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(Conducted on behalf of Garden Silk Mills Pvt. Ltd., Surat) (From 7th January, 2008 to 7th March, 2008) A Project Report submitted in partial fulfillment of the requirements For the award of the degree of BACHELOR OF BUSINESS ADMINISTRATION TO VEER NARMAD SOUTH GUJARAT UNIVERSITY, SURAT Submitted By: PATEL CHINTAN N. T.Y.B.B.A. (SEM VI) Roll No. 53 (FINANCE) Under the Guidance of Mr. MAHESH TRIVEDI
Lecturer in management


I, CHINTAN N. PATEL, here by declare that the project report entitled Working Capital Management of GARDEN SILK MILLS LTD. under the guidance of Prof. Mahesh Trivedi submitted in partial fulfillment of the requirement for the award of the degree of Bachelor of Business Administration to Veer Narmad South Gujarat University, Surat is my original work research study carried out during 7th January, 2008 to 7th March, 2008 and not submitted for the award of any other degree/diploma/ fellowship of other similar titles of price to any other institution/ organization of university by any other person.

Place: Amroli Date: (CHINTAN N. PATEL) T.Y.B.B.A. (Sem.VI) Roll No: 53



This is to certify that the Project Report entitled A STUDY ON WORKING CAPITAL MANAGEMENT (Conducted on behalf of GARDEN SILK MILLS, SURAT) Submitted in partial fulfillment of the requirement for the award of the degree of BACHELORE OF BUSINESS ADMINISTRATION to VEER NARMAD SOUTH GUJRAT UNIVERSITY, SURAT is a record of bonafide research work carried out by Chinatn N. Patel under my supervision and guidance.



(Mr. Mahesh Trivedi) Project Guide

(Ms.Shehnaz R.Sheikh) Co-ordinator

With great pleasure, I undertake the writing of this report of industrial training because; it is a fact to be proud that I am one of the very few students, who are presently undertaking education in field of business administration. As a student of management, I must be encouraged by the growth and development taken place in the corporate sector, in India. Still recently, management is growing busy. Keeping in mind the ever development field of management and the great demand of management cadre in our country. The university has arranged industrial in the field of financial management and marketing management at the third year level. Thus it is our moral and obligatory duty to take this part of our studies with great enthusiasm and seriousness and give it the due importance. I have completed project training at GARDEN SILK MILLS LTD. My specialization in financial management. This report gives information about the WORKING CAPITAL MANAGEMENT. From various sources like annual report, reference of senior, Credit monitoring authority (CMA) report etc, I have computed operating cycle, current ratio, quick ratio, debtor turnover ratio, stock turnover ratio, and cash turnover ratio etc. During my training I found that company has good reputation and strong position in the market since its Establishment.

I express my thanks to the officers and all the staff members of the Garden Silk Mills Limited for their valuable assistance and excellent co-operation in preparation of this project report. I would like to thanks to Ms. Shehnaz R. Sheikh, the co-ordinate of Prof.V.B.Shah Institute of Management & R.V.Patel College of Commerce, Amroli for making available all facilities in fulfilling the requirement for my project report. The project would have been possible through out the experience, guidance and supervision of Mr. MAHESH TRIVEDI has potentially and critically gone through the subject matter. I wish to place on record the operation given me by Mr. Bipinbhai Modi (Manager of the garden silk mills limited) for making capable of teaching new things, which are helpful in our practical life. Finally, I would like to thank to all these people who are directly or indirectly contributed to my project work.


Chapter No 1

Subject Name Introduction of the company Company profile History of the company Achievement of company Activity of company Corporate information Working capital management Introduction of working capital Meaning of working capital Nature of working capital Importance of working capital Dangers of working capital Sources of working capital Working capital analysis Net working capital Operating cycle Cash management Inventory management Management of receivable Ratio analysis Finding Suggestion Annexure Bibliography

Page No. 7 8 10 12 13 14 20 21 21 22 23 24 25 30 31 33 41 45 52 56 64 67 69 72

4 5 6 7

Companys Profile History of the company Achievement of the company Activity of the company Corporate Information Distribution of Shareholding Shareholding Pattern

The company of our industrial training was GARDEN SILK MILLS LTD., which is public limited company incorporate on July 23, 1979. It was authorized share capital of Rs. 60 crores, out of which around Rs.38 crores have been issued, subscribed and fully paid up. The shareholders here have seen much appreciation and received regular dividends which impose that the company is getting on prosperous year and is profit making venture. This is attribution to the three generation of the directors who have strived hard for the growth and progress of the company. The company has also seen much of highs and lows of the market and has successfully come out of all those, providing it to be a leader of textiles business of all times. The company is having a very setup, with plants to manufacture dress material and sarees, right from the initial stage, viz, chemicals to finished fabrics. This has been possible because of the companys large capital base, attributable mainly to the large amount of share capital raised; reserve of various kinds being cautiously preserved and the loans form bank and financial institutions. The company had also raised capital through debenture in the past, majority of that have been repaid now.

The company has grown in all term during fast few year, in the economics prosperity and in the form of larger asset creation, making Garden Vareli to be leader of all times among textiles companies of the 8

nation. It achieved ISO 9002 on February, 2000, which was its greatest achievement, and Garden Silk Mills become the first company ever achieve such creation in Surat. This has brought fame to the city and to the nation all through the international sales and export income has been considerable. The company is expending even now and planned to increase its capacity in a phased manner until 2002.

The company belongs to Garden Vareli Group, which is one of the preceding manufactures of synthetic textiles in the country. This Textiles House originated before 75 years. To the early beginning of the art silk industry in Surat. Garden Silk Weaving Factory, as it was then named, manufacturing viscose becomes leader in jacquard fabric for years to come. The present chairman and managing Director of Garden Silk Mills Ltd. Mr. Praful Shah taken qualification in USA in 1965 after which he join the company up to that date Garden Silk Mills Ltd. had concentrated on weaving quality fabrics. Mr. Praful Shah extended the activities of the company to include processing cloth by introducing dying, printing and finishing processes. As a result of this, the company was able to supply finished textile for the first time. This move in the early 1970s coincided with the opening of the first retail shop in Surat. The extension of the policy of vertical integration into the retailing sector had advantages of uniform pricing close market monitoring improving communication between manufacturer and consumer, all exerting downward pressure on the final selling price, the dedicated retail network now extends to some 293 authorized outlets.

In the late 1970s, the company started exporting its products to European Market, Given the size of the domestics market, the proportion of the product that are exported remain low at approximately


two percent. The Company is in the process of further developing market in Africa, Central and Eastern Asia. Today, the company is one of the largest manufacturers in India of high fashioned, premium quality, dyed and printed textiles fabrics, both polyester and viscose comprising a range of chiffon and georgettes,chupbrag and crepes and faithful ladies, fashion as well as Indian sarees, The company also manufacturers an exclusive range of pure silk and cotton fabrics. The fabrics are marketed under the famous names Garden and Vareli.


The company is the first to set up a polyester filament yarn project in south Gujarat. The project is capable of producing multifilament and microfilament yarn having capacity of 5000 tons p.a. in collaboration with NOYVALLESIVA AG of Switzerland. Now a days company increase POY Spinning capacity from 7200 metric tones to 32200 metric tones per annum and secondly company increase Draw Extrusion from 13 to 17 i.e. 4 machine are installment, and also increase Draw Warping machine from 7 to 9 machine. The project has a special significance for the company, as polyester filament yarn is the basic raw material for the product for manufacturing man made textile.


Garden Vareli group of companies, one of the leading industrial groups in India plays a leading role in the field of fashion fabrics with annual sales exceeding U.S.A $ 90 millionth sell the product under a single banner of quality Garden. The company has three production plants. One at village Vareli near kadodara junction, N.H.NO-8, the second at village jolva, near bardoli, and another at garden mills complex, Sahara gate, Surat. Today the company has total 293 its own retail and authorized outlets all over India. Garden silk mills ltd. is one of the leading & oldest manufactures of synthetic in India. Garden silk mills ltd. has been exporting their product to international market since late 1970s. The company has achieved a very good brand name in India & international market of sarees & dress materials.


Board of Directors:Praful A. Shah Chairman & Managing Director Executive Directors:S. J. Bhesania Shilpa P. Shah Sanjay S. Shah Alok P. Shah Directors:Rajen P. Shah J. P. Shah Yatish Parekh Sunil S. Shah Smita J. Shah Madanlal U. lankapati Y. N. Rammurthy (Nominee of LIC of India)

Company Secretary:Kamlesh B. Vyas


Auditors:Messrs Natvarlal Vepari & Co. Chartered Accountants, Surat Plants:(1) Vareli Complex, Village Vareli Taluka Palsana, Dist. Surat 394 327 Tel: (02622) 271241-47 (2) Village Jolwa, Taluka Palsana, Dist. Surat 394 305 Tel: (02622) 271287-89 Bankers:Bank of Baroda Allahabad Bank State Bank of Saurashtra Bank of India State Bank of Patiala Corporation Bank Union Bank of India

Registered Office:Sahara Gate, Surat 395 010. 15

Tel: (0261) 2311197-98, 2311615 Fax: (0261) 2311029/502 Email: Website: Corporate Office:Manek Mahal, 90, Veer Nariman Road, Chrchgate, Mumbai 400 020 Tel: (022) 2287 3117-19 Fax: (022) 2204 8112 Registrar & Transfer Agent:MCS Limited, Neelam Apartment, 88, Sampatro colony, alkapuri Baroda 390 007

As on 30th June, 2007


No. of Share

No. of

% of

No. of held 5424635 1084708 850497 357904 207850 271611 678500

% of Shareholding 14.17 2.83 2.22 0.93 0.54 0.71 1.77

Shareholders Shareholders Share Upto 5000 5001-10000 10001-20000 0.152000130000 30001-40000 40001-50000 50001100000 100001 and Above Total 89045 1327 549 137 57 56 91 108 91370 97.46 1.45 0.60 0.15 0.06 0.06 0.10 0.12 100.00

29414855 76.83 38290560 100.00

As on 30th June, 2007 Sr. No. Category Number of Share held Holding Strength %


1 2 3

Promoters Mutual Funds & UTI Banks financial Institutions & Insurance Companies.

20470311 14550 1542746

53.46 0.04 4.04

4 5 6 7 8 9

FIIs Privet Bodies Corporate NRIs / OCBs. Indian Public GDR Others: Trust Clearing Members Total

39414 2310119 3910535 9499289 479175

0.10 6.00 10.21 24.82 1.26

520 23901 38290560

0.00 0.07 100.00

Chairman & Managing Director


Finance Director

General Manager Marketing

Import & Export Director

Production Director

Head of the Department



Introduction of Working Capital Meaning of Working Capital Nature of Working Capital Importance of Adequate Working Capital Dangers of Inadequate Working Capital Sources of Working Capital Requirement

Working capital is one of the most fundamental measures of companys financial strength. If company possesses a significant value of liquid assets, it can easily fund its day-to-day business obligation. 20

Working capital also provides insight on how efficiently a companys management able to oversee the company operation. The speed at which the company is able to manage its short term assets and short term liabilities is also crucial to its business success. Keeping working capital level to the minimum required for efficient operation keeps cost down. This means controlling buying, handling, storing, and managing stock property. In simple terms, working capital refers to the cash a company Requires in order to finance its day-to-day business operation or in other words, working capital refers to the amount of capital which is readily available to an organization.The term working capital is more an accounting term a management concept. There are two concept of working capital for the purpose of definition Gross Concept and Net Concept. Gross Concept refers to firms current assets. The firms total current assets are termed as gross working capital. Net Concept refers to current assets less current liabilities. That means, working capital is difference between resources in cash or readily convertible into cash (current assets) and organizational commitment for which cash will soon be required (current liabilities). Working Capital = Current Assets Current Liabilities

The nature of working capital is described with the help of nature operation cycle of the firm. The process of cash or operation cycle starts when a firm uses cash to purchase raw material and pay for other manufacturing costs to produce goods. These goods are carried as inventory for some time till they are sold. These processes are described as circulating nature of current assets. The speed of circulation of 21

working capital of turnover of current assets is an indicator of the degree of efficiency of the management.





(Circulating Nature of Working Capital)

Working capital is just like the hart of business. If it becomes weak, the business can hardly prosper and survive. No business can run successfully without an adequate amount of working capital. The following are a few advantages working capital in the business. ~ Adequate working capital enables a firm to avail cash discount facilities offered to it by the suppliers. The amount of cash discount reduces the cost purchase. 22

~ Adequate working capital enables a firm to make prompt payment. Making prompt payment is a base to create and maintain goodwill. ~ The provision of adequate working capital facilitates to meet situations of crisis and emergencies. It enables a business to withstand of depression smoothly. ~ It enable a firm to operate its business more efficiently because there is no delay in getting loans from banks and others on easy and favorable terms. ~ It permits the carrying of inventory at a level that would enable a business to server satisfactorily the needs of customers. That is it ensures regular supply of raw materials and continues production.

A business firm must maintain an adequate level of working capital in order to run its business smoothly. It is worthy to note that excessive and inadequate working capital positions are harmful. However, out of two, inadequacy of working capital is more dangerous for a firm. When working capital is inadequate, a firm faces the following problems: 1. It may not be able to take advantages of cash discount. 23

2. It cannot buy its requirement in bulk and unable to utilize the production facilities fully. 3. It may not be able to take advantage of profitable business opportunities. 4. It may fail to pay its dividend because non-availability of funds. 5. Its low liquidity may lead to low profitability. In the same way, low profitability results in low liquidity. 6. Short term liabilities cannot be paid because of inadequate working capital. This leads to borrow funds at exorbitant rate of interest. 7. Low liquidity position may lead to liquidation of firm. When a firm is unable to meet its debts at maturity, there is an unsound position. 8. Fixed assets cannot efficiently and effectively be utilized on account of lack of sufficient working capital.

The following is a snapshot of various sources of working capital available to firm.

Sources of Working Capital

Long term 1. Issue of Share 2. Floating of Debenture 3. Ploughing back of profit 4. Loan 5. Public Deposit

Internal 1. Depreciation 2. Taxation Provision 3. Accrued Expenses

Short term 1. Trade Credit 2. Credit Paper 3. Bank Credit 4. Customer Credit External 5. Govt. Assistance24 6. Loans from Directors 7. Security of Employees

FINANCING OF LONG TERM WORKING CAPITAL: Long term working capital should be provided in such a manner that the enterprise may have its uninterrupted use for a long time. It can be conveniently financed by the following sources: 1. Issue of shares Issue of share is the most important source for raising the permanent working capital shares are of two types-Equity shares and preference shares. Maximum amount of permanent capital be raised by the issue of shares.


2. Floating of Debentures A debenture is an instrument issued by the company acknowledging its debt to its holder. It is also an important source of long term working capital. The firm issuing debentures also enjoy a number of benefits, such as trading on equity, retention of control, tax benefits etc. 3. Ploughing Back of Profits It means the reinvestment by a concern of its surplus earning in its business. That is, a part of the earned profits may be ploughed back by the firm, in meeting their working capital needs. It is an internal of source of finance and is most suitable.

4. Long-term Loans Financial institutions such as commercial bank, life insurance Corporation of India, industrial finance corporation of India, stat finance corporation etc. provide all types of loans-long-term, medium-term, short-term loans. This type of finance is ordinarily repayable in installments. 5. Accepting Public Deposits Public deposits are the fixed deposits accepted by a business enterprise directly from public.


FINANCING OF SHORT-TERM WORKING CAPITAL: The category of fund covers the need of working capital of financing day-to-day business requirements. They are of two typesinternal source and external source. (A) Internal Sources: 1. Depreciation Funds: Depreciation reserve provides a good source of funds for working capital. 2. Provision for Taxation: The provision for taxation can also be used by the concern as a source of working capital during intermitant periods. 3. Accrued Expenses: The firm can postpone the payment of expenses for short periods. This constitute as a source of working capital. (B) External Sources: 1. Trade Credit: One of the most important forms of short-term finance is the trade credit extended by one business enterprise on another on the purchase and sale of goods. 2. Credit Paper:


In the category of credit paper, bills of exchange and promissory notes of shorter duration, varying between a month and six month. These papers can be discounted with bank. 3. Bank Credit: Commercial Banks are also principal sources of working capital. They provide working capital in the form of overdrafts, cash credit, short-term loans etc. 4. Customer Credit: Advances may also be obtained on contracts entered into by the enterprise. Customers are often asked to make advance payment in cash in lieu of a contract to purchase. 5. Government Assistance: Central and state governments, sometimes, provide short-term finance on easy term. 6. Loans from Directors: An enterprise can also obtain loans form its officers, directors etc. These loans are often obtained at low rate of interest. 7. Security of employees: If employees are required to make deposits with their employer companies, such deposits are available or short-term working capital.



Net Working Capital Operating Cycle Cash Management Inventory Management Management of Receivable Ratio Analysis

2002-03 Current Assets Inventories Sundry debtors Cash Bank Balance Other Current Assets Total Current Liabilities 5123.2 3797.6 1000.3 9921.1

2003-04 8643.1 4806.8 1719.2 15169

2004-05 6585.39 2963 3136.44 12684.8

2005-06 9708.08 4844.93 2844.3 17397.31

2006-07 13002.6 6474.15 1941.83 21418.6


Sundry Creditors Interest Accrued Provision of Tex Proposed Dividend Other Liabilities Total

2473.9 22.43 349.13 957.26 1681.7 5484.4

5668.2 35.36 570.81 574.36 705.84 7554.6

3865.65 182.72 647.34 574.36 473.83 5743.9

4596.09 245.03 743.83 574.36 497.01 6656.32

3930.71 216.08 1581.83 574.36 538.8 6841.78

Net Working Capital (C.A. - C.L.)






16000 14000 12000 10000 8000 6000 4000 2000 0 NWC 2002-03 4436.67 2003-04 7614.49 2004-05 6940.93 2005-06 10740.99 2006-07 14576.79


Interpretation:The greater amount of working capital indicates company will be able to meet its financial obligation. Hear in the Garden Silk Mills ltd. working capital amount is variable. In the year 2003, 2004, 2005,2006, 2007 the working capital increase except 20042005.

The operating cycle is the average time between purchasing or acquiring inventory and receiving cash proceeds form the sale of finished products. In the other words, it is the time period, which elapses between the points at which cash is spent on the production of a product, and the collection of cash from the customer. The time lag between the purchase of raw materials and the sales of finished goods is known as the inventory period. The operating cycle of a manufacturing company involves five phases.


1. Conversion of raw material. 2. Conversion of raw material in to work in progress. 3. Conversion of work in progress in to finished goods. 4. Conversion of finished good in to receivable. 5. Conversion of receivable in to cash. Operating Cycle: R = (Raw Materials Storage Period) + W = (Work in progress Storage Period) + F = (Finished Good Storage Period) + D = (Debtors Collection Period) - C = (Creditors Payment Period)

Operating Cycle of Company: Raw Materials Storage Period:Avg. Raw Materials Raw Materials Consumption Year 2002-03:1641.81 29673.28 = 19.92 ~ 20 Days Year 2003-04:3415.85 x 360 33 x 360 x 360

26617.44 = 46.19 ~ 46 Days Year 2004-05:2889.58 39388.18 = 26.41 ~ 26 Days Year 2005-06:4171.06 62771.75 = 23.92 ~ 24 Days Year 2006-07:4245.21 99296.16 = 15.39 ~ 15 Days x 360 x 360 x 360

Work in Progress Storage Period:Avg. Work in Progress Cost of Production Year 2002-03:193.24 43573.96 = 1.59 ~ 1 Days Year 2003-04:69.67 42014.60 34 x 360 x 360 x 360

= 0.59 ~ Days Year 2004-05:125.16 59275.83 = 0.76 ~ 1 Days Year 2005-06:312.04 83945.06 = 1.34 ~ 1 Days Year 2006-07:208.14 122934.3 = 0.61 ~ 1 Days x 360 x 360 x 360

Finished Goods Storage Period:Avg. Finish Goods Cost of Good Solds Year 2002-03:2495.49 43573.96 = 20.61 ~ 21 Days Year 2003-04:4151.75 42014.60 35 x 360 x 360 x 360

= 35.57 ~ 35 Days Year 2004-05:2620.27 59275.83 = 15.80 ~ 16 Days Year 2005-06:3653.15 83945.06 = 15.66 ~ 16 Days Year 2006-07:3868.29 122934.3 = 11.33 ~ 11 Days x 360 x 360 x 360

Debtors Collection Period:Avg. Debtors Credit Sales Year 2002-03:3797.57 2431.08 = 26.07 ~ 26 Days Year 2003-04:4806.76 60786.12 36 x 360 x 360 x 360

= 28.46 ~ 28 Days Year 2004-05:2963.0 76509.36 = 13.94 ~ 14 Days Year 2005-06:4844.93 107923.89 = 16.16 ~ 16 Days Year 2005-06:6474.15 151341.92 x 360 = 15.40 ~ 15 Days x 360 x 360

Creditors Payment Period:Avg. Creditors Credit Purchase Year 2002-03:2473.88 29673.28 = 30.01 ~ 30 Days Year 2003-04:5668.21 26617.44 37 x 360 x 360 x 360

= 76.66 ~ 77 Days Year 2004-05:3865.65 39388.18 = 35.33 ~ 35 Days Year 2005-06:4596.9 62771.75 = 26.35 ~ 26 Days Year 2006-07:3930.71 99296.16 = 14.25 ~ 14 Days x 360 x 360 x 360

Operating Cycle of The Company:-

No. +1 +2 +3 +4 -5

Particulars R.M.S.P.(Days) W.I.P.S.P.(Days) F.G.S.P.(Days) D.C.P.(Days) C.P.P.(Days) Length of Operating Cycle 1+2+3+4-5=

20022003 20 1.5 21 26 30 38.5 ~ 39

20032004 46 0.5 35 28 77 32.5 ~ 33

20042005 26 1 16 14 35 22

20052006 24 1 16 16 26 31

20062007 15 1 11 15 14 28


40 35 30 25 20 15 10 5 0 Days 2002-03 39 2003-04 33 2004-05 22 2005-06 31 2006-07 28

Interpretation:Sound working capital management involves matching the sources and uses of cash so that obligation comes due as assets mature into cash. In the Garden Silk Mills this conversion cycle is respectively decrease but in the last year this in increase. This indicates that conversion of raw material into cash is good.


Cash management refers to the practices and techniques designed to accelerate and control collections, ensure promote deposits of receipts, improve control over disbursement methods, and eliminate idle cash balances. The objective of cash management is to keep the investment in cash as low as possible while still operating the firms activities efficiently and effectively. Reasons For Holding Cash:1. Cash is maintained for compensating balances. Compensating balances are the bank balances that a firm must maintain to compensate the bank for services rendered or for granting a loan. A minimum required compensating balance at bank providing 40

credit service to the firm may impose a lower limit on the level of cash a firm holds. 2. Cash is desirable because it offers more liquidity then other interest bearing securities provide. 3. Suppliers frequently offer trade discounts for making payment early. Form a financing viewpoint, the cost of not taking these discounts is very high, so firms should always have enough cash on hand to take advantage of cash discounts. 4. An adequate supply of cash helps keep the firms current and quick ratios high enough to maintain a good credit rating. 5. An adequate supply of cash helps ensure that the firm can seasonal and cyclical downturns. CASH CONVERSION CYCLE Avg. receivable collection period + Inventory conversion period Avg. payment period

Avg. receivable collection period =

Receivable Sales

x 360

Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

Receivable 3797.57 4806.76 2963.00 4844.93 6474.15

Sales 52431.08 60786.12 76509.36 107923.89 151341.92

Avg. Receivable Collection Period 26.07 28.46 13.94 16.16 15.40

Inventory Conversion Period = 41

Inventory Cost of Good Sold Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 Inventory 5123.24 8643.11 6585.39 9708.08 13002.59 Cost of Good Sold 43573.76 42014.60 59275.83 83945.06 122934.3

x 360

Inventory Conversion Period 43.89 74.05 40.00 41.63 38.08

Avg. payment period = Account Payable Cost of Good Sold Account Payable 2473.88 5668.21 3865.65 4596.09 3930.71 Cost of Good Sold 43573.76 42014.60 59275.83 83945.06 122934.3 Avg. Payment Period 20.43 48.56 23.47 19.71 11.51 x 360

Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

Cash Conversion Cycle:-


Inventory Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 Conversion Period (1) 43.89 74.05 40.00 41.63 38.08

Receivable Collection Period (2) 26.07 28.46 13.94 16.16 15.40

Avg. Payment Period (3) 20.43 48.56 23.47 19.71 11.51

Cash Conversion Cycle (1) + (2) - (3) = 49.53 53.95 30.47 38.08 41.97

60 50 40 30 20 10 0 2002-03 2003-04 2004-05 2005-06 2006-07

Interpretation:The major objective of cash management is to shorten cash conversion cycle and it should be accomplished without increasing cost 43

or depressing sales. In Garden Silk Mills this condition is good. Cash conversion cycle is decrease but not a respectively. Last year cycle is lower then this year. This indicates that company should try to reduce conversion cycle and the higher of this year shows that some internal circumstances are affect on it.

For many business firms, inventory is one of the visible and tangible of doing business. Raw materials, work in process and finished goods all represent various form of inventory. In simple words, inventory refers to stocks of good necessary to do business. In fact, for a business firm, inventory is both an assets and a liability. Too much inventory consumes physical space, causes of financial burden, and increasing the possibility of damage, spoilage and loss. On the other hand, too little inventory disrupts manufacturing operations, engenders chaos on the shop floor, poor customer service. Need to hold Inventory:Business firm keep inventory for different purpose. Every firm, big of small, trading of manufacturing has to maintain some minimum level of inventories. Transaction motive:-


Every firm has to maintain some level of inventories to meet the day to day requirement of sales, production process, customer demand etc. the inventory level will provide a smoothness to the operation of the firm. Precautionary motive:A firm should keep some inventory for unforeseen circumstances also. For example, supply of raw material may not reach due to strike by the transporters. Speculative motive:The firm may be tempted to keep some inventory in order to capitalize an opportunity to make profit Types of Inventory:1) Raw Material Inventory: These are goods which have not yet been committed to production in a manufacturing firm. They may consist of basic raw material. 2) Work-In-Process:This includes those materials which have been committed to production process but have not yet been completed. 3) Finished goods:These are completed products awaiting sale. They are the final output of the production process in manufacturing firms.


4) Supplies:A fourth kind of inventory, Supplies or what is called consumable -stores are also maintained by the firms. These materials are of low value & they do not enter the production process, for example oil, fuel, bulbs, soaps etc. 5) Scrap:The waste of materials arising during manufacturing process is also a part of the inventory. Even defective pieces to be disposed off are a part of in inventory. Inventory Turnover Ratio Inventory turnover ratio indicates that efficiency of firm in producing and selling its product. This ratio is percentage of inventory to the total sales. Inventory Turnover Ratio:Total Sales Average Inventory Investment Holding Days of Inventory:360 days Inventory Turnover Ratio


Inventory Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 Total Sales 52431.08 60786.12 76509.36 107923.89 151341.92 Inventory 5123.24 8643.11 6585.39 9708.08 13002.59 Turnover Ratio 10.23 7.03 11.61 11.11 11.64

Holding Days of Inventory 35 51 31 32 31


12 10 8 6 4 2 0 2002-03 2003-04 2004-05 2005-06 206-07

60 50 40 30 20 10 0 2002-03 2003-04 2004-05 2005-06 2006-07

Interpretation:High turnover ratio & low holding days of inventory indicate good efficiency of company in turnover his inventory. In Garden Silk Mills Inventory turnover ratio is increase & holding days of inventory decrease from last two year this indicate company has good efficiency of manage the inventory.

Techniques of Inventory Management:-


ABC analysis: The ABC analysis is based on the proposition (1) managerial time and efforts are scare and limited, and (2) some item of inventory are important then others. The ABC analysis classified various inventory items in to three sets or groups of priority and allocates managerial efforts in proportion of priority. The most important item are classified as class A, those of intermediate importance are classified as class B and the remaining item are classified as class C. the financial manager should monitor different items belonging to different groups in that order of priority. Utmost attention is required for class A, followed by item in class B and then remaining item in class C. Group A: It Includes those item which are very important and of high value but form use a small proportion of total quantity of inventory. Group B: It includes those items which are less important and low value but form use large proportion of item then group A. Group C: The remaining items must be placed in category C. Inventory of company: P.T.A D.M.T M.E.G. Polyester Chips Yarn Cloth Spin Fine Oil Chemicals & Additives

Implementation of System:-


Step: 1: A list of all items must be prepared in order to determine how many items is there, what the consumption of each of them is and what is the price. Step: 2: Calculate total cost by multiplying items price with number of units of consumption. Step: 3: Ranks must be given to each items on the basis of total value as calculated in step 2. First rank must be allotted to the items having highest value and this way the rank must be given in descending order. Step: 4: Determine the % of each item. Firstly % of no. of each item with total number and secondly % of total value of each items with total of all items. Step: 5: All item must be grouped into A, B, C categories. Group A P.T.A. D.M.T. M.E.G. Group B Polyester chips Yarn Cloth Group C Spin fin oil Chemical & Additive

Group A B C

No. of item (In % of total no. of items) 37.5 37.5 25

Value of item (in % of total value of inventory 81.49 16.72 1.49


100 80 60 40 20 0 0 37.5 75 100

The accounts receivables are generated which are collected at a future date only when the firm grants credit against an ordinary sale of


goods or services without receiving cash. Credit sale is an essential part of the present competitive economic system. It is granted in order to increase the volume of sales. As such receivables which are created out of credit sales are considered as a marketing tool for increasing sales. But extension of credit involves cost of risk. Therefore, management should weigh the benefits against cost. As such, the objective of receivables management is to promote sales and profit until optimum point is reached. Receivables are created out of trade credit and which are collected in the near future. The debtors have got the three distinct characteristics. (i) It involves risk which should carefully be studied since cash sales are risk less whereas at the time of credit sales, cash is yet to be received. (ii) It is based on present economic value of goods passes immediately, whereas, the seller expects an equivalent benefit at a latter date. (iii) It implies futurity. The value of goods or services received by the buyer will be payable by him at a future date. No doubt, receivables play a significant role in the total current assets composition since their position is next to inventories. In India, they form about one third of total current assets.

Credit Policy
A firms investment in accounts receivable depends on the volume of credit sales and the collection period. There is one way in


which the financial manager can affect the volume of credit sales and collection period and consequently, investment in account receivables. That is through the changes in credit policy. The term credit policy is used to refer to the combination of three decision variables: (I)) Credit Standards, (ii) Credit Terms, and (iii) Collection efforts, on which the financial manager has influence. Credit Standards are criteria to decide the types of customers to whom goods could be sold on credit. If a firm has more slow-paying customers, its investment in accounts receivables will increase. The firm will also be exposed to higher risk of default.
Credit Terms specify duration of credit and terms of payment by customers. Investment in account receivables will be high if customers are allowed extended time period for making payments. Collection Efforts determine the actual collection period. The lower the collection period, the lower the investment in accounts receivable and vice versa.

Debtor Collection Period

It refers to the debtors converted into receivables. Debtor turnover ratio indicates the number of times debtors turnover each year. Generally, the higher the value of debtors turnover, the more efficient is the management of credit. Total Sales ---------------------Average Debtors

Debtors Turnover Ratio =


Collection Period =

360 days --------------------------------Debtors Turnover Ratio



Debto Rati Collectio n Period 26 28 14 16 15

s rs o 2002 52431. 3797. 13. -03 08 57 80 2003 60786. 4806. 12. -04 12 76 64 2004 76509. 2963. 25. -05 36 00 82 2005 107923 4844. 22. -06 .89 93 27 2006 151341 6474. 23. 2007 .92 15 38


Collection Period







15 10 5 0

2001-02 27

2002-03 26

2003-04 28

2004-05 14

2005-06 16

2002-03 13.8

2003-04 12.64

2004-05 25.82

2005-06 22.27

2006-07 23.38

Debtor Turnover Ratio

Current Ratio


The solvency.

current It



a the

measure of the firms short-term indicates availability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current liability to meet short-term requirements. The current ratio of 2:1 is considered satisfactory. Current Assets Current Ratio = --------------------------Current Liabilities Years Current Assets 20029921.08 Current Liabilitie s 5484.41 Rati o 1.8


03 200304 200405 200506 200607 15169.0 7 12684.8 3 17397.3 1

21418.57 6841.78

0 7554.58 5743.90 6656.32 2.0 0 2.2 0 2.6 1 3.1 3





2002-03 1.8

2003-04 2

2004-05 2.2

2005-06 2.61

2006-07 3.13


A current ratio of 2:1 or higher is looked upon well. This ratio indicates that the Garden Silk Mills is able to meet all debts and if the company gets in trouble, they can liquidate the companys assets and their money back.

Quick Ratio

Quick ratio establishes the relationship between quick assets and current liabilities. Generally, a quick ratio of 1:1 is considered to represent satisfactory current financial position.

Current Assets Inventories


Quick Ratio ---------------------------------Liabilities

= Current

Years 200203 200304 200405 200506 200607



Rati o 0.8 7 0.8 6 1.0 6 1.1 5 1.2 3

Assets Liabilities 4797.8 5484.41 4 6525.9 6 6099.4 4 7689.2 3 8415.9 8 7554.58 5743.90 6656.32








2002-03 0.87

2003-04 0.86

2004-05 1.06

2005-06 1.15

2006-07 1.23

Interpretation:A quick ratio above 1.0 generally indicates the company can meet its obligation. Hear in the Garden Silk Mills this ratio is more than 1.0 from last 2 years this shows that companys ability to meet its current obligation.


Net Working Capital Ratio

The current capital Capital

difference assets (NWC). measures and Net the

between current Working firms

liabilities is called net working

potential reservoir of funds. It can be related to net assets or capital employed.

Net Working Capital Net Working Capital ---------------------------Assets Ratio =






working 200203 200304 200405 200506 200607

0.18 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0


Capital 4436.67 7614.49 6940.93 10740.99 14576.79

43467. 0.1 45 0 57038. 0.1 39 3 81577. 0.0 59 8 87558. 0.1 2 2 87164. 0.1 88 7

2002-03 0.1

2003-04 0.13

2004-05 0.08

2005-06 0.12

2006-07 0.17


Current Assets to Working Capital Ratio

This ratio shows the relationship between current assets and working capital. It indicates the percentage of current assets to working capital. Current Assets -------------------Working Capital

Current Assets to Working Capital Ratio =

Years 2002-

Current working Assets Capital 9921.08 4436.67

Rati o 2.2

03 200304 200405 200506 200607 15169.0 7 12684.8 7614.49 6940.93

4 1.9 9 1.8

3 2 17397.3 10740.99 1.6 1


2 14576.79 1.4 6




2002-03 2.24

2003-04 1.99

2004-05 1.82

2005-06 1.62

2006-07 1.46




The requirement of working capital is not stable in the company. It was 4436.67 Lacs in 2002-03, and 7614.49 Lacs in 2003-04, 6940.93 lacs in 2004-05, 10740.99 lacs in 2005-06 and 14576.79 lacs in 2006-07. The main reason behind it is that company came across the depression in textile business between this period although compnay was able to survive in the market and in the last year working capital requirement increase with the expansion of production. Operating cycle time is decreasing year by year. It was 39 days in 200203, 33 days in 2003-04, 22 days in 2004-05, 31 days in 2005-06 and 28 days in 2006-07. So in last year operating cycle time is about 1 months, it means money realised after 1 months which is good in the competitive market. Current ratio of the company is 1.80, 2.00, 2.20, 2.61 and 3.13 respectivly. The satisfectory ratio is 2:1 and the company have higher ratio which indicates compnay can be in better position to meet current obligation. Quick ratio of the company is 0.87(2002-03), 0.86(2003-04) is not a satisfacory but in last three year i.e. 1.06(2004-05), 1.15(2005-06) and 1.23 (2006-07) is satisfactory that company have near to it or slightly higher ratio which is quite satisfactory. The Debtor collection period is 26 days, 28 days, 14 days, 16 days and 15 days respectively. So collection days are improving day by day which is good sign for the company. Stock turnover ratio is 10.23, 7.03, 11.61, 11.11 and in the year 2002,03,04,05,06 respectivly. It was highest in the 2006-07 i.e 11.64 when holding days are lowest 31 days and last year i.e. 11.11 where holding days are 32. So some care should be taken.


Company having good management system in cash conversion cycle. In Garden Silk Mills this condition is good. Cash conversion cycle is decrease but not a respectively. Last year cycle (41.97) is lower then previous year (38.08). In general company make good profit every year and companys efficiency is also good So I conclude that company made much improvement in last three year as working capital and its management is concern.


The major objective of cash management is to shorten cash conversion cycle and it should be accomplished without increasing cost or depressing sales. In Garden Silk Mills this condition is good. Cash conversion cycle is decrease but not a respectively. Last year cycle is lower then this year. This indicates that company should try to reduce


conversion cycle and the higher of this year shows that some internal circumstances are affect on it. In inventory management stock turn over ratio is satisfactory and holding days of inventory also decrease. It is good for company but still some care should be taken by the company to more reduce holding days of inventory. During the year under review, raw material costs increased sharply, which affected the performance to some extent. The raw material price increased was in line with the increase in crude oil prices, which remained fluctuating during the year. To reduce its impact, the company embarked on better tie-ups with customers and focused on prudent planning for timely material procurement. During the year the company also repaid long term loans of RS.45.00 Crores to the financial institution and banks towards its term loan obligation for the 2006-07. The company continued its focus on efficient financial management, covering areas of debt and working capital.


Annexure A: Profit & Loss A/c

Particulars 2002-03 52431.0 2003-04 2004-05 2005-06 60786.1 76509.3 107923. 2006-07 151341. 71

Sales & Job Charges

8 -Excise Duty Income From Financial Operation Other Income Total 1285.80 360.47 444.81 51950.5 6 296673. 28 307.73 2216.49 13376.4 6 43573.9 6 8376.80 1243.84 7132.76 2707.81 4724.95 163.00 703.00 0.00 3858.95 28.42 3887.37

2 11143.4 8 404.99 275.77 50323.4 0 26617.4 4 (1532.6 9) 2388.64 14541.2 1 42014.6 0 8308.80 1040.87 4523.40 1245.62 3990.15 296.00 181.09 62.23 3450.83 107.46 3558.29

6 11622.6 0 141.36 466.74 65494.8 6 39388.1 8 1475.99 4384.02 14027.6 4 59275.8 3 6219.03 1625.72 3617.11 0.00 976.20 103.60 (21.36) 15.00

89 12437.9 4 64.00 469.06 96019.0 1 62771.7 5 (1219.76 ) 1299.29 20933.2 7 83945.0 6 12073.9 5 4020.11 8053.84 4866.13 3187.71 75.0

92 12010.5 3 124.73 662.77 164139. 95 99296.1 6 3337.47 4558.21 23638.1 4 130829. 98 15915.5 3 5149.26 10766.2 7 5757.05 5009.22 783.00 1860.25 40.00 2325.97 4318.44 6644.41

Expenditure Consumption Of RM Increase/(Decrease) In Stock Purchases Mfg.& Other Expenses Total Profit before Financial Charges, Depreciation & Tax - Financial Charges Profit before Dep. & Tax - Depreciation Net Profit Before Tax - Provision For Tax
Current Deferred Earlier Years

Net Profit After Tax + Balance B/F Balance For Appropriation

0 842.26 60.00 878.96 2210.45 2708.87 2882.91 3587.83 5093.36


Annexure B: Balance Sheet

Particulars 2002-03 2003-04 2004-05 2005-06 2006-07

Sources Of Fund
1. Shareholder Fund Share Capital Reserve & Surplus 3829.06 27078.9 5 30908.0 1 3829.06 28634.7 4 32463.8 0 3829.06 28858.7 8 32687.8 4 3829.06 30414.31 34243.37 3829.06 32068.31 35897.37


2. Loan Funds Secured Loan Unsecured Loan Differed tax Liability Total Application Of Fund 1. Fixed Assets Gross Block Less : Deprecia tion Net Block
Less : Lease Adjs. A/C

9939.26 7224.22 17163.4 8 4210.73 52282.2 2

20721.2 6 11453.0 2 32174.2 8 4391.82 69029.9

48496.8 7 10672.3 0 59169.1 7 4370.46 96227.4 7

49321.99 14585.87 63907.86 5212.72 103363.9 5

63491.84 5631.61 69123.45 7072.97 112093.79

55686.8 1 21000.0 6 34686.1 2 0.00

68787.4 4 25348.5 4 43438.9 0 0.00

71929.6 3 28865.6 2 43064.0 1 0.00

106157.8 6 33648.12 72509.74 0.00

109609.54 38986.55 70622.99 0.00


Capital Wip

2657.82 37343.9 4

3237.18 46676.0 8 8204.32

28791.7 5 71855.7 6 7473.02

2496.08 75005.82 7286.35

1597.47 72220.46 12936.30

2. Investme nt 3. Current Assets Inventories Sundry Debtors Cash & Bank Balance Loan & Advances
Other Current Assets


5123.24 3797.57 1000.27

8643.11 4806.76 1719.20

6585.39 2963.00 3136.44

9708.08 4844.93 2844.30

13002.59 6474.15 1941.83

7352.98 17274.0 6

6508.06 21677.1 3 6511.41 1220.23 7731.64 13945.4 9 204.01

9914.39 22599.2 2 4627.25 1302.26 5929.51 16669.7 1 228.98 96227.4 7





Less : Current Liabilitie s Provision

4292.90 1429.04 5721.94 11552.1 2 101.55 52282.2 2

5426.15 1398.75 6824.90 20902.05

4774.93 2253.80 7028.73 26842.62

5. Misleadi ng Expenses

169.73 103363.9 5






Working Capital Management - By DHIRAJ SHARMA Management Accounting - By BHAGWATI PILLAI Management accounting - By M. Y. KHAN & P. K. JAIN


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