ ??EI?@FG.H? ?I@EHGEE.F@ ?EII@?HF.FH AGHE>AH>.E? A<+/)3T' )"P3", 0A).5 F.F> F.F? F.>H F.F> .AT"/

0.18 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 ALR

2004-05

2005-06

2006-07

2007-08

$OR DYE ,OUSE9 %'A. A<+/)3T' )"P3", A++'T+ ?FFA ?FFI ?FFM ?FFG FI FM FG FH 23..'$T )"A<")"T"'+ A<+/)3T' )"P3", 0A).5 ?@@EF? ?I@MFE >@FEFGGG.EA HG@I>I>.@ F.F> F.F? .AT"/

0.02 0.015 0.01 0.005 0

ALR

2004-05

2005-06

2006-07

2007-08

ANALYSIS The acceptable standard for this ratio is F.I9>. Thus spinning mill and dye house, we can say that in all the years, it is below the standard due to very less cash and bank balance maintained because ma6or cash receipts and payments are handled by corporate office. "t is very less in ?FFI FM, ?FFM FG due to increased cost of production both for spinning mill and dye house. WORKING CAPITAL TURNOVER RATIO ; 8orking capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio measures the efficiency with which the working capital is being used by a firm. 8orking 2apital Turnover .atio Working Capital Ratio of VTM $OR SPINNING MILL9 %'A. ?FFA ?FFI ?FFM ?FFG FI FM FG FH +A)'+ IEMFMEIHG.M? IA@>MGFFM.@I IHH>H@MIF.?@ G@FFAGGAG.MF $'T 8/.&"$1 >.E >.G >.G >.H 82T. 2A4"TA) @FMHH@IHG.IH @>?M?F@@I.I? @A?IE>HHI.EI A>IFGMMIM.>A N +ales $et 8orking 2apital

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

$OR DYE ,OUSE9 %'A. ?FFA ?FFI ?FFM ?FFG FI FM FG FH +A)'+ $'T 8/.&"$1 82T.

2A4"TA) ?F?@GEAAE.H> AE?I?EMI?.ME M>FHM@AE@.GM I>GII?I>.ME HA?AE?>F.A >A?IH>F?G.H@ @.E I.H A.@

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

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

capital and less working capital ratio indicates less utilization. -or spinning mill, the ratio is :uite same for the past four years. "t is >.E in ?FFA FI, >.G in years ?FFI FM and ?FFM FG and >.H in ?FFG FH. -or dye house, the ratio is more than that of spinning mill. "t shows increament from @.E in ?FFI FM to I.H in ?FFM FG and then decreased to A.@ in ?FFG FH. The ratio is satisfactory for dye house but it should not decrease further.

( COMMON SI0E STATEMENT ANALYSIS This analysis is mainly to see the composition of working capital. "ts purpose is to see the Cage of each asset to the total asset and Cage of each liability to total liability. COMMON SI0E STATEMENT $OR SPINNING MILL: $OR YEAR ()).')/9 PARTICULARS -"(', A++'T+ $et block 2apital work in progress 4ro6ect B 4re operative expenses AMOUNT " IN RS # IGFAAFA@A.E@ >G?FFAEA.>? K M?.>H >.HG

Total fixed assets 23..'$T A++'T+ "nventories +undry debtors 2ash B <ank <alances )oans B Advances Total current assets Total assets +7A.' 2A4"TA) B .'+'.#'+ "nter unit balances +ecured loans .eserves B +urplus Total 2apital B .eserves 23..'$T )"A<")"T"'+ +undry creditors /ther liabilities "nterest accrued but not due +ecurity deposits B .etention money Total current liabilities Total of liability side

IHGMAFE?E.FI ?FH>EIIEE.A> @GF@EEEM.?M A@IM?E.@M HA>FHEFE.@G @?EGHF>@A.A E>GA?>FM@.AI IMGIF@E@H.HA @@MH?I>H@.GG 0EHFAMFI.EH5 HEAI?AI>M.M@ @F>AI>H.@> >MM?G>>?.G@ MMHH@G >@@EH@E.GH ?>MIF@FG.H? E>M>GAH?A.AI

MA.FI ??.ME A.FA F.FI E.>G @I.EI >FF M>.EA @M.GM 0>.FG5 EG.MA F.@@ >.H> F.FG F.>A ?.@M >FF

$OR YEAR ())/')19 4A.T"23)A.+ -"(', A++'T+ $et block 2apital work in progress 4ro6ect B 4re operative expenses Total fixed assets 23..'$T A++'T+ "nventories +undry debtors 2ash B <ank <alances )oans B Advances Total current assets Total assets +7A.' 2A4"TA) B .'+'.#'+ A*/3$T 0"$ .+.5 IMIGFEHHF.IE ??GF>M>AF.AM AAFFAGH.I? GEG>?MAEE.IG ?AM>A>HHE.HH @G?GEFGF.HA IMEMIM I@E?@IF?.H@ @@GE>A>>E.II >>@IFAFM>E.>? C AE.H ?F F.@E GF.?@ ?>.ME @.?H F.FI A.GI ?E.GG >FF

"nter unit balances +ecured loans .eserves B +urplus Total 2apital B .eserves 23..'$T )"A<")"T"'+ +undry creditors /ther liabilities "nterest accrued but not due +ecurity deposits B .etention money Total current liabilities Total of liability side

HIGFH?>EM.A@ A?IE?AAAE.@E ?AI@>GHH.GH >@FGI@HA@A.M IHAFEGE.HH >HF@MAHE.HH

MA.@F @>.EI >.HA EH.FE F.AA >.@I

>I?>@?E.?G ?I@EHGEE.F@ >@@?E@G?@@.M@

F.>> >.E> >FF

$OR YEAR ())1')29 4A.T"23)A.+ -"(', A++'T+ $et block 2apital work in progress 4ro6ect B 4re operative expenses Total fixed assets 23..'$T A++'T+ "nventories +undry debtors 2ash B <ank <alances )oans B Advances Total current assets Total assets +7A.' 2A4"TA) B .'+'.#'+ "nter unit balances +ecured loans .eserves B +urplus Total 2apital B .eserves 23..'$T )"A<")"T"'+ +undry creditors /ther liabilities "nterest accrued but not due +ecurity deposits B .etention money Total current liabilities A*/3$T 0"$ .+.5 HG@FHIH?E.EI @EEHHMH@.M? E>@FGAI>@.IG ?AFAI@MII.M? E?@>?M@H.>@ I?>FHFG.IH @AFIAHI?.GF @G?F@>EIA.F@ >?HI>FMAMG.M G@FFA?@@F.AA I@?EIGMFM.EI 0G@@@I@G.HG5 >?IIMMM@EE.I? I?EAEAI.H@ ?>@>EM>E.@? C MG.EA @.>> G>.FI >H.G> >H.G> F.A> ?.MI ?H.EI >FF IM.HF A>.AG 0F.IG5 EG.GF F.A> >.MG

?E@HG>A.E@ ?EII@?HF.FH

F.?? ?.@

Total of liability side

>?HI?>EMGE.M

>FF

$OR YEAR ())2')*9 4A.T"23)A.+ -"(', A++'T+ $et block 2apital work in progress 4ro6ect B 4re operative expenses Total fixed assets 23..'$T A++'T+ "nventories +undry debtors 2ash B <ank <alances )oans B Advances Total current assets Total assets +7A.' 2A4"TA) B .'+'.#'+ "nter unit balances +ecured loans .eserves B +urplus Total 2apital B .eserves 23..'$T )"A<")"T"'+ +undry creditors /ther liabilities "nterest accrued but not due +ecurity deposits B .etention money Total current liabilities Total of liability side A*/3$T 0"$ .+.5 H??EE?EEA.A@ ?G>MIEGF.E? HIF>IHEMI.@I @GEI>F>FF.II ?EEGF@ME.AE @EIHHA.MA I?H?EH@F.@H AM?GFM>HI.FM >@>?HMI>IF.A> >F?MG@MMFG.FM A@>I>F>HH.A? 0>>GFMM@G>.GF5 >@A>>HFA?@.GH ?AA>IM?M.G? ?@AGIHII.?F C M?.ME ?.FG MA.GM ?H.E> ?.?H F.F@ A.F? @I.?A >FF G@.E? @>.FM 0H.A@5 EM.II >.GM >.ME

AGHE>AH>.E? >@HEFG>EFI.G

@.AI >FF

$OR DYE ,OUSE: $OR YEAR ()).')/: 4A.T"23)A.+ A*/3$T 0"$ .+.5 C

-"(', A++'T+ $et block 2apital work in progress 4ro6ect B 4re operative expenses Total fixed assets 23..'$T A++'T+ "nventories +undry debtors 2ash B <ank <alances )oans B Advances Total current assets Total assets +7A.' 2A4"TA) B .'+'.#'+ "nter unit balances +ecured loans .eserves B +urplus Total 2apital B .eserves 23..'$T )"A<")"T"'+ +undry creditors /ther liabilities "nterest accrued but not due +ecurity deposits B .etention money Total current liabilities Total of liability side

>HMF>GHGE.HI @MA>IH>.GG >HEMIEAM>.M? @?AG@>@.GG ?AGGME M>@GE?A.HM EM@@FFG.M@ >EE?E?AME.?I >AFEI>GFI.>> IEHG?E?F 0>>EEAMGH.A>5 >HHH?EEAM.G H@IEEI>.>I >A?EG?M.E?

E@.@A >.H@ EI.>G >.M@ F.>? @.FH A.H@ >FF GF.G@ 0M.F?5 @F.FA EA.GI A.>E F.G?

MG?HAA.AH >FAM?I??.II >EE?E?AME.?I

F.@A I.?I >FF

$OR YEAR ())/')1: 4A.T"23)A.+ -"(', A++'T+ $et block 2apital work in progress 4ro6ect B 4re operative expenses Total fixed assets 23..'$T A++'T+ "nventories +undry debtors 2ash B <ank <alances A*/3$T 0"$ .+.5 >HA?AHHGE.?G HAEFEM.AM >HIFEGEGI.G@ @>@FFIA>.FM ?HEIE>GF.?M ?@@EF? C G@.G? F.@A GA.FM >?.I? >>.IE F.FE

)oans B Advances Total current assets Total assets +7A.' 2A4"TA) B .'+'.#'+ "nter unit balances +ecured loans .eserves B +urplus Total 2apital B .eserves 23..'$T )"A<")"T"'+ +undry creditors /ther liabilities "nterest accrued but not due +ecurity deposits B .etention money Total current liabilities Total of liability side

A@I?A>M.@> MAHAMF?E.M@ ?AEEAAFFI.@M ?>?MI>?IM.A> IEHG?E?F 0>A>GGE?>.@F5 ?IH@AM?II.>> IAAE@??.HE MH?>HAG.E?

>.GA ?I.EA >FF GH.@A I.?? ??.FM EI.>H ?F.FH ?.I>

H>EMFG.>@ >@FEFGGG.EA ?G>A@GF@@.FI

F.@F A.H? >FF

$OR YEAR ())1')2: 4A.T"23)A.+ -"(', A++'T+ $et block 2apital work in progress 4ro6ect B 4re operative expenses Total fixed assets 23..'$T A++'T+ "nventories +undry debtors 2ash B <ank <alances )oans B Advances Total current assets Total assets +7A.' 2A4"TA) B .'+'.#'+ A*/3$T 0"$ .+.5 ??F?>@>IA.I @FF?@G ??FI>@@E>.I @IH>MHEE.@ AHEFA?GF.E ?I@MFE HFFEIH>.E E?EHA@M>.> @>@AEGGI?.M C GF.?A F.FEM GF.@A >>.A? >I.IE F.FH ?.II ?E.MM >FF

"nter unit balances +ecured loans .eserves B +urplus Total 2apital B .eserves 23..'$T )"A<")"T"'+ +undry creditors /ther liabilities "nterest accrued but not due +ecurity deposits B .etention money Total current liabilities Total of liability side $OR YEAR ())2')*: 4A.T"23)A.+ -"(', A++'T+ $et block 2apital work in progress 4ro6ect B 4re operative expenses Total fixed assets 23..'$T A++'T+ "nventories +undry debtors 2ash B <ank <alances )oans B Advances Total current assets Total assets +7A.' 2A4"TA) B .'+'.#'+ "nter unit balances +ecured loans .eserves B +urplus Total 2apital B .eserves 23..'$T )"A<")"T"'+ +undry creditors /ther liabilities "nterest accrued but not due Trade deposits and other Advances Total current liabilities

?>IHIIGF?.? IEHG?E?F ?EF@@EGE.A @FAGM?MF>.M >?F@H>H.ME G@@IGMA.I@

MH.E E?.M >E.FE EG.?> F.@H ?.@A

>EIIMG.HE HG@I>I>.>> @>@AEGGI?.G>

F.FM? ?.GE >FF

A*/3$T 0"$ .+.5 ?FEH>?EAM.FH EH@I@G.FM ?>FGEMAH@.>A @?@A>M>A.AM EE@F>I?>.FE >MHEAIGA.AA >AHI@GGFE.EE @IE@@A>E@.>@ ?@MHF>IEH.HE >@>A@I@@?.I? I@GI@EHI.GH A?>EEFE>G.>E >GMGM>A.HE AFGMFFI.?>

C IH.@E F.?G IH.MM E ?G.M@ A.GF A>.@A >FF II.@@ >?.IM @F.G> EH.MF F.A> F.EI

>@>GIG.FG IEGI@GG.>G

F.F@ >.A

Total of liability side

A?GEMM?EA.@M

>FF

ANALYSIS -or spinning mill, the ma6or part of current assets involves inventories. "t covers more than IFC of total current assets. The debtors also have significant part of current assets. "t contributes approximate >>C to @FC part of current assets for all the years from ?FFA FI to ?FFG FH. The least contribution is thus of cash and bank balance. /n the other hand, current liabilities consist of mainly creditors and other liabilities. "n ?FFG FH, current assets have increased due to increase in inventories and loans B advances, and current liabilities have also shown increament. +o the working capital is more for year ?FFG FH as compared to last years working capital. -or dye house, the inventories form a good portion of current assets and contribute @FC to IFC of the total current assets over the past years. The sundry debtors also show fluctuating proportions in the total current assets over the years. The proportion is :uite less for year ?FFA FI but it increased significantly for the next years and contributed about MMC to the total current assets in year ?FFG FH. The current liabilities mainly consist of sundry creditors and other liabilities. The sundry creditors have decreased over the past years. The other liabilities have shown increament from year ?FFA FI to year ?FFM FG but it has decreased in year ?FFG FH.

- ANALYSIS ON T,E %ASIS O$ SC,EDULE O$ C,ANGES IN WORKING CAPITAL SC,EDULE O$ C,ANGES IN WORKING CAPITAL: $OR SPINNING MILL:

ANALYSIS:

4A.T"23)A.+ 23..'$T A++'T+9 "nventories +. debtors 2ash B <ank <alances )oans B Advances Total current assets 0A5 23..'$T )"A<")"T"'+9 +. creditors /ther liabilities "nt. accrued but not due +ecurity deposits B .etention money Total current liabilities 0<5 8orking capital 0A <5 $et increase in working capital

?FFA FI ?FH>EIIEE.A> @GF@EEEM.?M A@IM?E.@M HA>FHEFE.@G @?EGHF>@A.A

?FFI FM ?AM>A>HHE.HH @G?GEFGF.HA IMEMIM I@E?@IF?.H@ @@GE>A>>E.II

"$2.'A+' @GEAM?EF.AG ?@EFGA.IH >@AF?M.MA

,'2.'A+'

@F>HIAFM.IA

A@>MI>H.@> >MM?G>>?.G@ MMHH@G >@@EH@E.GH

IHAFEGE.HH >HF@MAHE.HH MMHH@G >I?>@?E.?G

>I?AAM>.IG >AFE@GG.>I >H>AHE.AE

??EI?@FG.H? @FMH?GH?M.IH IMHGAE@.EA @>?I>I@?F.I?

@>?I>I@?F.I? @>?I>I@?F.I? IMHGAE@.EA @>?I>I@?F.I? @HEHH??H.ME @HEHH??H.ME

-/. %'A.+ ?FFA FI A$, ?FFI FM9 4A.T"23)A.+ 23..'$T A++'T+9 "nventories +. debtors 2ash B <ank <alances )oans B Advances Total current assets 0A5 23..'$T )"A<")"T"'+9 +. creditors /ther liabilities Trade deposits +ecurity deposits B .etention money Total current liabilities 0<5 8orking capital 0A <5 $et increase in working capital ?FFM FG ?AFAI@MII.M? E?@>?M@H.>@ I?>FHFG.IH @AFIAHI?.GF @G?F@>EIA.F@ ?FFG FH @GEI>F>FF.II ?EEGF@ME.AE @EIHHA.MA I?H?EH@F.@H AM?GFM>HI.FM "$2.'A+' >@EFIMAAA.E@ M?@A??MH.MA AH>AE??.EA >HGGAEGG.MH ,'2.'A+'

I?EAEAI.H@ ?>@>EM>E.@? ?E@HG>A.E@

?@GFE@E@.?M ?@AGIHII.?F GFM?@@.AM ?E@HG>A.E@

>HA>AAAG.A@ ?>IM?@I.HH GFM?@@.AM

?EII@?HF.FH @A?AGHMG@.EI G?@@MF?E.>E A>AH>AGF@.>A

AGHE>AH>.E? A>AH>AGF@.>A G?@@MF?E.>E A>AH>AGF@.>A >MFGGF>@G.IA >MFGGF>@G.IA

As we have a look on the schedule of changes in working capital for the spinning mill over the years ?FFA FI and ?FFI FM, we find that, among current assets,inventories, sundry debtors and cash B bank balances have shown increament from year ?FFA FI to year ?FFM FG. The )oans B advances have got decreased in the same years. Among the current liabilities, the sundry creditors and other liabilities have increased. +o the overall net working capital has increased.

-/. %'A.+ ?FFM FG A$, ?FFG FH9 Among the current assets,inventories and loans B advances have increased and sundry debtors and cash B bank balances have shown decreament. The total current assets have

increased. Among the current liabilities,sundry crditors and other liabilities have increased. +o the net working capital has also increased.

$OR DYE ,OUSE:

4A.T"23)A.+ 23..'$T A++'T+9 "nventories +. debtors 2ash B <ank <alances )oans B Advances Total current assets 0A5 23..'$T )"A<")"T"'+9 +. creditors /ther liabilities +ecurity deposits B .etention money Total current liabilities 0<5 8orking capital 0A <5 $et increase in working capital

?FFA FI @?AG@>@.GG ?AGGME M>@GE?A.HM EM@@FFG.M@

?FFI FM @>@FFIA>.FM ?HEIE>GF.?M ?@@EF? A@I?A>M.@> MAHAMF?E.M@

"$2.'A+' ?HFI@??G.?E ?HG>>AF>.?M ?@@EF?

,'2.'A+'

>GHIIFH.II

H@IEEI>.>I >A?EG?M.E? MG?HAA.AH

IAAE@??.HE MH?>HAG.E? H>EMFG.>@

?E>FM?H.?M I@E?>?> >AMGM?.MI

>FAM?I??.II 0H?EI>A.E?5 I?IHAGMM.M> I>GII?I>.ME

>@FEFGGG.EA I>GII?I>.ME I?IHAGMM.M> I>GII?I>.ME IEEFE>IH.H> IEEFE>IH.H>

4A.T"23)A.+ 23..'$T A++'T+9 "nventories +. debtors 2ash B <ank <alances )oans B Advances Total current assets 0A5 23..'$T )"A<")"T"'+9 +. creditors /ther liabilities Trade deposits +ecurity deposits B .etention money Total current liabilities 0<5 8orking capital 0A <5 $et increase in working capital

?FFM FG @IH>MHEE.@A AHEFA?GF.EG ?I@MFE HFFEIH>.E@ E?EHA@M>.?A

?FFG FH @?@A>M>A.AM EE@F>I?>.FE >MHEAIGA.AA >AHI@GGFE.EE

"$2.'A+'

,'2.'A+' @AGI?HA.HH

IF@EG?IF.>? ?I@MFE HHHAEE?.I>

>?F@H>H.ME G@@IGMA.I@ >EIIMG.HE

>GMGM>A.HE AFGMFFI.?> >@>GIG.FG

IM@GEM.? @?IEGIE.@? >@>GIG.FG >EIIMG.HE

HG@I>I>.>> HA?AE?>F.>@ IH@>@>??.ME >A?IM?@@?.H?

IEGI@GG.>G >A?IM?@@?.H? IH@>@>??.ME >A?IM@@?.H? M?G@GIME.HA M?G@GIME.HA

ANALYSIS -/. %'A.+ ?FFA FI A$, ?FFI FM9 Among the current assets, inventories, sundry debtors and cash B bank balance have increased but the loans B advances have decreased. The total current assets have increased. Among the current liabilities, sundry creditors have decreased and other liabilities have increased. The total current liabilities have increased. +o, the net working capital has increased.

-/. %'A.+ ?FFM FG A$, ?FFG FH9 Among the current assets, inventories and cash B bank balances have decreased. /n the other hand, sundry debtors and loans B advances have increased. The total current assets have increased. Among the current liabilities, sundry creditors have increased but other liabilities have decreased. +o, the net working capital has increased.

hapter* 3 CAS, MANAGEMENT

CAS, MANAGEMENT
2ash management refers to management of cash balance and the bank balance and also includes the short term deposits. The cash is important current asset for the operation of the business. 2ash is the most li:uid and can be used to make immediate payments. "nsufficiency of cash at any stage may prevent a firm from discharging its liabilities or force it to sell its other assets immediately. /n the other hand extreme li:uidity may take uneconomic investments. This underlines the significance of cash management. The term cash includes coins, currency and che:ues held by the firm ad balances in its bank accounts. +ometimes near cash items such as marketable securities of bank item deposits are included in cash. A financial manager is re:uired to manage the cash flows 0both inflows and outflows5 arising out of the operations of the firm. -or this he will have to forecast the cash inflows from sales and outflows for costs etc. This will enable the financial manager to identify the timings as well as amount of future cash flows. 2ash management does not end here and the financial manager may also be re:uired to identify the sources from where cash may be produced on a short term basis or the outlets where excess cash may be invested for a short term. 2ash is the basic input needed to keep the business running on continuous basis. "t is also the ultimate output expected to realize by selling the product manufactured by the firm. 2ash shortages will simply disturb the firms manufacturing operations where excessive cash will simply remain idle. Thus, firm should keep sufficient cash neither more nor less. 7ence, a ma6or function of the financial manager is to maintain a sound cash position. 2ash management is one of the key areas of working capital management. A part from the fact that it is the most li:uid current asset , cash is the common denominator to which all the current assets can be reduced because the ma6or li:uid asset i.e. receivables and inventory get eventually converted into cash. 2ash management is concerned with the managing of9 2ash inflows and outflows of the unit 2ash flows within the unit 2ash balance held by the unit at a point of time by financing deficit or investing surplus cash

MOTIVES $OR ,OLDING CAS, Tr!5?!<tio5 Moti@e "t means a firm holds cash for conduct of business. The daily re:uirements of cash come under this motive. +o enough cash for smooth business is re:uired for transaction motive. Pre<!utio5!r& Moti@e 3nder this motive cash is held for most contingencies in future. There may be so many reasons due to which the emergency of cash arises. These reasons can be9 0i5 0ii5 0iii5 +udden rise in the demand which leads to more production ,ue to inflation ,ue to any miss happening in future like loss by fire theft etc. the cash is held for precautionary motive in advance. This cash may be held as marketable securities which are highly li:uid and low risky. S=e<u6!ti@e Moti@e The speculative motive relates to holding of cash for investing in profit making opportunity as and when arises. The opportunity may arise in securities, in material purchasing or in any other type. <y holding cash for speculative motive, the firm can choose most profitable opportunity, yet by enlarge, business firm do not engage in speculations because the primary motive to hold cash are transaction and precautionary motive. "n #T*, it holds cash only for transaction motive. +peculation and precautionary motives cash is held by corporate office. "f the #T* re:uires some more cash to meet any future contingency then it informs about it to corporate office and corporate office sends cash to #T* as per re:uirement. corporate office. The firm should evolve strategies regarding the following four facts of cash management9 0>5 0?5 0@5 0A5 2ash 4lanning *anaging the cash flow /ptimum cash level "nvesting surplus cash <ut the #T* has to give the reasons for extra cash to

>.

CAS, PLANNING

2ash planning is a techni:ue to plan to control the use of cash. 2ash planning can help to anticipate future cash flows and the need of the form and reduces the possibility of idle cash. 2ash planning may redone on daily, weekly and monthly basis. 2ash budget is the most significant device to plan for and control cash receipt and payments. The unit under the study makes cash planning through following tools9 2ash <udget .olling cash flow statement ,aily cash flow statement The cash budgets are prepared by the firm on monthly and yearly basis. Through cash budget the unit can make estimates of cash receipts and disbursement during a future period of time. There estimates show the re:uirement of cash in the unit. Another device used for cash planning is six monthly rolling cash flow statement prepared on monthly basis. This statement shows the pro6ections of inflows and outflows of cash during the next six months. This statement can help in taking various decisions, if the unit wants to make any capital payment, these statements can tall when there is surplus of cash and payments can be made during the month. ,aily cash flow statement is prepared to see the daily cash position. There estimations are sent to corporation office at )udhiana so that needed cash is obtained at night time. ?. MANAGING CAS, $LOWS

+ignificant part of cash management is the management of cash flow both inflows and outflows without any loss to the unit and without impairing its goodwill in the market. These are made at head office )udhiana so the main source of cash inflows to #T* is the cash credit limit, which is as follows9

%!5:?

M!i5 Limit "i5 <rore?# 4eak $ormal ? crores ? crores

Sub'6imit tr!5?>er to LD, U5it "i5 <rore?# I crore in month.

4un6ab $ational <ank.

The main limits are controlled by 7./. The sub limits have been allocated to the unit for fulfilling day to day re:uirements of working capital. The daily bank position of sub limits is fixed to 7./. for monitoring daily bank position. "n case of drawn in sub limits the funds get transferred from main limits. The interest rate paid for this is near about >>.?IC. The cash credit limits are sanctioned by the bank against the hypothecation stocks and fluctuating assets as security. The unit can withdraw from these limits as and when needed. The amount received from the sale of yarn is debited at head office in main limit. To exchange the efficiency of cash management the surplus funds are transferred to other units if those units need cash thus increasing the overall profitability. *ain outflow of the unit is on raw material cost. ,ifferent types of raw material are purchased from different states. $ormally cotton is purchased during peak season when good :uality cotton is available, generally payment for cotton is made when cotton is received in the mill, and credit period depends upon the states from which cotton is purchased. 2ash outflows also arise on account of purchase of stores, spares and all other material normal credit for these products is mainly @F to MF days and full credit period is used. @. DETERMINING OPTIMUM %ALANCE

An efficient finance manager always aims at preparing the cash and bank balance at the optimum level i.e. neither it is too high that it remains idle and the firm losses interest on it, nor it is too low that the firm is always in cash tight position. The unit always keep >.I lacs for the routine expenses, around the days of wages the amount is approx. A lacs per day is kept in hand, thus the unit maintains the appropriate amount of cash balance and meets the firms obligations as and when they due.

A.

INVESTING IDLE CAS,

+ince the main input of the company is of seasonal nature. Therefore the company has to maintain high level of assets during cotton season, which falls between /ctober to *arch. ,uring April to +eptember the company gets its cash credit limits reduced in the respective banks. The company has very good system of managing its current assets. The current assets of the unit are managed at corporate level and the unit seeks funds according to their re:uirements calculated on day to day basis. 7ence there are no idle funds at unit level. As the funds are monitored J controlled at corporate level, therefore, it becomes the prime responsibility of 7./. to have a good policy of investing idle funds in an appropriate security keeping in view the re:uirement of funds in the future and li:uidity of the security in which the investment is being made.

hapter* 4 RECEIVA%LES MANAGEMENT

RECEIVA%LES MANAGEMENT

Accounts receivables are simply extension of credit to the firms customers, allowing them a reasonable period of time in which to pay for the goods. *ost firms treat accounts receivables as a marketing tool to promote sales and profits. They represent extension of credit and investment of funds and must be carefully managed. 'very firm must develop a credit policy that includes setting credit standard, defining credit terms and employing methods for timely collection of receivables. The receivables 0including the debtors and the bills5 constitute a significant portion of working capital and are an important element of it. The receivables emerge whenever goods are sold on credit and customers receivables are created when a firm sells goods or services to its customers and accepts, instead of the immediate cash payment the promise to pay within specified period. Thus, receivables are a type of loan extended by the seller to the buyer to facilitate the purchase process. As against the ordinary type of loan the trade credit in the form of receivables is not a profit making service but an inducement or facility to the buyer customer of the firm. .eceivables are a direct result of credit sale. 2redit sale is resorted by a firm to push up the sale, which ultimately results in pushing up the profits earned by the firm. At some time selling goods on credit result in blocking of funds in accounts receivables. Additional funds are re:uired for operating needs of business, which involves extra costs in terms of interest. *oreover, increase in receivables also increase chances of bad debts. The creation of accounts receivables is beneficial as well as dangerous. The finance manager has to follow a policy which uses cash funds as economically as possible by extending receivables without adversely affecting the chance of increasing sales and making more profits. .eceivables *anagement generally means what type of credit policy a firm should adopt so that sales and profits can be promoted on the one hand and funds can be economically utilized on the other hand. +o the receivables management must be attempted by adopting a systematic approach and considering the following of receivables management9 0>5 0?5 + T7' 2.',"T 4/)"2% 2.',"T 2/$T./) CREDIT POLICY

"t may be defined as the set of parameters and principles that govern the extension of credit to the customers. This re:uires the determination of 0i5 0ii5 The credit standard i.e. The conditions that the customers must meet before being granted credit and The credit terms i.e. the terms and conditions on which the credit is extended to the customers. These are discussed as follows9 &he redit Standard) * 8hen a firm sells on credit, it takes about the paying capacity of the customers. Therefore, to be on a safer side, it must set credit standard which should be applied in selecting customers for credit sales. The credit standards of a firm represent the basic criteria for the extension of a credit to customer. +o the credit standard is the combination of three 2s These are9 0i5 0ii5 0iii5 redit &erm5 The credit terms refers to the set of stipulation under which the credit is extended to the customers. The credit terms may relate to the following9 0a5 Credit Period E The credit period is an important aspect of the credit policy. "t refers to the length of time customers are allowed to pay for their purchases. "t may differ from one market to another market. The credit period generally varies from >I days to MF days. "n some cases the credit period may be zero and only cash sales are made. "t refers to the time duration in terms of net date e.g. if a firms credit terms are net @F!= it means the customers are expected to pay within @F days from the date of sales. As much the credit period will be shorter, it will be beneficial for a firm. <ut the firm has to lengthen its credit period to increase sales. <ut one must compare the cost of extended credit with the incremental profits. "f this cost is less then it will be beneficial for company to increase the credit period. 2haracter of a person 2apacity of a person 2ondition of a person

0b5

Di?<ou5t Term? E "t is reduction in payment offer to customer to induce them to repay credit obligation within a specified period of time. "n practice credit terms would include9

0i5 0ii5 0iii5

The rate of cash discount The cash discount period The net credit period

?. CREDIT CONTROL The next important step in the management of receivables is the control of these receivables. -ollowing are the directions for controlling the receivables. 0>5 &he olle0tion Pro0edure ; The overall collection procedure of the firm should neither be too lenient nor too strict. A strict collection policy can affect the goodwill and damage the growth prospects of the sales. "f a firm has a lenient credit policy, the customer with a natural tendency towards slow payments may become slower to settle his accounts. /ne possible way of ensuring early payments from customers may be to charge interest on over due balances. 0?5 Monitoring of re0ei6a7le5 ; To control the level of receivables, the firm should apply regular checks and there should be a continuous monitoring system. -or this, number of measures are available as follows9 0i5 0ii5 A common method to monitor the receivables is the collection period or number of days outstanding receivables. Another techni:ue available for monitoring the receivables is known as ageing schedule. Ageing schedule down book debts according to the length of time of which they have been outstanding. The ageing schedule provides more information about collection experience. "t helps to shot out the slow paying debtors. The 4erforma of the ageing schedule prepared by the #T* is as follows9

AGEING SC,EDULE A;e C6!??i>i<!tio5 F ; >I days >I ; @F days @> ; MF days M> ; EF days E> ; >?F days >?> ; >HF days *ore than >HF days Tot!6 OLS Amou5t ?A>AHA>E.M> ?E?EGFHA.F> HHI?M?E.AM >@?>G@MA.MG >AI>F>M?.G> +/2/2221) +) Amou5t @I@@FEHG.?> K !;e o> Tot!6 ?? F >I >G >E M >? +))

RECEIVA%LES MANAGEMENT IN VTM As earlier discussed, credit sales are too much necessary to increase the total sales. The main reason behind this is cut throat competition. There are also many competitors of #T* in the market, s to compare with them= #T* has to make credit sales. ?FC to @FC of current assets of #T* are sundry debtors. #T* has a good receivable policy as it has large amount of credit sales. I CREDIT POLICY O$ VTM #T* not directly make sales. +ales are made by corporate office directly. +o the sales process is centralized. As the sales process, debtors are also collected by the corporate office directly. 2orporate office 6ust receives the amount from the debtors. <ut it does not have any record of outstanding debtors. "t sends the credit note to #T* after receiving amount against any debtors. +o record for outstanding debtors is maintained by #T* itself. #T* sends fortnightly reports to corporate office which records the data about the outstanding debtors for different periods. "n these reports debtors outstanding for one month or six months are shown separately. "n this way, corporate office comes to know about age segments of different customers. 2orporate office may avoid selling goods to those customers who have not paid for a long period.

CREDIT POLICY VARIA%LES >. redit Standard5 E #T* provides credit to customers after getting information about that customer. -or this market research is done by marketing department to know about reputation of customer in the market and financial position of him. -rom the records of customers having #T* and from financial record of those customers, the ability to pay is checked. Thus customer is only known after getting information about him and then credit is provided. ,8 redit &erm5 9a: redit Period ; -or different products #T* provide different credit period. These credit terms are according to the nature of product which are following9 +crap J waste ,yed yarn 1rey yarn 97: a5h Di50ount ; "n case of >FFC cotton yarn Advance payment >I days credit Afterwards "n case of 4olyster 2otton %arn 4ayment within AH hours "nterest II. > C 2, Q >H C p.a., if payment is not made within the prescribed limits. > C 2.,. prior to material dispatch "nterest free >H C p.a. interest chargeable cash basis AF days >I days

CREDIT CONTROL olle0tion effort5 made 7/ (&M:

,ue to cut throat competition #T* has to make credit sales. To collect the funds /swal group has adopted a decentralized method. /swal group has established its collection centers in different cities as in ,elhi, )udhiana etc., and these centers collect money from the debtors and send it to corporate office. The number of collection centers in a

particular city depends upon the number of customers to minimize the bad debts and to accelerate the collections. 2ommission is also paid to agents This percentage is only on the basis of the realization amount. %A.$ 1.'% ,%', 2/**"+"/$ ,/*'+T"2 >.IC ?C /$ 2/**"+"/$ '(4/.T+ @C @C /$

ANALYSIS O$ E$$ICIENCY O$ RECEIVA%LES MANAGEMENT IN VTM DE!&#RS &'RN#(ER RA&I# This ratio indicates the number of times average debtors are turned over during a year. The higher the value of debtor turnover ratio the more li:uid is the debtors. +imilarly low debtor turnover ratio implies less li:uid debtors. ,ebtors turnover ratio $OR SPINNING MILL9 N +ales Avg. ,ebtors

%'A. ?FFA FI ?FFI FM ?FFM FG ?FFG FH

+A)'+ IEMFMEIHG.M? IA@>MGFFM.@I IHH>H@MIF.?@ G@FFAGGAG.MF

A#1 ,'<T/.+ @GF@EEEM.?M @G?GEFGF.HA E?@>?M@H.>@ ?EEGF@ME.AE

,T. >M.FE times >A.M times M.@G times ?A.@M times

25 20 15 10 5 0 DTR

2004-05

2005-06

2006-07

2007-08

ANALYSIS: As we can observe that, the debtors turnover ratio of the company has increased from >M.FE times in year ?FFA FI to ?A.@M times in year ?FFG FH. "ncreasing ,T. is good for the company as it assures that the sundry debtors are more li:uid.

$OR DYE ,OUSE9 %'A. ?FFA FI ?FFI FM ?FFM FG ?FFG FH +A)'+ ?>??AF ?F?@GEAAE.H> AE?I?EMI?.ME M>FHM@AE@.GM A#1 ,'<T/.+ ?AGGME ?HEIE>GF.?M AHEFA?GF.EG EE@F>I?>.FE ,T. F.E times M.EE times >F.> times M.? times

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

ANALYSIS: The ,T. for dye house has shown increament from F.E in ?FFA FI to >F.> in ?FFM FG but it again decreased to M.? in ?FFG FH. "t is not good for the company that ,T. has declined in ?FFG FH as it assures less li:uid debtors.

De7tor on6er5ion Period 9D P: The average no. of days for which a firm has to wait before its receivables is converted into cash. ,24 N @MF ,T.

$OR SPINNING MILL9 %'A. FI FM FG FH ,T. >M.FE >A.M M.@G ?A.@M ,24 ??.A days ?A.G days IM.I days >A.H days

?FFA ?FFI ?FFM ?FFG

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

ANALYSIS9 The ,24 of the spinning mill has decreased from ??.A in year ?FFA FI to >A.H in year ?FFG FH which is :uite a good fact as lower ,24 assures less time period for the conversion of receivables into cash.

$OR DYE ,OUSE9 %'A. ?FFA FI ?FFI FM ?FFM FG ?FFG FH

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

,T. F.E M.EE >F.> M.?

,24 AFF days I>.I days @I.M days IH.> days

ANALYSIS: The ,24 ratio for dye house has decreased a lot from AFF days in year ?FFA FI to IH.> days in year ?FFG FH. "ts a promising fact because it takes very less time period to convert the receivables into cash.

hapter* < MANAGEMENT O$ INVENTORY

MANAGEMENT O$ INVENTORY
"nventory is very important part of current assets. Approximately MFC part of current assets is inventories. +o the proper management of inventory is re:uired for successful working capital management. As the larger amount of funds is involved in the inventories, so it must be carried with care for proper utilization of funds.

N!ture o> I5@e5torie?

"n inventories we include9 0a5 Raw Material) There are those basic inputs which are converted into work in progress after the manufacturing process. .aw materials are purchased for production and storage purpose. 0b5 0c5 =or>*in*Progre55) These inventories are semi manufactured products. These products are those which are ready for sale. Fini5hed $ood5) These are completely manufactured products. These products are those which are ready for sale. 7ere is one another type of inventory also which is not directly related with production but facilitate in production process. These inventories are known as supplies. 2leaning material, oil, fuel, electric tube etc are the supplies.

O%IECTIVES O$ INVENTORY MANAGEMENT There are so many ob6ectives of inventory management. These ob6ectives may differ from firm to firm. The main ob6ectives of inventory management are9 To make ade:uate investment in inventories so that funds can be best utilized. +mooth production in present and future. Time availability of inventories. +mooth and uninterrupted sale processes. *inimize the cost related with inventories. To meet the future price change. To get ade:uate return on investment. INVENTORY MANAGEMENT TEC,NIFUES -or inventories management the two :uestions must be answered. -irst, that how much be ordered in one order so that excess or insufficient inventories can be avoided. +econdly, when the order should be placed, so that timely availability of inventory is there. To get answer of these two :uestions we use two techni:ues which are following9 +: E #N#MI #RDER 2'AN&I&Y 9E#2:

'conomic order :uantity provides the answer of our first :uestion. <y this we come to know how much we must order in single time. +o that all the cost related with inventory are minimum. ,etermining an optimum inventory level involves two types of costs 0a5 /rdering 2ost and 0b5 2arrying cost. The '/P is that inventory level which minimizes the total of ordering and carrying costs. 0a5 Orderi5; Co?t? ; All these costs which are incurred in placing one order. "t includes= re:uisition, transportation, receiving, inspecting, clerical and staff services. /rdering costs are fixed per order. Therefore they decline as the order size increases. 0b5 C!rr&i5; Co?t? ; 2ost incurred for maintaining a given level of inventory are called carrying cost. "t includes storage, insurance, handling, taxes. 2arrying costs vary with inventory. To calculate economic order :uantity there is formula9 '/P N 8here, A / 2 N N N Annual re:uirement /rdering cost per order 2arrying cost of inventory ?A/J2

,:

RE#RDER P#IN&

.eorder point is that inventory level at which an order should be placed to replenish the inventory. To calculate reorder point we should know 0a5 )ead Time 0b5 Average 3sage 0c5 '/P )ead Time is the time normally taken in replenishing inventory after the order has been placed. Average 3sage is the inventory used on average daily basis or average weekly basis.

+o, .eorder 4oint

)ead Time x Average 3sage 0)ead Time x Average 3sage5 O +afety +tock

"f the firm also maintains safety stock then the reorder point will be9 .eorder 4oint N +o when the inventory of reorder point will be in store then the order will be placed for purchase of inventory. "n this way, the production process will not stop because the inventory will be available for that period. INVENTORY MANAGEMENT IN VTM "nventory *anagement of #T* is good. #T* has a different stores department. All the inventories except raw material purchases are handled by stores department. +tores department does its work very efficiently. INVENTORY PLANNING -or the planning of inventory re:uirement, budgets are prepared by different departments as per re:uirements. The material issued during the budget period will not be more than the budget. This rule is strictly followed. -or cotton, re:uirements are planned in consultation with production department. +tores department have nothing to do with it. PURC,ASE O$ RAW MATERIAL As in #T* raw material is cotton. -irst of all the re:uirement for cotton are determined by the production department than this re:uirement is sent to commercial departments. 2ommercial departments send these re:uirements to corporate office in detail. Then corporate office directs the cotton purchase office to purchase cotton in bulk not only for #T* but also for the other units of /swal 1roup. 2otton is generally received in lots so one lot consists of II or >>F bales. As the cotton has seasonal availability, so the purchasing of cotton is made within the period of /ctober to march. -or the other months, cotton is purchased within these months. That is the reason #T* has high investment in cotton. DAILY REFUIREMENT O$ COTTON -or production daily re:uirement of cotton is >HF bales and when the full capacity of unit gets started then the average re:uirement of cotton bales will reach to ?FF bales.

The total daily production is II Tons Jday. STORAGE CAPACITY O$ VPL .egarding Raw Material In entor!, #T* has >F godowns.The capacity of >F godowns is AIFFF bales approximately. "f capacity of store is exhausted in unit then it has private storage facility to store cotton. These godowns do not have electric fitting because cotton is highly inflammable. ISSUING O$ INVENTORY 8hen any department re:uires any inventory, it sends its re:uirement to stores department. The maximum time within the re:uirement must be met is G? hours. *aterial is issued on the basis of monthly weighted average method. INSPECTION O$ INVENTORIES "nspection of inventory is made at the end of month randomly. The stock taking of all the items is not possible keeping in view number of items. SA$ETY STOCK O$ INVENTORIES -or the continuous production process, safety stock of inventories is maintained. "n case of cotton atleast >I days re:uirements must be in hand every time. -or other inventories stock is maintained according to supply period and as per their re:uirement.

INVENTORY CONTROL "nventory control is done by budgets. As the budgets are prepared for the planning purpose. Total re:uirements for inventory during financial period are determined by budget. 8hen the material is issued to any department then the total amount of material issue is deducted from the budget of that good and balance is calculated, only this balance :uantity of inventories will be issued during the remaining financial period. These

records are maintained on daily basis. -or different units, the records are prepared separately. -or inventory control not any A<2 analysis or #', analysis is done. The company also doesnt follow standardized system of inventory like '/P. "n case of raw material as the input 0cotton5 is of seasonal nature, the re:uirement for the whole year is purchased in the cotton season. "n case of spares B stores, the inventory is easily available in market= therefore, the same is procured on re:uirement basis. The company always maintains stock of critical items, the failure J non availability of which can cause less of production. As all the units of group are in spinning the stock of critical items, where the high value is involved in financial terms, the inventory is maintained in single unit. This could save lot of money which can be utilized in another area and it also helps to maintain inventory at optimum level. +o we can say that overall inventory management of #T*is :uite satisfactory. ANALYSIS O$ E$$ICIENCY O$ INVENTORY MANAGEMENT IN VTM IN(EN&#RY &'RN#(ER RA&I# "t indicates the number of times the stock has been turned over during the period and evaluates the efficiency with which the firm is to manage inventory. A high inventory turnover indicates efficient management of inventory because more fre:uently the stocks are sold, the lesser amount of money is re:uired to finance the inventory. "nventory 0.aw *aterial5 Turnover .atio N 2ost of 1oods sold. Average .aw *aterial +tock

$OR SPINNING MILL9

%'A.

2/+T /- 1//,+ A#'.A1' +/),

.A8 "$#'$T/.% *AT' ."A) +T/2 & T3.$ /#'. .AT" /0"T. 5 @.>F times ?.> times ?.AI times ?.@> times

?FFA ?FFI ?FFM ?FFG

FI FM FG FH

IMH>MH@@>.H AMHFE>>@I.FI I@@IMII??.>? GIG??IEEF.@M

>H@FG>??H.>A ??G>IFE?M.FG ?>HFAMGIA.EA @?HFFIAEE.AI

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

ANALYSIS9 The "T. ratio of spinning mill does not show wide fluctuations over the past years. "t almost remains constant around @.> and ?.@. 7owever , the ratio must increase for better management of inventories.

$OR DYE ,OUSE9 %'A. 2/+T /- 1//,+ A#'.A1' +/), .A8 "$#'$T/.% *AT' ."A) +T/2 & ?FFA ?FFI ?FFM ?FFG FI FM FG FH T3.$ /#'. .AT" /0"T. 5 ?FAEG>M?I.A A@H?G@AMH.HI I??F>GIAI.EG >IF>?H>I.IA >MF?@AIH.MM >>>FHHGE.@A >@.G times ?G.@I times AM.E times

50 40 30 20 10 0 ITR

2004-05

2005-06

2006-07

2007-08

ANALYSIS The inventory turnover ratio has increased from >@.G times in ?FFI FM to AM.E times in ?FFG FH. "t is :uite a good fact and shows that inventory is managed in an efficient way for the dye house.

IN(EN&#RY &# =#R?IN$ API&A" RA&I#) This ratio is usually calculated to study the li:uid financial position of business enterprises. "nventory to working capital ratio N "nventory 8orking 2apital

$OR SPINNING MILL9 %'A. ?FFA ?FFI ?FFM ?FFG FI FM FG FH "$#'$T/.% ?FH>EIIEE.A> ?AM>A>HHE.HH ?AFAI@MII.M? @GEI>F>FF.II 8/.&"$1 2A4"TA) @FMH?GH?M.IH @>?I>I@?F.I? @A?AGHMG@.EI A>AH>AGF@.>A .AT"/ "$ CA1' MG.E GH.H GF.? E>.I

100 80 60 40 20 0 2004-05 2005-06 2006-07 2007-08 INV NTOR! TO WOR"ING CAPITAL

ANALYSIS9 8e can observe that investment in inventories out of the woking capital has increased from MG.EC in ?FFA FI to E>.IC in ?FFG FH. <ut investment in inventories should be neither too high nor too low. +o it should be maintained near MFC to GFC. $OR DYE ,OUSE9 %'A. ?FFA ?FFI ?FFM ?FFG FI FM FG FH "$#'$T/.% 8/.&"$1 2A4"TA) @>@FFIA>.FM @IH>MHEE.@ @?@A>M>A.AM I>GII?I>.ME HA?AE?>F.>@ >A?IM?@@?.H? MF.I A?.I ??.G .AT"/ "$ CA1'

70 60 50 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 INV NTOR! TO WOR"ING CAPITAL

ANALYSIS The investment in inventories has decreased from MF.IC in ?FFA FI to ??.GC in ?FFG FH. +o, it is not a good fact about the dye house and the company should increase the investment in inventories for the dye house.

hapter* @ $INDINGS4 SUGGESTIONS AND CONCLUSION

$INDINGS
,ue to seasonal availability of raw material is purchased in bulk during the months between *arch to /ct. so the most part of current assets is covered by inventories. )i:uidity ratios of #T* are too high because of maintaining more inventory stock of raw material. .aw material is purchased by corporate office for all the units in bulk to get the advantages of bulk purchasing. The cost of raw material fluctuates depending upon the availability of crop in the particular season, so it effect the finished product price. The operating cycle of #T* is very high due to the high raw material conversion period because raw material is a seasonal product. $ow #T* has increased its share in the domestic market by reducing the exports. -or filling its fund re:uirement #T* depends upon the +tate bank of "ndia. "t holds the cash only for transaction purpose. 2orporate office holds the cash for ma6or receipts B payments. '/P techni:ue is not followed by #T* for purchasing cotton because cotton is a seasonal product. Also '/P is not followed in stores.

SUGGESTIONS

*anagement should make the proper use of inventory control techni:ues like fixation of minimum, maximum and ordering levels for all the items for less blockage of money. The unit should also adopt proper inventory control like A<2 analysis etc. This inventory system can make the inventory management more result oriented. The '/P can be followed in stores. ,ue to competition, prices are market driven and for earning more margin company should give the more concentration on cost reduction by improving its efficiency. The investments of surplus funds are made by the corporate office and the unit is not generally involved while taking decisions with regard to structure of investment of surplus funds. The corporate office should involve the units so as to better ascertain the future re:uirements of funds and accordingly the investments are made in different securities. The company is loosing its overseas customers due to decrease in exports so the sufficient amount of exports should the maintained. 2ompanys average debtor collection period is II days. +o company should try to reduce it for improving the efficiency.

<y conducting the study about working capital management it is found out that working capital management of #T* is too good. #T* has sufficient funds to meet its current obligation every time which is due to sufficient profits and efficient management of #T*. 2ash management and receivable management are too much good because of centralized control on these. .aw material for the all units of /+8A) group is purchased by corporate office in bulk which is the best way. +afety measures for inventories are also :uiet sufficient in #T*. /verall the working capital management of #T* is very much efficient.

APPENDIX

RE$ERENCES AND %I%LIOGRAP,Y

4andey ".*., -inancial *anagement= #ikas 4ublishing 7ouse 4vt. )td. 2handra 4rasanna= -inancial *anagement9 Theory and 4ractice= Tata *c 1raw 7ill. #an 7orne, Lame 2= -undamentals of -inancial *anagement. .ustagi ..4.= 4rinciples of -inancial *anagement. Annual .eports of #"$A%A& T'(T")' *"))+ )T,..