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WORKING CAPITAL MANAGEMENT

CHAPTER - 1 INTRODUCTION INDUSTRY PROFILE COMPANY PROFILE

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INTRODUCTION Working Capital Management is one of the most important aspects of financial management. It forms a major function of the finance manager and accountant. Working capital management or administration of all aspects of working capital, which manage the firms current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. Current Assets include: - Stocks of raw materials - Work-in-progress - Finished goods - Trade debtors - Prepayments - Cash balances Current Liabilities include: - Trade creditors - Accruals
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- Taxation payable - Dividends payable - Short term loans Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital is not just important in the short-term. Sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as well. Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they fall due. Therefore, when businesses make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building, etc, but must also take account of the additional current assets that are usually involved with any expansion of activity.

INDUSTRY PROFILE
The Indian textile industry is one of the largest in the world with a massive raw material and textiles manufacturing base. Our economy is largely dependent on the textile manufacturing and trade in addition to other major industries. About 27% of the foreign exchange earnings are on account of export of textiles and clothing alone. The textiles and clothing sector contributes about 14% to the industrial production and 3% to the gross domestic product of the country. Around 8% of the total excise revenue collection is contributed by the textile industry. So much so, the textile industry accounts for as large as 21% of the total employment generated in the

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economy. Around 35 million people are directly employed in the textile manufacturing activities. Indirect employment including the manpower engaged in agricultural based rawmaterial production like cotton and related trade and handling could be stated to be around another 60 million.

A textile is the largest single industry in India (and amongst the biggest in the world), accounting for about 20% of the total industrial production. It provides direct employment to around 20 million people. Textile and clothing exports account for one-third of the total value of exports from the country. There are 1,227 textile mills with a spinning capacity of about 29 million spindles. While yarn is mostly produced in the mills, fabrics are produced in the power loom and handloom sectors as well. The Indian textile industry continues to be predominantly based on cotton, with about 65% of raw materials consumed being cotton. The yearly output of cotton cloth was about 12.8 billion m (about 42 billion ft). The manufacture of jute products (1.1 million metric tons) ranks next in importance to cotton weaving. Textile is one of Indias oldest industries and has a formidable presence in the national economy inasmuch as it contributes to about 14 per cent of manufacturing value-addition, accounts for around one-third of our gross export earnings and provides gainful employment to millions of people. They include cotton and jute growers, artisans and weavers who are engaged in the organized as well as decentralized and household sectors spread across the entire country. HISTORY OF TEXTILE INDUSTRY India has been well known for her textile goods since very ancient times. The traditional textile industry of India was virtually decayed during the colonial regime. However, the cotton textile industry, however, made its real beginning in Bombay, in 1850s. The first cotton textile mill of Bombay was established in 1854 by a Paris cotton merchant then engaged in overseas and internal trade. Indeed, the vast majority of the early mills were the handiwork of Paris merchants engaged in yarn and cloth trade at home and Chinese and African markets.

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The first cotton mill in Ahmadabad, which was eventually to emerge as a rival centre to Bombay, was established in 1861. The spread of the textile industry to Ahmadabad was largely due to the Gujarati trading class. The cotton textile industry made rapid progress in the second half of the nineteenth century and by the end of the century there were 178 cotton textile mills; but during the year 1900 the cotton textile industry was in bad state due to the great famine and a number of mills of Bombay and Ahmadabad were to be closed down for long period.

INDIAN TEXTILE INDUSTRY STRUCTURE AND GROWTH Indias textile industry is one of the economies largest. In 2000/01, the textile and garment industries accounted for about 4 percent of GDP, 14 percent of industrial output, 18 percent of industrial employment, and 27 percent of export earnings (Has him). Indias textile industry is also significant in a global context, ranking second to China in the production of both cotton yarn and fabric and fifth in the production of synthetic fibers and yarn.

Strengths of Indian textile Industry

India has rich resources of raw materials of textile industry. It is one of the largest producers of cotton in the world and is also rich in resources of fibers like polyester, silk, viscose etc.

India is rich in highly trained manpower. The country has a huge advantage due to lower wage rates. Because of low labor rates the manufacturing cost in textile automatically comes down to very reasonable rates.

India is highly competitive in spinning sector and has presence in almost all processes of the value chain.

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Indian garment industry is very diverse in size, manufacturing facility, type of apparel produced, quantity and quality of output, cost, requirement for fabric etc. It comprises suppliers of ready-made garments for both, domestic or export markets.

Weaknesses of Indian textile Industry

Indian textile industry is highly fragmented in industry structure, and is led by small scale companies. The reservation of production for very small companies that was imposed with the intention to help out small scale companies across the country, led substantial fragmentation that distorted the competitiveness of industry. Smaller companies do not have the fiscal resources to enhance technology or invest in the highend engineering of processes. Hence they lose in productivity.

Indian labor laws are relatively unfavorable to the trades and there is an urgent need for labor reforms in India.

India seriously lacks in trade pact memberships, which leads to restricted access to the other major markets.

Outlook for Indian textile Industry The outlook for textile industry in India is very optimistic. It is expected that Indian textile industry would continue to grow at an impressive rate. Textile industry is being modernized by an exclusive scheme, which has set aside $5bn for investment in improvisation of machinery. India can also grab opportunities in the export market. The textile industry is anticipated to generate 12mn new jobs in various sectors. INDIAN TEXTILE INDUSTRY

Largest Gross and Net foreign exchange earner


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31% of the total Export earnings with practically no import content (cotton yarn contributing 13%)

21 % of the industrial production 7% of GDP Direct employment to nearly 3 crore (30 million) of people. 10% of excise revenue PROFILE OF INDIAN TEXTILE INDUSTRY Organized sector No. of Mills Ring spinning OE spinning Looms Installed capacity 1875 36 mn spindles 3,79,579 rotors 1,19,033 (mill sector)

SSI SECTOR No. of Mills Ring spinning OE spinning 861 1.65 mn spindles 37,702 rotors

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SECTORWISE SHARE OF CLOTH PRODUCTION

OBJECTIVES The Textile Association (India) has some specific objectives such as:

To promote the use of scientific knowledge in textiles, from fibers to garments. To implement programmers of continued education in textile technology and management.

To help members acquire textile qualifications towards improved job performance. To honor all those who contribute significantly to the growth of Indian textiles. To analyses socio-economic environment for developing strategy recommendations. To develop a sense of brotherhood amongst the fellow textile professionals.

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Company profile
SUPER SPINNING MILLS PRIVATE LIMITED B UNIT Brief history of SS mills The story of super spinning mills is one of the continuing sagas of success a story of formation, promoting and establishment. The company was promoted and established in the year 1964 by well known industrialist and philanthropist, Sri. L.G. Balakrishnan at Kirikera in the backward area of Anantapur district. The company chairs man is Sri. L.G. Ramamurthy and managing director is Sri R. Sumanth. The successful functioning of their unit gave rise to other units namely SuperB at Kotnur in year 1983 and Super C an export oriented unit at D- Gudalur in Tamilnadu in Year 1992, the total capacity of the group on date is 12,000 spindles and an assets Rs. 640 million per annum and the total labor force around 2300. Sri L.G. Bal Krishnan and Brothers Ltd., Elgi equipments Ltd, Elgi trade India Ltd., Elgi Rolling Mills Ltd., Elgin & Co Pvt, Ltd., Rayalaseema Technologies Ltd., etc., The project implementations of these units have generated direct employment to nearly 3000 families besides indirect employment to another thousand. This had fulfilled the objective of the government to certain extent in promoting the company in this area. The company Super-A, commenced its commercial productions in April 1964 with 12000 spindles by 2000. The paid up capital of the company is Rs 300 Lakh the company had record steady the growth in its productivity as well as quality and its profitability over the years since

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its inception. The company has been following a steady dividend policy and never skipped the dividend since 1965. According to the survey conducted by the South India textile research association (SITRA) the company is one among the best 10 mills of couth in respect to quality and productivity. The company is using cotton as raw material and producing. The company is using as raw material and producing yarn in different counts Viz 60s,80,90 etc the companys finished products are being sold in the areas of Tirupur Kolkata, Varanasi, New Delhi Lehalharangi, Mangalagiri etc. through brokers and also the company is exporting 37% of its products to various countries Viz Bangladesh, Japan, Singapore, Italy Etc. The companies products are used in manufacturing sarees, Dhotis, Banians, T-Shirts etc and it is proud to say that the company is fulfilling one of the basic needs of human being that is clothing. The companys total turnover is around 760 Millions. The company is providing latest machinery. Equipment, testing equipment and also keeping the plant and the machinery updated from the to time. In order to provide sound up-keeping conditions, the company has provided humidification to the entire plant. Also the company has introduced the waste evaluation system I the carding and preparatory department. The company has sound industrial relations. The company has recently concluded a settlement with its workers on wages and work assignments linked to productively for 5 years. Also the company has arrived at a settlement on bonus and Effie bonus for 5 years linked to productively. The company is paying very high bonus that is 36.35% and 28%.Also the company has organized several community development and welfare program viz. Family planning camp was organized and 300 operations were done as an incentive the company has given one polyester saree and blues worth Rs.200 To all the operated people. Organized one week eye operation camp at LRG Vidyalayam, Kirikera.

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Donated submersible water pumps to the people of housing board colony, sadlapalli village. Constructed drinking water tank at Nakkalapalli. In achieving the tremendous financial soundness, the company never neglects its responsibility of well being of its employees and the community welfare. The company is paying highest wages and bonus in all textile mills in Andhra Pradesh. The company has expanded both regionally and internationally over the years. Manufacturing Units at three places ensures that each product that reaches the market is a wondrous example of unmatched quality.

Corporate Office at Coimbatore, Tamilnadu A Unit at Hindupur, Andhra Pradesh B Unit at Hindupur, Andhra Pradesh SUPER SARA Unit at Hindupur, Andhra Pradesh C Unit at Karur, Tamilnadu D Unit at Udumalpet, Tamilnadu

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The company is providing number of welfare amenities for the development of its workers such as: Interest-free own your house scheme. 1. Quarters for 20% of its employees. 2. Educational benefits for children. 3. Self-employed schemes etc. Since this area is highly backward, the company has extended its help by way of donations to the development of educational land, medical facilities in this area a few are. Donations for construction of Z.P.High school at Basavanahalli. Construction of science block in the same school. Constructed primary school at Mittameedapalli. Running English medium school for the benefits of rural children. Constructed a block in governmental hospital, Hindupur.

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Donated for construction of a free dispensary by the all India medical association.

Quality policy of the company Quality leading to customer satisfaction shall be top priority. This shall be achieved by complying to the requirements of the quality management system and continually improve its effectiveness. Employees shall be trained and motivated to enhance the quality of their work, competence and skills. Administrative set up The company has total number of employees of 950 out of which 64 are Staff and rests of the people are workmen. The firm is headed by General Manager. Super-A an over view Chief promoter Chairman Managing Director Executive Director Date of establishment of the Mill Capacity of spindles Raw material Major counts : R.Thirumoorthy : Sri D. Vidyaprakash : SriR.Sumanth Ramamurthi : Sri K.R. Seethapathy : 1-4-1964 : 59712 (appox) : cotton and viscose : Hosiery 50s, 60s, 80s, 2/60s Warp -60s,80s,90s,2/56s,2/80s. Area of the mill Financial products produced : 13 Acres : Banians, T-shirts, sarees etc.,

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Sales local

: Tirpur, Kolkata, Mumbai, Varanasi, Ichakarangi, Tenali, Mangalagiri, Chirala.

Exports

: England, Singapore, Malaysia, Italy, Switzerland, Japan and Bangladesh.

No. of employees

: 886 (Blue color)

Awards According to the survey conducted by the South India Textile Research association the company is one among the best 10 mills of South India in respect of quality land productivity in 1996 out of 270 mills the companys three units productivity performance is ranked as follows. A Unit -21st Rank B Units 10th Rank C Unit 6th Rank The company has also won so many awards at a national level for its quality and productivity. Objectives of the Company 1. Their efforts are committed towards fulfilling their quality, requirements of customer exceptions and needs 2. Enhancing the awareness of employees towards quality thought systematic training, development and motivation.
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3. The policy is understood implementation and maintained through display boards training classes, videocassettes and policy Export Performance The company has identified new markets during the year and thrust has been given more on direct experts. The total exports during the year were Rs. 7625 lakhs registered and Direct exports consisted of Rs. 5443 increasing of 38% over the last year Rs 5540 lakhs. The company is striving to improve the exports for achieving better results in the coming year. lakhs as against Rs. 4045 lakhs registering a growth of 35% the foreign exchange outflow utilized during the year mainly for modification was Rs. 943 lakhs and the net foreign exchange earnings by the company is Rs.4500 lakhs. Conservation of energy The power situation in Andhra Pradesh has been critical. Frequent, power interruption on daily basis and increased power tariff rates affected the machine utilization. Due to this energy saving measures were implemented in different areas excessively by conducting result-oriented energy consultants suggestions offered by the team viz., provisions of plant one touch fitting in all the pneumatic lines of machines modification of plant house designs, provision of PLC based panels, etc were already implemented and other suggestions are at different stages of progress which is expected to save the energy consumption considerably. In addition two second hand wind mill have also been acquired during the year, which is expected lower the further. Thrust is being to explore further possibility in these vital areas of energy consumption. Research & Development Efforts are being made continuously for improvement up-gradation of the manufacturing process for improving quality and productivity, conservation of energy, centralized waste collection system by the R & D department. Significant measures taken viz., modification of ring frames lift and ring dial combination which is expected to yield 10% higher production, provision of XBZ attachments in carding to improve the realization about
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0.5to 19% traits with bottom roller cleaners in ring frames and speed to improve the quality etc. efforts are continuing to enlarge the scope of R & D facility to as many areas as possible revenue expenditure incurred on Research & Development amounted to Rs. 127019. Technology absorption, adaptation and innovation: The thrust areas have been in improving the quality of the products and increasing productivity through cost effective programmers and value engineering technique. The company commenced the re-engineering process in the organization to fundamentally rethink and redesign manufacturing process to achieve dramatic improvement is critical areas of performance such as quality, cost service and speed. This will enable the company to compete more efficiently in the competitive global environment. During the year, state of art machinery namely either unfrock A-11 and unchain B11 RSSB D30 draw frames, contamination cleaners etc., were included in our manufacturing process to produce yarns meeting user 5 to 25% standards. In addition, high-tech gassing machine, micro 2000 yarn cleaners were also added on our post pinning process to offer value added yarns meant for export purpose. Shift timings: General shift : 8-00 A.M. To 5-00 P.M. I shift: 8-00 A.M. To 4-30 P.M. II shift: 4-30 P.M. To 1-30 A.M.

III shift: 1-30 A.M. To 8-00 A.M With a break of one hour for lunch in each shift. Communication:

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All the staff shall be attentive in the process of communication. The communication must be passed to all the concerned as quickly as possible there should not be any hesitation in giving information at any level subject to the Internal communication: E-mail, Telephone facility is available. Every table has been provided with an intercom. The operator will connect all the incoming calls to the respective table directly. There are also be used for communicating one table to another. These facilities can be used for personal needs after obtaining superiors permission on chargeable basis. Office equipment Photocopy can be used with the permission of administrative office. Computers are provided to make the work easier. Every paper has its right place; employees are advised to complete filling immediately. Stationery is provided for each and every table whatever they need for their work. Employees are advised to use A4 size paper as standard practice. It is advised to avoid damage/wastage by improper handling. Visitors: It is advised to be courteous to visitors. But dispose them soon after meeting is over. Meeting them at reception lounge is recommended. It is advised to meet the visitors only after they have taken the appointment. Security: Mill security is on contract basis. Round the clock security arrangements are provided for the mill and the quarters. Uniform and identity cards:

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All the staff wears uniforms as prescribed. The company supplies cloth Material for 2 sets of uniform once in 2 years. The company also pays the stitching charge as may be decided by the management. Uniform should be maintained neat and clean. Female staff should attend their work wearing sarees and blouse provide by the company. Identity cards are given to each staff. In case of replacement the cost should be borne by the individual concerned all the staff always keep secret, confidential, and prevent the disclosures of divulgence of all information, knowledge, know-how experience, date documents, plans, report statements, logs records, correspondence discussions, contracts, drawings, photo prints, copies, methods, process, layout of machinery finance, qualities etc., of the company that many pass through or come to the employees knowledge. Mill Etiquette: 1. The entire mill premises are deemed as No Smoking Zone 2. Avoid entering the cabins when a visitor is present or a meeting is in progress unless it is absolutely necessary. 3. Avoid standing on the arises and discuss with colleagues or visitors. 4. Ensure that discussions or talking on telephone do not cause disturbance to others. 5. Turn off lights computers, etc, whenever they leave work place. 6. Develop the practice of keeping a daily work plan sheet. Monitor your progress as per work plan an manage time well. 7. Finally assume yourself as the customer for your work, the review your work so that you are able to give better satisfaction to your customer.

The following are various departments of super-B

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Personal department. Finance department Production department. Purchase department.

Personal department Super Spinning Mills Ltd., A-unit has a separate personal department functioning under the head of Mr. K. Sudhakar. The main job of this department is to recruit, place competent and loyal workers in the enterprise. It also has the job of developing, planning, motivating and maintains the same All employees shall be systematically trained, developed and motivated to continuously improve the quality of their work. The head of the personal department analyze and determine the number of kinds of people required to run the organization. It is assed only by this department and it is the most important function. The personal department functions are at the prior level because only this department analyze the person and appraise their work. Their performance is reviewed periodically, their skills, knowledge, attitude and capacity are analyzed in detailed manner by making frequent enquires regarding them. This can be used for confirming the service of an employee and confirmation of employment. Determining all these actives they can be awarded with increments or higher salary if production etc. Recruitment: The policy of this company is RIGHT MEN FOR RIGHT JOB . The recruitment is made under the following factors:

Job description
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----

Type of person qualification, experience and other skills Go in for advertisement

Recruitment process: a. b. c. d. To collect information regarding candidates by advertisement. Screening the application. Short listing the candidates. Interview date and time.

The candidates are give prior intimation regarding time and date of interview. The methods used for interviewing are as follows. 1. 2. 3. 4. Joining: After joining the employees must be given induction and orientation programme. Induction: Making an employee to know about the company, introducing the member of the organization, informing the candidates of employment (Working time), how to conduct himself, leave facilities, welfare etc., Training: The company provides 6 months training to employees to acquire desired level of skills to further expand their knowledge to shoulder more responsibility. Written test, Personal interview, Aptitude test, Psychological test. Job test for technical job. Confirmation orally or by writing. Appointment order.

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Time keeping: Time keeping means controlling and maintaining for entry and exit of the members of the company. This is by maintenance of attendance, especially for staff and workmen by taken system or card system. In case of late coming or early going, one has to get gate pass or permission slip. Promotion: Generally promotion means an advancement to a better job which involves greater responsibilities and more knowledge and skills, which carries greater prestige and finally higher salary. In Super Spinning Mills ltd., they follow a good policy which carries seniority and competence as basis of promotion. Welfare of staff: The welfare activity of an organization is carried out to take care of employees and also his family. The super spinning mills has provided all welfare tit to staff within the premises, which gives the basic necessity of food rice is charged at a very reduced rate on no profit no loss basis. Periodic medical checkup is to be undertaken by every employee of fee of cost. Recreational Facilities: Recreation helps to reduce tension of work and to relax for sometime. Tea is provided twice a day to every employee at the table. This avoids idle time and makes them fresh at work. Club also provided to the employees. Safety Measures: To promote safe working conditions in the work area, safe work methods are conveyed to the employees during training programmed and during work. Safety device are provided to suit working environment to protect the health of employees.

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Benefit schemes: Statutory benefits are provided as per the acts like provident fund, gratuity fund, E.S.I., maternity benefit etc., apart from statutory benefits the employees are provided with facilities like super annotation, group personal, accident policy, medical expenses, Fair price shop is provided to the staff within the premises which gives the necessity commodities, prices are charged at reasonable rates on no-profit and no-loss basis.

TYPICAL ERRORS TO BE CONTROLLED IN A PROCESS Errors & Data Relating to People Tools Methods Procedures Mechanisms Attitude & Behavior Courtesy Reliability Trust worthiness Efficiency Performance Delivery & Cost Missed dead lines Over budget costs Untimed delivery

PROCESS ERROR MINIMISATION TO IMPROVE CUSTOMER SATISFACTION Product and service Materials Packages Parts Information Techniques for problem solving: Brain storming :To identify problem and solution Management Error Planning Organizing Controlling Directing Errors from other sources Supplies Vendors Controls External Environment

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Cause & effect diagram Flow chart Parcto diagram available. Histogram Graphs Pie chart

: To identify all root problems : To explain process sequence directly : To priorities the problem or causes when satisfied data is : To graphically represent and studying : To show the friend in performance : To pictorially show the contribution of individual items to the total

Process when data available

Control charts

: To study the process tends by on-line Plotting and take quick corrective

Finishing process objectives: Zero customer complaints Adherence proportionate dispatches Maintain target quality levels Maintain good house-keeping

VISION, MISSION AND QUALITY POLICY: VISION Our commitment to total customer satisfaction is by consistently provide, innovative and quality products through team efforts.

MISSION
Provide world-class products and services in a competitive environment resulting in effort.

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Continuous customer satisfaction through scientific selection of raw material and other inputs Product research and development Continuous improvement of process and up gradation of skills and technology Spiritual values Job enrichment Training

SWOT ANALYSIS SWOT analysis refers to the analyzing the strength, weakness, opportunity and threat of the organization (Company). SWOT is a compound of two factors namely external factors and internal factors. Strength and weakness are the internal factor, which can be controlled by the technical and personnel departments. Opportunity and threat are the external factors, which cannot be External factors may include political factors, Socio-Cultural controlled by the company.

factors, Technical factors, demography, Environmental factors etc. STRENGTHS

The most competitive and reasonable price. Products quality guarantee. Prompt and superior services.
Punctual delivery.

WEAKNESS
High cost establishment of plants. Transportation cost is also high. Poor advertisement and sales.
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OPPORTUNITY The finished product of Super Spinning Mill Ltd is the raw material for many textile and garment industries. So, the spinning mills have almost demand for its product. There are still better opportunities available to expand our network system. There is a scope for expansion of the plants in new places. Scope for export trade and globalization. Attractive investment opportunity.

THREAT
Tough competition in this sector since so many mills raised after abolition of quota system, MFA (Multiform agreement) from January, 2005 on-wards. Too many competitions in the same model of business. Lack of water facilities due to drought. There is stiff competition in the market. This is mainly due to multinational companies which have all the latest technologies.

We believe that quality products are not only by promises but also by proven results. Development of new textile products is done through - Innovation in defining production processes of higher quality and making available modern technologies and professionals with the highest level of competence.

The following advantages which have always been our ultimate goals: High Efficiency The Most Competitive & Reasonable Price Products Quality Guarantee

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Prompt & Superior Service Punctual Delivery

CHAPTER 2 LITERATURE REVIEW THIORITICAL FRAME WORK

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WORKING CAPITAL MANAGEMENT


Introduction: Working Capital Management is one of the most important aspects of financial management. It forms a major function of the finance manager and accountant. Meaning and Definition: Working capital management or administration of all aspects of working capital, which manage the firms current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. According to Smith Working Capital Management is concerned with the problems that arise in attempting to manage the current assets liabilities: and the inter-relationship that exists between them. DETERMINANTS OF WORKING CAPITAL OR FACTORS AFFECTING: The Working Capital requirement of a firm affected by a number of factors. factors, which affect the working capital requirement of a concern, are as follows. Nature of Business: The various

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The working capital requirements of enterprises are related to the conduct of business. Public utilities have certain features which have a bearing on their working capital needs. They do not maintain big inventories arid have, therefore, probably the least requirement of working capital. On the other hand trading and manufacturing concern required large amount of working capital to maintain a sufficient amount of cash, inventories and book debts.

1. Production Cycle: The term production or manufacturing cycle refers to the time involved in the manufacturing of goods. It covers the time span between the procurement of raw materials and completion pf the manufacturing process leading to the production of goods. 2. Business Cycle: The business fluctuations influence the size of working capital mainly during upward phase when boom conditions prevail, the need for working capital is likely to grow to cover the lag between increased sales and receipt of cash as well as invest in plant and machinery to meet the increased demand. The downswing an opposite effect on the level of working capital requirement. 3. Production Policy: A better alternative is a steady production policy independent of shifts in demand for the finished goods. This means a large accumulation of finished goods during the off-season and their abrupt sales during the peak season. The progressive accumulation of stock naturally requires an increasing amount of working capital, which remains tied up with time.

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For Example: A manufacturer of ceiling fans may maintain a steady production throughout the year rather than intensity in the production activity during the peak business seasons such a production policy may dampen the fluctuation in working capital requirements. 4. Credit Policy: The Credit policy relating to sales and purchases also affects the working capital. policy influences the requirements of working capital in two ways: Through credit terms granted by the firm to its customers/buyers of goods.Credit terms available to the firm from its creditors. A firm with more credit sales and cash purchase required high working capital than a firm having more credit purchase and cash sales. Scale of Production: A concern carrying on activities on a small scale needs less working capital. capital. Growth and Expansion of Business: The growth and expansion of business also affect the working capital requirement. When there is growth and expansion in the business of a firm the working capital needs of the firm will also increase. 1. Operating Efficiency: The operating efficiency of the management is most important determinant of the level of working capital. A firm enjoying operating efficiency can eliminate wastage and use its resources efficiently and thereby reduce its working capital needs considerably. 2. Operating Cycle: Operating cycle refers to the length of time necessary to complete the following cycle of events. :
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The credit

On the

other hand a concern undertaking activities on a large scale needs large amount of working

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Conversion of cash into inventory Conversion of inventory into receivable Conversion of receivable into cash

If the operating cycle is lengthy than the working capital requirement will be more on the other hand, if the operating cycle is shorter then the working capital requirement will be less. Sources of working capital: Among the various sources available for financing working capital needs, Finance manger has to select the best suitable source depending on working capital need of the company.

Long-term Sources: By issue of Shares By issue of Debentures Ploughing back of profits Long-term loan

Short-term Sources: They are classified into: INTERNAL Withdrawing the depreciation fund Using the resourcement for taxation Postponement of payment accrued expenses Public deposits (Short-term) EXTERNAL Bank Trade credit Bills of Exchange Govt. assistance

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WORKING CAPITAL MANAGEMENT: Every company needs two types of funds they are: 1. Long term funds (required to create production facilities through purchase of fixed assets such as plant and machinery, land and building, furniture etc., Investments in these assets are called fixed capital. 2. Short term funds- these are required for short term purposed for the purchase of raw materials, payments of wages and other day today expenses etc., these funds are known as working capital. Working capital refers to that part of the companys capital, which is required for investment, made in short term or current assets for e.g., cash, debtors, marketable securities and inventories. Funds then invested in these types of current assets keep revolving fast and being constantly connected into cash and again this cash flow out in exchange for other current assets. Therefore it is also called as circulating or short-term capital. A) CONCEPTS OF WORKING CAPITAL: There are two types of working capital. They are: 1) Gross Working Capital 2) Net Working Capital 1)GROSS WORKING CAPITAL: Refers to the firms investment in current assets. Current assets are the assets, which can be

concerned into and within an accounting year (or operating cycle) and include cash, short-term securities, debtors (Accounts receivables or book debts) bills receivable and stock (Inventory). Gross working capital points to the arranging of funds to finance current assets. 2) NET WORKING CAPITAL:

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Refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders, which are expected to mature for payment within accounting years and include creditors (accounts payable), bills payable and outstanding expenses. Net working capital can be positive or negative. A positive networking capital will arise when current assets, exceed current liabilities are in excess of current assets. B)THE NEED OF WORKING CAPITAL: The need for working capital to run day-to-day business activities cannot be overemphasized. We will hardly find a business firm, which doesnt require any amount of working capital. Indeed, firms differ in their requirements of the working capital. We know that a firm should aim at maximizing the wealth of its shareholders. In its Endeavor to do so. A firm should earn sufficient return from its operations. Earning a steady amount of profit required successful sale activity. The firm has to invest enough funds in current assets for cash instantaneously. There is always an operation cycle involved in the conversion of sales into cash. The various need of working capital is as follows: To pay wages and salary. It helps to the purchase of raw materials, components and spares. It helps to incur day-to-day expenses and overhead cost such as fuel, power and office expenses etc. It also to meet the selling cost as packing, advertising etc. It provides credit facilities to the customer It helps to maintain the inventories of raw material, working progress, stores and spares and finished stock. C)PROBLEMS ASSOCIATED WITH EXCESS AND INADEQUATE CAPITAL: DANGERS OF EXCESS WORKING CAPITAL:
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It results in unnecessary accumulation of inventories. inventory mishandling, the losses increase.

Thus the changes of

It is an indication of defective credit policy and stock collection period. Excessive working capital makes management co placement, which degenerates into managerial efficiency. Tendencies of accumulating to make speculative profits grow. firm is unable to make speculative profits. DANGERS OF INADEQUATE WORKING CAPITAL: It stagnates growth. It becomes difficult to undertake profitable projects due to non-availability of the working capital funds. It becomes difficult to implement operating plans and achieve the firms profit target. Operating inefficiencies creep in when it becomes difficulty event to meet day-to-day commitments. Fixed assets are not efficiently utilized for the working of capital funds. Thus, the rate of return on investment slumps. Paucity of working capital funds renders the firm unable to avail of attractive credit opportunities etc. The firm losses its reputation when it is not in position to turnover short-term obligations. The various need of working capital is as follows: To pay wages and salary. It helps to the purchase of material, components and spares. It helps to incur day-to-day expenses and overhead costs such as fuel, power office expenses etc. This may tend to make dividend policy liberal and difficult to cope with in future when the

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It helps to meet the selling cost as packing, advertising etc. It provides credit facilities to the customer. It helps to maintain the inventories of raw material, work-in-progress, to stores and spares and finished stock. D) MANAGEMENT OF WORKING CAPITAL : Generally working capital refers to the excess of current assets over current liabilities. Management of working capital therefore is concerned with the problems that arise in attempting to manager the current assets, the current liabilities and the inter relationship that exists between them. It refers to all aspects of administration of both current assets and current liabilities. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained. i.e., it is neither inadequate for an organization or a company. The policies or working capital management of a firm have a great on its profitability, liquidity and structural health of the organization. In this context the working capital management is three dimensional in nature. Dimension I is concerned with the formulation of policies regard to profitability, risk and liquidity Dimension II is concerned with the decision about the composition and level of current assets. Dimension III is concerned with the decision about composition and levels of current liabilities. 1) PERMANENT OR FIXED WORKING CAPITAL: The need for current assets arises because of the operating cycle. The operating cycle is a continuous process and therefore, the need for the current assets is felt constantly. But the magnitude of current assets needed is not always the same, it increases over time. However there

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is always a minimum level of current assets, which is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent or fixed working capital. 2) VARIABLE OR TEMPORARY WORKING CAPITAL : Depending upon the changes in production and sales, the need for working capital over and above permanent working capital, will have to be maintained to support the peak proceeds of sale and investment in receive may also increase during such periods. On the other had, investment in raw material, working in progress and finished goods will fall if the market is slack. The extra working capital needed to support the changing production and sales activities is called fluctuating, or variable or temporary working capital. The firm to meet liquidity measurement that will last only temporarily creates temporary working capital. SOURCES OF WORKING CAPITAL: The need of working capital is increased by raising prices of products and relative inputs. On the other hand, the government and monetary authorities play their own role to curd the malice in periods of inflation. The control measures often take the firm of dear money policy and restrictions Credit financing of additional working capital in such an amusement becomes a real problem to finance manager of a concerned unit. Commercial banks play the most significant role in providing working capital finance, particularly in Indians context. In view of mounting inflation, the R.B.I. has taken up certain social measures to check the money supply in the economy. The balancing need has to be managed either by long-term borrowings or by issuing equity or by earning sufficient profits and retaining the same of coping with the additional working capital requirements. The first choice before a finance manager where banks o not provide a part of additional working capital, is to take the long-term sources of finance. LONG TERM FINANCING:
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Loans from financial institution: the option is normally ruled out, because financial institutions do not provide finance for working capital requirements. Further this facility is not available to all companies this option is not practical. FLOATING OF DEBENTURES: The profitability of a successful floating of debentures seems to be rather merging. In Indian capital market, floating of debentures has still to gain popularly debentures issues of companies in private sector not associated with certain reputed groups generally failed to attract investors to invest their funds in companies. In this context the mode of raising funds by issuing convertible debenture / bonds is also gaining. ACCEPTING PUBLIC DEPOSITS: The issue of tapping public deposits is directly related to the image of the company seeking to invite private deposits. ISSUES OF SHARES: With a view to financing additional working capital needs, issue of additional equity share could be considered. Many Indian Companies have still to go ahead to command respect of investors in this context low profit margin as well as lack of knowledge about company make the success of a capital issue very dim. RAISING FUNDS BY INTERNAL FINANCING: Raising funds from operational profit poses problems for many companies, because prices of their end products are controlled and do not permit companies to earn profit sufficient requirements to finance additional working assets, still a largely feasible solution lies in increase profitability through cost control and cost reduction measures managing the cash operating cycle, rationalizing inventory stock and so on. BASIC OBJECTIVE OF WORKING CAPITAL MANAGEMENT:

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The basic objectives of working capital management are to manage the firms working capital (i.e., current assets and current liabilities) in such a way that a satisfactory level of working capital (i.e., neither excessive nor inadequate working capital) is maintained. This is necessary because, if the working capital is excessive or large, the liquidity position adversely affected, as funds would not doubt, improve, but its profitability would be adversely affected, as funds would remain idle. Conversely if the working capital is too small, the profitability of the firm may improve, but the liquidity position of the firm would be adversely affected. PROCESSESOR STEPS INVOLVED IN WORKING CAPITAL MANAGEMENT: Working capital management involved two possesses, they are: Forecasting the amount of working capital. Determining the source of working capital means estimating the amount of working capital needed by the firm. The amount of working capital needed by a firm has to be estimated by taking into consideration several factors, such as the nature of business, scale of operation, production policies, and length of manufacturing Process rapidity of turnover, seasonal fluctuation, period of credit allowed to debtors, period of credit availed of from creditors etc. DETERMINING THE SOURCES OF WORKING CAPITAL: Determining the sources of working capital means determining or deciding the sources from which the working capital requirement of a firm should be meet. The working capital requirement of a firm should be Meeting from both long-term and short-term sources of fund. It will be appropriate to finance or meet the fixed of permanent parts of the working capital requirements from long-term sources and the variable or fluctuating part of the working capital from short-term sources. The various long-term sources or working capital are shares (equity as well as preference), debentures, ploughing back of profit, term loan from industrial finance corporation

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and bank, long-term deposits from the public etc.The various short-term sources of working capital are trade credit, bank credit, customer advances and short-term public deposits. Criteria for judging the efficiency of working capital management: The efficiency of working capital management can be judged through accounting ratios. The important accounting ratios that could be used for judging the efficiency of working capital management are: Current Ratio Quick Ratio Inventory turnover Ratio Working capital turnover Ratio Debtors turnover Ratio

Operating cycle and cash cycle: Investment in working capital is influenced by four key events in the production and sales cycle of the firm. Purchase of raw materials Payment of raw materials Sale of finished goods

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Collection of cash for sales

The firm begins with the purchase of raw material, which are paid for after a delay, which represents the account payable period. The firm converts the raw materials into finished goods and then sells the same. The time lag between the purchase of raw materials and sale of finished goods is the Inventory period. The period that comes between the date of sales and the date of collection of receivable the accounts payable period (debt period). The time that comes between the purchase of raw materials and the collection of cash for sales are referred to as the operating cycle, whereas, the time length between The payment of raw material purchases and the collection of cash for sales is referred to as the cash cycle. The operating cycle is the sum of the inventory period and the account receivable period where as the cash cycle is equal to the operating cycle less the account payable period. From the financial statements of the firm, we can estimate the inventory period, the account receivable and the account payable period. is

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OPERATING CYCLE or CASH CYCLE

CASH
.

COLLECTIO N OF CASH

PURCHASE &EXPENCES

DEBTOR S & B/R s

PRODUCTIO N

SALES

STOCK

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CHAPTER -3 RESEARCH OF THE STUDY METHODOLOGY

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OBJECTIVES OF THE STUDY


Objectives set for the study are of two types. They are, Primary objective: To study how the current assets and current liabilities helps in finding out the working capital Secondary objective: 1) To know the changes of working capital management. 2) To study liquidity and profitability position of Super Spinning Mill Ltd., 3) To study and analyze the financial performance and its management in the company with respect to working capital management.

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SCOPE OF THE STUDY


Decision regarding working capital management is operating in nature and is not our time decision, so the scope of the study is to identify the areas of the control to have better over various components of working capital. An attempt is made to identify the optimum working capital requirements for super spinning mill and how can they utilize the inventories, cash and receivables in better way. The study is exclusively conducted for Super Spinning Mill Ltd., the study is conducted on the basis of records of last 5 years i.e. 2006-07 to 2010-11. The study focuses on the measurement of liquidity of working capital.

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METHODOLOGY OF DATA COLLECTION


The study required both primary and secondary data. Primary data has been collected by interviewing certain Executives who were chosen based on their in depth knowledge and experience in the company. Secondary data is obtained from the past records and reports of the organization and from other financial statements.

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LIMITATIONS OF THE STUDY


It is based on the data supplied by the factory personnel. The data collected here is from the annual reports, which is already prepared. Since only 5 years data is used for the analysis the outcome may be generalized. Due to limitations of time, it was unable to go for a depth study into the subject. There is no separate department for planning working capital in Super Spinning Mill Ltd.,

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CHAPTER- 4 DATA ANALYSIS & INTERPRETATION

The statement showing the changes in working capital for the year ended 2006-07(lakhs)

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PARTICULARS AMOUNT

AMOUNT

Effect on W.C

Current Assets Inventories Sundry Debtors Cash & Bank Balances Other C.A Loans & Advances Total C.A[A] C.L Total C.L[B] Working Capital (W.C)=(A-B) Net decrease in W.C* Total

(2006) 11869.32 1887.56 160.91

(2007) 9048.85 2375.64 497.56

Increase

Decrease 2820.47

488.08 336.65

246.98 10577.95

340.05 12645.51

93.07 2067.56

24742.72 6989.21 6989.21 17753.51

24907.61 8765.61 8765.61 16142.00 1776.40

1611.51

1611.51

17753.51

17753.51

4596.87

4596.87

Interpretation: The schedule of changes in working capital for the year 2006-07 shows that a decrease of working capital Rs. 1611.51 lacks. This is due to high decrease inventories even though increase in the all other current assets.
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The statement showing the changes in working capital for the year ended 2007-08(lakhs)

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PARTICULARS Current Assets Inventories Sundry Debtors Cash & Bank Balances Other C.A Loans & Advances Total C.A[A] C.L Total C.L[B] Working Capital (W.C)=(A-B) Net increase in W.C* Total

AMOUNT (2007) 9048.85 2375.64 497.56

AMOUNT (2008) 11356.97 2958.28 422.11

Effect on W.C Increase 2308.12 582.64 75.45 Decrease

340.05 12645.51

348.91 11727.55

8.86 917.97

24907.61 8765.61 8765.61 16142.00

26813.82 10106.61 10106.61 16707.21 1326.54

565.21

565.21

16707.21

16707.21

2899.62

2899.62

Interpretation: The schedule of changes in working capital for the year 2007-08 shows that an increase of working capital Rs. 565.21 lacks. This is due to high increase in inventories, debtors and other current assets even though there is a gradual decrease in the cash and bank balances.
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The statement showing the changes in working capital for the year ended 2008-2009(lakhs)

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PARTICULARS AMOUNT Current Assets Inventories Sundry Debtors Cash & Bank Balances Other C.A Loans & Advances Total C.A[A] C.L Total C.L[B] Working Capital (W.C)=(A-B) Net decrease in W.C* Total 16707.21 26813.82 10106.61 10106.61 16707.21 348.91 11727.55 (2008) 11356.97 2958.28 422.11

AMOUNT (2009) 7255.56 2402.62 415.23

Effect on W.C Increase Decrease 4101.41 555.66 6.88

396.31 12324.97

47.40 597.42

22794.69 10421.25 10421.25 12373.44 314.64

4333.77

4333.77

16707.21

4978.59

4978.59

Interpretation: The schedule of changes in working capital for the year 2008-09 shows that a there is a decrease of working capital Rs. 4333.77 lakh. This is due to high decrease in the value of

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inventories, debtors and cash balances even though there is an assets.

increase in the other current

The statement showing the changes in working capital for the year ended 2009-10(lakhs)

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PARTICULARS AMOUNT Current Assets Inventories Sundry Debtors Cash & Bank Balances Other C.A Loans & Advances Total C.A[A] C.L Total C.L[B] Working Capital (W.C)=(A-B) Net decrease in W.C* Total 12373.45 22794.69 10421.25 10421.25 12373.44 396.31 12324.97 (2009) 7255.56 2402.62 415.23

AMOUNT (2010) 5846.50 1978.36 290.10

Effect on W.C Increase Decrease 1409.06 424.26 125.13

883.24 11256.09

486.93 1068.88

20254.29 9632.21 9632.21 10622.08 788.79

1751.37

1751.37

12373.45

3027.33

3027.33

Interpretation: The schedule of changes in working capital for the year 2009-10 shows that a decrease of working capital of Rs. 1751.37 lakhs. This is due to high decrease in the value

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inventories, debtors and cash balances even though there is high increase in the other current assets.

The statement showing the changes in working capital for the year ended 2010-11(lakhs)

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PARTICULARS AMOUNT Current Assets Inventories Sundry Debtors Cash & Bank Balances Other C.A Loans & Advances Total C.A[A] C.L Total C.L[B] Working Capital (W.C)=(A-B) Net increase in W.C* Total 15116.03 4493.95 20254.29 9632.21 9632.21 10622.08 883.24 11256.09 (2010) 5846.50 1978.36 290.10

AMOUNT (2011) 14095.68 2181.48 497.36

Effect on W.C Increase 8249.18 203.12 207.26 Decrease

391.73 11108.27

491.51 147.82

28274.52 13158.49 13158.49 15116.03 3526.28

4493.95

15116.03

8659.56

8659.56

Interpretation: The schedule of changes in working capital for the year 2010-11 shows that there is an increase in the working capital Rs. 4493.95lackhs. This is due to high increase in the value of inventories, debtors and cash balances even though decrease in other current assets.
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WORKING CAPITAL:

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Working capital is how much in liquid assets that a company has on hand. Working capital is needed to pay for planned and unexpected expenses, meet the short-term obligations of the business, and to build the business.

Title : Table showing Working Capital of Super Spinning Mills LTD., during the period 20052006 to 2009-2010. Year Current assets(Lacks) 2006-07 2007-08 2008-09 2009-10 2010-11 24907.61 26813.82 22794.69 20254.29 28274.52 Current liabilities(lacks) 8765.61 10106.61 10421.25 9632.21 13158.49 Net working capital 16142.00 16707.21 12373.44 10622.08 15116.03

Source Note : The above information is from books and records of Super Spinning Mills LTD.

Title : Chart showing Working Capital of Super Spinning Mills LTD., during the period 2006-07 to 2010-11.

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Net working capital


18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2006-07 2007-08 2008-09 2009-10 2010-11 year working capital

Series1

Source Note : The above information is from books and records of Super Spinning Mills LTD. Interpretation: In the above table shows that 2006-2007 the net working capital is 16142 lakhs but in the last year i.e. 2010-2011 it was decreased to 15116.03.

1. CURRENT RATIO:
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It shows the relationship between the total current asset and current liabilities. This is a barometer of general measure of liquidity position of the firm and state of trading. It is also known as working capital ratio. The current ratio are expressed as follows Current asset Current ratio = -----------------Current liabilities Table no.1 Title : Table showing Current Ratio of Super Spinning Mills LTD., during the period 200607 to 2010-11. Year Current assets (lacks) 2006-07 2007-08 2008-09 2009-10 2010-11 24907.61 26813.82 22794.69 20254.29 28274.52 Current liabilities (lacks) 8765.61 10106.61 10421.25 9632.21 13158.49 2.84 2.65 2.18 2.10 2.15 Ratios

Source Note : The above information is from books and records of Super Spinning Mills LTD.

Title : Chart showing Current ratio of Super Spinning Mills LTD., during the period 2006-07 to 2010-11.

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current ratio
3 2.5 ratio 2 1.5 1 0.5 0 2006-07 2007-08 2008-09 2009-10 2010-11 year ratio

Source Note: The above information is from books and records of Super Spinning Mills LTD.
Interpretation: The above graph shows that in the year of 2006-07 the current ratio is 2.84 and there is a gradual decrease in the next 3 years, but in the last year it was slightly increased.

2. QUICK RATIO (ACID TEST RATIO):

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It is connected with the relationship between liquid asset and liquid liabilities. Quick ratio is the real index of the liquidity or the short solvency of the concern. The quick ratio is expressed as follows Quick assets Quick ratio = -----------------Current liabilities Table no.2 Title : Table showing Quick Ratio of Super Spinning Mills LTD., during the period 20062007 to 2010-2011. Year Current assets(lacks) 2006-07 2007-08 2008-09 2009-10 2010-11 24907.61 26813.82 22794.69 20254.29 28274.52 2517.08 2515.08 2742.12 2902.97 2824.37 Investment(lacks) Current liabilities(lacks) 8765.61 10106.61 10421.25 9632.21 13158.49 2.55 2.40 1.92 1.80 1.93 Ratio

Source Note: The above information is from books and records of Super Spinning Mills LTD.

Chart No.2

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Title : Chart showing Quick Ratio of Super Spinning Mills LTD., during the period 2006-07 to 2010-11. quick ratio
3 2.5 ratio 2 1.5 1 0.5 0 2006-07 2007-08 2008-09 2009-10 2010-11 year ratio

Source Note: The above information is from books and records of Super Spinning Mills LTD Interpretation: The above graph shows that in the year of 2006-07 the quick ratio is 2.55 but when compare to the last year i.e. 2010-11 it was highly increased.

3. ABSOLUTE LIQUID RATIO:


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The absolute liquid ratio explains the relationship between liquid assets and current liabilities. It includes the h in cash in hand and bank with marketable securities. Cash+bank+marketable securities Absolute liquid Ratio = --------------------------------------------------------Current liabilities Table no.3 Title : Table showing Absolute Liquid Ratio of Super Spinning Mills LTD., during the period 2006-07 to 2010-11. Absolute liquid Years 2006-07 2007-08 2008-09 2009-10 2010-11 assets(lacks) 497.56 422.11 415.23 290.10 497.36 Current liabilities(lacks) 8765.61 10106.61 10421.25 9632.21 13158.49 Absolute liquid ratio 0.06 0.04 0.04 0.03 0.04

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Source Note: The above information is from books and records of Super Spinning Mills LTD.

Chart No.3 Title : Chart showing Absolute liquid Ratio of Super Spinning Mills LTD., during the period 2006-07 to 2010-11. Absolute liquid ratio
0.07 0.06 0.05 ratio 0.04 0.03 0.02 0.01 0 2006-07 2007-08 2008-09 ye ar 2009-10 2010-11 ratio

Source Note: The above information is from books and records of Super Spinning Mills LTD.
Interpretation: The above graph shows that in the year of 2006-07 the absolute ratio is 0.06 but when compare to the next 2 years it was increased and in the year 2009-10 it was decrease when compare to the last year i.e.2010-11.

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4. PROPRIETORY RATIO:
Proprietary ratio is calculated to judge the owes contribution to total fund application it expenses relation between netwoth and total assets. Net worth/shareholder fund Proprietary ratio = --------------------------------------------Total assets Table no.4 Title : Table showing proprietary Ratio of Super Spinning Mills LTD., during the period 2006-07 to 2010-11.

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Total Year 2006-07 2007-08 2008-09 2009-10 2010-11 Net worth(lacks) 12617 12293 9121 9152 10543 assets(lacks) 41192.19 40727.95 34790.13 30245.08 32307.72 Ratio 0.31 0.30 0.26 0.30 0.33

Source Note : The above information is from books and records of Super Spinning Mills LTD.

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Chart No.4 Title : Chart showing Inventory to working capital Ratio of Super Spinning Mills LTD., during the period 2006-07 to 2010-11. Proprietary ratio
0.35 0.3 0.25 ratio 0.2 0.1 0.05 0 2006-07 2007-08 2008-09 2009-10 2010-11 year ratio 0.15

Source Note : The above information is from books and records of Super Spinning Mills LTD.
Interpretation: . The above graph shows that in the year of 2006-07 the proprietary ratio is 0.31 and the next

3 years ratio was decreased in the various levels but the last year i.e.2010-11 ratio was highly increased.

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5. WORKING CAPITAL TURNOVER RATIO:


This ratio makes clear whether the business is being carried on with small or large amount of working capital in relation to sales. Net sales Working capital turnover ratio = ------------------------------Working capital

Working Year 2006-07 2007-08 2008-09 2009-10 2010-11 Net sales(lacks) 39419.28 39215.26 36644.79 38537.85 47689.72 capital(lacks) 16142 16707.21 12373.44 10622.08 15116.03 Ratio 2.44 2.35 2.96 3.63 3.15

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Source Note: The above information is from books and records of Super Spinning Mills LTD.

Chart No.5 Title : Chart showing Debtors turnover Ratio of Super Spinning Mills LTD., during the period 2006-07 to 2010-11. working capital turnover ratio
4 3.5 3 ratio 2.5 2 1.5 1 0.5 0 2006-07 2007-08 2008-09 2009-10 2010-11 year ratio

Source Note: The above information is from books and records of Super Spinning Mills LTD.

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Interpretation:

In the above graph shows that in the year 2006-07 the working capital turnover ratio is 2.44 and next year slightly decreases but in the next 3 years the working capital turnover ratio was highly increased.

6.GROSS PROFIT RATIO:


It reveals the results of trading operation of the business. Gross Profit Ratio shows the
relationship between Gross Profit of the concern and its Net Sales.

Gross profit Gross profit ratio= -------------------------- *100 Net sales Table no.6 Title : Table showing Gross profit Ratio of Super Spinning Mills LTD., during the period 2006-07 to 2010-11.

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Gross Year 2006-07 2007-08 2008-09 2009-10 2010-11 profit(lacks) 4525 2834 1039 2176 3563 Net sales(lacks) 39419.28 39215.26 36644.79 38537.85 47689.72 Ratio 11.48 7.23 2.84 5.65 7.47

Source Note : The above information is from books and records of Super Spinning Mills LTD.

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Chart No.6 Title : Chart showing Working capital turn over ratio of Super Spinning Mills LTD., during the period 2006-2007 to 2010-2011. Gross profit ratio
14 12 10 ratio 8 6 4 2 0 2006-07 2007-08 2008-09 2009-10 2010-11 year ratio

Source Note : The above information is from books and records of Super Spinning Mills LTD. Interprtation : The above graph shows that in the year 2006-07 the Gross profit ratio is 11.48 and in the year 2008-09 the ratio was high decreased but when compare to the last 4 years 2006-07 was high increased.

7. NET PROFIT RATIO :


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This ratio indicates the result of the overall operation of the firm. Net Profit Ratio shows the
relationship between Net Profit of the concern and Its Net Sales.

Net profit Net profit ratio= --------------------------------*100 Net sales Table no.7 Title : Table showing Gross profit Ratio of Super Spinning Mills LTD., during the period 2006-2007 to 2010-2011.

Year 2006-07 2007-08 2008-09 2009-10 2010-11

Net profit(lacks) 1427 172 2743 32 1391

Net sales(lacks) 39419.28 39215.26 36644.79 38537.85 47689.72

Ratio 3.62 0.44 7.49 0.08 2.92

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Source Note : The above information is from books and records of Super Spinning Mills LTD.

Chart No.7 Title : Chart showing Net profit ratio of Super Spinning Mills LTD., during the period 20062007 to 2010-2011. Net profit ratio
8 7 6 ratio 5 4 3 2 1 0 2006-07 2007-08 2008-09 2009-10 2010-11 year ratio

Source Note : The above information is from books and records of Super Spinning Mills LTD.

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Interpretation: In the above graph shows that in the year 2006-07 the net profit ratio is 3.62 and in the year 2009-10 it was high decreased (0.08) ,when compare to the 5 years the year 2008-09 high increased.

8.OPERATING PROFIT RATIO :


Operating Profit means profit earned by the concern from its business operation and not from the other sources. It establishes the relationship between operating profit and net sales.

Operating profit Operating profit ratio= ------------------------------------*100 Net sales Table no.8 Title : Table showing Operating profit Ratio of Super Spinning Mills LTD., during the period 2006-2007 to 2010-2011.

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Operating Year 2006-07 2007-08 2008-09 2009-10 2010-11 profit(lacks) 5981 4610 1771 4334 5740 Net sales(lacks) 39419.28 39215.26 36644.79 38537.85 47689.72 Ratio 15.17 11.76 48.32 11.25 12.04

Source Note : The above information is from books and records of Super Spinning Mills LTD.

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Chart No.8 Title : Chart showing Operating profit ratio of Super Spinning Mills LTD., during the period 2006-2007 to 2010-2011. Operating profit ratio
60 50 ratio 40 30 20 10 0 2006-07 2007-08 2008-09 2009-10 2010-11 year ratio

Source Note : The above information is from books and records of Super Spinning Mills LTD. Interpretation: The above graph shows that in the year 2006-07 the operating profit ratio is 15.17, when compare to the year 2008-09 it was slightly decreased.

9. RETURN ON ASSETS RATIO:


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The return on assets ratio measures how efficiently profits are being generated from the assets employed. Profit after Tax Assets ratio =

--------------------------*100
Total assets

Table no.9 Title : Table showing Assets Ratio of Super Spinning Mills LTD., during the period 2006-2007 to 2010-2011.

Total Year 2006-07 2007-08 2008-09 2009-10 2010-11 PAT(lacks) 1442.21 214.49 2656.25 126.25 1500.49 assets(lacks) 41192.19 40727.95 34790.13 30245.08 32307.72 Ratio 0.04 5.27 0.08 4.18 0.05

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Source Note: The above information is from books and records of Super Spinning Mills LTD.

Chart No.9 Title : Chart showing Assets ratio of Super Spinning Mills LTD., during the period 2006-2007 to 2010-2011. Assets ratio
6 5 ratio 4 3 2 1 0 2006-07 2007-08 2008-09 2009-10 2010-11 year ratio

Source Note : The above information is from books and records of Super Spinning Mills LTD.

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Interpretation: The above graph represents that in the year 2006-07 the assets ratio is 0.04 but in the next year i.e.2007-08 it was high increased and again in the next year it was decreased and in the last year the ratio is 0.05.

CHAPTER-5 FINDINGS, SUGGETIONS & CONCLUSION

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FINDINGS 1) Schedule of changes in the working capital o f the firm for the year 2006-07 shows net decrease in Working capital because, when compare to the current assets current liabilities are decreased in a low level.

2)

Schedule of changes in working capital of the firm for the year 2007-08 shows net increase in Working capital because, the current assets are increased when compare to the current liabilities.

3)

Schedule of changes in working capital of the firm for the year 2008-09 shows net decrease in Working capital because the current assets are more decrease when compare to the current liabilities.

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4)

Schedule of changes in working capital of the firm for the year 2009-10 shows net decrease in Working capital because, the current liabilities are increased when compare to the current assets.

5)

Schedule of changes in working capital of the firm for the year 2010-11 shows net increase in Working capital because, the current assets are more increased when compare to the current liabilities.

6)

The company current ratio in the year 2.84 and in the coming years it was decreasing at a low level but in the last year it was slightly increased.

7)

Net profit is fluctuatuating from the year to year.

SUGGESTIONS

1) The desirable current ratio is 2:1 and some years it was more than 2:1 and even 3:1 the company should try to reduce this ratio to 2:1 because idle funds earn nothing. 2) Current assets management needs to be more efficient debtors and inventory management should be stabilized. 3) The company solvency. 4) The cash balances should be improved their by liquidity will be improved and such will can good solvency of the company. must try to maintain of proper current assets to possess the short term

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5) Generally an ideal company will try to maintain an average working capital policy rather to conservative to aggressive.

CONCLUSION By seeing the overall the performance of the company I observed that the total net working capital and the current ratio were decreasing at slowly. Working capital turnover is changing from year to year hence, the net working capital is not used efficiently and also the net profit of the company shows that increasing and decreasing trend from year to year (fluctuations). Where as operating profit in the initial stage it was very low level but in the year2008-09 it was highly increasing so at that time they were using working capital effectively with proper modifications, but in the last year again it was highly decreasing so the management as to take right decisions at the right time so that in the upcoming stages they will be succeed while utilizing the working capital.

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CHAPTER-6 BIBLIOGRAPHY
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BIBLIOGRAPHY
TEST BOOKS: Financial management Prasana Chandra Financial management IM Pande WEBSITE: www.superspinningmills.com www.workingcapital.com s

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