Analysis of Working Capital Management Ankush Nanavati

ANALYSIS OF WORKING CAPITAL
A PROJECT REPORT ON WORKING CAPITAL MANAGMENT OF
Submitted in partial fulfillment for the Award of the degree of MASTER OF BUSINESS ADMINISTRATION Session - (2010-2012) SUBMITTED BY: Ankush Nanavati MBA 3RD SEM SUBMITTED TO: Lori Singh
PIONEER INSTITUTE OF MANAGEMENT (Affiliated by RTU, Kota & Approved by AICTE, New Delhi) Pioneer Valley, Airport Road, Debari, Udaipur - 313003 (Rajasthan) Tel.: 0294-3204755-56
PIONEER INSTITUTE OF MANAGEMENT 3
TRAINING ORGANISATION CERTIFICATE
PREFACE This MBA curriculum has been architecture with the view of enabling the students to have an opportunity of bringing their theoretical knowledge to practice. The concepts reinforce in the classroom would be better expose if it could be actually observe being practiced complying with this objective the summer training is designed to develop the students skills in analyzing and interpreting practical problems through the application of theoretical concepts and techniques of management. RSWM LTD. (A unit of LNJ Group), Banswara is known for its excellent survival from past 50 years. To keep this organization evergreen was not so easy, with many whirlpools also company proved the theory of survival of fittest. To know this company, I got a very good opportunity through summer training, exploring a big scale & vibrant company is not so easy but I tried my level best to grab all the opportunities to know this industry with the help of its employees who shared their experiences with me. Banswara unit explains a lot of sagas related to its production, with the production the value of workforce also. Any company is called as an organization, but a real organization is really hard to organize efficiently & effectively. The power of machines or capital are not only enough for organization to run, but thousand minds of different taste and culture, molded in one pot and to walk with so many diversity at one place and show them single path of goal and productivity is really not very easy job. As we say the world is changing, and to keep that same workforce changing with the environment is a real challenge for any company. To train & manage workforce with a future goal is really very much planned and effectively organized than only it is possible to stand in market where global scenario is flat and highly competitive and with full of substitutes. The financial sector is always the core of an economys growth. The subject matter of financial management has been changing at a rapid pace. About three decades ago, the scope of financial management was circumscribed to the raising of funds whenever needed., and little significance was attached to the financial decision making and problem solving. The modern thinking in the financial management gives greater importance to the management decision making and problem solving.
ACKNOWLEDGEMENT Gratitude is hardest of emotions to express and often does not find adequate words to convey all that we fell. I owe gratitude to several people who helped me in my course of project. If I were to sit down to map out all the contributors who have given time and shared their views to make this project possible. I would end up mapping out the long list. I express my gratitude to all of them. No single contribution alone lead to the success of endeavor and the same is true for this project study. I take the opportunity to offer my sincerest thanks and deep sense of gratitude to Shri N. K. Bahedia, for giving me this opportunity to be associated with this esteemed organization. I would also like to express my gratitude towards Mr. Ashok Sodhani, AGM (Finance & Accounts) for giving me a challenging project in the area, in which I aspired to build my core competency. I am highly thankful to my guide and company mentor, Mr. Manak Jain, Deputy Manager (Finance & Accounts) who took time from his busy schedule for providing information, guidance, valuable tips regarding companys practices in the field of Source, Application and Needs of Working Capital in Current Business Scenario for RSWM Limited. I would also like to thank all the employees and staff member of the organization, who knowingly or unknowingly helped me throughout this project and also treated me as a part of them for providing me a wonderful experience while working with them. I also acknowledge from the deep of my heart, my gratitude to my college mentor Ms. Lori Singh who gave me the related information as and when the need arose. I would also thank to PIONEER INSTITUTE OF MANAGEMENT for making such curriculum of industrial training integrated in their 2 years program, which helped me to get such a valuable experience of working in the corporate world. Last but not the least I cant forget to thank God and my Parents, without their blessing and support nothing would be possible and I would not have reached up till here.
EXECUTIVE SUMMARY Books are the treasures of knowledge and a theoretical base is pivotal for understanding the realities of practical field. But, at the same time, practical knowledge is crucial for having an insight into the implementation of theory in corporate world. With the privilege of an opportunity provided to me by RSWM Ltd. Banswara, for the fulfillment of my purpose bridging the gap between theory and practical, I undertook forty-five days summer training at finance department of RSWM Ltd. Banswara. Working capital is a considered as a life - blood for any organization and the optimum utilization of its necessary from the profitability, liquidity and activity point of view. By considering the importance of the working capital, this report covers the following area. 1. Cash Management 2. Receivables (UGAI) Management 3. Working Capital Finance 4. Inventory Management 5. Sources and Application of Working Capital Beside this the ratio given at the end of report reveals some facts about the financial position of the company and performance during last five years. It shows how companys finance & accounts department takes their decisions and run company efficiently and with handsome profit. This report is study of various part of working capital like sources, application of funds done by Rswm Ltd. in their daily practice. Here I have mainly focus on the utilization of resources done by them and how they control their debt time to time with hardly any bed debt for any unit till dated with their firm policies and business tactics. Finally, on the basis of the analysis and the conclusions draw a SWOT analysis has been done and recommendations given. Therefore, a financial analysis of working capital of RSWM realizes that the company has been able to manage its working capital efficiently thereby strengthening its short term financial position. However, there are certain areas where the company is lagging and is required to take some effective steps.
LIST OF CONTENT S.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Topic INDIAN TEXTILE INDUSTRY INTRODUCTION OF THE COMPANY SWOT ANALYSIS PROJECT INTRODUCTION INTRODUCTON OF WORKING CAPITAL WORKING CAPITAL AND MANAGEMENT ORGANIZATION STRUCTURE OF FINANCE DEPARTMENT ISSUES IN WORKING CAPITAL FACTORS INFLUENCING WORKING CAPITAL ASSESMENT FOR THE SOURCES AND APPLICATION FOR WORKING CAPITAL FUND FLOW STATEMENT USE OF WORKING CAPITAL IN BUSINESS DATA ANALYSIS OF WORKING CAPITAL STATEMENTS RATIO ANALYSIS AND INTERPRETATION ESTIMATION FOR NEEDS OF WORKING CAPITAL Page no.
16
OPERATIONG CYCLE ANALYSIS OF RSWM BANSWARA
S.No. 17
Topic
Page no.
ESTIMATION OF WORKING CAPITAL REQUIREMENT AT RSWM LTD. BANSWARA UNIT 18 CALCULTION OF PERCENTAGE OR RATIO OF SALES METHOD FOR RSWM LTD, BANSWARA CONCLUSION SUGGESTIONS BIBLIOGRAPHY ANNEXURE
19 20 21 22
INDIAN TEXTILE INDUSTRY The Indian Textile sector has its roots going back several thousand years. Over the last 50 years the textile industry is one of the largest in the world with a massive raw material and textile-manufacturing base. Textile accounts for 14% of Indias industrial production and around 30% of its export earnings. Around 35 million people are directly employed in the textile manufacturing activities. The textile policy of 2000 aims at achieving the target of textile and apparel exports of US $ 25 billion by 2010 of which the share of garments will be US $ 25 billion. The main markets for Indian Textile and apparels are USA, UAE, UK, Germany, France, Italy, Russia, Canada, Bangladesh and Japan. At present India has the second largest spinning capacity and ranks among the worlds largest producers of cotton, cotton yarn, and manmade fibers and filament yarns; it also has a large domestic, fabric supply. There has been a structural shift taking place in the global textiles industry with capacities moving from high cost developed economies to the developing countries. The end of the quota restrictions with the dismantling of Multi fiber agreement in 2005 further accentuated this trend. This has added further growth opportunities for cost efficient Indian Players who have the scale and produce quality products.
Because of the lifting up of the import restrictions of the multi-fiber arrangement (MFA) since 1st January, 2005 under the world Trade Organization (WTO) Agreement on textile and clothing, the market has become competitive on closer
look however; it sounds an opportunity because better material will be possible with the traditional inputs so far available with the Indian Market. There will be opportunities as well as challenges for the Indian textile industry in the post-mfa era. But India has natural advantages, which can be capitalized on strong raw material base-cotton, man-made fibers, jute silk, large production capacity (spinning-21% of world capacity and weaving-33% of world capacity.) The industry expects investment of Rs. 140000 crore in this sector in the post-MFA phase. A vision 2010 for textile formulated by the government after intensive interaction with the industry and export promotions councils to capitalize on the upbeat mood aims to increase Indias share in world textile trade from the current 4% to 8% by 2010 and to achieve export value of US $ 50 billion by 2010. Vision 2010 for textiles envisages growth in Indian textile economy from the current US $ 37 billion to $ 85 billion by 2010; creation of 12 million new jobs in the textile sector; and modernization and consolidation for creating a globally competitive textile industry. The future of textile industry in India will be amazing if we continuously improve over quality and give proper attention towards research and development and we can take lead of the world textile market. We have to accept the fact that no organization is too large or too powerful to be unsinkable. In a rapidly changing business environment companies which do not change disappear without a trace. Change and adaption is must for growth and prosperity. The fierce competition in the market realities dictate: Perform or parish.
Thus realizing the need of the hour various groups and individual shifted their focus of business rather than continuing in the same manner. One amongst them was Shri Laxmi Niwas Jhunjhunwala the founder of LNJ Bhilwara Group.
Name of the concern Locations: Regd. Office Corporate Office
RSWM Ltd. Kharigram, P.O. Gulabpura-311021, Distt. Bhilwara, Rajasthan. Bhilwara Towers,A-12, sector-1, Noida-201301 (U.P.) Kharigram, P.O. Gulabpura-301021, Distt. Bhilwara, Rajasthan. Lodha, P.O. Banswara-327001, Rajasthan. Mordi, Banswara-327001, Rajasthan. Mandpam, Bhilwara-311001, Rajasthan. Rishabhdev-33802, Distt. Udaipur, Rajasthan. Ringas, Distt. Sikar, Rajasthan. Bidadi, Banglore, Karnataka.
Works
Constitution Date of Incorporation Lines of Manufacture
Public Limited Company 17/10/1960 Manufacturing of synthetic, blended, grey/dyed yarn, cotton mlange yarn, and cotton blended yarn and fabric under the brand Mayur. Now also entered into Garment Business.
INTRODUCTION OF THE COMPANY
RSWM Ltd. (RSWM), the leading company of the LNJ Bhilwara Group, is principally engaged in the manufacturing of synthetic, blended, mlange and specialty yarns, fabric and garments Business.
RSWM Limited, the flagship Company of LNJ Bhilwara Group, is a professionally managed, progressive and growth-oriented and one of the largest textile manufacturer in the country, primarily producing synthetic, blended, mlange, cotton & specialty yarn, fabric and denim. RSWM was established in 1960, an IS/ISO 9001:2001 and SA 8000:2008 accredited Company, has 8 state-of-the-art It manufacturing plants which moved from strength to strength and today, it operates about 3,60,000 spindles, having 1,00,000 MTA yarn capacity. is equipped with in-house fabric weaving and processing facilities of about 35.6 MMA for fabric and denim fabric. RSWM is self - reliant in Captive Power Generation of 46 MW that feeds all its integrated units spread across the state of Rajasthan. Modern technologies and world class skills have enabled the Company to produce the finest quality adhering to stringent international norms. The main competitive strength of the Company is its innovative product range that includes specialty, functional, technical and eco-friendly yarn and fabric along with basic and commodity products. The Company recently has shifted its focus to produce more and more natural textiles in order to meet the emerging needs of the market. RSWM exports a complete range of yarn and fabric to over 70 countries worldwide, giving the Company a large, visible presence across Europe,
South Africa, North America, Australia, South Korea, Belgium, Singapore, Italy, Egypt and the Gulf countries.
The Company holds the prestigious Three Star Export House status and has received Export Awards from the Synthetic and Rayon Textiles Export Promotion Council consecutively for several years. The Company is a recipient of the Rajiv Gandhi National Quality Award received from the Bureau of Indian Standards for the years 2006 and 2007. RSWM has also received "Niryat Shree" Certificate of Excellence (Non-SSI) award for the category of textile and textile products. RSWMs one of the leading brand `Mayur Suitings enjoys high brand equity in its target segment in the country.
Foundations that inspire "To me, the LNJ Bhilwara Group is not a business house; I see it as an institution that is committed to seeking excellence." BY L.N.Jhunjhunwala- Chairman Emeritus Mission With unique insight into consumer behavior, we strive to offer the best. Following distinct business strategies, the company will continue its tradition of manufacturing the finest products. Vision
RSWM envisages itself as a trend setter of the textile industry. It is committed to introduce innovative products in the industry which will set new standards.
Board of Directors
1 2 3 4 5 6 7 8 9 10
MR. LAKSHMI NIWAS JHUNJHUNWALA CHAIRMAN - EMERITUS MR. RAVI JHUNJHUNWALA, CHAIRMAN MR. SHEKAR AGRAWAL, VICE-CHAIRMAN MR. A.K.CHURIWAL, MANAGING DIRECTOR & CEO MR. J.C.LADDHA, EXECUTIVE DIRECTOR & CFO DR. KAMAL GUPTA, DIRECTOR MR. D.N.DAVAR, DIRECTOR MR. SUSHIL JHUNJHUNWALA, DIRECTOR MR. A. N. CHOUDHARY, DIRECTOR MR. PRABHAKAR DALAL, DIRECTOR (NOMINEE EXIM BANK)
REGISTERED OFFICE Kharigram, P.O.Gulabpura, Bhilwara, Rajasthan Corporate Office Bhilwara Towers,A-12, Sector-1, Noida, U.P.
INTRODUCTION OF LNJ BHILWARA GROUP
The LNJ Bhilwara Group, founded in 1961, has today grown into a strong global presence worth Rs. 2049 crores. The Group has been nurtured into a successful growth track by the able guidance of the Founder and ChairmanEmeritus, Mr. L. N. Jhunjhunwala. Currently, the LNJ Bhilwara Group stands as one of the largest firms on the corporate horizon in India with over 20,000 employees and 21 production units positioned at strategic locations across the country. The Groups export earnings comprise of 46% of the Groups turnover. The LNJ Bhilwara Group is a well-diversified conglomerate. It has been actively seeking growth and profitability by investing in a variety of systematically identified businesses making it a multi-product conglomerate with interests in a range of industries such as textiles, graphite electrodes, power generation, power engineering consultancy services, steel and IT enabled services. Textiles The pioneering textile division of the Group is not only a key player in the industry but also has many firsts to its credit. The textile division has the sole
distinction of producing a unique fire retardant yarn called Trevira CS (now known as Lenzing, Austria). It is also the sole licensee for the highly specialized yarn called Tensel. The Group has time and again been acknowledged for its worldclass quality products in the domestic market such as Mayur Suitings, BSL Suitings, La Italia Fashions and Geoffrey Hammond superfine suitings. At the same time, their services to several leading global brands for knitted garments have been recognized with the units garnering top export awards in different fields for several years in a row.
Graphite Electrodes The LNJ Bhilwara Group also has the largest integrated graphite electrodes manufacturing plant in South-east Asia with a reputed clientele comprising of major steel plants in the world. Graphite exports constitute 70% of total sales volume. An evidence of their success can be seen in the fact that HEG, an integral part of the Group, is all set to undertake a Rs. 450 crore expansion plan to tap opportunities in the export market. The expansion of the Mandideep plant would double the capacity from 30,000 TPA to 60,000 TPA. Power Sector Following the success of its earlier hydro-electric power project of 15 MW at Tawa Nagar (MP) in 1997, the Group has commissioned, Indias first IPP Hydroelectric Malana Power Project of 86 MW in a record time of 30 months at Kullu (HP), in July, 2001 and is set to commence work on 200 MW Allain-Duhangan Hydro Electric Project at Manali (HP). Little wonder then, that the LNJ Bhilwara Group of companies have been awarded IS/ISO 9001:2000 & ISO 14001 certification for setting exemplary standards in quality.
SOME WELL KNOWN BRANDS The group boasts of some well-known brands, which include: MAYUR SUITINGS BSL SUITINGS LA ITALIA FASHIONS BUDDY DAVIS GEOFFREY HAMMONDS SUPERFINE SUITINGS LEISUREWEAR. These products are manufactured at various units spread across the country. COMPITITORS OF RSWM 1 2 3 4 5 6 MUDRA GRASIM RAYMOND SYNTAX INDORMA MARAL ABOUT RSWM BANSWARA Established in 1989, The Banswara unit is the only one of its kind in India and the Company's largest manufacturing facility. The unit has the capabilities to
produce spun gray yarn out of any kind of fiber and blend it with synthetic, regenerated cellulosic, natural, protein and cotton fiber. The Banswara Unit has the exclusive rights for spinning Tensel Fiber into yarn in India and is a modern textile-spinning unit employing state-of-the-art technology from Switzerland, Germany, UK, Italy and Korea. The unit's strength is its new product development. The unit can and does manufacture any yarn delivering it in accordance with the customer's deadlines. It is a 100% Grey Yarn Spinning unit producing Cotton blended gray yarns and Polyester fibers. The unit has recently been expanded to strengthen its product portfolio and giving it a greater product mix. Raw Material Purchase POLYESTER VISCOSE COTTON ACRYLIC Products The Banswara Unit manufactures the following product range: Grey Yarn Specialty Yarn Functional Yarn Brand Specialties Regular Products Cotton 100% RELIANCE GRASIM GUJARAT, RAJASTHAN, M.P., MAHARASTRA PRASUPATI
SWOT ANALYSIS STRENGTH: Demand of blended yarn will increase as the production of cotton is (limited attraction of PV is replacing cotton, great share in exports one of the biggest earners). Won SRTEPC highest export award for PV yarn exports it was also accorded golden trading house status. Experienced & enthusiastic marketing team. Indore. Brand Reputation Global Marketing LNJ Bhilwara group is famous in textiles in all over the world. WEAKNESS: Banswara is not connected through railway line & condition of roads is also poor so there is an infrastructure problem.
Skill labor is not available at Banswara and Purchase Raw Material from one
Strong sales depots &
marketing offices at Mumbai, Delhi, Bhilwara, Ludhiana, Ahemadabad and
type of organization only and bigger process cycle causes higher stock of raw materials. Locations of depots (Consuming Centers) are far away from factory. Hence transportation cost and time duration is increases in inventories. Many process steps and process are more sensitive to normal process variations and small error causes the big amount of wastage of material. Being highly labor intensive unit, HR department is always under pressure and many times fails to meet expectations of various departments and employees.
OPPORTUNITIES: After starting weaving project, Rajasthan spinning & weaving mills Ltd. Banswara may further go for forward integration in garments sector, as people in domestic market are gradually moving towards ready-made garments. To develop & improve working environment of processing by using EcoFriendly methods.
The company can rush into retail business and support from government like
TUFF Schemes i.e. 5% interest rebates to enhance investment in the textile industry.
Strategic alliances: Tie-ups with global manufacturers & brands for technology & market.
THREATS: Today textile industry is planning through in unpredicted recession. The reason for that is supply is more than demand. Cheap imports textiles from China, that is increasing free trade & competition.
Removal of quotas after 2005 increasing more quality awareness i.e.
competition in quality.
Changing trend in textile Indus try, changing requirement as people now
preferring ready-made garments. Polyester Viscose is a substitute of cotton & is made from wood pulp & its supply is also limited.
ORGANIZATION STRUCTURE OF FINANCE DEPARTMENT

Chief Financial Officer
Chief Operating Officer
Commercial Head
Accounts Head
Sr. Manager Accounts
Deputy Deputy Manager Manager Bank Creditors PIONEER INSTITUTE OF MANAGEMENT Officer Officer
Deputy Manager Cash
Deputy Manager Debtors
Officer
Officer
Officer
23 Officer
AREA WISE SALES OFFICE

BANSWARA UNIT
Mumbai
PROJECT INTRODUCTION Amritsar Delhi Indore
Bangalore
Working capital is as import in business firm as blood in a human life. Each and every business concern should have adequate funds to meet out day-to-day expenses and to finance current assets, debtors, receivables and inventories. Proper management of working capital is necessary to maintain both liquidity and profitability. The goal of working capital management is to manage the firms current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. It is the process of planning and controlling the level and mix of the current assets of the firm as well as financing these assets.
SCOPE OF PROJECT Scope of project is to determine the short-term debt paying capacity of the firm through a financial analysis of Working capital. It tends to find out the effectiveness in the management of Working capital at RSWM LTD. For this purpose data were collected from the past financial statements of the company.
INTRODUCTON OF WORKING CAPITAL
There are two concepts of working capital Gross Working Capital Net Working Capital
Gross Working Capital: - Simply called as working capital, refers to the firms investment in current assets. Current assets are the assets which can be converted into cash within an accounting year (or operating cycle) and include cash. Shortterm securities, debtors, bills receivables and stock (Inventory). Net Working Capital: - It refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders, which are expected to mature to payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be positive and negative. A positive working capital will arise when current assets excess current liabilities and vice versa. The concept of working capital gross and net are not exclusive, rather they have equal significance from management view point. Focusing on Management of Current Assets The gross working capital concepts focuses attention on two aspects of current assets management: (A) How to optimize investment in current assets? (B) How should current assets be financed? The considered of the level of investment in current assets should avoid to danger points excessive and inadequate investment in current assets. Investment in current assets should be just adequate, not more than less, to needs of the business firm. Excessive investment in current assets should be avoided because it impairs firms profitability, as idle investment earns nothing. On the other hand, inadequate amount of working capital can threaten the solvency of the firm because of its inability to meet its current obligations. It should be realizing that the working capital needs of the firm might be fluctuating with changing business activity. This may cause excess or shortage of working capital frequently. The management should be too prompt to initiate an action and current imbalances. Another aspect of the gross working capital points in the need of arranging funds to finance current
assets. Whenever needs for working capital arise due to do the increasing level of business activity or for any other reason, arrangement should be made quickly. Similarly, if suddenly some surplus fund arises, then they should not be allowed to remain idle, but should be invested in short term securities. Thus financial manager should have knowledge of source of working capital fund as well as investment avenues where idle fund may be temporarily invested. Focusing on Liquidity Management Net working capital, begin the difference between current assets and current liabilities, is a qualitative concept. It (A) indicates the liquidity position of the firm and (B) Suggest the extent to which working capital needs may be finance by permanent sources of funds. Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer to maturing obligations within the ordinary operation cycle of a business. In order to protect their interest, short-term creditors always like a company to maintain current assets at a higher level than current liabilities. However, the quality of current assets should be considered in determinate the level of current assets vice-versa current liabilities. A weak liquidity position poses a threat to solvency of the company and makes it unsafe and unsound. A negative working capital means a negative liquidity, and may prove to be harmful for the company. Excessive liquidity is also bad. It may be due to mismanagement of current assets therefore, prompt and timely action should be taken by management to improve and current the imbalance in the liquidity position of the firm. Net working capital concept also covers the question of judicious mix of long-term and short-term funds for financing current assets. For every firm, there is a minimum amount of net working capital, which is permanent. Therefore, a portion of the working capital should be financed with permanent sources of funds such as owners capital, debentures, long-term debts, preference capital or retained earnings. Management must, therefore decide the extent to which current assets should be financed with equity capital or borrowed capital.
In summary, it may be emphasized that both gross and net concepts of working capital are equally important for the efficient management of working capital. There is no precious way to determine the exact amount of gross, or net, working capital for any firm. The data and problems of each company should be analyzed to determine the amount of working capital. There is no special rule as to how current assets should be financed.
WORKING CAPITAL AND MANAGEMENT Working capital is concerned with management of current asset. It is an important and integral part of financial management as short term survival is prerequisite for long term success. The divisional management of RSWM Ltd. manages the working capital within the board frame work laid by and with consultation of Corporation Finance Division (CFD). Decision regarding the utilization of the current assets is made in accordance with the policy of company. Working capital management or short term financial management is concerned with decision relating to current assets and current liabilities. WCM = Current Assets (CA) Current Liabilities (CL) The key difference between long-term finance management and short-term financial management is in term of timing cash. While long- term financial decision like buying capital equipments or issuing debentures involves cash flows over extended period of time i.e. more than one to five years or even more while short term financial decision typically involve cash flows within a year or within the operating cycle of the firm.
WCM is management for the short- term which is critical to the firm. Managers spent about 70% in managing for the short- term capital. The operating cycle can be said to be at eh heart of the need for working capital.
Receivable
Cash
Inventory
The management of the finances of a business / organization is done in order to achieve financial objective.
Taking a commercial business as the most common organizational structure, the key objectives of financial management would be to: Create wealth for business Generate cash and Provide an adequate return on investments bearing in mind the risks that the business is taking and the resources invested. There are three key elements to the process of financial management:
FINANCIAL PLANNING: Management need to ensure that enough funding is available at the right time to meet the needs of the business. In short term, funding may be needed to invest in
equipment and stocks, pay employees and fund sales made on credit. In the medium and long term, funding may be required for significant additions to the productive capacity of the business or to make acquisitions. FINANCIAL CONTROL: Financial control is a critically important activity to help the business ensure that the business is meeting its objectives. FINANCIAL DECISION-MAKING: A key financing decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.
USE OF WORKING CAPITAL IN BUSINESS The typical uses of working capital are as follows: 1. Adjusted net loss from operations. 2. Purchase of non-current assets: Purchase of long-term investments like shares, bond / debentures etc. Purchase of tangible fixed assets, like land, building, plant, machinery,
equipment etc. etc. Purchase of intangible fixed assets, like goodwill, patents, copyrights
3. Repayment of long-term debt (debentures or bonds) and short-term debt (bank borrowing). 4. Redemption of redeemable preference shares. 5. Payment of cash dividend. 6. Payment of taxes and various other expenses. 7. Payment of other liabilities which are hidden but their payment plays crucial role in production cycle and also in working capital cycle. 8. Provide more R&D options and wider scope as resources are more available in terms of money for company. 9. To reduce ones liabilities by paying them from making working capital profit. 10. To keep control on providing credit to its debtor or customer. 11. To keep control on operational expenses and to know the requirement of capital for inventory.
ESTIMATION FOR NEEDS OF WORKING CAPITAL The most appropriate method of calculated the working capital needs of a firm is the concept of operating cycle. However, a number of other methods may be used to determine working capital needs in practice. We shall illustrate here all these approaches which have been successfully applied in practice. Current assets holding period: to determine working capital requirements on the basis of average holding period of current assets and related them to costs based on the companys experience in the previous years. This method is essentially based on the operating cycle concept.
Ratio or Percentage of sales: It is a traditional and simple method of determining the level of working capital and its components. In this method working capital is determined on the basis of past experience. If over the years the relationship may be taken as a base for determining the working capital for future. Ratio of fixed investment: To estimate working capital requirements as a percentage of fixed investment. Regression analysis method: It is useful statistical technique applied for forecasting working capital relationship between sales and working capital and its various components in the past years. The method of least squares is used in this regard. Operating Cycle Method: Working Capital Operating Cycle:
The WC Cycle starts with the purchase of raw materials and ends with the realization of cash from the sale of finished products. It plays an important part in determining WC requirements: longer the period of this cycle, larger is the requirement of WC. Various phase involved in WC operating cycle are as follows: 1) Acquisition of resources: It companies of Purchase of raw materials: Payment of raw material to raw-material suppliers after the credit period allowed by them. 2) Manufacture of the product: Conversion of raw material to work in progress. Conversion of work in progress to finished goods. 3) 4) Sale of Finished goods. Realization of cash from debtors after the credit period allowed to them.
Operating Cycle
Cash
Receivables + Cost
Raw Material + Cost
Finished Goods + Cost
Stock in Process + Cost
1)
Accounts Payable period: This is the period from the day of acquisition of raw material to the payment of raw materials. In other it is the credit period allowed to the organization by raw material suppliers.
2)
Cash Cycle: The period from the day of payment for raw material purchased till the realization of cash against sales. Cash Cycle = WC Operating Cycle Accounts Payable Period
3)
Inventory Period: The period is beginning from the day of receipt of raw materials in the factory till the day of dispatch of finished goods.
4)
Accounts Receivable Period: The period beginning from day of dispatch of finished goods to the buyer and ending on the day of realization of cash against sales.
5)
Operating Cycle: The time that elapses between the purchase of raw materials and the collection of cash for sales is referred to as operating cycle. Operating Cycle = Inventory Period + Accounts Receivable Period.
OPERATING CYCLE CONCEPTS There are two concepts of operating cycle. 1) 2) Gross operating cycle period Net operating period.
GROSS OPERATING CYCLE PERIOD: The successive segments of the operating cycle are: 1) 2) 3) 4) Raw material storage period. Conversion period. Finished goods storage period. Average Collection period. The total duration of the entire segment mentioned above is known as gross operating period.
CASE-I In case the company sells its products for cash then the segment of average collection period will disappear from the gross operating cycle period and to that extent the total duration of the cycle gets reduced.
CASE-II In case advance payments are to be made for procuring materials, the operating cycle period increases.
NET OPERATING CYCLE PERIOD: When the average payment period of the company to its suppliers is deducted from the gross operating cycle period the resultant period is called net operating cycle period or simply operating cycle. It becomes obvious that the shorter the duration of operating cycle period, the faster will be the transformation of current assets into cash. The operating cycle approach is quite useful in: Managing Controlling and Forecasting working capital. ESTIMATION OF WORKING CAPITAL REQUIREMENT AT RSWM LTD. BANSWARA UNIT
Working capital requirement estimation is dealt with proper care and cautions. Working capital requirement fixation is done with respect RSWM various units like Banswara unit, Bhilwara unit, etc. Some important aspects of working capital like sales and debtors are considered here as these matters are to be taken care of by RSWM BANSWARA office itself. BANSWARA UNIT sends its working capital estimation to RSWMs office situated in Kharigram (Bhilwara) on quarterly basis. Then RSWMs office collects working capital estimations of its every unit and merges them and then provides funds to individual units. The main aspect of working capital in BANSWARA UNIT is its raw materials used in production of Grey Yarn like Synthetic Yarn and Cotton Yarn, etc. While estimating its working capital needs, the main aspect to be focused on is the funds blocked in raw materials. Working capital blocked in raw materials is estimated on the basis of the production budget for the year. From production budget it comes to know what quantity of raw materials will be needed to meet production targets. Then the lead time for every
raw material is decided. Thus the unit comes to know for how many days they will have to hold inventory of raw materials. The minimum quantity needed is then multiplied to its rates and thus the unit arrives at its working capital requirement for its production. Then the firm deducts the funds of creditors for raw materials.
The other current assets and current liabilities are taken from its monthly balance sheet and are shown with 10% variation for next quarters estimations. Hence it can be said that RSWM uses percentage or ratio of Sales method generally for estimation of working capital for its various units.
EVENTS OF OPERATING CYCLE The operating cycle (working capital cycle) consists of the following event, which continues throughout the life of business. 1) 2) 3) 4) 5) 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 stocks into accounts receivables through sale and Conversion of accounts receivables into cash.
The duration of the operating cycle for the purpose of estimating working capital is equal to the sum of the duration of each of above said events, less the credit period allowed by the suppliers. In the form of an equation, the operating cycle process can be expressed as follows: Operating cycle = R + W + F + D C Where, R W F D C = = = = = Raw material and stores storage period. Work-in-Progress period. Finished goods storage period. Debtors collection period Credit payment period.
The various components of operating cycle may be calculated as: Raw Material = Average stock of raw material Average cost of production per day Work-in Progress holding period = Average W-I-P inventory Average cost of production per day
Finished goods storage period
Average stock of finished goods Average cost of goods sold per day
Debtors collection period
Average book debts Average sales per day
Credit payment period
Average trade creditors Average purchase per day
ISSUES IN WORKING CAPITAL Working Capital refers to the administration of all components of working capitalcash, marketable securities, debtors (receivable) and stock (inventories) and creditors (payables). The financial manager must determine levels and composition of current assets. He must that right sources are trapped to finance current assets, and that current liabilities are paid in time. There are many aspects of working capital management, which make it an important function of the financial manager.
Time: - working capital management requires much of the financial manager time.
Investment: - working capital represents a large portion of the total investment in assets.
Critically: - working capital management has great significance for all firms but it is very critical for small firms.
Growth: - the need for working capital is directly related to the firms growth.
FACTORS INFLUENCING WORKING CAPITAL There is not set of rules or formula to determine the working capital requirement of the firms. Therefore, an analysis of relevant factor should be made in order to determine total investment in working capital. The main factors are:
1. Nature of Enterprise The nature and the working capital requirements of an enterprise are interlinked. While a manufacturing industry has a long cycle of operation of the working capital, the same would be short in an enterprise involved in providing services. The amount required also varies as per the nature; an enterprise involved in production would require more working capital than a service sector enterprise. RSWM is a manufacturing organization, because of which it requires lot of funds to be blocked in raw materials for the production of Yarn. The cycle of operations at RSWM is quite long and thus it needs large amount of working capital. 48% of total funds are invested in raw materials. 2. Manufacturing/Production Policy Each enterprise in the manufacturing sector has its own production policy, some follow the policy of uniform production even if the demand varies from time to time, and others may follow the principle of 'demand-based production' in which production is based on the demand during that particular phase of time. Accordingly, the working capital requirements vary for both of them. RSWM follows continuous production policy. The plants are operated 24 hours in different shifts. Demand factor is not considered here as Yarn is sold by its marketing department. As the production continues for 24 hours, the investment in raw material inventories is very high as interruption in production causes increase in cost of production because of high set up cost of plants even need of raw material for power plant is always in demand for the same.
3. Operations The requirement of working capital fluctuates for seasonal business. The working capital needs of such businesses may increase considerably during the busy season and decrease during the slack season. Ice creams and cold drinks have a great demand during summers, while in winters the sales are negligible.
As RSWM has policy of continuous production, it does not have to consider seasonal factors for its working capital requirements. Its working capital does not vary with seasons. 4. Market Condition If there is high competition in the chosen product category, then one shall need to offer sops like credit, immediate delivery of goods etc. for which the working capital requirement will be high. Otherwise, if there is no competition or less competition in the market then the working capital requirements will be low. RSWM have to depend on market conditions as Polyester, Viscose and Cotton are always considered essential for textile and for various manufacturing unit. So there is not much competition in this industry for example: - Grasim Ind. has the monopoly for Viscose in the whole industry and Reliance has the monopoly for Polyester. 5. Availability of Raw Material If raw material is readily available then one need not maintain a large stock of the same, thereby reducing the working capital investment in raw material stock. On the other hand, if raw material is not readily available then a large inventory/stock needs to be maintained, thereby calling for substantial investment in the same raw materials are very important aspect for arriving at working capital requirements at RSWM because of two reasons mainly. First RSWM follows continues production policy so the raw materials are used in very large quantum and second the raw materials like Cotton, Polyester (Reliance), Viscose (Grasim) for manufacturing of Yarn. These raw materials are available in the lead time of maximum 4 days in each case thereby large inventory stock is not needed to maintain but the market prices are very much fluctuating therefore when the prices are favorable then raw material is purchased in adequate quantity.
6. Growth and Expansion

Growth and expansion in the volume of business results is enhancement of working capital requirement. As business grows and expands, it needs a larger amount of working capital. Normally, the need for increased working capital funds precedes growth in business activities. RSWM has grown incredibly since its inception. Because of high growth it needs large amount of working capital as the operations are handled at very large scale. RSWM has expanded its operations through investing in many other important projects which compel them to invest immensely in working capital. 7. Price Level Changes Generally, rising price level requires a higher investment in the working capital. With increasing prices, the same level of current assets needs enhanced investment. The price level changes in raw materials hit very hard to RSWM as the major investments are being done in raw materials. Most of the materials are imported for outside India which involves risk of exchange rate fluctuations thus it needs high amount of working capital. 8. Manufacturing Cycle The manufacturing cycle starts with the purchase of raw material and is completed with the production of finished goods. If the manufacturing cycle involves a longer period, the need for working capital would be more. At times, business needs to estimate the requirement of working capital. Manufacturing cycle affects a lot on working capital requirements at RSWM as the cycle takes lot of time to convert raw material into finished goods. It takes around 7 to 8 days to complete one process of converting raw material into final product. Therefore it is very necessary for RSWM to invest sufficient amount in working capital. At times, business needs to estimate the requirement of working capital in advance for proper control and management. The factors discussed above influence the quantum of working capital in the business. The assessment of working capital requirement is made keeping these factors in view. Each constituent of working capital retains its form for a certain period and that holding period is determined by the factors discussed above.
9. Technology: In Yarn Division, the technology used for production process is labor intensive in the manufacturing of yarn which also involves heavy machinery due to which requirement if working capital is high. 10. Credit Policy: The credit policy of the firm affects working capital by influencing the level of the book debts. The RSWM division allows different credit periods to its customers depending on the type of yarn and from which depo it is purchased i.e. for SYNTHETIC YARN it is as follows:- a) Bhilwara- 7 days b) Ludhiana- 15 days c) except Bhilwara and Ludhiana- 10 days and for COTTON YARN it is 20 days. If the payment is not made, the high rate of interest is charged i.e. around 18 %. But for special customer they provide credit of around 3 months too. The company for the improvement of working capital ratio also allows the cash discount of 1% if the payment is received in advance or the cheque is deposited in bank on the next day of dispatch. 11. Banking Facility: The RSWM Division mainly uses the banking facility of RTGS i.e. Real Time Gross Settlement for the payment of suppliers. RSWM Ltd. has major account and deals its transaction with State Bank of Bikaner and Jaipur and Punjab National Bank. 12. Business Fluctuation: The Operating Efficiency of the firm relates to the optimum utilization of resources at minimum costs. Better utilization of resources improves profitability and thus helps in releasing the pressure on working capital.
ASSESMENT FOR THE SOURCES AND APPLICATION FOR WORKING CAPITAL The assessment of the working capital in the RSWMs unit is done by the CFD with the consultation with the management staff of the Co. and on the basis of the Co.s previous year experience. This helps to maintain efficiently fund for operation of the organization. There are main four components which plays vital role for it which are as follows: INVENTORY
RECIEVABLE, (UGAI), (DEBTORS)
CASH MANAGEMENT PAYABLES, (VENDORS), (CREDITORS) INVENTORY Inventory includes all types of stocks. For effective working capital management, inventory needs to be managed effectively. The level of inventory should be such that the total cost of ordering and holding inventory is the least. Simultaneously, stock out costs should also be minimized. Business, therefore, should fix the minimum safety stock level, re-order level and ordering quantity so that the inventory cost is reduced and its management becomes efficient. Following are the types of inventory, which the company generally holds. 1 Raw Material:PIONEER INSTITUTE OF MANAGEMENT 43
A raw material is the goods, which are required to produce the product of the firm. Raw materials are the basic input of the production which is converted into finished goods after manufacturing process. 2 Goods in Production Process:These are the goods or inventories, which are under the production process, in other words we can say goods in process or semi finished goods. They represent the products that need more work before they become finished goods for sale.
3 Finished Goods:Finished goods inventory are those which are completely manufactured and ready for sale. Stock of raw material or work in progress facilitates production, while stock of finished goods is required for smooth marketing operations. 4 Stock Of Stores Materials :Stock of store materials includes spare and tools. Spares means the parts of the machinery and tools are equipment, which are provided to the employees to the firm. These materials do not directly enter into production but they are essential for production process.
NEEDS FOR HOLDING INVENTORY:Mainly there are two motives of holding inventories. 1. Transaction motive :A transaction motive emphasizes the need to maintain inventories to facilitate smooth production operation 2. Precautionary motive:-
Precautionary motive necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supplies forces and other factors.
TECHNIQUES OF INVENTORY MANAGEMENT:-
1.
ABC ANALYSIS: - In ABC analysis, the entire goods in stores are divided into three categories A, B, and C. it is the most effective way of the inventory management. Most of the firms are adopting this technique. That is why ABC is also known as ALWAYS BETTER CONTROL. How the goods are divided into three categories is mentioned below: A category goods: - A category goods are high value goods, which incurred maximum cost of the total inventory cost. B category goods:- B category goods are those, which costs between Rs.10,000/- to Rs.50,000/C category goods:- C category goods involves goods which costs below Rs.10,000/-
1.
FSN ANALYSIS: - In FSN technique all goods are categorizes into three categories. Fast moving goods, slow moving goods and non moving goods. The rules of the FSN analysis may vary according to companys norms. The norms of FSN analysis at RSWM are mentioned below. Fast Moving Goods: Fast moving goods are those, which are used within three months. Slow Moving Goods: Slow moving goods are those, which are used between three to six months. Non Moving Goods: Non moving goods are those, which are used since in above six months
FUND FLOW STATEMENT Meaning of Fund Funds may means of changes in financial resources, arising from changes in working capital items and from financing and investing activities of the enterprise, which may only involve non - current items. Fund Flow Statement The statement of changes in financial position, prepared to determine only the sources and uses of working capital between dates of two balance sheets, is known as the funds flow statement. As historical analysis, the statement of changes in working capital reveals to management the way in which working capital was obtained. With this insight, management can prepare the estimates of the working capital flows. A statement
reporting the changes in working capital is useful in addition to the financial statements. A projected statement of changes in working capital is immensely useful in the firms long-range planning. The working capital flow of fund arises when the net effect of a transaction is to increase or decrease the amount of working capital. The concept of working capital flow may be summarized as follows: The net working capital increases or decreases when a transaction involves a current account and a non-current account. The net working capital remains unaffected when a transaction involves only current accounts. The net working capital remains unaffected when a transaction involves only non-current accounts.
Statement of Changes in Financial Position from 31/3/2011 to 31/3/2012 (Rs. In Lakhs) Liabilities Share capital Share Warrants Reserves and Surplus Differed Tax Liabilities Secured Loans Unsecured Loans Inter Unit Balance Current liabilities and Provisions 2010-11 0 0 6628.66 0 2011-12 0 0 9842.95 0 difference Source/Application 0 0 3214.29 0 -2427.85 58.62 -6645.91 1183.84 Source Source Source Application Source Source Application Source
11914.29 9486.44 112.81 2210.57 1671.34 171.43 -4435.34 2855.18
Working Capital Loans From Banks 3493.95 Assets : Fixed assets ( Net Block) Capital WIP Other Current Assets Inventories Debtors Cash and Bank Loans and Advances Export Incentive Receivable Interest Accrued on Investments 2009-10 11172.3 7.22 688.76 6114.14 2863.65 18.33 310.4 435.68 0
6515.24 2010-11
3021.29
Source
difference Source/Application Application Application Application Application Application Source Application Application Source
11422.53 250.23 1281.74 553.51 1274.52 -135.25
12972.27 6858.13 5383.98 15.67 729.18 947.7 0 2520.33 -2.66 418.78 512.02 0
FUND FLOW STATEMENT ON WORKING CAPITAL BASIS (All Figures in Rs. Crores) Sources Share capital Reserves and Surplus Secured loans Amount 0 3214.29 -2427.85 Application Fixed assets Inventories Capital WIP Amount 250.23 6858.13 1274.52
Unsecured Loans Current liabilities provisions
58.62 & 1183.84 3021.29
Debtors Loans and Advance
2520.33 418.78 512.02
Working Capital Loans From Banks Cash and Bank Other Current Assets Total 2.66 135.25 5188.1
Export Incentive Receivable Inter Unit Balance -6645.91
Total
5188.1
Unsecured Loans, 58.62, 1% Secured loans, 2427.85, -25%
Current liabilities & provisions, 1183.84, 12%
WorkingCapital LoansFrom Banks, 3021.29, 30%
Reservesand Surplus, 3214.29, 32%
Share capital, 0, 0%
S OURCESOFF UND S
Export Incentive Receivable, 512.02, 3% Loansand Advance, 418.78, 2% Debtors, 2520.33, 14% Capital WIP, 1274.52, 7%
Inter Unit Balance, 6645.91, -36%
Fixed assets, 250.23, 1%
Inventories, 6858.13, 37%
APPL TIONOFF ICA UND S
DATA ANALYSIS OF WORKING CAPITAL STATEMENTS The working capital statement for the last six financial years and the comparison between two successive years are given in details as under. Along with the comparison the reasons for the changes in working capital is also given here under. Working Capital Statement comparison for the year 2007-08 and 2008-09 (All the Figures in Lakhs) 31/03/2009 Increase Decrease
Particulars Current Assets, Advances: Inventories Sundry Debtors Cash & Bank Balance Loan & Advances Other Current Assets Export Incentive Receivables Inter Unit Balances TOTAL (A) Less:- Current Provisions: Sundry Creditors Liabilities & Loan &
31/03/2008
4868.82 2279.98 14.04 385.05 935.56 1033.7 162 9679.15
4487.42 2788.93 17.25 196.1 995.72 988.47 4103.94 13577.83 3941.94 4514.26 60.16 508.95 3.21
381.4
188.95
45.23
615.58
121.03
51.53 1.68 64.89 134.13 728.94 4506.13 76.22
69.5 1.32 3.66 112.65 4.46 1025.15 76.22
Interest accrued but not due on 0.36 Loans Security Deposits Advances from customer Other Liabilities Working Capital Loans From Banks Provisions 68.55 246.78 733.4 3480.98 0
TOTAL(B) Working Capital (A - B) Increase in Working Capital Total
4651.1 5028.05
5563.52 8014.31
190.27 4704.53
1102.69 1718.27 2986.26
4704.53
4704.53
ANALYSIS & INTERPRETATION From the working capital statement comparison for the year ended on 31st March, 2008 and 31st March, 2009 given above some of the facts revealed are as under.
The current assets increase in the latter year by Rs. 3898.68 Lacs. The current liabilities increase in the latter year by Rs. 912.42 Lacs.
The reasons behind the increase in current assets are as follows:
Decrease in inventory by Rs. 381.40 Lacs is may be due to more risk taking capacity of the firm in terms of investing in raw materials.
Increase in debtors due to sluggishness in demand of the product at all levels of the system such as decrease in demand of cotton lead to decrease in demand of yarn at the manufacturing level leads to increase in debtors to avoid more storage of goods in the store by the amount Rs. 508.95 Lacs.
Increase in Inter unit Balances i.e. RSWMs Banswara Unit receive funds from the Head Office for the annual working requirement in the unit which has proved as the source of working capital for the company and has affected the companys working capital by Rs. 3941.94 Lacs.
\The reasons for increase in current liabilities are as follows:
Decrease in creditors is due to premature payment done by organization to increase their business liquidity and to sustain in the recession era which a good manager of an organization do in order to make their suppliers sustain in the market so as they can also sustain and grow the RSWMs diversified business portfolio by Rs. 69.5 Lacs.
RSWM also accepted more amounts of money as working capital loans from banks as a short term loans for its various units. Such loans are always useful for any business as the generate sources of fund at very less expense. Hence the generation was of Rs. 1025.15 Lacs more in latter year.
Due to all above affect the net working capital increased by Rs. 2986.26 Lacs.
Working Capital Statement comparison for the year 2008-09 and 2009-10 (All the figures are in Rs. Lakhs) Particulars Current Assets, Loan & Advance: Inventories Sundry Debtors Cash & Bank Balance Loan & Advances Other Current Assets 4487.42 2788.93 17.25 196.1 995.72 3159.16 2324.07 7.08 1271.3 678.02 1075.2 317.7 1328.26 464.86 10.17 31/03/2009 31/03/2010 Increase Decrease
Export Incentive Receivables Inter Unit Balances TOTAL (A) Less:- Current Provisions: Sundry Creditors Liabilities &
988.47 4103.94 13577.83
465.72 489.12 8394.47 1075.2
522.75 3614.82 6258.56
51.53
147.30 0.47 87.39 134.20 794.97 2811.01 103.59 4078.93 4315.54 1696.33 2771.53 1695.12 1.21
95.77
Interest accrued but not due on 1.68 Loans Security Deposits Advances from customer Other Liabilities Working Capital Loans From Banks Provisions TOTAL(B) Working Capital (A - B) Decrease in Working Capital Total 64.89 134.13 728.94 4506.13 76.22 5563.52 8014.31
22.5 0.07 66.03
27.37 211.74 6470.3 3698.77 2771.53 2771.53
ANALYSIS & INTERPRETATION From the working capital statement comparison for the year ended on 31st March, 2009 and 31st March, 2010 given above some of the facts revealed are as under:
The current assets decrease in the latter year by Rs. 5183. 36 Lacs. The current liabilities decrease in the latter year by Rs. 1484.59 Lacs. PIONEER INSTITUTE OF MANAGEMENT 54
The reasons behind the decrease in current assets are as follows:
Decrease in debtors is due to global recessionary trend in the market which has affected all the units and business of RSWM. Being a diversified business portfolio company tried to maintain its customer and market share but due to the pressure on immediate customers export sales faced a steep downfall and hence it brought decrease in debtors amount by Rs. 464.86 Lacs.
Decrease in inventory due to less demand of products in various field has caused the reduction of Rs. 1328.26 Lacs from previous year and it worked as a source for working capital.
Increase in loans & advances due to need seen by RSWMs various units for making advance payments for taxes and creditors as market was as demanding from previous year. Hence the amount made used by them was Rs. 1075.20 Lacs and also decreased their source of working capital in huge amount.
Heavy decline in Inter Unit Balance i.e. funds received from head office by Rs. 3614.82 Lacs resulted in application of working capital which resulted in decrease in current assets.
The reasons behind the decrease in current liabilities are as follows:
Increase in creditors due to recessionary trend in the market thus the market being not so demanding creditors have also provided more credit days for various items in order to retain the same and which caused the addition of Rs. 95.77 Lacs and it also increased the sources of working capital for various units of RSWM.
RSWM has taken working capital loans from banks. Such funds work as sources for working capital and they are one kind of short term loans. But this year such loan decreased by Rs. 1695.12 Lacs as they were paid off and in spite of being source they became as more application of fund for working capital
Due to above all affect net working capital decreased by Rs. 3698.77 Lacs.
Working Capital Statement comparison for the year 2009-10 to 2010-11 (All the figures are in Lakhs) Particulars Current Assets, Advance: Inventories Sundry Debtors Cash & Bank Balance Loan & Advances Other Current Assets Export Incentive Receivables Inter Unit Balances 31/03/2010 31/03/2011 Increase Loan & 3159.16 2324.07 7.08 1271.26 678.07 465.72 489.12 6114.14 2863.65 18.33 310.4 688.76 435.68 2210.57 12641.53 1721.45 5237.95 990.9 10.69 30.04 2954.98 539.58 11.25 960.86 Decrease
TOTAL (A) 8394.48 Less:- Current Liabilities & Provisions: Sundry Creditors 147.3 Interest accrued but not due on Loans 0.47 Security Deposits Advances from customer Other Liabilities 87.39 134.2 794.97
297.20 0.44 109.75 331.40 858.42 0.03
149.9
22.36 197.2 63.45
Working Capital Loans From Banks 2811.01 Provisions TOTAL(B) Working Capital (A - B) Increase in Working Capital Total 103.59 4078.93 4315.55
3493.95 74.13 5165.29 7476.24 29.46 29.49 5267.44
682.94
1115.85 2106.75 3160.69
5267.44
5267.44
ANALYSIS & INTERPRETATION From the working capital statement comparison for the year ended 31st March, 2010 and 31st March, 2011 given above some of the facts revealed are as under
The reasons behind the increase in current assets are as follows:
As the market was getting over from the recession era especially in the second half of 2010 the purchase of raw material increased to a huge amount to meet the increasing demand especially in the export market as the pressure was called-off from the immediate customers. Thus the investment in inventory was increased by Rs. 2954.58 Lacs.
Due to competition in the market RSWM have given more credit to its debtors around Rs. 539.58 Lacs for various products like Cotton Yarn, Synthetic Yarn etc. Decrease in loans & advances due to no need seen by RSWMs various units for making advance payments for taxes and creditors as market was not as demanding from previous year. Hence the amount made free by them was Rs.
960.86 Lacs and also increased their source of working capital in huge amount.
Increase in Inter unit Balances i.e. RSWMs Banswara Unit receive funds from the Head Office for the annual working requirement in the unit which has proved as the source of working capital for the company and has affected the companys working capital by Rs. 1721.45 Lacs.
The reasons behind increase in current liabilities are as follows:
Due to the upward trend in market the production has been increased as there was rebound in consumption, increase in exports, increase in finished goods realization, etc. the creditors are substantially increased by Rs. 149.9 Lacs.
RSWMs various units had accepted money in form of Advances from customer from various customers, creditors and outsiders and Working Capital Loans form Banks. Due to this effect the rise of Rs. 197.20 Lacs and Rs. 682.94 Lacs respectively in current liabilities has occurred and it worked as source of working capital for RSWMs various units. It is also one kind of short term loan taken from market.
Due to above all affect net working capital increased by Rs. 3160.69 Lacs.
Working Capital Statement comparison for the year 2010-11 and 2011-12 (All Figures are in Rs. Lakhs) Particulars Current Assets, Loan & Advance: Inventories Sundry Debtors 6114.14 2863.65 12972.27 5383.98 6858.13 2520.33 31/03/2011 31/03/2012 Increase Decrease
Cash & Bank Balance Loan & Advances Other Current Assets Export Incentive Receivables Inter Unit Balances TOTAL (A) Less:Current Provisions: Sundry Creditors Liabilities &
18.33 310.4 688.76 435.68 2210.57 12641.53
15.67 729.18 553.51 947.7 -4435.34 16166.97 512.02 418.78
2.66
135.25
6645.91 10309.26 6783.82
297.2
854.03 1.10 225.05 326.24 1314.18 6515.24 134.58 9370.42 6796.55 5.16 5.16
556.83 0.66 115.3
Interest accrued but not due on 0.44 Loans Security Deposits Advances from customer Other Liabilities Working Capital Loans From Banks Provisions TOTAL(B) Working Capital (A - B) Decrease in Working Capital Total 109.75 331.4 858.42 3493.95 74.13 5165.29 7476.24
455.76 3021.29 60.45 4210.29
10314.42 10994.11 679.69 10314.42 10314.42
ANALYSIS & INTERPRETATION

From the working capital statement comparison for the year ended on 31st March, 2011 and 31st March, 2012 given above some of the facts revealed are as under:
The reasons behind the decrease in current assets are given as:
Increase in debtors due to competition for RSWMs various units and financial crises was over so more customers lead to increased demand in market which resulted in increase debts in less credit period. Due it the increase in amount is of Rs. 2520.33 Lacs.
Increase in inventories is due to low prices of raw material in market and increased market demand leads to heavy production of final goods resulted in heavy investment in inventories of around Rs. 6858.13 Lacs which was a high application of funds requiring high working capital.
Increase in loans and advance given in order to take benefit of various tax policies and made payments for various licenses renewal and also for acquiring new ones which made effect of Rs. 418.78 Lacs for RSWMs Banswara unit. It has worked as more of application in working capital.
Decrease in cash balance was for the above reasons and also due to less credit available for company in market for its credit due economy meltdown and bad position of market along with it various units modernization for better performances. Hence due to this effect cash balance reduced by Rs. 2.66 Lacs in latter year and it worked as application of fund in working capital.
Due to high application of funds in inventories, debtors, etc. funds from head office was not sufficient for meeting the requirements and therefore more funds was required which was not available so the Inter Unit Balance was got heavily decreased by Rs. 6645.91 Lacs. PIONEER INSTITUTE OF MANAGEMENT
60
The reasons for the increase in current liabilities are given as:
Increase in creditors because of sustaining their customers in this low demand market. This has caused more days of credit and increased the amount by Rs.556.83 Lacs for
RSWMs Banswara unit. Such effect has worked as useful source of working capital for the company.
Due to addition in production and keeping the market scenario in mind, RSWM has increased its other liabilities by Rs. 455.76 Lacs. Hence it caused an effect of source of working capital.
RSWM also accepted more amounts of money as working capital loans from banks as a short term loans for its various units. Such loans are always useful for any business as the generate sources of fund at very less expense. Hence the generation was of Rs. 3021.29 Lacs more in latter year to meet its daily requirements of working capital.
Seeing demand and production the provisions for taxed has also decreased by Rs. 60.45 Lacs.
Due to all the above affect the net working capital decreased by Rs. 679.69 Lacs.
RATIO ANALYSIS AND INTERPRETATION Ratio analysis helps in finding out the companys position in the industry in which it is working. It also helps in identifying the strengths and weakness of the organization when compared with other organization of the same industry. So, for the financial analysts keeping record of the ratio and tracking them lighten their way of taking decision. The Various ratios and there analysis for the RSWM LTD. (RSWM LTD.) for the financial years 2007-08, 2008-09, 2009-10, 2010-11, 201112 i.e. for 5 years are calculated and compared here under. Here the purpose of finding and analyzing ratio is to compare the activities of company during different financial years and to know the efficiencies of finance department of the company and its management. It also gives the knowledge how this ratios are helpful for decision making and to know the strength and stability on a company not only for RSWM but for any company. Working capital Ratio helps in meeting or indicating the ability of a business concern in meeting its current obligation as well as its efficiency in managing the
current assets for generation of sales. They are divided into three categories which are as follows:

Liquidity Ratio: It consists of Current Ratio and Quick Ratio. Efficiency Ratio: It consists of Working Capital to Sales, Inventory Turnover Ratio, and Current Assets Turnover Ratio.
Structural Ratio: It consists of Current Assets to total net Assets, Composition of Current Assets, Debtor Turnover Ratio, Debtors Collection period, Creditors Payment Period.
Ratios like Return on Investment, Return on Equity, Cash Ratio also plays vital role in decision making and also indicates the strength of company financial wise and it also shows how efficient company is.
CURRENT RATIO The current ratio is a measure of the firms short-terms solvency. It indicates the availability of current assets in rupees for every one rupees of current liability. Current ratio is defined as a ratio of the current assets to the current liabilities. Mathematically it is given as. Current Ratio = Current Assets Current Liabilities Year Current Assets A Current B Liabilities
31/03/2008 9679.15 4651.1
31/03/2009 13577.83 5563.52
31/03/2010 8394.48 4078.93
31/03/2011 12641.53 5165.29
31/03/2012 16166.97 9370.42
2.08 Ratio (a/b)
2.44
2.06
2.45
1.73
ANALYSIS & INTERPRETATION: As mentioned above, it shows the relationship between C.A. & C.L. according to measure the ideal ratio is of 2:1 and min. required should be 1.33:1 for banks. Here we can see that ratio is fluctuating every year and gone down below 2:1 in the year 2009-10 and the max. was 2.45:1 in 2010-11 financial year, up till 2011-12 analyses for last five years. Currently the ratio is of 1.73:1 and which has reduced from previous year and has reached below min. level which is a matter of concern. Hence RSWM Ltd. has to keep close watch on their current ratio and will have to try to maintain their efficiency in working capital management as well as of company among its shareholders.
QUICK RATIO Quick ratio establishes the relationship between quick assets and current liabilities. Generally it is used as a measure of companys ability to meet its current obligation. Mathematically it is given by Quick Ratio = Years Current Assets Inventories Current Liabilities 31/03/2008 31/03/200 9 9023.99 5563.52 1.62 31/03/201 0 5219.73 4078.93 1.28 31/03/201 1 6519.41 5165.29 1.26 31/03/201 2 3183.79 9370.42 64 0.34
A B
Quick Assets 4809.61 PIONEER INSTITUTE OF MANAGEMENT Current Liabilities Ratio (a/b) 4651.1 1.03
ANALYSIS & INTERPRETATION: It can be seen that quick ratio is also fluctuating with year changing. The ideal ratio is considered of 1:1. RSWM was inefficient in the year 2011-12 and doesnt have sufficient fund to meet its current liability in this year. The highest ratio of 1.62:1 in 2008-09 financial year in last five years. Currently the ratio is of 0.34:1 which is a matter of concern and in order to maintain it to above ideal ratio inventory should be decreased or increased in a appropriate ratio.
DEBT TO EQUITY RATIO It is the ratio which indicates the relationship between loan funds and net worth or share holder funds of the company, which is known as gearing. This ratio helps in controlling debt, which is a part of working capital management. This ratio also helps the stockholder in taking the decision of investment. Mathematically it is given as Debt to Equity Ratio = Loan Funds Share holder fund Year 31/03/2008 31/03/2009 31/03/2010 31/03/2011 31/03/2012 15587.43 15521.05 16173.11
65
A Total Debt 14342.34 17736.35 PIONEER INSTITUTE OF MANAGEMENT
Shareholder's B Equity Ratio (a/b) 5059.53 2.83 5576.26 3.18 3926.02 3.97 3231.25 4.80 2179.64 7.42
ANALYSIS & INTERPRETATION: By seeing the above facts and figure it can be said that by time spend the ratio have jumped from 2.83 to 7.42 and it has shifted company from low gearing to high gearing and it can reap the benefit of trading on equity. RSWMs long-term solvency is more satisfactory. All the ratio of the respective year was very much high in comparison to the accepted norm of 2:1 which shows company high dependency on debt which is not good and to be taken care of in the coming years.
LONG-TERM DEBT TO EQUITY RATIO It is ratio of long-term debt to the net worth. This ratio would be of more interest to the contributories of long-term finance to the firm, as the ratio gives a factual idea of the assets available to meet long-term liabilities. It gives the idea about long term debt like long-term loans, debenture, bonds etc. Mathematically it is given by Long-term debt to Equity = Long-term Debt Net Worth Year 31/03/2008 31/03/2009 31/03/2010 31/03/2011 31/03/2012
Long
Term 11186.22 5576.26 2.01 11214.50 3926.02 2.86 10434.02 3231.25 3.23 9657.87 2179.64 4.43
A Debt 10861.36 Shareholder's B Equity Ratio (a/b) 5059.53 2.15
ANALYSIS & INTERPRETATION: This ratio also has same trend as debt to equity ratio had. In earlier years the ratio was low and latter on it increased sharply. Hence by seeing the above figures it can be said the RSWM is sound and secured along with better position in terms of financial conditions. Though graph is showing fluctuation in ratios every year as the current position is of 4.43 and it has increased from last year of 3.23.
TOTAL ASSETS TURNOVER RATIO It shows the part of the total asset turnover ratio in single financial year. It focuses on the effectiveness and efficiency of management in taking decision and using available resources. Mathematically it is given by Total Asset Turnover Ratio = Net Sales Total Assets
Year A
31/03/2008 31/03/2009 31/03/2010 31/03/2011 31/03/2012 40427.91 35393.08 39792.51 55755.48
Net Sales 36303.09 Total Assets Ratio (a/b)
23114.76 1.57
22754.02 1.78
20096.44 1.76
21610.48 1.84
33306.58 1.67
ANALYSIS & INTERPRETATION: From the years 2008-09 to 2010-11 it was over trading of total assets in RSWM and finance department needs to control the same according to the ideal ratio but in the financial year it came to 1.67 from 1.84 in the previous year. This shows the caliber and efficiency of Finance department of the company and there concern for the needs working capital.
OPERATING EXPENSE RATIO Operating profit is after deducting operating expenses from the gross profit. The operating profit ratio is given by the between operating profit and net sales. It
means amount of operating profit for sales worth one rupee. It is calculated in average. Mathematically it is given as Operating Expense Ratio = 100%- Net Profit Ratio
Year 31/03/2008 31/03/2009 31/03/2010 31/03/2011 31/03/2012 Net Profit Ratio (in A %) Ratio 7.47 92.53 6.16 93.84 -0.55 100.55 8.54 91.46 13.74 86.26
ANALYSIS & INTERPRETATION: RSWM has highest operating expense in the year 2009-010 i.e. 100.55% due to increase in price of fuel, raw materials, and transportation for various materials and also low market demand. But the fianc department has showed the efficiency in controlling the expenses of the unit and dropping down the ratio to 86.26% in the year 2011-12 which is at its lowest in the last five years and except the year 200910 the ratio for other years was not more than 95% which is also good.
NET PROFIT RATIO PIONEER INSTITUTE OF MANAGEMENT

69
Similar to gross profit ratio, the net profit ratio will show the amount of net profit for the sales worth amount of 1 rupee. The net profit ratio shows the profitability of the organization. Mathematically it is given as Net Profit Ratio = Net Profit after Taxes Net Sales Year 31/03/20 08 A B Net Profit after taxes 2711.72 Net Sales Ratio (a/b*100) 31/03/20 09 2489.76 31/03/20 10 -195.80 31/03/20 11 3397.41 31/03/20 12 7663.31
36303.09 40427.91 35393.08 39792.51 55755.48 7.47 6.16 -0.55 8.54 13.74
ANALYSIS & INTERPRETATION: It can be analyzed from above chart that net profit had a decline trend till the year 2009-10 where it has been at its lowest point of -0.55% which was due to hike in the prices of fuel and raw materials and recession era in the global market. But the company then improved its performance and rose its profits up to 13.74% in the year 2011-12 which was due to high demand of RSWM products in market and efficient management of working capital requirements.
FIXED ASSETS TURNOVER RATIO It shows the relationship between the fixed assets and the net sales. It gives the amount of net sales in rupee of fixed assets. Mathematically it is given as Fixed Assets Turnover Ratio = Net Sales
Fixed Assets
Year A Net Sales Net Fixed B Assets Ratio (a/b)
31/03/2008 36303.09
31/03/2009 40427.91
31/03/2010 35393.08
31/03/2011 39792.51
31/03/2012 55755.48
13597.61 2.67
13280.13 3.04
12191.09 2.90
11179.52 3.56
12704.27 4.39
ANALYSIS & INTERPRETATION: It can be seen from the figures that management of RSWM has tried to improve every year for the better usage of fixed assets. It can be seen that the graph have shown upward sign only, no downfall have been recorded in last five years except a small deflection in the year 2009-10. Hence it shows the efficiency of finance department of RSWM. Currently the ratio is of 4.39:1 and in last five years graph is on up trend for Banswara Unit.
WORKING CAPITAL TURNOVER RATIO This ratio indicates the extent of working capital turned over in achieving sales of the firm. It also shows how efficiently firm or finance manager of a company is using capital or resources effectively for meeting the requirement of working capital. Working Capital Turnover Ratio = Net Sales Working Capital Year A Net Sales Net Working B Capital 5028.05 8014.31 5.04 4315.54 8.20 7476.24 5.32 6796.55 8.20 Ratio (a/b) 7.22 31/03/2008 31/03/2009 31/03/2010 31/03/2011 31/03/2012 36303.09 40427.91 35393.08 39792.51 55755.48
ANALYSIS & INTERPRETATION: From the above figures and graph it can be said that RSWMs various units finance managers and their departments have shown their efficiency and their work from time to time, though working capital turnover ratio graph has shown fluctuating figures from year to year. It shows how much concern of finance department has for working capital. They have managed things were effectively for every unit. RSWM has used working capital as per their needs and almost accurate estimation and never blocked the fund unnecessarily. They have never gone below 2:1 ratio up till date from last 5 years. Hence it shows their strength and stability for usage and allocation of funds for its diversified business portfolio.
DEBTORS COLLECTION PERIOD Debtors collection period indicates days required to collect amount of credit sales from debtors. This represents the number of days; the funds are blocked in debtors for a firm sells goods for cash and credit. Credit is used as a marketing tool by a number of companies. So a firm must manage its credit policy well. Debtors Collection Period = Debtors Sales Year Average A B Debtors Sales Ratio (a/b*365) 23 23 26 24 27 2326.41 36303.09 2534.46 40427.91 2556.50 35393.08 2593.86 39792.51 4123.82 55755.48 31/03/2008 31/03/2009 31/03/2010 31/03/2011 31/03/2012 * 365
ANALYSIS & INTERPRETATION: RSWMs has extended its collection period more in terms of days as per the need of market in recent trends. From above it can be seen that as the year passed days also increased and RSWMs needs of working capital also increased due to blocking money for around 27 days from 23 days previously, then to they have very low bad debts. Finance & Accounts department has worked very crucially on the extension of debtors collection period along with marketing department. Hence the application of funds for working capital is mainly done on this part along with
inventories. The average collection period or UGAI period is of 30 days given by RSWMs various units to its premium and major customers. (Note: - As the figure of credit sales was not available, it has been assumed here that all the sales are credit sales.)
CREDITORS DEFERRAL PERIOD Creditors deferral period indicates the duration for which the suppliers provide credit facility. This duration should be long enough so that company can convert the raw material into finished goods and sell it in the market. Because the main source of revenue for any organization is its sales. Purchase is equal to Raw Material Consumption + Closing Stock of Raw Material-Opening Stock of Raw Material. Hence the days are: Creditors Collection Period = Creditors Purchase Year Average A B Creditors Purchase Ratio (a/b*365) 92.68 22600.65 1 86.28 28482.94 1 99.42 21675.46 2 222.25 28680.39 3 575.62 44131.51 5 31/03/2008 31/03/2009 31/03/2010 31/03/2011 31/03/2012 * 365
ANALYSIS & INTERPRETATION: The average deferral period of creditors is 2.5 days which represents its strong liquidity position to pay its obligations within 10 days for various units of RSWM.
This ratio has gone down up till 3 days in 2009-10 year. In this year it is 5 days currently in 2011 - 12 which shows the creditability of RSWMs in market and its strong position financial wise. The fluctuation is due to changes in trends of market and creditors policy for giving credit and per agreement dead. Such credit from creditors works as a use full source of working capital for RSWM and it reduce burden for that year. It also reflects the reputation of RSWMs various units holds in market as creditors provide more service by lending more days of credit to make more healthy terms and relation with RSWMs units for having business. (Note: - As the figure of credit purchase was not available, it has been assumed here that total purchases are credit purchase.)
INVENTORY TURNOVER RATIO The Inventory Turnover ratio indicates the movement of average stock holding of each item of material in relation of its consumption during accounting period. Average stock is equal to opening stock + closing stock divided by 2 for that year. Calculated days are as follows: Inventory Turnover Ratio = Average Stock Cost of Material Year 31/03/2008 31/03/2009 31/03/2010 31/03/2011 31/03/2012 * 365
Cost Goods A Sold Average B Stock Ratio
of 33098.83 38425.10 35386.40 36851.28 49385.46
4489.56 50
2710.13 26
3640.49 38
3398.21 34
9055.08 67
(b/a*365)
ANALYSIS & INTERPRETATION: It can be said that RSWM on an average has inventory turnover within 75 days. RSWM has high intensive manufacturing units like synthetic yarn, cotton yarn, etc. which work 24 *7 for whole year. The raw material required for various products are fetched from domestic market which require min.5 days after giving order for procurement. They always try to minimize its days and always try to block its fund as less as it can be possible and to minimize the application of funds for working capital. They work accordingly so that they never get shortfall of materials and do not suffer loss by shutting down plants or various units due to such reasons.
OPERATIONG CYCLE ANALYSIS OF RSWM BANSWARA S. N o. 1
2008Particulars 2007-08 09 Raw Material & Stores Storage Period (R) Opening Balance of Raw 2984.56 3510.2 Material 4 Closing Balance of Raw 3510.24 2899.0 Material 0 Average Stock of Raw Material 3247.4 3204.6 (a) 2 Raw Material Consumed p.a. 20290.0 22281 6 Average Raw Material 55.59 61.04 Consumed/day (b) R= a/b (Days) 58 52
200910 2899.0 0 1798.0 1 2348.5 1 21796 59.72 39
201011 1798.0 1 4241.4 2 3019.7 2 24310. 8 66.60 45
201112 4241.4 2 9937.4 2 7089.4 2 34031. 3 93.24 76
S. N o. 2
2008Particulars 2007-08 09 Work in Progress Holding Period (W) Opening Balance of W I P 418.12 529.44
200910 655.82
201011 541.17
201112 660.62
Closing Balance of W I P Average W I P Inventory (a) Cost of Production Average Cost Production/day (b) W= a/b (Days)
529.44 473.78
655.82 592.63 29895. 2 81.90 7
541.17 598.49 5 29980 82.14 7
660.62 600.89 5 33194 90.94 7
27482.6 6 of 75.29 6
1020.3 3 840.47 5 44169. 3 121.01 7
S. N o. 3
2008Particulars 2007-08 09 Finished Goods Storage Period (F) Opening Balance of Finished 922.04 581.4 Goods Closing Balance of Finished 581.4 720.5 Goods Average Stock of Finished 751.72 650.95 Goods (a) Cost of Sales/ Goods 30383.9 34065. 2 93 Average Cost of Goods 83.24 93.33 Sales/day (b) F= a/b (Days) 9 7
200910 720.5 634.78 677.64 32847. 25 89.99 8
201011 634.78 659.76 647.27 35647. 47 97.66 7
201112 659.76 1526.7 1 1093.2 4 49046. 58 134.37 8
S. N o. 4
Particulars Debtors Collection Period (D) Opening Debtors 2372.83 Closing Debtors Average Debtors (a) 2279.98 2326.40 5
20082007-08 09 2279.9 8 2788.9 3 2534.4 6
200910 2788.9 3 2324.0 7 2556.5
201011 2324.0 7 2863.6 5 2593.8 6
201112 2863.6 5 5383.9 8 4123.8 2
Sales Average Sales/day (b) D= a/b (Days)
36303.0 9 99.46 23
40427. 91 110.76 23
35393. 08 96.97 26
39792. 51 109.02 24
55755. 48 152.75 27
S. N o. 5
Particulars Creditors Payment Period (C) Opening Creditors Closing Creditors Average Creditors (a) Total Purchases Average Credit /day (b) C= a/b (Days)
20082007-08 09 121.03 51.53 86.28 24972. 70 68.42 1
200910 51.53 147.3 99.42 21675. 46 59.38 2
201011 147.3 297.2 222.25 26882. 38 73.65 3
201112 297.2 854.03 575.62 44131. 51 120.91 5
64.32 121.03 92.68 22600.6 5 Purchases 61.92 1
Particulars Operating Cycle Analysis Raw Material & Stores Storage Period (R) Work in Progress Holding Period (W) Finished Goods Storage Period (F) Debtors Collection Period (D) Creditors Payment Period (C) Operating Cycle Period (R+W+F+D-C) in Days
20082007-08 09 58 6 9 23 1 99 52 7 7 23 1 91
200910 39 7 8 26 2 82
201011 45 7 7 24 3 85
201112 76 7 8 27 5 123
CALCULTION OF PERCENTAGE OR RATIO OF SALES METHOD FOR RSWM LTD, BANSWARA (All the Figures in Lakhs) % of Sales Based on 2011-12 100 % 23 % 10 % 1% 569.18 3% 1676.88 -8% 29 % -4435.34 16166.97 1760.72 -4657.11 16975.32 1844.57 -4878.87 17783.67 1928.41 -5100.64 18592.02 597.64 626.10 654.56 Actual Sales 2011-12 55755.48 12972.27 5383.98 Estimation at 5% Growth 58543.25 13620.88 5653.18 Estimati on at 10% Growth 61331.03 14269.50 5922.38 Estimati on at 15% Growth 64118.80 14918.11 6191.58
Particulars Sales Current Assets Inventories Sundry Debtors Cash & Bank Balance and Other Current Assets Loan & Advances and Export Incentive Receivable Inter Unit Balances Total CA (A) Current Liab & Provisions Liabilities Provisions Total CL (B) W/C (A-B)
4.8% 0.2% 5% 24 %
2720.60 134.58 2855.18 13311.79
2856.63 141.31 2997.94 13977.38
2992.66 148.04 3140.70
3128.69 154.77 3283.46
14642.97 15308.56
Hence when sales are of Rs. 64118.80 Lakhs the estimated requirement of working capital will increase by Rs. 1996.77 Lakhs in upcoming year for RSWM Ltd. Banswara
All the departments or various section of RSWM LTD. are inter linked with each other and the single entry passed at one place can be seen at various places and has its effect on whole account nor on that particular section. Suppose entry passed by Banswara depot or center will have effect on main units account as it is linked to it and not on Banswaras account only. ERP plays vital role in todays high tech world. It saves time and wastage of various stationary. Top management can view the data easily and at any point. It can be said that Single access to ERP enables information to be drilled down across the cost centers as well as viewed across the business segments. The single database permits information to be extracted for any cost centre or profit centre while enabling easy solution for management review and actions. It was a great pleasure and very value able learning asset which I got from this training was to work in ERP environment. I learnt and operated ERP and also made various report by taking help of it. This ERP system really has an edge on TALLY and it is really faster than TALLY. I also used TALLY and found the difference in both. ERP has more advanced features and operating options which deal with the day to day needs, it is friendly user and at a time multiple users can post entries and data in it from various or different locations and ERP clubs and generate the accurate and perfect data presentation required by operator. Learning of ERP in this training has added advantage for my initial stage of career as it will provide me
upper hand from other candidates for having experience and knowledge of working in ERP.
CONCLUSION From the above report, I can conclude that at present peoples and connected companies are 99% satisfied with RSWM Ltd. They are well known in market for their business like Grey Yarn, Cotton Yarn, Dyed Yarn, Graphite Electrodes, etc. Any change in working capital will have an effect on businesss cash flows. A positive change in working capital indicates that the business has paid out cash for e.g. in purchasing or converting inventory, paying creditors etc. Hence an increase in working capital will have a negative effect on the businesss cash holding. However a negative change in working capital indicates lower funds to pay off short term liabilities (current liabilities) which may have bad repercussions to the future of the company. Managing Working Capital is one of the pioneers and role-playing part of the company. RSWM Ltd. manages its working capital very efficiently for its business. Each & every component of working capital is dealt with expertise and experience of the finance & accounting department. The procedure is very simple for
estimating working capital requirement. Predetermined norms are applied wherever they are applicable. Mainly working capital management is the function of finance department but many other departments like production, purchase & marketing are involved in this procedure indirectly. Thus the effort from all the departments of various units helps company to manage its working capital in a systematic manner. Being the part and unit of LNJ GROUP also follows the main company norms and terms for calculation for accounting of its working capital. Hence this training helped me a lot to know the importance and function of working capital and its component. Here I was able to relate what I had read in the books and learnt in class rooms. It is essential for a person to know about the sources, application and needs of working capital for business in real life if one will going to specialize in the field of finance and going to work for a company or as entrepreneur. I also got a big opportunity to work in ERP environment. I also got value able tips and guidance about how to use ERP for increasing ones performance, accuracy and speed towards work.
SUGGESTIONS
Based on the study of the market and interacting with lots of customer. I found that customers are happy with the company. . FOLLOWING ARE THE SUGGESTIONS 1. Proper communication should be adopted to trade various sales promotion schemes. 2. The company should create a proper team for effective marketing.
3. The company should open more outlets in small cities. 4. They should be more flexible for sales person concern, to capture more market shares this is much required to cut commission for competitive market. 5. It should try to create more faith amongst customers. 6. The company should try to procure more working capital so as to meet its short term obligations, which could further improve its current and liquid ratio. 7. The company should try to use its short term funds more efficiently so as to generate optimum return. 8. The company should maintain reasonable inventory level which if not could result in inventory pile ups in case of excess level or shortage in case of low level.
BIBLIOGRAPHY Text References Financial Management Financial Management I.M. Pandey Ravi .M. Kishor
Management Accounting and Financial Board of Studies, The Institute of Analysis Charted Accountants of India
Journals:Annual Reports of RSWM Ltd. for the years: RSWM: 2007 08, 2008 09, 2009 10, 2010 11, 2011 12 Revised Marketing Policy
Web References:www.rswm.in www.scribd.in www.lnjbhilwara.com
ANNEXURE (All figures are in Rs. Lakhs) Particulars Inventories Finished Goods 922.04 581.4 720.5 634.78 659.76 1526.71 06-07 07-08 08-09 09-10 10-11 11-12
Stores & Spares Raw Materials Work in progress Waste / Scrap TOTAL Sundry Debtors Due for period not exceeding six months Others Total Cash & Bank Balances Cash in Hand With Scheduled banks in Savings Accounts With Scheduled banks in Current Accounts, Margin Money depot Drafts Hand/Collection Remit others Dividend Accounts TOTAL Loans & Advances in and
256.74 2984.56 418.12 24.16 4605.62
238.59 3510.24 529.44 9.15 4868.82
187.15 2899 655.82 24.95 4487.42
178.45 1798.01 541.17 6.75 3159.16
500.42 4241.42 660.62 51.92 6114.14
475.84 9937.42 1020.33 11.97 12972.27
2371.98 0.85 2372.83
2273.55 6.43 2279.98
2788.93 0 2788.93
2324.07 0 2324.07
2863.65 0 2863.65
5383.98 0 5383.98
4.18 0.23 1.17
5.62 0.24 1.06
10.18 0.04 1.23
3.9 0.36 2.98
6.05 0.02 6.46
7.7 0.02 0.76
Fixed Deposits
70.4 0 75.98
7.12 0 14.04
5.8 0 17.25
5.8 0 13.04
5.8 0 18.33
7.19 0 15.67
i) Loans and Advances recoverable in Cash for value to be received or pending ii) Advances against Supply Less: Provision Doubtful Advance TOTAL Provision Proposed Dividend on Equity Shares Provision for Dividend on Preference Shares Tax on Dividend Retirement Benefits Provision for Tax TOTAL for
70.92
29.18
41.58
178.07
46.84
61.22
208.26 0 279.18
355.87 0 385.05
237.68 0 279.26
1093.19 0 1271.26
263.56 0 310.4
667.96 0 729.18
0 0 0 72.72 0 72.72
0 0 0 0 0 0
0 0 0 76.22 0 76.22
0 0 0 103.59 0 103.59
0 0 0 74.13 0 74.13
0 0 0 134.58 0 134.58
Source on www.lnjbhilwara.com & www.rswm.in OR All figures from RSWM Ltd. Annual reports and balance sheets.

Analysis of Working Capital Management Ankush Nanavati

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ANALYSIS OF WORKING CAPITAL

A PROJECT REPORT ON WORKING CAPITAL MANAGMENT OF

PIONEER INSTITUTE OF MANAGEMENT 3