JAGANNATH

UNIVERSITY
DEPARTMENT OF FINANCE

Working Capital Management

COURSE CODE: FIN- 4206

A
Report
ON
“Comparative analysis of working
capital management of different
companies in textile sector”

Submission Date: 16 February, 2017 Page |

SUBMITTED TO:

Dr. Mohammad Bayezid Ali

Associate Professor
DEPARTMENT OF FINANCE
FACULTY OF BUSINESS STUDIES
JAGANNATH UNIVERSITY

SUBMITTED BY:

Group-08
DEPARTMENT OF
FINANCE
JAGANNATH UNIVERSITY

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 GROUP NO: 08
SL NO NAME ID NO
01 MD. ROBYUL ISLAM RUBEL B-120203019

02 MD. ABUL KALAM AZAD B-120203023

03 MD. ABU SAYED B-120203026

04 LAMIA AKTER B-120203036

05 MITHUN KUMER B-120203041

06 ROMANA AKTER PRIYA B-120203059

07 MOHAMMAD RUHUL AMIN B-120203062

08 MOHAMMAD MEHADI HASAN B-120203097

09 MAHMUDUL HASSAN B-120203102

10 ASIF AL SAIF B-120203139

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Letter of Transmittal
February 16, 2017
Dr. Mohammad Bayezid Ali
Course instructor
Department of Finance
Jagannath University

Sub: Thanks, giving letter to the respective faculty member.

Dear Sir,

With due respect and humble submission, we are the student of Department of Finance (7th
batch) of Jagannath University, Dhaka. We are very much sedulous about our report. We
are really happy to have such a report of challenging and interesting like this report. Our
report topic is “Comparative analysis of working capital management of different
companies in textile sector”. We have learned many things from this topic which will help
us in future to development of our career. There were some obstacles we have faced at the
time of collecting data about our topic. But we have overcome all the obstacles by the
endeavor effort by each member of our group and tried our best to give an overview of our
topic. We ‘the group-8’ tried our best to make this report attractive, impeccable, interesting,
informative and enjoyable by the guideline of our course instructor. There are some
mistakes may occur in our demonstration of our report. We hope that, you will exempt our
mistakes.

Thanking in anticipation,
Yours most obedient,

Lamia Akter
On behalf of the group-08
BBA 7th Batch
Department of Finance
Jagannath University, Dhaka

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Acknowledgement
First of all, we (the group-08) would like to thank the Almighty for giving us the strength, and the
aptitude to complete this report within due time. There are few people who really deserve to
thank for making this report a success. Without their support as well as help this paper could
never have been completed. We remember all of them with gratitude, thought we cannot
mention all of their names individually for spatial limitation. We would like to express our deepest
gratitude and appreciation to our course instructor Dr. Mohammad Bayezid Ali. It would not have
been possible for us to complete this work without his help, Advice and overall supervision. His
constant encouragement and supervision throughout the period of our report have been the
greatest incentive for us and directly contributed to the accomplishment of the task.

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Executive Summary
Working capital is a prevalent metric for the efficiency, liquidity and overall health of a company.
It is a reflection of the results of various company activities, including revenue collection, debt
management, inventory management and payments to suppliers. This is because it includes
inventory, accounts payable and receivable, cash, and portions of debt due within the period of
a year and other short-term accounts. Working capital management is crucial for maintaining
firm’s long term profitability. Here we tried to understand the policy regarding working capital
management of textile sector in Bangladesh. We took three companies to understand the overall
policy of working capital management. Those are Argon Denims Limited, Apex Spinning & Knitting
Mills Limited and Desh Garments Limited. Argon Denims Limited is taken as a base company and
others two use to compare peer companies. First we made a comparative balance sheet analysis
of these companies. From the comparative balance sheet analysis, we saw that net current assets
of Argon Denims and Apex Spinning Ltd. Is positive, which show that these companies are using
a conservative policy for working capital management. But Desh Garments Ltd. net current asset
is negative which represent that they are using aggressive net working capital policy and using
short term asset to invest in fixed asset.

We also made a ratio analysis for Argon Denims Ltd., Apex Spinning & Desh Garments Ltd. to
know their liquidity ratio, solvency ratio, activity ratio and profitability ratio from 2014-15 to
2015-16. From our analysis we saw that, Argon Denims and Apex Spinning is more conservative
regarding working capital management policy and their liquidity ratio, activity ratio and
profitability ratio are in safer position than Desh Garments. Desh Garments aggressive policy
regarding working capital management made their financial position worse. So, efficient working
capital management policy is needed to maintain a profitable and safer firm financial position.

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Table of Contents
Chapter-1 ............................................................................................................................. 1

1.1 Introduction ................................................................................................................... 1

1.2 Literature Review........................................................................................................... 2

1.2 Background of the study ............................................................................................... 4

1.3 Objective of the study ................................................................................................... 5

1.3.1 Broad objective: .................................................................................................. 5

1.3.2 Specific objectives: .............................................................................................. 5

1.4 Methodology ................................................................................................................. 5

1.5 Limitations of the study ................................................................................................. 6

Chapter-2 ............................................................................................................................. 7

2.1 Industry Overview ......................................................................................................... 7

2.2 Current Scenario .......................................................................................................... 10

2.3 Company Overview...................................................................................................... 12

Argon Denims Limited .......................................................................................... 12

Apex Spinning & Knitting Mills Limited ................................................................ 13

Desh Garments Limited ....................................................................................... 13

Chapter-3 Analysis of Comparative Balance Sheet ........................................................... 15

3.1 Comparative Balance Sheet of Argon Denims Limited ............................................... 15

3.2 Comparative Balance Sheet of Apex Spinning Ltd. ..................................................... 17

3.3 Comparative Balance Sheet of Desh Garments Limited ............................................. 19

Chapter-4 Ratio Analysis.................................................................................................... 21

4.1 Argon Denims Ltd ........................................................................................................ 21

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4.2 Apex Spinning Knitting Mills Ltd .................................................................................. 23

4.3 Desh Garments Ltd ...................................................................................................... 26

Chapter-5 ........................................................................................................................... 29

5.1 Findings ........................................................................................................................ 29

5.2 Recommendations ....................................................................................................... 29

5.3 Conclusion.................................................................................................................... 29

References ......................................................................................................................... 30

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Chapter-1

1.1 Introduction
Managing assets and liabilities is one of the most important jobs for business managers and
accountants. Small businesses in particular must strike a perfect balance between the two to
successfully continue operations, because they lack the capital to absorb large losses. Working
capital management entails the process of balancing the needs of short-term assets and short-
term liabilities. Aspects of working capital management include short-term loans, merchandise
purchased on credit, goods and services provided on credit and merchandise, goods and services
paid for upon delivery. Managing working capital essentially entails managing the cash flow of a
business on a daily, weekly and monthly basis in such a way that satisfies all debts while reserving
enough capital to continue operations and the generation of profits. Working capital is a daily
necessity for businesses, as they require a regular amount of cash to make routine payments,
cover unexpected costs and purchase basic materials used in production of goods. Working
capital is an easily understandable concept, as it is linked to an individual’s cost of living and,
thus, can be understood in a more personal way. Individuals need to collect money they are owed
and maintain a certain amount on a daily basis to cover day-to-day expenses, bills and other
regular expenditures.

The needs for working capital vary from industry to industry, and they can even vary among
similar companies. This is due to several factors, including differences in collection and payment
policies, the timing of asset purchases, the likelihood of a company writing off some of its past-
due accounts receivable, and in some instances, capital-raising efforts a company is undertaking.
When a company does not have enough working capital to cover its obligations, financial
insolvency can result and lead to legal troubles, liquidation of assets and potential bankruptcy.
Thus, it is vital to all businesses to have adequate management of working capital.

Working capital management is essentially an accounting strategy with a focus on the

maintenance of a sufficient balance between a company’s current assets and liabilities. An
effective working capital management system allows businesses to not only cover their financial

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obligations, but it is also a way to help companies boost their earnings. Managing working capital
means managing inventories, cash, accounts payable and accounts receivable. An efficient
working capital management system often uses key performance ratios, such as the working
capital ratio, the inventory turnover ratio and the collection ratio, to help identify areas that
require focus in order to maintain liquidity and profitability.

1.2 Literature Review

The concept of working capital should be understandable easily, as it is very much connected
with our personal lives as well. In the sense, sufficient money is needed for our cost of living. We
would like to collect the money owed to us, at the same time, we would like to pay whom we
owe. If the ready money is not maintained properly or we fail to do so, the situation is called as
bankruptcy or insolvency. The same applies to a business and the task of financial management
in terms of working capital is to maintain sufficient funds for its day-to-day requirements, while
safeguarding the business against the possibility of insolvency. Thus, the term working capital
refers to the excess of the current assets over the current liabilities.

Current assets of a business are those that will be converted in to cash in twelve months period.
They are: Cash, Receivables, inventories, marketable securities and prepayments. Current
liabilities are those that are to be settled in twelve months period. Current liabilities are: Accounts
payable, unearned revenues and wages payable.

The aim of good working capital management is to maintain balance in having sufficient working
capital to ensure that the business is liquid to meet its current requirements. A this stage, it must
be noted that being liquid does not mean to be in such a way that it affect or reduce the
profitability of the business. Rather, it means to maintain balance by finding ways to smooth out
cash payments in order to keep working capital stable. Thus, the importance of managing good
working capital emerges due to the fact a business that manages its working capital effectively
can survive while meeting its day-to-day operations successfully which in turn leads to the long-
term success.

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A survey conducted by Gitman, Moses, and White reveals that Lockboxes were widely used to
accelerate the collection process. Virtually alllarge firms use lockbox systems as do a large

percentage of smaller firms. This somewhat lower use by smaller firms is a reflection of the costs
versus the gains from lockbox systems. The survey farther reveals that to bring collected funds
together for use, over one-half of all large firms use concentration banking, with wire transfers
and depository transfer checks being the primary means of moving funds from one bank to
another. The survey was also extended to management of disbursement. The survey says the
primary tools for the management of cash outflows are zero-balance accounts and centrally

controlled disbursing. Central control of disbursements is the major tool for about 70 percent of
large firms. The vast majority of larger firms use zero-balance accounts, although smaller firms
use them less frequently. [see Gitman, Managerial Financial Management, 8th Edition, Thomson,
1998, pp. 350-390]. Another survey by R. Kamath, S. Khaksari, H. Meier, and J. Winklepleck
reveals that almost alllarge firms invest surplus cash in money market instruments. The most
popular investment is commercial paper, certificates of deposit, repurchase agreements,
treasury securities, and banker’s acceptances. [see Kamath R., S. Khaksari, H Meier, and J.
Winklepleck, “Management of Excess Cash: Practices and Development,” Financial Management
(Autumn 1985), pp. 70-77].

However, there is also survey evidence that firms can and do make reasonably accurate estimates
of default probability, delinquency, and discount rates. [see F. Scherr, “Estimating and Using
Failure-Forecasting Functions: Some Problems and Some Proposed Solution,” Baylor Business
Studies (January 1982), pp.16]. Published survey results from the mid-1970s showed aging
fractions to be the most popular method of monitoring customer payment patterns at the time
[see Smith and Sell, “Working Capital Management in Practice,” pp.55 and 69] In 1983 N. Hill, W.
Sartoris and D. Ferguson conducted a survey of the accounts payable managers of 1,479 firms of
various sizes in various industries: 180 responses were received. A major thrust of this survey was
obtaining information on firm’s decision regarding two methods of obtaining finance from
accounts payable; skipping the discount and stretching accounts payable. The survey revealed
that the vast majority of firms generally take the discount. In deciding whether to take the

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discount, the primary criterion of most firms is the amount of the discount. This makes good
financial sense, since the amount of discount (along with the delay period from the discount date
to the due date) determines the cost of skipping as a source of financing. [See N. Hill, W. Sartoris,
and D. Ferguson, “Corporate Credit and Payable Policy: A Survey Size and Industry Effects,” paper

presented at the Financial Management Association’s 1983 Annual Meeting] The other financing
strategy in connection with accounts payable is the stretching of payables beyond the due date.
Hill, Sartoris and Ferguson’s survey revealed three important factors that are considered by firms
in deciding whether to use this strategy; the value of using the funds (that is the cost of the funds
relative to other funding sources), the effects on relationships with supplies and the impact on
the firm’s credit rating. Another survey by Farragher on 33 firms reveled that most of the firm
uses the traditional form of financing. The researchers had also found that there is a growing
interest among the firm in using Factoring as an alternative means of financing. [See E. Farragher,
“Factoring Account Receivable,” Journal of Cash Management (March/April 1986), Page 39].

1.2 Background of the study

Working capital is defined as being the capital of a business which is used in its day-to-day
operations. It is the net of current assets minus current liabilities. Working capital ensures
whether or not a business organization has sufficient cash flow in order to meet its short-term
obligations and operating expenses. A business needs certain amount of cash for meeting routine
payments, providing unforeseen events or purchasing raw materials for its production. Managing
working capital includes managing cash, inventories, accounts receivables and accounts payable
in an effective manner. In this way, a working capital is equal to the raw materials, work in
progress, finished goods inventories and accounts receivables less accounts payable. It is
important for a business to manage good working capital by undertaking each component
relating to working capital effectively and efficiently. It must be noted that while the amount of
working capital that a company carries can be used to protect it against possible insolvency, it
can also affect its profitability as well. So, it is essential for a business management to maintain
the balance between liquidity and profitability while managing working capital. Thus, a well-
managed working capital is crucial for running a healthy and successful business.
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1.3 Objective of the study
1.3.1 Broad objective:

The general objective of this Assignment is to understand the working capital management policy
and their used in textile sector of Bangladesh.

1.3.2 Specific objectives:

 To measure the working capital management efficiency in textile sector.

 To evaluate the liquidity position of textile sector.
 To know about credit profile and the solvency of textile sector.
 All above this report will help us to improve our thinking and analytical ability on the field
of working capital management.

1.4 Methodology
Methodology is defined as a particular procedure or set of procedures, refers to the rationale
and the philosophical assumptions that underlie a particular study.
 Type of data
The report is prepared based on the secondary data.
 Sources of data
There are various types of data sources, from which an adequate and accurate data are collected
and analyzed in the report. The sources are:
1. Information technology (websites of Argon denims, Desh garments,
Appex spinning and Knitting mills limited and Wikipedia etc.)
2. Various thesis about working capital management.
First of all, every type of data related to working capital management is collected from different
sources mentioned above. Then all the data are analyzed and chosen the most accurate data to
explain the report.

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1.5 Limitations of the study
The study is not free from some practical limitations. Following limitations have faced during the
study and the time of working & data collection. These were:
 We had faced many complications to gather information because the enough
information was not available in the internet.
 Reluctant to provide information by the company.
 We have faced insufficient online data base sources.
 Due to the confidentiality concern, much detailed information could not retrieve.
 Due to lack of practical experience, some errors might be occurred during the
study. Therefore, maximum efforts have given to avoid mistakes.
Lack of Records, Sufficient books, unavailable information in website. These constraints
narrowed the scope of accurate analysis.

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Chapter-2

2.1 Industry Overview

The new environment represents a serious threat to Bangladesh. On the one hand, it is opening
a vast market with unlimited export potentials; on the other hand, it signals fierce competition
from textile giants like China, India and, from efficient producers like Thailand, Sri Lanka and
Vietnam. Competition may also come from Sub Saharan Africa and the Caribbean countries due
to preferential treatment from USA through TDA 2000.

The labor rates in textile industry (compiled by Warner International) show that the average
hourly wage rates for Bangladesh, India, Pakistan and Sri Lanka were respectively US$ 0.23, $0.56,
$0.49 and $0.39 (Bhattacharya 1999a). Being in the manufacturing of TEXTILE for two decades,
Bangladesh now possesses a large pool of skilled & semiskilled manpower. Moreover, there are
many unemployed young men and women who can easily be converted into a skilled workforce
if needed. Given the fairly long learning curve in this industry, extensive experience in dealing
with foreign buyers, offshore bankers, shippers, and Clearing and Forwarding (C&F) agents is a
valuable asset for the exporters of Bangladesh.

Dependence on others for raw materials, low productivity, limited knowledge in international
marketing information, poor infrastructure, political instability, disruptive trade unionism,
inefficiency in port management, and excessive dependence on TEXTILE sub-sector are the major
weaknesses of the industry. The industry is heavily dependent on others for outsourcing of raw
materials such as clothing and accessories. Another major shortcoming of the apparel sector is
the low productivity of its workers. The laborer productivity of Bangladesh is much lower than
that of Sri Lanka, South Korea and Hong Kong. Low productivity might erode the advantage of
low cost of labor of Bangladesh.

Exporters of Bangladesh also have limited access to current market intelligence and international
trade information because, so far, foreign buying houses have been dominating the marketing

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part of the business. In a post MFA era, if these buying houses shift their bases to other countries,
Bangladeshi exporters may face serious problems in finding their ultimate buyers.

At present problems in port management is a serious challenge to TEXTILE industry of

Bangladesh. The Chittagong Port is the most important entry and exit point for trade and
commerce of the country. Almost 90 percent of the exports and 75 percent of the imports of
Bangladesh are accomplished through the Chittagong Port. Therefore, it is considered as the
country’s economic lifeline. The Chittagong Port is one of the most inefficient and corrupt ports
in the world. Besides numerous procedural, physical and/or infrastructure related bottlenecks;
some sociopolitical consequences have added fuel to the chronic go-slow and congestion
problem at the port. Some of these problems are:

 Frequent work stoppage by different service providers, dock laborers, transport workers etc.
 Excessive dock labor unionism (there are about 30 different agencies/groups including 22
worker’s unions).
 Politicization of Collective Bargaining Agents (CBA).
 Direct involvement of powerful local politicians, elite and musclemen
 Illegal gratification practices (it has been a common phenomenon since long).

These vested interest groups are so powerful that they were able to stop the Government’s
attempts to construct a private container terminal near the Chittagong Port and another at
Patenga which were supposed to be funded by the Asian Development Bank. This and many
similar activities of different groups are undoubtedly unlawful but it seems that nobody has the
ability to stop it. For undue delays, due to these sociopolitical factors, several times had the
Singapore based CFTC imposed “Congestion Surcharge”. In a recent message (July 2000) to
concerned ministries, K-mart Far East Ltd. has expressed deep concern over the deterioration of
the management of Chittagong Port. The fax message says: Kmart can no longer sit on the
sidelines without making our concerns known to the Bangladesh government. Kmart cannot
afford to lose even one day of selling time due to inefficiencies and strikes at the Chittagong Port.
Kmart cannot and will not accept a 5% reduction of shelf life due to outside issues such as
inefficient port facilities and operations. Kmart will be watching very closely how the Bangladesh
government reacts to recent events (strikes), and how much investment is made into upgrading
the Port of Chittagong into a world class port.

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The greatest opportunities lie on the unlimited market outside Bangladesh. In a quota, free
world, the United Nations Commission for Trade and Development estimated that removal of
the MFA and tariffs by developed countries will expand exports of clothing by 135 percent and
textile by 78 percent. Trela and Whalley using a global general equilibrium model, estimated that
the change will be much larger: the value of imports of textiles and clothing will rise by 305
percent in the US, 200 percent in Canada, and 190 percent in EU. This indicates that phasing out
of quota will expand the market tremendously. Asia by far is the largest player in the world textile
and clothing market and, industry experts are confident that, overall, Asia still will dominate.

Although Bangladesh lags behind in the textile sub-sector, it is very likely that the sector will get
a boost through forward integration with TEXTILE.

In the knitting sector, Bangladesh gained substantial competitive advantage over her
competitors. According to the Bangladesh Knitwear Management and Exporters Association
(BKMEA), the cost of yarn production per kg. In the private sector of Bangladesh is only US$1.48,
whereas in India it is $1.78, in Pakistan $1.60, in Japan $2.38, in Korea $1.73 and in Thailand $2.78
(IFC 1998 cited in Bhattacharya 1999). Therefore, knit-TEXTILE has a good prospect for
Bangladesh in post MFA period.

The apparel sector of Bangladesh mainly exports low-cost products to the international market.
But she can move into high value added products through diversification. This is not impossible
given her two decades of experience, good relationship with buyers, worldwide reputation, and
presence in quality-conscious United States and EU markets. Recently it has already penetrated
the difficult but lucrative quality-conscious Japanese market.

Although developing countries are not being singled out for environmental issues, being poorer,
they cannot obviously maintain rigorous environmental standards. Moreover, the fact that their
competitive advantage often lies in natural resources and pollution-intensive industries implies
that they are vulnerable to being pressured to enforce stricter standards or face less market
access for their exports to developed countries.

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Other issues like child labor have already proved as a sensitive issue in the western market.
Compliance to the Rules of Origin4 (ROO) may threaten the future market access and
performance of TEXTILE sector of Bangladesh.

2.2 Current Scenario

Textile industry holds a key position in the economy of Bangladesh in terms of foreign exchange
earnings, employment generation and poverty alleviation. Right now, textile sector is the highest
foreign currency earner in Bangladesh. Apart from contributing to huge foreign exchange
earnings, Textile industry has become the largest source of employment generation. Around 3
million people are presently involved of whom 90% are distressed women in the Textile industry
of Bangladesh. In addition, a rough estimate shows that the sector through linkage effects is
currently generating about US$ 4 billion worth of domestic economic activities. Textile industry
is the most important sector for the economy of Bangladesh. It accounts for 75.14% in 2010-2015
of the country’s total export earnings (BGMEA Newsletter, 2015). About1.5 million workers of
whom 90% are distressed women are engaged in about 3200 garment factories as on June
2000(BGMEA, 1997-98).It is largest manufacturing sector contributing about 8% to the GDP. But
this Textile sector is now facing some challenges especially after 2014. Bangladesh is still at its
infancy in terms of quantity production in the textile industry. We still have problems in our
country for the production of quality goods. Standard is also not satisfactory. The quality of textile
products of Korea, Hong Kong, Taiwan and other countries is far superior to that of ours. There
are also infrastructure problems which made some recent crises like fire in tazreen fashion, Rana
plaza collapse and Mirpur textile factory fire. In June 2013 President Barack Obama announced
that U.S. trade privileges for Bangladesh, the Generalized System of Preferences (GSP), were
suspended following the deadly 24 April 2013 collapse of Rana Plaza, considered to be the global
garment industry’s worst accident. In 2007, the American Federation of Labor and Congress of
Industrial Organizations (AFL-CIO) had submitted a petition under the GSP benefits to the Office
of the United States Trade Representative (USTR) "alleging a number of worker rights issues in
export processing zones, the ready-made garments (RMG) sector, and the seafood processing
sector."This investigated was expedited as concerns over labor rights and textile factory safety

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concerns increased in 2012 with more deadly accidents and the unsolved killing in 2012 of
prominent trade unionist Aminul Islam.

In addition, international pressure from human rights organizations, labor organizations, NGOs,
and consumers from Western nations pushed corporate retailers to play a larger role in
protecting worker safety. The Accord on Fire and Building Safety in Bangladesh, a legally binding
document, obligates retailers to cooperate with safety inspections and provide financial
assistance to building owners in order to ensure that the standards of such inspections are met.
The national Bangladeshi government also updated is own legislation by adding stipulations to
the 2006 Bangladesh Labor Act. Employers will now set aside 5% of their funds for an "employee
welfare fund" and will no longer be able to prevent the formation of worker unions.

In October 2013, the Government of Bangladesh (GoB) and the International Labour Organization
(ILO) launched the "Improving Working Conditions in the Ready-Made Garment Sector" (RMGP)
Program, a USD $24.21 million three-and-a-half year initiative.The United Kingdom and the
Netherlands jointly contributed USD $15 million.[97] "Rana Plaza and Tazreen became the
symbols of what is wrong in the RMG sector." Ms. Sarah Cook, UK's Department for International
Development (DFID) Head in Bangladesh said that the RMGP was a "key part of the UK's approach
to help ensure safe working conditions and improved productivity" in the RMG sector and that
the "sustainability of the ready-made garment industry has a pivotal role to play in Bangladesh's
continued social and economic development."

The Alliance for Bangladesh Worker Safety officially began operations in Dhaka on December 9,
2013. It is a five year independent and legally binding agreement between 26 North American
companies that is still being enforced. So far, at least 25 cases have been brought to the alliance
for review and four factories have officially been closed.

One of the main concerns after the crises is the structural integrity of RMG and textile factories.
The Government of Bangladesh has made changes in this regard. Working with the ILO, the
government has upgraded the Chief Inspector of Factories and associated Establishment office
to a “department”, hired additional labor, fire, and building inspectors, implemented additional
training programs for inspectors, and created a database of all factories to facilitate inspections.

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Many factories have been inspected since these changes were made, but there are still about
1,000 factories that have not been checked either because they are not registered with any
organization or they have listed the wrong address which takes time away from inspectors.

2.3 Company Overview

 Argon Denims Limited

Argon Denims Limited engages in the manufacture, dyeing, and finishing of denim fabrics
primarily in Bangladesh. The company offers medium and premium range denim fabrics,
including cotton, cotton stretch, cotton polyester, and cotton polyester stretch fabrics that are
made in slub, crosshatch, mixed count, and regular optics. It provides fabrics in weaves, such as
plain, twill, broken twill, and herringbone comprising preshrunk, flat, over dyed, and coated
finishes. The company also exports its products to the United States, Canada, Australia, and
Japan. Argon Denims Limited was incorporated in 2006 and is based in Dhaka, Bangladesh. It was
incorporated as a private limited company on 13 July, 2006 under the Companies Act 1994 with
a paid-up capital of Tk. 0.40 million which was subsequently increased to Tk. 100 million in 2010.
In 2011 the total paid up capital increased to Tk. 300 million. It was converted to a public limited
company on 31 May, 2011. The IPO process was completed on 30 December, 2012 after holding
the lottery and the total paid up capital increased to Tk. 600 million at the end of 2012. After
issuance of stock dividend total paid up capital increase to Tk. 993.6 million at the 18 months’
period ended June 30, 2016.

The factory is situated at Sreepur in Gazipur district of Bangladesh. The commercial operations
of the company started in March 2008 at a total project cost of Tk. 51.35 crore. The factory was
set up with 36 looms along with separate warping, Sizing and Dyeing units, Finishing unit, own
power generator and other necessary facilities. Subsequently 12 more air jet looms and separate
Mercerizing units were added in 2010, 54 more looms were added in 2012 and March 2015 more
9 looms were added. At present, there are 111 looms. Also, there are 1 set Warping, 1set Dyeing
and 1 set Finishing Machine, along with the required utility facilities already installed. Advanced
production equipment, strict quality control systems, robust sample development capability and
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well established design and marketing network contribute to their growing reputation in this
industry.

 Apex Spinning & Knitting Mills Limited

Apex Spinning & Knitting Mills Limited (ASKML) is a 100% export oriented vertical Knitting, Dyeing
& Finishing and Garment Manufacturing Company. ASKML started commercial production in
1992 and is the first vertical knitwear production facility in Bangladesh. ASKML specializes in
children-wear & infant-wear and the present production capacity is about 24 million pieces/year.
ASKML uses a large variety of circular-knit and warp-knit fabrics produced exclusively by the
company's fabrics department, from a wide range of fibers, with or without spandex and yarn
dyed or solid dyed.

For the last 24 years ASKML has been a regular supplier to some of the largest retail chain stores
of Europe and North America, e.g., H&M, Sainsbury, Wal-Mart and Hanes Brand. ASKML has an
enviable reputation as an international garment manufacturer based on a simple but unwavering
philosophy of high quality products. All materials are tested in its own laboratory equipped with
modern textile testing equipment. All ASKML products bear the OKO-TEX label, certified by
Organic Exchange (OE), Fair Trade Certification (FLO) and have fulfilled all the requirements of
WRAP. Apex has Effluent Treatment Plant (ETP). The company adheres to all the National and
International laws on labor employment. Apex has onsite free day care center for the workers'
children and free clinic for the workers & their family members. ASKML fully complies with all the
environmental and labor Code of Conduct required by major retail stores of Europe and USA.

 Desh Garments Limited

Desh Garments Ltd. (established 27th December 1977) was the first export oriented ready-made
garment industry in Bangladesh. It was set-up in joint venture with Daewoo of South Korea. At
its time of inception, Desh was the single largest and most modern garment-manufacturing unit
in the sub-continent. The import and introduction of garments technology itself is credited to
Desh Garments Ltd. In 1978, Desh Garments sent 130 workers and management trainees to be

Page | 13
trained at Daewoo's state-of-the-art garment factories in South Korea. The 130 Desh-selected
trainees returned home after a six-month training period to form the nucleus of the Ready-Made
Garment sector's technology and its core human resource base. Desh Garment is seen as having
given re-birth to the garments industry. It is a unique example of a company establishing an
industry and against all odds. Despite severe national foreign exchange constraints and
bureaucratic obstacles Desh became a very successful and competitive producer in the
international market.

Desh Garments Ltd. was a twice recipient of the President's National Award and Grand Prix for
Commercial Quality 1988 in Europe, for highest export earnings for two consecutive years with
annual exports of 5 million pieces. Desh Garments was also Bangladesh's highest U.S. and
Canadian quota holder for several years. Desh Garments Ltd. has always had an impeccable
reputation throughout the industry for their consensus based management approach and early
adaptation of decentralised corporate management structure.Desh Garments Ltd. is the pioneer
of the 100% export oriented RMG industry of Bangladesh and is set in a single storied,
manufacturing unit of 85,000 sq.ft. in the port city of Chittagong. In 1978, a 130 persons were
sent to Daewoo Corporation of South Korea to be trained in the skills of corporate management
and garments manufacturing. Desh’s owner, M. Noorul Quader, was the innovator of the Back-
to-Back Letter of Credit banking system and the Custom Bonded Warehousing facility. We
specialize in producing all styles of woven shirts for men, women and children and have a yearly
capacity of producing 2,400,000 pcs.

Desh is fully compliant and puts the ILO Code of Conduct, social accountability, fire and workplace
safety at the top of its priority. The factory has undergone the Alliance Audit, is WRAP and BSCI
Certified, along with various European and U.S.A buyers’ audits.

Page | 14
Chapter-3 Analysis of Comparative Balance Sheet

3.1 Comparative Balance Sheet of Argon Denims Limited

For the year ending June 30, 2015 and 2016

Year ending 30 June (In Million Tk)

Particulars 2015-16 2014-15 Increase/ Percentages

Decrease
ASSETS
Non-Current Assets: 1594.23 1610.60 -16.37 -1.02%
Property, Plant & Equipment 1594.23 1610.60 -16.37 -1.02%
Capital Work in Progress - - -
Intangible Assets: 5.12 5.18 -0.06 -1.16%
Software & Application 5.12 5.18 -0.06 -1.16%
Current Assets: 2922.06 2704.26 217.8 8.05%
Advances, Deposits & Pre-
payments 109.59 52.67 56.92 108.07%
Bills Receivable 1726.97 1566.01 160.96 10.28%
Inventories 891.39 875.79 15.6 1.78%
Materials in Transit 24.84 147.64 -122.8 -83.18%
Investment in Shares 0.49 0.39 0.1 25.64%
Cash & Cash Equivalents 168.78 61.75 107.03 173.33%

Total Assets 4521.41 4320.04 201.37 4.66%

EQUITY & LIABILITIES
Shareholders ‘Equity: 2692.47 2373.22 319.25 13.45%
Issued, Subscribed & Paid up
Capital 993.6 993.6 0 0%
Share Premium 730.82 730.84 -0.02 0%
Tax holiday reserve 115.88 115.88 0 0%
Revaluation Reserve 133.60 137.49 -3.89 -2.83%
Retained Earnings 718.58 395.41 323.17 81.73%
Non-Current Liabilities: 114.87 129.62 -14.75 -11.38%
Long Term Loan 10.69 16.69 -6 -35.95%
Lease Finance - 7.64 -7.64 -100%
Deferred Tax Liability 104.18 105.29 -1.11 -1.05%
Current Liabilities 1714.06 1817.20 -103.14 -5.68%
Short Term Loan 1426.95 1563.39 -136.44 -8.73%
Current Portion of Long Term
Loan 4.22 7.47 -3.25 -43.51%

Page | 15
 Liability for Expense 32.70 29.40 3.3 11.22%
Workers Profit Participation &
Welfare Fund(WPPWF) 58.69 44.59 14.1 31.62%
Provisions for Tax 143.43 144.63 -1.2 -0.83%
Share Money Refundable 1.01 1.02 -0.01 -0.98%
Dividends Payable 1.18 1.14 0.04 3.51%
Bills Payable 45.87 25.55 20.32 79.53%
Total Liabilities 1828.93 1946.82 -117.89 -6.06%
Total Liabilities & 4521.41 4320.04 201.37 4.66%
Shareholders’ Equity

Net Current Asset 1208 887.06 320.94 36.18%

Analysis of Comparative Balance Sheet of Argon Denims Limited:

1. The net current assets or working capital in the year 2014-15 and 2015-16 is positive. That is
1208.00 and 887.06 million taka. It shows that current asset is more than the current liabilities
by this amount. In other words, a part of fund from long term sources has been used in current
asset after investing full amount of short term funds on it. It reveals that the working capital
financing policy is conservative.

2. Current assets are called as operating assets because these assets are coming due to the
operating activities. Similarly, the current liabilities are called as the operating liabilities. Among
all the operating assets, cash has been increased by maximum amount. That is 107.03 million
taka which is 173.33% more than previous year.

3. But the amount of loan and advances has been increased from 52.67 million taka to the 109.59
million taka which is 108.07% high. It shows the more amounts of cash has been kept in hand
instead of investing in short term securities. That cash may be ideal.

4. The current liabilities shown here may be Short Term Loan, Current Portion of Long Term Loan,
Liability for Expense and others. This has been decreased by 103.14 million taka which is 5.68%
from last year.

Page | 16
5. The provisions shown here may be provision for bad debt, discount on debtor and Taxation
purpose. This amount has been decreased by 1.2million taka which is 0.83%.

6. The inventory level has been increased by 15.6 million taka which is 1.78% and bill receivable
has been increased by 160.96 million taka which is 10.28% than previous year.

3.2 Comparative Balance Sheet of Apex Spinning Ltd.

For the year ending June30,2015 and 2016

Year ending 30 June (In Million Tk)

Particulars 2015-16 2014-15 Increase/ Percentages

Decrease
ASSETS
Non-Current Assets: 271.91 295.927 -24.017 -8.12%
Property, Plant and
Equipment 250.63 277.40 -26.77 -9.65%
Investments 21.29 18.53 2.76 14.89%
Current Assets 1189.58 1151.90 37.68 3.27%
Inventories 193.15 181.134 12.016 6.63%
Trade Receivables 437.87 493.277 -55.407 -11.23%
Advances, Deposits &
Prepayments 148.87 58.34 90.53 155.18%
Other Receivable 21.76 7.74 14.02 181.14%
Cash & Cash Equivalents 387.929 411.41 -23.481 -5.71%

TOTAL ASSETS 1461.50 1447.83 13.67 0.94%

EQUITY & LIABILITIES
Shareholders ‘Equity 434.06 426.14 7.92 1.86%
Share capital 84.00 84.00 0 0%
Share Premium 15.00 15.00 0 0%
Reserve and Surplus 325.39 319.15 6.24 1.96%
Fair valuation Surplus of
Investment 9.67 7.99 1.68 21.03%
Non-Current Liabilities 3.90 1.74 2.16 124.14%
Deferred Tax Liability 3.90 1.74 2.16 124.14%
Current Liabilities 1023.54 1019.96 3.58 0.35%
Working Capital Loan 83.79 (5.56) 89.35 -1607.01%
Short Term Loan 54.62 26.17 28.45 108.71%
Trade Payables 745.16 906.805 -161.645 -17.83%

Page | 17
 Other Payables 139.97 92.553 47.417 51.23%

Total Liabilities 1027.44 1021.69 5.75 0.56%

TOTAL EQUITY & 1461.50 1447.83 13.67 0.94%
LIABILITIES

Net Current Asset 166.04 131.94 34.1 25.85%

Analysis of Comparative Balance Sheet of Apex Spinning Ltd.:

1. The net current assets or working capital in the year 2014-15 and 2015-16 is positive. That is
166.04 and 131.94 million taka. It shows that current asset is more than the current liabilities by
this amount. In other words, a part of fund from long term sources has been used in current asset
after investing full amount of short term funds on it. It reveals that the working capital financing
policy is conservative.

2. Current assets are called as operating assets because these assets are coming due to the
operating activities. Similarly, the current liabilities are called as the operating liabilities. Among
all the operating assets, other receivable has been increased by maximum amount. That is 14.02
million taka which is 181.14% more than previous year.

3. But the amount of loan and advances has been increased from 58.34 million taka to the 148.87
million taka which is 155.18% high. It shows the more amounts of cash has been in receivable
account instead of collection. That receivable collect take longer times and not good.

4. The current liabilities shown here may be Working Capital Loan, Short Term Loan, Trade
Payables and Other Payables. This has been increased by 3.58 million taka which is 0.35% over
last year.

5. The inventory level has been increased by 12.016 million taka which is 6.63% and trade
receivable has been decreased by 55.407 million taka which is 11.23% than previous year.

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3.3 Comparative Balance Sheet of Desh Garments Limited
For the year ending June 30,2015 and 2016

Year ending 30 June (In Million Tk)

Particulars 2016 2015 Increase/ Percentages

Decrease
ASSETS
Non-Current Assets: 107.37 99.606 7.764 7.79%
Property, Plant &
Equipment 107.37 99.606 7.764 7.79%
Current Assets 139.75 160.50 -20.75 -12.93%
Inventories 51.11 58.54 -7.43 -12.69%
Investment in Shares 5.81 5.71 0.1 1.75%
Investment in FDR 13.06 13.47 -0.41 -3.04%
Loans, Advances and
Deposits 1.26 0.30 0.96 320.00%
Income Tax Deduction at
Source 12.96 14.11 -1.15 -8.15%
Cash & Cash Equivalent 55.55 68.37 -12.82 -18.75%
Total Assets 247.12 260.11 -12.99 -4.99%
EQUITY & LIABILITIES
Shareholders ‘Equity: 62.08 34.22 27.86 81.41%
Share Capital 40.44 33.70 6.74 20.00%
Tax holiday reserve 7.27 7.27 0 0%
General Reserve 1.47 1.47 0 0%
Capital Reserve 41.30 36.22 5.08 14.03%
Retained Earnings (28.41) (44.44) 16.03 -36.07%
Non-Current Liabilities: 10.32 15.41 -5.09 -33.03%
Deferred Tax on
Revaluation 10.32 15.41 -5.09 -33.03%
Current Liabilities 174.72 210.48 -35.76 -16.99%
Loans and Overdraft 23.29 35.00 -11.71 -33.46%
Liabilities for Goods 109.85 132.15 -22.3 -16.87%
Accrued Expenses 17.18 26.36 -9.18 -34.83%
Creditors 4.80 3.34 1.46 43.71%
Unclaimed Dividend 0.24 0.24 0 0%
Dividend Payable 8.26 8.26 0 0%
Employees Provident Fund 0.21 0.21 0 0%
Provisions for Income Tax 10.89 4.91 5.98 121.79%
Total Liabilities 185.04 225.89 -40.85 -18.08%

Page | 19
 Total Liabilities & 247.12 260.11 -12.99 -4.99%
Shareholders’ Equity

Net Current Asset -34.47 -49.98 15.51 -31.03%

Analysis of Comparative Balance Sheet of Desh Garments Limited:

1. The net current assets or working capital in the year 2014-15 and 2015-16 is negative. That is
-34.47and -49.98 million taka. It shows that current asset is less than the current liabilities by this
amount. In other words, a part of fund from short term has been used in fixed assets after
investing full amount of short term funds on it. It reveals that the working capital financing policy
is aggressive.

2. Current assets are called as operating assets because these assets are coming due to the
operating activities. Similarly, the current liabilities are called as the operating liabilities. Among
all the operating assets, Loans, Advances and Deposit has been increased by maximum amount.
That is 0.96 million taka which is 320.00% more than previous year. It shows the more amounts
of cash has been invested in short term securities.

3. The inventory level has been decreased by 7.43 million taka which is 12.69% percent and cash
has been decreased by 12.82 million taka which is 18.75% than previous year.

4. The current liabilities shown here may be Loans and Overdraft, Liabilities for Goods and
Accrued Expenses. This has been decreased by 35.76 million taka which is 16.99% from last year.

5. The provisions shown here may be provision for bad debt, discount on debtor and Taxation
purpose. This amount has been increased by 5.98 million taka which is 121.79%.

Page | 20
Chapter-4 Ratio Analysis

4.1 Argon Denims Ltd

Particulars 2014-15 2015-16

Liquidity Ratio
Current Ratio 1.40 1.70
Liquid Ratio 0.83 0.92
Solvency Ratio
Debt Equity Ratio 0.62 0.65
Activity Ratio 2.36 times 2.59 times
Inventory Turnover Ratio
33 times 55 times
Debtor Turnover Ratio
3.2 times 3.6 times
Working Capital Turnover Ratio
Profitability Ratio 19.72 22.89
Gross Profit Ratio 10.58 11.89
Net Profit Ratio

1. A relative high current ratio is an indication that the firm is liquid and has the ability to pay its
current obligations in time as and when they become due. Other hand this firm have the below
the as a normal ratio like 2:1. It means low current ratio may be due to the following reasons:

2. There may not be sufficient fund to pay off liabilities. The business may be trading beyond its
capacity. The resources may not warrant the activities. The Argon Denims Ltd follows the
conservative strategy. This company has fewer current assets over the current liabilities.

3. The liquid ratio is very useful in measuring the liquidity position of a firm. It measures the firm’s
capacity to pay off current obligations immediately and is a more rigorous test of liquidity than
the current ratio. The ideal quick ratio is 1:1 but the company has less than 1 so this company has
not sound liquidity position to meet the immediate obligations. The firm mainly emphasizes on
purchasing fixed assets.

Page | 21
4. The Debt Equity Ratio of 1:1 may be usually considered to be satisfactory and 0.65and 0.62
ratio is considered to be satisfactory for the shareholders because it indicates that the firm has
not been able to use low-cost outsider’s fund to magnify their earning. This ratio shows the
solvency position is good.

5. Inventory turnover ratio shows that the firm has to maintain a certain level of inventory of
finished goods so as to be able to meet the requirement of the business. But the level of inventory
should neither be too high nor too low. It is harmful to hold more inventory for the following
reason: In 2014-15 and 2015-16 has 2.36 and 2.59 times respectively used and replaced. It shows
increases in inventory turnover ratio, it means good sign for the firm. Increase in turnover
indicates the efficient management of inventory because more frequent the stock are sold, the
lesser amount of money is required to finance the inventory. Increase (2.36 to 2.59 times) in
turnover implies that less investment in inventories, good quality of product, efficient business,
stock accumulation and high profit as compared to total investments This type of turnover may
be the result of very low level of inventory which results in shortage of goods in relation to
demand and position of stock-out or the turnover may be high due to a conservative method of
valuation inventories at lower values or the policy of the firm being to buy frequently in small
lots. This type of turnover of inventory does not necessary imply higher profits. The profit may
be decrease due to excessive cost incurred in replacing stock in small lots, stock-out situations,
selling inventories at low prices.

6. Debtor turnover ratio velocity indicates the number of times the debtors are turn end over
during a year. The debtor turnover ratio increase from 33 times to 55 times which shows high
turnover for the firm. The higher the value of debtor’s turnover the more efficient is the
management of debtors/sales or more liquid are the debtors. It may imply the firm’s inability due
to lack of resources to sell on credit thereby, losing sales and profit. This firm has less credit sales.
It also depends upon the liquidity position of this concern to pay its short-term obligation in time.
The high inventory turnover shows the company has good brand name and the customers are
loyal.

Page | 22
7. Working Capital Turnover Ratio indicates the velocity of the utilization of networking capital.
It indicates the number of times the working capital is turnover in the course of a year. The low
level of working capital indicates that the firm has fewer current assets over current liabilities
over the period of time. It indicates the inefficient utilization of working capital and management.

8. Gross profit ratio measures the relationship of gross profit to net sales. One percentage
increase in gross profit ratio from previous year. It reflects efficiency with which a firm produces
its products. Higher the ratio its better result but in this firm the ratio is 19.72 and 22.89 in 2014-
15 and 2015-16 respectively, which shows there is high profit. Gross profit ratio is high; so we
can say the firm can efficiently produces its products.

9. Net profit Ratio establishes a relationship of various expenses to net sales. It indicates the
efficiency of the management in manufacturing, selling, administrative and other activities of the
firm. This firm has 10.58% and 11.84% ratio in the year 2014-15 and 2015-16 respectively; it
indicates the 1.26% increase in net profit ratio. This ratio also indicates the firm’s capacity to face
adverse economic conditions such as price competition, it should kept in mind that the
performance of profits must also be seen in relation to investment or capital of the firm and not
only in relation to sales. This ratio is satisfactory which indicates the can efficiently manage their
manufacturing, selling and other activities.

4.2 Apex Spinning Knitting Mills Ltd

Particulars 2014-15 2015-16

Liquidity Ratio
Current Ratio 1.13 1.17
Liquid Ratio 0.72 0.90
Solvency Ratio
Debt Equity Ratio - -
Activity Ratio 9.68 times 11.69 times
Inventory Turnover Ratio
Debtor Turnover Ratio 27 times 36 times

Page | 23
 Working Capital Turnover Ratio 5.2 times 6.1 times
Profitability Ratio
Gross Profit Ratio 7.93 8.81
Net Profit Ratio 0.67 0.75

1. A relative high current ratio is an indication that the firm is liquid and has the ability to pay its
current obligations in time as and when they become due. Other hand this firm have the below
the as a normal ratio like 2:1. It means low current ratio may be due to the following reasons:

2. There may not be sufficient fund to pay off liabilities. The business may be trading beyond its
capacity. The resources may not warrant the activities. The Apex Spinning & Knitting Ltd follows
the conservative strategy. This company has fewer current assets over the current liabilities.

3. The liquid ratio is very useful in measuring the liquidity position of a firm. It measures the firm’s
capacity to pay off current obligations immediately and is a more rigorous test of liquidity than
the current ratio. The ideal quick ratio is 1:1 but the company has less than 1 so this company has
not sound liquidity position to meet the immediate obligations. The firm mainly emphasizes on
purchasing fixed assets.

4. The company has not any kind of debt against their share. They can successfully manage their
business without taking any debt. So, this ratio shows the solvency position is very good.

5. Inventory turnover ratio shows that the firm has to maintain a certain level of inventory of
finished goods so as to be able to meet the requirement of the business. But the level of inventory
should neither be too high nor too low. It is harmful to hold more inventory for the following
reason: In 2014-15 and 201-16 has 9.68 times and 11.69 times respectively used and replaced. It
shows increases in inventory turnover ratio, it means good sign for the firm. Increase in turnover
indicates the efficient management of inventory because more frequent the stock are sold, the
lesser amount of money is required to finance the inventory. Increase (9 to11 times) in turnover
implies that less investment in inventories, good quality of product, efficient business, stock

Page | 24
accumulation and high profit as compared to total investments This type of turnover may be the
result of very low level of inventory which results in shortage of goods in relation to demand and
position of stock-out or the turnover may be high due to a conservative method of valuation
inventories at lower values or the policy of the firm being to buy frequently in small lots. This
type of turnover of inventory does not necessary imply higher profits. The profit may be decrease
due to excessive cost incurred in replacing stock in small lots, stock-out situations, selling
inventories at low prices.

6. Debtor turnover ratio velocity indicates the number of times the debtors are turn end over
during a year. The debtor turnover ratio increase from 27 times to 36 times which shows high
turnover for the firm. The higher the value of debtor’s turnover the more efficient is the
management of debtors/sales or more liquid are the debtors. It may imply the firm’s inability due
to lack of resources to sell on credit thereby, losing sales and profit. This firm has less credit sales.
It also depends upon the liquidity position of this concern to pay its short-term obligation in time.
The high inventory turnover shows the company has good brand name and the customers are
loyal.

7. Working Capital Turnover Ratio indicates the velocity of the utilization of networking capital.
It indicates the number of times the working capital is turnover in the course of a year. The low
level of working capital turnover ratio indicates that the firm has fewer current assets over
current liabilities over the period of time. It indicates the in efficient utilization of working capital
and management.

8. Gross profit ratio measures the relationship of gross profit to net sales. One percentage
increase in gross profit ratio from previous year. It reflects efficiency with which a firm produces
its products. Higher the ratio its better result but in this firm the ratio is 7.93 and 8.81 in 2014-15
and 2015-16 respectively, which shows there is moderately high profit. Gross profit ratio is
satisfactory which indicates the production efficiency of this company is good.

9. Net profit Ratio establishes a relationship of various expenses to net sales. It indicates the
efficiency of the management in manufacturing, selling, administrative and other activities of the
firm. This firm has 0.67 and 0.75 ratio in the year 2014-15 and2015-16 respectively; it indicates

Page | 25
the 0.08 increase in net profit ratio. This ratio also indicates the firm’s capacity to face adverse
economic conditions such as price competition, it should be kept in mind that the performance
of profits must also be seen in relation to investment or capital of the firm and not only in relation
to sales.

4.3 Desh Garments Ltd

Particulars 2014-15 2015-16

Liquidity Ratio
Current Ratio 0.69 0.76
Liquid Ratio 0.38 0.48
Solvency Ratio
Debt Equity Ratio - -
Activity Ratio 6.79 times 7.01 times
Inventory Turnover Ratio
Debtor Turnover Ratio 27 times 25 times
Working Capital Turnover Ratio
22 times 28 times
Profitability Ratio
Gross Profit Ratio 6.63 7.91
Net Profit Ratio 1.77 1.91

1. A relative high current ratio is an indication that the firm is liquid and has the ability to pay its
current obligations in time as and when they become due. Other hand this firm have the below
the as a normal ratio like 2:1. It means low current ratio may be due to the following reasons:

2. There may not be sufficient fund to pay off liabilities. The business may be trading beyond its
capacity. The resources may not warrant the activities. The Desh Garments Ltd follows the
aggressive strategy. This company has fewer current assets over the current liabilities.

Page | 26
3. The liquid ratio is very useful in measuring the liquidity position of a firm. It measures the firm’s
capacity to pay off current obligations immediately and is a more rigorous test of liquidity than
the current ratio. The ideal quick ratio is 1:1 but the company has less than 1 so this company has
not sound liquidity position to meet the immediate obligations. The firm mainly emphasizes on
purchasing fixed assets.

4. The company has not any kind of debt against their equity. It is a 100% equity based company.
They can successfully manage their business without taking any debt. So, this ratio shows the
solvency position is very good.

5. Inventory turnover ratio shows that the firm has to maintain a certain level of inventory of
finished goods so as to be able to meet the requirement of the business. But the level of inventory
should neither be too high nor too low. It is harmful to hold more inventory for the following
reason: In 2014-15 and 2015-16 has 6.79 and 7.01 times respectively used and replaced. It shows
increases in inventory turnover ratio, it means good sign for the firm. Increase in turnover
indicates the efficient management of inventory because more frequent the stock are sold, the
lesser amount of money is required to finance the inventory. Increase (6.79 to 7.01 times) in
turnover implies that less investment in inventories, good quality of product, efficient business,
stock accumulation and high profit as compared to total investments This type of turnover may
be the result of very low level of inventory which results in shortage of goods in relation to
demand and position of stock-out or the turnover may be high due to a conservative method of
valuation inventories at lower values or the policy of the firm being to buy frequently in small
lots. This type of turnover of inventory does not necessary imply higher profits. The profit may
be decrease due to excessive cost incurred in replacing stock in small lots, stock-out situations,
selling inventories at low prices.

6. Debtor turnover ratio velocity indicates the number of times the debtors are turn end over
during a year. The debtor turnover ratio increase from 27 times to 25 times which shows low
turnover for the firm. The higher the value of debtor’s turnover the more efficient is the
management of debtors/sales or more liquid are the debtors. It may imply the firm’s inability due
to lack of resources to sell on credit thereby, losing sales and profit. This firm has high credit sales.

Page | 27
It also depends upon the liquidity position of this concern to pay its short-term obligation in time.
The low inventory turnover shows the company has some problems in managing their Accounts
Receivables.

7. Working Capital Turnover Ratio indicates the velocity of the utilization of networking capital.
It indicates the number of times the working capital is turnover in the course of a year. The
negative working capital indicates that the firm has fewer current assets over current liabilities
over the period of time. It indicates the in efficient utilization of working capital and
management.

8. Gross profit ratio measures the relationship of gross profit to net sales. One percentage
increase in gross profit ratio from previous year. It reflects efficiency with which a firm produces
its products. Higher the ratio its better result but in this firm the ratio is 6.63 and 7.91 in 2014-15
and 2015-16 respectively, which shows there is high profit. Gross profit ratio is satisfactory which
shows there is moderately high profit. Gross profit ratio is satisfactory which indicates the
production efficiency of this company is good.

9. Net profit Ratio establishes a relationship of various expenses to net sales. It indicates the
efficiency of the management in manufacturing, selling, administrative and other activities of the
firm. This firm has 1.77 and 1.91 ratio in the year 2014-15 and 2015-16 respectively; it indicates
the 0.14 increase in net profit ratio. This ratio also indicates the firm’s capacity to face adverse
economic conditions such as price competition, it should be kept in mind that the performance
of profits must also be seen in relation to investment or capital of the firm and not only in relation
to sales.

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Chapter-5

5.1 Findings
 After analyzing the working capital management we have found that the gross working
capital of the firm, a major part is occupied by inventory and sundry debtors.
 The current ratio is maintained by the company is 2:1; the companies have less current
ratio than the minimum amount.
 The quick ratio of these companies are less than the ideal amount.
 Inventory turnover ratio is not satisfactory for all the companies but the Argon Denims
have good inventory turnover ratio.
 In the debtor turnover ratio our parent company Argon denims has good position than
the other companies.
 In order to achieve the goals of the organization as whole and achievement of
performance appraisal technique is very useful.

5.2 Recommendations
The companies should follow the following recommendations to manage their working capital:

 The companies should follow in the present working capital.

 The companies should spend reasonable amount on inventory.
 The companies should focus on their inventory management to gain good profits and to
improve the sales.
 For better results companies have to pay to maintain cash inflows to overcome current
liabilities of the firm.
 The company should make arrangement of receivables and cash.

5.3 Conclusion
After studying the components of working capital management system of Argon Denims Ltd,
Apex Spinning and knitting Ltd and Desh Garments Ltd. It is found that the Argon Denims and
Apex have good liquidity position and their profit is high and other company Desh Garments Ltd
having liquidity position is poor and their profitability is also low. Both Argon Denims and Apex
Spinning are following conservative policy, Though Desh Garments follow aggressive policy in
their working capital management. Argon Denims and Apex are competing well at the domestic
Page | 29
as well as the international level. Among the three companies Argon made more profit in 2015-
16 than other companies and Desh is suffering some problems is due to the demand of its product
and inefficient management. The company is a matured one and it has contributed well in the
countries growth and development and will also continue to perform and contribute to the whole
nation. The Profit is less due to recession, miss management of fund, not proper management of
working capital. Mainly short term borrowing is not sufficient to meet the immediate obligations
and the use more fund in the fixed assets. We found that the working capital is negative which
shows the current assets less than the current liabilities. The Argon Denims gets maximum
market share in the textile industry. Overall the financial position of Argon Denims Ltd is good.

References
James Vander Weide and Steven Maier, “Managing Corporate Liquidity: An Introduction to
Working Capital Management,” (New York: John Wiley, 1985), p. 4.

Kamath R., S. Khaksari, H Meier, and J. Winklepleck, “Management of Excess Cash: Practices and
Development,” Financial Management (Autumn 1985), pp. 70-77.

Lawrence Gitman, D. Keith Forrester, and John R. Forrester, “Maximizing Cash Disbursement
Float,” Financial Management (Summer 1976), p 15-24.

Lewellen, W. G., and R. W. Johnson, “Better Way to Monitor Accounts Receivable,” Harvard
Business Review (May-June 1972), p. 101-109.

N. Hill, “A Generalized Cash Flow Approach to Short-term Financial Decision,” Journal of Finance,
Vol.38, No. 2 (May 1983), pp. 349- 60.

N. Hill, W. Sartoris, and D. Ferguson, “Corporate Credit and Payable Policy: A Survey Size and
Industry Effects,” paper presented at the Financial Management Association’s 1983 Annual
Meeting.

Smith, J. K., “Trade Credit and Information Asymmetry,” Journal of Finance (September 1987), p.
863-872.

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https://www.wikipedia.org/working-capital-management

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study-resources/f9/technical-articles/wcm.html

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limited/listFinancialRatioValues.html?page=competition&companyId=304&goToHomePagePara
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