Working Capital Management 1
Working Capital Management 1
FINANCIAL MANAGEMENT
INTRODUCTION
Ezra Solomon has defined “The Financial Function as the study of the
problems involved in the use and acquisition of funds by a Business”.
Traditional approach:
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.
2. Wealth maximization:
WORKING CAPITAL
INTRODUCTION
The need for working capital to run the day to day business activities
cannot be overemphasized. We will hardly find a business firm which does not
require any amount of working capital. Indeed, firms differ in their requirements
of the working capital.
Gross working capital refers to the firm’s investment in current assets. Current
assets are the assets which can be converted into cash within an accounting year
an include cash, Short-term securities, debtors, bills receivable and stock.
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,
and outstanding expenses.
Working Capital is the capital that allows businesses to operate on a day-
to-day basis. Depending on the nature and the time period for which the working
capital is held in business, it can be classified as:
For example every firm has to maintain minimum level of raw materials
work- in –process finished goods & cash balance. This minimum level of current
assets is called permanent or fixed working capital of this part of capital is
permanently blocked in current assets.
• This will be provides the current amount of working capital at the right
time.
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OPERATING CYCLE
Working capital is required because of the time gap between the sales and
their actual realization in cash. This time gap is technically termed as “operating
cycle” of the business.
DEBTORS
CASH FINISHEDGOODS
WORK IN
RAW MATERIAL
PROGRESS
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In case of a “trading firm” the operating cycle will include the length of time
required to convert
3). 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.
4). Cash discount: Adequate working capital also enables a concern to avail
cash discounts on the purchase and reduces cost.
6). Regular payment of salaries, wages & other day to day commitments:
Adequate working capital enables regular payment of salaries, wages and
day to day commitments, which enhances production and profits of the
company.
7). Ability to face crisis: Adequate working capital enables a concern to face
business crisis in emergencies such as depression.
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capital ratios.
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The study has been conducted in the organization to examine Working Capital
Management in order to enquire into the issues like liquidity, and Material
Management. The study has been undertaken in the Accounting & Finance
deportments of the organization.
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, annual reports, and from the text books of
financial management.
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1. The study is based on the information available in the latest balance sheets
this will not facilitate to undertake a deeper study on the subject taken into
consideration.
4. .The study is limited to a period of five years for analyzing the data.
ratios.
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INDUSTRY PROFILE
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Cotton is a soft, staple fiber that grows around the seeds of the cotton
plant. It is a natural fiber harvested from the cotton plant. The fiber most often is
spun into yarn or thread and used to make a soft, breathable textile, which is the
most widely used natural-fiber cloth in clothing today.
I. 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. The first step in the process is, the cotton is vacuumed into tubes that
carry it to a dryer to reduce moisture and improve the fiber quality. Then it runs
through cleaning equipment to remove leaf trash, sticks and other foreign matter.
In ginning a roller gin is used to grab the fiber. The raw fiber, now called lint.
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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). After baling,
the cotton lint is hauled to either storage yards, textile mills, or shipped to foreign
countries.
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.
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. From here the
cotton goes to a "scutcher". (Operated by a worker also called a scutcher). This
machine cleans the cotton of any remaining dirt and separates the fibers. The
cotton emerges in the form of thin "blanket" called the "lap".
LAP TO CARDING: Carding is the process of pulling the fibers into parallel
alignment to form a thin web. High speed electronic equipment with wire toothed
rollers perform this task. The web of fibers is eventually condensed into a
continuous, untwisted, rope-like strand called a sliver.
SILVER TO ROVING: The silver is then sent to combing machine. Here, the
fibers shorter than half-inch and impurities are removed from the cotton. The
sliver is drawn out to a thinner strand and given a slight twist to improve strength,
then wound on bobbins. These Process is called Roving.
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• The first step is its entry into the shaker room where, through a number of
screens and air equipment, twigs, leaves and other trash are removed.
• The cleaned seed is then sent to gin stands where the linters are removed
from the seed (delinted). The linters of the highest grade, referred to as
first-cut linters are used in manufacturing non-chemical products, such as
medical supplies, twine, and candle wicks. The second-cut linters removed
in further delinting steps, are incorporated in chemical products, found in
various foods, toiletries, film, and paper.
• The delinted seeds now go to the huller. The huller removes the tough seed
coat with a series of knives and shakers. The knives cut the hulls (tough
outer shell of the seed) to loosen them from the kernels (the inside meat of
the seed, rich in oil) and shakers separate the hulls and kernels.
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• The kernels are now ready for oil extraction. They pass through flaking
rollers made of heavy cast iron, spinning at high speeds. This presses the
meats into thin flakes. These flakes then travel to a cooker where they are
cooked at 170 degrees F to reduce their moisture levels. 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.
• Crude cottonseed oil requires further processing before it may be used for
food. The first step in this process is refining. With the scientific use of
heat, sodium hydroxide and a centrifuge (equipment used to separate
substances through spinning action), the dark colored crude oil is
transformed into a transparent, yellow oil. This clear oil may then be
bleached with a special bleaching clay to produce a transparent, amber
colored oil.
The refined cotton seed oil has several advantages other than edible oils. It
contains mere advantage over other edible oils. It contains a large percentage of
Poly Unsaturated Fatty Acids (PUFA) which maintain cholesterol in the blood at
a healthy level.
The quality of cotton oil depends on the weather prevailing during the time
that cotton stands in the fields after coming to maturity. Hence quality of oil
varies from place to place and season to season. 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. Further cotton seed cooking oil has a long span of
life due to the presence of vitamin E.
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• Cottonseed was a raw agricultural product, which was once largely wasted.
Now it is being converted into food for people; feed for livestock; fertilizer
and mulch for plants; fiber for furniture padding; and cellulose for a wide
range of products from explosives to computer chip boards.
The figure showing the products obtained from processing the raw cotton:
Diagram 2.1
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Exports of Cotton
The main market for Indian cotton export is China. The other
markets also include Taiwan, Thailand and Turkey. In July 2001, the union
government removed all curbs on cotton exports. As a result of these, now the
exporters are not required to obtain any certificate from the Textile Commissioner
on the registration, allocation, quality and quantity of export.
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During the year 2008-09 the prices of Indian cotton in early part of
the season being lower than the international prices, had been attractive to foreign
buyers and there was good demand for Indian cotton, especially S-6, H-4 and
Bunny, which had resulted in sustained cotton exports, which are estimated at
55.00 lakh bales
The Cotton Advisory Board estimated an 18-20 percent increase in
cotton exports to 65 lakh bales for Oct 2009- Sep 2010, as against its Aug 2009
estimate of 58 lakh bales.
Imports of Cotton
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The global production of cottonseed oil in the recent years has been
at around 4-4.5 million tons. Around 2 lakh tons are traded globally every year.
The major seed producers, viz., China, India, United States, Pakistan
are the major producers of oil. United States (60000 tons) is the major exporter of
cottonseed oil, while Canada is the major importer.
Cottonseed is a traditional oilseed of India. In India the average
production of cotton oil is around 4 lakh tons a year. It is estimated that, if
scientific processing is carried out the oil production can be increased by another
4 lakh tons.
In India, the oil recovery from cottonseed is around 11%. Gujarat is
the major consumer of cottonseed oil in the country. It is also used for the
manufacture of vanaspati. The price of cottonseed oil is generally dependent on
the price behavior of other domestically produced oils, more particularly
groundnut oil.
India used to import around 30000 tons of crude cottonseed oil,
before palm and soyoil became the only imports of the country. Currently, the
country does not import cottonseed oil.
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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.
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The global demand for apparel and woven textiles is likely to grow by 25
percent by year 2011 to over 35mn tons, and Asia will be responsible for 85
percent output of this growth. The woven products output will also rise in Central
and Southern American countries, however, at a reasonable speed. On the other
hand, in major developed countries, the output of woven products will remain
stable. Weaving process is conducted to make fabrics for a broad range of
clothing assortment, including shirts, jeans, sportswear, skirts, dresses, protective
clothing etc., and also used in non-apparel uses like technical, automotive,
medical etc…
It is been forecasted that the woven textile and apparel markets will sustain
their growth from current till 2011.
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The imports of apparel and textiles will rise from developed economies like
the USA and the western countries of Europe and Japan, along with some newly
emerged economies, such as South Korea and Taiwan. Certainly, import growth
has been witnessed vertical rise in the previous year.
Apparel is the most preferred and important of all the other applications.
Woven fabrics are widely used in apparel assortments, including innerwear,
outerwear, nightwear and underwear, as well as in specialized apparels like
protective clothing and sportswear. Home textile also contributes considerably in
woven fabric in products assortments like curtains, furnishing fabrics, carpets,
table cloths etc.
• Geotextile - interior upholstery, trim, airbags and seat belts and lyre fabrics.
• Sailcloth - tent and fabrics used architectures, transportation and tarpaulins.
And many more applications…
The Indian Industry foresees huge demand for industrial woven products for
medical and automotive applications. Demand for woven fabrics is anticipated to
be rise vertically in the sector of home textiles.
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Conclusion
The 7th Five Year Plan has huge consideration on agricultural growth that
also includes cotton textileindustry, resulting a prosperous future forecast for the
textile industry in india. 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, and a total textile production of $85bn by 2009-2010.
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• Cheaper Imports
The appreciated rupee value makes the cotton imports cheaper when
compared to past. 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. So the cotton producers are also
required to take care in this aspect.
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COMPANY PROFIL4
AMARAVATHI TEXTILES PRIVATE LIMITED.
• The founder of AMARAVATHI TEXTILES who has drawn its future planned
growth. A Man whose spirit of Dynamism has helped the group to achieve
manifold growth. Thanks to his pioneering vision, the group’s operation grew
and market extended. Today AMARAVATHI TEXTILES is a multi-activity
group with a Rs.300crores turnover, comprising 6 divisions with diverse
interest in……..
• COTTON
• SPINNING
• TEXTILE
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A TRADITION OF ENTERPRISE
Sri Kandimalla Srinivasa Rao left in pursuit of a dream. With just two bags
of grain, he ventured to cultivate 100 acres of land. And with the tell- tale sprite
gleaming in his eyes. His value – oriented strategy and adventurous sprit bore fruit
consistently. His farmland grew and from a model farmer he evolved into a dynamitic
entrepreneur. He proved that success starts with a proactive attitude. A vigorous
confidence that one can effectively integrate ideas with enterprise. Sadineni’s first trip
to RUSSIA gave him the power of conviction to stride boldly into the industrial
environment. And valiantly into the future.
Sri Kandimalla Srinivasa Rao set up a cotton ginning mill in 1984. The
operations grew rapidly to lay solid foundations for giant surging ahead in diverse
environments. To the group, the future is rich in possibilities. A future where the best
of minds and men will work. And will have the most resources to draw upon. It’s
vision of the future where change will be embraced as the very basis of opportunity
and endeavor.
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Social service has always been a matter of prime concern to him. Which is why he
perennially strives to provide the best education and undertake multi-pronged
schemes towards the betterment of the community. While nurturing a corporate
culture that encourages individual growth, he is committed to a vision that
encompasses everybody’s enlistment.
COTTON DIVISION
The COTTON GINNING & PRESSING UNIT was started in 1984. The
Division maintains 54 Gins and 1 Hydraulic press with an annualized turnover of
Rs.40crores. The company firmly believes that unmatched capabilities plus an in-
depth knowledge of various cotton growing areas alone can put it on the path to
speedy growth. This Division also processes India ’s best long staple cotton DCH-32
at Dharwad Branch, Karnataka.
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SPINNING DIVISION
The AMARAVATHI TEXTILES SPINNING MILLS DIVISION has been a
trend setter ever since it’s commissioning. Established in 1991, the plant started
commercial production of World class yarn to the requirement of global markets as
well as indigenous markets. Conceived in a sprawling area in the midst of rich cotton
fields of GUNTUR District, the division is on its way to dizzy heights on the cotton
horizon. We are having a capacity of 60,000 spindles. The impressive performance
reflects AMARAVATHI TEXTILESS commitment to continue machine
modernization. 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. It is the dedicated
quality consciousness that as paved the way for a phenomenal demand for
AMARAVATHI TEXTILES products.
All this translates into utmost customer satisfaction. The unit is enviably well-
entrenched as a leading player for the highly competitive export markets ever since
1996. AMARAVATHI TEXTILES magnificent obsession with exports has won for
it important international markets. In fact, over 70% of the produce was exported
major European countries.
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AMARAVATHI VALUES:
v Promptness in execution.
v Transparency in Business
v Integrity in Negotiation
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TEXTILE DIVISION
The Division was started in 2005. The Units equipped with modern imported
machinery. Presently we are running with 48 Brand New Looms. We have sucker
wrapping and sizing. Total plant planned for 98 Looms. In phased manner we are
expanding the Looms capacity.
FIXED ASSETS:
INVESTMENTS:
Long term Investment is stated at cost and income thereon accounted for on
accrual. Provision towards decline in the value of Long Term Investments is made
only when such decline id other than temporary.
DEPRECIATION:
· Under written down valve method on the assets of all other divisions of
the company.
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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.
SALES:
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, 2003.
SEGMENT REPORTING:
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Inter-segment Revenue has been accounted for based on the market related
prices.
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.I.C,
and are charged against the revenue. The company has taken Group Gradually (Cash
Accumulation) scheme with Life Insurance Corporation of India . 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. Leave encashment is accounted as and when the employees claimed and
paid.
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, Pending
approval of the shareholders at the annual General Meeting.
IMPAIRMENT OF ASSETS:
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CONTIGENT LIABILITIES:
Contingent Liabilities are not recognized in the accounts, but are disclosed
after a careful evaluation of the concerned facts and legal issues involved.
Commercial performance
BOARD OF DIRECTORS
§ K.Geetha Director
GENERAL MANAGER.
ACCOUNTS MANAGER.
BANKERS
REGISTERED OFFICE
Pandaripuram,
Chilakaluripet-522616
FACTORY
Martur-522301,
Martur Mandal,
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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. A study on working capital is of major importance, because of its close
relationship with current day today operations of a business.
The term working capital stands for that form of capital which is required for
the financially of working or current need of the company. It is usually invested in
raw material work in progress finished goods accounts receivable and saleable
securities.
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Current assets are the assets, which can be converted into cash with in an
accounting year and includes cash short-term securities, debtors, bill receivable
and inventories.
Current liabilities are those claims of outside, which are expected to mature
for payment with in an accounting year and include creditor’s bill payable and
outstanding expenses.
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.
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Capital required for a business can be classified under two main categories.
1. Fixed capital
2. Working capital
Every business needs funds for two purposes for its establishment sand to
carry out its day-to-day operations. Long-term funds are required to create
production facilities through purchases of fixed assets such as plant, machinery,
land, building, and furniture etc. Investment in these assets represented that part of
firm’s capital, which is blinked on permanent or fixed basis and is called fixed
capital. Funda are also needed for short-term purpose for the purchase of raw
material, payment of wages and other day-to-day expenses. 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. Hence it is also known as revolving or
circulating capital short-term capital. Circulating capital means current assets of a
company that are changed in the ordinary course of bs8iness from to another.
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• There is often no provision for working capital margin, when the project
cost is estimated. Hence long –term funds are not made available for
working capital margin. This means that public sector undertakings are
required to raise all the financing required for current assets from short-
term sources.
• Most of the public sector undertakings are capital-intensive industries like
steel, heavy engineering, oil refining etc. Hence the ratio of current assets
to fixed assets in public sector undertaking, in general is rather low.
• Apparently public sector undertakings do not have much difficulty in
obtaining can now obtain short term financing from all nationalized banks,
which are generally quite accommodations. Since the risk involved in
lending is minimized, commercial banks seem to be quite liberal in
extending credit to the public sector concerns.
• Management of inventories in public sector undertakings rather tax. This is
evident from the high inventory to sales ratios found foremost of the public
sector concerns.
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PROFITABILITY:
Every business concern should have adequate working capital to run its
business operations. It should have neither redundant excess working capital nor
inadequate / shortage of working capital.
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 may lead to unnecessary
purchasing and accumulations of inventories causing more chances of
theft , waste and losses.
• Excessive working capital implies excessive debtors and defective credit
policy, which may cause higher incidence of bad debts
• It may result into overall inefficiencies in the organization.
• 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, the value of shares may also fall
• The redundant working capital gives rise to speculative transactions
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• It becomes difficult for the firm to exploit favorable market conditions &
undertake projects due to lack of working capital.
• The firm cannot pay day today expenses of its operations and it creates
inefficiencies, increase cost& reduces the profits of the business
• It becomes impossible to utilize efficiency the fixed assets due to non-
availability of liquid funds.
• The rate of return on investments also falls with shortage of working capital
Debtors (Receivables)
FINISHED GOODS
CASH
Work in progress
Raw material
OPERATING CYCLE:
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The working capital needs of firm are influenced by numerous factors. The
important ones are
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• 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. A services firm, like an electricity undertaking or a transport
corporation, which has a short operating cycle and which sells predominantly on
cash basis, has a modest working capital requirement.
SEASONALITY OF OPERATIONS:
Firms, which have marked seasonality in their operations usually, have
highly fluctuating working capital requirements. For example, consider a firm
manufacturing ceiling fans. The sale of ceiling fans reaches a peak during the
summer months and drops sharply during the winter period.
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.
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MARKET CONDITIONS:
The degree of competition prevailing in the market place has an important
bearing on working capital needs. 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.
Internal External
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2.External sources:
• Normal trade credit
• Credit papers
• Bank credit
• Customer credit
• Public deposits
• Loans from managing directors
• Government assistance
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1.CASH MANAGEMENT:
Cash management is one of the key areas of working capital. The term cash
with reference to cash management is uses in two senses. In a narrow sense it is
used broadly to cover currency and generally accepted equivalence of cash such
as cheques, drafts and demand deposits in banks
Motives for holding cash:
Keynes has identified five motives for cash holding those are:
1. Transaction motive:
Need for cash to meet payments arising in the ordinary course of action. These
payments include such things as purchase, labor taxes and dividends etc.
2. Precautionary motive:
This precautionary balance maintenance will act as a casher of buffer to meet it
unforeseen and unexpected contingencies. More predictable cash flow of
business, the less will also influence this balance.
3. Speculative motive:
This is holding of cash management will ensure is resolving uncertainly both cash
flow and cash out flow
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4. 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.
e) Constructing a reservoir for net cash inflow, pending an opportunity
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.
2) RECEIVABLES MANAGEMENT:
Receivables are assets, which are created as a result of the sale of goods or
services in the ordinary courses of business. These are known as “ accounts
receivables, trade receivables or customer receivables”.
The receivables represent an important component of the current assets of a
firm. 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. The purpose of maintaining
or investing in receivables is to meet competition and to the sales and profits.
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
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3) INVENTORY MANAGEMENT:
Every business needs inventory for smooth running of its activities .It
serves as link between production & distribution process. The unforeseen
fluctuations in demand & supply of goods also necessitate the need for inventory.
It is also provides a cushion for future price fluctuation. The purposes of ensure
availability of materials in sufficient quantity as and when require & also to
minimize inventories.
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1. It was observed that the above working capital calculations for the year
2003-2004 we can notice that the working capital is increased by
53.63% compared to the previous financial year
4. But there are decrease in sundry debtors, cash, other current assets, loans
and advances by 70.87%, 70.92%, 65.47, and 4.76.
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In Rupees
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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 32.46% compared to the
previous financial year
1. There is overall increase of 23.03% in total current assets during the year 2004-
2005 when compared to the previous financial years.
2. This is due of the increase inventory, sundry debtors, cash, other current assets,
loans and advances with 5.41%, 468.92%, 165.36%, 94, 49% and 43.58%
respectively.
3. There is overall increase of 4.40% in total current liabilities during the year
2004-2005 when compared to the previous financial year.
4. This is due of the increase in sundry creditors, tax, gratuity and provision earned
by 8.38%, 86.80%, 9.88%, 49.28%, 100%, and 8.67% respectively.
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INTERPRETATION:
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In Rupees
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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 75.37%
compared to the previous financial year.
2) There is overall increase of 60.04% in total current assets during the year
2007-2008 when compared to the previous financial years.
3) This is due of the increase inventory, sundry debtors, and cashes in
hand, other current assets, loans &advance by 29.80%, 54.59%,
2840.40%, 57.18%and 81.96%.
4) There is overall increase of 22.22% in total current liabilities during the
year 2007-2008 when compared to the previous financial year.
5) .This is due of the increase in tax, gratuity and provision earned by 59.37
%,17.41 %, 39.03% respectively. .
6) But decrease of sundry creditors, advance received against sales by 2.99%,
14.81.
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In Rupees
Provisions
Provision for taxation 5,15,25,000 9,58,25,000 --------- 4,43,00,000
Provision for gratuity 30,07,183 39,91,065 --------- 9,83,882
Provision for earned
leave en 2,84,246 4,39,501 --------- 1,55,255
cashment
Total Current
liabilities (B) 9,97,01,429 17,20,56,115
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INTERPRETATION:
1. It was observed that the above working capital calculations for the year
2008-2009 we can notice that the working capital is increased by
36.35% compared to the previous financial year
2. There is overall increase of 44.33% in total current assets during the year
2008-2009 when compared to the previous financial years.
3. This is due of the increase inventory, sundry debtors, and cashes in hand,
other current assets, loans &advance by 17.41%, 73.43%, 29.70%,
181.74%and 83.08%.
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RATIO’S
1. CURRENT RATIO:
Creditors, Bills payable, out standing expenses, Short-term loan, Bank over
draft etc.
Current Assets
(A)Current Ratio = ________________
Current Liabilities
77
TABLE 4.6
Year Current Assets Current Liabilities Current ratio
2004-05
18,00,85,714 6,05,34,645 2.97:1
2005-06
22,15,59,127 6,31,95,252 3.50:1
2006-07
28,28,28,659 8,15,74,913 3.47:1
2007-08
45,26,38,754 9,97,01,429 4.54:1
2008-09
65,32,73,135 17,20,56,115 3.80:1
5
4.54
4 3.8
3.5 3.47
3 2.97
Ratios
2
1
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
78
INTERPRETATION:
2. In the year 2004-05 Amaravathi textiles pvt ltd has current ratio is
2.97:1, In the year 2005-06 the current ratio increased to 3.50:1, In
the year 2006-07 the current ratio decreased to 3.47:1, In the year
2007-08 the current ratio increased to 4.54:1, In the year 2008-09 the
current ratio increased to 3.80:1.
4. 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.
5. In the year 2007-08the current ratio has to reach the maximum level.
It has more liquid more than the required.
79
(2)Quick Ratio:
It is also known as acid test or liquid ratio is more rigorous test of liquidity
than the current ratio. Quick ratio may be defined as the relationship between the
quick/ liquid assets and current/ liquid liabilities. An asset is said to be liquid if it
can converted into cash within a short period without loss of value. Inventories
cannot be termed to be liquid assets because they can’t be converted in to cash
immediately. A Quick Ratio 1:1 usually considering idle Ratio.
Quick assets
80
Graph 4.7
Quick Ratio
2.5
2.24 2.23
2
1.5
Ratios 1.3
1 1.06
0.5 0.55
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
81
INTERPRETATION:
2. In the year 2004-05 Amaravathi Textiles pvt ltd has Quick ratio is
0.55:1, In the year 2005-06 the Quick ratio increased to 1.06:1, In the
year 2006-07 the Quick ratio increased to 1.30:1, In the year 2007-08
the Quick ratio increased to 2.24:1, In the year 2008-09 the Quick
ratio decreased to 2.23:1.
3. It was observed that the maximum Quick ratio of 2.24 in the year of
2007-08.There is a increased in the quick assets .So that the ratio is
increased in this year .The minimum value of Quick ratio is 0.55 in
the year of 2004-05. There is a decreased in the quick assets .So that
the ratio is decreased in this year
4. 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. Amaravathi textiles pvt ltd is more than the required .So Amaravathi
textiles pvt ltd to pay off its current obligations.
6. The over all trend of the quick ratio increasing pattern .And the
percentage change in 3.07 between the period 2004-5and 2008-9
82
Cash is the most liquid asset; a financial analyst may examine cash ratio
and its equivalent to current liabilities. Trade investment and marketable
securities are equivalent of cash.
Creditors, Bills payable, out standing expenses, Short-term loan, Bank over
draft etc.
Current liabilities
83
TABLE 4.8
2005-06
18,65,440 6,31,95,252 0.030:1
2006-07
13,63,596 8,15,74,913 0.021:1
2007-08
4,00,95,172 9,97,01,429 0.400:1
2008-09
5,20,02,856 17,20,56,115 0.302:1
84
0.5
0.4 0.4
0.3 0.302
Ratios
0.2
0.1
0 0.011 0.03 0.021
2004-05 2005-06 2006-07 2007-08 2008-09
Years
INTERPRETATION:
85
86
This ratio, 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. It indicates the number of times inventory is placed
during the year or how quickly the goods are sold. It is a test of efficient inventory us
management. Higher the ratio, the better it is because it shows that finished stock is
rapidly turned-over. On the other head, a low stock turnover ratio is not desirable
because it reveals the accumulation of obsolete stock, or the carrying too much stock.
This ratio is calculated as follows;
87
(Or)
Sales
Inventory
88
TABLE 4.9
Graph 4.9
Inventory Turnover Ratio
3
2.5 2.52 2.56
2.23 2.3
2 1.93
Ratios 1.5
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
89
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.
2) The inventory or stock turn over ratio of the Amaravathi textiles pvt ltd in
the year 2004-2005as1.93 it has been increased to 2.23 in the year 2005-
06 & further increased 2.52 in the year2006-07It had decreased to 2.30 in
the year2007-08 At present the inventory or stock turn over ratio of the
company was 2.56 in the year 2008-09.
3) It was observed that the inventory or stock turn over ratio of the
Amaravathi textiles pvt ltd is maximum (2.56) the reason for increase in
sales and decrease in cl.stock in the year 2008-09.
4) It was observed that the inventory or stock turn over ratio of the Amaravathi
textiles pvt ltd is minimum (1.93) the reason for decrease in sales and
increase in cl.stock in the year 2004-05.
5) The over all trend of the inventory or stock turn over ratio is increasing
pattern & percentage change in 0.32 between the period 2004-05and 2008-
09.
90
Table 4.10
91
3
2.5 2.52 2.56
2.23 2.3
2 1.93
Ratios 1.5
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
INTERPRETATION
92
(Or)
2004-2005 66.57
28,34,20,669 42,57,736
2005-2006 14.23
34,46,12,983 2,42,23,172
2006-2007 16.38
44,48,54,723 2,71,64,018
2007-2008 12.53
52,60,60,377 4,19,93,041
2008-2009 9.47
68,97,53,568 7,28,27,064
Graph 4.11
Debtors Turnover Ratio
70 66.57
60
50
40
Ratios
30
20
14.23 16.38
10 12.53 9.47
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
INTERPRETATION:
94
2) The debtors turn over ratio of the Amaravathi textiles pvt ltd in the year
2004-05 66.57 it has been decreased to 14.23 in the year 2005-06 And
further increased 16.38 in the year2006-07It had decreased to 12.53 in the
year2007-08 At present the debtors turn over ratio of the company was 9.47
in the year 2008-09.
3) The debtors turn over ratio of the Amaravathi textiles pvt ltd is maximum
(66.57) the reason for decrease in debtors and increase in sales in the year
2004-05.
4) The debtors turn over ratio of the Amaravathi textiles pvt ltd is minimum
(9.47) the reason for increase sales and increase in debtors in the year 2008-
09.
5) The over all trend of the debtors turn over ratio is decreasing pattern. And
percentage change in 6.02 between the period 2004-05and 2008-2009.
95
Table - 4.12
96
Graph 4.12
Debtors Collection Period Ratio
50
40 38.54
30 29.13
Ratios 25.65
20 22.28
10
5.48
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
INTERPRETATION:
97
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 shows
the how much working capital is in organization at how many times to the net sales.
Net sales
The below table showing the calculation of working capital turnover ratio:
Table - 4.13
98
Graph 4.13
Net Working Capital Turnover Ratio
2.5 2.37
2.18 2.21
2
1.5 1.49 1.43
Ratios
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
INTERPRETATION:
100
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.
4) It was observed that the working capital turn over ratio of the
Amaravathi textiles pvt ltd is minimum (1.43) the reason for increase in
working capital and decrease in net sales in the year 2008-09.
5) The over all trend of the working capital turn over ratio is decreasing
pattern .And percentage change in 0.65 between the period 2004-05and
2008-09.
101
The fixed assets turnover ratio indicates the extent to which the investments
on fixed assets contribute to sales. This ratio will explain about the amount of net
sales that are arises by utilizing fixed assets. Generally a high fixed assets
turnover ratio indicates efficient utilization of fixed assets in generation of sales.
Sales
Fixed assets turnover ratio = -----------------------
Net fixed assets
TABLE – 4.14
102
2.5
2.21
2
1.84 1.75
1.5
Ratios
1 0.95 0.88
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
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
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
FINDINGS
105
8. The inventory turnover ratio is also fluctuating through out all the years.
The inventory holding period also fluctuating.
10. The current ratio of Amaravathi Textiles Private Limited is having better
standards.
11. Quick ratio of Amaravathi Textiles Private Limited is also having good
standards.
106
SUGGESTIONS
1. The debtor’s turnover ratio is fluctuating throughout all the years. Though it is
fluctuating it is showing positive or improvement as a result it is good. So the
company is suggested to maintain the same in future. As well as the debtors
collection period.
4. Company does not maintaining the current idle ratio Company try to improve
its current assets...
107
108