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1
Chapter-1
Introduction
2
Chapter 1
INTRODUCTION
1.1 Industry overview
The Textile Sector in India ranks next to Agriculture. Textile is one of In...
3
• Readymade Garments
• Hand-crafted Textiles
• Jute and Coir
Textile Industry is providing one of the most basic needs o...
4
1.2 Company profile
The DCM group of companies is one of the major business pairs in the Indian business
scenario. The D...
5
History:-
DCM Textiles, a unit of DCM Ltd. started its production in 1991. A part of Rs. 600 crore
DCM group Ltd. is hea...
6
GROUP PHILOSOPHY:-
DCM group corporate philosophy revolves around 3 pillars:
 Business Integrity & Ethics
 Global Qual...
7
Chapter-2
Research Methodology
8
Chapter-2
Research Methodology
2.1 Introduction of project:-
Every organization irrespective of the size is required two...
9
2.3 OBJECTIVES OF THE STUDY:-
 To study the sources and uses of the working capital.
 To study the liquidity position ...
10
SOURCE OF RESEARCHDATA
There are mainly two through which the data required for the research is collected.
PRIMARY DATA...
11
TOOLS USED FOR ANALYSIS OF DATA:-
The data were analyzed using the following financial tools. They are
 Ratio analysis...
12
MIXING PROCESS :-
The bales are got issued from the raw material stores as per the demand of the product in
dept. Bales...
13
COMBER DEPARTMENT:-
For better quality and export purpose the end product of carding department is sent to the
comber d...
14
SIMPLEX DEPARTMENT:-
From draw frame dept. the sliver is sent to the simplex dept. to make bobbin from sliver by
twisti...
15
CONDITION AND PACKING DEPARTMENT:-
After the completion of the winding process the package is given proper conditioning...
16
Raw material
Blow room
Carding
Combing
Draw frame
Speedframe
Ring frame
Doubling
Ch. Winding
Cone winding
Auto corner
C...
17
Chapter-3
Working capital Management
18
Chapter-3
Working capital Management
3.1INTRODUCTION:-
Capital is the keynote of economic development. In this modern a...
19
3. Capital is a human control possible.
4. Capital is a mobile.
5. Capital is a human sacrifice.
6. Capital is a scarce...
20
The fixed as well as current assets, both requires investment of ‘Funds’. So the management
of working capital and fixe...
21
4. Cash discounts: Adequate working capital also enables a concern to avail cash
discounts on the purchases and hence r...
22
 Solvency/leveraging ratios
 Coverage ratios
 Activity/turnover ratios
 Profitability ratios
 Investors ratio
3. T...
23
1) Permanent Working Capital:-
It is the minimum amount of the current assets, which are needs to conduct the business ...
24
The need or objective of working capital:-
Every business needs some amount of working capital. The need for working ca...
25
7. The average amount of cash required to make advance payments.
8. The average credit period expected to be allowed by...
26
TABLE 1: CONSTITUENTS OF CURRENT ASSETS AND CURRENT
LIABILITIES
PART- A: CURRENT ASSETS
Inventories
Raw materials and c...
27
3.3Sources of Working Capital:-
Mainly there are two sources of working capital:
i. Permanent or Fixed working capital
...
28
29
BANK BORROWINGS:-
Bank provides various types of facilities to borrower to raise its funds which are described
here in ...
30
DCM Textiles basically enjoys three type of credit facilities out of above mentioned in the
chart i.e.
 Cash credit
 ...
31
 Conversion of cash into raw materials.
 Conversion of raw materials into work in progress.
 Conversion of work in p...
32
As per financial statement of last accounting year, average holding period of different
components of working capital i...
33
Work- in- progress:-
The DCM Textiles’ stock in progress holding is Rs. 80,236,492 as on 31.03.2015.
Stores and spares:...
34
 Seasonality of operations
 Production policy
 Market conditions
 Conditions of supply
NATURE OF BUSINESS:-
The wor...
35
PRODUCT POLICY:-
A firm marked by pronounced seasonal fluctuation in its sales may pursue a production
policy, which ma...
36
MARKET CONDITIONS:-
The degree of competition prevailing in the market place has an important bearing on
working capita...
37
Management of working capital:-
Working capital, in general practice, refers to him excess of current assets over curre...
38
This dimension aspect of his working capital has been more clearly and precisely
explains by the following diagram.
Pro...
39
3.5 Evaluation of working capital:-
The working capital management needs attention of all the finance head/ working cap...
40
Table 1.
Particulars
A) Current Assets: -
i) Inventories
ii) Sundry
Debtors
iii) Cash & Bank
Balance
iv) Loans &
Advanc...
41
Table 2
Particulars Previous
year
31.03.2014
Current
year
31.03.2015
Effect on working
capital
increase Decrease
A) Cur...
42
Table I: -
It is observed that current asset increase in 2012-13 as compare to 2011-12 but in the year
2014-15 it had b...
43
Chapter-4
Financial analysis-interpretation of ratios.
44
Chapter-4
Financial analysis-interpretation of ratios.
4.1FINANCIAL ANALYSIS:-
(A) LIQUIDITY RATIOS (SHORT-TERM LIQUIDI...
45
Objective:-
 The ratio is mainly used to give an idea of the company’s ability to pay back its short-
term liabilities...
46
Inferences:-
The ratio of DCM Textiles is acceptable but it needs to be improved.
Malwa cotton is in a better position ...
47
Objective:-
 The ratio of current assets less inventories to total current liabilities. The ratio is the
most stringen...
48
Inferences:-
DCM Textiles is not in a good position in paying off its liabilities
Vardhman group and Malwa cotton are b...
49
Objective:-
 The objective of this ratio is to arrive at an idea of the amount of capital supplied to
the concern by t...
50
 The return on investment paid to the creditors is a tax-deductible
expenditure.
Debt equity
ratio
DCM
Textiles
Vardhm...
51
Objective:
 The net profit ratio determines the overall efficiency of the business. It indicates that
proportion of sa...
52
COVERAGE RATIO:-
(i)Interest coverage ratio:
The interest coverage ratio establishes the relationship between PBIT ( pr...
53
 As a general rule of thumb, investors should not own a stock that has an interest
coverage ratio under 1.5. An intere...
54
Maximum interest coverage is available in case of DCM indicating it is in good capacity to
pay the interest charges on ...
55
A company uses working capital to fund operations and purchase inventory. These operations
and inventory are then conve...
56
Company have to increase its working capital ratio.it needs to increase its sales. In
case of ginni flaments company is...
57
On the other hand, a low inventory ratio may indicate over investment in inventory,
existence of excessive or obsolete/...
58
 A high assets turnover ratio indicates the capability of the organization to achieve
maximum sales with the minimum i...
59
Fixed assets
turnover
DCM
Textiles
Vardhman
textiles
Malwa
cotton
Ginni
filaments
Nahar
industrial
ltd.
2014 3.79 0.77 ...
60
RETURN ON INVESTMENT:-
The ratio computes in this group indicate the relationship between the profits of a firm and
inv...
61
ROA DCM
Textiles
Vardhman
textiles
Malwa
cotton
Ginni
filaments
Nahar
industrial
ltd.
2014 0.17 0.18 0.08 0.13 0.14
Inf...
62
ROCE DCM
Textiles
Vardhman
textiles
Malwa
cotton
Ginni
filaments
Nahar
industrial
ltd.
2014 13.19 9.36 2.59 8.16 5.77
I...
63
Chapter-5
Swot analysis.
64
Chapter-5
Swot analysis.
The SWOT analysis summarizes the internal factors of the firm as a list of its strengths and
w...
65
 OPPORTUNITIES:-
1. Technological up gradation.
2. Foreign market expansion.
3. Online ordering process.
4. Product ex...
66
Chapter-6
Conclusions
67
Chapter-6
Conclusions
After studying the components of working capital management.it s found that the company
has a ver...
68
Chapter-7
Bibliography
69
Chapter-7
Bibliography
1. BOOKS
 Financial Management by RAVI M. KISHORE
 Working Capital Management by V.K.BHALLA
 ...
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working capital management dcm textile summer report

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working capital management dcm textile summer report

  1. 1. 1 Chapter-1 Introduction
  2. 2. 2 Chapter 1 INTRODUCTION 1.1 Industry overview The Textile Sector in India ranks next to Agriculture. Textile is one of India’s oldest industries and has a formidable presence in the national economy. The textile industry occupies a unique place in our country. It is the second largest employment generator after agriculture. Textile Industry is one of the leading textile industries in the world. Though was predominantly unorganized industry even a few years back, but the scenario started changing after the economic liberalization of Indian economy in 1991. The opening up of economy gave the much-needed thrust to the Indian textile industry, which has now successfully become one of the largest in the world. India textile industry largely depends upon the textile manufacturing and export. It also plays a major role in the economy of the country. India earns about 27% of its total foreign exchange through textile exports. Further, the textile industry of India also contributes nearly 14% of the total industrial production of the country. It also contributes around 3% to the GDP of the country. India textile industry is also the largest in the country in terms of employment generation. It not only generates jobs in its own industry, but also opens up scopes for the other ancillary sectors. India textile industry currently generates employment to more than 35 million people. It is also estimated that, the industry will generate 12 million new jobs by the year 2014. Indian textile industry can be divided into several segments, some of which can be listed as below: • Cotton Textiles • Silk Textiles • Woollen Textiles
  3. 3. 3 • Readymade Garments • Hand-crafted Textiles • Jute and Coir Textile Industry is providing one of the most basic needs of people and the holds importance; maintaining sustained growth for improving quality of life. It has a unique position as a self- reliant industry, from the production of raw materials to the delivery of finished products, with substantial value-addition at each stage of processing; it is a major contribution to the country's economy.
  4. 4. 4 1.2 Company profile The DCM group of companies is one of the major business pairs in the Indian business scenario. The DCM group was founded by Late Lala Shri Ram in the year 1889 with the establishment of Delhi Cloth Mill (DCM) which specialized in Textiles. The name of the company was changed in 1994 to Delhi Commerce and Manufacturing Company (DCM) to reflect the group’s diverse business activities covering the areas of:  Information Technology  Engineering product  Cotton yarn  International Trade  Real Estate D.C.M. GROUP AT A GLANCE Company name Products/activities DCM Real estate Real Estate DCM Data systems Information Technology DCM Textiles Cotton yarn
  5. 5. 5 History:- DCM Textiles, a unit of DCM Ltd. started its production in 1991. A part of Rs. 600 crore DCM group Ltd. is headed by Dr. Vinay Bharat Ram, Chairman and Managing Director, a famous Industrialist and an eminent Scholar of India. The DCM group consists of a large number of Companies reputed for their products quality, dynamism, and business integrity and for quick response to change in environment. DCM Ltd. is a diversified company having interest in Textiles, Data System Tools and Dies and Real Estate & Infrastructure and other International Businesses. DCM Textiles is a Spinning Mill Located in Hisar (Haryana) engaged in the manufacturing of 100% grey cotton yarn & mélange yarn in the count range of 12s to 40s, mainly for knitting use. The raw material used by DCM textile is cotton. Cotton can be purchased from various states like Haryana, Punjab, Rajasthan, Gujarat, M.P., Maharashtra and A.P. The unit has a line of new generation machines having a capability of producing good quality yarn. The machines are from various renowned manufactures. The modernization drives it to further enhance the competitive edge of the unit by importing Cards, Auto corner, TFO and installing new ring frames of LMW. To meet the stringent quality requirements, the unit has testing laboratory well equipped with sophisticated instruments like Uster Tester (UT-3 Model) and has also implemented the quality systemic line with the International standards. The unit is supplying to Indian as well as to international market and is in process of further expansion of its international markets.
  6. 6. 6 GROUP PHILOSOPHY:- DCM group corporate philosophy revolves around 3 pillars:  Business Integrity & Ethics  Global Quality Standards  Continuous Improvement and Value Additions DCM has set bench marks in business integrity and come to top the list of 'Honoured Business Houses which is acknowledged not only by its customers and suppliers but also by its competitors. The group is determined to maintain highest standards of corporate ethics which have been maintained, preserved and nurtured throughout the last over 100 years yielding immense benefits. DCM has always striven for world class quality. Our 100% cotton carded and combed yarns are exported across the globe in premium segment DCM Textiles has firm commitment to the philosophy of continuous improvement. The company led the industry by getting ISO 9001 certification for yarn operations in textiles in the year 1995. The company is also in the process of implementing TQM practices and successfully implemented a few quality initiatives which have given rich dividends terms of improvement in quality and cost reduction QUALITY POLICLY:- DCM Textiles is committed to deliver goods and services which satisfy its customers at all times and enhance value of its business for all the stake holders through active involvement of all the employees and continuous process improvements
  7. 7. 7 Chapter-2 Research Methodology
  8. 8. 8 Chapter-2 Research Methodology 2.1 Introduction of project:- Every organization irrespective of the size is required two types of financial assistance. One is long-term funds which are required primarily to acquire basic infrastructure for the company to create production facilities through purchase of fixed assets such as plant & machinery, land, building, furniture, etc. Investments in these assets represent that part of firm’s capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day – to- day operations. These funds are known as working capital. In simple words, working capital refers to that part of the firm’s capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assets keep revolving fast and are being constantly converted in to cash and these cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital. In today’s competitive environment one of the primary goals of the financial management is effective utilization of available funds. The project assigned to me during my summer training in account & finance department is “The working capital management. 2.2 Scope of the study:- The scope of the study is identified after and during the study is conducted. The main scope of the study was to put into practical the theoretical aspect of the study into real life work experience. The study of working capital is based on tools like Ratio Analysis, Statement of changes in working capital. Further the study is based on last 5 years Annual Reports of DCM Textile Ltd.
  9. 9. 9 2.3 OBJECTIVES OF THE STUDY:-  To study the sources and uses of the working capital.  To study the liquidity position through various working capital related ratios.  To study the working capital components such as receivables accounts, Cash management, Inventory management.  To make suggestions based on the finding of the study. 2.4RESEARCHMETHDOLOGY:- INTRODUCTION: Research methodology is a way to systematically solve the research problem. It May be understood as a science of studying now research is done systematically. In that various steps, those are generally adopted by a researcher in studying his problem along with the logic behind them. “The procedures by which researcher go about their work of describing, explaining and predicting phenomenon are called methodology”. TYPE OF RESEARCH:- This project “A Study on Working Capital Management of DCM Textile Ltd” is considered as an analytical research. Analytical Research is defined as the research in which, researcher has to use facts or information already available, and analyze these to make a critical evaluation of the facts, figures, data or material.
  10. 10. 10 SOURCE OF RESEARCHDATA There are mainly two through which the data required for the research is collected. PRIMARY DATA:- The primary data is that data which is collected fresh or first hand, and for first time which is original in nature. In this study the Primary data has been collected from Personal Interaction with Branch manager i.e., Mr. Sushil Gupta. and other staff members. SECONDARY DATA:- The secondary data are those which have already collected and stored. Secondary data easily get those secondary data from records, annual reports of the company etc. It will save the time, money and efforts to collect the data. The major source of data for this project was collected through annual reports, profit and loss account of 5 year period from 2011-2015 & some more information collected from internet and text sources. SAMPLING DESIGN:- Sampling unit : Financial Statements. Sampling Size : Last five years financial statements. Tool Used for calculations: - MS-Excel.
  11. 11. 11 TOOLS USED FOR ANALYSIS OF DATA:- The data were analyzed using the following financial tools. They are  Ratio analysis.  Statement of changes in working capital. LIMITATIONS OF THE STUDY:-  The study duration (summer in plant) is short.  The analysis is limited to just five years of data study (from year 2011 to year 2015) for financial analysis.  Limited interaction with the concerned heads due to their busy schedule  The findings of the study are based on the information retrieved by the selected unit. 2.5 PRODUCTION PROCESS FLOW:- It is the production unit of the organization and its main function is to convert cotton i.e. raw material in to yarn. It is grey coloured yarn produced for both domestic as well as export purpose through judicious selection of the raw material. Following is the step-wise process followed for the production. BLOW-ROOM:- First of all mixing is done in the blow room. The objective of mixing is to open the compressed bale of fibre, to regain the moisture lost during pressing and to regain homogeneity in the end product.
  12. 12. 12 MIXING PROCESS :- The bales are got issued from the raw material stores as per the demand of the product in dept. Bales are mixed in BINS. We have BINS & BLENDER BINS. Sometime burnoky oil and water are used in mixing, testing parameters of cotton measured prior to mixing are staple length, tenacity, trash & in nature fibre, maturity coefficient et after mixing, the mixed cotton is fed in to blow room machines to remove the various impurities in the cotton. Raw material after passing through the bale opener is passed through fast moving conveyor. After sucking it is transformed to axiflow. After this material goes in to a feeding unit, where cotton is further opened by grid bars, R S K beater the transforms the material coming from feed unit to the sheet form which is further fed to the scuther for making lap the material then flows as a Sheet to the calendar roller where it gets proper tension & compression, thereby increasing cohesion in the sheet and lap is formed. The end product of this purifies cotton from the Blow room machine is the lap of about 45 mts. Length & 20 kg. Wt CARDING DEPARTMENT:- Lap is sent to the carding section for forming thin filmy web wording between two relatively moving surface clotted with wire points. God carding led to better yarn quality. The objectives of carding are:  Opening of fibbers  Removal of neps  Removal of remaining trash  Uniform silver formation  One special feature of this carding machine is automatic doffing. In C 1/3 card the doffing is automatic.
  13. 13. 13 COMBER DEPARTMENT:- For better quality and export purpose the end product of carding department is sent to the comber dept. the main objectives of this dept. are:  It helps in straightening of the fibber.  Hook removal  Straightening of the fibber increases inters fibber cohesion & ultimately the strength of the fibber is increased. After passing through the rotating spool the sliver is winding in the form of lap. Lap is 45 mts. long & 24 kgs in weights. Ribbon lap- lap formed is fed at the feeding unit-to maintain the uniformity of the sliver of the ribbon lap. 110 mts. long ribbon lap is sent to the comber machine. Comber- the ribbon lap is feeded through back star roller. An accentric is placed which gives tension to the material so that material is under constant flow. In the process short fibbers are removed by the half lap. Through guide plate material is delivered to the can. Here neps, waste percentage, short fibber removal are the main function performed. DRAW FRAME DEPARTMENT:- After carding dept. the sliver drums are sent to the D/F section. The main function of this department is drafting, parallelization, regularity, attending and pulling out of fibbers besides to lock in can with the help of coiler. The sliver is twisted & straightened to make it uniform.
  14. 14. 14 SIMPLEX DEPARTMENT:- From draw frame dept. the sliver is sent to the simplex dept. to make bobbin from sliver by twisting & making it uniform. The approximate weight of each bobbin is about 750 GMS. The objective of the simplex dept. is to give proper twist to the sliver and to build package for the next process. The humidity condition should be proper for eliminating breakage’s during the process. RING FRAME DEPARTMENT:- It is last & also one of the most important machines of the spinning dept. the main function is to formation of yarn & bobbin for the winding is prepared, so main work is Drafting, Twisting, Building motion, and Bobbin preparation. The bobbin is fixed according jot the count. Each machine has Back Roll, Front Roll, and Medium Roll for drafting purposes. The pressure used is of the order of 1.5 kg/cm (square). Each yarn bobbin spindle has a weight of about 80-90 gm including 35 gm wt. of the Bobbin, Gauge setting is the most important factor as regards quality. WINDING AND PACKING DEPARTMENT:- After spinning of yarn from ring frame the bobbins are sent to the post spinning dept. In this dept. faults are detected & removed. This improves the yarn quality and checks the made either on paper cone of cheese before delivering it to the conditioning & packing dept. We have following machines in the dept.–Doubling machines, Cheese winder, Cone winder, Auto corner. The main features of an auto corner machines are- Automatic splicer, Wak and Clearer. Count is changed by computer panel which contains all information about the machine & the processing.
  15. 15. 15 CONDITION AND PACKING DEPARTMENT:- After the completion of the winding process the package is given proper conditioning as cotton loses its moisture content which is necessary for good Quality of yarn. A special room is there for the conditioning. Come trolley is put in the room for 2 hrs and water is sprinkled on it. After this process the packages are taken to the packing unit where they are packed as per requirement. After weighing the package is kept in a cartoon properly, then it tagged giving a proper lot no. special company mark & trademark is properly printed. Delivery station is also printed and then cartoons are sent to the dispatch section and from there to the proper markets.
  16. 16. 16 Raw material Blow room Carding Combing Draw frame Speedframe Ring frame Doubling Ch. Winding Cone winding Auto corner Cone winding TFO Cone winding Packing PRODUCTION PROCESS FLOW
  17. 17. 17 Chapter-3 Working capital Management
  18. 18. 18 Chapter-3 Working capital Management 3.1INTRODUCTION:- Capital is the keynote of economic development. In this modern age, the level of economic development is determined by the proportion of capital available. Meaning of Capital:- In the ordinary sense of the word Capital means initial investment invested by businessman or owner at the time of commencing the business. Capital (economics), a factor of production that is not wanted for itself but for its ability to help in producing other goods. Definition:- Capital is a factor of production with a specific, changeable value attached to it that could, potentially, provide its owner with more wealth. It is an abstract economic concept, and, as such, has many different definitions and classifications, but the unifying feature of capital is that it has a certain value, so it in itself is a type of wealth, and it has the potential of generating more wealth. Features of Capital:- Capital has the following features. 1. Capital is a man made. 2. Capital is a perishable.
  19. 19. 19 3. Capital is a human control possible. 4. Capital is a mobile. 5. Capital is a human sacrifice. 6. Capital is a scarce. 7. Capital is a passive factor. Introduction of Working Capital:- Working capital could be defined as the portion of assets used in current operations. The movements of the funds from capital to income and profits and back to working capital are one of the most important characteristics of the business. This cyclical operation is concerned with utilization of the funds with the hope that will return with an additional amount called income. If the operations of the company are to run smoothly, a proper relationship between fixed capital and current capital has to maintain. Sufficiently liquidity is important and must be achieved and maintained to provide that funds to pay off obligation as they arise. The adequacy of cash and other current assets together with their efficient handling, virtually determine the survival of demise of the company. A businessman should be able to judge the accurate requirement of working capital and should be quick enough to raise the enquired funds to finance he working capital needs. Working capital is also called as net current assets, “it is the excess of current assets over current liabilities.” All organization has to carry working capital. It is important from the point of view of both liquidity and profitability. Poor management of working capital means that funds that unnecessarily tied up in idle assets hence educing liquidity and also reducing ability to invest in productive assets such as plant and machinery. So affecting profitability. The term working capital refers to current assets, which may be defined as: i) Those which are convertible into cash or equivalents with the period of one year ii) Those which are required to meet day to day operations
  20. 20. 20 The fixed as well as current assets, both requires investment of ‘Funds’. So the management of working capital and fixed assets apparently seem to involve it type of consideration but it is no so. The management of working capital involve different concept and methodology than the techniques used in fixed assets management. 3.2 Objective Of Working Capital & Research Methodology:- Working capital management is very important in modern business. The analysis of working capital is also very useful for short-term management of funds. The following are objective of study: 1) To make. Items wise analysis of the elements or component of working capital to identify the items responsible for change in working capital. 2) To calculate working capital for last year of the company. Scope & Limitation of the Study:- 1. The Study is limited to only the last year performance of the Company. 2. The data used in this study have been given commercial Manager. As per the requirement and necessary some data are grouped and sub grouped. 3. For making a clear-cut opinion, Ratio technique of financial management has been used. IMPORTANCE OF WORKING CAPITAL :- 1. Solvency of the business: Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted of production. 2. Goodwill : Sufficient amount of working capital enables a firm to make prompt payments and makes and maintain the goodwill. 3. Easy loans: Adequate working capital leads to high solvency and credit standing can arrange loans from banks and other on easy and favorable terms.
  21. 21. 21 4. Cash discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence reduces cost. 5. Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw material and continuous production. 6. Regular payment of salaries, wages and other day to day commitments: It leads to the satisfaction of the employees and raises the morale of its employees, increases their efficiency, reduces wastage and costs and enhances production and profits. 7. Exploitation of favorable market conditions: If a firm is having adequate working capital then it can exploit the favorable market conditions such as purchasing its requirements in bulk when the prices are lower and holdings its inventories for higher prices. 8. Ability to Face Crises: A concern can face the situation during the depression. 9. Quick and regular return on investments: Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and gains confidence of the investors and can raise more funds in future. 10. High morale: Adequate working capital brings an environment of securities, confidence, high morale which results in overall efficiency in a business. Data & Methodology of the Study:- The data of DCM Ltd. for one year is used in this study have been taken from company. Editing, classification and tabulation of the financial data, which are collected from the above-mentioned sources, have been done as per the requirement of the study. Methodology:- 1. The initial step of the project was studying about the company and then evaluating the financial position of the company on the basis of ratio analysis. 2. Comparing the firm’s financial position with respect to its competitors i.e. Vardhman Textiles, Malwa cotton and spinning mill, Nahar industrial enterprises and ginni filaments ltd. With the help of following ratios:-  Liquidity ratios
  22. 22. 22  Solvency/leveraging ratios  Coverage ratios  Activity/turnover ratios  Profitability ratios  Investors ratio 3. The project will focus on the study of overall working capital management at the organizations, for which the following study analysis will be undertaken; Classification of working capital:- 1 On the basis of concept. 2. On the basis of time. On the basis of concept working capital is classified into two types:- 1. Net working capital 2. Gross working capital 1) Net Working Capital:- Term Net working capital can be define in two way i) It is the difference between current assets and current liabilities. ii) Amount left for operational requirement. 2) Gross Working Capital:- Gross working capital means the total current assets. And On the basis of time working capital may be classified as:-  Permanent working capital  Temporary working capital
  23. 23. 23 1) Permanent Working Capital:- It is the minimum amount of the current assets, which are needs to conduct the business even during the dullest season of the year. This amount varies from year to year depending upon the growth of a company and stage of the business cycle in which it operates. It is the amount of funds required to produce the goods and services, which are necessary to satisfy demand at a particular point. It represents the current assets, which are required on a continuing basis over the year. It is maintained as the medium to carry on operation at any time. Permanent working capital has following features: i) It is classified on the basis of the time factor. ii) Its size increases with the growth of the business. iii) It is constantly shifted from one asset to another and continues to remain in the business process. 2) Temporary Working Capital:- It represents the additional assets, which are required at different times during the operating year. Seasonal working capital is the additional amount of current assets particularly cash, receivables, and inventory which is required during the more active business seasons of the year. It is the temporary investment in the current assets and possesses the following features: a) It is not always gainfully employed, though it may also shift from one asset to another as permanent working capital does. b) It is particularly suited to business of seasonal on cyclical nature.
  24. 24. 24 The need or objective of working capital:- Every business needs some amount of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. Thus working capital is needed for following purposes: 1. The purchase of raw material, components and spares 2. To pay wages and salaries 3. To incur day to day expenses and overhead costs such as fuel and power 4. To meet the selling cost as packing, advertising etc 5. To provide credit facilities to the customer 6. To maintain the inventories of the raw material, work in progress., spares and finished stock. ESTIMATION OF WORKING CAPITAL REQIUREMENTS:- Managing the working capital is a matter of balance. The firms must have sufficient funds on hand to meet its immediate needs. The DCM Textiles.Ltd is manufacturing oriented organization. The following aspects have to be taken into consideration while estimating the working capital requirements. They are: 1. Total costs incurred on material, wages and overheads. 2. The length of time for which raw material are to remain in stores before they are issued for production. 3. The length of the production cycle or work-in-process, i.e., the time taken for conversion of raw material into finished goods. 4. The length of sales cycle during which finished goods to be kept waiting for sales. 5. The average period of credit allowed to customers. 6. The amount of cash required paying day-today expenses of the business.
  25. 25. 25 7. The average amount of cash required to make advance payments. 8. The average credit period expected to be allowed by suppliers. 9. Time lag in the payment of wages and other expenses. Working Capital Consideration in DCM Textiles:- There are two concepts of working capital one is gross working capital and net working capital. Gross working capital is the total of all current assets. The constituents of current assets are shown in the part A in table 1 and current liabilities are shown in the part B in the table 1 the alternate definition of net working capital is the portion of a firm’s current assets that are financed with short-term fund.
  26. 26. 26 TABLE 1: CONSTITUENTS OF CURRENT ASSETS AND CURRENT LIABILITIES PART- A: CURRENT ASSETS Inventories Raw materials and components Work-in-progress Finished goods Others Trade debtors Loan and advances Investment Cash and bank balance PART-B: CURRENT LIABILITIES Sundry creditors Trade advances Borrowings From - Commercial banks -Others Provision As per the last year financial data (2014-15) the net working capital (NWC) of DCM textiles is Rs. 3,64,190,699.00 and for financing the same the company makes their short term financial arrangement from “Punjab National Bank”.
  27. 27. 27 3.3Sources of Working Capital:- Mainly there are two sources of working capital: i. Permanent or Fixed working capital ii. Temporary or variables working capital In any concern, a part of the working capital investments are as investment in fixed assets. This is so because there is always a minimum level of current assets, which are copiously required by the enterprise to carry out its day-to-day business operation and this minimum, cannot be expected to reduce at any time. This minimum level of current assets need long term working capital, which is permanently blocked. Similarly, some amount of working capital may be required to meet the seasonal demands and some special exigencies such as rise in prices, strikes, etc. this gives rise to short term working capital which is required for day to day transaction also. The fixed proportion of working capital should be generally financed from the fixed capital sources while the temporary or variable working capital equipment may be met from the short term sources of capital.
  28. 28. 28
  29. 29. 29 BANK BORROWINGS:- Bank provides various types of facilities to borrower to raise its funds which are described here in below in the form of chart:- BANK FACILITIES Fund based Term loan Working capital finance Guarantee s Letter of credit Deferred payment guarantees & co- acceptances Over draft Cash credit Bill finance Export finance Working capital demand loan Hypothecationpledge Pre-shipment Post-shipment (FOBNLC) Packing credit limit Non Fund based
  30. 30. 30 DCM Textiles basically enjoys three type of credit facilities out of above mentioned in the chart i.e.  Cash credit  Letter of credit  Letter of guarantee  Packing credit  Post shipment (FOBNLC) CHARACTERSTICS OF WORKING CAPITAL IN DCM TEXTILES:- In the management of working capital two characteristics of current assets must be borne in mind: (i) short life span, and (ii) swift transformation into other current asset forms. Current assets have a short life span. The life span of current assets depends upon the time required in the activities of procurement, production, sales and collection and the degree of synchronization among them. Each current asset is swiftly transformed into other current asset forms: Cash is used for acquiring raw materials and raw materials are transformed into finished goods (this transformation may involve several stages of work-in-progress). Finished goods, generally sold on credit in D.C.M. Textile are converted into accounts receivable and finally accounts receivable, on realization, generate cash. The cycles of transformation as follows:
  31. 31. 31  Conversion of cash into raw materials.  Conversion of raw materials into work in progress.  Conversion of work in progress into finished stock.  Conversion of finished stock into accounts receivables(Debtors)through sale and  Conversion of account receivables into cash. Finishedgoods Work-in-progress Accounts receivable Raw materials SuppliersCash Wages, salaries, factory overheads
  32. 32. 32 As per financial statement of last accounting year, average holding period of different components of working capital is as follows: Description of current assets and current liabilities 2014-15(Rs.) Stocks 795,807,291 Trade receivables 692,152,101 Cash & bank balances 53,105,704 Loans and advances 291,626,791 Other current assets 16,683,355 Current liabilities 1,307,725,193 Other Current liabilities 169,783,693 Provisions 7,675,657 The unit is having the following assumptions for working capital:- Raw material:- The DCM Textiles’ raw material holding is Rs. 522,210,782.00 as on 31.03.2015. Cotton being a seasonal commodities is required to be stocked during the season period and higher level of inventory gives a constant and smooth supply of raw-cotton which in turn increases the productivity of the machines, as technical changes are not required to be made in machines due to use of one type of cotton.
  33. 33. 33 Work- in- progress:- The DCM Textiles’ stock in progress holding is Rs. 80,236,492 as on 31.03.2015. Stores and spares:- The DCM Textiles’ stores and spares holding are Rs. 9,876,497 as on 31.03.2015. Finished goods:- The DCM Textiles’ finished goods holding is Rs. 183,483,520 as on 31.03.2015. Debtors:- The DCM Textiles’ debtors holding is Rs. 524540343 .00(51 days sales) as on 31.03.2015. Since the company is selling its production directly to the retail yarn dealers and other small scale industries, it is necessary to keep the terms and conditions for credit sales at par with our competitors i.e. Vardhman spinning, Nahar spinning and Abhishek industries etc. The current credit period prevailing in the market is 45 to 60 days credit from the date of dispatch, which is justified in view of the prevailing market scenario. Goods in transit:- The unit is exporting its product to various countries. The normal transit time from Mill to the port of loading is 6 to 10 days till the goods are boarded to ship, the title of goods remain with the unit. Accordingly, we have assumed 7 days stock in transit. 3.4.FACTORS INFLUENCING WORKING CAPITAL REQUIREMENTS:- The working capital needs of DCM Textiles are influenced by numerous factors. The important ones are:  Nature of business
  34. 34. 34  Seasonality of operations  Production policy  Market conditions  Conditions of supply NATURE OF BUSINESS:- The working capital requirement of a firm is closely related to the nature of its business. A service firm, like an electricity undertaking or a transport corporation, which has a short operating cycle and which sells predominantly on cash basis, has a modest working capital requirement. On the other hand, a manufacturing concern like a machine tools unit, which has a long operating cycle and which sells largely on credit, has a very substantial working capital requirement. As DCM Textiles is a manufacturing unit, it has large operating cycle and therefore requires a large amount of working capital. SEASONALITY OF OPERATION:- Firms that have been marked seasonally in their operations usually have highly fluctuating working capital requirements. DCM uses cotton as a raw material that is a seasonal product. Better quality cotton is available in the season therefore to get the better quality cotton company is bounded to purchase cotton at its season and make holding of the raw material for the continuous production in the non-season. So company requires a large amount of working capital for the continuous production throughout the year because the finished goods of the DCM Textiles are demanded in the market whole time of the year. Average raw material holding period for the seasons comes 180 days; during off seasons it comes approximately 60-90 days.
  35. 35. 35 PRODUCT POLICY:- A firm marked by pronounced seasonal fluctuation in its sales may pursue a production policy, which may reduce the sharp variations in working capital requirements. For example, a manufacturer of ceiling fans may maintain a steady production throughout the year rather than intensify the production activity during the peak business season. Such a production policy may dampen the fluctuations in working capital requirements. The DCM Textiles makes a hosiery yarn, which is used in summer as well as in winter season. So the DCM makes its product throughout the year. Mainly production depends upon the availability of cotton, availability of power supply and availability of workers and market demand. During my study period unit is producing on an average of 42.303 MT production /day, which is 95.75% of total capacity utilization. The total capacity of DCM Textiles is 74436 spindles. Before making the production policy programme, DCM Textiles considers the constraints: 1. Market demand: According to the market demand, production planning is made by the planning and system deptt. Estimation of market demand is getting by the marketing deptt. 2. Availability of raw material: The availability of raw material is also a main feature of the production planning. With the sufficient availability of raw material, production can be made continuously as per available capacity. Cotton is a seasonal product, hence not available throughout the year and therefore the unit has to make maximum purchase during October to march to meet its requirement for the whole year. 3. Suitability of Raw Material: The availability of raw material is not enough, suitability of raw material is also important. Mainly two types of cotton are use for production i.e. J-34 (Good Average) J- 34 RG).
  36. 36. 36 MARKET CONDITIONS:- The degree of competition prevailing in the market place has an important bearing on working capital needs. When competition is keen, a larger inventory of finished goods is required to promptly serve customers who may not be inclined to wait because other manufacturers are ready to meet their needs. Further, generous credit terms may have to be offered to attract customers in a highly competitive market. Thus, working capital needs tend to be high because of greater investment in finished goods, inventory and accounts receivable. The main competitors of the DCM Textile are the Vardhman Textiles, Nahar Industrial, Malwa Cotton and Sportsking India Ltd. DCM also makes its production according to the market conditions. CONDITIONS OF SUPPLY:- The inventory of raw materials, spares, and stores depends on the conditions of supply. If the supply is prompt and adequate, the firm can manage with small Inventory. However, if the supply is unpredictable then the firm, to ensure continuity of production, would have to acquire stocks as and when they are available and carry larger inventory on an average. A similar policy may have to be followed when the raw material is available only seasonally and production operations are carried out round the year. The raw material of the DCM Textilesis cotton and supply of cotton is mainly depends upon the availability of the cotton in the market. 60% cost of the production is only of the raw material holding cost. If the cotton is enough in the market to meet the company’s requirement then company is not required to invest a huge amount of working capital in the raw material. But generally all spinning mills funds are invested in the raw materials holdings.
  37. 37. 37 Management of working capital:- Working capital, in general practice, refers to him excess of current assets over current liabilities. Management of working capital therefore, is concerned with problems that arise in attempting to manage him current assets, current liabilities, and interrelationship that exists between them. In other word 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 way that a satisfactory level of working capital is maintained, i.e. neither inadequate nor excessive. This is so because both inadequate as well as excessive working capital position is bad for the business. Inadequacy of working capital, may lead the firm insolvency and excessive working capital implies idle funds, which earn no profit for the business. Working capital management policies of the firm have a great effect on its profitability, liquidity and structural health of the organization. In this context, working capital management is three-dimensional nature: 1. Dimension I is concerned with the formulation of the policy with regard to Profitability, risk and liquidity. 2. Dimension II is concerned with the decision about his composition and level of current assets. 3. Dimension III is concerned with the decision about his composition and level of current liabilities.
  38. 38. 38 This dimension aspect of his working capital has been more clearly and precisely explains by the following diagram. Profitability, Risk & Liquidity Dimension I Dimension III Dimension II Composition & level Of current Liabilities Composition & Level of current assets
  39. 39. 39 3.5 Evaluation of working capital:- The working capital management needs attention of all the finance head/ working capital management is important for avoiding unnecessary blockage of fund. Like that liquidity is important at it refer to the short-term financial strength of company. It is very important to have proper balance in regard to the liquidity of the firm. 31STMARCH 2005 1551.41 31STMARCH 2006 2251.10 31STMARCH 2007 4416.50 31STMARCH 2008 8095.09 31ST MARCH 2009 6179.17 31st MARCH 2010 11009.24 31st MARCH 2011 21071.99 31st MARCH 2012 93915.43 31st MARCH 2013 16601.39 31st MARCH 2014 42719.05 31st MARCH 2015 36419.06 YEAR ENDED WORKING CAPITAL (RS. IN LAKHS)
  40. 40. 40 Table 1. Particulars A) Current Assets: - i) Inventories ii) Sundry Debtors iii) Cash & Bank Balance iv) Loans & Advances V) Other current assets B) Current Liabilities: i) Current Liabilities ii) Provisions Working Capital (A-B) Add: Provision for Contingencies Net Working Capital Requirement 2010-11 2011-12 2012-13 2013-14 2014-15 1,539,676,299 524,540,343 8,16,190 170,483,304 _ 686,451,272 314,758,759 10,35,080 95,205,454 27,584,289 823,377,964 410,634,543 18,12,464 131,040,166 25,524,513 915,433,075 589,343,347 31,960,904 215,329,442 93,62,578 795,807,291 692,152,101 53,105,704 291,626,791 16,683,355 2,235,516,136 1,125,034,054 1,392,389,650 1,761,429,346 1849,375,242 11,11,85,084 17,131,893 1,185,267,850 612,642 1,225,303,015 1,072,656 1,327,748,129 6490678 1477,508,886 7,675,657 128,316,977 1,185,880,492 1,226,375,670 1,334,238,807 1,485,184,543 2107,199,159 _ 939,154,362 _ 166,013,980 _ 427,190,539 _ 364,190,699 _ 2,107,199,159 939,154,362 166,013,980 427,190,539 364,190,699
  41. 41. 41 Table 2 Particulars Previous year 31.03.2014 Current year 31.03.2015 Effect on working capital increase Decrease A) Current Assets: - i) Inventories ii) Sundry Debtors iii) Cash & Bank Balance iv) Loans & Advances v) Other current assets Total Current Assets: B) Current Liabilities: i) Current Liabilities ii) Provisions Total Current Liabilities: Working Capital (A-B) Net Increase Or Decrease In Working Capital 915,433,075 589,343,347 31,960,904 215,329,442 9,362,578 795,807,291 692,152,101 53,105,704 291,626,791 16,683,355 - 102,808,754 21,144,800 76,297,349 7,320,777 119,625,784 - - - - 1,761,429,346 1,849,375,242 1,327,748,129 6,490,678 1,477,508,886 7,675,657 149,760,757 1,184,979 - - 62,999,840 1,334,238,807 1,485,184,543 427,190,539 427,190,539 364,190,699 364,190,699
  42. 42. 42 Table I: - It is observed that current asset increase in 2012-13 as compare to 2011-12 but in the year 2014-15 it had been increase from 139.20 cr to 184.50 cr and the current liabilities has been in a decreasing trend in the year 2011-12 and 2012-13. Current asset increase in 2012-13 and again it increases 2013-14. It shows fluctuation in these years. Working capital of DCM Textile ltd indicates a good position as it shows the increasing trend except 2012-13 that represents the sound position of the company. Table II: - Statement of changes in the working capital is prepared to show the changes in the working capital between the two balance sheet dates. This statement is prepared with the help of the current asset and current liabilities derived from the 2 balance sheets So, i) An increase in current asset increases working capital ii) A decrease in current assets decreases in working capital iii) An increase in current liabilities decreases working capital. iv) A decrease in current liabilities increase working capital It is worth noting that schedule of changes in working capital is prepared only from current assets and current liabilities and the other information is not of any use for preparing this statement. The company should look in to the proper current liabilities.
  43. 43. 43 Chapter-4 Financial analysis-interpretation of ratios.
  44. 44. 44 Chapter-4 Financial analysis-interpretation of ratios. 4.1FINANCIAL ANALYSIS:- (A) LIQUIDITY RATIOS (SHORT-TERM LIQUIDITY):- Liquidity ratios measure the short-term solvency i.e. the firm’s ability to pay its current dues and also indicate the efficiency with which working capital is being used. Commercial banks and short-term creditors may be basically in the ratios under this group. (i)Current ratio or working capital ratio:- Current ratio is a relationship of current assets to current liabilities Current assets means the assets that are either in the form of cash or cash equivalents or can be converted into cash or cash equivalents in short time(say within a year) like cash, bank balances, marketable securities, sundry debtors, stocks, bills receivables, prepaid expenses. Current liabilities mean liabilities repayable in as short time like sundry creditor, bills payable, outstanding expenses, bank overdraft. Computation:- The ratio is calculated as follows:- Current ratio = Current assets Current liabilities
  45. 45. 45 Objective:-  The ratio is mainly used to give an idea of the company’s ability to pay back its short- term liabilities with its short-term assets.  The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay its obligations if they came due at that point.  While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt-as there are many ways to access financing-but it is definitely not a good sign.  The current ratio can give a sense of the efficiency of a company’s operating cycle or its ability to turn its product into cash.  An acceptable current ratio varies by industry. For most industrial comparison 1.5 is an acceptable CR. A standard CR for a healthy business is close to 2.  However, a blind comparison of actual current ratio with the standard current ratio may lead to unrealistic conclusions. A very high ratio indicates idleness of funds, poor investment policies of the management and poor inventory control, while a lower ratio indicates lack of liquidity and shortage of working capital. Current ratio DCM textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 1.21 1.48 2.83 2.11 0.91
  46. 46. 46 Inferences:- The ratio of DCM Textiles is acceptable but it needs to be improved. Malwa cotton is in a better position to meet its short term obligations as can be seen by a high current ratio. This is mainly due to high proportion of loans & advances and a significant low proportion of debtors. Ginni flament is also in a better position to meet its obligations. The CR in case of Nahar industrial is less than 1 implying that it would not be able to meet its obligations if they fall due at that time since current liabilities exceed current assets which are not a healthy proposition. The ratio is acceptable in case of Vardhman textile. (B)Liquid ratio or quick ratio or acid test ratio:- Liquid ratio is a relationship of liquid assets with current liabilities. It is fairly stringent measure of liquidity. Liquid assets are those which are either in the form of cash or cash equivalents or can be converted into cash within a very short period. Liquid assets are computed by deducting stock and prepaid expenses from the current assts. Stock is excluded from liquid assets because it may take some time before it is converted into cash. Similarly, prepaid expenses do not provide cash at all thus, excluded from liquid assets. Computation: - The ratio is calculated as under: Liquid ratio= Liquid assets Current liabilit
  47. 47. 47 Objective:-  The ratio of current assets less inventories to total current liabilities. The ratio is the most stringent measure of how well the company is covering its short-term obligations, since the ratio only considers that part of current assets which can be turned into cash immediately (thus the exclusion of inventories).  The ratio tells creditors how much of the company’s short term debt can be met by selling all the company’s liquid assets at very short notice also called acid-test ratio.  The current ratio does not indicate adequately the ability of the enterprise to discharge the current liabilities as and when they fall due. Liquid ratio is considered as a refinement of current ratio as non-liquid position of current assets is eliminated to calculate the liquid assets. Thus it is a better indicator of liquidity.  A quick ratio of 1:1 is considered standard and ideal, since for every rupee of current liabilities, there is a rupee of quick assets. A decline in the liquid ratio indicates over- trading, which if serious may land the company in difficulties. Quick ratio DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 0.39 1.56 1.58 0.70 2.66
  48. 48. 48 Inferences:- DCM Textiles is not in a good position in paying off its liabilities Vardhman group and Malwa cotton are better off than DCM and Ginni flaments in meeting the short-term debts by selling all the liquid assets pf the company at a very short notice. May be that DCM and Ginni flaments are indulge in over-trading. The company should try to keep quick ratio greater than 1. Nahar industrial is also in an excellent position with a high quick ratio. (C) SOLVENCY/LEVERAGE RATIO (LONG-TERM SOLVENCY):- The term solvency implies ability of an enterprise to meet its long term indebt ness and thus, solvency ratios convey the long term financial prospects of the company. The shareholders, debenture holders and other lenders of the long-term finance/term loans may be basically interested in the ratios falling under this group. Following are the different solvency ratios:- Debt-equity ratio:- The debt-equity ratio is worked out to ascertain soundness of the long term financial policies of the firm. The ratio expresses a relationship between debt (external equities) and the equity (internal equities). Debt means long term loans, i.e. Debentures, public deposits, loans (long term) from financial institutions. Equity means shareholder’s funds, i.e. preference share capital, equity share capital, reserves less losses and fictitious assets like preliminary expenses. Computation: the ratio is calculated as under: Debt-equity ratio= debt(long-term loans) Equity (shareholder’s funds)
  49. 49. 49 Objective:-  The objective of this ratio is to arrive at an idea of the amount of capital supplied to the concern by the proprietors and of asset ‘cushion” or cover available to its creditors on liquidation of the organisation’s equity.  It also indicates the extent to which the firm depends upon outsiders for its existence. In other words, it portrays the proportion of total funds acquired by a firm by way of loans.  A high debt-equity ratio may indicate that the financial stake of the creditors is more than that of the owners. A very high debt-ratio may take the proposition of investment in the organization a risky one.  While a low ratio indicates safer financial position, a very low ratio may mean that the borrowing capacity of the organization is being underutilized.  The debt/equity ratio also depends on the industry in which a company operates. For example- capital intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0.5.  The readers of financial management may remember that to borrow the funds from outside is one of the best possible ways to increase the earnings available to the equity shareholders, basically due to two reasons.  The expectations of the creditors in the form of return on their investment are comparatively less as compared to the returns expected by the equity shareholders.
  50. 50. 50  The return on investment paid to the creditors is a tax-deductible expenditure. Debt equity ratio DCM Textiles Vardhman textiles Ginni filaments Nahar industrial ltd. 2014 1.08 1.80 3.91 1.42 PROFITABILITY RATIOS:- Profit as compared to the capital employed indicated profitability of the concern. A measure of profitability is the overall measure of efficiency. The different profitability ratio is as follows: Net profit ratio:- The net profit ratio establishes the relationship between net profit and net sales expressed in percentage form. Net profit is derived by deducting administrative and marketing expenses, finance charges and making adjustments for non-operating expenses and incomes. Computation:-This ratio is calculated as follows: Net profit ratio= net profit after taxes x 100 Net sales
  51. 51. 51 Objective:  The net profit ratio determines the overall efficiency of the business. It indicates that proportion of sales available to the owners after the consideration of all types of expenses and costs either operating or non-operating or normal or abnormal.  A high net profit indicates profitability of the business. Hence higher the ratio the better is. Net profit ratio DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 18.10 7.62 -3.99 0.95 1.88 Inference:- DCM Textiles has been able to generate a high net profit ratio among the five. Vardhman group is also in a good position. Malwa cotton has a negative net profit ratio which indicates that the company is in the position of loss. Ginni flaments and Nahar industrial have a low net profit ratio so they should aim to achieve a higher ratio.
  52. 52. 52 COVERAGE RATIO:- (i)Interest coverage ratio: The interest coverage ratio establishes the relationship between PBIT ( profit before interest and tax) and debt interest. Computation:- This ratio is calculated as: Interest coverage ratio= profit before interest and taxes Debt interest The numerator considers the profit before income tax and interest on both term and working capital borrowings. The denominator considers the interest charges, which are in the form of interest on long term borrowings and not the interest on working capital facilities. Objective:-  Interest coverage is a financial ratio that provides a quick picture of a company’s ability to pay the interest or its debt.  The coverage aspect of the ratio indicates how many times the interest could be paid from the available earnings, thereby providing a sense of a safety margin a company has for paying its interest for any period.  A company that sustains earnings well above its interest requirements is in an excellent position to weather possible financial norms.
  53. 53. 53  As a general rule of thumb, investors should not own a stock that has an interest coverage ratio under 1.5. An interest coverage ratio below 1 indicates the business is having difficulties generating the cash necessary to pay its interest obligations.  The ratio suffers from the following limitations:  The fixed obligations in the form of preference dividend or instalments of long term borrowings are not considered.  The funds available for meeting the obligations of interest payments may not be necessarily in the form of profits before interest and taxes only, as the amount of profits so calculated may consider the amount of depreciation debited to profit and loss account which does not involve any outflow of funds. Interest coverage ratio DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 11.05 3.30 0.39 1.39 1.58 Inference:
  54. 54. 54 Maximum interest coverage is available in case of DCM indicating it is in good capacity to pay the interest charges on debt. Vardhman Textiles is also in a good position to pay off its debt. In the case of malwa cotton the ratio is low which needs to be improved. That indicates that the business is facing problem in generating cash its interest. . ACTIVITY (TURNOVER OR PERFORMANCE) RATIOS:- Turnover indicates the speed with which capital employed is ratated in the process of doing business. Activity ratio measures the effectiveness with which a concern uses resources as its disposal. The following are the important activity (turnover or performance ratio): (i)WOKING CAPITAL TURNOVER RATIO:- The working Capital turnover indicates the number of times a unit invested in working capital produces sale. In other words, the ratio shows the efficiency in the use of short-term funds for achieving sales. Working capital is computed by deducting current liabilities from current assets. A careful handling of short term assets and funds will mean a reduction in the amount of capital employed there by improving turnover. Computation: the ratio is calculated as follows: Working capital turnover ratio= Net sales Working capital Objective:-
  55. 55. 55 A company uses working capital to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company.  The working capital turnover ratio is used to analyse the relationship between the money used to fund operations and the sales generated from these operations.  In a general sense, the higher the working capital turnover, the better because it mean as that the company is generating a lot of sales compares to the money it uses to fund the sales.  A high or increasing working capital turnover is usually a positive sign, showing the company is better able to generate sales from the working capital. Either the company has been able to gain more net sales with the same or smaller amount of working capital, or it has been able to reduce its working capital while being able to maintain sales.  As such, higher this ratio the better will be the situation. However a very high ratio may indicate overtrading-the working capital being meager for the scale of operations. Working capital turnover ratio DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 1.28 1.78 2.37 3.32 1.59 Inference:-
  56. 56. 56 Company have to increase its working capital ratio.it needs to increase its sales. In case of ginni flaments company is in a good position to generate cash from sales Inventory turnover ratio:- Computation:- this ratio is calculated as follows:- Inventory turnover ratio= cost of goods sold Average inventories Objective:-  A high turnover ratio indicates that maximum sales turnover is achieved with the minimum investment in inventory. As such, as a general rule, high inventory ratio is desirable.  However, the high inventory turnover ratio should be viewed from some more angles. Firstly, it may indicate that there is under investment in inventory whereby the organisation may lose customer patronage if it is unable to maintain the delivery schedule. Secondly, high inventory turnover ratio may not necessarily indicate profitable situation,  An organisation, in order to achieve a large volume, may sometimes sacrifice on profits, where by a high inventory turnover ratio may not result into high amount of profits,
  57. 57. 57 On the other hand, a low inventory ratio may indicate over investment in inventory, existence of excessive or obsolete/non-moving, improper inventory management, accumulation of inventories at the year-end in anticipation of increased prices or sales volume in near future and so on. There can be no standard inventory turnover ratio which may be considered ideal. It may depend on nature of industry and marketing strategies followed by the organization. Inventory turnover ratio DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 1.74 2.64 3.76 2.34 3.66 Inference:- The firm have to improve its ratio. The inventory turnover ratio is low which indicates over investment or improper inventory management. Company should try to make proper use of inventory. ASSETS TURNOVER RATIOS:-  Assets turnover measures a firm’s efficiency at using its assets in generating sales or revenue- the higher the number the better.  It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.
  58. 58. 58  A high assets turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investments in assets. It indicates that the assets are turned over in the form of sales more number of times, as such higher the ratio, the better will be the situation. (a)Total assets turnover Computation: the ratio is computed using the following formula: Total assets turnover ratio= net sales Total assets Total Assets turnover ratio DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 0.96 0.67 3.36 1.00 0.71 (b)Fixed assets turnover:- Computation: The ratio is calculated as follows: Fixed assets turnover ratio= net sales Fixed assets Fixed assets include net fixed assets, i.e. fixed assets providing for depreciation.
  59. 59. 59 Fixed assets turnover DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 3.79 0.77 1.52 0.99 0.78 (c)Debtors’ turnover ratio:- Computation: The ratio will be computes as: Debtors turnover ratio= net credit sales Average sundry debtors Objective::-  This ratio indicates the speed at which the sundry debtors are converted in the form of cash. However this intention is not correctly achieved by making the calculations in this way. Debtors turnover ratio DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 6.84 8.15 3.34 10.81 7.52
  60. 60. 60 RETURN ON INVESTMENT:- The ratio computes in this group indicate the relationship between the profits of a firm and investment in the firm. There can be three ways in which the term investment may be interpreted, i.e. assets, capital employed and shareholder’s funds. As such, there can be broad classifications of ROI: (a) Return on assets (ROA):- Computation: This ratio is calculated as: ROA= EBIT Total assets Objective:-  An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings.  The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income.  The higher the ROA number, the better, because the company is earning more money on investment.
  61. 61. 61 ROA DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 0.17 0.18 0.08 0.13 0.14 Inference:- All the four except malwa cotton is on same side indicating that the assets have been utilised well to generate earnings but in case of malwa cotton it is on the lower side so the management needs to make sure it utilises the assets well enough to generate good earnings. (b) Return on capital employed (ROCE): Computation: this ratio is calculated as: ROCE= Profit before interest and taxes x 100 Average capital employed Objective:-  It is used in finance as a measure of the returns that a company is realising from its capital employed.  It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital.  ROCE measures the profitability of the capital employed in the business, a high ROCE indicates a better and profitable use of long term funds of owners and creditors. As such, a high ROCE will always be preferred.
  62. 62. 62 ROCE DCM Textiles Vardhman textiles Malwa cotton Ginni filaments Nahar industrial ltd. 2014 13.19 9.36 2.59 8.16 5.77 Inference:- A high ratio of DCM Textiles indicates a better and profitable use of long term funds of owners and creditors. For others company it is satisfactory however, In case of malwa cotton it is low.
  63. 63. 63 Chapter-5 Swot analysis.
  64. 64. 64 Chapter-5 Swot analysis. The SWOT analysis summarizes the internal factors of the firm as a list of its strengths and weaknesses and the opportunities and threats it faces from its external environment.  STRENTHS:- 1. Availability of manpower. 2. High quality product. 3. Low price high quality. 4. Availability of raw materials.  WEAKNESS 1. Heavy transport charges. 2. Major consumption in paper industries but limited paper industries in Karnataka. Internal Analysis External Analysis
  65. 65. 65  OPPORTUNITIES:- 1. Technological up gradation. 2. Foreign market expansion. 3. Online ordering process. 4. Product expansion. 5. Market expansion.  THREATS:- 1. Entry of competitors. 2. Product substitution.
  66. 66. 66 Chapter-6 Conclusions
  67. 67. 67 Chapter-6 Conclusions After studying the components of working capital management.it s found that the company has a very sound and effective policy and its performance is very good and has managed to make good profit. Company is competing well at the domestic as well as the international level because of its proper management of finance, specially the short term finance known as the working capital. 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. In conclusion, we can say that the company’s management is an effective one and knows well the management of finance; its working capital management system is very good.
  68. 68. 68 Chapter-7 Bibliography
  69. 69. 69 Chapter-7 Bibliography 1. BOOKS  Financial Management by RAVI M. KISHORE  Working Capital Management by V.K.BHALLA  Financial Management by I M PANDEY  Research Methodology by C.R. KOTHARI 2. INTERNETSITESs  www.dcmtextiles.co.in  www.dcm.in/textiles.html  www.google.com

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