rswm project
DESCRIPTION
Srs on Railway Reservation SystemTRANSCRIPT
A
DESK PROJECT REPORT
ON
“TEXTILE INDUSTRY”
Project report Submitted To Sinhgad Institute of Management, In Partial Fulfilment of Requirement for the Award of Degree of
POST GRADUATE DIPLOMA IN MANAGEMENT
SUBMITTED BY
PREETESH PANCHAL
Under The Guidance of
Prof.
SINHGAD INSTITUTE OF MANAGEMENT, VADGAON [BK], PUNE-41 (MAHARASHTRA) Academic Year
2009-2011
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DECLARATION
I, the undersigned, hereby declare that the Project Report entitled “ANALYSIS OF WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE TO RSWM LTD . ” written and submitted by me to the Sinhgad Institute of Management, Pune in partial fulfilment of the requirements for the award of degree of Post Graduate Diploma in Management under the guidance of Prof. Anirudh Chiney, is my original work and the conclusions drawn therein are based on the material collected by myself.
Place : Pune PREETESH PANCHAL
Date :
2
TO WHOMSOEVER IT MAY CONCERN
This is to certify that Preetesh Panchal, student of Sinhgad Institute of Management, Pune has undergone training for a period of 45 days starting from 15th January to 28 feb.2011 in our organization.
During this period he has taken training in Finance department in our organization and completed the Project on Finance.
We found him sincere and hardworking. We wish him all success in his future career.
FOR RSWM LIMITED
(M.P. PAREEK) DY GENERAL MANAGER (HRD)
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This is to certify that project titled “TRAINING AND DEVELOPMENT STUDY AT SAHARA INDIA PARIVAR.”is a bonafide work carried out by Preetesh Panchal 4semester student of PGDM HR of Sinhgad Institute Of Management in partial fulfllment of PGDM HR DEGREE.He has worked underOur guidance and direction.
Director Project GuideDr. Daniel Penkar Prof. John peter
Date:Place: Pune
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ACKNOWLEDGEMENT
Gratitude is hardest of emotions to express and often dose not find adequate
words to convey all that we fell. I owe gratitude to several people who helped me in
my course of project. If I were to sit down to map out all the contributors who have
given time and shared their views to make this project possible. I would end up
mapping out the long list. I express my gratitude to all of them. No single contribution
alone lead to the success of endeavor and the same is true for this project study.
My heartiest thanks are due to for providing all facilities during the
project.
I don’t have any word to express my gratitude towards Mr. M.P. Pareek
(DGM,HRD). He is true words the guiding light behind the working of division, his
indispensable cooperation, advice and concern certainly deserves extra
acknowledgement. And for granting me permission to do my training in RSWM Ltd.
Banswara.
I express my heart felt thanks to my project guide Mr. Ashok Sodani (Sr.
MGR A/c ) for his generous guidance and full co-operation to me despite of his hectic
schedule. I also thank all the employees of accounts department of RSWM Ltd.
Banswara specially Mr. M.C. Jain who were a great help in my project.
Finally, yet importantly I would like to give my special thanks to Mr. J.K.
Bohra, Mr. Rakesh Jain, Mr. Sudhir Kulshrestha, Mr. Jorawar Singh, Mr. B.C. Gupta,
Mr. Ashok Arora, Mr. Anurag Mathur, Mr. V.K. Parakh, Mr. R.K. Gupta, Mr. G.
Lodha, Mr. R.K. Arora, Mr. F.L. Samriya, Mr. S.C. pandey, Mr. G.L. Kabra, Mr. C.S.
Bhagat, Mr. Dinbandhu Pandya and all other employees of RSWM. Without the
support of all these, this project would not have been a success.
This is not just a report that I carry with. But it gives my personality some new
dimensions and a better outlook of corporate world with a diverse vision, a new
horizon to plan my future. It gives me a boost to think big and aim for the best…
PREETESH PANCHAL
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EXECUTIVE SUMMARY
Books are the treasures of knowledge and a theoretical base is pivotal for
understanding the realities of practical field. But, at the same time, practical
knowledge is crucial for having an insight into the implementation of theory in
corporate world.
With the privilege of an opportunity provided to me by RSWM Ltd.
Banswara, for the fulfillment of my purpose “bridging the gap between theory and
practical”, I undertook forty-five days summer training at finance department of
RSWM Ltd. Banswara. During this training, we conducted a study of project,
about WORKING CAPITAL MANAGEMENT.
Under the project WORKING CAPITAL MANAGEMENT, first of all I was
provided with the annual report of company to analyze, so that I could get acquainted
with the terms relating to the yarn business, financial condition depicted by Balance
sheet and Profit and Loss Account of the company, figure relating to import and
export etc. We were given the proposed cash budget and capital expenditure budget
after taking into account assumption relating to credit period allowed, credit period
received etc., for all the departments of RSWM Banswara. Using the financial
statement, then I conducted a compare analysis of Ratios, and on basis of these,
interpreted the financial position of company.
I also determined the working capital operating cycle for the company, in
which I made of accounts payable period, inventory period cash cycle, etc. .
In my training program I also understood the technical aspects of the various
units of RSWM Ltd. Banswara. And they also provide me the information’s of all
the departments of the industry.
Finally, on the basis of the analysis and the conclusions draw a SWOT
analysis has been done and recommendations given.
Therefore, a financial analysis of working capital of RSWM realizes that the
company has been able to manage its working capital efficiently thereby
strengthening its short term financial position. However, there are certain areas where
the company is lagging and is required to take some effective steps.
CONTENTS
CHAPTER No. PARTICULARS PAGE No.
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1. COMPANY PROFILE :-
Introduction of The Company 9
Introduction of RSWM Banswara 14
Introduction of LNJ Bhilwara Group 25
Different Sectors of LNJ Group 27
2. RESEARCH METHODOLOGY:-
Project Introduction 39
Scope of The Project 39
Objectives 40
Methodology 41
Limitations 42
3. THEORY OF WORKING CAPITAL MANAGEMENT:-
Concept of The Working Capital Management 46
Concept Operating Cycle 55
Concept of Ratio Analysis 59
4. RESULTS & FINDINGS:-
Assessment of Working Capital 61
Operating Cycle of RSWM 62
Ratio Analysis 64
5. ANALYSIS OF FINDINGS:-
Findings of Calculations 71
S.W.O.T. Analysis 73
6. RECOMMENDATIONS 77
7. CONCLUSIONS 79
BIBILIOGRAPHY 81
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Chapter – 1
COMPANY PROFILE
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INTRODUCTION OF THE COMPANY
Rajasthan Spinning & Weaving Mills Ltd. (RSWM), the flagship Company
of the LNJ Bhilwara Group. RSWM is primarily engaged in the manufacture of
synthetic, blended, mélange and specialty yarns and fabrics.
RSWM is a premier company of the Group, with a turnover
of Rs.775 crore (US$ 177 million). RSWM is exporting a
complete range of yarn and fabric to over 60 countries
worldwide, giving RSWM a markedly visible presence
across the textile world.
The manufacturing capacity of the Company is upwards of 81,000 MT of
Yarn per annum from its five units - Gulabpura, Banswara, Mandpam, Rishabhdev
and Ringas located in Rajasthan. RSWM also manufactures 12 million meters of
fabric per annum at its Gulabpura unit.
All the plants are equipped with state-of-the-art
machines and Captive Power Generation facilities.
RSWM is the first composite textile mill in India to be
accorded the ISO Certification. The Company also
enjoys a prestigious ‘Three Star Export House’ status
and, over the years, has received several Export
Awards from SRTEPC.
The company’s leadership in the textile industry is exemplified in the equity
that their brands enjoy in the Indian market - place - ‘ Mayur Suitings ‘.
RSWM is in the process of modernization drive and increase of spindles of its
all the manufacturing units. RSWM will soon introduce ready -to-wear Apparels. To
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enhance its operating capacity, RSWM has acquired Jaipur Polyspin Ltd. for
manufacturing of Synthetic Blended Yarn. RSWM has also acquired a state-of-the-art
process house at Mordi, Banswara Rajasthan.
Global Presence
RSWM exports a complete range of yarn and fabric to over 60 countries
across Europe, South Africa, Australia, Korea, Belgium, Singapore, Italy, Egypt and
the Gulf countries. With nearly 30% of RSWM's production exported, the Company
has a significant presence in the world of textiles.
RSWM has also been recognized as a Golden Trading House by the
Government of India having won the prestigious SRTEPC Export Award for several
consecutive years. This makes the Company truly global, yet truly Indian.
RSWM's Gulabpura unit has the distinction of being India's first composite
textile mill to be accorded the coveted ISO 9002 and IS/ISO 9001:2000 certifications.
ISO-certified Quality circles function across all units. Total Quality Management
(TQM) has been implemented at the Banswara unit.
The Group has a highly specialized Yarn Development Center, pilot plants and
a Design & Development Studio for Fabric at Gulabpura,
A Promise to our Heritage
The 60s. A decade of tumultuous change, hope and promise saw John F.
Kennedy take over as the President of the United States; the civil rights struggle;
Woodstock and Neil Armstrong on the moon.
The same decade saw the seeds of enterprise sown in the desert sands of
Rajasthan, in 1961. Starting a small textile unit with 12,500 spindles - manufacturing
Carded Cotton Hosiery Yarn, RSWM added another 13,000 spindles for Synthetic
Yarn. This made RSWM the pioneer of Viscose and Polyester spinning on the
modified Cotton System and Dyed Synthetic Fiber. This began the spinning of a
superlative success story.
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A dream that started small but had the passion to grow, to lead, to show the
way. A vision that saw a small textile unit pioneer bloom in the Synthetic Yarn
market, emerging as a leader named RSWM Ltd., or simply RSWM. A name that now
stands for class and quality in Yarn and Fabric. RSWM is the flagship of the LNJ
Bhilwara Group.
Today, the Company has installed over 2,42,000 spindles and over to weaving
machines, with a product range that includes Polyester / Viscose Yarn and Fabric,
Flame Retardant Fabric, Specialty Tencel and Lycra Blends. RSWM has also built
Mayur Suitings into one of India's top textile brands.
A Promise to Deliver
For us, it is not enough to manufacture the finest Blended Yarn, Cotton
Mélange Yarn and Synthetic Yarn and Fabric. The real goal is to ensure that the
finished Yarn and Fabric reach our customers on time, every time.
Over the years, we have evolved proven procedures. Our Centralized
Production Planning Cell (CPPC) has an experienced team of time conscious
production planners. All plants are computerized, which is a key tool towards
productivity enhancement, information dissemination and development.
VSAT links connect all plants and offices with all shipment points
continuously tracking shipping movements, ensuring timely delivery. ERP systems
have been implemented across the board. The use of Palletized cartons are a standard
practice, with direct delivery on containers, proving that we mean business, and
giving us the means to deliver.
A Promise to Care
We are an equal opportunity employer, making no distinctions between
genders, religions, castes or ethnic origins. Our work force is representative of India's
multi-cultural identity and rich and diverse social fabric. Our staff's welfare is not
about corporate ethics but enlightened self-interest. For us they are an investment in
building our business. Fostering a healthy work-culture helps us retain our
competitive edge.
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Workers in all our plants enjoy a host of facilities and benefits... housing,
Medicare, co-operative stores, banking, loans, children's education, sports and
recreation.
We are committed to the enhancement of the professional skills of our workers
and managers. We organize training workshops regularly and send our Engineers and
other key personnel abroad to keep abreast of global trends in technology, product
mix and design. Continuous training has seen RSWM emerge as the cradle of
leadership within the group. Most of the CEOs of the group companies began their
careers here as trainees.
The other focus area is the development of in-house capabilities in
maintenance and servicing. This helps ensure low downtime. To facilitate this, our
engineering talents are deputed to our machinery suppliers' plants to master
maintenance and servicing issues.
A Promise to the Earth
In a culture, where the earth is referred to as Mother, caring for the
environment is ingrained. In caring for the earth we are committed to leaving our
children and the generations to come a clean, green earth. A promise that we live by
and live up to in everything we do.
At every step in the manufacturing process, we employ eco-friendly processes
not just to abide by laws but also to sustain and take forward the 'green' traditions that
form a rich part of our heritage. Effluent treatment is carried out using the latest state-
of-the-art technology. All the water used in fabric dyeing and finishing is recycled for
use in the process-house and in horticulture. We are continuously greening all our
plants, residential and other facilities, planting thousands of saplings every year.
Our environmental care is executed with an eye for detail. The Banswara unit
has over 42,000 square meters of greens, with over 50,000 plants having been planted
on the campus and an exquisite 11-acre orchard surrounding an artificial lake. The
Banswara unit was accorded the best plantation award in Rajasthan.
So while we 'do' yarns and textiles, we 'think' environment.
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A Promise to Perform
When we make a promise, we back it with all that we have - resources,
infrastructure, technology and will power. In the final analysis, what counts is the way
an organization raises up to any challenge and its performance.
State-of-the-art manufacturing facilities at Gulabpura, Banswara, Rishabhdev
and Mandpam in Rajasthan are backed by modern testing equipment and stringent
quality checks on process parameters and quality. All units and offices have
implemented Enterprise Resource Planning (ERP) Management Systems ensuring
timely delivery schedules. All these plants have captive in-house power generation,
avoiding production downtime due to power-cuts. These facilities are totally self-
sufficient in power.
RSWM, Banswara, is the first textile unit in India to implement Total Quality
Management (TQM) in 1997. This was made possible by empowering the team at the
unit to work seamlessly together, forming one cohesive entity, driven by a single
goal... that of ensuring and maintaining the highest quality, resulting in brilliant
overall performance.
A Promise to be One
RSWM's integrated units are spread across the state of Rajasthan, each
handling specialized processes, from raw fiber handling to final product delivery, on
time every time. Each process smoothly collaborates with the next, ensuring a legacy
of supreme quality.
Every Team Member is highly trained in all the latest trends and technologies.
Together they drive themselves to work efficiently around the clock.
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INTRODUCTION ABOUT RSWM BANSWARA
Established in 1989, The Banswara unit is the only one of its kind in India and
the Company's largest manufacturing facility. The unit has the capabilities to produce
spun gray yarn out of any kind of fiber and blend it with synthetic, regenerated
cellulosic, natural, protein and cotton fiber.
The Banswara Unit has the exclusive rights for
spinning Tencel Fiber into yarn in India and is a
modern textile-spinning unit employing state-of-the-
art technology from Switzerland, Germany, UK, Italy
and Korea.
The unit's strength is its new product development.
The unit can and does manufacture any yarn
delivering it in accordance with the customer's deadlines. It is a 100% Grey Yarn
Spinning unit producing Cotton blended gray yarns and Polyester fibers. The unit has
recently been expanded to strengthen its product portfolio and giving it a greater
product mix.
Raw Material Purchase
POLYESTER RELIANCEVISCOSE GRASIMCOTTON GUJARAT, RAJASTHAN, M.P., MAHARASTRAACRYLIC PRASUPATI
Products
The Banswara Unit manufactures the following product range: Grey Yarn Specialty YarnFunctional YarnBrand SpecialtiesRegular Products Cotton 100%
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Quality
The Banswara Unit covering new set of instruments to acquire ISO
accreditation in 1994. It also received the prestigious IS/ISO 9001:2000 Quality
Management System Certification in 2002.
Infrastructure
The unit located 170 kms from Udaipur, Rajasthan is spread over 125 acres.
Over 2,000 engineers, technicians and other skilled employees staff the unit.
Some technical information and capabilities of the plant are given below:
Production Capacity -Size of the unit 380300 in sq. meters (Total Land Area)
Manpower employed Skilled - 2000 nos.,
Semi Skilled - 305 nos
No. Of spindles – 87792
Yarn - 32850 MT / Annum
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ORGANISATION STRUCTURE
CHAIRMAN - EMERITUS
CHAIRMAN
VICE CHAIRMAN & MANAGING DIRECTOR
JOINT M.D.
EXECUTIVE DIRECTOR
COO
GENERAL MANAGERCOMI.
GENERAL MANAGER
ENGG
GENERAL MANAGER
NPD
GENERAL MANAGER
TECH.
DGM HRD
SR. MANAGER
P&A&L
SR. MANAGER
PROD.
SR. MANAGER
SPNG
SR.MGR MGR DS.MASTER MGR DY.MGR DSM SR.ENG
DY.MGR DY.MGR SR.OFFI.NFD SR.MGR ASTT.MGR ASTT.MGR FM
ASTT. MGR
ENGINEER SHIFT OFFICER
ASTT. MGR
SR.LABOUR OFFICER
SHIFT OFFICER
F.SUP.
SR.ASTT. SR.SUP. SHIFT OFFICER
LABOUR OFFICER
ASSTT. SUPERVISOR
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PRODUCTION PROCEDURE:
Production of yarn follows the following procedure:
Different constituent such as cotton, polyester, viscose, acrylic etc. forms yarn.
For polyester or viscose yarn both constituents are mixed in a definite ratio. Fiber
could be painted by spraying colors.
1) BLOW ROOM LINE:
It is machine that works for formation of lap. It is like a mattress of raw
material i.e. polyester/viscose or cotton. After lap formation it is wounded around lap
bar.
In RSWM, Lakshmi Rieter & Trutzschler have launched the machine. It uses
high load motor for 960 rpm of 2 kW.
2) CARDING:
After lap formation sliver is formed. For it carding machine is used. Sliver is
very thick and loose type thread. The sliver is stored in drums. There is a sensor,
which sense the broken of the sliver and after breaking it is join by the worker. The
machine is automatically stopped after breaking of the slider.
In RSWM LR (Lakshmi Rieter) this process is also remove the dust particles
from the sliver. It used a pulley of M-8/1006.
3) DRAWING:
In this sliver is made thicker by combing 8 or 16 slivers together to form a
single sliver. It produces evenness in sliver. Vouk and LR have launched it is
RSWM.
In this the air pressure is applied on the sliver. In this process the material is passed
through the machine at two times. In which the first material is known as breaker and
the other one is none as finisher.
This process is also called as Draw Frame.
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4) SPEED FRAME:
The sliver from the draw frame is thread with fewer diameters than sliver. It is
used for rowing formation. It is wounded on bobbin. This bobbin is known as S/F.
Lakshmi Rieter has launched it in RSWM. The speed of speed frame machine is
1100spm. There are minimum 4 speed frames in each unit.
5) RING FRAME:
This machine is used for ultimate formation of yarn. This yarn is wounded on
small bobbins. This ring frame is connected with a communication system called ring
data and its speed is controlled by spinmax.
There is a LED and photo detector, which senses the any breakage of the yarn.
The LED and photo detector is placed on the both ends of the machine. It is
automatically stopped if any yarn is broken.
The yarn made has a particular count. The roller to the drafting the rowing
does this work. They give the twisting in the yarn with the help of ring and traveler.
The thickness of the yarn is depending on the count. If the count is more
(FINE) the yarn is thin and if the count is less closing (COARSE) the yarn is thick.
LR has launched it is RSWM.
6) AUTOCONER:
The function of this machine is to wind yarn from bobbin to cone. With the
help of splicing the yarn is combined together from the different bobbin. The splicing
procedure is carried by air pressure which of two types: (1) Wet splicing (2) Dry
splicing. The yarn is a pass through an electronics gage, which major any type of fault
in the yarn and remove the fault by the worker.
It has three models:
(a) 138-conventional machines.(b) 238-middle edge model. (c) 338-electronically operated Sthalaftorft has launched it in RSWM.
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7) CHEESE WINDER:
In this machine two or more than two yarn are combined together on the
cheese. So this process is known as cheese winding. It only combines not produce
any twist. Texttool, has launched it in RSWM.
8) T.F.O. (two for one twister):
As it indicate in this machine two yarn are combined as well as twisted. These
processes minimize the unwanted knots in the yarn.
Star Volkamann VTS-07 has launched it is RSWM.
9) DOUBLING MACHINE:
It is used for twisting two yarn found from cheese winder. This machine
works same as ring frame machine and the yarn is again wound on the bobbin.
10) WINDING:
The yarn from the doubling process is against wounded on the cone by which
the weight and length of the yarn is same.
11) PACKAGING:
After through checking all the cones are packed in cartoons or bags as per
process and sent to the yarn go-down.
In packing department relative humidity is quite high viz. 90% to provide adequate
moisture to the yarn. Although it will be increase the yarn package. There are two
types of packages:
Domestic use
Export oriented
There are two types of packing:
Pilot packing.
Cartoon packing
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Checking
A Checking procedure is followed to ensure that material should not be mixed
with another. For this purpose cones on a trolley are checked by ultra violet light in a
dark chamber. If the material is mixed or any other variations like count/blend etc.
are there it will be reflected by shade variation in the cones and under UV lamp, the
reflectance would be different for normal and defective portion by virtue of which we
can attest the cones.
INSPECTION BY THE PACKING INVESTIGATOR
Each cone and final yarn shall be inspected in packing department for its quality
before packing.
Packing investigator shall segregate4 the cone having defective yam, wrong label.
The weighting man shall check net yam content to be packed in a cartoon bag
before packing and adjust the weight as tolerance limit.
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Flow chart of spinning, finishing & packaging departments
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Fiber Godown
Mixing & Welding
Blow Room
Carding
Draw FrameFirst Time
Draw FrameSecond Time
Speed Frame
Ring Frame
Autoconer
Packing
Finished Goods in Godown
Market
Sliver Lap. Ribbon
Comber
Cheese Winding
T.F.O. Doubling
Winding
Foundations that inspire
"To me, the LNJ Bhilwara Group is not a business house, I see it as an institution that
is committed to seeking excellence."
L.N.Jhunjhunwala
Chairman Emeritus
MISSION
“To continuously grow on sustainable basis and be a major, innovative, profitable and
the most admired textile manufacturer in Asia”.
VISION
“Our vision is to forge ahead into the new millennium with an immediate sense of
purpose and to be seen as the undisputed leader, fully equipped to deliver the best,
across the diverse spectra of our many businesses, fuelled by a commitment to invest
in plants, machinery, processes and, most importantly, our people - Team Bhilwara:
all towards satisfying and fulfilling our customer’s needs in today’s global
environments.”
Ravi Jhunjhunwala
Group Chairman
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INTRODUCTION OF LNJ BHILWARA GROUP
The LNJ Bhilwara Group, founded in 1961, has today grown into a strong
global presence worth Rs. 2049 crores. The Group has been nurtured into a successful
growth track by the able guidance of the Founder and Chairman-Emeritus, Mr. L. N.
Jhunjhunwala. Currently, the LNJ Bhilwara Group stands as one of the largest firms
on the corporate horizon in India with over 20,000 employees and 21 production units
positioned at strategic locations across the country. The Group’s export earnings
comprise of 46% of the Group’s turnover.
The LNJ Bhilwara Group is a well-diversified conglomerate. It has been
actively seeking growth and profitability by investing in a variety of systematically
identified businesses making it a multi-product conglomerate with interests in a range
of industries such as textiles, graphite electrodes, power generation, power
engineering consultancy services, steel and IT enabled services.
Textiles
The pioneering textile division of the Group is not only a key player in the
industry but also has many firsts to its credit. The textile division has the sole
distinction of producing a unique fire retardant yarn called Trevira CS (now known as
Lenzing, Austria). It is also the sole licensee for the highly specialized yarn called
Tencel. The Group has time and again been acknowledged for its world-class quality
products in the domestic market such as Mayur Suitings, BSL Suitings, La Italia
Fashions and Geoffrey Hammond superfine suitings. At the same time, their services
to several leading global brands for knitted garments have been recognized with the
units garnering top export awards in different fields for several years in a row.
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Graphite Electrodes
The LNJ Bhilwara Group also has the largest integrated graphite electrodes
manufacturing plant in South-east Asia with a reputed clientele comprising of major
steel plants in the world. Graphite exports constitute 70% of total sales volume. An
evidence of their success can be seen in the fact that HEG, an integral part of the
Group, is all set to undertake a Rs. 450 crore expansion plan to tap opportunities in
the export market. The expansion of the Mandideep plant would double the capacity
from 30,000 TPA to 60,000 TPA.
Power Sector
Following the success of its earlier hydro-electric power project of 15 MW at
Tawa Nagar (MP) in 1997, the Group has commissioned, India’s first IPP Hydro-
electric Malana Power Project of 86 MW in a record time of 30 months at Kullu (HP),
in July, 2001 and is set to commence work on 200 MW Allain-Duhangan Hydro
Electric Project at Manali (HP).
Little wonder then, that the LNJ Bhilwara Group of companies have been
awarded IS/ISO 9001:2000 & ISO 14001 certification for setting exemplary
standards in quality.
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LNJ BHILWARA GROUP IN THE DIFFERENT SECTORS
The LNJ Bhilwara Group has come a long way from its humble beginnings in
1971 and has grown successively into a strong conglomerate that continues to spread
its wings into highly competitive domains ranging from textiles to power to IT-
enabled services.
TEXTILES
The LNJ Bhilwara Group has been in the business of clothing people around
the world with the following companies:
Rajasthan Spinning & Weaving Mills Ltd.
Maral Overseas Limited
Bhilwara Melba De Witte Pvt. Ltd.
BSL Ltd
Bhilwara Spinners Ltd.
Maral Overseas Ltd., a part of the LNJ Bhilwara Group, a conglomerate with
a global presence. Maral is the country’s largest ‘Vertically-Integrated’ knitwear
company located in the heart of India’s cotton producing region near Indore, Madhya
Pradesh.
Its other units are located in Jammu and Noida (NCR-Delhi). Maral is India’s
first 100% Export –Oriented-Unit to get the prestigious ISO certification. Maral has
been accorded a ‘Trading House’ status, and is an internationally preferred
manufacturer and supplier of Cotton Yarn, Knitted Fabrics, Knitwears and Sweaters.
Maral has been accredited by Marks & Spencer.
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Maral has stringent quality checks at every stage of its production. Maral is
equipped with state-of-the-art technology and full captive power back up at all units.
Maral is committed to maintain eco-friendly environmental standards throughout its
operations. Maral has won several prestigious awards and is recognized for quality,
safety and standards.
Maral caters to many international customers scattered in major global textile
consuming markets like USA, Europe, Japan etc. Maral is always committed to its
customers for quality and service.
Bhilwara Melba De Witte Pvt. Ltd. (BMD) was established in 1998. It is a
joint venture of LNJ Bhilwara Group and De Witte Lietaer, a part of Gamma Holding
of Belgium, to manufacture high performance specialized furnishing fabrics. BMD
has its manufacturing plant at Banswara in Rajasthan. It has fully integrated state-of-
the-art facility for automotive textiles, which is equipped with Air-texturing, yarn
dyeing, warping, weaving, warp & circular knitting, processing and lamination.
BMD has a production capacity of 1000 MT per
annum of Air-texturised yarn and 3.0 million
Linear Meters of fabrics. Today, the company
enjoys an accreditation of IS/TS 16949 certification
and supplies its products to leading automotive
companies in India.
The wide product range of BMD covers like automotive furnishing fabrics,
Decorative Furnishing Fabric, Contract Furnishing, Flame Retardant Fabric,
Technical Textiles and Air Texturised yarn-Grey & Dyed.
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BSL Ltd. established in 1971 at Bhilwara, Rajasthan. Today, BSL has
emerged as a strong global player producing over 12 million meters of fabric every
year. BSL is equipped with state-of-the-art technology. Right from raw material
sourcing to product finishing, meticulous attention is paid to detail at every stage of
production.
The emphasis is to achieve shorter lead times and greater
efficiency by following integrated yarn preparation,
spinning, weaving and finishing processes. BSL offers a
discerning range of Polyester / Viscose blended fabrics,
wool and wool blended fabrics.
BSL Yarn spun from the finest Australian Merino wool incorporating latest
manufacturing systems and technologies, which enable BSL to spin yarn up to 2/100
NM, popularly known as Super 140s.
Specialized processing machines provide the fabric its final make up, shade,
depth, finish and overall appearance. In line with the latest international trends, BSL
has also developed multi functional and specialized fabrics, like stay fresh, wrinkle
free, stain and water repellent, anti radiation. Keeping up with the emerging trend of
branded ready-to-wear, BSL has launched the La Italia & Louis Burton brands of
ready-made garments. The company is setting up a P/v spinning unit of 8448 spindles
mainly to cater to its yarn requirement for export of fabrics.
29
Bhilwara Spinners Ltd. (Bhilspin) established in 1980 manufacturers
Synthetic Blended Grey and Dyed yarns at its manufacturing unit at Bhilwara in
Rajasthan. Today, the company has 30,000 spindles to manufacture 12,000 MT per
annum.
Bhilspin has been accorded " Export House" status and conferred "Niryat
Shree for its export performance. Bhilspin also enjoys IS/ISO 9001:2000 certification.
GRAPHITE ELECTRODES
A premier company of the LNJ Bhilwara Group, is India’s leading Graphite
Electrodes manufacturer and an established global
player in the sector. It is the single largest
integrated Graphite Electrodes manufacturing
facility in South Asia, South East Asia and the
Middle East. HEG is also the only one of its kind in
the region to process the sophisticated UHP (Ultra
High Power) Electrodes with technology from SERS – a subsidiary of Pechinery,
France.
30
STEELS
HEG Ltd. had set up a steel manufacturing plant with
an annual production capacity of 60000 TPA consisting
of two modules of 30000 TPA each. Each Kiln is of 40-
meter length and 2.6 meter effective dia with an output
of 100-105 tons per day. Temperature inside the kiln
during the process ranges from 600oC to 950oC. This
unit was commissioned and put in to commercial production during Feb 1992. The
coal based process technology was imported from Steel India Ltd, Hyderabad that is
also known as Lurgi process conceived in 1960 for production of High Grade Direct
Reduced Iron (DRI). Power to manufacture billets through Induction Furnace and
Continuous Casting Machine. Company will soon be producing 1 lac Ton of Steel.
POWER GENERATION
Malana hydroelectric project is a run-of-the-river scheme implemented by the
Malana Power Company Ltd, an LNJ Bhilwara group company, on the river Malana
in the Kullu district of Himachal Pradesh.
The construction of the 86 MW project was started in January 1999 and it was
commissioned in a record period of 30 months at a total cost of Rs 332 Crores.
31
By successful commissioning in a record time & at a
cost of less than Rs. 40 million per MW the Malana
hydroelectric project has exploded the myths
surrounding hydel power.
Malana hydroelectric project is an exemplary and
path breaking achievement in the field of
hydropower generation in the country.
The 192 MW Allain Duhangan hydroelectric project is a run-of-the-river
scheme being implemented by the AD Hydro Power Ltd, an LNJ Bhilwara group
company, on the rivers Allain & Duhangan in the Kullu district of Himachal Pradesh
and is scheduled to be completed in 2008.The project is being financed by the
International Finance Corporation and is designed to generate 821 million units per
annum at an estimated cost of Rs. 922 Crores.
POWER ENGINEERING CONSULTANCY
Indo Canadian Consultancy Services Ltd. (ICCS) is a joint venture company
incorporated in 1995 by LNJ Bhilwara Group and RSW, Canada. RSW is a
Consultancy engineering firm providing services for multi disciplinary projects.
The company was founded in 1970 by a group of senior engineers drawn from
large Canadian Consulting organizations and public utilities.
ICCS is currently offering services to over 25 projects across the country in
the states of Himachal Pradesh, Uttaranchal, West Bengal, Karnataka, Sikkim,
Madhya Pradesh, Chattisgarh, Arunachal Pradesh and Maharashtra.
32
ICCS has successfully designed and engineered 15MW Tawa hydropower
project and 86 MW Malana Hydro Power Project. Other achievements include Design
& Engineering services for 3 MW Vajra HEP, 10 MW Bhandardhara HEP, 10 MW
Gangrel HEP and 4.5 MW Baragran HEP.
ICCS is also providing services for Detailed Design & Engineering for 100
MW Chuzachen HEP in Sikkim and 24 MW Balason HEP in West Bengal, Detailed
Project Report for 100 MW Rangit-IV HEP in Sikkim, Detailed Project Report for
100 MW Tidong HEP, 60 MW Harsar HEP and 45 MW Bharmour HEP in Himachal
Pradesh, Detailed Project Report for 50 MW Hanol Tiuni HEP & 24 MW Bhilangana-
III HEP In Uttaranchal.
In addition to Hydro Projects, ICCS is also providing assistance in the
implementation of Wind Power Projects, Captive Thermal Plant, Transmission Lines
& Substations.
33
Nationwide Network
RSWM Ltd
Gulabpura Synthetic, Regenerated Cellulosic, Blended, Dyed Yarn & Fabric
Banswara Synthetic, Regenerated Cellulosic & Cotton-Blended Grey Yarn
MandpamCotton Mélange Yarn, Cotton-Blended Mélange & Dyed Yarn
RishabhdevSynthetic, Blended & Grey Yarn
RingasSynthetic & Blended Dyed Yarn
BangaloreApparels
Mordi (Banswara) Process House
34
HEG Ltd. Mandideep Graphite Electrodes Durg SteelDurg Waste Heat Recovery Power Tawa Hydro Electric Power
Maral Overseas Ltd.
Maral SarovarCotton Yarn, Cotton-Knitted (100% EOU) Fabric & Cotton Knitwear
Jammu Cotton-Knitted Fabric, Cotton Knitwear & Sweaters Noida Knit wears
BSL Ltd.
Mandpam: Yarn, Worsted & Synthetic Fabric, Readymade Garments & Accessories
Bhilwara Spinners Ltd.
BhilwaraSynthetic, Blended Grey & Dyed yarn
Bhilwara Melba De Witte Pvt. Ltd.
Mordi (Banswara) Specialized Automotive Fabric, Furnishing Fabric
Bhilwara Processors Ltd.
MandpamProcessing of Synthetic & Worsted Fabric, Tops Fiber Dyeing
Malana Power Company Ltd.
MalanaHydro Electric Power (Kullu)
AD Hydro Power Ltd.
ManaliAllian-Duhangan Hydro Electric Power
35
Indo-Canadian Consultancy Services Ltd.
NoidaPower Engineering Services
Bhilwara Scribe Pvt. Ltd.
BhopalIT-Enabled Services
Corporate Office
NoidaNational Capital Region and Delhi
Regional / Marketing OfficesMumbai KolkataBangaloreDelhi Ludhiana
AWARDS
The LNJ Bhilwara Group not only has several firsts to its credit but also
recognition for its commitment to quality and excellence with several national
awards and certifications.
Graphite Electrode
HEG is the winner of CAPEXIL Highest Export Award for Graphite
Electrodes for the last 18 consecutive years.
HEG bagged "Rajiv Gandhi National Quality Commendation" and ‘National
Export’ Awards.
HEG- Graphite Division bagged National Export Award.
HEG bagged 3 National Awards for Quality Circles.
Textiles
36
RSWM is the winner of SRTEPC Highest Export Award for polyester/viscose
yarn exports for the last several consecutive years, which includes two gold
and one bronze in March 2005.
Maral is India’s fully integrated 100% EOU cotton knitwear unit and winner
of TEXPROCIL Silver trophy in 100% EOU / EPZ category. Maral has also
been awarded Silver Trophy by AEPC.
Maral is the recipient of Rajiv Gandhi National Quality Award.
Maral bagged "Greentech Safety Award".
RSWM, Rishabhdev unit bagged National Export Award. Rishabhdev unit
also bagged SRTEPC Excellence award for highest production in export of
100% Polyester spun yarn.
BSL received the "National Certificate of Merit" for outstanding export
performance.
Bhilwara Spinners has been accorded the prestigious “Niryat Shree”-
Certificate of Excellence for Outstanding export performance.
Power
Malana Power bagged “ Greentech Environment Excellence’ Award.
INTERNATIONAL PARTNERS & ASSOCIATES
The LNJ Bhilawara Group, in its quest for excellence and growth has
partnered with the following international companies:
Stat Kraft Norfund Invest Ltd., Norway-Setting up a 192 MW
Hydroelectric Project at Manali.
RSW International, Canada -Power Consultancy Services.
International Finance Corporation, Washington -Equity holders in AD
Hydro Power Project
De Witte Lietaer, Belgium -Specialized Automotive Furnishing Fabrics
Tencel, UK (now Lenzing, Austria)-Tencel Yarn Spinning
Hoechst’ (now Trevira CS), Germany-Flame Retardant Yarns & Fabrics
eScribe Inc., USA -IT Enabled Services
37
Enercon (India) a subsidiary of Enercon (Germany)-Setting up Wind
Energy Project
Chapter – 2
38
RESEARCH METHODOLOGY
39
PROJECT INTRODUCTION
Working capital is as import in business firm as blood in a human life. Each
and every business concern should have adequate funds to meet out day-to-day
expenses and to finance current assets, debtors, receivables and inventories. Proper
management of working capital is necessary to maintain both liquidity and
profitability.
The goal of working capital management is to manage the firm’s current assets
and current liabilities in such a way that a satisfactory level of working capital is
maintained. It is the process of planning and controlling the level and mix of the
current assets of the firm as well as financing these assets.
SCOPE OF PROJECT
Scope of project is to determine the short-term debt paying capacity of the
firm through a financial analysis of Working capital. It tends to find out the
effectiveness in the management of Working capital at RSWM LTD.
For this purpose data were collected from the past financial statements of the
company.
40
OBJECTIVES OF STUDY
While pursuing PGDM degree we are required to go for a practical training in
order to have some work experience, to learn the process and procedure, to
understand the work process and to expose our creativity, keeping this perspective in
mind, offered for training in RSWM, Banswara an organization of LNJ Group.
The objectives of my study are:
To analyze financial position of the organization to execute the routine
operations and meet for contingencies.
To study the working capital management of RSWM Ltd., Banswara.
To practically understand the concept of working capital studies in academic
session.
To study the Financing of it W.C. needs.
To study the trends & reasons for deviation.
41
METHODOLOGY
1) Preliminary Discussion:
Preliminary discussions were held with members of Materials Management
Department, Sale Dept. and Finance Dept. to understand the accounting of
creditors, debtors, assets, expenses and inventory control, and cash flow
procedure. The basic idea was to get acquainted with the full procedure of
accounting of various assets and liabilities affecting balance sheet.
2) Referring to Books:
Books were also referred to have understanding of working capital
management and ratio analysis.
3) Discussions:
Discussions were held with Mr. Ashok Sodoni, Mr. Manak Jain and members
of Finance Dept. for understanding the report preparation and projections.
4) Referring to Documents:
After all these learning and understanding, documents were referred to namely
Balance Sheet, Profit & Loss Account.
5) Data Collection:
For this study, secondary data are used available from various documents.
The following documents have assisted in the project: -
Annual Report of the company.
Annual completion registers comprising detailed description of profit and loss
accounts and balance sheet of RSWM Banswara.
Quarterly Balance Sheet and P&L accounts.
42
6) Preparation of Project Report:
Finally, On the basis of preliminary discussions and referring to document
Projects were prepared and final reports were analyzed through ratio analysis.
Definitive views about the entire gamut of working capital management were
formed. The various issues connected with working capital management were
understood.
LIMITATION OF THE STUDY
This study was restricted to RSWM Ltd. (Banswara Unit) only and therefore,
the result of this study cannot be generalized to other parts of the units.
The study was relayed upon the information given by the respondents at the
time of interview.
Due to confidentially of certain information all the details could not be
obtained from the company.
43
Chapter – 3
THEORETICAL
FRAMEWORK OF
WORKING CAPITAL
MANAGEMENT
44
INTRODUCTION TO WORKING CAPITAL
MANAGEMENT
Meaning:
Capital is the life and blood of a business organization Capital required for a
business can be classified under two main categories.
Kind of Working Capital
On the basis of concept On the basis of time
Gross Net Fixed or Temporary or Working working permanent Variable Capital capital Working Working
Capital capital
Regular Reverse Special Season Working Working Working W.C Capital Capital Capital
Long-term funds are required to create production facilities through purchase
of fixed assets such as plant and machinery, land and building, furniture and fixtures
etc. Investments in these assets are blocked on a permanent or fixed basis and are
called fixed capital.
Funds are also needed for short-term purposes for the purchase of raw
materials, payment of wages and other day-to-day expenses, etc. These funds are
known as Working Capital (WC). It refers to that part of firm’s capital, which is
required for financing short-term or current assets such, as cash, marketable securities,
debtors and inventories. Funds, thus, invested in current asset keep revolving fast and
45
are being constantly converted into cash and this cash flow out again in exchange for
other current assets. Hence it is also known as revolving or circulating capital or
short-term capital.
The need of WC arises due to the time gap between production and realization
of cash from sales. There is an operating cycle involved in the sales and realization of
cash. There are time gaps in purchase of raw material and production, production and
sales and realization of cash. Thus, WC is needed to meet various expenses during
these times.
A business undertaking requires funds for two purposes:
To create productive capacities through purchase of fixed assets etc. and
To finance current assets required for day to day running of the business.
Working capital refers to the funds invested in current assets, i.e., investment
in stock. Sundry debtors, cash and other current assets, Current assets are essential to
use fixed assets profitably.
For example: A machine cannot be used without raw material. The
investment on the purchase of raw material is identified as working capital.
46
CONCEPTS OF WORKIING CAPITAL
There are two concepts of working Capital
Gross Concept
Net Concept
GROSS WORKING CAPITAL:
Simply called as working capital, it refers to the firm’s investment in current
assets. Current assets are the assets, which can be converted into cash within an
accounting year (or operating cycle), and include cash, short-term securities, debtors,
bills receivables and stock (inventory).
NET WORKING CAPITAL (NWC)
NWC = Current Assets – Current Liabilities
Current liabilities are those claims of outsiders, which are expected to mature
for payment within an accounting year (or operating cycle) and include creditors, bills
payable and outstanding expenses.
Net working capital can be positive or negative. A positive net working
capital will arise when current assets exceed current liabilities. On the other hand,
negative working capital occurs when current liabilities are in excess of current assets.
The gross working capital concept focuses attention on two aspects of current
assets management.
Optimum investment in current assets.
Financing of current assets.
The consideration of the level of investment in current assets should avoid two
danger points
1) Excessive investment.
2) Inadequate investment in current assets.
47
Excessive investment in current assets should be avoided because it impairs
firm’s profitability, as idle investment earns nothing. On the other hand, inadequate
amount of working capital can threaten solvency of the firm because of its inability to
meet its current obligations.
Net working capital being the difference between current assets and current
liabilities is a qualitative concept.
It indicates the liquidity position of the firm and it suggests the extent to which
working capital needs may be financed by permanent sources of the funds.
From the point of view of TIME working capital can be divided into two
categories:
1) Permanent working capital.
2) Temporary working capital.
Permanent working capital:
Refers to that minimum level of investment in the current asset that is carried
by the business at all times to carry out minimum level of its activities. Since
permanent working capital remains in the business on long-term basis, it should be
financed from long-term sources.
Temporary working capital:
Refers to that part of total working capital, which is required by a business
over and above permanent working capital. It is also called as variable working
capital. Since the volume of temporary working capital keeps on fluctuating from
time to time according to the business activities it may be financed from short-term
sources.
Working capital management policies have a great effect on the firm’s
Profitability.
Liquidity
Structural health.
Gross working capital consists of cash, receivables and inventory. If a firm
has relatively high investment in these assets in comparison to a firm, which is
transacting the same volume of sale, it will have lower profitability in comparison to
the latter.
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Therefore, a firm, which has high working capital turnover, will have higher
profitability. The current ratio and quick ratio indicate liquidity aspect of the firm. If
current assets are reduced beyond limit, the current and quick ratio will have
adversely affected leading the firm to poor liquidity.
Therefore, it is essential that a proper balance be struck between profitability
and liquidity. In fact profitability and liquidity are inversely related, when one
increases the other decreases. A firm having high liquidity will have a lower
profitability and vice versa.
Working capital management policies also have a great impact on the
structural health of the organization. If different components of working capital are
not properly balanced then in spite of the fact that current and quick ratios may
indicate satisfactory financial position in respect of the liquidity of the firm. It may
not in fact be as liquid as indicated by the current and quick ratios.
49
IMPORTANCE OF ADEQUATE WORKING
CAPITAL
Proper management of working capital is very essential for the smooth
functioning of the business. Optimum utilization of fixed assets can only be done
when we have proper management of working capital working capital is required for
purchasing raw material in to finished, sales expenses, distribution expenses etc.
Both excessive as well as inadequate working capital positions are harmful
from the firm’s point of view. Excessive working capital leads to idle funds and
company has to pay huge amount as interest and opportunity cost for this idle fund.
One the other hand, inadequate working capital not only impairs firm’s profitability
but also result in production interruption and inefficiencies. So a firm should have
adequate.
Working capital should be adequate for the following reasons:
1) Quick payment to suppliers.
2) Increase in debt capacity & goodwill.
3) Cash discount.
4) Easy availability of bank loans.
5) Exploitation of favorable opportunity.
6) Meeting unseen contingencies.
7) Distribution of adequate dividends.
Determinants of Working Capital
1) Nature & size of the business.
2) Production cycle.
3) Business cycle
4) Credit policy
5) Volume of sales.
6) Price level change
7) Profit level
8) Seasonal operation
9) Production policy.
10) Management’s ability.
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COMPONENTS OF WORKING CAPITAL
The main components of the Working Capital Management are as follows:
Receivable Management.
Cash Management
Inventory Management
Payables Management
RECEIVABLE MANAGEMENT:
Receivable management highlights the importance of account receivable in the
day-to-day operations of a business enterprise and the role of receivable management
in improving profitability and liquidity of an enterprise. Various dimension of
receivable management viz. Credit Standards, Credit Analysis, Credit Terms and
Collection Policies are included in receivable management. The Average Collection
Patterns are the methods of monitoring accounts receivable. Account receivables
represent the amount due from its customers to whom the company has extended the
credit.
CASH MANAGEMENT:
Cash the most liquid asset, is of vital importance to the daily operations of the
business firms. While the proportion of corporate assets held in the form of cash is
very small, often between 1% and 3%, its efficient management is crucial to the
solvency of the business because in a very important sense cash is the focal point of
fund flow in a business. In view of its importance, it is generally referred to as the
“life blood of a business enterprise”.
The evidence suggests that the existing practices of cash inflows and outflows
predictions remain much to be desired. Concentration banking is the most popular
technique employed by the business forms to intensify cash inflows. Usually the local
sales office or a branch of the company performs this function. The management at
the head Office utilizes these funds on the basis of daily collection reports.
51
As regards the control of cash outflows, firms have a tendency to defer
payment till the last moment. Funds are arranged only on the day cheques are
expected be presented by the payee and for the amount necessary to honour the
cheques. In the case of local payment, cheques are many times handed over after the
banking hours.
At RSWM cash management is essence; means it is the main component of
working capital management, all efforts are made to contain the length of the
operating cycle to a reasonable level. In particular, the company has been able to
reduce substantially the overall inventory levels through proper vendor selection and
development. What is more striking is the fact that the company takes as much care
of its suppliers as it does for its customers. As a result the suppliers readily come
forward to accommodate any temporary delay in payments.
INVENTORY MANAGEMENT:
Working Capital as net concept is defined as the difference between current
assets and current liabilities. Current assets being those assets that are likely to be
converted into liquidity within a year are time or so. These include items like
inventories of raw materials, semi manufactured articles or work-in-progress and
finished goods, accounts receivables handier or bills receivables, bank balance and
cash balance etc. Current liabilities are in essence short-term liabilities, which have to
be settled in a year’s time. These include accounts payable or amount payable to
suppliers of goods and services for goods and services delivered on credit, bills
payable, bank overdraft etc. since inventories constitute a major item of current assets,
the management of inventories is crucial to successful working capital management.
Working capital requirements are influenced by inventory holding – the period during
which raw materials remains in store, during which processing takes place and that
during which finished goods lie in the warehouse prior to sale. The level of inventory
invested affects the total investment in working capital. Thus, operating ratio of
turnover or sales to Working Capital are affected by it as well.
52
PAYABLES MANAGEMENT:
A substantial part of purchases of goods and services in business are on credit
terms rather than against cash payment. White the supplier of goods and services
tends to perceive credit as a lever for enhancing sales or as a form of non-price
instrument of competition; the buyer tends to look upon at as a loaning of goods or
inventory. The supplier’s credit is referred to as accounts payable, trade credit, trade
acceptance, commercial draft or bills payable depending on the nature of credit
provided. The extend to which this ‘buy now, pay latter’ facility is provided will
depend upon a variety of factors such as the nature, quality and volume of items to be
purchased, the prevalent practices in the trade, the degree of competition and the
financial status of the parties concerned. Trade credit or payables constitute a major
segment of current liabilities in many business enterprises and they primarily finance
inventories, which form a major component of current assets in many cases.
53
WORKING CAPITAL FINANCINGAfter determining the level of working capital, a firm has to decide how it is to
be financed. Although long-term funds partly finance current assets and provide the
margin money for working capital, such working capitals are virtually exclusively
supported by short-term sources.
Funds available for a period of one year or less are called short-term finance.
In India, short-term funds are used to finance working capital.
The organization can go for various sources, which can be discussed below:
Spontaneous sources:
(a) Trade Credit: Trade credit refers to the credit that customers get from
supplier of goods in the normal course of business
(b) Outstanding The company is able to get the benefit of the services
Expenses: without paying for the same for immediately, thus
getting the finance for working capital purposes. This
may apply to salaries wages, telephone expenses etc.
Inter-corporate Deposits: It indicates the amount of funds borrowed by one
company
from another company, usually both the companies
being under the same management
Commercial Papers: It is an unsecured promissory note issued at discount.
Banks:
(a) Non-Fund Based Lending
(1) Bank Guarantees
(2) Letter of Credit
(b) Fund-Based Lending
(1) Loan
(2) Cash credit
(3) Bills Purchased/discounted
(4) Working Capital Term Loans
(5) Packing Credit.
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MODE OF SECURITY
Banks provide credit on the basis of the following modes of security.
1) HYPOTHECATION:
Under this mode of security, the banks provide credit to borrowers against the
security of movable property, usually inventory of goods. The goods
hypothecated, however continues to be in the possession of the owner of these
goods (i.e. borrowers).
2) PLEDGE:
Pledge, as a mode of security, is different from hypothecation in that, in the
former unlike the later, the goods that are offered as security are transferred to
the physical position of the lender.
3) LIEN:
The term Lien refers to the right of a party to retain goods belonging to
another party until the debt due to him is paid.
Lien can be of two types:
Particular Lien: Particular Lien is of a right to retain goods until a claim
pertaining to these goods is fully paid.
General Lien: This Lien can be applied till all due of the claimant are paid.
Banks enjoy general lien.
4) MORTGAGE:
It is the transfer of interest in specific immovable property for securing the
payment of money advanced.
5) CHARGE:
Where immovable property of one person is by the act of properties or by the
operation of the law made security for the payment of money to another and
the transaction does not amount to mortgage, the latter person is said to have a
charge on the property and the provision of simple mortgage will apply to
such a charge.
At RSWM security given to the banks is in the form of Hypothecation
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Working Capital Operating Cycle:
The WC Cycle starts with the purchase of raw materials and ends with the
realization of cash from the sale of finished products. It plays an important part in
determining WC requirements: longer the period of this cycle, larger is the
requirement of WC.
Various phase involved in WC operating cycle are as follows:
1) Acquisition of resources: It companies of -
Purchase of raw materials: Payment of raw material to raw-material
suppliers after the credit period allowed by them.
2) Manufacture of the product:
Conversion of raw material to work in progress.
Conversion of work in progress to finished goods.
3) Sale of Finished goods.
4) Realization of cash from debtors after the credit period allowed to them.
Operating Cycle
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Cash
Receivables + Cost Raw Material + Cost
Finished Goods + Cost
Stock in Process + Cost
1) Accounts Payable period: This is the period from the day of acquisition of
raw material to the payment of raw materials. In other it is the credit period
allowed to the organization by raw material suppliers.
2) Cash Cycle: The period from the day of payment for raw material purchased
till the realization of cash against sales.
Cash Cycle = WC Operating Cycle – Accounts Payable Period
3) Inventory Period: The period is beginning from the day of receipt of raw
materials in the factory till the day of dispatch of finished goods.
4) Accounts Receivable Period: The period beginning from day of dispatch of
finished goods to the buyer and ending on the day of realization of cash
against sales.
5) Operating Cycle: The time that elapses between the purchase of raw
materials and the collection of cash for sales is referred to as operating cycle.
Operating Cycle = Inventory Period + Accounts Receivable Period.
OPERATING CYCLE CONCEPTSThere are two concepts of operating cycle.
1) Gross operating cycle period
2) Net operating period.
GROSS OPERATING CYCLE PERIOD:
The successive segments of the operating cycle are:
1) Raw material storage period.
2) Conversion period.
3) Finished goods storage period.
4) Average Collection period.
The total duration of the entire segment mentioned above is known as gross
operating period.
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CASE-I
In case the company sells its products for cash then the segment of average
collection period will disappear from the gross operating cycle period and to that
extent the total duration of the cycle gets reduced.
CASH-II
In case advance payments are to be made for procuring materials, the
operating cycle period increases.
NET OPERATING CYCLE PERIOD:
When the average payment period of the company to its suppliers is deducted
from the gross operating cycle period the resultant period is called net operating cycle
period or simply operating cycle.
It becomes obvious that the shorter the duration of operating cycle period, the
faster will be the transformation of current assets into cash.
The operating cycle approach is quite useful in:
Managing
Controlling and
Forecasting working capital.
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EVENTS OF OPERATING CYCLE
The operating cycle (working capital cycle) consists of the following event, which continues through out the life of business. 1) Conversion of cash into raw materials. 2) Conversion of raw materials into work-in-progress. 3) Conversion of work-in-progress into finished stock.4) Conversion of finished stocks into accounts receivables through sale and 5) Conversion of accounts receivables into cash.
The duration of the operating cycle for the purpose of estimating working capital is equal to the sum of the duration of each of above said events, less the credit period allowed by the suppliers.
In the form of an equation, the operating cycle process can be expressed as follows: Operating cycle = R + W + F + D – C Where,R = Raw material and stores storage period. W = Work-in-Progress period.F = Finished goods storage period.D = Debtors collection period C = Credit payment period.
The various components of operating cycle may be calculated as:
Raw Material = Average stock of raw material Average cost of production per day
Work-in Progress holding period = Average W-I-P inventory Average cost of production per day
Finished goods storage period = Average stock of finished goods Average cost of goods sold per day
Debtors collection period = Average book debts Average sales per day
Credit payment period = Average trade creditors Average purchase per day
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RATIO ANALYSIS
The importance of working capital management cannot be over-emphasized in
view of the time and energy spent by company management on such decision. For
any future corrective action analysis of past performance of the firm on the working
capital front is essential. This requires knowledge and use of certain tools and
techniques that may help management to spot out problem areas for future action.
Among many such analytical tools. Ratio analysis is a simple but effective tool
available to the management.
Working capital management, is concerned with maintaining an adequate
amount of working capital, proper balance of current assets vis-à-vis non-current
assets in the asset structure and a reasonable mix of short term and long-term sources
in the financial structure of the firm. Ratio analysis can be used by management as a
tool to verify the level and composition of working capital held by management in the
business as against its operations, the extent of liquidity present in its asset structures,
well as financial structure and the efficiency with which working capital is being used
in the business. In other words, management can employ ratios to analyze three facts
of working capital management, namely, liquidity and its structural health.
To analyze the level of current assets, current liabilities held and working
capital position of RSWM Banswara various ratios are used. These ratios when
compared with the ratios of past years show the improvement and financial strength
achieved by the company. The company is constantly refining its working capital
management process and reducing cost and risk.
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Chapter – 4
RESULTS & FINDINGS
61
RSWM LTD. BANSWARA (RAJ.)Assessment of Working Capital
(Rs. In Lakhs)
Particulars 2007-2008 2008-2009 2009-10Current Assets: - Inventory 4605.62 4868.82 4487.42Sundry Debtors 2372.83 2279.98 2788.93Cash and Bank Balances 75.98 14.04 17.23Other Current Assets 1092.39 935.56 995.72Loans & Advances 279.18 385.05 196.10(A) Total Current Assets 8495 8483.45 8485.42
Current Liabilities 959.99 1170.12 981.17Provision 72.72 0.00 76.22Working Capital Loans 4636.70 3480.89 4506.13(B) Total Current Liabilities 5669.41 4651.01 5563.52
(A-B) Net Increase/ Decrease in Working Capital
2756.59 4865.91 2921.9
Findings
The net working capital is increasing every year. It shows that every year
increase in current assets is greater than increase in current liabilities and it
shows that the company has sufficient fund to meet its short-term obligation as
they become due.
In year 2008-2009 current assets and current liabilities both are decreased but
still net working capital was increased, this is due to the % change in C.A. is
less then % change in C.L.
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OPERATIONG CYCLE ANALYSIS OF
RSWM BANSWARA(Rs. In Lakhs)
S. No.
Particulars 2007-08 2008-09 2009-10
1. Raw Material & Stores Storage Period (R)Opening Balance of Raw Material 2555.21 2984.56 3510.24Closing Balance of Raw Material 2984.56 3510.24 2899.00Average Stock of Raw Material (a) 2769.89 3247.40 3204.62Raw Material Consumed p.a. 16601.6 20290.0
622280.96
Average Raw Material Consumed/day (b) 45.48 55.59 60.77R= a/b (Days) 61 58 53
S. No.
Particulars 2007-08 2008-09 2009-10
2. Work – in – Progress Holding Period (W) Opening Balance of W – I – P 391.14 418.12 529.44Closing Balance of W – I – P 418.12 529.44 655.82Average W – I – P Inventory (a) 404.63 473.78 592.63Cost of Production 4897.05 5499.03 5831.11Average Cost of Production/day (b) 13.41 15.06 247.27
W= a/b (Days) 30 31 37
S. No.
Particulars 2007-08 2008-09 2009-10
3. Finished Goods Storage Period (F) Opening Balance of Finished Goods 702.30 922.04 581.4Closing Balance of Finished Goods 922.04 581.40 720.50Average Stock of Finished Goods (a) 812.17 751.72 650.95Cost of Sales/ Goods 7783.17 9480.81 10952.85Average Cost of Goods Sales/day (b) 21.32 25.97 28.9
F= a/b (Days) 38 29 37
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S. No.
Particulars 2007-08 2008-09 2009-10
4. Debtors Collection Period (D)Opening Debtors 3016.82 4018.48 5985.40Closing Debtors 4018.48 5985.40 7781.52Average Debtors (a) 3517.65 5001.94 6883.46Sales 25343.00 30601.5
136303.09
Average Sales/day (b) 69.43 83.84 99.46D= a/b (Days) 51 60 69
S. No.
Particulars 2007-08 2008-09 2009-10
5. Creditors Payment Period (C)Opening Creditors 30.45 52.34 64.32Closing Creditors 52.34 64.32 121.03Average Creditors (a) 41.40 58.33 92.68Total Purchases 18312.16 20207.98 22600.65Average Credit Purchases /day (b) 50.17 55.36 61.92
C= a/b (Days) 1 1 2
S. No.
Particulars 2007-08 2008-09 2009-10
* Operating Cycle Analysis Raw Material & Stores Storage Period (R) 49 61 58Work – in – Progress Holding Period (W) 24 19 19Finished Goods Storage Period (F) 44 38 29Debtors Collection Period (D) 51 60 69Creditors Payment Period (C) (1) (1) (2)Operating Cycle Period (R+W+F+D-C) in
Days167 177 173
Findings Raw material and storage period is slightly less in comparison to previous
years.
Working in progress period is almost same as compare to the last year, and company has achieved success in constantly reducing the finished goods inventory, it shows the efficient management of the company.
Creditor collection period is increased by one day and debtor’s collection period is increasing every year, which can be dangerous for the company. This highly needs attention.
64
RATIOS USEFUL TO ANALYSE WORKING CAPITAL MANAGEMENT AT RSWM BANSWARA
(Rs. In Lakhs)
S.No.
Particulars 31.03.2010 31.03.2009
1 LIQUIDITY RATIOS :
A. Current Ratio :- a) Current Assets 9519.25 10103.68b) Current Liabilities 4653.34 5669.41
* Current Ratio (a/b) 2.05:1 1.78:1
B. Liquid Ratio :- a) Current Assets 9519.25 10103.68b) Inventory 4843.53 4605.62c) Prepaid Expenses 0.72 50.58d) Current Liabilities 4653.34 5669.41
* Liquid Ratio [(a – b – c)/d] 1:1 0.96:1
C. Cash Ratio: - a) Cash 14.04 75.98b) Current Liabilities 4653.34 5669.41
* Cash Ratio (a/b) 0.30 1.34
2. ACTIVITY RATIOS:
A. Inventory Turnover Ratio (Times): a) Cost of Goods Sold 32563.15 27527.64b) Average Stock 4724.58 4191.17
*Inventory Turnover Ratio(a/b)
6.86 6.57
B. Debtors Turnover Ratio (Times): -a) Annual Credit Sales 36303.09 30601.51b) Average Debtors 2326.41 1956.46c) Average Bills Receivables 4557.06 3045.49
*Debtors Turnover Ratio[a/(b+c)]
5.27 6.12
C. Receivable Collection Period (365/DTR)
69 Days 60Days
D. Working Capital Turnover Ratio :-a) Net Sales 36303.09 30601.51b) Working Capital 4865.91 4434.21
* Working Capital Turnover Ratio (a/b)
7.46 6.90
E. Current Assets Turnover Ratio :-a) Cost of Goods Sold 32563.15 27527.64b) Current Assets 9519.25 10103.68
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* Current Assets Turnover Ratio (a/b)
3.42 2.72
F. Fixed Assets Turnover Ratio :-a) Net Sales 36303.09 30601.51b) Fixed Assets 13597.61 11974.17
* Fixed Assets Turnover Ratio (a/b) 2.67 2.56
G. Total Assets Turnover Ratio :-a) Net Sales 36303.09 30601.51b) Total Assets 23116.86 22077.85
* Total Assets Turnover Ratio (a/b) 1.57 1.39
H. Capital Employed Turnover Ratio :-
a) Net Sales 36303.09 30601.51b) Capital Employed 18463.52 16408.44
* C.E.TOR (a/b) 1.97 1.86
3. STRUCTURAL RATIOS:
A. Current Assets To Total Assets: -a) Current Assets 9519.25 10103.68b) Total Assets 23116.86 22077.85
* Current Assets To Total Assets (a/b)
0.41 0.46
B. Current Liabilities to Total Liabi. : a) Current Liabilities 4653.34 5669.41b) Total Liabilities 26766.79 26651.78
* C L To T L (a/b) 0.17 0.21
C. Cash To Current Assets: - a) Cash 14.04 75.98b) Current Assets 9519.25 10103.68
* Cash To Current Assets (a/b) 0.001 0.008
D. Receivables to Current Assets: -a) Receivables 5501.54 3612.57b) Current Assets 9519.25 10103.68
* Receivables to Current Assets (a/b)
0.58 0.36
E. Inventory to Current Assets :-a) Inventory 4843.53 4605.62b) Current Assets 9519.25 10103.68
* Inventory to Current Assets (a/b) 0.51 0.46
4. PROFITABILITY RATIOS :
A. Profit Margin :-
66
a) Profit Before Interest & Tax 3739.94 3073.87b) Net Sales 36303.09 30601.51
* Profit Margin Ratio [(a/b)*100] 10.30% 10.04%
B. Return on Investment (ROI) :-a) Profit Before Interest & Tax 3739.94 3073.87b) Total Investment 23116.86 22077.85
* ROI [(a/b)*100] 16.18% 13.92%
5. SOLVENCY RATIO :-a) Total Assets 23116.86 22077.85b) Total Debts 15514.56 15114.56
* Solvency Ratio (a/b) 1.49 1.46
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-: LIQUIDITY RATIOS :-
Current & Quick Ratios of 2007-08 is increased from 2008-09, whereas Cash Ratio is decreasing every year.
-: ACTIVITY RATIOS :-
Increases in Inventory Turnover Ratio & the Working Capital Turnover Ratio as compare to last years, whereas Debtors Turnover Ratio is decreasing every year.
68
-: ACTIVITY RATIOS :-
Current Assets Turnover Ratio, Fixed Assets Turnover Ratio & Total Assets Turnover Ratios of 2009-10, are increased from last years.
-: PROFITABILITY RATIO :-
Profitability ratios like profit margin and return on investment are increasing every year, which is good for firm.
69
-: SOLVENCY RATIO :-
Solvency ratio of the firm is under control and increasing decimal wise yearly.
70
Chapter – 5
ANAYSIS OF FINDINGS
71
ANALYSIS OF FINDINGS OF VARIOUS
CALCULATIONS:-
1) Assessments of Working Capital :-
Since, the Working Capital of RSWM Banswara is increasing every year
but the Current Assets & Current Liabilities are decreasing from the last year,
these is due to following reasons:-
In Current Assets, Inventory & Loans & Advances are increases from the
last years. But Other Current Assets & Cash & Bank balance is decreases,
specially there is a drastically change in Cash & Bank Balance. If we see
the figures of Cash & Bank in Balance-Sheet, we can find that there is
increase in Cash in hand & Saving a/c of the company, but decrease in
fixed deposits of the firm in 2009-2010 from Rs. 70.40 lakhs to Rs. 7.12
Lakhs. All these Cash are invested in the Fixed Assets or Inventory of the
firm and this is happening every year. This shows that company is running
at the high risk. So company should increase its cash & bank balance for
good liquidity.
Current Liabilities was also decreased from 5669.41 to 4643.34 in 2009-
2010, this is due to the no provision made in the year 2009-2010 & also
the low Working Capital loans.
If we see the changes we find that Current Assets & Current Liabilities of
2008-2009 is increased from 2007-2008. Such a volatility in current assets
& current liabilities indicates poor working capital management of the
company and it must be controlled, other wise it must be harmful in future
for the company.
2) Ratio Analysis:-
Current Ratio measures short term solvency of the company. Current Ratio
of 2009-10 is more when compared to 2008-2009 and equal to its ideal
ratio i.e. 2:1, which clearly indicates that is good for firms ability to meet
current obligation.
72
Cash Ratio is decreases due to the less bank balance of the company in
every year. These is not a good indication for the company is future &
provides the high risk for company.
Increase in inventory turnover and decrease in debtors turnover ratio is due
to sluggishness in the market. Average collection period is increase year
by year. Company should try to reduce the collection period days to utilize
its working capital operating cycle.
Working capital turnover Ratio is increasing which shows that working
capital is more active i.e. it is supportive, comparatively higher level of
production sales is present.
Assets turnover ratios are showing improvement in the year under review,
which reflects management efficiency.
Structural ratios need attention, current assets to total assets has reduced.
Cash to current assets is also reduced year by year, which can be harmful
for the liquidity position of the firm and working capital requirement.
There is also increase in receivables and inventory level.
73
SWOT ANALYSIS
STRENGTH:-
Demand of blended yarn will increase as the production of cotton is (limited
attraction of PV is replacing cotton, great share in exports one of the biggest
earners).
Won SRTEPC highest export award for PV yarn exports it was also accorded
“golden trading house status”.
Experienced & enthusiastic marketing team. Strong sales depots & marketing
offices at Mumbai, Delhi, Bhilwara, Ludhiana, Ahemadabad.
Brand Reputation Global Marketing – LNJ Bhilwara group is famous in
textiles in all over the world.
Well-equipped R&D SQC lab.
Modern machinery with latest techniques.
Not depended for power & water RSWM Banswara has its own power
generation plant & presently there are about 20000 surplus units of power is
available. The daily requirement of power for weaving project is only 93111
units per day. Water is also available in plenty at company’s own campus &
presently company has adequate water storage capacity.
Wide product range & flexibility in production according to requirement of
market. RSWM Banswara manufacturers various type of yarn of different
counts & blends.
All the units are connected through V-SAT Gulabpura, Mumbai, Delhi, and
Indore & Rishabdev.
The company has a great share in exports, one of the biggest earners.
Quality conscious approach as per ISO product & TQM gulabpura unit was
the first India composite textile unit to be certified with ISO 9002 1st
September 1993, ISO certificate is necessary to penetrate in the export market
specially in the European in US market.
74
WEAKNESS:-
Banswara is not connected through railway line & condition of roads is also
poor so there is an infrastructure problem.
Skill labour is not available at Banswara.
Purchase Raw Material from one typed of organization only.
OPPORTUNITIES:-
After starting weaving project, Rajasthan spinning & weaving mills Ltd.
Banswara may further go for forward integration in garments sector, as people
in domestic market are gradually moving towards ready-made garments.
To develop & improve working environment of processing by using Eco-
Friendly methods.
The company can rush into retail business.
Strategic alliances: Tie-ups with global manufacturers & brands for
technology & market.
Tilt towards ready-made.
India can become a major player in the textile export market at a global market
at a global level given the declining share of south-east Asian countries in this
niche market & rising wages in ASEAN region, wiping out their competitive
edge.
RSWM may be innovating new product using different types of yarn & fiber
like lyre & tennel.
Increased export demand is expected from planning out of capacities in
developed world.
Efficiency can increase with the help of IT & ERP.
75
Post-MFA as on January-1, 2007, the world trade in textile & clothing will be
fully liberalized. It can capture a large market share if it provides quality
product as reasonable price.
Market share of India is world trade of textile is only 2.8% therefore, another
advantage that India could have is that for countries which are not the member
of WTO, imposing countries will have obligation to proceed with removal of
quota restriction. This is especially important with respect to China, Taiwan,
who accounts for 32% of world trade in textile, but are still not a member of
WTO.
THREATS:-
Today textile industry is planning through in unpredicted recession. The
reason for that is supply is more than demand.
Cheap imports textiles from China, that is increasing free trade & competition.
Removal of quotas after – 2007.
Changing trend in textile industry, changing requirement as people now
preferring ready-made garments.
Polyester Viscose is a substitute of cotton & is made from wood pulp & its
supply is also limited.
76
Chapter –6
RECOMMENDATIONS
77
RECOMMENDATIONS
Improved co-ordination: Better co-ordination among purchase, production, marketing finance
department and effective communication will help in achieving greater efficiency in working capital management.
Prompt payment by customers: Prompt payment by customers can be ensured by prompt billing. What the
customers has to pay and the period of payment should be notified accurately and in advance. The use of mechanical device for billing along with the enclosure of a self-addressed return envelope will speed up the payment by customers.
Efficient inventory – production management:Another strategy is to increase the inventory turnover, avoiding stock-outs,
Le., and shortage of stock. This can be done in the following way: - Increasing the raw materials turnover. Decreasing the production cycle. Increasing the finished goods turnover.
Discounting policy should be liberalized by giving more cash discount to the customers.
Adopting of changing nouns:
Company should benchmark with global competitors and should use ideas like Just-in-Time (JIT) to improve inn~ntoll11’ management. And 14 Sigma would prove to be more effective in improving quality and 100% defects free finished products. Concentration Banking would help to speed up the cash collection.
Active disposal of obsolete, surplus inventories:
Efforts should be made to dispose obsolete and surplus inventories at reasonable and profitable price under a buy back arrangement with suppliers to avoid cost of charging it to profit & loss A/c.
To increase the cash:
RSWM Banswara, should increase the cash level to reduce the risk of it in future, if company has low cash it is difficult to work in future for more effectively. Since the cash ratio is decreasing year by year.
78
Chapter –7
CONCLUSION
79
CONCLUSION
RSWM Banswasra is one of the most leading companies of LNJ Bhilwara
Group. It has proper resources to manage its production cycle. All the departments of
RSWM Banswara are well coordinated with each other. It has its customers in both
global and domestic market.
RSWM has the latest technology for the production. The SQC and CPPC
departments are also strong. RSWM has policies like Environment Policy & Quality
Policy. It has a good brand image and good brands.
RSWM has also dad considerable success with major modernization schemes
involving almost total replacement of outdated equipments & production methods,
achieving capacity utilization. Also, RSWM has carried out many engineering &
maintenance improvements, resulting in lower operating costs.
In order to conclude, it can be said that Working Capital Management is
effective only through proper blend of Cash Management, Receivables Management,
Inventory Management & Payables Management.
Company’s policy regarding management of all these are clean set. Company
keeps its position secure in both Debtors & Creditors dealings. The profit & turnover
of the company is increasing every year. The structural health of Working Capital is
improving continuously.
It is a prosperous, growing firm which would attain heights in coming years.
80
BIBLIOGRAPHY
81
BIBLIOGRAPHY
BOOKS :-
1) I.M. Pandey, Financial Management, 9th Edition, Vikas
Publishing House, New Delhi.2004.
2) M.Y. Khan & P.K. Jain, Financial Management, 4th Edition,
Tata McGraw-Hill, New Delhi, 2004.
3) MS-41 Working Capital Management (IGNU Study Material),
Young Printing Press, New Delhi, 1997.
.
WEB SITES :-
1) www.rajasthanspg.com
2) www.lnjbhilwara.com
JOURNALS :-
1) Textiles Magazines.
2) Company Annual Report.
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