Project (IBM Nitu)

8/6/2019 Project (IBM Nitu)

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FUNDING AND WORKING CAPITAL MANAGEMENT

PROJECT REPORT

ON

Project Funding and Working Capital

Management for The New Age Creation.

Submitted By

NITU KUMARI

Roll No. - 92

Master of Business Administration

Of

BATCH: 2009-2011

Institute of Business Management, Bela,

Darbhanga, Bihar

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PROJECT

ON

Project Funding and Working Capital

Management for The New Age Creation.

In Partial Fulfillment of the requirement of MBA Program of

Institute of Business Management, Bela

TABLE OF CONTENTS

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S.No Particulars

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

CERTIFICATE

CERTIFICATE

ACKNOWLEDGEMENT

CHAPTER 1 INTRODUCTION

CHAPTER 2 OBJECTIVE AND SCOPE

CHAPTER 3 METHODOLOGY

CHAPTER 4 DATA COLLECTION

CHAPTER 5 DATA ANALYSIS

CHAPTER 6 FINDINGS

CHAPTER 7 CONCLUSIUONS

CHAPTER 8 RECOMMENDATIONS

APPENDICES AND ANNEXURES

BIBLOGRAPHY

CERTIFICATE

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This is to certify that the project entitled Project Funding and Working Capital

Management for The New Age Creation Is a bonafied work done by Nitu Kumari under my

supervision towards partial fulfilment of the management program course (MBA) of Institute of

Business Management, Bela, Darbhanga Bihar.

Place : Noida Mr. Santosh Kumar Jha

Date: Project Guide

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This study is an integral part of ourMBA program and to do this project in a short period Was a

heavy task. Intention, dedication, concentration and hard work are very much Essential to complete

any task. But still it needs lot of support, guidance assistance, co- Operation of people to make it

successful.

I bear to imprint of my people who have given me their precious ideas and times to Enable me to

complete the research and the project report. I want to thank them for their Continuous support at my

research and writing efforts.

First of all I would like to offer special thanks and gratitude to Mr. Santosh Kumar Jha ( Manager

Finance/Accounts) for his meaningful instructions, guidance, encouragement and Supervision to

complete this project.

I also offer my sincere thanks to all the respondents who spared their invaluable time for Survey and

especially Mr. K.C.Agrawal (Author and Industrialist) Internal Guide, who gave me his

invaluable Suggestion for preparing this report.

With Regards

(Nitu Kumari)

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CHAPTER 1

INTRODUCTION

CHAPTER 1

INTRODUCTION

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The Role of Apparels & Accessories in India GDP has been phenomenon. The Apparels &

Accessories one of the fastest growing sectors in India. The increase in the demand for

garments and their accessories, powered by the increase in the income is the primary

growth driver of the Garments industry in India. The introduction of tailor made finance

schemes, easy repayment schemes has also helped the growth of the this sector.

Clothing can serve as protection from the elements. Clothes can also enhance safety during

hazardous activities such as hiking and cooking, by providing a barrier between the skin

and the environment. Further, clothes can provide a hygienic barrier, keeping toxins away

from the body and limiting the transmission of germs.

It can be said that there are four primary factors in clothing comfort, identifiable as the '4 Fs of

Comfort' (1) fashion (2) feel (3) fit and (4) function. In hot climates, clothing provides

protection from sunburn or wind damage, while in cold climates its thermal insulation properties are

generally more important. Shelter usually reduces the functional need for clothing. For example,

coats, hats, gloves, shoes, socks, and other superficial layers are normally removed when entering a

warm home, particularly if one is residing or sleeping there. Similarly, clothing has seasonal and

regional aspects, so that thinner materials and fewer layers of clothing are generally worn in warmer

seasons and regions than in colder ones.

LAYOUT OF THE PROJECT REPORT

The Project repot has been presented in eight chapters as per the following details :

CHAPTER 1: INTRODUCTION

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It introduces the subject of research and brief about the garments industry in india and historical

background and milestones achieved by The New Age Creation.

CHAPTER 2: OBJECTIVE AND SCOPE

It gives the back drop, objectives of the research and lays down its scope, classification of working

capital management. Also it gives the reason, why I have chosen this topic for research and why it is

important for the company.

CHAPTER 3: METHODOLOGY

This chapter provides the methodology for conduct of the study, the research tools used, sampling

details and means of collecting primary and secondary data.

CHAPTER 4: DATA COLLECTION

Records the empirical data obtained from the responces to the questionnaire and structured

interviews.

CHAPTER 5: DATA ANALYSIS

This chapter analyses the collected data from various angles and other inputs to the project research

to bring out logical deductions.

CHAPTER 6: FINDINGS

Records the finding arrived at after the analysis done in chapter 5.

CHAPTER 7: CONCLUSION

This concludes the project report and takes a stock of achievements with reference to the objectivesof the project.

CHAPTER 8: RECOMMENDATIONS

Based on the findings obtained, this chapter recommends specific actions for improving the working

capital management at The New Age Creation.

ORGANIZATIONAL PROFILE:

The New Age Creation

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1.1 Background

The New Age Creation was incorporated in Sec- 58, Noida in May 2007 and company

commenced its manufacturing operations from a leased factory in Phase -2 , Noida in June

2007.

Starting with a modest equity base of Rs.17.50 lacs, and a first year sales turnover of just

Rs.50 lacs in 2008-09, the company grew at a healthy pace to the level of Rs.8 Crores at the

close of year 2010, marking an average annual growth rate of 210%.

During the first year, the main business consisted that of Engaged in offering a wide range of

Design and Washing, which is widely demanded by our customers across the national market.

Company range includes Jeans, Denim & Non- Denim, Complete Garment Processing Unit,

Washing and Finishing, Spray and Damaging Scraping. These are at par with the defined industry

norms and standards. Moreover, these are available with in a number of sizes, colours, designs and

patterns to meet the specific requirements of the clients.

By the year 20010, the unit at Noida, an ISO 9001 certified factory, reached saturation levels

in terms of achieving almost full potential in the selected market segments as well as in

terms of lack of factory space and production capacity to diversify into allied areas. At that

time we were into the following product segments.

Jeans, Denims & Non-Denims

Complete Garment Processing Unit

Washing And Finishing

P.P.Sprey

Damaging Scraping

Moulding

Crincal jeans

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The New Age Creation vision is to passionately satisfy the Indian consumers needs in

fashion, style and value, across wearing occasions, in apparels and accessories, by

anticipating trends and creating markets with the ultimate purpose of delivering superior

value to all stakeholders.

The company aims to be the undisputed leader in the lifestyle industry, delivering

continued value growth for all stakeholders by honouring:

Transparency and trust

Human touch

Empowered teams

Promises always honoured

Responsive to customer needs

Ownership for partner success

Merchandise and design leadership

Simple and speedy processes that enable quick decisions

Effective communication

Our values

Integrity

Commitment

Passion

Seamlessness

Speed

1.2 Purpose of the Study

The purpose of the study is to understand the benefits that The New Age Creation have achieved

from different marketing channels in last two - three years, mainly to identify the fashion, style

and value trends, to estimate the future potential of Funding and Working Capital Management.

1.2 Objectives of the Study

To understand the significance of Funding and Working Capital Management.

To find out which are the major marketing channels for concern sector.

To identify the emerging garments trends in different age group.

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To identify the garments adoption trend in different age group.

To estimate the future potential of garments.

1.4 Scope of the Study

To evaluate the awareness about the services among business houses.

To help Expert to decide about the pricing & the overall marketing campaign about for their

product.

The study will be confined to the Noida Branch of The New Age Creation..

1.5 Duration of the Study

The duration of the study is 8 Weeks.

1.6 Limitations of the Study

Duration of the study is very small for in-depth study on this topic.

Sampling error may be there

Information related to Funding and Working Capital Management may not be complete or

100% correct as most of the companies provide approximate figure

We need to collect information through telephonic interview as per the company policy,

respondents either dont give enough time to collect information or disconnect the line

without listening.

Company sales are growing at steady pace however margin are under pressure as

customers are demanding cost cutting and inputs costs are increasing. In order to create

value for our customers we are trying to improve profitability and reduce input cost. Major

Input as raw material at present is chemicals which company is sourcing from market,

now company has decided to manufacture chemicals in house by putting up a chemicals

manufacturing unit.

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Current financials of The New Age Creation :: (INR in MM)

FINANCIAL PARAMETERS 31/03/08 31/03/09 31/03/10 31/03/11

(A) (A) (A) (P)

Net Sales (net of VAT/tax) 50 65 80 115

Non operating income - - - -

EBITDA 13 11 15 27

Depreciation 3.59 3.84 4.04 5.50

Net Cash Accruals 6 5 8 17

Interest paid(to Banks and NBFCs) 6 5.30 5.93 7.25

PBT 4 2 6 15

PAT 2 2 4 11

Total Debt Service obligation

(Interest and Principal paid for the year)

6.04 10.34 13.24

Short Term Borrowings (working

capital) 21.50 18.40 25.83 44.00

Term Debt (other than working capital) 5 2.18 2.07 19.00

Total Debt 26 38.25 46.47 75.62

Adjusted Tangible Net Worth(ATNW) 16 20 21 32

Net Fixed Assets 22.77 25.61 35.00

Current Assets 83 68.29 107.63 176.10

Current Liabilities 84 69.04 110.53 160.48

Current Ratio 0.98 0.99 0.97 1.10

EBIDTA Margins 5.6 5.0 5.3 6.5

DSCR - 2.25 2.36 3.48

Total Debt/ATNW 1.5 0.98 1.20 1.84

Total Debt/EBIDTA 1.94 1.81 2.36

TOL/ATNW 5.57 3.62 5.55 5.74

Total holding days for stock + debtors 124.03 120 132 156

Net Working Cycle(days) 5.49 4.17 27.77

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CHAPTER 2:

OBJECTIVE AND SCOPE

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CHAPTER 2

OBJECTIVE AND SCOPE

WORKING CAPITAL - Meaning of Working Capital

Capital required for a business can be classified under two main categories via,

1) Fixed Capital

2) Working Capital

Every business needs funds for two purposes for its establishment and to carry out its day- to-

day operations. Long terms funds are required to create production facilities through purchase of

fixed assets such as p&m, land, building, furniture, etc. Investments in these assets represent that

part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds

are also needed for short-term purposes for the purchase of raw material, payment of wages and

other day to- day expenses etc.

These funds are known as working capital. In simple words, working capital refers to that

part of the firms capital which is required for financing short- term or current assets such as cash,

marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving

fast and are being constantly converted in to cash and this cash flows out again in exchange for other

current assets. Hence, it is also known as revolving or circulating capital or short term capital.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

The gross working capital is the capital invested in the total current assets of the enterprises

current assets are those

Assets which can convert in to cash within a short period normally one accounting year.

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CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances.

5) Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

In a narrow sense, the term working capital refers to the net working. Net working capital

is the excess of current assets over current liability, or, say:

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current assets exceeds the

current liabilities are more than the current assets. Current liabilities are those liabilities,

which are intended to be paid in the ordinary course of business within a short period of

normally one accounting year out of the current assts or the income business.

CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

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4. Bank overdraft.

5. Provision for taxation , if it does not amt. to app. Of profit.

6. Bills payable.

7. Sundry creditors.

The gross working capital concept is financial or going concern concept whereas net working capitalis an accounting concept of working capital. Both the concepts have their own merits.

The gross concept is sometimes preferred to the concept of working capital for the following

reasons:

1. It enables the enterprise to provide correct amount of working capital at correct time.

2. Every management is more interested in total current assets with which it has to operatethen the source from where it is made available.

3. It take into consideration of the fact every increase in the funds of the enterprise would

increase its working capital.

4. This concept is also useful in determining the rate of return on investments in workingcapital. The net working capital concept, however, is also important for following reasons:

It is qualitative concept, which indicates the firms ability to meet to its operating

expenses and short-term liabilities.

IT indicates the margin of protection available to the short term creditors.

It is an indicator of the financial soundness of enterprises.

It suggests the need of financing a part of working capital requirement out of the

permanent sources of funds.

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CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:

o On the basis of concept.

o On the basis of time.

On the basis of concept working capital can be classified as gross working capital and net

working capital. On the basis of time, working capital may be classified as:

Permanent or fixed working capital.

Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to ensure effective

utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to

maintain a minimum level of raw material, work- in-process, finished goods and cash balance. This

minimum level of current assts is called permanent or fixed working capital as this part of working is

permanently blocked in current assets. As the business grow the requirements of working capital

also increases due to increase in current assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which is required to meet

the seasonal demands and some special exigencies. Variable working capital can further be classified

as seasonal working capital and special working capital. The capital required to meet the seasonal

need of the enterprise is called seasonal working capital. Special working capital is that part of

working capital which is required to meet special exigencies such as launching of extensive

marketing for conducting research, etc.

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3. Excessive working capital implies excessive debtors and defective credit policy which

causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks and otherfinancial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may also fall.

7. The redundant working capital gives rise to speculative transactions

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working capital arises due to

the time gap between production and realization of cash from sales. There is an operating cycle

involved in sales and realization of cash. There are time gaps in purchase of raw material and

production; production and sales; and realization of cash.

Thus working capital is needed for the following purposes:

For the purpose of raw material, components and spares.

To pay wages and salaries

To incur day-to-day expenses and overload costs such as office expenses.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to the customer.

To maintain the inventories of the raw material, work-in-progress, stores and spares and

finished stock.

For studying the need of working capital in a business, one has to study the business under

varying circumstances such as a new concern requires a lot of funds to meet its initial

requirements such as promotion and formation etc. These expenses are called preliminary

expenses and are capitalized. The amount needed for working capital depends upon the size of

the company and ambitions of its promoters. Greater the size of the business unit, generally

larger will be the requirements of the working capital.

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The requirement of the working capital goes on increasing with the growth and expensing of the

business till it gains maturity. At maturity the amount of working capital required is called

normal working capital.

There are others factors also influence the need of working capital in a business.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS: The requirements of working is very limited in public utility

undertakings such as electricity, water supply and railways because they offer cash sale

only and supply services not products, and no funds are tied up in inventories and

receivables. On the other hand the trading and financial firms requires less investment in

fixed assets but have to invest large amt. of working capital along with fixed investments.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of

working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating

inventories it will require higher working capital.

4. LENGTH OF PRODUCTION CYCLE: The longer the manufacturing time the raw

material and other supplies have to be carried for a longer in the process with progressive

increment of labor and service costs before the final product is obtained. So working

capital is directly proportional to the length of the manufacturing process.

5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger

working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes one

cycle determines the requirements of working capital. Longer the cycle larger is the

requirement of working capital.

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DEBTORS

CASH FINISHED GOODS

RAW MATERIAL

WORK IN PROGRESS

7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the

question of working capital and the velocity or speed with which the sales are affected. A

firm having a high rate of stock turnover wuill needs lower amt. of working capital as

compared to a firm having a low rate of turnover.

8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its

product / services on cash requires lesser amt. of working capital and vice-versa.

9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need

for larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion

of business, etc. On the contrary in time of depression, the business contracts, sales

decline, difficulties are faced in collection from debtor and the firm may have a large

amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large

amt. of working capital.

11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning

capacity than other due to quality of their products, monopoly conditions, etc. Such firms

may generate cash profits from operations and contribute to their working capital. The

dividend policy also affects the requirement of working capital. A firm maintaining a

steady high rate of cash dividend irrespective of its profits needs working capital than the

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firm that retains larger part of its profits and does not pay so high rate of cash dividend.

12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital

requirements. Generally rise in prices leads to increase in working capital.

Others FACTORS: These are:

Operating efficiency.

Management ability.

Irregularities of supply.

Import policy.

Asset structure.

Importance of labor.

Banking facilities, etc.

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting to

manage the current assets, current liabilities. The basic goal of working capital management

is to manage the current assets and current liabilities of a firm in such a way that a

satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as

both the situations are bad for any firm. There should be no shortage of funds and also no

working capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a

firm has a great on its probability, liquidity and structural health of the organization. So

working capital management is three dimensional in nature as

1. It concerned with the formulation of policies with regard to profitability, liquidity and

risk.

2. It is concerned with the decision about the composition and level of current assets.

3. It is concerned with the decision about the composition and level of current liabilities.

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business. Adequate amount

of working capital is very much essential for the smooth running of the business. And the

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most important part is the efficient management of working capital in right time. The

liquidity position of the firm is totally effected by the management of working capital. So, a

study of changes in the uses and sources of working capital is necessary to evaluate the

efficiency with which the working capital is employed in a business. This involves the need

of working capital analysis.

The analysis of working capital can be conducted through a number of devices, such as:

1. Ratio analysis.

2. Fund flow analysis.

3. Budgeting.

1. RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The technique of ratio

analysis can be employed for measuring short-term liquidity or working capital position of a

firm. The following ratios can be calculated for these purposes:

1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.

8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS

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Fund flow analysis is a technical device designated to the study the source from which

additional funds were derived and the use to which these sources were put. The fund flow

analysis consists of:

a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position (working capital)

business enterprise between beginning and ending of the financial dates.

3. WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and polices to be

pursued in the future period time. Working capital budget as a part of the total budge ting

process of a business is prepared estimating future long term and short term working capital

needs and sources to finance them, and then comparing the budgeted figures with actual

performance for calculating the variances, if any, so that corrective actions may be taken in

future. He objective working capital budget is to ensure availability of funds as and needed,

and to ensure effective utilization of these resources. The successful implementation of

working capital budget involves the preparing of separate budget for each element of

working capital, such as, cash, inventories and receivables etc.

ANALYSIS OF SHORT TERM FINANCIAL POSITION OR TEST OF LIQUIDITY

The short term creditors of a company such as suppliers of goods of credit and

commercial banks short-term loans are primarily interested to know the ability of a firm to

meet its obligations in time. The short term obligations of a firm can be met in time only

when it is having sufficient liquid assets. So to with the confidence of investors, creditors,

the smooth functioning of the firm and the efficient use of fixed assets the liquid position of

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the firm must be strong. But a very high degree of liquidity of the firm being tied up in

current assets. Therefore, it is important proper balance in regard to the liquidity of the

firm. Two types of ratios can be calculated for measuring short-term financial position or

short-term solvency position of the firm.

1. Liquidity ratios.

2. Current assets movements ratios.

A) LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as and when these

become due. The short-term obligations are met by realizing amounts from current, floating

or circulating assts. The current assets should either be liquid or near about liquidity. These

should be convertible in cash for paying obligations of short-term nature. The sufficiency

or insufficiency of current assets should be assessed by comparing them with short-term

liabilities. If current assets can pay off the current liabilities then the liquidity position is

satisfactory. On the other hand, if the current liabilities cannot be met out of the current

assets then the liquidity position is bad. To measure the liquidity of a firm, the following

ratios can be calculated:

1. CURRENT RATIO

2. QUICK RATIO

3. ABSOLUTE LIQUID RATIO

1. CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure of general liquidity and its

most widely used to make the analysis of short-term financial position or liquidity of a

firm. It is defined as the relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS

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CURRENT LIABILITES

The two components of this ratio are:

1) CURRENT ASSETS

2) CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry debtors,

inventories and work-in-progresses. Current liabilities include outstanding expenses, bill

payable, dividend payable etc.

A relatively high current ratio is an indication that the firm is liquid and has the ability to

pay its current obligations in time. On the hand a low current ratio represents that the

liquidity position of the firm is not good and the firm shall not be able to pay its current

liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double

the current liabilities is considered to be satisfactory.

CALCULATION OF CURRENT RATIO

(Rupees in crore)

e.g.

Year 2008 2009 2010

Current Assets 1.5 3 5

Current Liabilities 1 2 3

Current Ratio 1.5:1 1.5:1 1.66:1

Interpretation:-

As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the

company for last three years it has increased from 2006 to 2008. The current ratio of

company is more than the ideal ratio. This depicts that companys liquidity position is

sound. Its current assets are more than its current liabilities.

2. QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be

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defined as the relationship between quick/liquid assets and current or liquid liabilities. An

asset is said to be liquid if it can be converted into cash with a short period without loss of

value. It measures the firms capacity to pay off current obligations immediately.

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITES

Where Quick Assets are:

1) Marketable Securities

2) Cash in hand and Cash at bank.

3) Debtors.

A high ratio is an indication that the firm is liquid and has the ability to meet its current

liabilities in time and on the other hand a low quick ratio represents that the firms liquidity

position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if

quick assets are equal to the current liabilities then the concern may be able to meet its

short-term obligations. However, a firm having high quick ratio may not have a satisfactory

liquidity position if it has slow paying debtors. On the other hand, a firm having a low

liquidity position if it has fast moving inventories.

CALCULATION OF QUICK RATIO

e.g. (Rupees inCrore)

Interpretation :

A quick ratio is an indication that the firm is liquid and has the ability to meet its

current liabilities in time. The ideal quick ratio is 1:1. Companys quick ratio is more than

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Year 2008 2009 2010

Quick Assets 1.5 3 5Current Liabilities 1 2 3

Quick Ratio 1.5:1 1.5:1 1.66:1


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ideal ratio. This shows company has no liquidity problem.

3. ABSOLUTE LIQUID RATIO

Although receivables, debtors and bills receivable are generally more liquid than

inventories, yet there may be doubts regarding their realization into cash immediately or in

time. So absolute liquid ratio should be calculated together with current ratio and acid test

ratio so as to exclude even receivables from the current assets and find out the absolute

liquid assets. Absolute Liquid Assets includes :

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

e.g. (Rupees in Lakh)

Year 2008 2009 2010

Absolute Liquid Assets 20 10 25

Current Liabilities 100 200 300

Absolute Liquid Ratio .0.2 : 1 0.05 : 1 .0.0833 : 1

Interpretation :

These ratio shows that company carries a small amount of cash. But there is nothing to

be worried about the lack of cash because company has reserve, borrowing power & long

term investment. In India, firms have credit limits sanctioned from banks and can easily

draw cash.

B) CURRENT ASSETS MOVEMENT RATIOS

Funds are invested in various assets in business to make sales and earn profits. The

efficiency with which assets are managed directly affects the volume of sales. The better

the management of assets, large is the amount of sales and profits. Current assets

movement ratios measure the efficiency with which a firm manages its resources. These

ratios are called turnover ratios because they indicate the speed with which assets are

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converted or turned over into sales. Depending upon the purpose, a number of turnover

ratios can be calculated. These are :

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

3. Creditors Turnover Ratio

4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include high amount

of debtors due to slow credit collections and moreover if the assets include high amount of

slow moving inventories. As both the ratios ignore the movement of current assets, it is

important to calculate the turnover ratio.

1. INVENTORY TURNOVER OR STOCK TURNOVER RATIO :

Every firm has to maintain a certain amount of inventory of finished goods so as to

meet the requirements of the business. But the level of inventory should neither be

too high nor too low. Because it is harmful to hold more inventory as some amount of

capital is blocked in it and some cost is involved in it. It will therefore be advisable to

dispose the inventory as soon as possible.

INVENTORY TURNOVER RATIO = COST OF GOOD SOLD

AVERAGE INVENTORY

Inventory turnover ratio measures the speed with which the stock is converted into

sales. Usually a high inventory ratio indicates an efficient management of inventory

because more frequently the stocks are sold ; the lesser amount of money is required

to finance the inventory. Where as low inventory turnover ratio indicates the

inefficient management of inventory. A low inventory turnover implies over

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investment in inventories, dull business, poor quality of goods, stock accumulations

and slow moving goods and low profits as compared to total investment.

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK/2

(Rupees in Lakh)

Year 2008 2009 2010

Cost of Goods sold 50 150 225

Average Stock 35 70 125

Inventory Turnover Ratio 1.4 times 2.14times 1.8 times

Interpretation :

These ratio shows how rapidly the inventory is turning into receivable through sales. In

2007 the company has high inventory turnover ratio but in 2008 it has reduced to 1.75

times. This shows that the companys inventory management technique is less efficient as

compare to last year.

2. INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD = 365 (net working days)

INVENTORY TURNOVER RATIO

e.g.

Year 2008 2009 2010

Days 365 365 365

Inventory Turnover Ratio 1.5 2.8 1.8

Inventory Conversion Period 243 days 130 days 202 days

Interpretation :

Inventory conversion period shows that how many days inventories takes to convert

from raw material to finished goods. In the company inventory conversion period is

decreasing. This shows the efficiency of management to convert the inventory into cash.

3. DEBTORS TURNOVER RATIO :

A concern may sell its goods on cash as well as on credit to increase its sales and a

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liberal credit policy may result in tying up substantial funds of a firm in the form of trade

debtors. Trade debtors are expected to be converted into cash within a short period and are

included in current assets. So liquidity position of a concern also depends upon the quality

of trade debtors. Two types of ratio can be calculated to evaluate the quality of debtors.

a) Debtors Turnover Ratio

b) Average Collection Period

DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)

AVERAGE DEBTORS

Debtors velocity indicates the number of times the debtors are turned over during a

year. Generally higher the value of debtors turnover ratio the more efficient is themanagement of debtors/sales or more liquid are the debtors. Whereas a low debtors

turnover ratio indicates poor management of debtors/sales and less liquid debtors. Thisratio should be compared with ratios of other firms doing the same business and a trendmay be found to make a better interpretation of the ratio.

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

2

e.g.

Year 2008 2009 2010

Sales 166.0 151.5 169.5Average Debtors 17.33 18.19 22.50

Debtor Turnover Ratio 9.6 times 8.3 times 7.5 times

Interpretation : This ratio indicates the speed with which debtors are being converted orturnover into sales. The higher the values or turnover into sales. The higher the values of

debtors turnover, the more efficient is the management of credit. But in the company the

debtor turnover ratio is decreasing year to year. This shows that company is not utilizing itsdebtors efficiency. Now their credit policy become liberal as compare to previous year.

4. AVERAGE COLLECTION PERIOD :

Average Collection Period = No. of Working Days

Debtors Turnover Ratio

The average collection period ratio represents the average number of days for which a

firm has to wait before its receivables are converted into cash. It measures the quality of

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debtors. Generally, shorter the average collection period the better is the quality of debtors

as a short collection period implies quick payment by debtors and vice-versa.

Average Collection Period = 365 (Net Working Days)

Debtors Turnover Ratio

Year 2008 2009 2010

Days 365 365 365

Debtor Turnover Ratio 9.6 8.3 7.5

Average Collection Period 38 days 44 days 49 days

Interpretation : The average collection period measures the quality of debtors and it helps

in analyzing the efficiency of collection efforts. It also helps to analysis the credit policy

adopted by company. In the firm average collection period increasing year to year. It shows

that the firm has Liberal Credit policy. These changes in policy are due to competitors

credit policy.

5. WORKING CAPITAL TURNOVER RATIO :

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

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

in the course of the year. This ratio measures the efficiency with which the working

capital is used by the firm. A higher ratio indicates efficient utilization of working

capital and a low ratio indicates otherwise. But a very high working capital turnover

is not a good situation for any firm.

Working Capital Turnover Ratio = Cost of Sales

Net Working Capital

Working Capital Turnover = Sales

Networking Capital

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e.g

Year 2008 2009 2010

Sales 166.0 151.5 169.5

Networking Capital 53.87 62.52 103.09

Working Capital Turnover 3.08 2.4 1.64

Interpretation : This ratio indicates low much net working capital requires for sales. In

2008, the reciprocal of this ratio (1/1.64 = .609) shows that for sales of Rs. 1 the companyrequires 60 paisa as working capital. Thus this ratio is helpful to forecast the working

capital requirement on the basis of sale.

INVENTORIES

(Rs. in Lakh)

Year 2007-2008 2008-2009 2009-2010

Inventories 57.15 95.69 125.01

Interpretation :

Inventories is a major part of current assets. If any company wants to manage its

working capital efficiency, it has to manage its inventories efficiently. The graph shows

that inventory in 2005-2006 is 45%, in 2006-2007 is 43% and in 2007-2008 is 54% of their

current assets. The company should try to reduce the inventory upto 10% or 20% of current

assets.

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RESEARCH METHODOLOGY

The methodology, I have adopted for my study is the various tools, which basically analyze critically

financial position of to the organization:

I. COMMON-SIZE P/L A/C

II. COMMON-SIZE BALANCE SHEET

III. COMPARTIVE P/L A/C

IV. COMPARTIVE BALANCE SHEET

V. TREND ANALYSIS

VI. RATIO ANALYSIS

The above parameters are used for critical analysis of financial position. With the evaluation of

each component, the financial position from different angles is tried to be presented in well and

systematic manner. By critical analysis with the help of different tools, it becomes clear how the

financial manager handles the finance matters in profitable manner in the critical challenging

atmosphere, the recommendation are made which would suggest the organization in formulation of a

healthy and strong position financially with proper management system.

ANALYSIS OF FINANCIAL STATEMENTS

FINANCIAL STATEMENTS:

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Financial statement is a collection of data organized according to logical and consistent accounting

procedure to convey an under-standing of some financial aspects of a business firm. It may show

position at a moment in time, as in the case of balance sheet or may reveal a series of activities over

a given period of time, as in the case of an income statement. Thus, the term financial statements

generally refers to the two statements

(1) The position statement or Balance sheet.

(2) The income statement or the profit and loss Account.

OBJECTIVES OF FINANCIAL STATEMENTS:

According to accounting Principal Board of America (APB) states

The following objectives of financial statements: -

1. To provide reliable financial information about economic resources and obligation of a business

firm.

2. To provide other needed information about charges in such economic resources and obligation.

3. To provide reliable information about change in net resources (recourses less obligations) missing

out of business activities.

4. To provide financial information that assets in estimating the learning potential of the business.

LIMITATIONS OF FINANCIAL STATEMENTS:

Though financial statements are relevant and useful for a concern, still they do not present a final

picture a final picture of a concern. The utility of these statements is dependent upon a number of

factors. The analysis and interpretation of these statements must be done carefully otherwise

misleading conclusion may be drawn.

Financial statements suffer from the following limitations: -

1. Financial statements do not given a final picture of the concern. The data given in these statements

is only approximate. The actual value can only be determined when the business is sold or

liquidated.

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2. Financial statements have been prepared for different accounting periods, generally one year,

during the life of a concern. The costs and incomes are apportioned to different periods with a view

to determine profits etc. The allocation of expenses and income depends upon the personal judgment

of the accountant. The existence of contingent assets and liabilities also make the statements

imprecise. So financial statement are at the most interim reports rather than the final picture of the

firm.

3. The financial statements are expressed in monetary value, so they appear to give final and

accurate position. The value of fixed assets in the balance sheet neither represent the value for which

fixed assets can be sold nor the amount which will be required to replace these assets. The balance

sheet is prepared on the presumption of a going concern. The concern is expected to continue in

future. So fixed assets are shown at cost less accumulated deprecation. Moreover, there are certain

assets in the balance sheet which will realize nothing at the time of liquidation but they are shown in

the balance sheets.

4. The financial statements are prepared on the basis of historical costs Or original costs. The value

of assets decreases with the passage of time current price changes are not taken into account. The

statement are not prepared with the keeping in view the economic conditions. the balance sheet loses

the significance of being an index of current economics realities. Similarly, the profitability shown

by the income statements may be represent the earning capacity of the concern.

5. There are certain factors which have a bearing on the financial position and operating result of the

business but they do not become a part of these statements because they cannot be measured in

monetary terms. The basic limitation of the traditional financial statements comprising the balance

sheet, profit & loss A/c is that they do not give all the information regarding the financial operation

of the firm. Nevertheless, they provide some extremely useful information to the extent the balance

sheet mirrors the financial position on a particular data in lines of the structure of assets, liabilities

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etc. and the profit & loss A/c shows the result of operation during a certain period in terms revenue

obtained and cost incurred during the year. Thus, the financial position and operation of the firm.

FINANCIAL STATEMENT ANALYSIS

It is the process of identifying the financial strength and weakness of a firm from the available

accounting data and financial statements. The analysis is done

CALCULATIONS OF RATIOS

Ratios are relationship expressed in mathematical terms between figures, which are connected with

each other in some manner.

CLASSIFICATION OF RATIOS

Ratios can be classified in to different categories depending upon the basis of classification

The traditional classification has been on the basis of the financial statement to which the

determination of ratios belongs.

These are:-

Profit & Loss account ratios

Balance Sheet ratios

Composite ratios

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COST OF THE PROJECT

The Cost of the proposed project is estimated at Rs.100.25 lacs as per details given here under: -

LAND

The company purchased the open land measuring 2.265 acres at Dighot village in Noida district at a cost of Rs.40 lacs. The land

purchased is need based considering the size and volume of operations proposed by the unit for future expansion. The location beingconnected to main highways and shall leverage best to connect with entire NCR area which is developing as centre for production of

major garments and existing and future customers of the unit are located.

BUILDING

The company proposes to construct working shed measuring 1900 sq mtrs. using prefab structure technology for production of electriccables with inbuilt office area and canteens etc. Adequate provision for boundary wall, open area flooring, faced work, rain water

harvesting etc has been kept in the project. The cost of building estimated at Rs 10 lacs.

PLANT AND MACHINERY

It is proposed to purchase latest technology, high performance and quality machines manufacturing of Garments & Chemicals asdetailed in annexure. The plant & machinery proposed includes both imported as well as indigenous machines a .The detail of the

plant and machinery is annexed herewith. The total cost of plant & machinery including utilities e.g. DG Sets, Compressors Lifts EOTcranes etc has been estimated @ Rs 50 lacs.

The plant & machinery has been identified considering the proposed product range, precision and quality standards required and it isconsidered sufficient to undertake projects to targeted turnover and capacity.

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RS IN

LACS

DETAILS OF PROPOSED PLANT AND MACHINERY (INDIGENOUS)

. PARTICULARS SUPPLIER QTY. UNIT PRICE

IN USD

CONVERSION

FACTOR

UNIT PRICE COST EXISE

DUTY

CST OTHER

EXP, IFANY.

TOTAL

COST

1 MULTI WIRE

DRAWING INDIA

SCOPE

NEIHOFF

INDIA

1 20.25 2.5 2.76 0.00 21.25

2 DOUBLE TWIST 630MM, BUNCHER

NEIHOFFINDIA

2

3 ARCH 630 R, PAY OFF

STANDS

NEIHOFF

INDIA

SET

4 WIRE DRAWING DIES WALSON

WOODBUR

N WIRE DIE

PVT LTD

1 2.24 2.24 0.23 0.05 0.00

5 TOOLINGS FOREXTRUDER &

BUNCHING MACHINES

SELFFABRICATE

D

1 2.25 0.00 0.00 0.00 0.00

6 BIG BUNCHER WITH

PAY OFF STATION(SELF FAB)

NEWMAX

ENGINEERS

1 5.50 5.50 0.55 0.12 0.00

1 2.00 2.00 0.00 0.00 0.00

7 QC/QA LAB ARUNINDUSTRIE

S

L.S. 1

8 DG SET 385 KVA SVAMPOER

PLANTS

LTD

1 19.22 19.22 1.98 0.42 0.00 2

9 MAINTINANCE TOOLROOM

OPENMARKET

1 1

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4. ELECTRICALS

A provision of Rs 50 lacs has been made under this head meeting the cost of of transformer,

cabling from DHVBN supply point to transformer, to Main Controls & Distribution Panelsand there from to each machinery unit. Cost of CTPT, Machinery Control and monitoring

panels, cost of earthling. Generator lines, Switch gears etc on turnkey basis.

5. CONTINGENCIES

A provision of 5 % of the cost of building and machinery has been kept to meet any cost

escalation during project implementation period as entire cost is unconfirmed at present.

6. MISC. FIXED ASSETS

A provision of Rs 20.0 lacs has been estimated under this head towards the cost of furniture

& Fixture, office equipment & firefighting equipment and transport and material handlingequip. and vehicles.

7. PRELIMINARY & PREOPERATIVE EXPENSES

A provision of Rs 71.16 lacs has been kept in order to meet the cost of profession charges,

loan processing fee, and interest during construction period and to meet the other startup

expenses.

8. MARGIN MONEY FOR WORKING CAPITAL

Working capital requirements have been worked out for the entire operations including the

new project and hence this has not been shown in the project cost.

MEANS OF FINANCE

The total cost of the proposed project estimated at Rs.3044.77 lacs will be financed as under:

PARTICULARS AMOUNT (RS. IN LACS)

Share Capital 42.00

Internal Accruals 38.89

Unsecured Loans 28.00

Term Loan Bank 50.00

Total 158.89

PRODUCTION FACTORS AND UTILITIES

SITE:

The proposed site of the new project is situated in a strategic location and well connected with good

road to NH2 where all the infrastructure facilities are available.

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RAW MATERIAL

The major raw material required is Copper, PVC, etc. All the material is easily available in the NCR

region and promoters have tie-ups with leading suppliers in the region.

POWER

The total power requirement has been estimated at 750 KW for running the plant and machinery and

electrical load of the unit the same shall be met from DHVBN supply. however provision of stand byDG set of equivalent capacity has been kept in the project.

WATER

Water is required for human consumption and for sanitation purposes. The unit will meet its waterrequirements from underground sources.

MANPOWER

The concern proposed to generate employment of 50 persons for running the unit. People experienceand skills are easily available in the region and company shall not face any problem of manpower.

CONSUMABLE STORESThe company shall require oil, lubricant, high speed diesel etc as consumables these are easily

available in Delhi and NCR market.

EFFLUENT

The unit will not generate any health hazardous effluents.

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CHAPTER 3

METHODOLOGY

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CHAPTER 3

RESEARCH METHODOLOGY

INTRODUCTION

The present chapter describes the research methodology which was applied for conducting this research.

The various aspects of the research methodology were described into the various specified sections

which are; design of the research, data collection, data analysis, and validity and reliability.

RESEARCH DESIGN

Research methodology details the procedures necessary for obtaining the information needed to

structure and/or solve research problems. Although a broad approach to the problem had already been

developed, the research design specified the details the nuts and bolts of implementing that approach.

The design of research was determined by the nature of the problem that has to be explored and the

research question that is formulated. The statement regarding the nature of the problem identified

concepts that had to be explored and that would have influenced the data collection methods, the

subsequent data analysis and reporting.

According to the philosophy of research design, research can be exploratory or conclusive.

Exploratory research- The primary objective of exploratory research was to provide insights into, and

an understanding of, the problem. Exploratory research is used in cases when one must define the

problem more precisely, identify relevant courses of action, or gain additional insights before an

approach can be developed.

Conclusive research- Conclusive research is typically more formal and structured than exploratory

research. It is based on large, representative samples, and the data obtained are subjected to quantitative

analysis. The findings from this research are considered to be conclusive in nature in that they are used

as input into managerial decision-making .

So far as the present research was concerned, the research was exploratory in nature as it had been

conducted on the basis of a problem confronted. This problem was identified as Project Funding and

Working Capital Management for The New Age Creation.

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Banks use credit rating to analyze the credit worthiness of any proposed customers (borrower). And then based up on the

credit rating and the risk appraisal the bank decides up on the rate on interest or the charge to be levied up on a

particular finance. Thus, it is an issue of key concern for any organization to understand the norms based up on which the

banks frame this credit rating policy. Credit Rating agencies both internal as well as external, pay keen interest and base to

certain macro as well micro environmental elements, this is basically because of the fact that not just the financials but also

the economic and non economic environmental factors determine the over all credit worthiness of any financial

organization, a few of these most crucial elements are:

Management

Institutional Arrangement

Capital Adequacy and Asset Quality

Resources

Operational Effectiveness

Scalability and Sustainability

Transparency & disclosure

Value Creation and distribution Banking organizations also look in to various risk and credit policies before framing their

policies. The main concern of any bank before framing the credit ratings is to analyze and achieve a perfect customer

(borrower) whose credit worthiness would be sound enough to avoid the NPA or risk coherence of the lending. Credit

Ratings most of give ranks or grades to institutions and organizations based up on their financial and economic feasibility,

thus for any organization it is an issue of keen consideration to understand the credit rating policy of any banking

organization. Other than this key issues considered while framing a credit rating policy for any banking organization.

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CHAPTER 4

DATA COLLECTION

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CHAPTER 4

DATA COLLECTION

The two most common data that are collected for exploratory research are primary and secondary data.

Primary data is original data using an accepted research methodology and secondary data is already

available data as it is collected for other research purposes. In research projects where original primary

data is collected, secondary data establish what work has been undertaken in a particular area before is a

necessary precursor to research design . In accordance with the above academic establishments, the

present research included both primary and secondary data, where the purpose of collecting primary data

was to generate new data regarding the research problem, and purpose of collecting secondary data was

to compare and contrast the new data with the previous one.

Secondary Data

Secondary data is the data that has been gathered previously for a project other than the particular one.

The most important advantage of secondary data is that it can be collected from various sources rather

quickly and cheaply than the primary data. However, the most significant limitation of secondary

sources lies in the fact that someone else collected the data for his/her own purposes. Therefore, as the

information may meet specific needs, definitions or units of measure may be different and may not be

appropriate for evaluation in another project. Moreover, it is difficult to evaluate the accuracy of any

information provided because little is known about the research design used or any other condition

under which the research took place. Finally, it is doubtful that data collected long time ago would be

relevant presently.

Despite all these reasons, secondary data may be useful as a reference base to compare research

findings. Thus, even for a relatively unique research situation scanning the secondary data would

possibly offer much useful insight. In order to collect secondary data, various libraries, and websites

(online library) were visited. The secondary data in this research is presented in form of literature

review.

The main purpose of critically reviewing the literature was to explore the data and findings and

subsequently related them to the existing literature on the subject matter concerned. Thus, a critical

review of the literature regarding service quality helped achieve the same. According to Saunders et al

(2000) this approach is known as inductive approach.

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Primary Data

Besides the below information which was taken from the company for assessment of financials like:

Last 3 years audited financial statements along with

Tax Audit report/3CB-3CD

Directors report

Notes to accounts

All schedules attached

Break up of unsecured loans

Break up of investments

Break up loans and advances appearing in liability and assets.

Nature of contingent liability if any.

Provisional financials of current year.

Last 2 years ITRs of all promoters and company.

Advance tax challans for the latest years to ensure sales.

Group company audited financials

Sanction letter for all major existing working capital facilities availed by the company.

Statements of all banks for last six months.

Debtors & Creditor list for current year.

Order in hands/copy of all agreements.

Copy of pollution license/Vintage proof.

Details of all immovable property which are offered as collateral.

For obtaining the primary data for my project, I propose to use self questionnaire method on directors

and promoters of the company. A standardized interview will be conducted to gather information on

setting up a backward integration unit for manufacturing of cables and other means of finance. Interview

will include related and unrelated expenses and future outlook of the company.

The Questionnaire - Questionnaires are an inexpensive way to gather data from a potentially large

number of respondents. Often they are the only feasible way to reach a number of reviewers large

enough to allow statistical analysis of the results. A well-designed questionnaire that is used effectively

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can gather information on both the overall performance of the test system as well as information on

specific components of the system. If the questionnaire includes demographic questions on the

participants, they can be used to correlate performance and satisfaction with the test system among

different groups of users.

It is important to remember that a questionnaire should be viewed as a multi-stage process beginning

with definition of the aspects to be examined and ending with interpretation of the results. Every step

needs to be designed carefully because the final results are only as good as the weakest link in the

questionnaire process. Although questionnaires may be cheap to administer compared to other data

collection methods, they are every bit as expensive in terms of design time and interpretation. The

questionnaire in this research consisted 22questions (close-ended).

Types of Question- There are basically two types of question open and closed. The closed question

restricts the answers to a small set of responses and requires the questionnaire designer to have a fair

knowledge of the range of options the subjects might have in this area. It does however generate precise

answers, while open-ended question have the merit of not imposing restrictions as to the possible answer

but are harder to aggregate and computerize. It has the merit of offering richer and deeper responses.

The present study limited the use of only close-ended questions in the questionnaire. The questionnaire

consisted of 22 close-ended questions.

Sampling-In the words of Clark et al. (2003), a sample is a sub-set of a larger grouping, a population.Samples are frequently studied in order to learn something of the characteristics of the larger groups of

which they are a part of. Such samples, if selected in certain ways can be used as a legitimate basis for

drawing inferences about the populations from which they were drawn from in essence, within certain

boundaries.

The sample in this research consisted promoters of The New Age Creation. These are director and

Managers of the company. The response rate was also 100 percent.

The above-mentioned persons were chosen because they were known and it was easy to arrange

interviews in the respective office. The employees were approached directly with the help of the

manager staff. The employees were selected conveniently.

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Data selection procedure- The data was collected from the CAs and accounts manager of the company.

Respondents were initially led to engage in a general conversation and thereafter the questionnaires were

asked to be filled. Interestingly, all the questionnaires that distributed were positively responded.

CHAPTER 5

DATA ANALYSIS

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CHAPTER 5

DATA ANALYSIS

Data was analyzed systematically. Findings from data were related to aspects of the methodology

wherever appropriate, and effects arising from the choice of methods were recognized and commented

upon. Wherever the research was an extended literature review or a theoretical critique of existing

research, competing and complementary positions in the debate concerned were clearly explained,

compared and contrasted, and an assessment of the relative merits of these positions were given together

with a clear statement of their implications for the topic under scrutiny. Such an approach of content

analyzing of qualitative data is suggested by Hamel (1993). Keeping in mind of these norms, the

collected data was analyzed in accordance with the objectives of the research.

VALIDITY AND RELIABILITY

To ensure validity, questionnaire were pre-tested and debugged before widespread distribution. The

format of the questionnaire, the wording and sequence of questions, affects the validity of the responses

and in the case of mail questionnaires, the number of responses received. For ensuring validity, the

wording and sequencing of questions was done sensitively. Further, the questionnaire was also pre-

tested. Reliability refers to the consistency with which the technique measures what it does measure.

This consistency was maintained to greatest possible extent.

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DATA ANALYSIS

INTRODUCTION

This chapter includes the analysis of data collected from the sample size of promoters.

Questionnaire was prepared to collect the primary data, which included a total of 22 questions.

Questionnaire was divided into Eight sections:

1. View on garment segment and its future.2. Quality Perceptions

3. Self belief and promoters commitments towards business

4. Customer Loyalty and relationship

5. Any future to brought P.E.(Private equity) investor.

6. Banking and relationships with other financials institutions.

7. Views About Yourself

8. Demographics

PROJECTED CASH FLOW STATEMENT AND BALANCE SHEET

The detailed cash flow statement projections and balance sheet are annexed herewith along with .The

company will generate sufficient cash accruals to pay off its debts and meet its working capital cycle.

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NDING AND WORKING CAPITAL MANAGEMENT

PROJECTIONS OF PERFORMANCE, COST OF PRODUCTION AND PROFITABILITY

(RS. IN LACS)

2010-

2011

2011-2012 2012-

2013

2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

SALES 385.98 437.39 547.09 768.79 13747.81 16077.67 18823.13 22061.28 25883.88

SALES 385.98 437.39 547.09 768.79 13747.81 16077.67 18823.13 22061.28 25883.88

5. LESS EXCISE 0.00 47.02 57.31 73.69 2098.53 0.00 0.00 0.00 0.00

6. NET SALES 385.98 450.37 589.78 895.10 11649.28 16077.67 18823.13 22061.28 25883.88

7. OTHER INCOME 79.72 89.81 99.86 118.27 143.80 145.69 176.77 214.31 259.61

8. TOTAL INCOME 465.70 540.18 689.64 1013.37 11793.08 16223.36 18999.91 22275.59 26143.49

B. COST OF PRODUCTION

9. RAW MATERIAL CONSUMED 3106.35 4336.66 6080.61 7469.17 8784.88 10342.35 12187.38 14374.60 16969.23

10. CONSUMABLE STORES 54.36 59.27 69.65 83.62 100.78 121.43 146.27 176.14 212.07

11. POWER AND FUEL 18.63 65.68 110.39 137.75 151.52 166.68 183.34 201.68 221.84

12. WAGES AND SALARIES 369.98 425.02 440.59 532.27 647.78 787.58 956.66 1161.07 1408.07

13. REPAIRS AND MAINTENANCE 11.85 12.68 13.57 14.92 16.41 18.06 19.86 21.85 24.03

14. FACTORY OVERHEADS/ OTHER 93.67 111.81 135.99 165.81 199.03 238.90 286.74 344.17 413.09

MANUFACTURING EXPENSES

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C. TOTAL (B9 TO B15) 3654.84 5011.12 6850.80 8403.55 9900.41 11674.98 13780.26 16279.51 19248.32

LESS: CLOSING W.I.P. 100.13 126.55 163.21 198.70 235.96 280.37 333.34 396.55 471.99

3554.71 4884.56 6687.58 8204.84 9664.45 11394.61 13446.92 15882.96 18776.34

ADD: OPENING W.I.P. 47.72 100.13 126.55 163.21 198.70 235.96 280.37 333.34 396.55

15. NET COST OF PRODUCTION 3602.43 4984.70 6814.13 8368.06 9863.16 11630.57 13727.29 16216.30 19172.88

26.42 36.66 35.49 37.25

PROJECTIONS OF PERFORMANCE, COST OF PRODUCTION AND PROFITABILITY

(RS. IN LACS)

2010-

2011

2011-2012 2012-

2013

2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

16. ADMINISTRATIVE EXPENSES 134.17 156.26 178.90 212.98 257.62 311.43 376.27 454.39 548.47

17. SELLING AND PACKAGING EXPENSES 40.66 63.85 100.17 123.63 144.24 168.49 197.03 230.66 270.33

18. RENT, RATES AND TAXES 1.44 2.70 2.97 3.27 3.60 3.96 4.35 4.79 5.27

19. PRELIMINARY EXPENSES WRITTEN OFF 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

20. REMUNERATION TO DIRECTORS 127.40 151.40 166.54 183.19 201.51 221.66 243.83 268.21 295.04

D. TOTAL 3906.09 5385.32 7299.38 8926.62 10507.38 12336.11 14548.77 17174.36 20291.99

LESS: CLOSING FINISHED GOODS 195.30 232.19 281.59 339.01 405.14 484.34 579.20 692.83 828.96

3710.79 5153.14 7017.79 8587.61 10102.25 11851.77 13969.57 16481.53 19463.04

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ADD: OPENING FINISHED GOODS 71.58 195.30 232.19 281.59 339.01 405.14 484.34 579.20 692.83

E. TOTAL 3782.37 5348.44 7249.97 8869.21 10441.25 12256.90 14453.91 17060.73 20155.87

F. PROFIT/(LOSS) BEFORE INTEREST 283.33 718.15 976.33 1179.66 1389.08 1645.07 1948.76 2309.22 2737.23

AND DEPRECIATION

G. INTEREST

a) ON TERM LOAN 17.65 53.75 72.08 54.23 40.87 29.60 18.32 7.05 0.00

b) ON WORKING CAPITAL 36.39 127.01 169.01 169.01 169.01 169.01 169.01 169.01 169.01

c) ON UNSECURED LOANS & OTHERS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

H. DEPRECIATION 57.97 157.81 137.46 119.83 104.55 91.29 79.77 69.77 61.07

I. PROFIT/(LOSS) BEFORE TAXATION 171.32 379.58 597.77 836.58 1074.65 1355.17 1681.65 2063.39 2507.14

J. PROVISION FOR TAXES 42.83 58.28 149.44 209.14 268.66 338.79 420.41 515.85 626.79

K. NET PROFIT 128.49 321.30 448.33 627.43 805.98 1016.38 1261.24 1547.54 1880.36

L. NET CASH ACCRUALS 186.46 479.11 585.79 747.27 910.53 1107.66 1341.01 1617.31 1941.43

10.26 10.37 10.47

0.03 0.05 0.05 0.05 0.06 0.06 6.64 6.95 7.19

665.57

CASH FLOW STATEMENT

(RS. IN

LACS)

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2010-

2011

2011-2012 2012-

2013

2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

A. SOURCES OF FUNDS

1. PROFIT BEFORE INTEREST, 283.33 718.15 976.33 1179.66 1389.08 1645.07 1 948.76 2 309.22 2737.23

DEPRECIATION AND TAXES

2. INCREASE IN CAPITAL 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

3. INCREASE IN LONG TERM 346.25 390.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

LOANS DEBENTURES

4. INCREASE IN BANK BORROWINGS 342.65 728.45 369.92 0.00 0.00 0.00 0.00 0.00 0.00

FOR WORKING CAPITAL

5. INCREASE IN CREDITORS 14.99 - 247.12 -127.90 0.00 0.00 0.00 0.00 0.00 0.00

6. INCREASE IN UNSECURED LOANS 170.00 105.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL SOURCES (A) 1257.23 1694.48 1218.35 1179.66 1389.08 1645.07 1948.76 2309.22 2737.23

B. DISPOSITION OF FUNDS

1. PRELIMINARY & PREOPERATIVE EXP. 17.79 53.37 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2. INCREASE IN CAPITAL EXPENDITURE 537.00 532.17 25.00 0.00 0.00 0.00 0.00 0.00 0.00

3. INCREASE IN CURRENT ASSETS

a) ADVANCES, INVESTMENTS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

& OTHER ASSETS

b) OTHERS 542.89 721.62 410.65 0.00 0.00 0.00 0.00 0.00 0

4. DECREASE IN LONG TERM LOANS/ 48.37 93.75 194.39 153.72 103.94 102.50 102.50 102.50 0.00

DEBENTURES

5. INTEREST 54.04 180.76 241.09 223.25 209.89 198.61 187.34 176.06 169.01

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6. TAXATION 42.83 58.28 149.44 209.14 268.66 338.79 420.41 515.85 626.79

7. DECREASE IN UNSECURED LOANS 24.80 24.80 0.00 0.00 0.00 0.00 0.00 0.00 0.00

8. DIVIDENDS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL DISPOSITION (B) 1267.72 1664.76 1020.58 586.11 582.49 639.90 710.25 794.41 795.80

C. OPENING BALANCE 21.36 10.87 40.59 238.36 831.91 1638.50 2643.66 3882.18 5396.99

D. NET SURPLUS (A-B) -10.49 29.72 197.77 593.55 806.59 1005.16 1238.51 1514.81 1941.43

E. CLOSING BALANCE 10.87 40.59 238.36 831.91 1638.50 2643.66 3882.18 5396.99 7338.41

PROJECTED BALANCE SHEET

(RS. IN

LACS)

PARTICULARS 2010-

2011

2011-2012 2012-

2013

2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

A. LIABILITIES

1. SHARE CAPITAL 140.01 140.01 140.01 140.01 140.01 140.01 140.01 140.01 140.01

2. RESERVE & SURPLUS /P & L ACCOUNT 341.27 662.57 1110.90 1738.34 2544.32 3560.70 4821.94 6369.48 8249.84

3. TERM LOANS 318.57 614.82 420.44 266.72 162.78 60.28 -42.22 -144.72 -144.72

4. UNSECURED LOANS 194.80 275.00 275.00 275.00 275.00 275.00 275.00 275.00 275.00

5. BANK BORROWINGS FOR W.CAPITAL 551.31 1279.76 1649.68 1649.68 1649.68 1649.68 1649.68 1649.68 1649.68

6. OTHER CURRENT LIABILITIES 862.03 614.91 487.01 487.01 487.01 487.01 487.01 487.01 487.01

TOTAL 2408.00 3587.07 4083.04 4556.76 5258.80 6172.68 7331.42 8776.46 10656.82

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B. ASSETS

1. GROSS BLOCK 965.79 1497.96 1522.96 1522.96 1522.96 1522.96 1522.96 1522.96 1522.96

2. DEPRECIATION 230.64 388.45 525.92 645.75 750.30 841.59 921.36 991.13 1052.20

3. NET BLOCK 735.15 1109.51 997.04 877.21 772.66 681.38 601.61 531.84 470.77

4. NON CURRENT ASSETS 37.56 90.93 90.93 90.93 90.93 90.93 90.93 90.93 90.93

5. CURRENT ASSETS 1597.81 2307.43 2715.08 2715.08 2715.08 2715.08 2715.08 2715.08 2715.08

6. CASH AND BANK BALANCE 10.87 40.59 238.36 831.91 1638.50 2643.66 3 882.18 5 396.99 7338.41

7. ADVANCES & OTHER CURRENT ASSETS 26.62 38.62 41.62 41.62 41.62 41.62 41.62 41.62 41.62

TOTAL 2408.01 3587.08 4083.04 4556.76 5258.80 6172.68 7331.42 8776.46 10656.82

CURRENT RATIO 1.12 1.20 1.28 1.57 1.96 2.41 2.96 3.64 4.72

TOL/TNW 2.71 2.54 1.78 1.17 0.80 0.57 0.41 0.30 0.23

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CHAPTER 6

FINDINGS

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CHAPTER 6

FINDINGS

All throughout this project, there were several learning experiences, both on floor and off floor, based up on those lea

experiences, certain findings and suggestions have been laid. It is not possible to list all those valuable information and know

gained from the project, but some of the corporeal knowledge acquired is listed below:

Findings:

1. To finance their major working capital requirements, organizations prefer banking solutions to other options as the

more economic and easily available.

2. Thus know how of various lending policies, credit policies and risk structures of various banks are extremely essential

3. For assessment of the working capital requirements companies follow aspecific regime of process, ranging from colle

of information to planning to budget to preparing financials for the required funds

Findings from data were related to aspects of the methodology wherever appropriate, and effe

arising from the choice of methods were recognized and commented upon. Wherever the resea

was an extended literature review or a theoretical critique of existing research, competing a

complementary positions in the debate concerned were clearly explained, compared and contrast

and an assessment of the company for lending.

Methods of lending:

Like many other activities of the banks, method and quantum of short-term finance that can

granted to a corporate was mandated by the Reserve Bank of India till 1994. This control w

exercised on the lines suggested by the recommendations of a study group headed by Shri Praka

Tandon.

The study group headed by Shri Prakash Tandon, the then Chairman of Punjab National Bank,

was constituted by the RBI in July 1974 with eminent personalities drawn from leading banks,

financial institutions and a wide cross-section of the Industry with a view to study the entire

gamut of Bank's finance for working capital and suggest ways for optimum utilisation of Bank

credit. This was the first elaborate attempt by the central bank to organise the Bank credit. The

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(RS. IN

LACS)

NO. OF 2010-11 2011-12 2012-13

DAYS

REQUIRED

1. CURRENT ASSETS

i) RAW MATERIAL 282.40 344.36 373.95

ii) OTHER CONSUMABLE SPARES 13.40 16.59 18.16

iii) STOCK-IN-PROCESS 110.75 175.44 198.72

iv) FINISHED GOODS 195.30 272.25 302.60

v) RECEIVABLES 995.95 1498.79 1821.65

vi) OTHER CURRENT ASSETS 0.00 12.00 15.00

TOTAL CURRENT ASSETS (I) 1597.81 2319.43 2730.08

NO. OF 2010-11 2011-12 2012-13

DAYS

REQUIRED

II. CURRENT LIABILITIES

i) CREDITORS FOR PURCHASE OF RAW 762.03 489.91 352.01

MATERIAL, STORES AND CONSUMABLE

SPARES

ii) OTHER CURRENT LIABILITIES 100.00 125.00 135.00

TOTAL CURRENT LIABILITIES (II) 862.03 614.91 487.01

III WORKING CAPITAL GAP (I-II) 735.77 1704.52 2243.07

IV MARGIN ON WORKING CAPITAL 184.46 424.76 593.39

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V BANK BORROWINGS (III-IV) 551.31 1279.76 1649.68

CALCULATION OF BREAK EVEN POINT

AT CAPACITY UTILISATION = 90

S.NO. PARTICULARS Rs. IN

LACS

A. SALES RECEIPTS 9547.09

VARIABLE COSTS:-

(a) RAW MATERIAL 6080.61

(b) CONSUMABLE STORES/SPARES 69.65

(c) POWER & FUEL 110.39

(d) INTT. ON WORKING CAPITAL 169.01

BORROWINGS

(e) DIRECT WAGES 440.59

(f) SALES EXPENSES 100.17

(h) MISC. FACTORY EXPENSES 135.99

B. TOTAL OF VARIABLE COSTS 7106.41

C. SURPLUS (A-B) 2440.68

FIXED COSTS:-

(a) REPAIR & MAINTENANCE 113.73

(b) INDIRECT SALARIES 166.54

(MANAG. & SUPERVISORY)

(c) DIRECTOR'S SALARY/REMUNERATION 166.54

(d) INTT. ON TERM LOAN 72.08

(e) INTT. ON LONG TERM (LTL) 0.00

(f) DEPRECIATION 137.46

(g) ADMINISTRATIVE EXPENSES 178.90

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D. TOTAL OF FIXED COSTS 835.25

(a) BREAK EVEN POINT AT UTILISED 34.22 %

CAPACITY (D/C % 100)

(b) BREAK EVEN POINT AT INSTALLED 30.80 %

CAPACITY

CAPACITY

DRAWING CAPACITY BUNCHING CAPACITY

NO OF DRAWING MACHINE 1.00 NO OF MACHINE 3.00

NO OF HRS PER DAY 24.00 NO OF HRS PER DAY 24.00

NO OF DAY PER ANNUM 300.00 NO OF DAY PER ANNUM 300.00

NO OF MACHINE HRS 7200.00 NO OF MACHINE HRS 21600.00

LOADING FACTOR(OEE) 0.80 LOADING FACTOR(OEE) 0.80

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MACHINE RUNNING HOURS 5760.00 MACHINE RUNNING HOURS 17280.00

EFFECTIVE DRAWING HOURS 5760.00 EFFECTIVE RUNNING HOURS 17280.00

PROCESSING CAPACITY 186.00 KG/HR PROCESSING CAPACITY 65.00

INSTALLED CAPACITY 1071.36 INSTALLED CAPACITY 1123.20

UTILISED CAPACITY YR I @ 60% 642.82 UTILISED CAPACITY YR I @ 60 % 673.92

UTILISED CAPACITY YR II @ 70% 749.95 UTILISED CAPACITY YR II @ 70 % 786.24

OPTIMUM UTILIZATION YR III 90 % 964.22 OPTIMUM UTILIZATION YR III 90 % 1010.88

SALES AT INSTALLED CAPACITY

PARTICULARS LENGTH/ANNUM SALE RATE SALE VALUE

AV CLASS 21988.05 9258.00 2035.65 CU 1071.36 340000.00 3642.62

AVF & AVSF 24717.00 2450.00 605.57 PVC 619.92 60000.00 371.95

AVSS,FLRY 84048.30 3050.00 2563.47 4014.58

130753.35 5204.69

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CHAPTER 7

CONCLUSION

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CHAPTER 7

CONCLUSION

To conclude this project on Project analysis and working capital seems to be a new beginning, towards

analyzing the fund management done by corporate, constituting of analyzing fund requirement

Documents

Project (IBM Nitu)