Working Capitl Management & Ratio Analysis

A

PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT & RATIO ANALYSIS

For

RAYMOND UCO DENIM PVT.LTD.

Submitted in partial fulfillment of the requirements for the degree ofMaster In Business Administration (Finance).

PRESENTED BY SWAPNIL B. PAJGADE

(Batch 2009-2010)

Under the guidance ofProf. R.G.SATHE

DEPARTMENT OF MANAGEMENT SCIENCE & RESEARCH,MAHATEMA PHULE INSTITUTE OF MANAGEMENT

HADAPSAR, PUNE

1PUNE UNIVERSITY, PUNE

INDEX

CHAPTER TOPIC PAGE NO

1 INTRODUCTION

2 COMPANY PROFILE

3 OBJECTIVE OF STUDY

4 THEREOTICAL BACKGROUND

5 RESEARCH METHODOLOGY

6 DATA ANALYSIS AND INTERPRETATION

7 FINDINGS AND CONCLUSION

8 SUGGESTIONS

9 ANNEXURE

10 BIBLIOGRAPHY


CHAPTER 1

INTRODUCTION


Title of the study

The title of the study is “WORKING CAPITAL MANAGEMENT & RATIO

ANALYSIS AT THE RAYMOND DENIM PVT.LTD.”

An Introduction

Working capital management is a significant in financial management due to the

fact that it plays a vital role in keeping the wheel of business enterprises running.

Working capital management is concerned with short term financial decision. Shortage

of funds for working capital has caused many businesses to fail and in many cases, as

retarded their growth. Lack of efficient and effective utilization of working capital leads

to low rate of return on capital employed. The lead for skill working capital management

has thus become greater in recent years. A firm invests a part of its permanent capital in

fixed asset and keeping part of it for working capital i.e. for meeting a day to day

requirement.

The management of working capital is important as Sufficient liquidity is

necessary and must be achieve and maintain to provided funds and pay of the obligation

as they arises or mature. Each organization is faced with its own limits on the production

capacity and technologies it can employ there are fixed as well as variable costs

associated with production goods. In other words, the markets in which real firm

operated are not perfectly competitive. These real world facts introduce problems and

require the necessity of working capital. Working capital management is the functional

area of finance that covers all the current accounts of the firm. It is concerned with

management of the level of individual current assets as well as the management of total

working capital. Working capital management involves the relationship between a firm's

short-term assets and its short-term liabilities. The goal of working capital management is

to ensure that a firm is able to continue its operations and that it has sufficient ability to

satisfy both maturing short-term debt and upcoming operational expenses. The

management of working capital involves managing inventories, accounts receivable and

payable, and cash.


So, If the firm finds problem of manage the working capital the firm might have

liquidation problem which is harmful to the organization. Technically, working capital

management is an integral part of the overall financial management. It plays a vital role

in any business enterprises

So, the importance of working capital management is reflected in the fact that

financial managers spend a great deal of time in Managing current asset and current

liabilities. Arranging short term financing, negotiating favorable credit terms , controlling

cash movementr , managing account receivable, and monitoring investments in

inventories consume a great deal of time of financial managers.

RATIO ANALYSIS

Ratio analysis is a powerful tools for financial analysis. A ratio is defined as a

indicate quotient of the two mathematical expression and as the relationship between two

or more thing . In the financial analysis, ratio is use for a benchmark for evaluating the

financial position and performance of the firm. The absolute accounting figure reported

in the financial statement do not provide a meaningful understanding of the performance

and financial position of a firm. An accounting figure conveys meaning when it is related

to some other relevant information the relationship between the two accounting figure,

expressed mathematically, is known as financial ratio. Ratio helps to summaries large

quantity is of finical data and to make to quantitative judgment about the firm’s financial

performance.

Strategic information is just as important to shareholder as it is the company

management who will select ratios that help them in their daily operation. But it is worth

remembering that the management usually has access the more information concerning

the company and its competitors than person’s external to the company.


CHAPTER 2

COMPANY PROFILE


RAYMOND UCO DENIM PVT.LTD.

1925 - Setup of The Raymond Woollen mill in 1925 the area around Thane creek.

1944: Lala Kailashpat Singhania took over The Raymond Woollen Mill. The mill was primarily making cheap and coarse woollen blankets, and modest quantities of low priced woollen fabrics.

1950 - Setup of a new manufacturing activity for making indigenous engineering files known as JK Files & Tools. This has now become the largest facility of its kind in the world.

1958 - The first exclusive Raymond Retail showroom, King's Corner, was opened in 1958 at Ballard Estate in Bombay.

1964 - Setup of a new Combing Division. This was followed by a phase of vertical integration, facilitating in the processing of multi-fibres and technology improvements to make blended fabrics.

1968 - Raymond setup a readymade garments plant at Thane. The readymade garments division of Raymond has since then grown rapidly. Raymond has now become the leader among readymades, in India, achieving a business turnover of over Rs. 2000 million.

1979 - A new manufacturing facility was set up at Jalgaon, to meet the increasing demand for worsted woollen fabrics.

1980: Vijaypat Singhania took over the reins of the company. He injected fresh vigour into Raymond, transforming it into a modern, industrial conglomerate.

1986 - Launch of "Park Avenue", the premium lifestyle brand providing a complete wardrobe solution to the men who like to dress well & be current on styles & fashion.

1990 - The first showroom abroad for Raymond in Oman.

1991 - A new manufacturing facility was set up at Chhindwara, near Nagpur.

1995: Superfine pure wool collection under the Lineage Line (Super 100S to Super 140S).

1996: The Renaissance Collection made of Merino wool blended with polyester and specialty fibres (Super 100S to Super 140S).

1996: Raymond's denim; focusing on quality, innovation and the creation of exclusive products that have always caught the eye of some of the world's leading denimwear brands. Its designs have always kept pace with the changing styles and


cuts found in every youngster's closet. With a 40 million meters capacity, Raymond today ranks amongst the top 2 producers of ring denim in India

1999: The Chairman's Collection of Super 150S made from Merino Wool and Cashmere followed by Super 160S to Super 190S.

1999: Launch of "Parx", a premium casual wear brand bringing customers a range of semi-formal and casual clothes.

2000: Launch of "Be:", exclusive prêt line of ready-to-wear designer clothing for men and women.

2002: Acquisition of ColorPlus.

2003: Setup of 'Silver Spark Apparel Ltd.' for manufacturing suits and formal trousers catering largely to export markets.

2004: Super 220S fabrics under the Chairman's Collection.

2005: Setup of state-of-the art jeanswear facility 'Everblue Apparel Ltd.' near Bangalore.

2005: Setup of state-of-the art facility 'Celebrations Apparel Ltd.' for the manufacturing of formal shirts.

2005: Raymond achieved a rare feat and a historical milestone with the creation of the world's finest worsted-suiting fabrics from the finest wool ever produced in the world- The Super 230s made up of 11.8 micron of wool.

2005: Launch of 'Expressions' an exquisite collection of all wool and polywool suiting specially crafted using exotic fibres like Cashmere, Angora, Mohair, Bamboo, Casein.

2006 Set of Raymond's third worsted unit at Vapi in Gujarat. Raymond now has 3 state of the art units with a combined capacity of 31 million meters of worsted fabric.

2006 Launch of design studio in Italy for cutting edge design capabilities for exports and domestic brands.

2006: Set up of world class carded woollen unit, Raymond Fedora Ltd, in Jalgaon.

2006 Set up of greenfield shirting unit at Kolhapur producing high value cotton shirting. This facility is set up as part of the company's JV with Gruppo Zambaiti.

2006 Set up of J.K. Talabot Ltd - JV with MOB, France for the manufacturing of files and rasps.

2006 Launch of Zapp! our kidswear brand with first store in Ahmedabad.

2007 Entered into Joint Venture to retail premium brand ‘GAS’ in India.

2007 Launch of new brands for women’s wear.


2008 Launch of 'Raymond Finely Crafted Garments' – readymade apparel under Raymond brand.

2008 Launch of 'Neckties & More' - New format store for accessories.

VARIOUS BRANDS OF RAYMOND

For over 80 years, Raymond is counted as one of the world's premier manufacturers of worsted suiting fabric in fine grade wool, in the same league as the finest that Europe has to offer.

Today, the Raymond product range includes pure wools, wool blended with exotic fibres like camel hair, cashmere and angora and innovative blends of wool with polyester, linen and silk. Offering suiting and trousering fabric for all occasions and needs.

Our domestic distribution is spread far and wide with more than 30,000 outlets that stock and sell our wide range of fabrics.

Fine products, wide range, superb distribution and intelligent advertising support have helped the company gain a dominant share of the market. No wonder, premium labels from the world's fashion capitals prefer Raymond.

Manzoni is a luxury lifestyle brand offering the discerning customer a super premium range of formal wear and sportswear including shirts, suits, trousers, jackets, ties and leather accessories. Our exclusive designs provide customers the best in contemporary international style & luxury. Each garment is crafted from the most exotic cotton silk, linen and superfine wool, the best-in-the-world linings, interlinings and threads sourced from around the globe.

Launched in 1986, Park Avenue is today, India's most admired formalwear brand. It offers stylish and innovative wardrobe solutions to gentlemen for all their dressing needs, be it Business, Evening, Leisure, Travel or Heritage Wear. The brand has received several awards. Recently, it had the honor of being the 'Most Admired Brand' at the Lycra Images Fashion Awards 2007 for the third consecutive year.


Crossing the gender divide, Park Avenue launched 'Park Avenue Woman' - a complete range of Business Wear for women. ‘Park Avenue Woman’ is designed specially for the working women professionals of today.

ColorPlus is one of India's premium and most respected casual wear brands offering customers a range of shirts, trousers, knits and survival gear. ColorPlus constantly innovates processes and technologies offering buyers new worlds of comfort. Some of the technological innovations it is well known for; include thermo-fused buttons, golf ball wash, soft jeans, wrinkle free technology, stain-free fabric, and the cone dyed technique.Adding new color now to the woman’s wardrobe, ColorPlus recently launched ColorPlus Woman - An exclusive range of smart-casual clothing.

Parx is a 'premium casual lifestyle' brand bringing customers a range of stylish semi-formal and casual clothes that reflects the easy, relaxed attitude of the energetic 22-30 year old. Parx was launched in 1999 to cater to the smart and fashionable clothing segment.

The burgeoning children's wear market has now turned stylish with Zapp! - our range of stylish and fashionable kidswear. The brand brings to 4-12 years a wide range of clothes, accessories, bed and bath linen and more. The first Zapp! store has been launched in Ahmedabad with ten more on their way for kids across the country.

Notting Hill reflects style and manifests originality of today's fashion- conscious and discerning young professionals at an affordable price. The brand collection features a spectrum of men's lifestyle products comprising of suits, shirts, trousers, jeans, t-shirts and also accessories like ties, handkerchiefs and socks.


Be: HOME is a specialty multi brand Home Retail Chain that present elegant, soft home furnishings & accessories which are sourced from across the globe from reputed labels (private & International). Spanning from a mid to premium pricing range, Be: HOME provides an assortment of quilts, blankets, robes, apparels, wall décor, vases, candles, gourmet cooking range and much, much more under one roof to provide the perfect look for your home.

The Raymond Shop is a premium retail store offering complete wardrobe solutions for men, which includes top-of-the-line brands - Raymond, Manzoni, Park Avenue, ColourPlus and Parx


GROUP OF COMPANY

Vision finds form...A dream conquers reality...

The Raymond Group was incorporated in 1925 and within a span of a few years, transformed from being an Indian textile major to a global conglomerate.

In our endeavor to keep nurturing quality and leadership, we always choose the path untaken - from being the first in 1959 to introduce a polywool blend in India to creating the world's finest suiting fabric the Super 240s made from the superfine 11.6 micron wool.

Today, the Raymond group is vertically and horizontally integrated to provide customers total textile solutions. Few companies globally have such a diverse product range of nearly 20,000 varieties of worsted suiting to cater to customers across age groups, occasions and styles.

We manufacture for the world the finest fabrics - from wool to wool-blended worsted suiting to specialty ring denims as well as high value shirting.

After making a mark in textiles, Raymond forayed into garmenting through highly successful ventures like Silver Spark Apparel Ltd. and Regency Texteis Portuguesa Lda (for fine Tailored Suits, Trousers and Jackets), EverBlue Apparel Ltd. (Jeanswear) and Celebrations Apparel Ltd. (Shirts).

We also have some of the most highly respected apparel brands in our portfolio: Raymond, Raymond Finely Crafted Garments, Manzoni, Park Avenue, ColorPlus, Parx, Zapp! and Notting Hill.

The Raymond Group also has an expansive retail presence established through the exclusive chain of 'The Raymond Shop' and stand-alone brand stores for Raymond Finely Crafted Garments, Manzoni, Park Avenue, ColorPlus, Parx, Zapp! and Notting Hill.

With a US$600 million turnover we are today one of the largest players in fabrics, designer wear, denim, cosmetics & toiletries, engineering files & tools, prophylactics and air charter services in national and international markets. All our plants are ISO certified, leveraging on cutting-edge technology that adheres to the highest quality parameters while also being environment friendly.


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http://www.raymondindia.com/off_retl_trs.asp

http://www.raymondindia.com/off_brnd_notting.asp

http://www.raymondindia.com/off_brnd_zp.asp

http://www.raymondindia.com/off_brnd_pa.asp

http://www.raymondindia.com/off_brnd_cp.asp

http://www.raymondindia.com/off_brnd_pk.asp

http://www.raymondindia.com/off_brnd_mz.asp

http://www.raymondindia.com/off_brnd_ry.asp

http://www.raymondindia.com/grp_clap.asp

http://www.raymondindia.com/grp_evbl.asp

http://www.raymondindia.com/grp_regency.asp

Raymond Ltd.

Raymond Ltd. is among the largest integrated manufacturers of worsted fabrics in the world.

Raymond Apparel Ltd.

Raymond Apparel Ltd. has in its folio some of the most highly regarded apparel brands in India – Raymond Finely Crafted Garments, Manzoni, Park Avenue for Men & Women, ColorPlus for Men & Women, Parx, Be: and Zapp! and Notting Hill.

ColorPlus Fashions Ltd.

ColorPlus is among the largest smart casual brands in the premium category. The company was acquired by Raymond to cater to the growing demand for a high end, casual wear brand in the country for Men & Women.

Silver Spark Apparel Ltd.

A garmenting facility that manufactures formal suits, trousers and jackets.

Regency Texteis Portuguesa Lda

A facility set-up in northern Portugal bordering Spain, in Caminha for manufacturing suits, jackets and trousers.

EverBlue Apparel Ltd.

A state-of-the-art denim garmenting facility.

Celebrations Apparel Ltd.

A facility set-up for the manufacture of formal shirts.

J.K. Files & Tools

A leading player in the Engineering Files & Tools segment and the largest producer of steel files in the world.

Ring Plus Aqua Ltd.

A leading manufacturer in the engineering automotive components.


http://www.raymondindia.com/grp_jkrp.asp

http://www.raymondindia.com/grp_jkft.asp

http://www.raymondindia.com/grp_clap.asp


http://www.raymondindia.com/grp_regency.asp

http://www.raymondindia.com/grp_sisk.asp

http://www.raymondindia.com/off_brnd_cp.asp

http://www.raymondindia.com/grp_ral.asp

http://www.raymondindia.com/grp_ra.asp

J.K. Helene Curtis Ltd.

A leading player in the grooming, accessories and toiletries category.

J.K. Investo Trade (India) Ltd .

JKIT is an investment company registered with Reserve Bank of India as Non-Banking Financial Company.

Raymond UCO Denim Pvt. Ltd.

The manufacturers and marketers of denim fabrics.

Raymond Zambaiti Pvt. Ltd.

A Greenfield facility manufacturing high value cotton shirting.

Gas Apparel Pvt. Ltd.

Our Joint venture with Grotto S.p.A launched the highly successful 'GAS' brand in India.

J.K. Ansell Ltd.

The manufacturers and marketers of KamaSutra condoms and surgical gloves.

J.K. Talabot Ltd.

Our Joint venture with MOB Outillage SA, manufacturing files and rasps for international markets.

Our Group Companies

Our Joint Ventures


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http://www.raymondindia.com/grp_jkta.asp

http://www.raymondindia.com/grp_jkal.asp

http://www.raymondindia.com/grp_gas.asp

http://www.raymondindia.com/grp_zam.asp

http://www.raymondindia.com/grp_uco.asp

http://www.raymondindia.com/grp_jkit.asp

http://www.raymondindia.com/grp_jkhc.asp

RELATIONSHIP OF MANAGEMENT

Raymond UCO Denim is a Joint Venture between Raymond Ltd, India's largest textile and apparel major and UCO NV of Belgium. We produce and market specialty ring colour and stretch denim.

With a combined capacity of 80 million and manufacturing facilities across 3 continents – US, Europe and Asia, Raymond UCO will be in a best position to develop an optimal and flexible service to meet global requirements of large international brands.

Our Winter 2007 collection is focusing on darker denims, tighter warps without too much yarn effects, like slubs, thick and thin places and/or streakiness. The darker look can also be enhanced by chemical treatments like coatings or overdyeing. Coatings have the advantage that the hand can be influenced which helps to create a feeling for heavier, sturdier material. To this effect we introduced our GALAXY finish, a colourless coating with an ingenious mix of various components that enhance the hand and performance of the fabric. Highly resistant to aggressive industrial and household washes. This finish is meant to last. It is like a knife-egded coating giving the fabric a veneer hand without getting sticky, it also helps to stabilize the fabric, add weight and provide a flat surface.

Another finish is our BLINK finish, an engineered coating that gives denim a new dimension through its black waxy layer, which provides the fabric with a smart and elegant leather-like hand.

Colour denim remains a hot topic. UCO produces a wide number of colour denim qualities, rigid and stretch and offers a colour card of 24 colours, which can be delivered without minimums, to lower the threshold for brands and makers-up to introduce a new range into their collection.

Flat fabrics are mainly focusing on qualities with weaving fantasies, some leaning very closely to denim qualities, to create a total collection for the jeanswear industry.


Raymond UCO Denim has state of the art manufacturing facilities in Ghent (Belgium), Giurgiu (Romania), Rockingham and Snyder (US) and Yavatmal (India). All our facilities produce differentiated ring spun denim, specialty denim and other niche products for the global fashion market.

Raymond UCO Denim, Yavatmal, Maharashtra, IndiaCapacity: 40 million meters

UCO Sportswear NV, Ghent, BelgiumCapacity: 18 Million meters

UCO Tesatura, Giurgiu, RomaniaCapacity: 7 million meters

UCO Fabrics Inc- Rockingham, North Carolina, USACapacity: 15 million meters

To ensure the manufacture of products of international quality, this unit uses state-of-the-art equipment, systems and practices. These include:

Tensorapid equipment to measure Tensile and tear strengths.

Uster testing to control the evenness of all yarns.

Each & every bale of yarn is tested and passed through a double passage draw for effective quality blending.

Marzoli ring spinning frames and open-end spinning are equipped with auto doffing and auto bobbin transfer systems. Together with Caipo and Amsler devices, these systems produce creative denim yarns.

Indigo and sulphur dyeing is achieved through two-slasher dye ranges.


Suker Muller & Masters slasher dye ranges support Picanol & Vamatex high speed looms to produce 20 million meters per annum.

The Denim Fabrics & Apparels is finished on the Cibitex range with micro processing to stabilize shrinkage & skew. The stenter finish stabilizes shrinkage & width of stretch products.

Routine Testing and checking at every stage of the manufacturing process.

Shade standards and consistency are maintained via a system of wash blankets tested from every roll of Fabrics & Apparels.

The Raymond water treatment plant purifies and recycles all indigo effluent using reverse osmosisystem This enables the company to use all the water for land projects. The entire 105-acre site of the Denim facility in Yavatmal has been designated with a 'greenbelt' status

Creative denims are developed with specialist finishing, fancy yarn devices and other equipment necessary to achieve world-class products.

The onsite laundry facility enables experimentation with creative finishing

demonstrating the full potential of each individual denim Fabrics & Apparels.

We offer buyers of denim fabric, a state of the art Jeanswear facility to convert fabric

into high fashion garments at our jeans wear facility 'EverBlue Apparel Ltd' near

Bangalore. The unit converts fabric to Jeanswear supplying to customers the world over.



CHAPTER 3

OBJECTIVES OF STUDY


Objectives

To study the working capital management system of Raymond Denime private ltd.

by the Working capital.

To study the various ratio used to analysis the balance sheet of Raymond Denime

private Ltd.

To study the cash management, receivable management, credit management and

management of inventory to determining the relationship between the current asset

and current liabilities Raymond Pvt. Ltd.

Through the net profit ratio & other profitability ratio, understand the profitability of

the company.


CHAPTER 4

Theoretical Background

Finance is the starting point of every economic activity. It is called “the science of

money. Finance is the basic requirement for starting and running every human activity in

an objective manner. It is the lifeblood of business. So, the important decision that is to


be taken by the finance manager is about the investment of the funds. These decisions are

normally related to the following area:

1. Fixed asset

2. Working capital

Investment in fixed asset is made with long term perceptive and the main

objective behind this decision is to enhance the earning capacity. While working capital s

required for day to day requirements of business organization .It is defined as the excess

of current assets over current liabilities.

Working capital, also known as net working capital, is a financial metric which

represents operating liquidity available to a business. Along with fixed assets such as

plant and equipment, working capital is considered a part of operating capital. As

mention above it is calculated as current assets minus current liabilities. If current assets

are less than current liabilities, an entity has a working capital deficiency, also called a

working capital deficit.

A company can be endowed with assets and profitability but short of liquidity if

its assets cannot readily be converted into cash. Positive working capital is required to

ensure that a firm is able to continue its operations and that it has sufficient funds to

satisfy both maturing short-term debt and upcoming operational expenses. The

management of working capital involves managing inventories, accounts receivable and

payable and cash.

So, “Decisions relating to working capital and short term financing are referred

to as working capital management.” These involve managing the relationship between a

firm's short-term assets and its short-term liabilities. The goal of working capital

management is to ensure that the firm is able to continue its operations and that it has

sufficient cash flow to satisfy both maturing short-term debt and upcoming operational

expenses.

Need for working capital:


Working capital refers to that part of firm’s capital which is required for

financing short term or current assets such as cash, marketable securities, debtors, and

inventories. In other words working capital is the amount of funds necessary to cover the

cost of operating the enterprise. The working capital is needed for the following purpose:

1. To purchase of raw materials, components and spares.

2 To pay wages and salaries.

3 To incur day-to-day expenses and overhead costs.

4 To meet the saving costs as packing, advertisement etc.

5 To provide credit facilities to the customers.

6 To maintain the inventory of raw material, work-in-progress, store and

Spares and finished goods

Concept of working capital:

The concept of working capital can be broadly divided into two categories:

A. Balance sheet or traditional concept

B. Operating cycle concept

A. Balance sheet or traditional concept:


WORKING CAPITAL

ON THE BASIS OF

B/S CONCEPT

ON THE BASIS OF

TIME CONCEPT

GROSS WORKING CAPITAL

NET WORKINGCAPITAL

FIXED WORKING CAPITAL

FLACTUATING WORKING CAPITAL

It shows the position of the firm at certain point of the firm at certain

point of time. It is calculated on the basis of balance sheet prepared at a specific date. In

this method there are two types of working capital

1. Gross working capital:

This concept implies the total of all current asset of a business firm. A current

asset is that asset which can be converted into cash within an accounting year or an

operating cycle. The current assets includes cash and bank balances, debtors, and bills

receivable, inventories prepaid expenses and short term investments.

2. Net working capital:

This concept of working capital is the difference between current asset and

current liabilities. While current asset have been defined above, current liabilities can be

explained as those liabilities which are expected to mature for payment within an

accounting year and include creditors ,bills payable, outstanding expenses, bank

overdraft, other short term loans.

The net working capital can be positive or negative. If current asset exceed

current liabilities, the difference is positive net working capital and when current

liabilities exceeds current asset, the difference is negative net working capital.

Net working capital = current assets - current liabilities

B. Operating cycle concept:

The duration or time required to complete the sequence of events right from

purchase of raw material for cash to realization of sales in cash is called the operating or

working capital cycle.

Fig: OPERATING CYCLE


The operating cycle begins with the acquisition of materials and ends with the collection

of receivables. It may be broadly classified into the following four stages:

(i) Raw materials and stores storage stage.

(ii) Work- in process stage.

(iii) Finished goods inventory stage.

(iv) Receivables collection stage.

The duration of the operating cycle for the purpose of estimating working capital

requirements is equivalent to the sum of the durations of each of these stages less the

credit period allowed by the suppliers of the firm.

This can also categorize into two types as:

1. Fixed working capital

2. Fluctuating working capital

1. Fixed working capital:


Every business require some minimum amount of working capital in spite of the

level of operation, throughout the year, this amount represent the fixed amount of

working capital.

2. Fluctuating working capital:

In many business firms, the level of operations fluctuates from time to time

depending upon the demand pattern. In case, the demand picks up in a particular season,

the need for working capital also increases and during low demand periods, the need for

working capital also comes down.

Factors affecting working capital

The working capital needs of a firm are affected by numerous factors. The

important factors are as listed below:

1. Nature of business:

In manufacturing concerns, usually the operating cycle is very long and a firm has

to give credit to customers for improving sales. In such cases, the working capital

requirement is more. While in service industries, the working capital requirement is

comparatively less.

2. Volume of sales:

As the sales grow, the working capital also goes up and vice versa. Actually it is

very difficult to establish the exact proportion of increase or decrease in current assets, as

a result of increase or decrease in sales. Advance planning of working capital becomes

essential.

3. Production policy:

Working capital requirements also fluctuate according to production policy.

Some products have seasonal demand but in order to eliminate the fluctuation in working

capital, manufacturer plan the production in a steady through the year. This policy will

even out the fluctuations in working capital.

4. Market condition:

Due to competition in the market, the demand for working capital fluctuates.


5. Operating efficiency:

The operating efficiency of the firm relates to the optimum utilization of

resources at minimum cost. The firm will be effectively contributing to its working

capital if it Is efficient in controlling operating costs. The working capital is better

utilizes and cash cycle is reduced which decrease working capital needs.

7. Credit policy:

The working capitals requirements of firms depend to a great extend on credit

policy followed by a firm for its debtor. A liberal credit policy followed by a firm will

result in huge funds blocked in debtors who will enhance the need of working capital and

vice versa. The need of working capital is also affected by credit policy followed by the

creditors. If the creditors are ready to supply the materials and goods on liberal credit,

working capital requirement are substantially reduced and vice versa.

Sources of working capital:

The company can choose to finance its current assets by:

1. Long term sources

2. Short term sources

1. Long term sources:

A long term source of working capital includes equity and preference share,

retained earning, debenture and other long tem debts from public deposits and financial

institute. The long term working capital needs should meet through long term means of

financing. Financing through long term means provide stability, reduce risk or payment.

And increase liquidity of the business concern. Various types of long term sources of

working capital are summarized as follows:

I. Issue of share:


It is the primary and most important sources of regular or permanent working capital.

Issuing equity shares as it does not create and burden on the income of the concern nor

the concern is obliged to refund capital should preferably raise permanent working

capital.

II.Retained earning:

Retain earning accumulated profits are a permanent sources of regular working

capital. It is regular and cheapest. It creates not charge on future profits of the

enterprises.

III. Issue of debenture:

It creates a fixed charge on future earning of company. Company is obliged to pat

the interest. Management should make a wise choice in procuring fund by issue of

debenture.

IV. Long term debts:

Company can raise funds from accepting public deposits, debts from financial

institute like banks, corporations etc. the cost is higer than the other financial tool.

Other sources are sale of fixed asset, securities received from employees and customer

are examples of other sources of finance.

2. Short term sources of temporary working capital:

Temporary working capital is required to meet the day to day business

expenditures. The variable working capital would finance from short term sources of

funds. It has the benefit of low cost and establishes closer relation with the banker. Some

of the sources are listed are:


I. Commercial bank:

A commercial bank constitutes a significant source for short term or temporary

working capital. This will in the form of short term loans, cash credit, and overdraft and

though discounting the bills of exchanges.

II. Public deposits:

Most of the companies in recent years depend on this source to meet their short

term working capital requirements ranging from six month to three years.

III. Various credits:

Trade credit, business credit papers and customer credit are other sources of short

term working capital. Credit from supplier, advances from supplier, bills of exchange

promissory notes, etc helps to raise temporary working capital.

IV. Reserve and other funds:

Various funds of the company like depreciation for tax and other provisions kept

with the company can use as temporary working capital.

The company should meet its working capital needs through both long term and short

term funds. The working capital financing mix should be designed in such way that the

overall cost of working capital is the lowest, and the funds are available on time and for

the period the really required.


Management of working capital:

Management will use a combination of policies and techniques for the

management of working capital. These policies aim at managing the current assets

(generally cash and cash equivalents, inventories and debtors) and the short term

financing, such that cash flows and returns are acceptable.

1. Cash management.

Identify the cash balance which allows for the business to meet day to day expenses, but

reduces cash holding costs

Importance of Cash:

Cash is the balancing figures between debtors, stock and creditors.

Without adequate cash to meet working capital demands, it is impossible to extend

credit, order stock or pay creditors.

1. Cash management involved the following:

I. Efficient banking-making sure money received is banked as soon as possible, making

payments the most efficient way, and ensuring any surplus balances are put to interest

earning use. Here the liquidity, risk and return of investments must all come into play

with the length of time before funds are needed playing an important role.

II. The basic in cash flow control is to ensure funds are available when needed.

A. For the immediate short term trend:

Weekly or monthly forecasts are prepared for comparison with actual results. If

these forecasts indicate unacceptable balances or deficits are likely at some point,

it will be necessary to decide how these can be covered. Immediate solutions will

include increased borrowing, rescheduling plans and payments, or even sale of an

asset.

B. For the longer term trend:


Longer term cash flow control will include all aspects of the business including

working capital and fixed capital control, capitalization, trading and dividend

policy. For example it may be able to improve cash flow by improvements in

operating efficiency or higher sales prices, improved working capital control, or

revised fixed asset investment plans.

III. Cash flow forecasts:

An integral part of the budgeting process

The objectives of the cash budget are to:

integrate trading and capital expenditure budgets with cash plans;

anticipate cash surpluses and deficits in time to generate plans to deal with these; and

Provide a facility for comparison between budget and actual outcomes.

IV. Cash management by ratio analysis like current ratio or liquidity ratio.

2. Inventory management.

Identify the level of inventory which allows for uninterrupted production but reduces the

investment in raw materials - and minimizes reordering costs - and hence increases cash

flow. Tools for inventory management are Supply chain management; Just In Time

(JIT); Economic order quantity (EOQ); Economic production quantity.

Objective of Managing Stock is to:

Establish the proper stock control levels so as to ensure that excessive stocks are

never carried (and working capital thereby sacrificed) but that they never fall below

the level at which they can be replenished before they run out.

Failing to maintain proper stock level will mean that working capital is tied up in the

business.


http://en.wikipedia.org/wiki/Economic_production_quantity

http://en.wikipedia.org/wiki/Economic_order_quantity

http://en.wikipedia.org/wiki/Just_In_Time_(business)

http://en.wikipedia.org/wiki/Supply_chain_management

Keeping levels to the minimum required for efficient operations will keep costs

down. Stock control involves in many aspects like the controlling of buying,

handling, and storing, issuing, and recording stock.

1. Debtors management.

Identify the appropriate credit policy, i.e. credit terms which will attract

customers, such that any impact on cash flows and the cash conversion cycle will

be offset by increased revenue and hence Return on Capital (or vice versa). The

management of debtors which is also known as credit management

4. Short term financing.

Identify the appropriate source of financing, given the cash conversion cycle: the

inventory is ideally financed by credit granted by the supplier; however, it may be

necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through

"factoring"

Scope of the study


The study of working capital helps us to know the current assets and current

liability of an organization. If working capital is excess then the excess amount of

working capital is idle. If the working capital is not sufficient for meeting the daily

expenses then it creates a problem. So it is necessary to maintain exact working capital

according to the expenses for the organization.

In this project, the study of working capital analysis is done through working

capital budget and ratio analysis, which are wide spread and some ratios creates relations

with whole casting industry, but it is very essential to note that this study is limited to

only to “Raymond Pvt. Ltd., Yavatmal.”

Limitation of the study

1. Data analysis is based on the statement of the annual reports and so researcher may

miscalculate it due to human efforts.

2. The ratios can’t be taken as ultimate judgment of any companies of financial position.

3. The time constraint of the project of two months is not sufficient to study each

element of the working capital analysis of the company.

4. The analysis is done on previous three years only.


CHAPTER 5

RESERCH MEDTHODOLOGY

Sources of Data for Data Collection


The study that is conducted being descriptive one the research source of data used is of

two types:

Primary Data

Secondary Data

Primary Data-

o The primary information is collected through discussion with the Asst finance

managers of Raymond UCO Denim Private limited , staff members of finance

department.

Secondary Data-

For conducting the detailed study of this topic it is necessary to have some of the

secondary information which is collected from:

o Balance Sheet of the Raymond UCO Denim Private limited for last 3 years

o CMA reports of Raymond UCO Denim Private limited for last 3 years.

o Profit and Loss Account for last 3 years.

o Website(www.raymondindia).

Research Design

Research Design involves the descriptive study. It analyzes the financial resources and

financial position of the “Raymond UCO Denim Private limited – Yavatmal plant”.

wherein the past project data and financial statements are being used to know the

working capital position of the company.


CHAPTER 6

DATA ANALYSIS AND INTERPRETATION

1.Amounts of current asset:


A. Current asset of Raymond uco Denim Pvt. Ltd. For the year ended

31st mar.

TABLE NO 1

Current asset 2005-06 2006-07 2007-08

Inventories 44337.78 43347.47 55673.82

Sundry debtors 40899.35 49243.76 34969.26

Cash and bank balance 3648.76 1783.16 2913.49

Loans and advances 7328.84 10880.40 7473.81

Total 96214.73 105254.79 101030.38

Contribution to current assets (pie charts):

Graph

2006-07

41%

47%

2%10%

Inventories Sundry debtors Cash and bank balance Loans and advances

Graph


CONTRIBUTION OF CURRENT ASSET (2005-06)

45%

43%

4%8%

Inventories Sundry debtors Cash and bank balance Loans and advances

2007-08

55%35%

3% 7%

Inventories Sundry debtors

Cash and bank balance Loans and advances

Interpretation:

As we can see from above graphs, it is seen that,

1. Inventories of the company are 45%, 41%, and 55% of the total current asset for the

year 2006, 07 and 08 respectively.

2. Sundry debtors of the company are 43%, 47%, and 35% of the total current asset for

the year 2006, 07 and 08 respectively.

3. Cash and bank balance is maintained in between 2-4% and loans and advances are

maintained in between 7-10% of the total current assets.

B. Current liabilities of Raymond uco Denim Pvt. Ltd. For the

year ended 31st march

TABLE NO 2

Current liabilities 2005-06 2006-07 2007-08

Current liabilities 63972.14 57856.65 47983.25

Provisions 4148.53 7697.05 2475.98

Total 68120.67 65553.70 50459.23

Contribution to current liabilities (pie charts):


Graph

2005-06

94%

6%

Current liabilities Provisions

Graph

2006-07

88%

12%


Graph


2007-08

95%

5%


Interpretation:

From above graphs, we can see that current liabilities are broadly divided into two parts

that is current liabilities and provision .in which 5-12% are the provisions and other parts

for other current liabilities.

AMOUNTS OF WORKING CAPITAL:

TABLE NO 3

Year 2005-06 2006-07 2007-08

Current assets 91214.73 100254.79 96030.38

Less Current liabilities 61120.67 59553.70 38453.38

Add Contingencies - - -

Working capital 30094.06 40701.09 52577.00

GRAPH


Interpretation:

As we can see the trend of working capital, it is growing year by year. In 2006-07, it was

grown by 35.24% and in 2007-08; it was grown by 29.17%But these figures are

contradicting with the sales figure .sales are decreasing year by year. But the other factor

like market condition as we know recession period, credit policy, and production policy

may be reason of growth in working capital amount.

Analysis of various component of working capital:

Inventory analysis:

Inventory is total amount of goods and materials content in a store of factory at any given

time. Inventory means stock of three things:

1. Raw materials

2. Semi finished goods

3. Finished goods

Position of inventory in Raymond uco Denim Pvt. Ltd.:

TABLE NO 4

Particulars/Year- 2005-06 2006-07 2007-08


Raw materials 8475.26 7677.87 24900.18

Work in process 35094.06 35199.01 16210.99

Finished goods 360.07 337.9 100.00

Fuel, oil & other

consumable

408.99 609.75 20401.47

Total 44136.38 43824.53 61612.64

GRAPH

Interpretation:

By analyzing the 3 years data we see that the inventories are increased. We are looking

increasing pattern in inventories. We can see that inventories are decrease by only

0.70%and 40.58 % in 06-07 and 07-08 respectively from previous year.

Sundry debtor’s analysis:

Debtors or an account receivable is an important component of working capital and fall

under current assets. Debtors will arise only when credit sales are made.

Position of sundry debtors in Raymond uco Denim Pvt. Ltd.:

TABLE NO 5

Particulars/years 2005-06 2006-07 2007-08

sundry debtors 39699.39 48293.06 37909.16


Total 39699.39 48293.06 37909.16

GRAPH

Interpretation:

In the table and figure we see that there is up and downs in the debtors of Raymond uco

Denim . ltd. Debtors are increased by 21% in year 2006-07, and drastically decreased by

21 % in the year 2007-08. A simple logic is that debtors increase or decrease with the

sales and credit policy of company. But in 2006-07, there is contradiction in sales and

debtors figure as sales are decline by 8%. But credit policy of company may effect on

debtors while in 2007-08 the reason of decline in debtors was the decline in sales

amount. The main reason of decreased sales may be recession but it is not a good sign for

companies’ percept

Cash and bank balance analysis:

Cash is called the most liquid asset and vital current assets; it is an important component

of working capital. In a narrow sense, cash includes notes, bank drafts, cheaque, etc.


while in border sense it includes near cash, assets such as marketable securities and time

deposits with bank.

Position of cash and bank balance in Raymond uco Denim Pvt. Ltd.:

TABLE NO 6

Particulars/year- 2005-06 2006-07 2007-08

Cash at bank 3547.19 2567.48 2413.44

Cash in hand 96.50 234.39 254.14

Total 3643.69 2801.87 2667.58

GRAPH

Interpretation:

If we analyze the above table and chart we find that it follows up and downs. In

the year 2006, it had maintained sufficient amount of cash and bank balance which has

fallen hugely in the year 2007 but there is again growth in cash balance between the

years 2007-08. It is necessary to company to maintain adequate cash balance for

maintaining liquidity position but it should be remember that, holding cash should not be

ideal because ideal cash is nothing but opportunity cost for company. This can be

utilizing for investments projects for company growth


Loans and advances

Loans and advances here refers to any to amount given to different parties, companies,

employees for a specific period of time and in return they will be liable to make timely

repayment of that amount in addition to interest on that loan.

Position of other loans and advances in Raymond uco Denim Pvt. Ltd.

TABLE NO 7

Particulars/year 2005-06 2006-07 2007-08

Income tax and tax deducted at source 4245.36 5474.96 1054.67

Advances to supplier 1252.83 1317.53 2987.79

Other advances and receivable 578.75 424.18 2623.38

Central excise account balance 1461.72 1877.77 494.75

Deposits 2498.69 1697.76 2325.54

Total 10037.37 10792.2 9490.13

GRAPH

Interpretation:

If we analyze the above table and chart we find that it follows up and downs. In the year

2006-07 it was grown by 7.5% and again it was drastically decreased by 12%.


Current liability analysis:

Current liabilities are any liabilities that are incurred by the firm on a short term basis or

current liabilities that has to pay by the firm within one year.

Position of current liabilities in Raymond uco Denim Pvt. Ltd.:

TABLE NO 8


Sundry liabilities 2358.97 2433.74 1360.48

Sundry creditors 50414.47 39669.61 34257.58

Advances from customer 849.55 1456.89 3738.43

Total 53622.99 43560.24 39356.49

GRAPH

Interpretation:

As we can see from graph the current liability of Raymond uco Denim is decreasing year

by year. It is decreased by 18% and 9.6% in year 2006-07 and 2007-08 respectively. It is

because decreasing in sundry creditors. It is very necessary to maintain current liability

proportionate with the current asset so liquidity should be maintained.


Provision analysis:

TABLE NO 9


Income tax 3306.54 7410.64 540.00

Expenses 16459.73 43476.21 14485.38

Total 19766.27 50886.85 15025.38

GRAPH

Interpretation:

As we see provisions of Raymond uco Denim Pvt. ltd, it shows up and downs. In 2006-

07 it was drastically increased by 61% and again it was decreased by 70%. It is because

fluctuation in amount of provision of income tax.

2. Ratio analysis:

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

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

of the firm. The following ratios may be calculated for this purpose:

1. CURRENT RATIO


2. QUICK/ACID TEST RATIO

3. ABSOLUATE LIQUID RATIO

4. INVENTORY TURNOVER RATIO

5. DEBTORS TURNOVER RATIO

6. CREDITORS TURNOVER RATIO

7. WORKING CAPITAL TURNOVER RATIO

8. CURRENT ASSET TO TOTAL ASSET RATIO

9. CURRENT ASSET TO SALES RATIO

10. CURRENT ASSET TO FIXED ASSET RATI

1. Current ratio:

This compares assets which will become liquid within approximately twelve months

with liabilities which will be due for payment in the same period and is intended to

indicate whether there are sufficient short term assets to meet the short- term liabilities.

Recommended current ratio is 2: 1. Any ratio below indicates that the entity may face

liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is the

entity is under utilizing its current assets.


Current ratio =

The following are the statistic of last three years Current ratios data.

TABLE NO 10

Year 2005-06 2006-07 2007-08

Current assets 96214.73 105254.79 101030.38


TABLE

current ratio 1.41 1.60 2.00

GRAPH

1.411.6

2

0

0.5

1

1.5

2

% age

2005-06 2006-07 2007-08

year

current ratio

Interpretation:

As we know the company’s current ratio is 1.42, 1.60 and 2.00 in the year 2005-06,

2006-07, and 2007-08 respectively.The standard current ratio should be 2:1. In the last

year (2008) company reached up to the standard which is satisfactory but it should

remain at that level that is to be stable and should not extend the ratio more than this.

2. Quick/ acid test ratio:


This shows that, provided creditors and debtors are paid at approximately the same

time, a view might be made as to whether the business has sufficient liquid resources to

meet its current liabilities.

A company in the service industry will not have inventories as such current ratio will not

significantly be different from the current ratio.

This ratio should ideally be 1 for companies with a slow inventory turnover. For

companies with a faster inventory turnover, a quick ratio can be less than 1 without

suggesting that the company should be in cash flow trouble.

Both current and quick ratio offer an indication of the company's liquidity position, but

the absolute figures should not be interpreted too literally. It is often theorized that an

acceptable figure should be 2:1 for current ratio and 1: 1 for quick ratio but these should

only be used as a guide. Different businesses operate in very different ways. A

supermarket group for example might have a current ratio of .5 and quick ratio of .17.

Supermarkets have low receivables (as sales are usually made on credit), low cash,

medium inventories (high inventories but quick turnover). While as in a manufacturing

company these ratios may be regarded as showing solvency problems.

Quick/acid test ratio =

The following are the static’s of last three years acid test ratios data.

TABLE NO 11

Year 2005-06 2006-07 2007-08

Quick assets 51876.95 61907.32 45356.56


Acid test ratio 0.76 0.94 0.95

GRAPH


0.76

0.94 0.95

0

0.2

0.4

0.6

0.8

1

% age

2005-06 2006-07 2007-08

year

Acid test ratio

Interpretation:

This ratio indicates the availability of quick assets to pay for current liabilities. It should

be 1:1.as we computed the company’s acid test ratio as 0.76, 0.94, and 0.95 for the

respected year as shown in graph. That is growing from the last three year which is

satisfactory but it was remains lower than standard, need to be little improvement.

3. Absolute liquid ratio:

Absolute liquid assets include cash in hand and at bank and marketable securities or

temporary investments. The acceptable norm for this ratio is 50% or 0.5:1.

Absolute liquid ratio should also be calculated together with current ratio and acid test

ratio. As exclude receivables from the current assets and find out the absolute liquid

assets.

Absolute liquid ratio =

The following are the static’s of last three years Absolute liquid ratios data.

TABLE NO 12

Year 2005-06 2006-07 2007-08

Cash and bank balance 3648.75 1783.16 2913.49


Absolute liquid ratio 0.054 0.027 0.058

GRAPH


0.054

0.027

0.058

0

0.01

0.02

0.03

0.04

0.05

0.06

%age

2005-06 2006-07 2007-08

year

Absolute liquid ratio

Interpretation:

As we know the company’s absolute liquid ratio is 0.054, 0.027 and 0.058 in the year

2005-06, 2006-07, and 2007-08 respectively.

The standard ratio should be 0.5:1. we see the graph;that this ratio is not satisfactory, need to improve to make sure liquidity position.

4. Inventory turnover ratio:

The ratio is aimed at checking how vigorous the entity is trading. It measures

approximately the number of times an entity is able to acquire the inventories and

convert them into sales. A lengthening inventory turnover period from one

accounting year to the next indicates:

1. A slowdown in trading; or

2. A build in inventory levels, perhaps suggesting that the investment in inventories is

becoming excessive.

The higher turnover ratio is good for the firm, but several aspects of inventory holding

policy have to be balanced.

Lead times

Seasonal fluctuations in orders.

Alternative use of warehouse space.


Bulk discounts.

Inventory turnover ratio also known as stock velocity is normally calculated as

sales/average inventory or cost of goods sold.

Inventory turnover ratio =

The following are the static’s of last three years Inventory turnover ratios data.

TABLE NO 13

Year 2005-06 2006-07 2007-08

Net Sales 224061.79 139530.79 140837.47

Average Inventory 43748.81 43842.63 49510.65

Inventory turnover ratio 5.12 3.18 2.84

GRAPH

5.12

3.182.84

0

1

2

3

4

5

6

Times

2005-06 2006-07 2007-08

Year

Inventory turnover ratio

Interpretation

From the graph, as we can see the inventory ratio is decreasing from 5.12 to 2.04 times

from last three years, it is not good indication for company. Company should need to

improve this ratio so company can able to acquire the required inventories to convert

them into sales.

5. Debtor’s turnover ratio:


Another asset management ratio which is used estimates how long it takes for the

credit customers to settle their balances. As outlined above it is very difficult to establish

the optimum level of receivables days, it will always depend with the nature of the

business an enterprise is involved. For this company receivable of 6 to 7 times will be

considered as to operate on cash basis. When setting the receivable days, an enterprise

should also consider how long its major suppliers demand their payments.

Increase in receivable days may also indicate overtrading especially when the profit

levels increases, together with receivable amounts but there is no improvement in

collection of receivables.

The enterprise should always strive to be within the industrial averages because if they

are too loose with their customers they run a risk of increasing the bad debtor’s levels.

Some of the reasons for improvement may be:

a. Aggressive debt collection by the company.

b. Strict rules on credit transactions.

c. Offering cash discounts for early settlement.

Debtors/receivable turnover ratio =

The following are the static’s of last three years debtor’s turnover ratios data.

TABLE NO 14

Year 2005-06 2006-07 2007-08

Net credit annual sales 224061.79 139530.79 140837.47

Average trade debtors 31820.25 45071.56 42106.51

Debtors turnover ratio 7.04 3.10 3.34

GRAPH


7.04

3.1 3.34

0

1

2

3

4

5

6

7

8

Times

2005-06 2006-07 2007-08

Year

Debtors turnover ratio

Interpretation:

As we can see the debtors’ turnover ratio, it shows the decreasing trend from last three

year. The debtor’s turnover ratio comes down from 7.04 times to 3.10 times and again

slight fall in this and comes down to 3.34 times in year 2007 and 2008 respectively.

When the debtor’s turnover decreases the average credit period of company is

lengthened.

6. Creditor’s turnover ratio:

Measures how long it takes for an entity to settle its creditors. The payable days

should always be more than the receivable days. Remember the cash received from the

customers will be used in settling the suppliers so it is imperative that the company

should always ensure than they secure more payable days than the days they allow their

customers.

Increase in payable days may indicate that the business is facing cash flow problems and

will deter new and old suppliers from extending credit supplies to the business. On the

other hand the business with short payable days indicates that it is not trusted by its

suppliers. Usually if the payment record of the business has been bad suppliers will

always insist cash purchases from the business in service industries the ratio is of little

relevance than in trading organizations. The service industries purchase consumables

which are not the core of their business unlike in trading activities where the performance

is based on the level of purchases made.


Creditors/payable turnover ratio =

The following are the static’s of last three years Creditors turnover ratios

data

TABLE NO 15

Year 2005-06 2006-07 2007-08

Net credit annual purchase 150016.6 99475.27 90341.76

Average trade creditors 47606.59 57391.45 48064.3

Creditors turnover ratio 3.15 1.73 1.88

GRAPH:

3.15

1.73 1.88

0

0.5

1

1.5

2

2.5

3

3.5

Times

2005-06 2006-07 2007-08

Year

Creditors turnover ratio

Interpretation:

As we can see the creditors turnover ratio 3.15, 1.73 and 1.88 times in 2006, 2007, 2008

respectively. The creditor’s turnover ratio is satisfactory because the average payable

period is more than average collection period.

7. Working capital turnover ratio :

Working capital of a concern is directly related to sales. The current assets like

debtors, bills receivable, cash, stock etc. change with the increase or decrease in sales.

The ratio indicates the number of times the working capital is turned over the course of a


year. This ratio measures the efficiency with which the working capital is being used by a

firm.

Working capital turnover ratio: =

The following are the static’s of last three years Working capital turnover ratios data.

TABLE NO 16

Year 2005-06 2006-07 2007-08

Cost of sales 224061.79 139530.79 140837.47

Net working capital 28094.06 39701.09 50571.15

Working capital turnover ratio 7.98 5.27 2.78

GRAPH

7.98

5.27

2.78

0

1

2

3

4

5

6

7

8

Times

2005-06 2006-07 2007-08

Year

Working capital turnover ratio

Interpretation:

As we can see in graph, the working capital ratio is decreasing year by year. It was

decreased by 2% in 2006 and 3 % approx. in year 2006-07 and 2007-08 respectively. A

higher ratio indicates efficient utilization of working capital and vice-versa. But it is

decreasing, need to improve.

8. Current asset to total asset ratio:

Current assets play an important role in day-to-day functioning of an organization.

So, every firm should maintain adequate current assets so as to meet the daily

requirements of business. If the proportion of current assets in total assets exceeds then


the required limit, there will be some idle investments on such assets. At the time, the

proportion of current assets in total should not less than requirements. So, every firm

should maintain the adequate quantity of current assets. But during the situations of peak

demand, should employ more current assets and vice-versa. Particularly in case of

production organizations, there is heavy importance to the current assets than fixed

assets. This kind of analysis will enable the managers to understand the working capital

position of the firm.

Data relating to the proportion of working capital in total assets is depicted as follows-

TABLE NO 17

Year 2005-06 2006-07 2007-08

Current asset 96214.73 105254.79 101030.38

Total assets 125389.28 135024.43 136470.35

Current asset to total assets ratio 0.78 0.78 0.74

GRAPH

0.78 0.78

0.74

0.72

0.73

0.74

0.75

0.76

0.77

0.78

% age

2005-06 2006-07 2007-08

year

Current asset to total assets ratio

Interpretation:

From the current asset to total asset ratio graph, it can be inferred that the proportion of

current assets to total assets had constant from last three years while we can see slight fall

in ratio in 2008.


9. Current asset to sales ratio:

The current assets are used for the purpose of generating sales. A ratio of current

assets to sales reveals that how best the assets are applied in business for turnover. As per

the above said ratio, a low proportion of current assets in relation to sales indicates better

turnover of the company and vice-versa, which will show positive impact on

profitability.

The data relating to this aspect is provided as follows and it is calculated as follows.

TABLE NO 18

Year 2005-06 2006-07 2007-08

Current assets 96214.73 105254.79 101030.38

Sales 224061.79 139530.79 140837.47

Current asset to sales ratio 0.42 0.50 0.56

GRAPH

0.420.5

0.56

0

0.1

0.2

0.3

0.4

0.5

0.6

% AGE

2005-06 2006-07 2007-08

YEAR

CURRENT ASSET TO SALES

Interpretation:


As per the above said ratio, a low proportion of current assets in relation to sales

indicates better turnover of the company and vice-versa but the actual figure 0.42, 0.50

and 0.56 in the year 2006, 2007 and 2009 respectively are contradicting this stateme.

10. Current asset to fixed asset ratio:

Total assets in any business contain both fixed and current assets. For properly

functioning of the organization in terms of production and marketing it is necessary to

maintain a properly balance between them. If the proportion of fixed assets increases, it

will be a negative impact on the firm’s liquidity and if current assets increase, production

increases and which causes impact on the demand for the product. In view of effective

management of funds and to invest on both fixed and current assets, it is necessary to

take the decision as soon as possible.

Data relating to the ratio between current assets to fixed assets is depicted as follows.

TABLE NO 19

Year 2005-06 2006-07 2007-08

Current assets 96214.73 105254.79 101030.38

Fixed assets 29169.56 29764.63 35439.97

Current assets to fixed asset ratio 3.3 3.54 2.85

GRAPH

3.3 3.54

2.85

0

1

2

3

4

% AGE

2005-06 2006-07 2007-08

YEAR

CURRENT ASSET TO FIXED ASSET RATIO

Interpretation:


As per the above said ratio, the ratios are 3.3, 3.54 and 2.85 in the year 2006, 2007 and

2008 respectively. For properly functioning of the organization in terms of production

and marketing, it is necessary to maintain a properly balance between the current asset

and fixed asset.

CHAPTER 7

FINDING & CONCLUSION


FINDINGS

As per the ratio calculated above it is observed that though the company has

increased revenue during the year 2007-2008 but there was fall in profitability

also it is observed that the company employed capital during the year on long

term project which may result into profit in coming future to company.

Company also have much more current assets over the current liabilities which is

too reduced/recovered and invest the same in other available project.

Overall view, company in the previous year it has poor performance resulting into

fallen down all profitability ratio.

In the last year (2008) company reached up to the standard which is satisfactory

but it should remain at that level that is to be stable and should not extend the

ratio more than this.

The liquid acid ratio is increase in the year2008.The standard ratio should be

0.5:1. we see the graph;that this ratio is not satisfactory, need to improve to make

sure liquidity position.

In the case of inventory ratio company should need to improve this ratio so

company can able to acquire the required inventories to convert them into sales.

As we can see the debtors’ turnover ratio, it shows the decreasing trend from last

three year.

When the debtor’s turnover decreases the average credit period of company is

lengthened.

The creditor’s turnover ratio is satisfactory because the average payable period is

more than average collection period.

The working capital ratio is decreasing year by year. A higher ratio indicates

efficient utilization of working capital and vice-versa. But it is decreasing, need to

improve

It can be inferred that the proportion of current assets to total assets had constant

from last three years while we can see slight fall in ratio in 2008.As per the above


said ratio, a low proportion of current assets in relation to sales indicates better

turnover of the company and vice-versa

CONCLUSION

The importance of efficient Working Capital Management is indisputable. Moreover, adequate Working Capital Management is essential as it has a direct impact on ‘EBIT’ and liquidity. An attempt has been made in the present study to investigate the relationship between Working Capital Management efficiency and ‘EBIT’ of Indian paper companies. In the matter of Working Capital Management, three indexes and net EBIT have been computed for all

The firms over the period of study – three-years. From the study it is concluded that the textile company perform remarkably well during the period. Though some of the sample units had successfully improved efficiency during these years, the existence of a very high degree of inconsistency in this matter clearly points out the need for adopting sound Working Capital Management policy in these firms.


CHAPTER 8

SUGGESTION


SUGGESTION

The company should increase the quality to attract the customers because it is

obvious that there is a lot of competition in market

The company should always try to minimize the rate because other branded textile

company like Siyaram,Mayur,Read and tailor & Belmont provide there product at

low prise as compare to Raymond

The company should expand its branches to facilitate maximum customers

The Company should establish their factory outlet in various cities to enhance the perchasing power of customer

Worker should be well treated with the best facilities in order to inhance their efficienc

Every product should be affordable and accesable for the layman

There should advance and innovative ideas to adhere customer ,with genuine product

Company should provide feedback facilities to the customer to ensure productivity of material


CHAPTER 9

ANNEXURE


PROFIT & LOSS ACCOUNT

Perticulars 2007-

082006-

072005-

062004-

05 2003-04

Sales 28814.

824456.

8 2250321036.

718728.2

2Other Income 774.34 702.5 930.73 940.53 349.66

Increase in Stock 3622.7

9 -19.88 -999.99 -780.59 2272.12

Total Income 33211.

925139.

422433.

721196.

7 21350

Purchases 26523.

919121.

717276.

916451.

816867.0

1

Consumption of Proc. Material 1250.6

51248.6

71389.2

71095.2

6 1059.56

Processing Expenses 1216.7

81287.7

81166.2

4 962.83 755.46

Salary & Allowances 1678.2

2 1457.8 1387.71256.6

3 1191.89Selling & Distribution Expenses 794.96 813.86 894.18 597.55 469.76Interest & Bank Charges 68.16 66.67 95.72 177.49 78.25Admin. & Other Expenses 356.59 345.63 377.04 369.95 403.86Provision for doudbtful debts 35 75 0 0 0Remission of Subsidy 0 0 0 0 190.95Depreciation 130.12 145.84 164.92 181.13 203.46

Total Expenses 32054.

324562.

9 2275221092.

7 21220.2

Profit/(Loss) Before taxation 1157.5

7 576.53 -318.25 103.99 129.8 Provision for taxation -470 -161.28 0 -8.52 -49.73Fringe Benefit Tax -9.77 -13.02 -13.84 0 0Deferred Tax Asset/Liability -33.58 10.56 63.9 -18.39 4.46 Profit After Taxation 644.22 412.79 -268.19 77.08 84.53

Balance Sheet


Particulars 2007-08 2006-07 2005-06 2004-05 2003-04

LIABILITIES

Share Capital 418.45 418.45 418.45 418.45 418.45Reserve & Surplus 5441.29 4864.36 4235.57 4408.72 4282.48Secured loans 2549.8 1890.01 953.68 1826.78 1808.76Unsecured Loans 500 500 500 500 500 Current Liabilities 13741.36 10234.11 9438.51 8965.05 7516.07Provisions 1388.42 945.07 738.66 619.27 710.4 Deferred Tax Liability 0 0 0 40.88 22.49

Total Liability 24039.32 1885216284.8

716779.1

515258.6

5

ASSET

Fixed Asset 3952.85 3923.27 3914.51 3901.73 3840.43Depreciation -2717.31 -2587.2 -2442.12 -2283.47 -2103.91Capital Wirk in Progress 25.6 9.45 9.45 9.45 10.55

Investment 0.06 0.06 0.06 0.06 0.06Inventories 9277 5634.79 5907.2 6754.37 7285.12Sundry Debtor 614.41 938.09 744.38 365.57 372.64Cash & Bank Balance 6647.53 4260.78 2602.21 1116.03 930.85Other Current Asset 57.56 31.5 7.26 0.06 0.08Loans & Advances 6181.62 6582.22 5468.66 6837.69 4815.72Deferred Tax Asset 0 33.58 23.02 0 0Misc. Expenditure Written off 0 25.46 50.24 77.66 107.11

Total Assets 24039.32 1885216284.8

716779.1

515258.6

5


CHAPTER 10

BIBLIOGRAPHY

Bibliography


Financial Management by I.M. Pende

Financial Management by N. M Vechalekar

Financial Management by Jain & Khan

Referred sites

Search engine

www.google.com

Web site

WWW.indiastudy.com

WWW.paradise.com

WWW.raymondindia.com


http://www.google.com/


Documents

Working Capitl Management & Ratio Analysis