rajshekar working capital managament project new

EXECUTIVE SUMMARY

The project has been under taken under as the part of bachelor of business

administration course as per the direction of Karnataka university Dharwad. The 6 th sem

BBA students will take part in this project were the summer in plant project for the period

of one month and the project is related to finance and the topic of this project is “The study

of working capital management”

The Gadag co-operative textile mill ltd established in 1972 by late shri.K.H.Patil

at Hulkoti in Gadag district. It is producing main product as yarn. The company started with

a production cost of RS.220 lakhs.It is started producing yarn in the year 1973.

A G.C.T.M has an arrangement of different department of the dependent parts of

functions and their interrelation in the structure form to provide the necessary efforts of

groups of individuals will be directed towards a common objective. So as to identify the

problems of such a title and give suggestions and conclusions. In addition to this concept

studying the over all organization role of different department functions of their respective

departments, procedures and policies.

The project is mainly focuses on the industry profile, company profile, SWOT

analysis, annual report and about working capital and this project studies different

department at the Gadag co-operative textile mill ltd. The functions of each department and

the organization in the company along with it covers the duties and responsibilities of all

the staff members type of decision making followed by the mill and it also includes quality

policy export oriented unit etc of the mill.

OXFORD COLLEGE OF BUSINESS ADMINISTRATION HUBLI

Introduction of the company

And its various department


INTRODUCTION OF THE COMPANY

Textile industries are those, which deal with the manufacturing of woven fabrics. In

India first cotton mill was established at Fort Glister near Calcutta, with East India

Company. Later on the actual growth of this industry was started in 1854 with the starting

of a textile mill at Bombay.

The cotton industry has now spread itself over almost the entire inhabitable globe in

its great centers of population is one of the most potent factors the world has had in its

civilizing factor influence, and it had probably done much or even more in contributing to

the welfare of mankind and his progress as any of the great branches of industry.

Like all the important fact of our existence whether we deal with the formation of

universe or building up of a man’s character, we must be prepared to recognize in its

essentials that all pervading forces known as the Evolution. The cotton industry is no

exception in its methods of development to this mighty principle of the universe and in

tracing the history.

Gradually, the human being came to know about the use of cotton as a textile

material and that cotton as a fiber for the purpose of thread, which led to the successful

formation of yarn through spinning process and weaving is done for the purpose of cloth

making had for covering of their bodies.

As the human being came to know the uses of this textile material they were

used not only for covering but also for many other usefully purposes. The discovery of

modern sources of energy and machineries marked the beginning of what we call now

industrial revolution and since then revolutionary changes in cotton textile industry have

been taking place.


INDUSTRY PROFILE

The Indian Textile Industry occupies an important place in the Economy of the

Country because of its contribution to the Industrial Output, Employment Generation and

Foreign Exchange Earnings. At present, the contribution of the textile Industry to GDP is

about 4 percent. The textile industry provides direct employment to about more than 35

million people and is the second largest employment provider in India next to agriculture.

The contribution of this industry to gross export earnings is about 31% of the country.

The Textile Industry is a self-reliant industry from the production of raw materials

to the delivery of final products with considerable value addition at each stage of

processing. The industry was delicensed in 1991 and under the current policy no prior

government approval is necessary to set up textile mills. The per capita cloth availability in

the country has increased from 24.1 square meters in 1991 to 30.7 square meters in 2000-

01.The textile sector including the garment sector has a continual increase in the FDI inflow

from Rs.80.99 million to Rs.234.73million.

From growing its own raw material (cotton, jute, silk and wool) to providing value

added products to consumers (fabrics and garments), the textile industry covers a wide

range of economic activities, including employment generation in both organized and

unorganized sectors. Manmade fibers account for around 40 per cent share in a cotton

dominated Indian textile industry. India accounts for 15% of world's total cotton crop

production. And it is the second largest employer after the agriculture sector in both rural

and urban areas. India has a large pool of skilled low-cost textile workers, experienced in

technical skills.

From 1st January 2005, all textile and clothing products would be traded

internationally without quota-restrictions. And this impending reality brings the issue of

competitiveness to the fore for all firms in the textile and clothing sectors, including those

in India. With the dismantling of quotas in 2004 under mandate from the Agreement in

Textile and Clothing of the WTO, the focus has clearly shifted to the future of the Indian

textile and clothing exports. It is imperative to understand the true competitiveness of

Indian textile and clothing firms in order to make an assessment of what lies over a period

of time.


Table.No.1 COMPANY PROFILE

NameTHE GADAG CO-OPERATIVE TEXTILE MILL LTD.

HULKOTI – 582 205.

1. Year of

Establishment1972

2. StatusThis Co-operative Society registered under the Co-operatives

Societies Act of 1959

3. Location Karnataka state, Gadag Dist, Hulkoti

4. Chairman Shri D.R. Patil, Ex M.L.A. Gadag.

5. Vice

chairmanShri H.M.Soppin

6. Managing

DirectorShri T.Shantavirappa

7. Export placesMaharastra, New-Delhi, Vietnam, South Korea, China and

Couple of European countries

8. Nature

of BusinessProduction and sale of YARN

9. No of Board

of Directors

Elected members – 18

Ex – office members – 1

Nominated by Govt – 3

10. Paid up

Capital817.71 Lakhs

11. Project cost 220 Lakhs

12. No Of

departments

8 [Eight] Departments

13. Number

Of employees

750

14. Phone No (08372)289042,289056

15. Registered

office Hulkoti, Tq & dist:Gadag


BACKGROUND AND INCEPTION OF THE COMPANY

The village Hulkoti has a population of 10,000 comprising of various sections of

people and since long it has been the cradle of co-operative movement in having the first

primary Credit Co-operative Society established in the erstwhile Bombay State. The

occupation of the village is mainly agriculture. The main crops grown around Houlkoti are

Jowar, Cotton, Groundnut, Chilly and other pulses. Since there are no major irrigation

projects, dry land cultivation is the only way for the farming community.. It is at this

juncture, realizing the need for upliftment of much neglected farmers community and to

improve the lot of rural area, late Shri K.H. Patil, a son of soil and veteran Co-operator

devoted his time fully for the establishment of a Co-operative network around Hulkoti.

It is with this ideal background The Gadag Co-operative Textile Mill was established

in the year 1972 with a Project cost of Rs. 220 Lakhs and commenced its trial production in

April 1973. We have a feather in the cap for having installed 25,000 spindles capacity mill

in a record time in the entire country.

Objectives of the company

To satisfy customers by integrating their needs in the mill yarn.

To sustain a mill of able and committed employees and provide opportunities for

growth and development.

To improve the process of managing mill affairs through proper planning, timely

improvement of plan and performance review.

To faster culture innovation with the application of new ideas and methods to solve the

business problems.

To provide the employment opportunities to Men& women of rural area

To know the organizational hierarchy and responsibility ties with their designation

To set exposed to the cotton textile and global trends.


VISION AND MISSION

VISION: To be a premier textile company with a clear focus to become globally

competitive, through growth and technology up gradation committed to excellence in

quality service and co-operatives

MISSION: To purchase the creation of values for all its customers, share holders,

employees and society at large

QUALITY POLICY

The company will give main importance to the satisfaction of the customers by

producing good quality yarn and produce yarn to meet with the market position the company

will not see with the quality of raw material. The company is also having a quality control

department to check out the yarn quality in overall stages to take any corrections required

immediately.

COMPETITORS INFORMATION

Banhatti co-operative spinning mill. Banhatti.

Raitara sahakari noolina girani. Rannebennur.

The farmer’s co-operative spinning mill ltd. Hulkoti.

Sangoola mills solapur.

INFRASTRUCTURE FACILITY

Head office: The head office of G.C.T.M is located in hulkoti the function of finance,

marketing and raw material procurement are carried by head office only it doesn’t have its

branch.

Land: The mill is established in the rural area near gadag at village hulkoti with approval

of the site selection committee. The total area covered is of 90528.25 sq ft out of which

build up area is 643.45 sq mt. there is the beautiful garden plantations pollution free and

healthy environment in the mill area.

Other facilities: The mill has provided an quarters facilities to the workers and there is an

rest room for workers and drinking water facility and also cultural activities.


MANAGINGDIRECTOR

GENERAL MANAGER

CIVIL ENGINEER

P.R.D SECRETARY

SPINNING MASTER

A.DTRANSPO

RTLOANS,

ACT AND OPERATI

OS

SALESPURCH

ASE

E.S.T. AND

ADMIN

ASSIT. SPINNING MASTER

ELECTRICAL

ENGINEER

LABOUR OFFICER

WORKSHOP TIME OFFICE

Note: G.M. and secretary shall be the invitees in subcommittee/ Board meeting G.B. (S.G.B) as per buy law provision

MAINTENANCE

ENGINEER

STORES S.Q.C SECURITY

CHAIRMAN

Chart No.1

ORGANIZATION CHART

P.R.D – Public Relation Department

S.Q.C – Statistical Quality Control

A.D – Administration Department

Production Department

Production is a main function of company. Production is a process of converting

raw material into final products. The Gadag Co-operative Mill is going to receive the

ginned cotton. (Cotton fibers are separated from the seeds) from the above mentioned


suppliers. Before going to production of yarn they classified the cotton on the basis of

staple length of cotton, fiber and decide what count can be spun out of the cotton received

People: There are 36 employees are working under this department.

Hierarchy:

Chart No.2 Production Department

Production Manager

Shift in Charge

Section Supervisor

PROCESS OF PRODUTION

Mixing: Bales of different counts are mixed along with usable wastes, on different

percentage in the mixing bins, cotton bales of different quality are opened and stacked,

called stock mixing, 24 hours for conditioning before it is process further.

Blow room: Cotton in losses form is spending on mixing bale openers and taken further of

different cleaning points where the cotton is beaten and trash is extracted.

Carding: Lap form blow room feed to cards where the cotton is converted from lap form to

sliver form. During this process trash, short fibers and other impurities are extracted the

different cleaning points, like licker in, flats section units.

Preparatory: Cards sliver is drawn through different drafting rollers and the sliver is

elongated and increasingly the length of the sliver and radiating in the cross section by

passing through different drafting rollers .

Spinning: The bobbins from the preparatory process are feed to the drafting rollers as final

treatment to the material and further increasing the length and reduction the cross section of

the material.

Cone winding: Here the yarn spun is cleaned by passing through cleaning devise called slub

catcher and would through suitable package of required length and weight in the form of a

cone.


Doubling: Here two yarn of the same count are doubled by giving necessary twist in the

form of package called bobbins.

Reeling: Here single yarn or doubled yarn are wound on the swifting of the machine called

reel in the form of hank and are make in the form of knots. There are two types, a plain or

cross reel.

Bundling & baling: Here the number of knots plain or cross is in a press depending

On the count and weight of the boundless are as per requirements. Bundles are pressed in

The form of bale depending on the count, plain or cross as per the requirement from the

Market.

Packing: Here number of cones or cheeses is bagged depending on the count of the

Yarn number of cones and weight of the cones. Depending on the requirement of the

Market.


Finance Department

Finance Department is a vital department of a organization. Finance is concerned with

providing and using cash and credit for carrying on business correctly.


Hierarchy:

The finance department of G.C.T.M consists of following person

Chart No.3 Finance Department

General Manager

Manager (Account)

Assistant Manager

Office & Staff

POLICIES

Finance department looks after the finance & prepare the accounts of G.C.T.M.

Finance department taken up functions like investment decisions, Finance decisions,

& capital building working capital management etc.

It borrows loans from national co-operative development corporation

(N.C.D.C.), Government of Karnataka, Banks from share holders, money lenders.

It consists at share capital, secured and unsecured loans

After starting of mill after the 18 years the mill has been modernized at cost of Rs.

429 lakhs the leading institutions has sanctioned of Rs.236.69 lakhs and remaining balance

of Rs.192.31 is from the mill itself and 2nd time modernization has done of Rs 920 lakhs

which the amount is given by the N.C.D.C.( national co-operative development cooperation)

and government of Karnataka as the part N.C.D.C has sanctioned Rs.736 lakhs and 136

lakhs by govt of Karnataka and rest of amount Rs. 46 lakhs is from members of society.


Human Resource Department

The main objective of the personal department is to select right person for right join, for

right place & also for right time to train them, it also aims in solving misunderstanding

between workers and management.


Hierarchy:

Chart No.4 Human Resource Department

MANAGING

DIRECTOR

GENERAL

MANAGER

HR MANAGER

LABOUR OFFICER

ASSISTANT

MANAGER

The human resource department of the mill is recruiting, selecting seeing

welfare of the employees and providing necessary facilities for the workers. Were as in the

Gadag co-operative textile mill there are 744 workers here 85 are staff members, 650

workers and 9 are securities

The facilities for the worker are transportation, medical, canteen, provident fund,

gratuity There are 3types of workers are there first selected (fresh) workers will be taken as

a trainee and in trainee there are two stages first stage trainee and second stage trainee and

after trainee they will be treated as badli and then as permit.


Purchase Department

The purchasing of cotton is made through the conducting business Committee

meeting were as the purchasing of cotton is made on every weekly of 500 to 600 bales were

as every one bale consists of 165 kgs the mill purchases different Variety of cotton

such as NH44, J34, MBCH, BHARAMA, 26MM, and 28MM.

The purchase of cotton is made from local which is at open auction market by the

Gadag co-op cotton sale society, T.A.P.C.S.M of annigeri were as these local cotton is

graded by the A.P.M.C authority. The purchases are also made from CCI (cotton co-

operation of India, maharastra co-operative federation, shanthi textile Mumbai, baradia

cotton company Mumbai and B.M. kollar from gokak.

The price for the local is more of Rs.100-150 than the market rates and were as

the department purchase right material, right quality, and right quantity of cotton for the

mill and the mill collects the sample and makes the laboratory test and make sure of quality

which they requires and make business committee meeting and gives order of purchasing

and the payment of purchased material is made after 30 days of purchasing to the suppliers.


Store Department

Objectives of the Stores Department :

Concentrating towards smooth running of the production process.

Facilitating all required equipments on time .

Reduction of Inventory equipments on time .

Working like a traffic signal to signalize to all equipments.

Proper maintenance of all equipments.

The mills storage has divided in 2 sub department which one is of material store and

general stores and there are 11000 items are maintained in these department and the mill

has an 7500 metric ton of storage capacity and stock of 2000 metric ton of capacity in

godown. The store department’s construction costs of Rs 13.18 crores and the department is

using two ledgers one is material receipt ledger and material issued ledger.


Quality Control Department

Quality Control Department is the key factor to producing the quality products.

Quality Control Department plays a vital role in controlling and increasing the quality of

the product.


Hierarchy:

Chart No.5 Quality Control Department

MANAGING

DIRECTOR

GENERAL

MANAGER

MAINTAINANCE

ENGINEER

ASSISTANT

ENGINEER

This is the department which checks out the quality of the cotton and the produced

yarn in the mill. The department which checks quality before purchasing of cotton by

taking sample from supplier. the G.C.T.M has its laboratory for testing of the cotton and

the lab has installed of 1.25 crore worth of machines which is of computerized machines

the quality control also helps in minimizing cost and improves in working condition it also

helps the G.C.T.M to know the cost of there product.

The cotton testing is having some steps of testing of cotton. The cotton testing is

made on H.V.I (high volume instrument) the testing of material is made out of one bale half

kg will be taken testing is made of its length, strength (grass per tex), informative ratio,

maturity ratio the mill is using 26mm type of cotton for coarser, 28mm for 30s, 34s, and

40s yarn, and 31mm for 60s and above.


Marketing Department

Marketing department is a vital department of organization. Marketing has

developed the long relationship with customer from purchasing and selling products.

Marketing is a social and managerial function which by individual and group obtained want

and need and want through creating exchange products and value with other”


Hierarchy:

Chart No.6 Marketing Department

MANAGING DIRECTIOR

GENERAL MANAGER

SALES MANAGER

Sales Places:

1) National Handloom Development Corporation

2) Karnataka Hand look Development Corporation

3) Depot

Coimbatore

Solapur

Ichalkaranji

Malegaon

The Mill manufactures 10s, 14s 20s, 30s, 34s, 40s, 60s, 80s, 100s, 2/20s, 2/40s, 2/60s, etc.,

in the form of Hanks as well as Cones as per the prevailing market demand.


SECRETARY

Administration Department

Administrative department play very important role in the organization for its smooth

running of the business and success of this company is mainly depending on the efficient

administration of the G.C.T.M.

This department looks after administrative functions such as payment of salaries,

arrangement of meetings, and formation of policies etc, the general functions of this

department are as follows.

Maintenance of files, records etc. up to date, collecting and presenting data in the

form of useful information from the records.

Implementing the organization systems, procedures and policies in a coordinated

manner.

Ensuring smooth running of the office buy interfacing with the eternal agencies as

required. For ex-payment of telephone bills, electricity, water supply bills etc.

Maintenance of the office premises.

Providing required facilities.

The administration department which decides on giving yearly bonus and to

provide the finance to all department and the department which conducts the meeting,

implementing the polices, controlling of different department and finally it is a department

which controls over all the activity of the mill.


Section-2

Introduction to the study


Working Capital


Working Capital Management

Introduction:

Generally the term “Working Capital” stands for that part of capital, which is

required for the financing of working or current needs of the company.

The management of fixed and current assets, however, differ in three

important ways.

Firstly: In managing fixed assets, time is a very important factor, consequently

discounting &compounding techniques play a significant role in capital budgeting& a

minor one in the management of current assets.

Second: The large holding of current assets,especially cash, strengthens the firms liquidity

position (and reduces risk ness) but also reduces the overall profitability.

Third: levels of fixed as well as current assets depends upon expected sales, but it is only

current assets which can be adjusted with sales fluctuation in the short run.

Meaning:

Working capital is the amount of funds which a company has to finance its day to

day operations it can be regards as the part of capitals which the capitals is basically

classified into fixed and working.

Fixed capital is normally invested in fixed assets and working capital in current

assets. It is used in day to day operations. These are the funds that are invested in current

assets. The form of these current assets keeps on changing. Ex: Raw material to work in

progress to finished product. , so it is also called circulating capital.

A study of working capital is of major part of the external and internal analysis

because of its close relationship with the current day to day operation of the business.

Working capital consists of broadly for that the assets of a business that are used at related

current operation and is represented by raw material, stores, work in progress, and finished

goods merchandise, bills receivable.


Definition:

According to Gerestenberg

“Working capital means current assets of company that are changed in the

ordinary course of business from one form to another, ex: from cash to inventories,

inventories to receivables, receivables into cash”

According to J. smith

“The sum of the current assets is the working capital of the business”

’’Working Capital = Current Assets – Current Liability”

OBJECTIVES OF THE STUDY

To study the working capital management.

To know the sources of working capital.

To study the different components of working capital of the company.

To calculate the operating cycle of an organization.

To calculate the working capital of an organization.

METHODALOGY

The data related to working capital is collected though the primary& secondary data.

PRIMARY DATA: The primary data includes information collected from personal

Interaction with manager and other staffs.

SECONDARY DATA: The secondary data are collected from annual report , balance

Sheets, P&L account, debtors register etc


CONCEPT OF WORKING CAPITAL

There are two concepts of working capital that are:

1) Balance sheet concept

2) Operating cycle concept.

1) Balance sheet concept:

Working capital as per this defined in terms of current assets and current

liabilities. Balance sheet concept further classifies working capital into a) Gross and b) Net

working capital.

Gross working capital:

It refers to total investment made in current assets. It is also called circulating

rotating from one head to another. Ex. Cash to raw material, raw material to finished

products, finished products to debtors, and debtors to cash.

Net Working capital:

As per this concept working capital is the difference between current assets and

current liabilities. This concept stresses on quality aspect of working capital. The difference

between current assets highlights on liquidity aspect and quality of current assets. A firm

that has excess of current assets over liabilities is said to possess adequate liquidity

2) Operating cycle concept:

Operating Cycle or Working Capital Cycle indicates the length of time between

affirms paying for raw materials entering into finished stock and receiving cash on the sales

of such Finished Stock.

This operating cycle differs from firm to firm. Longer the operating cycle greater will

be the amount of Working Capital required and vice versa. Thus it plays an important role

in determining the Working Capital needs of a firm


Cash Raw Materials

Work In Process

Finished goodSales

Debtors

OPERATING CYCLE CHART

Chart No.7

Operating Cycle is the time duration required to convert sales, after the conversion

of resources into inventories, into cash. The operating cycle of a G.C.T.M involves three

phases.

Acquisition of resources such as raw material, labour, power and

Fuel etc.

Manufacture of the product which includes conversion of raw

material into work-In- progress into finished goods.

Sales of the product either for cash or on credit. Credit sales creates book Debts for

collection.

In the THE GADAG CO-OPERATIVE TEXTILE MILL LTD (manufacturing concern),

the working capital operating cycle starts with the purchase of raw materials and ends with

the realization of cash from the sale of finished products. It is also called as cash

conversion cycle, production cycle etc. It involves the purchase of raw materials and stores,

its into stocks of finished goods through the work-in-Progress with the progressive

increment of labor and service costs, conversion of finished goods (Yarn Products) into

sales, Debtors and receivables and ultimately realization of cash and this cycle continuous

again from cash to purchases of raw material and so on.


CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified on the basis of concept and on the basis of time. Various

types of working capital are as follows

ChartNo.8 CLASSIFICATION OF WORKING CAPITAL

1) On the basis of concept:

Working capital on this basis of concept is classified into

Gross working capital: It refers to total investment made in current asset. Current

assets are the asset which can be converted into cash within a short period of an

accounting year. Current assets include cash, debtors, bills receivables and short

term securities etc.

Net working capital: It is 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,. Net working

capital can be positive or negative. Positive net working capital will arise when

current asset exceeds current liabilities. A negative net working capital occurs when

current liabilities are in excess of current assets.


KINDS OF WORKING CAPITAL

1. ON THE BASIS OF CONCEPT

GROSS WORKING CAPITAL

NET WORKING CAPITAL

2. ON THE BASIS OF TIME

PERMANENT OR FIXED

REGULAR

RESERVE

TEMPORARY OR VARIABLE

SEASONAL

2) On the basis of time :

Permanent: Some portion of working capital always remain permanent or fixed.

This refers to minimum investment a firm has to make and keep in certain current

assets.

Such permanent working capital is further classified into

Regular and

Reserve

Regular: regular permanent working capital is used in

routine business operations.

Reserve: reserve working capital refers to some portion of working capital that is

kept as reserve to meet any contingency.

3) Temporary working capital: Required of such capital varies or fluctuates depending

on season. Its requirement is not continuous it is normally finance through short term

sources, like overdraft, cash credit and other short term liabilities.

Temporary working capital is further classified into:

Seasonal working capital: requirement of working capital is based on particular

seasons.

Ex; winter, summer or festival seasons etc during these seasons there will be

additional demand for the products.

Special working capital: requirement of such working capital is necessitated to meet

demands of special occasion’s ex. Occasion of world cup cricket, Olympics, kumba

mela, elections.

Needs for Working Capital

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 required any amount

of working capital.

To meet the cost of inventories including total of raw materials purchased parts,

operating, Supplies, work in progress, finished goods.

To pay wages, salaries, for indirect labor, clerical staff, managerial and supervision

staff.

To meet overhead costs, including those of maintenance services activities, fuel


. IMPORTANCE OF WORKING CAPITAL

Even though the skills for maintaining the working capital are somewhat unique,

the goals are the same-viz. to make an efficient use of funds for minimizing the risk of

loss to attain profit objectives.The adequate of working capital contributes a lot in

raising the credit-standing of a corporation in terms of favorable rates of interest on

bank loan, better terms on goods purchased, reduced cost of production on account of

the receipt of cash discounts, etc. Thus, working capital is regarded as one of the

conditioning factors in the long run operations of the firm, which is often inclined to

treat it as an issue of short run analysis and decision making.

CO-RELATION BETWEEN CURRENT ASSETS AND

WORKING CAPITAL

The working capital is in simple terms is the amount of funds which

company must have to finance its day to day operations. The interaction between

current assets and current liability is main theme of theory of working capital. In

general terms working capital means the difference between current assets and current

liabilities.

The current assets are the main source of working capital. It refers to those

assets, which can be converted in to cash within a year. The current assets are

inventories, cash and bank balance, sundry debtors, loans and advances

A study of working capital is major part of external and internal analysis.

Because, of its close relationship with current day to day operations of business.

Working capital consists broadly the assets of business that are used at current

operations which are represented by raw materials, stores, WIP, and finished goods,

merchandise, bills receivable.ETC.


Components of Working Capital

There are two components of Working Capital

Current Assets

Current Liabilities

Current Assets

An assets is termed current assets when it is acquired either for the purpose

of selling or disposing of after taking some required benefits through the process

manufacturing of which constantly changes in from and contributes to transactions take

place with the operation of the business although such assets dose continue for long in

the same form.

Components of Current Assets are as follows:

Cash & Bank Balance

Stock of Raw Material at cost- work in process and Finished

Goods.

Advanced Recoverable in Cash or kind or kind or for value to

be received.

Deposits under the company scheme.

Advanced payment of income takes credit certificates..

Outstanding debts for a period exceeding six months.

7 Balance with central excise authorities.


Current Liabilities:

Components of Current Liabilities are as follows:

Sundry Creditors for the goods and expenses.

Income tax deducted at sources from contractors.

Expenses Payable.

Unclaimed Dividend.

Security Deposits.

Liabilities for bills discounted.

Bank Overdraft Acceptance

Working Capital Management concerned with the following aspects

1. Cash Management:

Cash is the important current asset for the operation of the business. cash is the

basic input needed to keep the business running on a continuous basis; it is also the ultimate

output expected to be realized by selling the service or product manufactured by the firm.

The firm should keep sufficient cash, neither more nor less.

Cash is the liquid form of an asset. It is the ready money available in the firm or

with the business, essential for its operations. A firm needs the cash for the following three

purposes:

The Transaction Motive:

The Precautionary Motive:

The Speculative Motive:


2. Receivables Management:

Receivable represents amounts owed to the firm as a result of sale of goods or

services on the ordinary course of business. These are claims of the firm against its

customers and form part of its current assets. These receivables are carried for the

customers. The period of credit and extent of receivables depends upon the credit

policy followed by the firm. The main purpose of maintaining or investing in

receivables is to meet competitors, to increase sales, and to maintain a cordial

relationship with the clients.

3.Inventory management:

Every enterprise needs inventory for smooth running of its activities. It

serves as a link between production and distribution process. There is, generally a time

lag between the recognition of a need and its fulfillment. The greater the time lag, the

higher the requirements for inventory. The unforeseen fluctuations in demand and

supply of goods necessitate the need for inventory. Moreover, it provides a cushion for

future price fluctuations.


Assessment of working capital

Analysis of the company through Working Capital Ratio’s


Assessment of working capital


Statement of changes in working capital 2006 and 2007

Particulars

As @

31/3/06

As @

31/3/07

Effect

of WC

Increas

e

Decrease

A. Current assets

Cash on hand

Cash at bank

F.D with bank

Deposits

Sundry debtors

Pre university college

Loan to FCSM

Advances

Other receivables

Closing stock

Total current assets

B. Current liabilities

Current liabilities

Bonus provision payable

Other payables

Total current liability

Net working capital(A-B)

Decrease in working

capital

Total working capital

15143

5027449

16051822

4628150

35371142

255296

8500000

1616172

633633

52948390

125047200

40050746

1254248

2090328

43395322

81651878

81651878

41550

4634497

246822

4630150

51579031

255296

8500000

4062468

631633

53043163

127624611

49098335

1280042

2713579

53091956

74532655

7119223

81651878

26407

2000

16207888

2446296

94773

18777364

7119223

25896588

392952

15805000

2000

9047589

25794

623252

25896587

25896588



Particulars

As @

31/3/07

As @

31/3/08

Effect

of WC

Increas

e

Decrease

A. Current assets

Cash on hand

Cash at bank

F.D with bank

Deposits

Sundry debtors


Loan to FCSM ltd

Advances

Other receivables

Closing stock



Current liabilities


Other payables


Net working capital(A-B)

Increase in working

capital


41550

4634497

246822

4630150

51579031

255296

8500000

4062468

631633

53043163

127624611

49098335

1280042

2713579

. 53091956

74532655

10082999

84615654

20530

18446450

265078

4630150

47320434

255297

8500000

5151421

500000

62356456

147445816

58462247

1395879

2972036

62830162

84615654

84615654

13811952

18256

1088953

9313293

24232454

24232454

21020

4258597

131633

9363912

115837

258457

14149456

10082999

24232454



Particulars

As @

31/3/08

As @

31/3/09

Effect

of WC

Increas

e

Decrease

A. Current assets

Cash on hand

Cash at bank

Fd with bank

Deposits

Sundry debtors


Loan to fcsm ltd hulkoti

Advances

Other receivables

Closing stock

Recvd from NCDC



Current liabilities


Other payables

NCDC payable


Net current assets(A-B)

Increase in working capital


20530

18446450

265078

4630150

47320434

255297

8500000

5151421

500000

62356456

-------------

147445816

58462247

1395879

2972036

--------------

62830162

84615654

6991114

91606768

40460

16228726

275078

4431466

51709943

255297

8500000

5687379

535374

5807175

1319412

147054890

49593596

1564000

2971114

1319412

55448122

91606768

91606768

19930

10000

4389509

---------

---------

535958

35374

1319412

8868651

922

15179756

15179756

2217724

198684

---------

---------

4284700

168121

1319412

8188641

6991114

15179756



Particulars

As @

31/3/09

As @

31/3/10

Effect

of WC

Increas

e

decrease

A. Current assets

Cash on hand

Cash at bank

Fd with bank

Deposits

Sundry debtors


Loan to fcsm ltd hulkoti

Advances

Other receivables

Closing stock

Recvd from NCDC



Current liabilities


Other payables

NCDC payable


Net working capital (A-B)

Decrease in working

capital


40460

16228726

275078

4431466

51709943

255297

850000

5687379

535374

58071755

1319412

147054890

49593596

1564000

2971114

1319412

55448122

91606768

91606768

27094

19346310

275078

4052950

51003132

255297

8500000

4858428

1021508

46289123

-----------

135628920

52486226

1227535

4744789

58458550

77170370

14436398

91606768

3117584

486134

336465

1319412

5259595

14436398

19695992

13366

378516

706810

828951

11782632

1319412

2892630

1773675

19695992

19695992


INTERPRETATION

The statement shows that the changes in working capital in the year 2005-06 and

2006-07. It shows how the current assets and current liabilities are changes in two years the

different between current asset and current liabilities i.e. net working capital of two years

2005-06 and 2006-07 . it shows the working capital decreases in 2006-07 which compare

to 2005-06. Here due to decrease the firm is not satisfactory with its working capital

In the year 2006-07 and 2007-08. it shows the current assets and current liabilities i.e

net working capital of two years is 2006-07 and 2007-08. It shows the working capital

increases in the year 2007-08 compare to 2006-07 by increasing the firm is satisfactory

with its working capital.

In the year 2007-08 and 2008-09 it shows how the current assets and current liabilities

are changes in the two years the difference between current assets and current liabilities i.e.

net working capital of the two years is 2007-08 and 2008-09 .It shows the working capital

increases in the year 2008-09 compare to 2007-08 by the increase in the net working capital

firm is satisfactory with its working capital

In the year 2008-09 and 2009-10 it shows how the current assets and current liabilities

are changes in the two years the difference between current assets and current liabilities i.e.

net working capital of the two years 2008-09 and 2009-10.it shows the decreasing in the

year 2009-10 which compare to 2008-09 by decreasing in net working capital the firm is

not satisfactory with its working capital


CALCULATION OF OPERATING CYCLE OF THE G.C.T.M. LTD

Investment in working capital is influenced by four key events in the production and

sales cycle of the G.C.T.M

Purchases of raw materials

Payment of raw materials

Sale of finished goods

Collection of cash for sale

The firm begins with the purchase of raw material which are paid for after a delay

which represent the account payable period. The firm converts the raw material into

finished goods and then sells the same. The time lag between the purchase of raw materials

and sale of finished goods is the inventory period customers pay their bills some time after

the sales. The period that elapses between the date of sales and date of collection of

receivable is the accounts payable period.

The time that elapses between the purchase of raw materials and the collection of

cash for sales is referred to as the operating cycle. Where as the time length between the

payment for raw material purchases and the collection of cash for sales is referred to as the

cash cycle. The operating cycle is the sum of the inventory period and the accounts

receivable period, whereas the cash cycle is equal to the operating cycle less the accounts

payable period.

From the financial statement of the firm we can estimate the inventory period, the

accounts receivable period and accounts payable period.


THE FORMULA TO CALCULATE THE OPERATING CYCLE

Average inventory

INVENTORY PERIOD=

Annual cost of goods sold/365

Average accounts receivable

AVERAGE RECEIVABLE PERIOD=

Annual sales

Average accounts payable

ACCCOUNTS PAYABLE PERIOD=



Financial information of THE G.C.T.M. Ltd 2006-2007

Table No 2

Particulars P&L a/c data Particular Beginning Ending

Sales

Cost of goods

sold

231390442

206149519

Inventory

A/c receivable

A/c payable

46919052

633633

1254248

46274537

631633

1280042

Sales = sales + yarn sales + other sales

= 228943400 + 700864 + 1746178

= 231390442

Table No: 3

Average inventory

Inventory period =


46596794

= --------------------

206149519/365

46596794

= = 82.50

564793



Cost of production

Add: opening stock of finished goods

Less: closing stock of finished goods

Cost of goods sold

210628618

20107336

---------------

230735954

---------------

24586435

206149519

Average receivable period = -------------------------------------------

Annual sales

632633

= ----------------------------

231390442/365

632633

= = 0.99

633946


Accounts payable period =


1267145

=

206149519/365

1267145

= = 2.24

56479320

Operating cycle = inventory period + accounts receivable period

= 82.50 + 0.99 = 83.49 Days

Cash cycle = operating cycle – accounts payable period

= 83.49 – 2.24 = 83.49 Days



Table No 4

Particulars P&La/c data Particular Beginning Ending

Sales

Cost of goods

sold

254655866

215192439

Inventory

A/c receivable

A/c payable

46274537

631633

1280042

50785141

500000

2972036


3484623 + 250490529 + 680714

= 254655866

Table No:5

Cost of production



Cost of goods sold

220852642

24586435

-----------------

245439077

-----------------

30246638

215192439

Average inventory

Inventory period =


48529839

=

21519439/365

48529839

= = 82.31

589568



Average receivable period =

Annual s

565816

=

254655866/365

565816

= = 0.81

697687



Annual cost of goods sold

2126039

=

215192439/365

2126039

= = 3.60

589568


= 82.31 +0.81

= 83.12 Days


= 83.12 – 3.60

= 79.52 Days



Table No: 6

Particulars P&La/c data Particular Beginning Ending

Sales

Cost of goods

sold

274253348

244014252

Inventory

A/c Receivable

A/c Payable

55889767

500000

2972036

50785141

1854786

4290526


262156033 + 1131833 + 10965481

= 274253348

Table No: 7

Average inventory

Inventory period =


106674908/2

=

244014252/365

53337454

= = 79.78

668532



Cost of production



Cost of goods sold

235780335

30246638

---------------

266026973

----------------

22012721

244014252

Average receivable period =

Annual sales

2354786/2

=

274253348/365

1177393

= = 1.56

751379




7262562/2

=

244014252/365

3631281

= = 5.43

668532


= 79.78 + 1.56

= 81.34 Days


= 81.34 – 5.43

= 75.91 Day



Table No :8

Particulars P&l a/c data Particular Beginning Ending

Sales

Cost of goods

sold

256739185

231802183

Inventory

A/c receivable

A/c payable

50785141

1854786

4290526

39186088

1021508

5972323


13609228 + 242486231 + 643726

= 256739185

Table No 9

Average inventory

Inventory period = -------------------------------------------------


89971229/2

= ---------------------

231802183/365

44985614

= ---------------- = 70.83

635074


Cost of production


233038800

22012721

------------------

255051521

------------------


Cost of goods sold

23249338

231802183


Average receivable period = --------------------------------------

Annual sales

2876294/2

= ------------------------------------

256739185/365

1438147

= ----------------------------- = 2.04

703395

average accounts payable

Accounts payable period = ----------------------------------------


10262849/2

= ---------------------

231802183/365

5131424

= ------------------ = 8.08

635074


= 70.83 + 2.04 = 72.87 Days


= 72.87 – 8.08 = 64.79 Days

Table No : 10


Operating cycle

6668707274767880828486

2006-07 2007-08 2008-09 2009-10

years

D ay s

Years Inventory

period

Account

receivable

period

Account

payable

period

Operating cycle Cash cycle

2006-07 82.50 0.99 2.24 83.49 81.25

2007-08 82.31 0.81 3.60 83.12 79.52

2008-09 79.78 1.56 5.43 81.34 75.91

2009-10 70.83 2.04 8.08 72.87 64.79

Graph No:1

Graphical representation of operating cycle:

INTERPRETATION:

Here the firm’s operating cycle has continuously decreased from 83 days during 2006-07 to

73 days during 2009-10. The operating cycle of the firm is satisfactory because it has come

down by 10 days. The firm’s cash cycle is also satisfactory as it has decreased from 82 days

to 65 days during 2006-07 to 2009-10. However it is also observed that the debtor’s

collection period has increased from 0.99 days to 2.08 days during the same time period.


Analysis of the company through

Working Capital Ratio’s


RATIO ANALYSIS

INTRODUCTION

The ratio analysis is one of the most important and powerful tools of financial analysis. It is

the process of establishing and interpreting various ratios. It is with the help of ratios that

the financial statement can be analyzed more clearly and decisions made from such

analysis.

CONCEPT OF RATIO

A ratio is a simple arithmetical expression of the relationship of one number to another. It

may be defined as the indicated quotient of two mathematical expressions. According to

Accountant’s handbook by Wixonkell and Bedford, a ratio “is an expression of the

quantitative relationship between two numbers”.

RATIO ANALYSIS

Ratio analysis is the technique of calculation of number of accounting ratios from the data

found in the financial statements, the comparison of the accounting ratios with those of the

previous years or with those of other concerns engaged in similar line of activities or with

those of standard ratios and the interpretation of the comparison.


INVENTORY TURNOVER RATIO

Inventory turnover ratio is the ratio, which indicates the number of times the stock is

turned over i.e., sold during the year. In other words, it is the ratio between the cost of

goods sold and closing stock. This ratio can be calculated as follows.

Cost of goods sold

Inventory turnover =

Average inventory

Table No :11 Inventory Turnover Ratio

Sl.no Years Cost of

goods sold

Average

Inventory

Ratio

1 2005-06 256843587 46438421 5.53

2 2006-07 206149519 46596794 4.42

3 2007-08 215192439 51082152 4.21

4 2008-09 244014252 53337454 4.57

5 2009-10 231802183 44985614 5.15

Graph No 1

Graphical Representation of Inventory Turnover Ratio


2005-06 2006-07 2007-08 2008-09 2009-100

1

2

3

4

5

6

inventory turnover ratio

Series1

years

rati

o

INTERPRETATION:

The inventory turnover ratio shows how the inventory is turning into receivables

through sales. In the year 2005-2006 the inventory turnover ratio is 5.53 which indicates

efficient utilization of inventories in this year, in the year 2006-2007 inventory ratio has

been decreased by 25% i.e.4.42 times this is due to increase in inventories by 0.35% and

due to decrease in sales by 16.6% hence it indicates in efficient management of inventories

compared to the previous year, in the year 2007-2008 the inventories turnover has been

decreased to 5 % i.e. 4.21 times this is due to increase in inventories by 9 % hence it

indicates inventories are managed inefficiently by the company, in the year 2008-2009

inventory ratio has been increased to 8% this is due to increase in cost of goods sold by 12

% and increase in inventories by 4.2% hence it indicates though there is increase in both

sales and inventories but there is in increase in inventory turnover ratio but there is efficient

management of inventories in this year compared to the previous two years and in the year

2009-2010 the inventory turnover ratio has been increased to 11.26% i.e. 5.21 times this is

due to decrease in inventories by 18% it indicates efficient utilization of inventories

compared to the previous 3 years.

From the above data we can come to know that 2005-2006 to 2009-2010 there is

high inventory turnover ratio in the year 2005-2006 and in the year 2009-2010. Hence it

indicates the firm has failed to manage it inventories hence it is advisable to the company to

adopt better inventory techniques


CURRENT RATIO

The current ratio of a unit measures firm’s short-term solvency, that is, its ability to

meet short-term obligations. It is the ratio of total current assets to total current liabilities.

The current ratio measures the ability of the firm to meet its current liabilities-

current assets get converted into cash in the operating cycle of the firm and provide the

funds needed to pay current liabilities.

It is calculated by dividing total current assets by total current liabilities:

Current ratio = current assets / current liabilities

Table No: 12 Current Ratio

Sl.no Years Current

assets

Current

liability

Current ratio

1 2005-06 125047200 43395322 2.88

2 2006-07 127624611 53091956 2.40

3 2007-08 147445816 62830162 2.34

4 2008-09 147054890 55448122 2.65

5 2009-10 135628920 58458550 2.32


Current ratio

0

0.5

1

1.5

2

2.5

3

3.5

2005-06

2006-07

2007-08

2008-09

2009-10

Years

R at io Series1

Graph No 2

Graphical Representation of Current Ratio

INTERPRETATION:

The standard for current ratio is 2:1 is satisfactory. In the year 2005-2006 the current

ratio is 2.88 times which is satisfactory it indicates efficient utilization of current assets in

proportion to its liabilities, in the year 2006-2007 the current ratio has been decreased by

20% due to increase in debtors by 3 % this indicates the inefficient management of debtors

compared to the previous year 2005-2006 as these debtors are slow moving debtors, in the

year 2007-2008 the current ratio has been decreased by 2.5% i.e. 2.34 times this is due to

increase in debtors by 32% it indicates in efficient management of bad debtors by the

company compared to the previous year 2006-2007 and in the year 2008-2009 the current

ratio has been increased to 11.6% i.e. 2.65 times this is due to decrease in debtors by 8%

and cash at bank by 13% hence it indicates current assets are managed smoothly in this year

and in the year 2009-2010 the current ratio has been decreased by 14 % due to decrease in

current assets i.e. debtors by 2 % and cash in hand to 49% it indicates efficient management

of debtors compared to the previous three years.

From the above data we can come to know that the current ratio is satisfactory only in the

year 2009-2010.Hence it is advisable for the maintain the current assets in proportion to its

liabilities.


QUICK RATIO

This ratio is also termed as Acid-test ratio. A Quick ratio is concerned with,

the relationship between quick assets and current liabilities.

It is a measure of liquidity calculated dividing current assets minus inventory and prepaid

expenses by current liabilities.

The Quick Ratio is the ratio between quick current assets and current liabilities.

It is calculated by dividing the Quick Current Assets by the Current Liabilities.

Quick ratio = quick assets/quick liabilities

Quick asset = current assets –inventory, prepaid expenses

Quick liability = current liability – bank overdraft

Table No: 12 Quick Ratio

Sl.no Years Quick assets Quick

liability

Quick ratio

1 2005-06 72098810 30847985 2.33

2 2006-07 74581448 53091956 1.40

3 2007-08 85089360 62830162 1.35

4 2008-09 88983135 55448122 1.60

5 2009-10 89339797 58458550 1.52


Quick Ratio

0

0.5

1

1.5

2

2.5

2005-06

2006-07

2007-08

2008-09

2009-10

years

R at io Series1

Graph No 3

Graphical Representation of Quick Ratio:

:

INTERPRETATION:

As the conventional rule of quick ratio 1 to 1 is satisfactory. In the year 2005-2006 the

quick ratio is 2.33 which is due to excess of current assets it indicates inefficient

management of debtors, in the year 2006-2007 the quick ratio has been decreased by 67%

i.e. 1.40 times due to increase in quick liabilities by 41.89% it indicates the quick assets are

managed efficiently in proportion to current liabilities compared to the previous year 2005-

2006, in the year 2007-2008 the quick ratio has been decreased to 3.7% i.e. 1.40 times this

is due to increase in assets by 12% and increase in inventories by 14 % it indicates the

inventories are managed relatively good compared to the previous year, in the year 2008-

2009 the quick ratio has been increased to 16% i.e. 1.60 times this is due to increase in

quick assets by 4.37% this is due to increase in debtors by 8.5% this indicates in efficient

management of debtors, in the year 2009-2010 the quick ratio has been decreased by 5.2%

i.e. 1.52 times this is due to increase in both by quick assets and quick liabilities by an

average of 6 % . It indicates the inefficient management of debtors and liabilities.

From the year 2005-2006 the quick ratio of Gctl is not satisfactory hence it is advisable for

the company to manage the current assets by managing debtors properly in proportion to

creditors to pay off its debt.


GROSS PROFIT RATIO

The gross profit ratio reflects the efficiency with which management produces each

unit of product. This ratio indicates the average spread between the cost of goods sold and

the sales revenue

Gross profit ratio = gross profit /sales

Table No:13 Gross Profit Ratio


Sl.no Years GROSS

PROFIT

SALES RATIO

1 2005-06 2536378 269932512 0.93

2 2006-07 15767888 231390442 6.81

3 2007-08 27291869 254655866 10.71

4 2008-09 10816537 274253348 3.94

5 2009-10 4049865 256739185 1.57

RATIO

0

2

4

6

8

10

12

2005-06

2006-07

2007-08

2008-09

2009-10

YEARS

R A TI

O S = RATIO

Graph No 5

Graphical Representation of Gross Profit Ratio

INTERPRETATION

In the year 2005-2006 the gross profit ratio is 0.93 this may be due to decrease in sales this

is due to fall in prices of the textiles, in the year 2006-2007 the gross profit ratio has been

increased to 86 % due to increase in gross profit by 83% hence it indicates the increase in

gross profit compared to the previous year, in the year 2007-2008 the gross profit ratio has

been increased to 36% this is due to increase in gross profit to 42% and increase in sales by

9%, in the year 2008-2009 the gross profit ratio has been decreased to 39% i.e. 3.94 this is

due to decrease in gross profit by 152% compared to the previous year 2007-2008 and in

the year 2009-2010 the gross profit ratio has been decreased to 150% i.e. 1.57 this is due to

decrease in gross profit by 167% compared to the previous year.

From the year 2005-2006 to 2009-2010 in all these five years there is high gross profit by

10.71 times it indicates the high gross profit in remaining five years. Hence it is advisable

for the company to increase its gross profit by increasing its sales and managing its debtors

properly.


CURRENT ASSET TURNOVER RATIO

This ratio reveals the relation between cost of goods sold & current assets. The

higher ratio, the better is the condition of the firm in utilizing its current assets. The higher

ratio, the better is the condition of the firm in utilizing its current assets. The lower ratio

indicates that the investment in the current asset has not bought commensurate gain to the

firm.

Current Asset Turnover Ratio=Sales/Net Current Assets

Table No: 14 CURRENT ASSET TURNOVER RATIOSl. No Years Sales Net current

assets

current asset turnover ratio

1 2005-06 269932512 81651878 3.30

2 2006-07 231390442 74532655 3.10

3 2007-08 254655866 84615654 3.00

4 2008-09 274253348 91606768 2.99

5 2009-10 256739185 77170370 3.32

Graph No 6

Graphical Representation of working capital Turnover ratio


2005-06 2006-07 2007-08 2008-09 2009-102.8

2.9

3

3.1

3.2

3.3

3.4



INTERPRETATION:

in the year 2005-2006 the is 3.30 current asset turnover ratio this indicates efficient

utilization of working capital for the whole year in proportion to sales, in the year 2006-

2007 the h current asset turnover ratioas been decreased by 6 % i.e. 3.10 this is due to

decrease in sales by 16.6% and current assets by 9.5% this indicates the current asset

utilization has been decreased compared to the previous year 2005-2006 due to improper

management of current assets with proportion to current assets, in the year 2007-2008 the

working capital turnover ratio has been decreased by 0.3% due to increase in sales to 12%

and current assets to 9% it indicates the inefficient management of current assets i.e.

debtors, in the year 2008-2009 the current asset turnover ratiois 2.99 times this is due to

increase in current assets by 9 % this indicates there is inefficient management of debtors

compared to the previous year 2007-2008 and in the year 2009-2010 the working capital

turnover has been increased to 9 % i.e. 3.32 times this is due to decrease in current assets by

18% this indicates the firm has utilized its current asset efficiently compared to the previous

three years.from the above data we can know that the current asset has been utilized

efficiently only in the year 2005-06 & 2009-2010 this indicates current assets are efficiently

managed only in these two years. hence it is advisable to the company to employ better

techniques to manage the current assets properly.


DEBTORS TURNOVER RATIO

A concern may sell goods on cash as well as on credit. Credit is one of the important

elements of sales promotion. The volume of sales can be increased by following a liberal

credit policy. Debtor’s turnover ratio or accounts receivable turnover ratio indicates the

velocity of debt collection of a firm. In simple words it indicates the number of times

average debtors (receivable) are turned over during a year. The two basic components of

accounts receivable turnover ratio are net credit annual sales and average trade debtors. The

trade debtors for the purpose of this ratio include the amount of Trade Debtors & Bills

Receivables. The average receivables are found by adding the opening receivables and

closing balance of receivables and dividing the total by two. But when the information

about opening and closing balances of trade debtors and credit sales is not available, then

the debtor’s turnover ratio can be calculated by dividing the total sales by the balance of

debtors (inclusive of bills receivables) given. And formula can be written as follows.

Debtors Turnover Ratio = Total Sales / Debtors

Table No:15 Debtors Turnover Ratio

Sl. No Years Sales Debtors Debtor Turnover Ratio

1 2005-06 269932512 35371142 7.6

2 2006-07 231390442 51579031 4.46

3 2007-08 254655866 47320434 5.38

4 2008-09 274253348 51709943 5.30

5 2009-10 256739185 51003132 5.10


INTERPRETATION

In the year 2005-2006 the debtor turnover ratio is 7.6 times it indicates the debtors has been

managed by the company sufficiently, in the year 2006-20007 the debtors turnover ratio has

been decreased by 40.3% i.e. 4.46 times this is due to increase in debtors to 4% and

decrease in sales by 16.6%. hence it indicates the debtors are not managed properly in this

year, in the year 2007-2008 the debtors turnover ratio has been increased to 20% i.e. 5.38

times this is due to increase in sales to 9% and decrease in debtors by 8.9% , in the year

2008-2009 the debtors turnover ratio has been decreased by 3% i.e. 5.30 times this is due to

Decrease in sales by 7.14% and increase in debtors to 8.4%, in the year 2009-2010 the

debtors turnover ratio has been decreased 4% i.e. 5.10 times this is due to decrease in sales

by 7% and increase in debtors to 1.3% . Hence it indicates the debtors are managed

insufficiently by the company compared to the previous 4 years.

From the above data we can come to know that from the year 2006-2007 to 2009-2010 the

debtors turnover ratio has been decreasing the debtors turnover ratio is high only in the year

2005-2006. It indicates the debtors are not managed properly as these debtors are long

duration outstanding debtors. Hence it is advisable to the company to manage its debtors

properly by revising its credit policy.


Debtors’ Collection Period

This particular ratio is designed to show how long, on average, it takes the company to

collect debts owed by customers. Customers who are granted credit are called debtors. The

formula for this ratio is

Debtor collection period = 360

Debtors Turnover

Often the figure for credit sales is not actually provided on the profit and loss account. In

this case the sales/turnover figure should be substituted and used instead.

Table No: 16 Debtors collection Period

Sl. No Years No of Days in

a Year

Debtors

Turnover

Ratio

Debtors collection period

1 2005-06 365 7.6 48.02

2 2006-07 365 4.46 81.83

3 2007-08 365 5.38 67.8

4 2008-09 365 5.30 68.8

5 2009-10 365 5.10 71.5

INTERPRETATION

In the year 2005-2006 the debtors collection period is 48 days which indicates the debtors

collection period is high for the company this is due to long-duration outstanding debtors,

in the year 2006-2007 the debtors collection period has been increased to 23.14% i.e. 81

days this is due to increase in debtors by 31.4% compared to the previous year, in the year

2007-2008 the debtors collection period has been decreased by 17% i.e. 68 days this is due

to decrease in debtors by 9% compared to the previous year 2006-2007, in the year 2008-

2009 the debtors collection period has been increased to 2% i.e. 69 days this is due to

increase in debtors by 8% it indicates the debtors are not managed properly, in the year

2009-2010 the debtors collection period has been increased by 4% i.e. 72 days this is due to

increase in debtors by 2% compared to the previous year 2008-2009.


From the above data we can come to know that the debtor’s collection period has been

increasing from the previous 4 years this is due to its long duration and slow moving

debtors. Hence it is advisable for the company to adopt a better credit policy so that there

will be decrease in its collection period so that debtors are converted in short interval of

time

Fixed Assets Turnover Ratio


Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures

the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the

intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets. It

also indicates pricing strategy: companies with low profit margins tend to have high asset

turnover, while those with high profit margins have low asset turnover. The total asset

turnover ratio measures the ability of a company to use its assets to generate sales. The total

asset turnover ratio considers all assets including fixed assets, like plant and equipment, as

well as inventory and accounts receivables.

Fixed Assets Turnover Ratio=Net Sales/Fixed Assets

Table No:17 Fixed Asset Turnover Ratio

Sl. No Years Sales Fixed Assets Fixed assets Turnover Ratio

1 2005-06 269932512 179219995 1.5

2 2006-07 231390442 172689456 1.3

3 2007-08 254655866 180401907 1.4

4 2008-09 274253348 180915756 1.5

5 2009-10 256739185 181211834 1.4

INTERPRETATION

In the year 2005-20006 the fixed asset turnover ratio is 1.5 which is too low it indicates bad

management of current assets i.e. debtors, in the year 2006-2007 the fixed asset turnover

ratio has been decreased by 13% i.e. 1.3 times this is due to decrease in sales by 16%

increase in current assets i.e. debtors has been increased to 31.4 , in the year 2007-20008

the fixed asset turnover ratio has been increased to 7% i.e. 1.4 times this is due to decrease

in debtors by 8% ,in the year 2008-2009 the fixed asset turnover ratio has been increased to

8% i.e. 1.5 times this is due to decrease in debtors by 8.4% and cash at bank by 12%, in the

year 2009-2010 the fixed asset turnover ratio has been decreased by 7% i.e. 1.4 times this is

due to increase in cash at bank by 19% and debtors by 1.3%. hence it indicates the assets of

the company are not managed properly.

From the year 2005-2006 the fixed asset turnover ratio has been following the same trend.

Hence it is advisable for the company to manage its current assets properly so that the

company can meet its short term obligations.


http://bizfinance.about.com/od/financialratios/f/Avg_Collection_Period.htm

http://bizfinance.about.com/od/financialratios/f/Inventory_Turnover_Ratio.htm

http://bizfinance.about.com/od/financialratios/f/Fixed_Asset_Turnover.htm

WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the velocity of the utilization of net working

capital. This ratio represents the number of times the working capital is turned over in the

course of year. The two components of the ratio are cost of sales and the net working

capital. If the information about cost of sales is not available the figure of sales may be

taken as the numerator. Net working capital is found by deduction from the total of the

current assets the total of the current liabilities.

Sl. No Years Sales Net working

capital

Working capital turnover ratio

1 2005-06 269932512 81651878 3.3

2 2006-07 231390442 74532655 3.1

3 2007-08 254655866 84615654 3.0

4 2008-09 274253348 91606768 2.9

5 2009-10 256739185 91606768 2.8


Sales Net Working Capital

INTERPRETATION

In the year 2005-2006 the working capital turnover ratio us 3.3 which indicates the working

capital has been not utilized properly in proportion to the sales, in the year 2006-2007 the

working capital turnover ratio has been decreased by 6% i.e. 3.1 times this is due to

increase in its debtors to 31.4% and increase in its current liabilities to 16%, in the year

2007-2008 the working capital turnover ratio has been decreased to 3% i.e. 3.0 times this is

due to increase in its current liabilities to 14% compared to the previous year this indicates

the current liabilities has been increased in excess in this year, in the year 2008-2009 the

working capital turnover ratio has been decreased by 3% i.e. 2.9 times this is due to

increase in its debtors to 8% compared to the previous year, in the year 2009-2010 same

trend has been followed as in the previous year with the decrease in its working capital

turnover ratio by 3% i.e. 2.9 times this is due to increase in its current liabilities to 4.47% it

indicates there is insufficient management of current assets in proportion to its sales.

From the above data we can come to know that the working capital turnover ratio has been

decreasing in the recent years, hence it is advisable for the company to manage current

assets properly by adopting a better credit policy by the company and increase its sales.

Balance Sheet


Particulars 2006 2007 2008 2009 2010

Liabilities :

Share Capital 81770000 81771000 81772700 81773300 81773300

Reserve Fund 12945560 12945560 12945560 12945560 12945560

Other Funds 166883025 173122980 177234868 180562312 183233870

Long Term Loans 80857337 68310000 66940000 66940000 63050000

Current Lib. 58128988 67576971 77335112 69425371 72678933

Total 400584910 403726511 416228240 411646544 413681663

Fixed Assets 179219995 172689456 180401907 180915756 181211834

Current Assets :

Cash In Hand 15143 41550 20530 40460 27094

Cash At Bank 5027450 4634497 18446450 16228726 19346310

Sundry Debtors 35371142 51579031 47320434 51709945 51003132

Advances 1616172 4062468 5151421 5687379 4858428

Other Receivables 633633 631633 500000 1854786 1021508

Fixed Deposits 20679972 4876972 4895227 4706543 4328027

Closing Stock 52948390 53043163 62356456 58071755 46289122

Previous Year Loss 96339414 104073012

Loss For The Year 7733598 128728 96880517 92431193 105596206

Total 400584910 403726511 416228240 411646544 413681663


Section- 4Finding, Suggestions and Conclusion

FINDINGS


The changes in working capital of 2005-06 and 2006-07 are 81651878 and 74532655

respectively. It shows working capital decreased to 7119223 in 2006-07 which

compared to 2005-06 has decreased the net working capital of firm may not satisfactory

with its working capital.

The changes of working capital of the year 2006-07 is 74532655 and is increased to

10082999 and has been increased to 84615654 in 2008-09 and is increased to

699114.The firm is satisfied with its working capital.

The changes in working capital of 2008-09 and 2009-10 is 91606768 and 77170370

respectively it shows the working capital decreased of 14436398 in the year 2009-010

compare to 2008-09. By decreasing net working capital the firm is satisfactory with its

working capital.

The firm’s operating cycle has continuously decreased. The operating cycle of the firm

is satisfactory because it has come down by 10 days. The firm’s cash cycle is also

satisfactory as it has decreased from 82 days to 65 days during 2006-07 to 2009-10.

However it is also observed that the debtor’s collection period has increased from 0.99

days to 2.08 days during the same time period

Inventory turnover ratio is satisfactory because from the year 2005-06 it is go on

decreasing but in the year 2009-10 it increased to 5.15 from 4.57 in the year 2008-09 so

this ratio is satisfactory. The highest ratio 5.53 recorded in the year 2005-06 and lowest

is 4.21 recorded in the year 2007-08.

The gross profit ratio is not stable it is fluctuating widely by year by year from the year

2005-06 to 2009-10. the highest ratio is 10.71 and the lowest ratio is 0.93 here the firm

has higher the sales in 2007-08 so the ratio is high and due to lower the sales or higher

the cost of good so in the year 2005-06 it is low because of more amount of expenses.

Working capital turnover ratio indicates that of high working capital turnover and low

net working capital here in the firm there is an continuous decrease for 4 years but in

2009-10 year it has been increased in working capital turnover ratio. The firm is

satisfactory with its 2009-10 turnover ratio. The firm has to maintain in increasing the

working capital turnover ratio.

Suggestions

Company should improve its marketing techniques and adopt new marketing

strategies.


Effective and strict supervision should be maintained in order to minimize the

wastage of finished goods.

During the year 2006 and 2007 the companies working capital is decreased due to

less current assets and more liability so it has to make proper use of its current assets

and to make improve.

During the year 2009 and 2010 the companies’ working capital again decreased so

the firm has to concentrate on its current assets to maintain the business transaction.

To improve the current ratio and quick ratio the company needs to concentrate on

current assets by utilizing available resources in the current assets of the company

which may improve its current ratio and quick ratio. The gross profit ratio is not

satisfactory in the year 2009-10.

Conclusion


This study helps to know that the companies financial position. The sale of the

company is decline in the year 2010. There is an increases cost in some years so it

needs to reduce its costs. As the study helps to know that the changes in financial

statements i.e. increase or decrease in the assets and liabilities. By the ratio analysis

we come to know that the companies solvency. The company has to take some

measures to control the costs. By working capital we come to know its working

capital management.

This study helps us to know that the companies’ financial position is not

appreciable because there is loss in the year 2010 due to high expenses. So it has to

control the costs.

By the analysis of financial statements I conclude that, overall financial

performance of the company is not satisfactory. The company can try to take some

measures to increase profit i.e. proper utilization of available resources. .

BIBLIOGRAPHY

Khan & Jain-Financial management.


I.M.Pandey-Financial management.

Balance sheet and P&L Account for the year 2006-2010

Company projects


rajshekar working capital managament project new

Documents

business administration

slow moving

accounts payable

net working

high gross

gross profit

companies

gross working