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FINANCIAL MANAGEMENT INTRODUCTION
Financial management, as an integral part of over all management is not a totally independent area. It draws heavily on related disciplines and field of study, such as Economics, Accounting there disciplines are in related, there are key references among them. Financial management refers to its relationship with the closely related fields, its function, scope and objectives. Financial as academic discipline as under gone fundamental changes in its scope and coverage. In the early years of its evolution it was treated synonymously with the rising of funds. In the current literature pertaining to financial management in addition to procurement of funds efficient use of resources is universally recognized.

Definition of Financial management:
Ezra Solomon has defined “The Financial Function as the study of the problems involved in the use and acquisition of funds by a Business”.

Scope of financial management:
The approach to the scope and the functions of financial management is divided for the purposes of expositions into two broad categories.
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a) The traditional approach. b) The modern approach. Traditional approach: The traditional to the scope of financial management refers to its subject matter in academic literature in the stage its evolution as the separate branch of academic study. The term “Corporation Finance” was used to describe what is known in the ac academic world as financial management. Modern approach: The modern approach views the term Financial Management in the broad sense and provider a conceptual and analytical framework for financial decision making. Objectives of Financial Management: The objectives of financial management are 1) Profit maximization approach. 2) Wealth maximization approach.

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1. Profit maximization approach: According to this approach actions that increase profits should be undertaken and those that decrease profits are to be avoided. In specific operational terms as applicable to Financial Management, the profit maximization criterion implies that the investment, financing and dividend policy decisions of a firm should be oriented to the maximization of profits. 2. Wealth maximization: This is also known as value maximization or net present worth maximization. In current academic literature value maximization is almost universally accepted an appropriate operational criterion for Financial Management decisions as it removes the technical limitation which characterizes the earlier profit maximization criterion. Its operational features satisfy all the three requirements of a suitable operational objective of financial courses of actions namely exactness, quality of the benefits and the time value of money. The financial statements just provide the financial ingredients of a firm. One should analyze to identify where the strengths and weakness of the company are hiding. So the study on ratio analysis have been taken by me in order o know efficiency and liquidity of a firm.

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Working capital typically means the firm’s holdings of current. Indeed. These items are referred to as circulating assets because of their cyclical nature.MBA PROJECT AMARAVATHI TEXTILES WORKING CAPITAL INTRODUCTION Working capital management involves the relationship between a firm’s short-term assets and its short-term liabilities. 4 WORKING CAPITAL MANAGEMENT AU. There are two concepts of working capital—gross and net. We will hardly find a business firm which does not require any amount of working capital. receivables. or shortterm. The management of working capital involves managing inventories. inventory and marketable securities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. Once the receivables are collected. accounts receivable and payable. firms differ in their requirements of the working capital. and cash.KAKINADA . cash is initially employed to purchase inventory.CAMPUS. In a retail establishment. which is in turn sold on credit and results in accounts receivables. they become cash-part of which is reinvested in additional inventory and part going to profit or cash throw-off. The need for working capital to run the day to day business activities cannot be overemphasized. assets such as cash..

debtors.. it can be classified as: KINDSOF WORKING CAPITAL: KINDS OF WORKING CAPITAL ON THE BASIS OF CONCEPT ON THE BASIS OF TIME GROSS WORKING CAPITAL NET WORKING CAPITAL 5 PERMINANT WORKING CAPITAL TEMPORARY WORKING CAPITAL WORKING CAPITAL MANAGEMENT AU. bills receivable and stock.MBA PROJECT AMARAVATHI TEXTILES Gross working capital refers to the firm’s investment in current assets. and outstanding expenses. Short-term securities. Current assets are the assets which can be converted into cash within an accounting year an include cash. Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors bills payable.CAMPUS. Depending on the nature and the time period for which the working capital is held in business. Working Capital is the capital that allows businesses to operate on a dayto-day basis.KAKINADA .

KAKINADA . This minimum level of current assets is called permanent or fixed working capital of this part of capital is permanently blocked in current assets..CAMPUS. • This will be provides the current amount of working capital at the right time. TEMPORARY (OR) VARIABLE WORKING CAPITAL: Temporary Working Capital is the amount of working capital which is required to meet the seasonal demands and some special emergencies.special working capital which is required to meet special exigencies such as marketing research etc.MBA PROJECT AMARAVATHI TEXTILES PERMANENT (OR) FIXED WORKING CAPITAL: Permanent Working capital is the minimum amount which is required to ensure effective capitalization of fixed facilities and for maintaining the circulation of current assets these are always a minimum level of current assets which is continuously required by the enterprise to carry out its normal business operations. For example every firm has to maintain minimum level of raw materials work. 6 WORKING CAPITAL MANAGEMENT AU. Variable Working capital can further classified as reasonable working capital and special working capital most of the enterprises have to provide additional working capital to meet the seasonal working capital . GROSS WORKING CAPITAL: It is the amount of funds invested in the various components of current assets this concept has the following advantages. • Financial managers are profoundly concerned with current assets.in –process finished goods & cash balance.

DEBTORS CASH FINISHEDGOODS RAW MATERIAL 7 WORKING CAPITAL MANAGEMENT WORK IN PROGRESS AU. In case of a manufacturing company... This time gap is technically termed as “operating cycle” of the business. • It helps in the fixation of various areas of financial responsibility. where current liabilities are in excess of current assets. • It enables affirm to plan and control funds and to maximize the return on investment. As negative working capital occurs. the operating cycle is the length of time necessary to complete the following cycle of events. OPERATING CYCLE Working capital is required because of the time gap between the sales and their actual realization in cash.CAMPUS. A positive net working will arise when current assets exceeds current liabilities.. NET WORKING CAPITAL: In reference to the difference between current liabilities net working capita. can be positive or negative.KAKINADA .MBA PROJECT AMARAVATHI TEXTILES • It enables a firm to realize the greatest return on its investment.

CAMPUS. iv. Cash into Raw Materials. iii.KAKINADA . Raw Materials into Work In Progress. v. Work In Progress into Finished Goods..MBA PROJECT AMARAVATHI TEXTILES In case of a “trading firm” the operating cycle will include the length of time required to convert i. Finished Goods into Debtors Debtors into Cash This cycle will be repeated again and again 8 WORKING CAPITAL MANAGEMENT AU. ii.

MBA PROJECT AMARAVATHI TEXTILES NEED OF THE STUDY Every business enterprise needs some amount of working capital. Cash discount: Adequate working capital also enables a concern to avail cash discounts on the purchase and reduces cost. 1). 4).CAMPUS. Working capital is the lifeblood and nerve center of any business concern.KAKINADA . The need for working capital arises due to the time gap between production & realization of cash from sales. 9 WORKING CAPITAL MANAGEMENT AU. 2). Easy loans: A concern having adequate working capital high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms.. 3). Goodwill: Sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill. 5). Regular supply of raw-materials: Sufficient working capital ensures regular supply of raw materials and continuous production. Solvency of the business: Sufficient working capital helps in maintaining solvency of the business by providing uninterrupted flow of production.

KAKINADA . Regular payment of salaries.MBA PROJECT AMARAVATHI TEXTILES 6). wages & other day to day commitments: Adequate working capital enables regular payment of salaries.. which enhances production and profits of the company.CAMPUS. Ability to face crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression. 10 WORKING CAPITAL MANAGEMENT AU. 7). wages and day to day commitments.

. 11 WORKING CAPITAL MANAGEMENT AU. To know the efficiency of the company in utilizing its current assets. 4.MBA PROJECT AMARAVATHI TEXTILES OBJECTIVES OF THE STUDY 1. 2.KAKINADA . To study various components of working capital and their management. The main objective of the study is to analyze how working capital management is carried out in the organization. 5.CAMPUS. To evaluate the liquidity management through some of the related working capital ratios. To study the trends in working capital components. 3.

CAMPUS. Primary data : Primary data is the data which has been collected directly from the people of the organization it is also called as first hand data. Secondary data : Secondary data is those which have been already collected by some agency and which have been processed. The secondary data is obtained from annual report and financial statement that is balance sheet and profit and loss account. staff and other members of the organization. 12 WORKING CAPITAL MANAGEMENT AU.. The study has been undertaken in the Accounting & Finance deportments of the organization. annual reports.KAKINADA .MBA PROJECT AMARAVATHI TEXTILES RESEARCH & METHODOLOGY The study has been conducted in the organization to examine Working Capital Management in order to enquire into the issues like liquidity. Here the project is done on secondary data. officers. The primary data is collected by discussions with the functional managers. and Material Management. and from the text books of financial management.

Analysis of information is based on ratios.CAMPUS.The study is limited to a period of five years for analyzing the data. these balance sheets suffers a few limitations.KAKINADA . . 4. . The study is based on the working capital analysis only. Normally this will not facilitate to undertake a deeper study on the subject taken into consideration. 2. 3. quality aspect of AMARAVATHI TEXTILES PRIVATE LIMITED doesn’t reflect the study. ratios. The study is confined only to a quantitative analysis. 6.This study evaluation is based on sum of the related working capital 13 WORKING CAPITAL MANAGEMENT AU..MBA PROJECT AMARAVATHI TEXTILES LIMITATIONS OF THE STUDY 1. The study is made only through secondary source of data. 5. The study is based on the information available in the latest balance sheets of the company.

Suggestions. III Chapter: Theoretical frame work related to financial statement analysis is given IV Chapter: data analysis & interpretation of TEXTILES PRIVATE Ltd. AMARAVATHI INDUSTRY PROFILE 14 WORKING CAPITAL MANAGEMENT AU.CAMPUS. V Chapter: Findings.MBA PROJECT AMARAVATHI TEXTILES PRESENTATION OF THE STUDY The study is presented in 5 chapters I Chapter: Need.. limitations are promoted.KAKINADA . research methodology. Conclusion of the study are given. II Chapter: company & industry profile is incorporated. objectives.

Processing of Cotton in India In India the raw cotton. Then it runs through cleaning equipment to remove leaf trash.CAMPUS.MBA PROJECT AMARAVATHI TEXTILES Cotton Cotton is a soft. It is a natural fiber harvested from the cotton plant. Cottonseed Meal. I. which is the most widely used natural-fiber cloth in clothing today. staple fiber that grows around the seeds of the cotton plant. III. 15 WORKING CAPITAL MANAGEMENT AU. The raw fiber. now called lint. the cotton is vacuumed into tubes that carry it to a dryer to reduce moisture and improve the fiber quality. Cottonseed Oil. The first step in the process is. sticks and other foreign matter. Yarn. In ginning a roller gin is used to grab the fiber. II. breathable textile.KAKINADA . The fiber most often is spun into yarn or thread and used to make a soft. The Products of processing are I. also called as Kapas is processed in a multistage process described as below. Production of Yarn KAPAS TO LINT: Kapas (also known as raw cotton or seed cotton) is unginned cotton or the white fibrous substance covering the seed that is obtained from the cotton plant..

rope-like strand called a sliver. High speed electronic equipment with wire toothed rollers perform this task. The cotton emerges in the form of thin "blanket" called the "lap". the cotton lint is hauled to either storage yards. then wound on bobbins.KAKINADA .MBA PROJECT AMARAVATHI TEXTILES LINT TO BALE: The lint makes its way through another series of pipes to a press where it is compressed into bales (lint packaged for market). BALE TO LAP: Here the bales are broken down and a worker feeds the cotton into a machine called a "breaker" which gets rid of some of the dirt. or shipped to foreign countries. 16 WORKING CAPITAL MANAGEMENT AU. Here. This machine cleans the cotton of any remaining dirt and separates the fibers. untwisted.CAMPUS. NOTE: The cotton seed is delivered to a seed storage area from where it is loaded into trucks and transported to a cottonseed oil mill.. the fibers shorter than half-inch and impurities are removed from the cotton. These Process is called Roving. textile mills. After baling. The web of fibers is eventually condensed into a continuous. LAP TO CARDING: Carding is the process of pulling the fibers into parallel alignment to form a thin web. SILVER TO ROVING: The silver is then sent to combing machine. (Operated by a worker also called a scutcher). The sliver is drawn out to a thinner strand and given a slight twist to improve strength. From here the cotton goes to a "scutcher".

leaves and other trash are removed. twigs. They are as follows: • The first step is its entry into the shaker room where. rich in oil) and shakers separate the hulls and kernels. film. and candle wicks.MBA PROJECT AMARAVATHI TEXTILES ROVING TO YARN (SPINNING) : Spinning is the last process in yarn manufacturing. II. The linters of the highest grade. The second-cut linters removed in further delinting steps.KAKINADA . are incorporated in chemical products. twine. through a number of screens and air equipment. The huller removes the tough seed coat with a series of knives and shakers. 17 WORKING CAPITAL MANAGEMENT AU. found in various foods. • The cleaned seed is then sent to gin stands where the linters are removed from the seed (delinted). Spinning draws out the short fibres from the mass of cotton and twists them together into a long. • The delinted seeds now go to the huller.CAMPUS. The knives cut the hulls (tough outer shell of the seed) to loosen them from the kernels (the inside meat of the seed. and paper. such as medical supplies.. Production of Cotton Seed Oil Processing of cottonseed in modern mills involves a number of steps. Spinning machines have a metal spike called a spindle which the thread winds around. referred to as first-cut linters are used in manufacturing non-chemical products. toiletries.

yellow oil. 18 WORKING CAPITAL MANAGEMENT AU. This presses the meats into thin flakes. It contains mere advantage over other edible oils. With the scientific use of heat.KAKINADA . The quality of oil is high in dry seasons and low when the seed is exposed to wet weather in the fields or handled or stored with high moisture. sodium hydroxide and a centrifuge (equipment used to separate substances through spinning action).. Further cotton seed cooking oil has a long span of life due to the presence of vitamin E. This clear oil may then be bleached with a special bleaching clay to produce a transparent. They pass through flaking rollers made of heavy cast iron. amber colored oil. These flakes then travel to a cooker where they are cooked at 170 degrees F to reduce their moisture levels. the dark colored crude oil is transformed into a transparent. The quality of cotton oil depends on the weather prevailing during the time that cotton stands in the fields after coming to maturity. The first step in this process is refining.MBA PROJECT AMARAVATHI TEXTILES • The kernels are now ready for oil extraction. The refined cotton seed oil has several advantages other than edible oils.CAMPUS. • Crude cottonseed oil requires further processing before it may be used for food. Hence quality of oil varies from place to place and season to season. The prepared meats are conveyed to the extractor and washed with hexane (organic solvent that dissolves out the oil) removing up to 98% of the oil. It contains a large percentage of Poly Unsaturated Fatty Acids (PUFA) which maintain cholesterol in the blood at a healthy level. spinning at high speeds.

Although cotton has been grown for its fiber for several thousand years. 19 WORKING CAPITAL MANAGEMENT AU. • Cottonseed was a raw agricultural product.1 Source: The Cotton Corporation of India Ltd. and cellulose for a wide range of products from explosives to computer chip boards. Production of Cottonseed Meal/Cake/Kapaskhalli • Kapaskhalli (cottonseed extraction/meal) is a byproduct of the cottonseed industry.MBA PROJECT AMARAVATHI TEXTILES III.KAKINADA . fiber for furniture padding.CAMPUS.. which is primarily grown for its fiber. Now it is being converted into food for people. fertilizer and mulch for plants. which was once largely wasted. • Cottonseed is a by-product of the cotton plant. feed for livestock. the use of cottonseed on a commercial scale is of relatively recent origin. The figure showing the products obtained from processing the raw cotton: Diagram 2.

• Suvin is another variety produced in the state of Tamil Nadu.KAKINADA . • H-4 (or) MECH1 is mainly produced in the states of Maharashtra. • Bunny (or) Brahma is mainly produced in the states of Maharashtra. Till 1970s. Andhra Pradesh. Madhya Pradesh. country used to import massive quantities of cotton in the range of 8. country has achieved significant quantitative increase in cotton production.00 lakh bales per annum.CAMPUS. Andhra Pradesh.. Role of Cotton Industry in Indian Economy Over the years. Karnataka. 20 WORKING CAPITAL MANAGEMENT AU. that cotton production received the necessary impetus through increase in area and sowing of Hybrid varieties around mid 70s. Rajasthan. However. • Jayadhar mainly produced in the state of Karnataka.MBA PROJECT AMARAVATHI TEXTILES Cotton Varieties in India • Bengal Deshi mainly produced in the states of Punjab. Haryana.00 to 9. after Government launched special schemes like intensive cotton production programmes through successive five-year plans. Madhya Pradesh.

7. with 9. average yields are highest in Punjab where most of the cotton area is irrigated. India accounts for approximately 21% of the world's total cotton area and 13% of global cotton production. 3. 21 WORKING CAPITAL MANAGEMENT AU. 8. Maharastra.CAMPUS. 4. Tamil Nadu. 6. Haryana. 2. Andhra Pradesh.50 million hectares grown each year. 9. Of the nine cotton producing States in India. The Cotton producing areas in India are spread throughout the country. Karnataka. 5. It ranks third in global cotton production after the United States and China. Rajasthan.. But the major cotton producing states which account for more than 95% of the area under and output are: 1. Punjab. Gujarat.KAKINADA . Madhya Pradesh.MBA PROJECT AMARAVATHI TEXTILES Since then country has become self-sufficient in cotton production barring few years in the late 90s and early 20s when large quantities of cotton had to be imported due to lower crop production and increasing cotton requirements of the domestic textile industry. Cotton production Areas in India India is an important grower of cotton on a global scale.

fabrics. India earns foreign exchange to the tune of $10-12 billion annually from exports of cotton yarn. thread. It also accounts for more than 30% of exports. 25% of the world area. marketing and processing sectors.50. Cotton textiles along with other textiles also contribute about 1/3rd of the Indian exports. However the Cotton plays an important role in the National economy providing large employment in the farm. And the area under cotton cultivation in India (9.. The cotton Industry provides employment to over 15 million people. accounting for 70% of total fiber consumption in textile sector. which accounts for nearly 20% of the total national industrial production. with an average yield of 503 kg/ha compared to the world average of 734 kg/ha.KAKINADA . The problem is also compounded by higher production costs and poor quality in terms of varietals purity and trash content.CAMPUS.5 million ha) is the highest in the world. making it India's largest net foreign exchange industry. The cotton Industry is the backbone of our textile industry.e. 22 WORKING CAPITAL MANAGEMENT AU. apparel and made-ups.000 crores textile industry. 1. i. Contribution of Cotton industry for Textile Industry Cotton is the most important raw material for India's Rs.MBA PROJECT AMARAVATHI TEXTILES But the yields of cotton in India are low..

MBA PROJECT AMARAVATHI TEXTILES Steps taken by the Cotton Producers in India Now-a-days the Indian Cotton producers are continuously working to up-grade the quality and increase the cotton production to cope up with the increased global demand for cotton textiles and to meet the needs of the 39 million spindles capacity of the domestic textile industry which presently consumes about 12-14 million bales annually. cotton yields increased significantly in the 1980’s and through the first half of 1980’s but since 1996 there is no increase in yield. The Government Of India is also providing subsidies to the production inputs of the cotton in the areas of fertilizer.CAMPUS.. In the past. Indian cotton also suffers from inconsistent quality in terms of length. In India.KAKINADA . micronaire and strength. the increase in cost of production of cotton was partially offset by increase in yield but now with stagnant yield the cost of production is rising. power. etc… 23 WORKING CAPITAL MANAGEMENT AU. Policy of Government of India towards Cotton Industry The Cotton production policies in India historically have been oriented toward promoting and supporting the textile industry. Besides low yield. The Government Of India announces a minimum support price for each variety of seed cotton (kapas) based on recommendations from the Commission for Agricultural Costs and Prices.

Beside these the Corporation had also carried out commercial operations and purchased 2.108.70 crores in Andhra Pradesh.1218. Orissa and Karnataka. As a result of these. Thailand and Turkey.CAMPUS. 24 WORKING CAPITAL MANAGEMENT AU. for the year 2006-07). Maharashtra. now the exporters are not required to obtain any certificate from the Textile Commissioner on the registration.MBA PROJECT AMARAVATHI TEXTILES Markets for Indian Cotton The three major groups in the cotton market are • Private traders. The Cotton Corporation of India Ltd. for the year 2008-09 had purchased 60.81 crores during the previous year (i. In July 2001.30 lakh quintals of kapas equivalent to 11.285. • The Cotton Corporation of India Limited. the union government removed all curbs on cotton exports. Of these three groups..KAKINADA .82 crores in the year 2008-09 as compared to around 1.e. private traders handle more than 70 percent of cottonseed and lint. allocation. Madhya Pradesh.77 lakh bales valuing Rs.71 lakh bales valuing Rs. followed by cooperatives and the CCI. quality and quantity of export. • State-level cooperatives. The other markets also include Taiwan.00 lakh bales valuing Rs. Exports of Cotton The main market for Indian cotton export is China.

which are estimated at 55.. During the year 2008-09 the prices of Indian cotton in early part of the season being lower than the international prices.000 lakh bales in 2005-06. The imports rose to 1. had been attractive to foreign buyers and there was good demand for Indian cotton. Imports of Cotton Despite good domestic crops.Sep 2010. H-4 and Bunny. which had resulted in sustained cotton exports. India imported just 721.CAMPUS.000 lakh bales in 2006-07 and the anticipated imports for the year 2007-08 are 550. which were in short supply at around 6 lakh bales inclusive of import of around 2 lakh bales of long staple varieties contracted by mills during April-May 2009.MBA PROJECT AMARAVATHI TEXTILES India exported around 25 per cent cotton during 2008-09 and it is estimated nearly 62 per cent exported to China. 4. For the year 2007-08 the cotton imports into the country had once again remained limited mainly to Extra Long staple cottons.KAKINADA .217. like as previous year.700.000 bales of cotton in 2004-05. 25 WORKING CAPITAL MANAGEMENT AU. especially S-6.00 lakh bales The Cotton Advisory Board estimated an 18-20 percent increase in cotton exports to 65 lakh bales for Oct 2009. India is importing cotton because of quality problems or low world prices particularly for processing into exportable products like yarns and fabrics.000 lakh bales. as against its Aug 2009 estimate of 58 lakh bales.

China. India. Gujarat is the major consumer of cottonseed oil in the country. Several associations are promoting the production of decorticated cake in India and the production of this is expected to increase in the country. India used to import around 30000 tons of crude cottonseed oil. the oil recovery from cottonseed is around 11%. while Canada is the major importer. Role of cottonseed meal in Indian Economy India produces around 2 million tons of cottonseed meal a year. Around 2 lakh tons are traded globally every year.MBA PROJECT AMARAVATHI TEXTILES Role of Cotton seed oil in Indian Economy The global production of cottonseed oil in the recent years has been at around 4-4. Pakistan are the major producers of oil. In India the average production of cotton oil is around 4 lakh tons a year. in India mainly undecorticated meal is largely produced. more particularly groundnut oil. United States.. In India.CAMPUS. before palm and soyoil became the only imports of the country. United States (60000 tons) is the major exporter of cottonseed oil. viz. The major seed producers. 26 WORKING CAPITAL MANAGEMENT AU. Cottonseed is a traditional oilseed of India.5 million tons. It is also used for the manufacture of vanaspati.KAKINADA . if scientific processing is carried out the oil production can be increased by another 4 lakh tons.. The price of cottonseed oil is generally dependent on the price behavior of other domestically produced oils. Currently. However. the country does not import cottonseed oil. It is estimated that.

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India used to be a major exporter of cottonseed extraction around two decades ago. However, the demand for other oil meals like soymeal, has lowered the cottonseed demand globally. In addition, the low availability of decorticated meal in India has also been a major reason for the fall in exports. The major importers of Indian cottonseed meal (undecorticated) used to be Thailand. India in 2003-04 exported only 50 tons of decorticated cottonseed meal. In 2004-05, too there have been no significant exports. India does not import cottonseed meal. The Organizations dealing with the promotion of Cotton Industry in India The organizations that try to promote the quantity and quality of Cotton in India are I. II. III. IV. The Cotton corporation of India Ltd., Cotton Advisory Board., Cotton Association of India. Central Institute of Cotton Research.

I. The Cotton Corporation of India Limited The Cotton Corporation of India Ltd. was established on 31st July 1970 as a Government Company registered under the Companies Act 1956. In the initial period of setting up, as an Agency in Public Sector, Corporation was charged with the responsibility of equitable distribution of cotton among the different constituents of the industry and to serve as a vehicle for the canalisation of imports of cotton.

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With the changing cotton scenario, the role and functions of the Corporation were also reviewed and revised from time to time. As per the Policy directives from the Ministry of Textiles, Government of India in 1985, the Corporation is nominated as the Nodal Agency of Government of India, for undertaking Price Support Operations, whenever the prices of kapas (seed cotton) touch the support level. The Cotton Corporation of India Ltd. Operations cover all the cotton growing states in the country comprising of: • Punjab, Haryana and Rajasthan in Northern Zone. • Gujarat, Maharashtra and Madhya Pradesh in Central Zone. • Andhra Pradesh, Karnataka & Tamil Nadu in Southern Zone. II. Cotton Advisory Board The Cotton Advisory Board is a representative body of Government/ Growers/ Industries/ Traders. It advises the Government generally on matters pertaining to production, consumption and marketing of cotton, and also provides a forum for liaison among the cotton textile mill industry, the cotton growers, the cotton trade and the Government. It functions under the Chairmanship of Textile Commissioner with Deputy Textile Commissioner as a Member Secretary. III. The Cotton Association of India The Cotton Association of India also called as the East India Cotton Association (EICA) was declared as the statutory body by the Bombay Cotton Contract Act on 28th December, 1922. Its purpose is to

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• Provide and maintain suitable buildings or rooms or a Cotton Exchange in the city of Bombay or elsewhere in India. • Provide forms of contracts and regulate the marketing, etc. of the contracts. • Fix and adopt standards or classifications of cotton. • Adjust by arbitration or otherwise controversies between persons engaged in the cotton trade. • Acquire, preserve or disseminate useful information connected with the cotton interests. IV. Central Institute of Cotton Research With a view to develop a Centre of excellence for carrying out long term research on fundamental problems limiting cotton production the Indian Council of Agricultural Research has established the Central Institute for Cotton Research at Nagpur in April, 1976. CICR was simultaneously established at Coimbatore to cater to the needs of southern cotton zone. CICR was established at Sirsa in the year 1985, to cater to the needs of northern irrigated cotton zone. All the three research farms are well equipped with tractors and other farm implements and efforts are underway to initiate further developmental work in all the farms. The Vision of the CICR is to improve production and quality of Indian Cotton with reduced cost to make cotton production cost effective and competitive in the national and global market. The Mission of CICR is to develop economically viable and eco-friendly production and protection technologies for

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30 WORKING CAPITAL MANAGEMENT AU.CAMPUS.MBA PROJECT AMARAVATHI TEXTILES enhancing quality cotton production by 2-3% every year on a sustainable basis for the next twelve years (till 2020).KAKINADA . Gujarat has turned into a largest cotton producing State with a record production-level of 93 lakh bales constituting around 34% of the country’s total production. had been attractive to foreign buyers and there was good demand for Indian cotton. The prices of Indian cotton in early part of the season being lower than the international prices. cotton prices remained better by almost Rs. The area under cotton cultivation during 2008-09 has also gone up by around 6% at 91. the mill demand in the beginning of the season was subdued which put pressure on the cotton prices right from the beginning of the season and has resulted into fall in cotton prices between October 2008 & January 2009. With wide usage of hybrid seeds throughout the country as well as changed mindset of cotton farmers for adoption of better and improved farm practices.. the average productivity of cotton has crossed 503 kgs per hectare as against 478 kgs during the previous year. Due to expectation of bumper crop. The Current Scenario of Cotton Industry (2008-09) The cotton production in the country has been increasing continuously since last three years and the same has further gone up by around 11% during cotton season 2008-09 at a record level of 270 lakh bales as against 244 lakh bales during 2007-08.77 lakh hectares during 2007-08. Cotton prices reached its peak level by end-March 2009 and there was some correction in cotton prices in April and May 2009.3000 per quintal in almost all varieties as compared to previous year. However. on the whole.58 lakh hectares as against 86.

however. aiming exports of $50bn. automotive.. such as China and India. Weaving process is conducted to make fabrics for a broad range of clothing assortment. 31 WORKING CAPITAL MANAGEMENT AU.KAKINADA . sportswear. protective clothing etc.. skirts. in order to support the industry. the Govt. There is huge development foreseen in Indian textile exports from the $17bn attained in 2006-07 to $50bn by 2010-11.CAMPUS. There is substantial potential in Indian exports of technical textiles and home-textiles. of India may extend the Technology Upgradation Fund Scheme (TUFS) by the end of the 11th Five Year Plan (till 2012-2013). On the other hand. The woven products output will also rise in Central and Southern American countries. dresses. The estimation for the exports in the current financial year is about $19bn. Indian textile industry is massively investing to meet the targeted output of $85bn by the end of 2011.MBA PROJECT AMARAVATHI TEXTILES Future of Cotton Industry in India Considering the continual capital investments in the textile industry. as most European companies want to set up facilities near-by the emerging markets. the output of woven products will remain stable. The global demand for apparel and woven textiles is likely to grow by 25 percent by year 2011 to over 35mn tons. at a reasonable speed. including shirts. jeans. medical etc… It is been forecasted that the woven textile and apparel markets will sustain their growth from current till 2011. and Asia will be responsible for 85 percent output of this growth. and also used in non-apparel uses like technical. in major developed countries.

nightwear and underwear. trim. Woven fabrics are widely used in apparel assortments..MBA PROJECT AMARAVATHI TEXTILES The imports of apparel and textiles will rise from developed economies like the USA and the western countries of Europe and Japan.KAKINADA . airbags and seat belts and lyre fabrics. And many more applications… The Indian Industry foresees huge demand for industrial woven products for medical and automotive applications. transportation and tarpaulins. • Geotextile . furnishing fabrics. import growth has been witnessed vertical rise in the previous year. as well as in specialized apparels like protective clothing and sportswear. 32 WORKING CAPITAL MANAGEMENT AU. carpets. industrial applications includes. Certainly. Special kind of woven fabrics are utilized in medical as well as industrial applications. Apparel is the most preferred and important of all the other applications.CAMPUS. including innerwear.tent and fabrics used architectures. plasters etc. table cloths etc. outerwear. Demand for woven fabrics is anticipated to be rise vertically in the sector of home textiles. Where as.interior upholstery. The medical applications include adhesives. such as South Korea and Taiwan. • Sailcloth . along with some newly emerged economies. Home textile also contributes considerably in woven fabric in products assortments like curtains. dressing bandages.

. Albeit. Future Challenges for the Indian Cotton Industry The challenges that are going to face by the cotton producers in India for the season 2009-10 are: • Rupee appreciation The increase in the value of the rupee gives only smaller import orders to the cotton producers. there are specific demands for home textile facilities also. these sectors assures substantial demand for non woven facilities in India. resulting a prosperous future forecast for the textile industry in india. Conclusion Anticipating massive growth in medical and automobile sectors. Indian cotton yarn manufacturers should rush forward for joint ventures and integrated plans for establishing processing and weaving facilities in home textiles and technical textiles in order to meet export target of $50bn. home textiles also will lure higher demand.KAKINADA . that the peak management of the cotton yarn manufacturers analyze the future prospect and growing graph of demand for non woven products. It is mandatory. 33 WORKING CAPITAL MANAGEMENT AU. thus major facilities of cotton yarn are currently concentrating just on home textiles.CAMPUS. The 7th Five Year Plan has huge consideration on agricultural growth that also includes cotton textileindustry.MBA PROJECT AMARAVATHI TEXTILES Non woven sector has great future in terms of global demand. and a total textile production of $85bn by 2009-2010.

So this aspect is also required to consider by the cotton producers. • Low quality The Quality of cotton is also far from satisfactory considering the presence of a large number of contaminants.MBA PROJECT AMARAVATHI TEXTILES • Cheaper Imports The appreciated rupee value makes the cotton imports cheaper when compared to past. So the cotton producers are also required to take care in this aspect..KAKINADA .CAMPUS. 34 WORKING CAPITAL MANAGEMENT AU.

.300crores turnover. AMARAVATHI TEXTILES GROUP is driven by a passion be the best in al the areas it operates.. Thanks to his pioneering vision. • COTTON • SPINNING • TEXTILE 35 WORKING CAPITAL MANAGEMENT AU. Backed by a high density of advanced technology and sophisticated manufacturing facilities.KAKINADA . ABOUT THE COMPANY • The founder of AMARAVATHI TEXTILES who has drawn its future planned growth. the group harnesses an entrepreneurial spirit. The total group turnover is around 300 crores per annum. comprising 6 divisions with diverse interest in……. A Man whose spirit of Dynamism has helped the group to achieve manifold growth. the group’s operation grew and market extended.CAMPUS. it’s only natural that the group is leaf fogging for an outstanding future. with all the companies superbly integrated in one single campus. stateof-art technology and financial strengths to emerge as an industrial force to reckon with. AMARAVATHI TEXTILES Group with its diverse interests in core areas is surging ahead with drive and determination.MBA PROJECT AMARAVATHI TEXTILES COMPANY PROFIL4 AMARAVATHI TEXTILES PRIVATE LIMITED. Today AMARAVATHI TEXTILES is a multi-activity group with a Rs.

The operations grew rapidly to lay solid foundations for giant surging ahead in diverse environments. To the group.. A future where the best of minds and men will work. THE BIRTH OF A DREAM Sri Kandimalla Srinivasa Rao set up a cotton ginning mill in 1984. 36 WORKING CAPITAL MANAGEMENT AU. He proved that success starts with a proactive attitude. And will have the most resources to draw upon. Sadineni’s first trip to RUSSIA gave him the power of conviction to stride boldly into the industrial environment. It’s vision of the future where change will be embraced as the very basis of opportunity and endeavor. His value – oriented strategy and adventurous sprit bore fruit consistently. Relentless pursuit of perfection is the hallmark of this young and dynamic B. And valiantly into the future.CAMPUS. the future is rich in possibilities. he ventured to cultivate 100 acres of land.Tech Textiles Graduate.tale sprite gleaming in his eyes.MBA PROJECT AMARAVATHI TEXTILES A TRADITION OF ENTERPRISE Sri Kandimalla Srinivasa Rao left in pursuit of a dream. A vigorous confidence that one can effectively integrate ideas with enterprise. And with the tell. His farmland grew and from a model farmer he evolved into a dynamitic entrepreneur. The managing Director of AMARAVATHI TEXTILES (P) LTD.KAKINADA . With just two bags of grain.

COTTON DIVISION The COTTON GINNING & PRESSING UNIT was started in 1984. and not chance”. This Division also processes India ’s best long staple cotton DCH-32 at Dharwad Branch. He is widely acknowledged as the man who has fostered a ‘can do’ culture which starts at top and filters down to every employee at AMARAVATHI TEXTILES. he is committed to a vision that encompasses everybody’s enlistment. The company firmly believes that unmatched capabilities plus an indepth knowledge of various cotton growing areas alone can put it on the path to speedy growth. 37 WORKING CAPITAL MANAGEMENT AU.KAKINADA . he is forever aiming higher. Astute professionals by habit. While nurturing a corporate culture that encourages individual growth. His enterprising zeal and cautious planning have been the pivotal points in driving the group towards trailblazing progress. “Success is a matter of excellence.MBA PROJECT AMARAVATHI TEXTILES His rich and professionals experience in the spinning line enabled AMARAVATHI Textile’s Spinning Division to scale new heights. Mr. Social service has always been a matter of prime concern to him. He is powered by just one belief…….CAMPUS. Which is why he perennially strives to provide the best education and undertake multi-pronged schemes towards the betterment of the community.. Karnataka. Kandimalla Srinivasa Rao is committed to labour welfare and his visionary leadership has earned him a wealth of respect among the employees of AMARAVATHI.40crores.. The Division maintains 54 Gins and 1 Hydraulic press with an annualized turnover of Rs.

38 WORKING CAPITAL MANAGEMENT AU. It is the dedicated quality consciousness that as paved the way for a phenomenal demand for AMARAVATHI TEXTILES products. The unit is enviably wellentrenched as a leading player for the highly competitive export markets ever since 1996. SPINNING DIVISION The AMARAVATHI TEXTILES SPINNING MILLS DIVISION has been a trend setter ever since it’s commissioning. AMARAVATHI TEXTILES magnificent obsession with exports has won for it important international markets. The impressive performance reflects AMARAVATHI TEXTILESS commitment to continue machine modernization. This Division has stayed big thinking big and keeping an eye on the details that sustain quality. All this translates into utmost customer satisfaction. The division through a concerted Endeavour assures exemplary quality by undertaking rigid quality control measures which start right at the at the stage of procuring raw material ingredients down to the last level. Conceived in a sprawling area in the midst of rich cotton fields of GUNTUR District. over 70% of the produce was exported major European countries. We are having a capacity of 60. the plant started commercial production of World class yarn to the requirement of global markets as well as indigenous markets. In fact. Established in 1991. the division is on its way to dizzy heights on the cotton horizon..MBA PROJECT AMARAVATHI TEXTILES The division is poised to excel and is confidently geared to post an impressive growth rate.000 spindles.KAKINADA .CAMPUS.

CAMPUS. 39 WORKING CAPITAL MANAGEMENT AU.. We will achieve 25000 spindles compact yarn shortly. v Transparency in Business v Integrity in Negotiation v Innovation that fuels growth ENVIRONMENTAL PROTECTION AND SAFETY – A TOP PRIORITY Amaravathi is committed to the conservation of the environment. prompt delivery schedules combined with competitive pricing have resulted in higher sales and profits. astute focus on niche markets. uncompromising productivity standards. The thrust on higher capacity utilization. We are running compact yarn with 12000 spindles (suessen). By exporting world class cotton yarn globally. AMARAVATHI VALUES: v Promptness in execution. Our manufacturing facilities comply with stringent environmental norms and are equipped for effluent treatment. the mill is leap fogging for the further growth. COUNT RANGE : We are running from 50 to 100 counts in single well as double (TFO) yarns. the products of Amaravathi have won widespread appreciation and repeat orders. The Amaravathi Dyeing Plant uses reverse osmosis with a multi effect vaporator to qualify as a zero discharge unit.MBA PROJECT AMARAVATHI TEXTILES In recognition of its excellent quality conforming to the highest international standards. quality management.KAKINADA .

Provision towards decline in the value of Long Term Investments is made only when such decline id other than temporary. FIXED ASSETS: Fixed assets are stated at historical cost less accumulated depreciation. · Under written down valve method on the assets of all other divisions of the company.CAMPUS. STATEMENT OF ACCOUNTING POLICIES GENERAL: The Financial Statements are prepared on historical cost convention and in accordance with generally accepted accounting practices.KAKINADA .. 40 WORKING CAPITAL MANAGEMENT AU.MBA PROJECT AMARAVATHI TEXTILES TEXTILE DIVISION The Division was started in 2005. INVESTMENTS: Long term Investment is stated at cost and income thereon accounted for on accrual. The Units equipped with modern imported machinery. Total plant planned for 98 Looms. In phased manner we are expanding the Looms capacity. Power and Textile Divisions. DEPRECIATION: Depreciation is a written off in accordance with the provisions of schedule XIV of the companies Act 1956 as follows: · Under straights –Line Method in respect of the assets of Spinning. We have sucker wrapping and sizing. Presently we are running with 48 Brand New Looms.

.MBA PROJECT AMARAVATHI TEXTILES INVENTORIES: Valuation of inventories is made as follows · Raw-Material and Finished goods at cost or net realizable valve whichever is lower. SALES: Sales are inclusive of Excise Duty. · · · Work-in-Progress at cost inclusive of direct production overheads.. subject to the consideration of prudence on timing differences.KAKINADA . Stores and spares at cost. TAXES ON INCOME: Current taxes are determined as per the provisions of income Tax Act 1961 in respect of taxable income for the year ended 31st march.CAMPUS. 2003. SEGMENT REPORTING: 41 WORKING CAPITAL MANAGEMENT AU.. being the difference between taxable income and accounting that originate in one period and are capable of reversal in one or more subsequent periods. Electronic power at net releasable valve Excise Duty liability on finished goods is accounted for as and when goods are cleared from factory and there is no liability on closing stock of finished goods at the year end. Differed tax liability is recognized.

Inter-segment Revenue has been accounted for based on the market related prices. Pending approval of the shareholders at the annual General Meeting.I.MBA PROJECT AMARAVATHI TEXTILES The accounting policies adopted for segment reporting are in line with the accounting policies segment reporting. PROPOSED DIVIDEND: Provision is made in the account for the dividend payable (including of all tax thereon) by the company as recommended by the Board of Directors.CAMPUS. and are charged against the revenue. RETIREMENT BENEFITS: The Company makes regular monthly contribution to provident fund which are deposited with the Government and Group term Insurance is routed through L. The company has taken Group Gradually (Cash Accumulation) scheme with Life Insurance Corporation of India ..KAKINADA . Leave encashment is accounted as and when the employees claimed and paid. The premium on policy and the difference between the amounts of gratuity paid on retirement and recovered from the Life Insurance Corporation of India debited to profit and Loss Account.C. of the company with the following additional policies for IMPAIRMENT OF ASSETS: 42 WORKING CAPITAL MANAGEMENT AU. Revenue and expense which related to the enterprise as a whole and are not allocable to segments on a reasonable basis have been included under “Unallocated” head. Revenue and Expenses other than interest have been identified to segments on the basis of their relationship to the operating activities of the segment.

983 44.568 YARN BOARD OF DIRECTORS § K. Amaravathi Product: Commercial performance Table 2.MBA PROJECT AMARAVATHI TEXTILES At the date of each balance sheet the company evaluates internally.669 34.60.KAKINADA WORKING CAPITAL MANAGEMENT .CAMPUS.12. but are disclosed after a careful evaluation of the concerned facts and legal issues involved..54. No impairment loss has been recognized.34.20.34.97.377 68.568 (in rupees) Domestic Sales 28.48. to carrying amount of its fixed and other assets.46.723 52.48.723 52.2: Year 2003-04 2004-05 2005-06 2006-07 2007-08 Sales Turnover 28.53.53. indications of the impairment if any. CONTIGENT LIABILITIES: Contingent Liabilities are not recognized in the accounts.54.983 44.60. Director 43 AU.60.Srinivasa Rao.46.12.20.669 34.60.97.377 68.

A. Guntur . Guntur .Bhaskar K. Chilakaluripet-522616 FACTORY Martur-522301. State Bank of Hyderabad .. Pandaripuram.Ramesh.Geetha Director Director GENERAL MANAGER.Com.C. BANKERS State Bank of India . D.. A. Kandimalla Road . Guntur State Bank of Mysore . ACCOUNTS MANAGER. Andhra Pradesh. REGISTERED OFFICE 33-263.MBA PROJECT AMARAVATHI TEXTILES § § K.T..T. 44 WORKING CAPITAL MANAGEMENT AU.CAMPUS. Prakasam District. B. Shri N. B.A.Veeraiah. Shri P.KAKINADA . Martur Mandal.

.MBA PROJECT AMARAVATHI TEXTILES 45 WORKING CAPITAL MANAGEMENT AU.KAKINADA .CAMPUS.

MBA PROJECT AMARAVATHI TEXTILES 46 WORKING CAPITAL MANAGEMENT AU..KAKINADA .CAMPUS.

It is concerned with the problem that arises in attempting to manage the current assets.. namely cash and marketable securities.CAMPUS. The term working capital stands for that form of capital which is required for the financially of working or current need of the company. Working capital or current assets management is one of the most important aspect of the over all financial management. A study on working capital is of major importance. While the efficient management may not only lead to loss of projects but also to the ultimate shown fall of what other wise would be considered as promising concern. It is usually invested in raw material work in progress finished goods accounts receivable and saleable securities.KAKINADA .MBA PROJECT AMARAVATHI TEXTILES WORKING CAPITAL MANAGEMENT – AN OVERVIEW Working capital may be regarded as the most important factor of a business. 47 WORKING CAPITAL MANAGEMENT AU. assets receivable and inventories and also administration of current liabilities. because of its close relationship with current day today operations of a business. Management of working capital usually involves planning and controlling current assets. its effective provision and utilization can do much to ensure the success of a business.

CAMPUS.. Current assets are the assets. 48 WORKING CAPITAL MANAGEMENT AU. which are expected to mature for payment with in an accounting year and include creditor’s bill payable and outstanding expenses. Current liabilities are those claims of outside.KAKINADA . The goal of working capital management is to manage the firms current assets and current liabilities in such a way enough to cover its current liabilities in order to ensure that they are obtained and used in the best possible way. which can be converted into cash with in an accounting year and includes cash short-term securities. debtors. bill receivable and inventories.MBA PROJECT AMARAVATHI TEXTILES The current liabilities and the inter relationships that exists between them.

KAKINADA .MBA PROJECT AMARAVATHI TEXTILES MEANING OF WORKING CAPITAL Capital required for a business can be classified under two main categories.. Investment in these assets represented that part of firm’s capital. Role of working capital management in public sector concern The salient features of working capital management in public sector undertakings are presented below. and furniture etc. Circulating capital means current assets of a company that are changed in the ordinary course of bs8iness from to another. Fixed capital 2. payment of wages and other day-to-day expenses. Every business needs funds for two purposes for its establishment sand to carry out its day-to-day operations. machinery. These funds are known as working capital funds thus invested current assets keep revolving fast and are being constantly converted into cash and these cash flows ot again in exchange for other current assets.CAMPUS. Funda are also needed for short-term purpose for the purchase of raw material. 1. Working capital Working capital is the amounts of funds necessary to cover the cost of operating of enterprises. building. which is blinked on permanent or fixed basis and is called fixed capital. land. Hence it is also known as revolving or circulating capital short-term capital. Long-term funds are required to create production facilities through purchases of fixed assets such as plant. 49 WORKING CAPITAL MANAGEMENT AU.

• Most of the public sector undertakings are capital-intensive industries like steel. in general is rather low. This is evident from the high inventory to sales ratios found foremost of the public sector concerns. when the project cost is estimated. Hence the ratio of current assets to fixed assets in public sector undertaking.CAMPUS.MBA PROJECT AMARAVATHI TEXTILES • There is often no provision for working capital margin. • Management of inventories in public sector undertakings rather tax. Since the risk involved in lending is minimized.. which are generally quite accommodations. Hence long –term funds are not made available for working capital margin. • Apparently public sector undertakings do not have much difficulty in obtaining can now obtain short term financing from all nationalized banks.KAKINADA . heavy engineering. oil refining etc. This means that public sector undertakings are required to raise all the financing required for current assets from shortterm sources. PRINCIPLES & CONCEPTS OF WORKING CAPITAL The need for working capital varies with the changes in the volume of business due to • Changes in the level of sales /operating expenses • Managerial policy changes • Changes in managerial new technologies 50 WORKING CAPITAL MANAGEMENT AU. commercial banks seem to be quite liberal in extending credit to the public sector concerns.

Working capital is essentially circulating capital that includes cash. The assets of this type are relatively temporary in nature.. Working capital represents the total of all current assets In other words it is “gross working capital”. while its in efficient management can lead only to loss of profits but also to the ultimate downfall of what otherwise might be considered as a promising concern. 51 WORKING CAPITAL MANAGEMENT AU. A study of working Capital is of major importance to internal and external analysis because of its close relationship with the current day to day operations of a business working capital is the leading cause of that position of the assets of a business which are used in or related to current operations and represented at any one time by the “Operating Cycle” of such items as against receivables . The definition of working capital is qualitative in character..MBA PROJECT AMARAVATHI TEXTILES “WORKING CAPITAL” may be regarded as the life blood of a business its effective provision can do much to ensure the success of business. of current assets are rotating in their nature. Concepts o f net working capital enables a firm to determine how much amount is left for operational requirements. This is also termed as “net working capital”.CAMPUS. It is also known as CIRCULATING CAPITAL or CURRENT CAPITAL. merchandize. inventories of raw materials . stores. inventory and receivables circulating in nature. notes or bills receivables and cash.KAKINADA . In an accounting working capital is the difference between current assets and current liabilities. work in progress & finished goods.

The need for working capital arises due to the time gap between production and realization of cash from sales • For the purchase of materials. spaces & finishes stock.KAKINADA Current Liabilities Bills payable Sundry creditors Accrued expenses Short-term loans Dividends payable Bank over draft provision for taxation . profitability and liquidity which are conflicting to each other.. components & spares • To pay wages & salaries • To increase day to day expenses & overheads cost such as fuel.CAMPUS. power & office expenses etc • To meet the selling cost as packing. stores. 52 WORKING CAPITAL MANAGEMENT AU.e. There are two important objectives of a working capital i. Every business needs some amount of working capital. advertising etc • To provide credit facilities to the customer To maintain the inventors of raw material.MBA PROJECT AMARAVATHI TEXTILES LIST OF CURRENT ASSETS & CURRENT LIABILITIES Current Assets: Cash in hand Cash in bank Bills receivables Sundry debtor’s Stock Prepaid expenses Accrued income Short-term investment OBJECTIVES OF WORKING CAPITAL The need for working capital cannot be over emphasized. work-in –progress.

The main advantage of maintaining adequate amount of working capital is as follows: • Solvency of the business • Good will • Easy loans • Cash discounts • Regular supply of raw materials • Regular payment of salaries.. But this may result I n liquidity and stock outs on account of deficiency of working capital funds. working capital is very essential without an adequate amount of working capital. Therefore. For higher profitability d. ADVANTAGES OF ADEQUATE WORKING CAPITAL: Working capital is the lifeblood and nerve center of business.MBA PROJECT AMARAVATHI TEXTILES PROFITABILITY: It refers to the rate of return on investment with reference to current asset levels and their use. the enterprise should invest less in current assets and vice-versa. Just as circulation of blood is essential in the human body for maintaining life. Because funds will not be locked up but are utilized to the maximum extent.KAKINADA . wages and other day to day commitments • Exploitation of favorable market conditions • Ability to face crisis • Quick and regular return on investments • High morale 53 WORKING CAPITAL MANAGEMENT AU.CAMPUS. This is th e major dimension in the working capital management in practice. the planning and control of working capital aims at trading of between profitability and liquidity.

• Excessive working capital implies excessive debtors and defective credit policy. which has inadequate working capital. it will lose its representation and shall not be able to get good credit facilities • It cannot buy its requirements in bulk cannot avail of discounts etc 54 WORKING CAPITAL MANAGEMENT AU.MBA PROJECT AMARAVATHI TEXTILES INADEQUATE WORKING CAPITAL: Every business concern should have adequate working capital to run its business operations. the value of shares may also fall • The redundant working capital gives rise to speculative transactions DISADVANTAGES OF SHORTAGE WORKING CAPITAL: • A Concern. • When there is an excessive working capital relations with banks and other financial institutions may not be maintained • Due to low rate of return on investment.KAKINADA .CAMPUS. waste and losses. which may cause higher incidence of bad debts • It may result into overall inefficiencies in the organization.. cannot pay its short-term liabilities in time. DISADVANTAGES OF EXCESSIVE WORKING CAPITAL: • Excessive working capital means idle funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments • Where there is a redundant working capital. It should have neither redundant excess working capital nor inadequate / shortage of working capital. Thus. it may lead to unnecessary purchasing and accumulations of inventories causing more chances of theft .

MBA PROJECT AMARAVATHI TEXTILES • It becomes difficult for the firm to exploit favorable market conditions & undertake projects due to lack of working capital. increase cost& reduces the profits of the business • It becomes impossible to utilize efficiency the fixed assets due to nonavailability of liquid funds. • The rate of return on investments also falls with shortage of working capital FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS: 1 2 3 4 5 6 7 8 9 10 11 12 13 Nature or character of business Size of Business/sale of operations Production policy Manufacturing process/length of the production cycle Seasonal variations Working capital cycle Stock turnover ratio Credit policy Business cycle Rate of growth of business Earning capacity and dividend policy Price level changes Other factors WORKING CAPITAL CYCLE: 55 WORKING CAPITAL MANAGEMENT AU.KAKINADA .. • The firm cannot pay day today expenses of its operations and it creates inefficiencies.CAMPUS.

KAKINADA ..CAMPUS.MBA PROJECT AMARAVATHI TEXTILES Debtors (Receivables) CASH FINISHED GOODS Raw material Work in progress OPERATING CYCLE: The duration of time required to complete the following sequence of events cash of manufacturing firm is called the operating cycle • Conversation of cash into work process • Conversation of raw material into work in process • Conversation work in process onto finished goods into debtors & bill receivable through sales • Conversation of debtors & bill receivables into cash 56 WORKING CAPITAL MANAGEMENT AU.

. INFLUENCING FACTORS OF WORKING CAPITAL REQUIREMENTS: The working capital needs of firm are influenced by numerous factors. • This will be provides the current amount of working capital at the right time • It enables a firm to realize the greatest return on its investment • It helps in the fixation of various areas of financial responsibility • It enables affirm to plan and control funds and to maximize the return on investment. This concept has the following advantages. As negative working capital occurs where current liabilities are in excess of current assets.Gross working capital: It is the amount of funds invested in the various components of currents assets. The important ones are 57 WORKING CAPITAL MANAGEMENT AU.KAKINADA . 2. A positive net working will arise when current assets exceeds current liabilities.MBA PROJECT AMARAVATHI TEXTILES TYPES OF WORKING CAPITAL: 1. • Financial managers are profoundly concerned with current assets.Net working capital: In reference to the difference between current liabilities net working capital can be positive or negative.CAMPUS.

like an electricity undertaking or a transport corporation. For example. 58 WORKING CAPITAL MANAGEMENT AU. The sale of ceiling fans reaches a peak during the summer months and drops sharply during the winter period. SEASONALITY OF OPERATIONS: Firms. which has a short operating cycle and which sells predominantly on cash basis.KAKINADA .MBA PROJECT AMARAVATHI TEXTILES • Nature of business • Seasonality of operations • Production policy • Market conditions • Conditions of supply NATURE OF BUSINESS: The working capital requirements of firms are closely related to the nature of its business. which have marked seasonality in their operations usually. PRODUCTION POLICY: A Firm marked by pronounced seasonal fluctuation in its sales may have a production policy which may reduce the sharp variations in working capital requirements.CAMPUS.. consider a firm manufacturing ceiling fans. have highly fluctuating working capital requirements. has a modest working capital requirement. A services firm.

Sources of working capital may be classified under 2 heads. SOURCES OF WORKING CAPITAL A large scale manufacturing company may procure funds from various sources to meet its working capital from time to time.MBA PROJECT AMARAVATHI TEXTILES MARKET CONDITIONS: The degree of competition prevailing in the market place has an important bearing on working capital needs.. a) Sources of long term or Regular working capital b) Sources of short term or Seasonal working capital Sources of working capital Long term working capital Internal Short-term working capital External 59 WORKING CAPITAL MANAGEMENT AU.KAKINADA . When competition is keen a larger inventory of finished goods all required to promptly serving customers who may not be inclined to wait because other manufacturing are ready to meet their needs.CAMPUS.

External sources: • Normal trade credit • Credit papers • Bank credit • Customer credit • Public deposits • Loans from managing directors • Government assistance 60 WORKING CAPITAL MANAGEMENT AU..KAKINADA . Internal sources: • Deprecation fund • Provision of taxation • Accrued expenses 2.CAMPUS.MBA PROJECT AMARAVATHI TEXTILES Long-term working capital: • Issue of share • Issue of debentures • Profits • Sale of fixed assets • Security from employees and from customers • Term loan Short-Term working capital: 1.

These payments include such things as purchase. Cash management 2..MBA PROJECT AMARAVATHI TEXTILES KEY AREAS OF WORKING CAPITAL MANAGEMENT The following are the key areas of working capital management. Receivable management 3. labor taxes and dividends etc. In a narrow sense it is used broadly to cover currency and generally accepted equivalence of cash such as cheques. More predictable cash flow of business. 2.CAMPUS.CASH MANAGEMENT: Cash management is one of the key areas of working capital. 3. Speculative motive: This is holding of cash management will ensure is resolving uncertainly both cash flow and cash out flow 61 WORKING CAPITAL MANAGEMENT AU. Inventory management 1.KAKINADA . Precautionary motive: This precautionary balance maintenance will act as a casher of buffer to meet it unforeseen and unexpected contingencies. Transaction motive: Need for cash to meet payments arising in the ordinary course of action. The term cash with reference to cash management is uses in two senses. drafts and demand deposits in banks Motives for holding cash: Keynes has identified five motives for cash holding those are: 1. the less will also influence this balance. 1.

such as clearance of cheque. Investment motive: a) For meeting operational requirements b) For providing liquidity reserve against • Routine net out flows of cash • Schedule of major outlays • Exploitation of possible particulars for advantages long term investment • Unexpected drains of cash c) Maintenance of bank relationship d) Building of an investment image and other such intangibles. pending an opportunity for a better use of funds.KAKINADA . For effective cash management the following points are to be kept in mind • Planning of cash requirements • Effective control of cash flow • Productive utilization of excess funds. a bank charges a commission/ fee for other they seek indirect compensation.CAMPUS. Such balances are called compensation balance. While for some of the services. 5. transfer of funds etc. supply of credit information..MBA PROJECT AMARAVATHI TEXTILES 4. OBJECTIVES OF CASH MANAGEMENT: • Meeting the payments schedule • Minimizing funds committed to cash balances 62 WORKING CAPITAL MANAGEMENT AU. e) Constructing a reservoir for net cash inflow. Compensation motive: Banks provide a variety of services to business firms.

MBA PROJECT AMARAVATHI TEXTILES 2) RECEIVABLES MANAGEMENT: Receivables are assets. Every business needs to have a proper control management of receivables. Meaning: Receivables represents amount owed to the firm as a result of sale of goods or services on the ordinary course of business.KAKINADA . trade receivables or customer receivables”.. The purpose of maintaining or investing in receivables is to meet competition and to the sales and profits. These are known as “ accounts receivables. which are created as a result of the sale of goods or services in the ordinary courses of business. Characteristics of maintaining receivables: • Expansion of sales • Increased profit • Financing receivables • Administrative expenses • Cost of collection • Bad debts Factors influencing the receivables management: • Size of credit sales • Credit policies • Terms of trade • Expansion plans • Relations with profits • Credit collection efforts • Habits of customers 63 WORKING CAPITAL MANAGEMENT AU. The receivables represent an important component of the current assets of a firm.CAMPUS.

• Raw material • Work in process • Consumables • Finished goods • Spares OBJECTIVES OF INVENTORY MANAGEMENT: The main objective of the availability of materials is for the efficient & uninterrupted production. The unforeseen fluctuations in demand & supply of goods also necessitate the need for inventory.KAKINADA . Various authors understand the inventory differently.It serves as link between production & distribution process. Meaning & nature of inventory management: Inventory is one of the major current asserts. It is also provides a cushion for future price fluctuation.CAMPUS. Inventory includes the following things. The purposes of ensure availability of materials in sufficient quantity as and when require & also to minimize inventories.MBA PROJECT AMARAVATHI TEXTILES 3) INVENTORY MANAGEMENT: Every business needs inventory for smooth running of its activities . • Minimize investment I in inventory to maximize profitability • To minimize carrying costs & order cost of inventory • To facilitate purchasing economy • To have an efficient stores organizations 64 WORKING CAPITAL MANAGEMENT AU.. The literary meaning of work inventory is stock of goods or list of goods.

MBA PROJECT AMARAVATHI TEXTILES • Optimum consumption of materials so that materials cost of a finished goods is kept at minimum • To maintain sufficient finished goods inventory for smooth sales operation & efficient customer services. TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT Effective inventory management requires an effective control system for inventories. • Determining of stock levels • Determining of safety stocks • Selecting a proper system of ordering for inventory • Determination of economic order quantity • ABC analysis 65 WORKING CAPITAL MANAGEMENT AU. A proper inventory control not only helps in solving the acute problems of liquidity but also increase profits and causes substantial reduction in the working capital of the concern.CAMPUS.. • To minimize obsolescence in stores • To avoid excessive & inadequate stocks • To contribute profitability • To dispose surplus items & scrap at appropriate time • To provide a check against losses of materials through pilferage & theft.KAKINADA . The following are the important tools and techniques of inventory management and control.

KAKINADA .CAMPUS..MBA PROJECT AMARAVATHI TEXTILES • VED analysis • Inventory turnover ratios • Aging schedule of inventories • Classification and codification of inventories • Preparation of inventory reports ADVANTAGES OF HOLDING INVENTORY • Quick services • Discounts • Reduction in order cost • Efficient production runs • Protection against shortages 66 WORKING CAPITAL MANAGEMENT AU.

78.984 9.94.99.475 273 8.MBA PROJECT AMARAVATHI TEXTILES TABLE:4.02.069 1.59.629] 4.CAMPUS.035 18.22.000 21.434 14.15.968 11.610 1.000 1.95.781 1.08.440 11.75.34.06.95.51.14.440] 8.46.177 -------------------------------Decrease --------1.714 3.238 42.84.66.85.08.08.17.273 6.781 14.49.550 1.85.745 Other current assets 28.000 19.17.20.069] 11.06.29.66. 2.736 7.661 [7.71.57..290 2.280 1.00.37.085 1.99.933 1.94.17.24.1 STATEMENTS OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2003-2004 to 2004-2005: Rs In Lakhs Particulars 2003-2004 2004-2005 Changes in Working Capital Increase CURRENT ASSETS Inventory 6.737 --------8.03.51.761 18.958 [4.645 [11.625 17.19.80.94.00.13.KAKINADA .05.270 --------3.91.95.50.21.50.361 Cash on hand 24.958 67 WORKING CAPITAL MANAGEMENT AU.16.28.155 Loans & Advances Total Current Assets (A) Current liabilities Sundry creditors Advance received against sales Interest accured but not due Provisions Provision for taxation Provision for gratuity Provision for earned leave en cashment Total Current liabilities (B) Networking Capital (A-B) Increase / Decrease 2.66.90.061 Sundry debtors 1.069 ----------------- 16.37.98.51.50.721.57.06.37.000 3.19.737 ------------------------3.90.

CAMPUS. There is overall increase of 72. 15. 9. loans and advances by 70. The inventory is increase to 122. and 4.14% respectively.63% compared to the previous financial year 2. cash. 5. 65. gratuity and provision earned by 52. 6. tax. other current assets.36% above 0. 70. advance received against sales.87%. but there is a decrease in interest by 100% 68 WORKING CAPITAL MANAGEMENT AU. It was observed that the above working capital calculations for the year 2003-2004 we can notice that the working capital is increased by 53. 4.49% in total current assets during the year 2003-2004 when compared to the previous financial years.92%. There is overall increase of 59.47.. 100%.49% in total current liabilities during the year 2003-2004 when compared to the previous financial year. This is due of the increase of sundry creditors.48%.31% But there are decrease in sundry debtors.28%.KAKINADA .MBA PROJECT AMARAVATHI TEXTILES INTERPRETATION 1.76. 3.

003 [3.05.871 --------1.421 7.42.59.04.806] 5.37.95.32.24.037 2.2 STATEMENTS OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2004-2005 to 2005-2006: In Rupees Particulars 2004-2005 2005-2006 CHANGES IN WORKING CAPITAL Increase Decrease 79.63.90.99.24.875 15.13.113 69 WORKING CAPITAL MANAGEMENT AU.806 15.436 11.172 18.02.19.490 5.50.238 Sundry debtors 42.872 2.46.74.74.00.95.88.31.000 2.88.273 leave encashment Total Current 6.99.28.38.15.65.714 (A) Current liabilities Sundry creditors 3.634 1.946 16.62.53.737 22.000 23.085 gratuity Provision for earned 1.031 2.84.456 9.984 Other current assets 9..08.85.65.46.26.83. Loans & Advances 2.23.000 taxation Provision for 21.550 Advance received 1.63.08.185 1.763 6.875] 15.99.23.66.KAKINADA .51.127 3.12.63.906 4.26.06.56.645 liabilities (B) Networking Capital [11.721.66.97.49.57.035 Total Current Assets 18.702 ----------------------------------------- CURRENT ASSETS Inventory 14.83.700 ------------------------- 28.83.875 --------1.12.66.00.252 [15.MBA PROJECT AMARAVATHI TEXTILES TABLE:4.34.65.736 Cash on hand 7.06.737 against sales Provisions Provision for 1.CAMPUS.440 18.069] (A-B) Increase / Decrease 3.12.80.

.67% respectively.KAKINADA . gratuity and provision earned by 8. There is overall increase of 4. 86. loans and advances with 5. 3. 70 WORKING CAPITAL MANAGEMENT AU. 5.92%. This is due of the increase inventory.41%.80%.46% compared to the previous financial year 1.40% in total current liabilities during the year 2004-2005 when compared to the previous financial year.MBA PROJECT AMARAVATHI TEXTILES INTERPRETATION It was observed that the above working capital calculations for the year 2004-2005 we can notice that the working capital is increased by 32. 468.58% respectively. sundry debtors. 49. other current assets. and 8.CAMPUS. 49% and 43.38%.88%.34%. tax. But there is a decrease of advance received against sales by 93.03% in total current assets during the year 20042005 when compared to the previous financial years. This is due of the increase in sundry creditors. 100%.36%. There is overall increase of 23. 2. cash.28%. 4. 9. 94. 165.

31.61.28.844 ----------------- 15.23.19.99.65.17.346 29.871] 6.51.218 2.73.54.65.53.000 1.29.763 leave encashment TotalCurrentliabilities(B) 6.89.172 18.07.28.53.59.12.74.440 18.42.3 STATEMENTS OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2005-2006 to 2006-2007: In Rupees Particulars CURRENT ASSETS Inventory Sundry debtors Cash on hand Other current assets Loans & Advances TotalCurrentAssets (A) Current liabilities Sundry creditors Advancereceived against 2005-2006 2006-2007 CHANGES IN WORKING CAPITAL Increase Decrease 2.413 28.28.06.443 8.018 13.846 --------3.46.74..46.871] 20.737 22.KAKINADA .65.28.289 --------- 7.01.73.70.872 2.769 3.12.320 2.32.913 [20.031 Provision for earned 2.17.04.596 3.037 sales Provisions Provision for taxation 2.320 82.746 --------------------------------2.960 9.81.08.63.65.83.40.46.31.659 4.80.63.906 4.89.CAMPUS.746] 20.15.16.01.15.95.421 17.414 7.696 INTERPRETATION: 71 WORKING CAPITAL MANAGEMENT AU.127 3.508 3.000 25.23.48.64.75.000 Provision for gratuity 23.08.53.746 6.732 90.676 ----------------5.53.47.381 17.71.56.252 NetworkingCapital(A-B) [15.MBA PROJECT AMARAVATHI TEXTILES TABLE:4.875] Increase / Decrease [4.12.696 [4.04.

49% respectively.08% in total current liabilities during the year 2005-2006 when compared to the previous financial year. 6) There is decrease in provision earned by 1.KAKINADA . loans and advances with 14. 39.20%. tax. 1742. But there is a decrease in cash by 26.73 %. 113.14%. and 89. advance received against sales.65% in total current assets during the year 2005-2006 when compared to the previous financial years..62 % respectively. 3) This is due of the increase inventory.12 %.MBA PROJECT AMARAVATHI TEXTILES 1) It was observed that the above working capital calculations for the year 2005-2006 we can notice that the working capital is increased by -11. gratuity by 22. 5) This is due of the increase of sundry creditors. 7.90% respectively.48%.CAMPUS.88%. other current assets.73% compared to the previous financial year 2) There is overall increase of 27. 12. sundry debtors.02 %. 4) There is overall increase of 29. 72 WORKING CAPITAL MANAGEMENT AU.

803 Networking Capital (A[20.70.15.245 17.MBA PROJECT AMARAVATHI TEXTILES TABLE:4.83.000 Provision for gratuity 25.913 (B) 22.63.29.37.65.31.325 17.37.25.28.28.023 3.576 1.93.00.74. 4 STATEMENTS OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2006-2007 to 20072008: In Rupees Particulars 2006-2007 2007-2008 CHANGES IN WORKING CAPITAL Increase Decrease 5.51.142 ----------------------------------------- CURRENT ASSETS Inventory 17.429 13.746] [35.172 5.218 Sundry debtors 2.14.34.000 30.09.19.29.413 TotalCurrentAssets (A) 28.91.91.07.555 45.754 4.365 4.42.29.183 2.246 9.443 leave encashment Total Current liabilities 8.KAKINADA .16.03.596 Other current assets 3.94.47.225 2.16.000 4.54.579] [15.30.31.45.320 Provision for earned 2.15.52.769 against sales Provisions Provision for taxation 3.325] B) Increase / Decrease [15.018 Cash on hand 13.60.26.48.147 1.95.47..01.34.01.23.74.61.04.41.CAMPUS.64.325 35.38.08.07.207 6.14.659 CURRENT LIABILITIES Sundry creditors 4.621 14.53.83.97.041 4.863 79.381 Advancereceived 17.03.12.99.925 ------------------------- ----------------1.245 73 WORKING CAPITAL MANAGEMENT AU.579] 35.48.26.844 5.37.156 14.414 Loans & Advances 7.84.87.29.40.71.

14.40%.59%.80%.CAMPUS. sundry debtors. 2840.03% respectively.This is due of the increase in tax. 3) This is due of the increase inventory.99%.KAKINADA . ..81.17. 2) There is overall increase of 60. advance received against sales by 2.04% in total current assets during the year 2007-2008 when compared to the previous financial years. 54. 57.96%.18%and 81. gratuity and provision earned by 59.MBA PROJECT AMARAVATHI TEXTILES INTERPRETATION 1) It was observed that the above working capital calculations for the year 2007-2008 we can notice that the working capital is increased by 75. 39.41 %. other current assets. 6) But decrease of sundry creditors.22% in total current liabilities during the year 2007-2008 when compared to the previous financial year. 4) There is overall increase of 22. loans &advance by 29. 74 WORKING CAPITAL MANAGEMENT AU.37% compared to the previous financial year. 5) .37 %. and cashes in hand.

91.156 6.25.805 --------- 4.621 14.97.684 9.34.844 Provisions Provision for taxation 5.48.26.360 65.065 4.10.55.15.58.555 45.882 1.856 15.064 5.246 cashment Total Current liabilities (B) 9.00.54.46.20.82.135 3.240 --------------------------------2007-2008 2008-2009 Changes in working capital Increase Decrease 11.27.43.286 20.365 4.442 35.00.84.023 1.56.07.53.01.07.19.CAMPUS.70.91.83.861 25.263 Advance received against sales 14.86.19.02.KAKINADA .73.59.29.42.429 9.183 Provision for earned leave en 2.39.42.107 ----------------- 2.95.08.47.754 26.255 WORKING CAPITAL MANAGEMENT AU.30.41.000 39.90. 5 STATEMENTS OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2008-2009 In Rupees Particulars CURRENT ASSETS Inventory Sundry debtors Cash on hand Other current assets Loans & Advances TotalCurrentAssets (A) Current liabilities Sundry creditors 22.98.041 4.78..MBA PROJECT AMARAVATHI TEXTILES TABLE:4.000 9.501 17.28.95.93.20.34.32.629 3.25.994 7.38.172 5.60.000 Provision for gratuity 30.86.08.115 75 ------------------------- 4.

73.40%.72%.CAMPUS. There is overall increase of 44. 76 WORKING CAPITAL MANAGEMENT AU. 4. This is due of the increase in sundry creditors. 29.98%. other current assets. 32. loans &advance by 17. gratuity and provision earned by 57. There is overall increase of 72.17%. 5.70%.33% in total current assets during the year 2008-2009 when compared to the previous financial years. and cashes in hand. sundry debtors.KAKINADA .62% respectively. 85. .. 3.57% in total current liabilities during the year 2008-09 when compared to the previous financial year.41%. and 54. advance received against sales.08%.35% compared to the previous financial year 2. tax.43%.74%and 83. 181. 143.MBA PROJECT AMARAVATHI TEXTILES INTERPRETATION: 1. This is due of the increase inventory. It was observed that the above working capital calculations for the year 2008-2009 we can notice that the working capital is increased by 36.

Thus. Short-term loan. Cash in hand. Stock. CURRENT RATIO: It may be defined as the relationship between current assets and current liabilities. repaid Expenses. and Short Term investments etc. It is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position or liquidity of a firm. Current assets include: Cash at Bank.MBA PROJECT AMARAVATHI TEXTILES RATIO’S 1. out standing expenses.KAKINADA . Bills Receivable. Current liabilities include: Creditors. Current Assets (A)Current Ratio = ________________ Current Liabilities 77 WORKING CAPITAL MANAGEMENT AU.. It is calculated by dividing the total of current assets by total of the current liabilities.CAMPUS. Bills payable. Bank over draft etc. Debtors. This ratio is known as working capital ratio.

MBA PROJECT AMARAVATHI TEXTILES Year 2004-05 2005-06 2006-07 2007-08 2008-09 TABLE 4.8 3 2 1 0 2004-05 2005-06 2006-07 Years 2007-08 2008-09 78 WORKING CAPITAL MANAGEMENT AU.CAMPUS.754 65.54 2.645 6.05.74.913 9.31.73.15.115 2.34.97 3.32.135 6.28.KAKINADA .59.15.01.47:1 4.97.28.6 Current Assets Current Liabilities Current ratio 18.659 45.85.252 8.714 22.429 17.00.97:1 3.47 3.50:1 3.6 Current Ratio 5 4 Ratios 4.95..26.38.5 3.80:1 Graph 4.56.54:1 3.20.127 28.

50:1. The current ratio of Amaravathi textiles pvt ltd has been more satisfactory & above the idle ratio of 2:1 for entire period of the study is 2004-05 to 2008-09.97 in the year of 2004-05. In the year 2007-08the current ratio has to reach the maximum level.CAMPUS. The more than proportionate increase in CA & slighter increase in CL caused to the maximum CR for the year 2008-09.Due to the higher increase in CA corresponding to the increase in CL. 3..54 in the year of 2007-08.47:1.54:1. 4. 2. In the year 2008-09 the current ratio increased to 3. In the year 2007-08 the current ratio increased to 4.80:1. It has more liquid more than the required.97:1. In the year 2006-07 the current ratio decreased to 3. In the above table current ratio of Amaravathi textiles pvt ltd is fluctuating under the period of study from one year to another. 5.KAKINADA . The company has maximum CR of 4.MBA PROJECT AMARAVATHI TEXTILES INTERPRETATION: 1. In the year 2004-05 Amaravathi textiles pvt ltd has current ratio is 2.The minimum value of CR is 2. 79 WORKING CAPITAL MANAGEMENT AU. In the year 2005-06 the current ratio increased to 3.

Cash in hand. Quick ratio may be defined as the relationship between the quick/ liquid assets and current/ liquid liabilities. Inventories cannot be termed to be liquid assets because they can’t be converted in to cash immediately. Debtors.MBA PROJECT AMARAVATHI TEXTILES (2)Quick Ratio: It is also known as acid test or liquid ratio is more rigorous test of liquidity than the current ratio. A Quick Ratio 1:1 usually considering idle Ratio.. Bills Receivable. Bank over draft etc. Short-term loan.Inventories Quick assets include: Cash at Bank. Prepaid Expenses.KAKINADA . Bills payable. and Short Term investments etc.CAMPUS. out standing expenses. An asset is said to be liquid if it can converted into cash within a short period without loss of value. Current liabilities include: Creditors. Quick assets= Current assets . Quick assets Quick ratio = ______________________ Current liabilities 80 WORKING CAPITAL MANAGEMENT AU.

23 1.3 2.06 2006-07 Years 2007-08 2008-09 81 WORKING CAPITAL MANAGEMENT AU.389 38.5 2 Ratios 2.06:1 1..95.77.34.24 1.7 Quick Ratio 2.252 8.62.56.141 Current Liabilities 6.20.01.645 6.55:1 1.MBA PROJECT AMARAVATHI TEXTILES TABLE 4.31.74.476 6.55 1.05.34.42.54.23:1 Graph 4.115 ratio 0.441 22.34.24:1 2.913 9.69.CAMPUS.15.KAKINADA .5 0 2004-05 2005-06 0.30:1 2.19.97.78.5 1 0.7 Year 2004-05 2005-06 2006-07 2007-08 2008-09 Quick Assets 3.429 17.256 10.26.

Amaravathi textiles pvt ltd is more than the required .KAKINADA .So Amaravathi textiles pvt ltd to pay off its current obligations.06:1.There is a increased in the quick assets . In the year 2008-09 the Quick ratio decreased to 2.55:1. There is a decreased in the quick assets .And the percentage change in 3. In the year 2007-08 the Quick ratio increased to 2.So that the ratio is increased in this year .So that the ratio is decreased in this year 4.24:1. The over all trend of the quick ratio increasing pattern . The Quick ratio of Amaravathi textiles pvt ltd has been more satisfactory & above the idle ratio of 1:1 for entire period of the study is 2004-05 to 2008-09 5. 3.The minimum value of Quick ratio is 0. 6.07 between the period 2004-5and 2008-9 82 WORKING CAPITAL MANAGEMENT AU.MBA PROJECT AMARAVATHI TEXTILES INTERPRETATION: 1.CAMPUS. In the year 2004-05 Amaravathi Textiles pvt ltd has Quick ratio is 0. In the year 2006-07 the Quick ratio increased to 1. 2. It was observed that the maximum Quick ratio of 2.24 in the year of 2007-08.23:1.30:1.55 in the year of 2004-05. In the year 2005-06 the Quick ratio increased to 1. In the above table Quick ratio of Amaravathi Textiles pvt ltd is fluctuating under the period of study from one year to another..

CAMPUS. Super Quick assets Cash and marketable securities and account receivables. Cash +marketable securities Cash ratio = ____________________________________ Current liabilities 83 WORKING CAPITAL MANAGEMENT AU. Current liabilities include: Creditors.. Short-term loan. Bank over draft etc. Trade investment and marketable securities are equivalent of cash.MBA PROJECT AMARAVATHI TEXTILES (3) CASH RATIO: Cash is the most liquid asset. a financial analyst may examine cash ratio and its equivalent to current liabilities. Bills payable.KAKINADA . out standing expenses.

115 0.65.34.984 18.63.05.95.172 5.429 17.913 9.596 4.95.02.645 6.00.MBA PROJECT AMARAVATHI TEXTILES TABLE 4.400:1 0.011:1 0.8 Year 2004-05 2005-06 2006-07 2007-08 2008-09 Cash+marketable securities 7..030:1 0.20.56.856 6.02.15.CAMPUS.20.31.021:1 0.KAKINADA .97.252 8.440 13.01.74.302:1 Current liabilities ratio 84 WORKING CAPITAL MANAGEMENT AU.

3) It was observed that the company has maximum cash ratio of 0.030.011 in the year of 2004-05.2 0.8 Cash Ratio AMARAVATHI TEXTILES Ratios 0.03 2005-06 0.5 0.In the year 200607 the cash ratio decreased to 0.KAKINADA .400 in the year of 2007-08..4.011 2004-05 0.4 0. 2) In the year 2004-05 Amaravathi textiles pvt ltd has cash ratio is 0.So that the ratio is increased in this year .3 0.The minimum value of cash ratio is 0.So that the ratio is decreased in this year 85 WORKING CAPITAL MANAGEMENT AU.1 0 0.302 0.021. In the year 2007-08 the cash ratio increased to 0.4 0. There is a increased in the current liabilities . In the year 2008-09 the cash ratio is 0.CAMPUS.302.011.021 2006-07 Years 2007-08 2008-09 INTERPRETATION: 1) In the above table cash ratio of Amaravathi textiles pvt ltd is fluctuating under the period of study from one year to another.MBA PROJECT Graph 4. In the year 2005-06 the cash ratio increased to 0.There is a decreased in the current liabilities .

5:1 for entire period of the study is 2003-04 to 2008-09.MBA PROJECT AMARAVATHI TEXTILES 4) It was observed that the cash ratio of Amaravathi textiles pvt ltd has been UN satisfactory & above the idle ratio of 0.KAKINADA . 86 WORKING CAPITAL MANAGEMENT AU.. 5) The over all trend of the quick ratio is increasing pattern & percentage change in 35.CAMPUS.36 between the period 2004-05and 2008-09.

Inventory turnover ratio 2. Higher the ratio. It is a test of efficient inventory us management. 3.KAKINADA . This ratio is calculated as follows. On the other head. Working capital turnover ratio. It indicates the number of times inventory is placed during the year or how quickly the goods are sold. a low stock turnover ratio is not desirable because it reveals the accumulation of obsolete stock. Current assets turnover ratio.MBA PROJECT AMARAVATHI TEXTILES (4) TURNOVER RATIOS Another way of examining the liquidity is to determine how quickly certain current assets are converted into cash. 1. also known as stock turnover ratio establishes the relationship between cost of goods sold during a given period and the average amount of inventory held during that period. INVENTORY TURNOVER RATIO: This ratio..CAMPUS. 4. Debtors turnover ratio. The ratios to measure these are referred to as turn over ratio. Relevant turnover ratios are…. 1. the better it is because it shows that finished stock is rapidly turned-over. or the carrying too much stock. 87 WORKING CAPITAL MANAGEMENT AU.

.CAMPUS.closing stock Average stock= opening stock + closing stock /2 (Or) Sales Inventory turnover ratio = ------------Inventory 88 WORKING CAPITAL MANAGEMENT AU.MBA PROJECT AMARAVATHI TEXTILES Stock turnover ratio= cost of goods sold/ average stock Cost of goods sold = opening stock+ purchase+ manufacturing expenses.KAKINADA .

46.56 2004-05 2005-06 2006-07 Years 2007-08 2008-09 89 WORKING CAPITAL MANAGEMENT AU.3 2.23 2.52 2.238 15.46.91.93 2.994 Ratio 1.MBA PROJECT AMARAVATHI TEXTILES The below table showing the calculation of inventory turnover ratio: TABLE 4.377 68..568 Inventory 14.51.23 2.34.52 2.93 2.723 52.20.KAKINADA .983 44.46.54.9 Inventory Turnover Ratio Ratios 3 2.12.48.04.97.60.669 34.CAMPUS.365 26.53.56 Graph 4.5 1 0.65.5 2 1.90.30 2.9 Year 2004-05 2005-06 2006-07 2007-08 2008-09 Sales 28.66.5 0 1.218 22.66.60.872 17.60.

90 WORKING CAPITAL MANAGEMENT AU.32 between the period 2004-05and 200809.CAMPUS.stock in the year 2004-05..stock in the year 2008-09.23 in the year 200506 & further increased 2.30 in the year2007-08 At present the inventory or stock turn over ratio of the company was 2. 5) The over all trend of the inventory or stock turn over ratio is increasing pattern & percentage change in 0.93 it has been increased to 2. 3) It was observed that the inventory or stock turn over ratio of the Amaravathi textiles pvt ltd is maximum (2. 2) The inventory or stock turn over ratio of the Amaravathi textiles pvt ltd in the year 2004-2005as1.52 in the year2006-07It had decreased to 2.93) the reason for decrease in sales and increase in cl.MBA PROJECT AMARAVATHI TEXTILES INTERPRETATION: 1) In the above table inventory or stock turn over ratio of Amaravathi textiles pvt ltd is fluctuating under the period of study from one year to another & the above table shows relationship between Sales and closing inventory.56) the reason for increase in sales and decrease in cl. 4) It was observed that the inventory or stock turn over ratio of the Amaravathi textiles pvt ltd is minimum (1.KAKINADA .56 in the year 2008-09.

30 2.56 189 163 144 158 142 turnoverRatio (days) 91 WORKING CAPITAL MANAGEMENT AU.52 2.23 2.10 Year 12 months / 365 days Inventory ratio 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 365 days 365 days 365 days 365 days 365 days 1..MBA PROJECT AMARAVATHI TEXTILES (5)INVENTORY HOLDING PERIOD: 12 months or 365 days Inventory holding period = --------------------------Inventory turnover ratio Table 4.KAKINADA .CAMPUS.93 2.

Inventory holding period of Amaravathi Textiles private Limited is fluctuating.56 2004-05 2005-06 2006-07 Years 2007-08 2008-09 INTERPRETATION 1.5 0 1. 92 WORKING CAPITAL MANAGEMENT AU.3 2.KAKINADA .23 2.5 2 1.5 1 0. 2. Inventory turnover ratio has been fluctuating from the year 2004-2005to 2008-2009..10 Inventory Turnover Ratio AMARAVATHI TEXTILES Ratios 3 2. Inventory turnover ratio is influence to the inventory holding period.CAMPUS.MBA PROJECT Graph 4.93 2. 3.52 2. It has maximum of 189days in the year 2004-2005while it was minimum of 142days in the year 2008-2009.

book debts are created. Generally. This ratio indicates the number of times. the more efficiency is the management of assets. When a firm sells goods on credit. To a great extent. Debtors turnover ratio= credit sales/ average debtors (Or) Debtors turnover ratio= total sales/ closing debtors The below table showing calculation of debtor’s turnover ratio: 93 WORKING CAPITAL MANAGEMENT AU. Debtors are expected to be converted into cash over a short period.CAMPUS. opening balance and closing balance of debtors may not be available.KAKINADA . on an average the debtors. Sometimes. on an average the debtors or receivables turnover each year.MBA PROJECT AMARAVATHI TEXTILES (6)DEBTORS TURNOVER RATIO It indicates the efficiency of receivables management & shows how quickly trade credit is collected. This ratio indicates the number of times. the amount and quickly of debtors determine the liquidity position of the firm. data relating to credit sales. Debtor’s turnover or receivables turnover is calculated by dividing credit sales by average debtors.. the higher the value of debtor’s turnover. Then debtor’s turnover can be calculated by dividing total sales by closing balance of debtors.

53 2007-08 9.736 2.54.53.983 44.11 Closing Debtor’s Ratio 66.23.12.47 2008-09 2006-07 Years INTERPRETATION: 94 WORKING CAPITAL MANAGEMENT AU.93.28.669 34.57 14.568 42.48.60.23 16.97.46.377 68.42.47 28.19.064 Graph 4.CAMPUS.53 9.23 2004-05 2005-06 16.27.57.20.KAKINADA .57 14.60.11 Debtors Turnover Ratio 70 60 50 40 Ratios 30 20 10 0 66.38 12.MBA PROJECT AMARAVATHI TEXTILES Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Sales TABLE 4.172 2.041 7.723 52.018 4.38 12.64..34.71.

23 in the year 2005-06 And increased 16.MBA PROJECT AMARAVATHI TEXTILES 1) In the above table Debtors Turnover ratio of Amaravathi textiles pvt ltd is fluctuating under the period of study from one year to another & the above table shows relationship between Sales and closing debtors.CAMPUS.53 in the further year2007-08 At present the debtors turn over ratio of the company was 9. 3) The debtors turn over ratio of the Amaravathi textiles pvt ltd is maximum (66. (7) DEBTORS COLLECTION PERIOD: 12 months or 365 days 95 WORKING CAPITAL MANAGEMENT AU.47) the reason for increase sales and increase in debtors in the year 200809. 5) The over all trend of the debtors turn over ratio is decreasing pattern. 4) The debtors turn over ratio of the Amaravathi textiles pvt ltd is minimum (9.47 in the year 2008-09. 2) The debtors turn over ratio of the Amaravathi textiles pvt ltd in the year 2004-05 66.38 in the year2006-07It had decreased to 12. And percentage change in 6.KAKINADA .57) the reason for decrease in debtors and increase in sales in the year 2004-05..02 between the period 2004-05and 2008-2009.57 it has been decreased to 14.

12 Year 12 months / 365 days 365 days 365 days 365 days 365 days 365 days Debtor’s turnover ratio 66.KAKINADA .23 16.54 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 96 WORKING CAPITAL MANAGEMENT AU.CAMPUS.47 Ratio (days) 5.4.28 29.13 38.53 9.65 22..38 12.48 25.MBA PROJECT AMARAVATHI TEXTILES Debt collection period = --------------------------Debtor’s turnover ratio Table .57 14.

MBA PROJECT AMARAVATHI TEXTILES Graph 4..CAMPUS.54 days in the year 2008-2009while it was minimum of 5. Debt collection period of Amaravathi textiles private Limited is fluctuating.KAKINADA . 3. It has maximum of 38.13 22.54 25. 2.48 in the year 2004-2005.65 29. 97 WORKING CAPITAL MANAGEMENT AU.28 30 20 10 0 5.48 2004-05 2005-06 2006-07 Years 2007-08 2008-09 INTERPRETATION: 1. Debtor’s turnover ratio is influence to the Debt collection period.12 Debtors Collection Period Ratio 50 40 Ratios 38. Debtor’s turnover ratio has been fluctuating from the year 2004-2005to 2008-2009.

4.. This shows the how much working capital is in organization at how many times to the net sales.13 98 WORKING CAPITAL MANAGEMENT AU.MBA PROJECT AMARAVATHI TEXTILES WORKING CAPITAL TURNOVER RATIO This is the ratio used to the relation between the working capital and net sales. This ratio calculated by dividing the working capital with the net sales. This ratio is calculated as under Net sales Working capital turnover ratio = ------------------Net working capital The below table showing the calculation of working capital turnover ratio: Table .CAMPUS.KAKINADA .

53.37 it has decreasedto 2.CAMPUS.5 2 1.63.669 34.54.12.377 68.20.12.KAKINADA .18 20.21 35.875 2.568 Net working CapitalRatio 11.069 2.97.37 15.34.020 1.83.29.983 44.49 1.95.5 Ratios 1 0.48. 2) The working capital turns over ratio of the Amaravathi textiles pvt ltd in the year 2004-05 is2.37.723 52.17.46.18 2.325 1.746 2.43 2004-05 2005-06 2006-07 Years 2007-08 2008-09 INTERPRETATION: 1) In the above table Working capital Turnover ratio of Amaravathi textiles pvt ltd is fluctuating under the period of study from one year to another & the above table shows relationship between Sales and working capital.43 Graph 4.5 0 2..12.49 48.60.13 Net Working Capital Turnover Ratio 2.37 2.10 in the year 2005-06 99 WORKING CAPITAL MANAGEMENT AU.60.51.MBA PROJECT AMARAVATHI TEXTILES Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Net Sales 28.53.21 1.

MBA PROJECT AMARAVATHI TEXTILES And further increased 2.KAKINADA .. 100 WORKING CAPITAL MANAGEMENT AU.21 in the year2006-07It had decreased to 1.43 in the year 2008-09.CAMPUS.49 in the year2007-08 At present the working capital turn over ratio of the company was 1.

KAKINADA .CAMPUS. 5) The over all trend of the working capital turn over ratio is decreasing pattern ..And percentage change in 0.43) the reason for increase in working capital and decrease in net sales in the year 2008-09. 101 WORKING CAPITAL MANAGEMENT AU.65 between the period 2004-05and 2008-09. 4) It was observed that the working capital turn over ratio of the Amaravathi textiles pvt ltd is minimum (1.MBA PROJECT AMARAVATHI TEXTILES 3) It was observed that the working capital turn over ratio of the Amaravathi textiles pvt ltd is maximum (2.37) the reason for decrease in working capital and increase in sales in the year 2004-05.

14 Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Net Sales 28.669 34.59.38.20.84 2.33..95 0.MBA PROJECT AMARAVATHI TEXTILES (8)FIXED ASSETS TURN OVER RATIO: The fixed assets turnover ratio indicates the extent to which the investments on fixed assets contribute to sales. Sales Fixed assets turnover ratio = ----------------------Net fixed assets TABLE – 4.97.48.75 0.649 78.377 68.CAMPUS.34. This ratio will explain about the amount of net sales that are arises by utilizing fixed assets.02.21 1.KAKINADA .60.75.337 Ratio 1.46.811 54.42.85. Generally a high fixed assets turnover ratio indicates efficient utilization of fixed assets in generation of sales.61.54.983 44.60.723 52.769 25.51.568 Fixed assets 15.230 15.12.53.41.88 102 WORKING CAPITAL MANAGEMENT AU.

MBA PROJECT
Graph 4.14 Fixed Assets Turnover Ratio 2.5 2
Ratios

AMARAVATHI TEXTILES

2.21 1.84 1.75 0.95 0.88

1.5 1 0.5 0 2004-05 2005-06

2006-07
Years

2007-08

2008-09

INTERPRETATION: 1) In the above table fixed Turnover ratio of Amaravathi textiles pvt ltd is fluctuating under the period of study from one year to another & the above table shows relationship between Sales and fixed assets. 2) The fixed assets turn over ratio of the Amaravathi textiles pvt ltd in the year 2004-05 was 1.84 it has been increased to 2.21 in the year 2005-06. And further decreased 1.75 in the year2006-07.It had decreased to 0.95 in the year2 007-08. At present the fixed assets turn over ratio of the company was 0.88 in the year 2008-09.

103 WORKING CAPITAL MANAGEMENT AU.CAMPUS..KAKINADA

MBA PROJECT

AMARAVATHI TEXTILES

3)

It was observed that the fixed assets turn over ratio of the Amaravathi textiles pvt ltd is maximum (2.21) the reason for decrease in fixed assets and increase in sales in the year 2004-05.

4)

It was observed that the fixed assets turn over ratio of the Amaravathi textiles pvt ltd is minimum (0.88) the reason for increase in fixed assets and decrease in sales in the year 2008-09.

5)

The over all trend of the fixed assets turn over ratio is decreasing pattern. percentage change in 1.51 between the period 2004-05and 2008-09.

104 WORKING CAPITAL MANAGEMENT AU.CAMPUS..KAKINADA

MBA PROJECT

AMARAVATHI TEXTILES

FINDINGS

1.

Amaravathi Textiles Private Limited has been maintaining favorable working capital from the last 5 years (2004-2005 to 2008-2009).

2.

By observing the working capital statement of 2004-2005 it is noticed that the working capital is increased by 53.63% compared to the previous financial year.

3.

By observing the working capital statement of 2005-2006 it is noticed that working capital is increased by 32.46% compared to the previous year.

4.

By observing the working capital statement of 2006-2007 it is noticed that working capital is increased by 27.08% compared to the previous year.

5.

By observing the working capital statement of 2007-2008 it is noticed that working capital is increased by 75.37% compared to the previous year.

6.

By observing the working capital statement of 2008-2009 it is noticed that working capital is increased by 36.35% compared to the previous year.

105 WORKING CAPITAL MANAGEMENT AU.CAMPUS..KAKINADA

The performance of net working capital is increasing every year.MBA PROJECT AMARAVATHI TEXTILES 7. 8. 10. 9. Debtor’s turnover ratio is fluctuating from the year 2004-2005 to 20082009. 12. The inventory turnover ratio is also fluctuating through out all the years. The inventory holding period also fluctuating. The current ratio of Amaravathi Textiles Private Limited is having better standards. Quick ratio of Amaravathi Textiles Private Limited is also having good standards.CAMPUS. The fixed assets turnover ratio is also fluctuating.KAKINADA . Debt collection period is influenced by the debtor’s turnover ratio. 106 WORKING CAPITAL MANAGEMENT AU.. The company debt collection period is also fluctuating. 11.

.CAMPUS. It is suggested that the company needs to maintain enough investment in current assets in order to ensure the proper liquidity for the company.MBA PROJECT AMARAVATHI TEXTILES SUGGESTIONS 1. As well as the debtors collection period. It is suggested that maintain the inventories very effectively. 4.KAKINADA . So the company is suggested to maintain the same in future.. .. 107 WORKING CAPITAL MANAGEMENT AU. 2. Company does not maintaining the current idle ratio Company try to improve its current assets. Company needs to improve its quick ratio . 5. It is suggested that improve fixed assets . The debtor’s turnover ratio is fluctuating throughout all the years. 6. 3. Though it is fluctuating it is showing positive or improvement as a result it is good.

M Pandey M. 3.Y Khan P. Tata me Grwhil Publishing Company Tata me Gr hil w Publishing Company Publication name 4 ANNUAL REPORTS OF AMARAVATHI TEXTILES PRIVATE LIMITED 108 WORKING CAPITAL MANAGEMENT AU.N Pilali Bhavathi S.KAKINADA .No Book Name Financial Management Financial Management Financial Management Management Accounting Authors Name 1 2.K.S...Ltd. I.Jain Prasanna Chandra R.Chand & Co Vikas Publishing House Pvt.CAMPUS.MBA PROJECT AMARAVATHI TEXTILES BIBLIOGRAPHY S.

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