CHAPTER- 1 1.

1 INTRODUCTION ABOUT THE PROJECT ABOUT THE STUDY Meaning of Working Capital:
Capital require for a business can be classified under two main categories, (a).fixed capital, (b).working capital. Every business needs funds for two purposes for its establishment and to carry our its day-to-day operations. Long-term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture etc.

DEFINITION:
In the words of shubin, working capital is the amount of funds necessary to cover the cost of operating the enterprise.

CONCEPT OF WORKING CAPITAL:

There are two concept of working capital: (A).Balance sheet concept, (B).Operating cycle or circular flow concept.

(A).Balance Sheet Concept:

There are two interpretations of working capital under the balance sheet concept:

1. Gross working capital, 2. Net working capital. In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. This, the gross working capital is the capital invested in total current assets of the enterprise. NET WORKING CAPITAL=CURRENT ASSETS-CURRENT LIABILITIES.

(B).Operating cycle or circular flow concept:

As discussed earlier, working capital refers to that part of firms capital which is required for financing short-term or current assets keep revolving fast and are being constantly converted into cash and this cash flow. Hence, it is also known as revolving or circulating capital.

CHART NO. 1

Cash

Debtors (Receivables)

Raw materials

Sales

Work in progress

Finished goods

(Working capital cycle: circular flow concept)

CLASSIFICATION OR KINDS OF WORKING CAPITAL:

Wording capital may be classified in two ways: (a)On the basis of concept, (b)On the basis of time.

On the basis of concept, working capital is classified as gross working capital and net working capital as discussed earlier. This classification is important from the point of view of the financial manager. On the basis of time, wording capital may be classified as:

1. Permanent or fixed working capital. 2. Temporary or variable working capital.

CHART NO.2

KINDS OF WORKING CAPITRAL

On the basic of concept

On the basic of time

Gross working capital

Net working capital

Permanent or fixed working capital

Temporary or variable working capital

Regular working capital

Reserve working capital

Seasonal working capital

Special working capital

1. Permanent or Fixed working capital:

Permanent or fixed working capital is the minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a min mum level of current assets which is continuously required by his enterprise to carry out its normal business

operations. As the business grows, the requirements of permanent working capital also increase due to the increase in current assets.

2. Temporary or Variable working capital:

Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can be further classified as seasonal working capital and special working capital. Most of the enterprises have to provide additional working capital to meet the seasonal and special needs. The capital required to meet the seasonal needs of the enterprise is called seasonal working capital.

IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKINGCAPITAL: The main advantages of maintaining adequate amount of working capital are as follows:

1. Solvency of the Business:

Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production.

2. Goodwill:
Sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill.

3. Easy Discounts: A concern having adequate working capital, high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms.

4. Cash Discount:
Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs.

5. Regular supply of Raw Materials:

Sufficient working capital ensures regular supply of raw materials and continuous production.

6.

Regular

payment

of

Salaries, Wages

and Other

day-to-day

commitments:
A company which has ample working capital can make regular payment of salaries, wages and other day-to day commitments which raises the morale of its employees, increases their efficiency, reduces wastages and costs and enhances production and profits.

EXCES OR INADEQUATE WORKING CAPITAL:

Every business concern should have adequate wording capital to run its business operations. It should have neither redundant or excess working capital nor inadequate nor shortage of working capital. Both excess as well as short working capital positions are bad for any business. However, ought of the two, it is the inadequacy of working capital which is more dangerous from the point of view of the firm.

THE NEED OR OBJECTS OF WORKING CAPITAL:

The need for working capital cannot be over emphasized. Every business needs some amount of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in the sales and realization of cash. There are time gaps in purchaser of raw materials and production; production and sales; and sales and realization of cash. Thus, working capital is needed for the following purposes: 1. For the purchase of raw materials, components and spares. 2. To pay wages and salaries. 3. To incur day-to-day expenses and overhead costs such as fuel, power and office expenses, etc. 4. To meet the selling costs as packing, advertising, etc. 5. To provide credit facilities to the customers. 6. To maintain the inventories of raw material, work-in-progress, stores and spares and finished stock.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS: The working capital requirements of a concern depend upon a large number of factors such as nature and size of business, the character of their operations, the length of production cycles, the rate of stock turnover and the state of economic situation. It is not possible to rank them because all such factors are of different importance and the influence of individual factors changes for a firm over time. However, the following are important factors generally influencing the working capital requirements.

1. Nature or character of Business:

The working capital requirements of a firm basically depend upon the nature of its business. Public utility undertakings like electricity, water supply and railways need very limited working capital because they offer cash sales only and supply services, not products, and as such no funds are tied up in inventories and receivables.

2. Size of Business/scale of operations:

The working capital requirements of a concern are directly influenced by the size of its business which may be measured in terms of scale of operations. Greater the size of a business unit, generally larger will be the requirements of working capital.

3. Production policy:
In certain industries the demand is subject to wide fluctuations due to seasonal variations. The requirements of working capital, in such cases, depend upon the production policy.

4. Manufacturing process/Length of production cycle:

In manufacturing business, the requirements of working capital increase in direct proportion to length of manufacturing process. Longer the process period of manufacture, larger is the amount of working capital required.

5. Seasonal Variations:
In certain industries raw material is not available throughout the year. They have to buy raw materials in bulk during the season to ensure an uninterrupted flow and process them during the entire year.

6. Rate of Stock Turnover:

There is a high degree of inverse co-relationship between the quantum of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover.

7. Credit Policy:
The credit policy of a concern in its dealings with debtors and creditors influence considerably the requirements of working capital. A concern that purchases its requirements on credit and sells its products/services on cash requires lesser amount of working capital.

8. Business Cycle:
Business cycle refers to alternate expansion and contraction in general business activity. In a period of boom i.e., when the business is prosperous there is a need for larger amount of working capital due to increase in sales.

9. Rate of Growth of Business:

The working capital requirements of a concern increase with the growth and expansion of its business activities. Although, it is difficult to determine the relationship between the growth in the volume of business and the growth in the working capital of a business.

10. Earning capacity and Dividend Policy:

Some firms have more earning capacity than others due to quality of their products, monopoly conditions, etc. such firms with high earning capacity may generate cash profits from operations and contribute to their working capital.

10

MANAGEMENT OF WORKING CAPITAL:

Working capital, in general practice, refers to the excess of current assets over current liabilities. Management of working capital therefore, is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the inter-relationship that exists between them. In other words it refers to all aspects of administration of both current assets and current liabilities.

Working capital management is three dimensional in nature: (a) Dimension I is concerned with the formulation of policies with regard to profitability, risk and liquidity. (b) Dimension II is concerned with the decisions about the composition and level of current assets. (c) Dimension III is concerned with the decisions about the composition and level of current liabilities.

PRINCIPLES OF WORKING CAPITAL MANAGEMENT/POLICY: The following are the general principles of a sound working capital management policy:

11

1. Principle of Risk Variation:

Risk here refers to the inability of a firm to meet its obligations as and when they become due for payment. Larger investment in current assets with less dependence on short-term borrowings increases the opportunity for gain or loss.

2. Principle of Cost of Capital:

The various sources of raising working capital finance have different cost of capital and the degree of risk involved. Generally, higher the risk lower is the cost and lower the risk higher is the cost. A sound working capital management should always try to achieve a proper balance between these two

3. Principle of Equity Position:

This principle is concerned with planning the total investment in current assets. According to this principle, the amount of working capital invested in each component should be adequately justified by a firms equity position.

4. Principle of Maturity of Payment:

This principle is concerned with planning the sources of finance for working capital. According to this principle, a firm should make every effort to relate maturities of payment to its flow of internally generated funds.

12

OBJECTIVES OF THE STUDY

1. To study about the effect of working capital management of Quilon Co-operative Spinning Mills Ltd.

2. To analyze the liquidity position and current asset movement of the company.

3. To find out the gross and net working capital of the company.

4. To know about the changing position of working capital by comparing current asset and current liability of two years.

5. To suggest suitable measures for the improvement of working capital.

SCOPE OF THE STUDY

13

Working capital is that part of capital, which makes a business, run on a continuous basis with out any interruption. The working capital of Quilon Cooperative Spinning Mills Ltd. shows a negative net working capital during the period of study. The barometer to measure the effectiveness of managing the working capital of QCSML is the evaluation of the past performance and analyzing the financial statements using accounting and statistical tools. The study touched allimportant constituents of working capital such as cash, receivables, and inventory. Thus the study would give a brief description of the performance of QCSML and suggestion for its improvement.

LIMITATIONS OF THE STUDY

14

1. The study is limited for the period of five years (2003-2004 to 2007-2008) based on available data in this period.

2. The study is based on the secondary data such as published annual reports of the company. The accuracy of calculation depends very much on the information found in the balance sheet.

3. The fluctuations in current assets and liabilities that may occur between the Periods of any two balance sheets may have their implications on the Working capital calculations.

1.2 INTRODUCTION ABOUT THE INDUSTRY

15

TEXTILE INDUSTRY

The textile industry is a group of related industries, which uses a variety of natural (cotton, wool, etc.) and/or synthetic fibres to produce fabric. It is a significant contributor to many national economies, encompassing both small and large-scale operations worldwide. The sequence of the manufacture of textiles is illustrated in the flow diagram in Figure 1 (see process description). Subdivision of the textile industry into its various components can be approached from several angles. According to reference, the classical method of categorizing the industry involves grouping the manufacturing plants according to the fibre being processed that is, cotton, wool, or synthetics. The modern approach to textile industry categorization, however, involves grouping the manufacturing plants according to their particular operation. . Wool Scouring Wool Finishing Dry Processing Woven Fabric Finishing Knit Fabric Finishing Carpet Manufacture Stock and Yarn Dyeing and Finishing

16

Traditionally, the textile industry is very energy, water, and chemicalintensive. About 60% of the energy is used by dyeing and finishing operations. Environmental problems associated with the textile industry are typically those associated with water pollution. Natural impurities extracted from the fibre being processed along with the chemicals used for processing are the two main sources of pollution. Effluents are generally hot, alkaline, strong smelling and colored by chemicals used in dyeing processes. Some of the chemicals discharged are toxic. Other environmental issues now considered equally important and relevant to the textile industry include air emissions, notably Volatile Organic Compounds (VOC).

1.3 INTRODUCTION ABOUT THE COMPANY

17

COMPANY PROFILE

Textile industry in Kerala plays an important role. The handloom industry is one of the traditional industries of Kerala and products of it are part of Kerala culture. This is a sector which had employed lacks of Kerelates. The weavers were faced with the problem of non availability of cotton yarn. The situation is such that the weavers were almost the verge of facing unemployment. The unemployment is a universal issue, which every country in the world is facing. In a developing country like India the problem of unemployment is sever.

In order to cater the needs of weavers and also to provide employment opportunity to backward areas, the Government of Kerala took decision to start five spinning mills in the co-operative sector with this object a society named Quilon Cooperative Spinning Mills Limited was registered on February 13, 1976 having capacity of 2500 spindles to manufacture cotton and manmade fiber. The area of operation of the society spread allover Kerala. Initial capital required for Mill was collected through various sources. The estimated cost of project was 636 lacks. The total cost of the project when it is completed on 11.12.1986 was Rs.717 lacks.

The capital required for were mobilized from the source like issue of shares, subsidy from government and other financial institutions like IDBI, ICICI, IFCI, KSCB and interest areas from these funds. The venture capital required for this project can be analyzed in the following table.

18

Distribution of venture capital

Components Share capital Investment subsidy Terms loans from IDBI Term loans from ICICI Term loans from IFCI Term loans from KSCB Loans from Govt. of Kerala Interest areas

Amounts (in lacks) 254.96 15.00 145.00 75.00 70.00 28.00 10.19 118.85

Total

717.00

The capital required for the company were mobilized from the sources like issue of shares, subsidy from government and other financial institutions like IDBI, ICICI, IFCI,KSCB and other interest areas of the funds. The venture capital incurred for this project can be analyzed in the above table.

OBJECTIVES OF THE MILL

19

The main objectives of the QCSML are;

1. To supply cotton yarn to members. 2. To promote industrial development in rural areas. 3. To provide gainful employment to rural people. 4. To safeguard the weaker section from exploitation of large sellers.

LOCATION

The QCSML is situated at Karamcodu, Chathannur about 20 km. away from Kollam town and 53 km. away from Thiruvananthapuram. The nearest railway station is at Paravoor, which is about 12km. away from the mill. The total land area of the mill is 21.74acers. The main advantage of mills location is.

1. It has facilities of good network of transportation. 2. It is situated beside NH47. 3. It has good working environment. 4. It has an good accessibility for its workers and officers.

5. the location being industrially backward area avails the society many benefits
from the government like subsidies, allowance, tax concession etc,

CAPITAL STRUCTURE

20

The authorized capital of QCSML at the beginning was Rs.3 cores, then it increased to 4 cores. The paid-up capital of QCSML can be summarized in the following table.

Capital structure

Component of capital

Amount

% of component of capital

Co-operative society Individuals Govt. of Kerala Others Share application money Total

1471100 44900 249556200 389100 2206 28863506

5.39 1.65 91.49 1.43 0.008 100

On analyzing the above table, it was found that the Govt. of Kerala is the major share holder of the QCSML. They have taken 91.49% share of the company. Co-operative society and others take the balance.

ORGANIZATIONAL STRUCTURE

QCSML is one of the medium scale industry registered under the cooperative societies Act and cones under industrial development. The supreme

21

authority of QCSML is vested in the hands of board of directors. The entire management of the firm is controlled by board of directors and they are appointed by the Govt. of Kerala. The day-to-day activities of the mill are vested M.D., state government has the authority to appoint this M.D. He will be appointed for five years. Board of directors is the decision making body and managing director is the implementing authority.

The Quilon Co-operative Spinning Mills Ltd. Consist of line and staff organization. The line portion provides stability and discipline and staff provides expert knowledge and advice. Here the authority flows from top to bottom. The managing director gives induction to departments.

CHART NO. 3 ORGANIZATION CHART

22

Board of Directors

Managing Director

Mill Manager

Financial Controller

Welfare Officer

Spinning Master

Account Officer

Time Officer

Deputy Spinning Master

Supervisor

Worker 1.4 REVIEW OF LITERATURE

23

The aim of this chapter is to review briefly and critically the empirical work done in the areas evolving working capital management. This is intensified to reveal some prominent facts and to highlight the nature of the present study. The researcher has given a review of various studies both in India and abroad in connection with the present study.

Literature relating to working capital management:

1.

ABDUL

RAHEMAN

AND

MOHAMED

NASR-

2007,

Working

Capital

Management has its effect on liquidity as well on profitability of the firm. The cash conversion cycle increases it will lead to decreasing profitability of the firm, and managers can create a positive value for the shareholders by reducing the cash conversion cycle to a possible minimum level. We find that there is a significant negative relationship between size of the form and its profitability. There is also a significant negative relationship between debt used by the firm and its profitability.

2. ELJELLY-2004, Elucidated that efficient liquidity management involves planning and controlling current assets and current liabilities in such a manner that eliminates the risk of inability to meet due short-term obligations and avoids excessive investment in these assets.

24

3. DELOOF-2003, Discussed that most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed will have a significant impact of profitability of those firms. On basis of these results he suggested that managers could create value for their shareholders by reducing the number of days accounts receivable and inventories to a reasonable minimum.

4. GOSH AND MAJI-2003, In this paper made an attempt to examine the efficiency of working capital management of the Indian cement companies during 1992-1993 to 2001-2002. For measuring the efficiency of working capital management, performance utilization, and overall efficiency indices were calculated instead of using some common working capital management ratios.

5. REL Consultancy Group has for years conducted and annual survey of corporate working capital management performance for CFO Magazine, which CFO Magazine then reports. Their 2005 survey report points out, there is a high positive correlation between the efficiency of a corporations working capital policies and its return on invested capital.

6. SHIN AND SOENEN-1998, Point out that a corporations working capital is the result of the time lag between the expenditure for the purchase of raw materials and the collection from the sale of finished goods. As such, it involves many different aspects of corporate operate operational .

25

7. NUNN-1981 Uses the PIMS database to examine why some product lines have low working capital requirements, while other product lines have high working capital requirements. In addition, Nunn is interested in permanent rather than temporary working capital investment as he uses data averaged over four years.

8. HAWAWINI, VIALLET, AND VORA-1986, examine the influence of a firms industry on its working capital management. Using data o 1,181 U.S. firms over the period 1960 to 1979. From these studies, we conclude that sales growth and industry practices are important factors influencing a firms investment in working capital.

26

CHAPTER- 2 RESEARCH METHODOLOGY

Meaning of Research:
Research in common parlance refers to a search for knowledge. The advanced learners dictionary of current English lays down the meaning of research as a careful investigation or inquiry specially through sear for new facts in any branch of knowledge.

Definition:
According to Woody, Research comprises defining and redefining problems formulating hypothesis or suggested solution collecting organizing and evaluating, data making deduction and researching concessions and at last carefully the concessions to determine whether they fit the formulating the hypothesis.

Methods of Data Collection:

There are two types of data. 1. Primary data 2. Secondary data

1. Primary data:

27

The primary data are those which are collected a fresh and for the first time, and thus happens to be original in character. Primary data was collected of discussions with Managers, Accountants and Other staff of Quilon Co-operative Spinning Mills Limited.

2. Secondary data: The secondary data, on the other hand, are those which have already been collected by someone else and which have already been passed though the statistical process. Secondary data was collected form Balance Sheet and annual reports of the company, Magazines, Books of Accounts, Other books, etc.

Sources of data:
The data needed to the study was collected from companys financial records and annual reports.

Tools used for Analysis:

1. Gross Working Capital 2. Net Working Capital 3. Schedule of Changes in Working Capital 4. Ratio Analysis

28

Period of study:
The study is carried out for 30 days by collecting data for a period of five years from 2003-2004 to 2007-2008.

29

CHAPTER- 3 ANALYSIS AND INTERPRETATION

SCHEDULE SHOWING CAHNGES IN WORKING CAPITAL:

Schedule showing changes in working capital is an important tool to study the changes in working capital of the concern and can also throw light on cause for these changes. Working capital means the excess of current asset over current liabilities. Statement of changes in working capital is prepared to show the changes in the working capital between the two balance sheet dates. This statement is prepared with the help of current assets and current liabilities derived from the two balance sheets.

As, WORKING CAPITAL= CURRENT ASSETS- CURRENT LIABILITIES. So,

(i).

An increase in current assets increases working capital.

(ii). An decrease in current assets decreases, working capital. (iii). An increase in current liabilities decreases working capital, and (iv). An decrease in current liabilities increase working capital.

30

Table No. 3 Schedule of changes in Working Capital for (2003 2004)

Year Particulars 2003 A. CURRENT ASSETS Cash and bank balance Inventories Sundry debtors Deposits Other current assets Advances for expenses Advances for employees Total B.CURRENT LIABILITIES AND PROVISIONS Current liabilities Provisions Total Working capital (A-B) Net decrease in Working Capital 42585294 1409135 43994429 20633206 15314917 57359663 1375117 58734780 35948123 14774369 34018 1528831 11566693 5839806 2161884 644111 156255 1455643 23361231 1534926 10072888 3285475 5609831 803372 132299 1347866 22786657 6095 ----3439947 159261 ------1493805 2554331 ----23956 107777 2004 increase Decrease Effect on working capital

15314917

35948123

35948123

19053567

19053567

31

INFERENCE:
The above table shows that schedule of changes in working capital as on 2003-2004. The current asset have decreased from 23361231 to 22786657 in the year 2003-2004. Current liability for the year 2003 was 43994429. It has increased to 58734780 in the year 2004. The net decrease in working capital is 15314917.

32

Table No. 4 Schedule of changes in Working Capital for (2004 2005)

Year Particulars 2004 A. CURRENT ASSETS Cash and bank balance Inventories Sundry debtors Deposits Other current assets Advances for expenses Advances for employees Total B.CURRENT LIABILITIES AND PROVISIONS Current liabilities Provisions Total 58734780 Working capital (A-B) Net decrease in Working Capital 35948123 2865845 57041960 38813968 2865845 57359663 1375117 55629705 1412255 1729958 37138 1534926 10072888 3285475 5609831 803372 132299 1347866 22786657 1862586 8709448 4389755 2154884 543125 125145 443049 18227992 327660 --1104280 -----------1363440 --3454947 260247 7154 904817 2005 Increase Decrease Effect on working capital

38813968

38813968

6027743

6027743

33

INFERENCE:
The above table shows that schedule of changes in working capital as on 2004-2005. The current assets have decreased from 22786657 to 18227992 in the year 2004-2005. Current liability for the year 2004 was 58734780. It has decreased to 57041960 in the year 2005. The net decrease in working capital is 2865845.

34

Table No. 5 Schedule of changes in Working Capital for (2005 2006)

Year Particulars 2005 A. CURRENT ASSETS Cash and bank balance Inventories Sundry debtors Deposits Other current assets Advances for expenses Advances for employees Total B.CURRENT LIABILITIES AND PROVISIONS Current liabilities Provisions Total Working capital (A-B) Net decrease in Working Capital 55629705 1412255 57041960 38813968 30688144 84046249 1357654 85403903 69502112 30688144 --54601 28416544 --1862586 8709448 4389755 2154884 543125 125145 443049 18227992 2176290 6208849 4439950 2184884 181967 115629 594222 15901791 313704 --50195 30000 ----151173 --2500599 ----361158 9516 --2006 increase Decrease Effect on working capital

69502112

69502112

31287817

31287817

INFERENCE:

35

The above table shows that schedule of changes in working capital as on 2005-2006. The current asset have decreased from 18227992 to 15901791 in the year 2005-2006. The net decrease in working capital is 30688144.

Table No. 6

36

Schedule of changes in Working Capital for (2006 2007)

Year Particulars 2006 A. CURRENT ASSETS Cash and bank balance Inventories Sundry debtors Deposits Other current assets Advances for expenses Advances for employees Total B.CURRENT LIABILITIES AND PROVISIONS Current liabilities Provisions Total Working capital (A-B) Net decrease in Working Capital 84046249 1357654 85403903 69502112 24408863 110823689 1273990 112097679 93910975 24408863 --83664 26777440 --2176290 6208849 4439950 2184884 181967 115629 594222 15901791 1767573 10450073 2762193 2154884 185510 106123 760348 18186704 --4241224 ----3543 --166125 408717 --1677757 30000 --9506 --2007 increase Decrease Effect on working capital

93910975

93910975

28903420

28903420

INFERENCE:

37

The above table shows that schedule of changes in working capital as on 2006-2007. The current asset have increased from 15901791 to 18186704 in the year 2006-2007. Current liability for the year 2006 was 85403903. It has increased to 112099779 in the year 2007. The net decrease in working capital is 24408863.

Table No. 7 Schedule of changes in Working Capital for (2007 2008)

38

Year Particulars 2007 A. CURRENT ASSETS Cash and bank balance Inventories Sundry debtors Deposits Other current assets Advances for expenses Advances for employees Total B.CURRENT LIABILITIES AND PROVISIONS Current liabilities Provisions Total 112097679 Working capital (A-B) Net decrease in Working Capital 93910975 5735408 120350347 99646383 110823689 1273990 118920591 1429756 1767573 10450073 2762193 2154884 185510 106123 760348 18186704 2171506 9263822 5133565 2154884 1138456 177503 664228 20703964 2008

Effect on working capital increase Decrease

403933 --2371372 --952946 71380 ---

--1186251 --------96120

-----

8096902 155766

5735408

99646383

99646383

9535039

9535039

INFERENCE:

39

The above table shows that schedule of changes in working capital as on 2007-2008. The current assets have increased from 18186704 to 20703964 in the year 2007-2008. Current liability for the year 2007 was 112099779. It has increased to 120350347 in the year 2008.The net decrease in working capital is 5735408.

RATIO ANALYSIS

40

1) CURRENT RATIO:
Current ratio explains the relationship between current assets and current liabilities. The general norms are to maintain 2:1 ratio. It can be calculated by dividing current assets by current liabilities.

CURRENT ASSETS CURRENT RATIO = CURRENT LIABILITIES

Table No. 8 STATEMENT SHOWING CURRENT RATIO YEAR CA CL CR INTERFERENCE:

Current ratio of Quilon Co-operative Spinning Mills Ltd shows that the company is running bad position. The companys current ratio is bellow the arbitrary standard of liquidity. In 2005-2006 the ratio decreased from 0.32 to .16 because of a

2003-2004 22786660 58734780 0.38:1

2004-2005 18227994 57041960 0.32:1

2005-2006 15901791 85403903 0.19:1

2006-2007 18186704 112097679 0.16:1

2007-2008 20703963 120350346 0.17:1

41

high increase in the current liabilities. The ratio shows the liquidity position of the company is very bad.

CHART NO: 4 CURRENT RATIO 0.38 0.32

0.4 0.35 0.3 CURRENT RATIO 0.25 0.2 0.15 0.1 0.05 0

0.19 0.16

0.17

2003-2004

2004-2005

2005-2006 YEAR

2006-2007

2007-2008

42

2) QUICK RATIO:
The quick ratio tells about the relationship between quick assets and current liabilities. It is calculated by dividing quick assets by current liabilities. The ideal norm is 1:1. Quick assets are obtained by subtracting prepaid expenses and inventories from current assets.

QUICK ASSETS QUICK RATIO = CURRENT LIABILITIES

QUICK ASSETS = SUNDRY DEBTORS + CASH & BANK BALANCE + LOANS & ADVANCES

Table No. 9 STATEMENT SHOWING QUICK RATIO YEAR QA CL QR INFERENCE:

From the above table reveals that, Quick ratio of the company is above the unsatisfactory level that is the concern is not able to meet its short-term

2003-2004 6300566 58734780 .11:1

2004-2005 682535 57041960 .12:1

2005-2006 7326089 85403903 .08:1

2006-2007 5396236 112097679 .04:1

2007-2008 8146800 120350346 .06:1

43

obligations. In the year 2006-2007 the ratio is .04, where it shows huge decrease in current assets. The ratios show that the company is in bad liquidity position.

CHART NO: 5 QUICK RATIO

0.14 0.12 0.1 QUICK RATIO 0.08 0.06 0.04 0.02 0 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 YEAR 0.04 0.08 0.06 0.12 0.11

44

3) ABSOLUTE LIQUID RATIO:

Absolute liquid ratio shows the relationship between the sum of cash and marketable securities to the total current liabilities. The ideal ratio is 0.5:1.

ABSALUTE LIQUID ASSETS ABSOLUTE LIQUID RATIO = CURRENT LIABILITIES

ABSLOUTE LISQUID ASSETS = CASH & BANK +MARKETABLE SECURITIES

Table No. 10 STATEMENT SHOWING ABSOLUT LIQUID RATIO YEAR Absolute Asset CL ALR INFERENCE:
From the above table shows that the companys absolute liquid ratio is less than the ideal ratio. In all the year the ratio is below the satisfactory level. This is because of low cash and bank balance of the firm.

2003-2004 1534926 58734780 .026:1

2004-2005 1862586 57047960 .032:1

2005-2006 2176289 85403903 .025:1

2006-2007 1767573 112097679 .015:1

2007-2008 2171506 120350346 .018:1

45

CHART NO: 6 ABSOLUTE LIQUID RATIO

0.035 0.03 ABSOLUTE LIQUID RATIO 0.025 0.02 0.015 0.01 0.005 0 0.026

0.032 0.025 0.018 0.015

2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 YEAR

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4) WORKING CAPITAL TURNOVER RATIO:

The ratio is calculated by dividing sales by working capital. It shows the number of times the working capital of the company is turned into sales.

WORKING CAPITAL TURN OVER RATIO =

NET SALES

NET WORKING CAPITAL Table No. 11 STATEMENT SHOWING WORKING CAPITAL TURNOVER RATIO YEAR Net Sales Net Working Capital Working Capital turnover Ratio INFERENCE: Working capital of a company is directly related to sales. The above table, it is inferred that the working capital turnover ratio is in a lower status. This shows the firm is inefficient to utilize the working capital. 2003-2004 77881005 -35948123 2004-2005 83962637 -38813968 2005-2006 71752204 -69502112 2006-2007 55763969 -93910975 2007-2008 53098257 -99646383

-2.17 times

-2.16 times

-1.03 times

-0.59 times

-0.53 times

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CHART NO: 7 WORKING CAPITAL TURN OVER RATIO

WORKING CAPITAL TURNOVER RATIO

-0.53 -0.59 -2.17 2003-2004 2004-2005 -1.03 2005-2006 2006-2007 2007-2008

-2.16

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5) INVENTORY TURN OVER RATIO:

It measures the velocity of conversion of the stock into sales. It is obtained by dividing sales by average inventories. Usually a higher inventory turnover indicates efficient management of inventory.

SALES INVENTORY TURN OVER RATIO = INVENTORY

Table No. 12 STATEMENT SHOWING INVENTORY TURNOVER RATIO YEAR Net sales Average Inventory Stock turnover ratio INFERENCE:
The above table shows the inventory turn over ratio of QCSML is a decreasing trend. This is because of the firms over investment in inventories. This analysis shows the inefficiency of management in managing the inventories.

2003-2004 77881005 10072888 7.73 times

2004-2005 83962637 8709448 9.64 times

2005-2006 71752204 6208849 11.56 times

2006-2007 55763969 10450073 5.34 times

2007-2008 53098257 9263822 5.73 times

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CHART NO: 8 INVENTORY TURN OVER RATIO

INVENTERY TURNOVER RATIO

5.73

7.73 2003-2004

5.34

2004-2005 2005-2006 2006-2007 9.64 11.56 2007-2008

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6) DEBTORS TURNOVER RATIO:

Normally almost all the firms try to improve sales by giving credit. So the debtors and receivables are inevitable. It indicates the velocity of the debt collection of the firms. In simple words it indicates the number of times average debtors are turned over during the year. It is calculated as,

NET CREDIT SALES DEBTORS TURNOVER RATIO = AVERAGE TRADE DEBTORS Table No. 13 STATEMENT SHOWING DEBTORS TURNOVER RATIO YEAR Net credit Sales Average Trade Debtors Debtors turnover ratio INFERENCE:
It indicated the numbers of time debtors are turned over during a year. Generally higher the value of debtors turnover ratio, the more efficient in the management of debt. Here the debtors turnover ratio of the company shows an

2003-2004 77881005 4562640

2004-2005 83962637 3837615

2005-2006 71752204 4414852

2006-2007 55763969 3601071

2007-2008 53098257 3947879 13.45 times

17.07 times 21.88 times 16.25 times 15.48 times

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increasing trend. But this is not in a satisfied condition. There is a slight increase in the debtors turnover ratio.

CHART NO: 9 DEBTORS TURNOVER RATIO

25 21.88 DEBTORS TURNOVER RATIO 20 17.07 15 10 5 0 2003-20042004-2005 2005-2006 2006-20072007-2008 YEAR 16.25 15.48 13.45 S eries2 S eries1

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7) AVERAGE COLLECTION PERIOD:

The average collection period represents the average number of days for which a firm has to wait before its receivables are converted into cash. It is calculated by dividing the debtors by credit sales per day.

DAYS IN AN YEAR AVERAGE COLLECTION PERIOD = DEBTORS TURNOVER RATIO

Table No. 13 STATEMENT SHOWING AVERAGE COLLECTION PERIOD YEAR Days in an year Debtors turnover ratio Average Collection period INFERENCE:
The above table reveals that, average collection period for the year 20042005 has been decreased when compare to previous year. It shows the firm takes 17 days to convert receivables into cash. Where as in the year 2006-2007 the firms

2003-2004 365 17.07 21 days

2004-2005 365 21.88 17 days

2005-2006 365 16.25 22 days

2006-2007 365 15.48 24 days

2007-2008 365 13.45 27 days

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take longer period of 23 days to convert into cash and 27 in 2007-2008. this is not a satisfactory one.

CHART NO: 10 AVERAGE COLLECTION PERIOD

30 AVERAGE COLLECTION PERIOD 25 20 15 10 5 0 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 YEAR 21 22 17 27

24

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8) CREDITORS TURN OVER RATIO:

The creditors turnover ratio indicates the velocity, which the creditors are turned over in relation to purchase. Higher the ratio, better it is otherwise lower the creditors velocity, the more is the time taken for payment. Finding out how much time the firm is likely to take in repaying its made creditors.

NET CREDIT PURCHASE CREDITORS TURNOVER RATIO = AVERAGE ACCOUNT PAYABLE Table No. 14 STATEMENT SHOWING CREDITORS TURNOVER RATIO YEAR Net Credit Purchase Average a/c payable Creditors turnover ratio INFERENCE:
The above table shows creditors velocity of the concern is decreased year by year and in 2007-2008 it reaches its lowest minimum. This lowest credit velocity is

2003-2004 53305182 51201027 1.04 times

2004-2005 57158835 48070959 1.19 times

2005-2006 46350827 73104140 0.63 times

2006-2007 37279647 96567480 0.39 times

2007-2008 37276154 102773624 0.36 times

not favorable to the concern.

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CHART NO: 11 CREDITORS TURNOVER RATIO

1.2 1 0.8 CREDITORS TURNOV ER0.6 RATIO 0.4 0.2 0 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 YEAR

1.04

1.19

0.63 0.39 0.36

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CHAPTER- 4 FINDINGS

1. The net working capital of the mill shows a decreasing trend, during the study period of 2003-2004 to 2007-2008. Moreover negative balance through out these years.

2. The current ratio and quick ratio is below the standard norms in all the years. The company is inefficient to meet the current obligations in time.

3. Absolute liquid ratio shows that the cash position of the firm is not good.

4. The working capital turnover ratio reveals that it is not favorable for the firm.

5. Inventory turnover ratio indicates a decreasing trend during these years. This is because of the firms over investment in inventories.

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6. The study reveals that the debtors turnover ratio is not in a satisfactory level. The firm is not efficient in handling the debt.

7. Creditors turnover ratio reveals that the creditors velocities are decreased year by year.

8. The average collection period shows a increase in trend, it is not satisfactory for the firm.

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CHAPTER- 5 RECOMMENDATIONS

1. The management have improve their efficiency in collecting the debts.

2. For avoiding the shortage of raw material, the company have to find more easy available sources.

3. The firm have to implement modern equipments in production, it helps to producing quality products.

4. The firm have to increase their efficiency to settlement of loans through dear cut plans.

5. The firm should try to reduce the inventory turnover ratio by keeping standard credit policies. The company may take effects to collect the debts promptly. The customers should be sent periodical reminders if they failed to pay in time.

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6. The company can try to reduce the excess of investment in current assets, especially in the debtors. The higher investment in current assets will severally affect the profitability of the firm.

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CHAPTER- 6 CONCLUSION

Working capital is the life-blood & controlling nerve centre of a business. No business can be successfully run without an adequate amount of working capital. It is very essential to maintain the smooth running of a business. The concept of working capital has its own importance in a going concern. Generally negative balance is generally offset soon.

This study explains the management of working capital by the QCSML management. The net working capital of the concern decrease year by year. Now it is badly reaches in a negative position. Because of the high increase in the cost of raw materials, the current liability reaches its maximum and this badly affected to the management and they were failed to settled the loans and other liabilities. This study shows that the management is failed to handle the management of working capital and they facing a big loss.

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