Working Cap of Nahar2

8/13/2019 Working Cap of Nahar2

1/50

INTRODUCTION TO NAHAR GROUP

While the beginnings of Nahar group were small the vision was big. The burning desire

to evolve, grow & one day position itself as a responsible & reputed corporate entity

playing out its role in improving the peoples quality of life through their products &

service, remained a driving force. It is their relentless spirit of enterprise, boundless

enthusiasm, grit & determination to live the dream that enabled them to add a new

dimensions to their philosophy where commitment leads, achievement follows.

Nahar group came into e!istence in "#$# as a small worsted spinning unit with the assets

of % spindles and from that day till today the company has grown into new hori'ons

under the magic of charpeson, (h. )awahar *al +swal. Now his sons, r. -amal +swal

and r. inesh +swal are continuing the tradition. Nahar group is a renowned name in

the te!tile industry of India and is heading fast in future with its wide range of /roducts.

Nahar 0roup surges ahead to establish itself as a reputed Industrial 1onglomerate with a

wide ranging portfolio 1otton 2arns. Woolen 2ams. -nitted 3abrics, -nitwear,

(weaters, 0reige 3abrics. 3inished and /rocessed 3abrics, 4osiery 0arments. (teel,

(ugar, Infrastructure evelopment.

The 3lagship 1ompany of Nahar 0roup 5 +swal Woolen ills *imited, was established

in "#$6 for spinning worsted yarns and 7nitted garments. Today it is a giant te!tile of

Northern India with turnover of more than 8s. " % 1rore, producing all types of fabrics

and branded garments in addition to steel, sugar and vegetable oil but the essence of

group lies in the te!tile field.

9t Nahar 0roup. the main focus is laid on quality standards. 4ere quality control starts

with the purchase of cotton at the stage of cotton mi!ing. /erhaps, the maintenance of

quality standards has helped the group to reach at highest of success because of this

awareness, the group companies have been awarded I(+ #: certificate by the bureau of

Indian (tandards.

"


2/50

;eyond ;alance sheet, mar7et forces and new technology generation lies the companys

single highest asset, which is its people. 9t Nahar it has always been believed that people

are the driving force that propel the organi'ation towards success and progress.

9 spirit unities the Nahar )oint 3amily, 1omprising "


3/50

2arn /roducts

Nahar 0roup surges ahead to establish itself as reputed Industrial conglomerate with a

wide ranging portfolio of yarns that offers everything. 9 desiring customer can loo7 for

various types of yarns that the group provides and some of them are >

a? "@ 1otton yarns

1arded yarn count range NA " to NA B:. 1ombed yarn count NA " to NA " & fine

counts up to NA " s both from premium Indian 1otton as also /imal0i'a and

9ustralian 1otton. elange yarn in vide shade range.

b? "@ 1otton yed 2arns

0assed=erceri'ed 0rey as well as yed yarns. 1ompact spun yarns in 1ount NA " Cs

9N 9;+DA. "@ blended 2arns We anufacture 1otton 5 blended yarns with

blends of polyester, acrylic, viscose, wool and nylon in the count range NA " to NA $

in different ratio as per requirement. These yarns are available as 0rey, elange & yed.

c? l@/olyester2arn

1ount range NA C to NA :

d? Industrial 2arn*i7e T3+ manufactured Tyre 1ord, 1arpet, 8ugs 2arns etc.

e? +pen end 2arns

1ount range NA < to NA :

f? +pen end yarns

1ount range NA < to NA :

g? ;lend 2arns

The group manufactures cottonblend yarns with blends of polyester, acrylic, viscose.

wool and nylon in the count range NA C to NA $ in different ratios as per requirement.

These yarns are available as 0rey, elange & yed.

B


4/50

h? "@ 9crylic 2arns

;oth 4igh bul7 and 8egular dyed as well as 0rey on 1ones and 4an7s

i? Industrial 2arns

*i7e T3+ manufactured lyre cord, 1arpet 2arns etc.

i? (peciali'ed 2arns

8ing (lub yarns. 9lso 7nown as ulticount=ulticount (lub 2arns. 1ount range is from

NA < to NA Nahar group is the only upont authori'ed coolma! spinners in India.

E (lub 2arn> 9vailbie in "@ 1otton for both hosiery and weaving use in both carded

and combed with count range NA C to NA $.

E ulticount yarn > 9vailable in count range from NA 6 to NA $ in "@ cotton.

"? 1ore (pun 2arn

Nahar group supplies 1otton 1ore (pun yarn with upont *ycra and (pande!. 1ount

range NA " to NA$.

m? Tensile 2arns

The group is also e!ploring possibilities of supplying tensile yarns. 9ll the above yarns

are produced in single nd multiple ply for end use of weaving and hosiery. (peciali'ed

end use in Terry towels and enims.

E 1arded yarn count rnge NA < to NA $

E 1ombed yarn count range NA < to NA "

$


5/50

1ompact (pun 2arns in count NA "C and above.

3abric /roduct

;lends> "@ 1otton and 1otton ;lends F /olycotton, 1otton(tretch & 1ottonTencil

etc.Woven Dibrancy> Twills, obbies, ;ro7en Twill, 8ipstop, +ttoman, 1hinos, (atins,

Tussors, ;edford 1ord, 1avallery Twill, 1anvas, 0abardine

Gtility> 0arments FTops, ;ottom & outwear?

0(> " gms to BB gms.

2arn Gsed> (ingle & ouble 1ount with different counts F 6s and Cs ? technologies

such as open end, 8ing spun, 1ombed, 1ompact, ulticount & (lubs etc. The fabrics

produced are 4igh ensity constructions, I8+ 3inish, ;o /olish, Water 8epellent, Nano

1are, (oil 8elease, icro sanding, 9nti ;acteria, 3rost free, Wrin7le free and (tain

0uard.

". -nitting and 0arments

Gnder 7nitting and garments, the company wor7s under its brand of 1otton 1ounty, this

provides products li7e ens 1argo (hirts, (weatshirts, 3ormal and 3ashion (hirts and

en T (hirts. Inspired by the freshness of nature, 1otton 1ountys India shirt collection

is an e!otic retreat that ma7es it all the more e!clusive and e!quisite. Targeted at the

young, trendy and hiphop crowd as well as the upwardly mobile youth, this T shirts

India collection e!hibits an e!citing combination of colors, designs and styles in stripes,

prints, plains and denim lending a very sophisticated and fun7y loo7 to the entire range.

1argo shirts have been introduced for the first time in the area of H India shirts.

Targeted at generation ne!t, collection of cargo shirts are bac7 in full blast, creating a

overall impression of style, while contrast stitching mar7s the collections gutsy edge, by

creating lots of play even in the more basic loo7s. The collection gives a fashion

conscious man the freedom to choose his own adventures while giving him the wardrobe

that compliments his dynamic lifestyle.


6/50

Tshirts are ama'ing. 2ou name a color and you can get 1otton 1ounty I shirts right

pain collar tshirts that are available in B< e!citing colors and combinations to round nec7

I shirts. The (hirts collection comes in a range of carefully selected colors, styles and

firstclass fabrics. Wrin7le free cotton lets yand your shirt loo7 immaculate all day long.

9fter a few minutes on your body, The shirts mi!es business with pleasure.

(ugar /roducts

N9498 (G098 represents the 0roups concerted thrust towards e!ploring new need

based areas in tune with the larger conte!t of customer needs and mar7et demands.

Astablished in "##B as Nahar (ugar & 9llied Industries *imited F N(9I* ? in the assisted

sector with /(I1 presently is a unit of Nahar Industrial Anterprises *imited FNIA* ? , as

a result of N(9I*( merger with Nahar Industrial Anterprises *imited in :


7/50

Te!tilecom which enlarges and facilitates the group to mar7et its product through

internet.

List of companies in Nahar Group

+swal Wollen ills *td

Nahar (pinning ills *imited

Nahar 3abrics *imited

Achievements of Nahar Group

The group has achieved e!cellence in e!ports which has been recogni'ed by the A!port

1ouncil as well as the 0overnment of India by bestowing several e!port awards andtrophies such as>

E In the year "#%#, first 0old Trophy in 0lobal A!ports.

E In the year "##, first silver trophy in 4osiery A!ports.

E 3rom the yearn "#%# 5 # to "##B#$, the group was given A!port award

consecutively for < years for A!port of Woolen 4osiery 0arments.

E In the year "##B, International award of e!cellent performance in A!ports.

E In the year "#%##, (ilver Trophy for (econd 4ighest A!port /erformance.

Future pans of Nahar Group

Nahar 0roup plans to invest 8s.l+


8/50

the group would have in this te!tile city :.6< la7A spindles, C": rotors, C6C air Ket

looms, process house with a capacity of Two la7h meters a day, merceri'ing unit with a

capacity o :$ tones per annum, denim manufacturing unit with a capacity of : million

meters a day besides B% W cogeneration power plant, r. +swal said. +ut of the


9/50

of G.(. & Auropean Gnion. In the 4osiery ivision, the company has established ultra

modern world class facilities for manufacturing of ":.< million pieces per annum of

cotton and woolen hosiery -nitted 0arments. ;ut now a days there is a period of retail

room, so Nahar is also penetrating in retail sector through its e!clusive outlet of its brands

onte 1arlo, H1anterbury and 1otton 1ounty.

1ompanys brads are its identity. It has strong brand power and establishes itself as one

of the top most business houses in India. The main brands of the company are onte

1arlo, 1otton 1ounty and 1anterbury. Nahar has seen vary rapid growth since its

inception. Today Nahar (pinnings Tshirts are being e!ported to the most reputed and

top most international brands such as 09/, 9rrow, +ld Navy, /ierre 1rding, /hlips Dan

4eusen. I'od, uic7silver, /rice 1ostco.

(ome of the achievements of Nahar !pinnin$ "is Limitedgo unmentioned.

The steady growth in manufacture & e!port of v oo"en cotton hosiery 7nitwears

& woolen te!tile enabled the company t earn its first recognition in the year "#%$

as an e!port 4ouse by the 0overnment of India.

The second time, 0overnment of India recogni'ed N(* as a HTrading 4ouse inthe year "#%%.

In the year "##C, the company received I(+ # certification.

9nother award given to N(* was of HNational A!port Trophy by the 9pparel

A!port /romotion 1ouncil for the turbo charged performance which got them

great laurels.

Then in the year "###, N(* got a prestigious status of H0olden Trading 4ouse

in recognition of its continuously outstanding performance accorded by the0overnment of India.

3inally, the latest award received by Nahar (pinning ills *imeted is Te!proce"

(ilver Trophy given by 1otton Te!tile A!port /romotion 1ouncil for its

outstanding e!port performance in yarns in the year :B$.

#


10/50

The companys turnover which reached 8s.lcrore in the year "##"#:,

8s.:crore in "##


11/50

may deem necessary or e!pedient for the purpose of the business of the companyO upon

such terms and conditions as the board may in its absolute discretion thin7 fit.

9ppointment of director, managing director. secretary of the director requires approval of

;oard of directors. It can be done /assing ordinary or special resolution which ever is

applicable as per 1ompanys 9ct "#

E (h. )awahar *al +swal F 1hairman?

E (h. inesh +swal Fanaging irector?

E (h. -amal +swal

E (h. inesh 0ogna

E (h. (.-. (harma

E r. Frs. ? 4.-. ;al

E (h. 9marKeet (ingh

E r. +./. (ahni

E /rof. -.(. aini

Finance Controers

E (h. 4ans 8aK -apoor

1ompany (ecretary

E (b. ;riK (harma

9uditors

E =s0uptaDigg&1o. 1hartered 9ccountants "",-ismat 1omple!, 0.T., iller 0anK,

*udhiana"$"B.

;an7ers

E /unKab National ;an7.

E (tate ;an7 of India

E I1I1I;an7.

""


12/50

9ddress

B6B. Industrial 9rea9,

*udhiana"$" B.

/hone No. 5 CC#$B

&arious Departments in N!"L'

3inancial epartment

3inance department of N(* is headed by r. 9nil 0arg and number of employees are

wor7ing in this department. The main obKectives of this departments are>

To maintain efficient boo7 7eeping system

To inform the company about its financial position and performance.

To assist the top management in decision ma7ing regarding short term as well as

long term involvement of funds.

To fulfill various legal and Kudicial obligations.

/urchase epartment

/urchase department is headed by r. (.-. (harma and number of employees are

wor7ing under him. (ome of the main function of this department are>

To procure high quality raw material and other requirement as per standard.

To obtain the requirement for the most reasonable prices available.

To maintain healthy relationship with vendors for timely and emergency

procurement of material.

To ma7e purchases in time so that the production is not interrupted.

ar7eting epartment

ar7eting department is headed by r. 9nand and there are no. of employees wor7ing in

this department. 3ollowing are the obKectives, which this department 7eeps in mind.

To procure as much orders as possible.

":


13/50

To provide ma!imum customer satisfaction.

To maintain coordinal relationship with customers for long term association.

To inform the organi'ation regarding the various policies followed by

competitors. To mar7et the products so efficiently that they find there own demand.

To ma7e the customers fully aware about the product and to ma7e the

management of the company aware about the customer wants, needs and

e!pectations.

To get feedbac7 for there products.

/roduction epartment>/roduction department is headed by r. 0upta and no. of employees wor7ing in this

departments. (ome of the main functions are>

To produce quality products.

To fulfill the orders of the customers within the stated time.

To ma!imi'e customi'ation.

To use the resources most efficiently and have least amount of wastages.

!(OT Ana)sis of Nahar !pinnin$ "is Limited

(W+T stands for (trengths, Wea7nesses, +pportunities and Threats. (W+T analysis of

the company helps us to find out, what are the strengths of the company, on which fronts

did the company wee7, what all opportunities are there n front of the company for its

e!pansion and growth and what all threats doe the company face. In other words this

analysis tells us the health of the company. It ma7es us aware about various fronts of the

company.

(trengths>

Wor7force of N(* is highly e!perienced, motivated, devoted, loyal and

satisfied.

"B


14/50

Image of Nahar (pinning ills *imited as a leading company in woolen industry.

(trategic positioning of its products, as the products range from 8s.$ to

8s.B=

;rand image of brands li7e, onte 1arlo and 1anterbury is very strong. The :brands achieved all time high turnovers and received beste!hibited product

award from International Wool (ecretariat FIW(?.

uality control system 7eeps a proper chec7 on the quality of products.

3inancial position of N(* is strong.

0ood records of sales help in ma7ing profits continuously.

Wide range of products and designing capacities.

Wea7nesses>

3ashion unit is targeting to high income group people.

N(* has vulnerable information system. It depends on distributors and agents

who sometimes provide wrong mar7et information.

+pportunities

(hare of India is garment e!port has increased and this certainly is a green signalfor hosiery, 7nitwears branch of Nahar products portfolio.

N(* may go for 7ids products in hosiery 7nitwear sector.

9s lambs wool yarn I being imported. because of high demand of this yarn in

mar7et, the company has right time to e!ploit the opportunity.

Threats

N(* deals in seasonal business. *arge financial base, production base and better technology of N(s are threat to

domestic te!tile sector.

It has to depend upon imported and the supply of raw material is affected by the

climates in supplier countries.

"$


15/50

1ompany is facing threat from the fa7e competitors li7e +swal Woolen ela etc.

This can put a maKor dent on companies image by selling the defected products.

RATIONAL# OF TH# !TUD*

Wor7ing capital is the life blood and nerve centre of a business. )ust as circulation of

blood is essential in the human body for maintaining life, wor7ing capital is very

essential to maintain the smooth running of a business. No business can run successfully

without an adequate amount of wor7ing capital.

The management of wor7ing capital is very important. It involves the study of day to day

affairs of the company. The motive behind the study of the proKect is to develop an

understanding about the wor7ing capital management in the running of business

organi'ation and to help the company in developing the efficient wor7ing capital

management.

1ash is one of the current assets of a business. It is needed at all times to 7eep the

business going. 9 business concern should always 7eep sufficient cash for meeting its

obligations. 9ny shortage of cash will hamper the operations of a concern and any e!cess

of it will be unproductive. 1ash management forms an important part of wor7ing capital

management.

8eceivables constitute a significant portion of current assets of a firm. It is necessary to

have a proper control and management of receivables, as, for investment in receivables, a

firm has to incur certain costs and there is a ris7 of bed debts also.

The investment in inventory constitutes a maKor portion of current assets, so there should

be proper inventory management. ;ecause of the large si'e of inventories maintained by

the firms, a considerable amount of funds is required to be committed to them. It is,

therefore absolutely imperative to manage inventories efficiently and effectively in order

to avoid unnecessary investment. 9n underta7ing, neglecting the management of

inventories will be Keopardi'ing its long run profitability and fail ultimately. The

management is to see that the quantity of wor7ing capital is neither too low to affect the

production adversely nor too high to bloc7 the funds unnecessarily.

"


16/50

O%+#CTI! OF TH# !TUD*

This study is being carried out 7eeping in mind the following obKectives>

To analy'e the wor7ing capital management of the company.

To determine the operating cycle of the unit.

To determine the future need of wor7ing capital in the running organi'ation.

To e!amine that the investment in the wor7ing capital is optimum.

!COP# OF TH# !TUD*

The study is conducted at JN9498 (/INNIN0 I**( *IITA *G4I9N9,

1orporate +ffice, and *udhiana for 6 wee7s duration. The scope of the study is limited to

the Wor7ing capital management of N9498 (/INNI0 I**( 9 (9** GNIT +3

+(W9*. The reliability of the study is restricted to the personal perception of the people

interviewed and the data provided by the company.

To get proper understanding of this concept, I have done the study of the ;alance sheets,

/rofit and loss accounts, 1ash accounts etc. (o, scope of the study is limited up to the

availability of official records and information provided by the employees. The study is

supposed to be related to the period of last five years.

"C


17/50

TH#OR#TICAL %AC,GROUND

OF

(OR,ING CAPITAL

"ANAG#"#NT-

"eanin$ of .or/in$ capita'0

In simple words wor7ing capital means that which is issued to carry out the day to day

operations of a business. 1apital required for a business can be classified under two

main categories

3i!ed capital

Wor7ing capital

Avery business needs funds for two purposes, for its Astablishment and to carry on its day

to day operations. *ong term funds are required to create production facilities through

purchase of fi!ed assets such as plant and machinery, land, building, furniture etc.

Investment in these assets represents that part of firm capital, which is bloc7ed on a

permanent or fi!ed basis called fi!ed capital. 3unds are also needed for (hort term

purposes i.e. for the purchase of raw material, payment of wages and other day to day

operations of business. These funds are 7nown as wor7ing capital. In other words,

wor7ing capital refers to that firms 1apital, which is required for short M term assets or

current assets. 3unds thus invested in current assets 7eep revolving last and beingconstantly converted into cash and this cash flow is again converted into other current

assts. 4ence it is 7nown as circulating or short M term capital.

In the words of (hubin, JWor7ing capital is the amount of funds necessary to cover the

cost of operating the enterprise.

"6


18/50

CONC#PT OF (OR,ING CAPITAL

GRO!! (OR,ING CAPITAL-

N#T (OR,ING CAPITAL

GRO!! (OR,ING CAPITAL'

In the broad sense, the term wor7ing capital refers to the gross wor7ing capital and

represents the amount of funds invested in current assets. Thus, the gross wor7ing

capital is the capital invested in total current assets of the enterprise. 1urrent assets

are those assets which in the ordinary course of business can be converted into cash

within a short period of normally one accounting year.

"%

CONC#PT OF (OR,ING CAPITAL

GRO!! (OR,ING CAPITALN#T (OR,ING CAPITAL


19/50

N#T (OR,ING CAPITAL'

In narrow sense, the term wor7ing capital refers to the net wor7ing capital. Net wor7ing

capital is the e1cess of current assets over current ia2iities, or it represents the

difference between current assets and current liabilities. Net wor7ing capital may be

positive or ne$ative. /ositive net wor7ing capital is that when current assets are more

than current liabilities. ;ut when current liabilities become more than current assets then

the wor7ing capital is negative. 1urrent 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 assets or the income of the business.

;oth 0ross wor7ing capital and net wor7ing capital have increased over the past two

years. 9s seen before, there is increase in sales, and increase in production, therefore

more wor7ing capital is needed to assist the increase in production. There is very less

difference in the 0ross wor7ing capital and Net wor7ing capital because of less amount

of current liabilities of Nahar.

"#


20/50

T*P#! OF (OR,ING CAPITAL

P#R"AN#NT (OR,ING CAPITAL-

T#"PORAR* (OR,ING CAPITAL-

Permanent (or/in$ Capita'

/ermanent or fi!ed wor7ing capital is the minimum amount which is required to

ensure effective utili'ation of fi!ed facilities and for maintaining the circulation of

current assets. There is always a minimum level of current assets which is

continuously required by the enterprise to carry out its normal business

operations. For example, N( has to maintain some minimum level of raw

materials, wor7inprocess, finished goods and cash balance.

:

T2/A( +3 W+8-IN0 19/IT9*

P#R"AN#NT (OR,ING CAPITAL T#"PORAR* (OR,ING CAPITAL


21/50

This minimum level of current assets is called permanent or fi!ed wor7ing capital

as this part of capital is permanently bloc7ed in current assets.

Temporar) (or/in$ Capita'

The e1tra .or/in$ capitaneeded to support the changing production and

sales activities, is called variable or functioning or temporary wor7ing

capital.

It is the amount of wor7ing capital which is required to meet the seasonal

demands and some special e!igencies. This can be shown in the following

diagram>

9mount of Wor7ing

1apital Temporary capital

/ermanent capital

Time

:"


22/50

OP#RATING C*CL# or CIRCULAR FLO( CONC#PT

J+perating cycle is the Time uration required for converting sales into cash after

the conversion of resources into inventories.

3unds invested in current assets 7eep revolving fast and are being constantly

converted into cash and this cash flow out again in e!change for other current assets.

4ence, it is also 7nown as revolving or circulating capital. The circular flow concept of

wor7ing capital is based upon this operating or wor7ing capital cycle of a firm.

The 1ycle starts with the purchase of raw material and other resources and Ands with the

reali'ation of cash from the sale of finished goods. It involves purchase of raw material,

its conversion into stoc7 of finished goods through wor7inprogress, conversion of

finished stoc7 into sales, debtors and receivables and ultimately reali'ation of cash and

this cycle continues again from cash to purchase of raw material and so on.

(ales of the finished stoc7s are not always full cash salesO there are credit sales also.

These credit sales after some period are converted into cash. (o the whole process ta7es

the time. This time ta7en is 7nown as the length of operating cycle. (o operating cycles

includes>

". 8aw aterial conversion period F81/?:. Wor7Min M progress conversion period FWI/1/?

B. 3inished goods conversion period F31/?

$. ebtors 1onversion period F1/?

::


23/50

(o operating cycle can be 7nown as following>

(ales

If the length of the operating cycle has short length period then less wor7ing capital is

required. (o wor7ing capital requirement is directly related with operating cycle.

+/A89TIN0 121*A +3 TW+ T2/A(>

". 0ross +perating cycle

:. Net operating cycle

GRO!! OP#RATING C*CL#'

:B

8aw aterial

Wor7 in /rogress

1ash 1ollection fromebtors

3inished 0oods

1redit (ales 1ash (ales


24/50

0ross +perating cycle is the total time period from the conversion of 8aw aterial

into finished goods and finished goods into sales and then sales into cash.

GOC 3R"CP 4 (IPCP 4 FCP 4 DCP

N#T OP#RATING C*CL#'

9s we provide period to debtors for the payments, our creditors also provide period to

us for payment to them. (o this reduces our requirement of wor7ing capital. This also

affects the operating cycle. +perating cycles length reduces with so many days as

provided by the creditors to us. The difference between gross operating cycle and

period allowed by the creditors for payment is 7nown as net operating cycle.

NOC 3 GOC 5 CPP

:$


25/50

OP#RATING C*CL#

GRO!! OP#RATING C*CL# P#RIOD 3 R"CP 4 (IPCP 4 FGCP 4 RCP

Net Operatin$ C)ce Period 3 Gross Operatin$ C)ce 5 Pa)a2e Defera period

6- Ra. "ateria Conversion Period 3 9verage (toc7 of 8aw material= 8aw

material consumption per day.

7- (or/0in0pro$ress Conversion Period3 9verage stoc7 of wor7inprogress=

Total cost of palroduction per day.

8- Finished Goods Conversion Period 3 9verage stoc7 of finished goods= Net

credit sales per day.

9- Receiva2es Conversion Period 3 9verage 9ccounts 8eceivables= Net 1redit

/urchases per day.

:- Pa)a2es Defera Period 39verage /ayables= Net 1redit /urchases per day

RA( "AT#RIAL CONR!ION P#RIOD ;R"CP06= 7=6=066

+pening stoc7 of wor7inprogress "#C6.$% :$6:.:

1losing stoc7 of wor7inprogress :$6:.: $:$%.%:

9verage stoc7 of wor7inprogress ::"#.6< BBC.$:

1ost of production per day :-7=

INT#RPR#TATION

9 high WI/1/ indicates a high velocity with which raw material is converting into wor7

inprogress.

Finished Goods Conversion period 3 Avera$e !toc/ of Finished Goods@ Tota Cost

of !aes Per da)

Particuars 7==>06= 7=6=066

+pening stoc7 of finished goods C#B."


27/50

RCP in da)s ?: 9

INT#RPR#TATION

9 high 81/ indicates more efficient management of debtors=sales or more liquid are the

debtors.

Pa)a2e Deferra period 3 Avera$e pa)a2es@ Net credit purchases per da)

Particuars 7==>06= 7=6=066

9verage payable "C#$.#$


28/50

!TAT#"#NT OF (OR,ING CAPITAL "ANAG#"#NT

Current Assets

Particuars 7==>06= 7=6=066

/articulars B6#B:.BC 68>:::-:

Current Lia2iities(undry creditors "C#$.#$ ?7:->9 67:?:-B

(or/in$ Capita ;A 5 %< B>> 67?>>-

:%


29/50

(OR,ING CAPITAL R#UIR#"#NT FOR TH# ANTICIPAT#D N##D! FOR

FUTUR#'0

These needs may be of 8aw aterial or 3inished 0oods. (ometimes because of non

availability of 8aw aterial or due to seasonal availability of 8aw aterial some

advances stoc7 of 8aw aterial becomes necessary for company. In the similar way due

to sudden arise of demand of finished goods in future more finished goods are 7ept in

stoc7. 3or both reasons more wor7ing capital is required because funds will be involved

in these safeties stoc7s.

N##D OF (OR,ING CAPITAL

The need for wor7ing capital arises due to the time gap between production and

reali'ation of cash from sales. Thus,wor7ing capital is needed for the following purposes>

3or the purchase of raw materials, components and spares.

To pay wages and salaries.

To incur daytoday e!penses and overhead costs such as fuel, power and office

e!penses, etc.

To meet the selling costs as pac7ing, advertising, etc

To provide credit facilities to the customers.

To maintain the inventories of raw material, wor7inprogress, stores and spares

and finished stoc7.

D#T#R"INANT! OF (OR,ING CAPITAL

3ollowing are the main determinants of wor7ing capital>

Nature and !ie of %usiness '

The wor7ing capital of a firm basically depends upon nature of its business 3ore!ample> /ublic utility underta7ings li7e electricityO water supply needs very less

wor7ing capital because offer only cash sales whereas trading & financial firms have a

very less investment in fi!ed assets but require a large sum of money invested in

wor7ing capital. N9498 (/INNIN0 I**( *imited, which is a manufacturing

company, requires considerable investment in both fi!ed assets and wor7ing capital.

:#


30/50

The si'e of business also determines wor7ing capital requirement and it may be

measured in terms of scale of operations. 0reater the si'e of operation, larger will be

requirement of wor7ing capital. 9s N( is growing, its requirement of wor7ing

capital is also increasing.

"anufacturin$ C)ce'

*onger the process period of manufacture, larger is the amount of wor7ing capital

required. The operating cycle of is N9498 (/INNIN0 I**( "$$ days for the

financial year :C6. It has decreased from the previous year. 1onsequently,

amount of wor7ing capital required has also decreased as compared to the last year.

!easona variation'In certain industries li7e N(, raw material Fcotton? is not available

throughout the year.

They have to buy raw material in bul7 during the season to ensure an uninterrupted

flow and process them during the year.

0enerally, during the busy season, a firm requires large wor7ing capital than in the

slac7 season.

Production Poic)'

/roduction policy also determines the wor7ing capital level of a firm. If the firm has

steady production policy, it may require need of continuous wor7ing capital. ;ut if

the firms adopt a fluctuating production policy means to produce more during the

lead demand season then the more wor7ing capital may require at that time but not in

other period during a financial year. (o the different productions policy arise different

type of need of wor7ing capital.

In N( *imited, the production is 7ept steady by accumulating inventories during

slac7 period with a view to meet high demand during the pea7 season. Now, since, the

production of (pinning yarn is 7ept steady throughout the year, therefore, the unit

requires higher wor7ing capital.

B


31/50

FirmEs Credit Poic)'

The firms credit policy directly affects the wor7ing capital requirement. If the firm

has liberal credit policy, hence the more credit period will be provided to the debtors

so this will lead to more wor7ing capital requirement. With the liberal credit policy

operating cycle length increases and vice versa.

In N9498, the bul7 of purchase of raw material and sale of finished goods is done on

credit. Therefore, credit policy is an important criterion to be ta7en into consideration.

!aes Gro.th'

Wor7ing capital requirement is directly related with sales growth. If the sales are

growing, more wor7ing capital will be needed due to arises need of more 8aw

aterial, 3inished goods and credit sales.

Rate of Gro.th of %usiness'

The wor7ing capital requirements of a concern increase with the growth and

e!pansion of its business activities. 9s N( is growing its business with

AA80A8( 9( N9498 (/INNIN0 I**( WIT4 N9498 AQ/+8T(,

therefore its wor7ing capital requirement is also increasing.

"#ANING AND NATUR# OF (OR,ING CAPITAL "ANAG#"#NT

The management of wor7ing capital is concerned with two problems that arise in

attempting to manage the current assets, current liabilities and the inter relationship that

e!ists between them. A satisfactor) eve of .or/in$ capita shoud 2e maintained

i.e., it is neither inadequate nor e!cessive. ;oth e!cess as well as short wor7ing capital

positions are bad for any business. 4owever, out of the two, it is the inadequacy of

wor7ing capital which is more dangerous from the point of view of the firm.

B"


32/50

Disadvanta$es or Dan$ers of Inadeuate (or/in$ Capita'

9 concern which has inadequate wor7ing capital cannot pay its shortterm

liabilities in time. Thus, it will lose its reputation.

It cannot buy its requirements in bul7 and cannot avail of discounts, etc.

The firm cannot pay daytoday e!penses of its operations and it creates

inefficiencies, increases costs and reduces the profits of the business.

It becomes impossible to utili'e efficiently the fi!ed assets due to nonavailability

of liquid funds.

Disadvanta$es of Redundant or #1cessive (or/in$ Capita'

A!cessive Wor7ing 1apital means idle funds which earn no profits for the

business and hence the business cannot earn a proper rate of return on its

investments.

It may lead to unnecessary purchasing and accumulation of inventories causing

more chances of theft, waste and losses.

A!cessive wor7ing capital implies e!cessive debtors and defective credit policy

which may cause higher incidence of bad debts.

When there is e!cessive wor7ing capital, relations with ban7s and other financial

institutions may not be maintained.

"A+OR D#CI!ION! IN (OR,ING CAPITAL "ANAG#"#NT

There are two maKor decisions management relating to wor7ing capital management>

". What should be ratio of current assets to salesR

:. What should be the appropriate mi! of short term financing and long term

financing for financing these current assetsR

6- CURR#NT A!!#T! IN R#LATION TO !AL#!'0

If the firm can forecast accurately the factors, which affect the wor7ing capital,

the investment in current assets, can be designed uniquely. When uncertainty affects the

above factors, as it usually does, the investment in current assets cannot be specified

B:


33/50

uniquely. In case of uncertainty, the outlay on current assets should consist of base

component meant to meet normal requirement and a safety component meant to cope

with unusual requirement. The (afety component depends upon low conservative or

aggressive in the current assets policy of a firm. If the firm adopts a very conservative

current asset policy it would carry a high level of current assets in relation to sales. If a

firm adopts a moderate current assets policy it would carry moderate level of current

assets in relation to sales, finally if a firm follows a highly aggressive current assets

policy, it would carry a low level of current assets in relation to sales.

N( is following current assets policy showing moderate level of current assets in

relation to sales as is evident from ratio analysis.

6- Determinin$ a !hort Term and Lon$ Term Financin$ "i1 for Financin$ of

current assets'0

BB

9ggressive policy

oderat

e policy

1

+

(

T+

3

9

(

(

A

T

(

1

+

(

T

+

3

9

(

(

A

T

(

1o

nse

rvat

ive

(9*A(


34/50

There are Three approachesin this regard, which are discussed below>

4A0IN0 9//8+914.

1+N(A8D9TIDA 9//8+914.

9008A((IDA 9//8+914.

H#DGING APPROACH

This approach is also called matching approach. In this approach there is a proper

matching of e!pected life of asset with the duration of fund. The hedging approach

suggests that the permanent wor7ing capital requirements should be financed with funds

from long term sources while the temporary or seasonal wor7ing capital requirements

should be financed with short term funds.

term financing

3i!ed 9ssets

Time

B$

/ermanent current assets

Temporary current assets(hort term financing

*ong term financing

9(

(

A

T(


35/50

CON!#R&ATI APPROACH'

In this approach there is more reliance on longterm financing in comparison to short

term financing. Aven some part of the temporary current assets is financed from long

term sources because longterm sources are less ris7y in comparison to shortterm. This

approach suggests that the entire estimated investments in current assets should be

financed from longterm sources and the short term sources should be used only for

emergency requirements.

Temporary 1urrent 9ssets short

Term financing

/ermanent 1urrent 9ssets *ongterm

financing

3i!ed 9ssets

Time

B

Documents

Working Cap of Nahar2