Professional Documents
Culture Documents
A
STUDY
OF
Submitted To:
THE CO-ORDINATOR
March 2005
Working Capital Management
CONTENT
Sr No. Particular Page
No.
1 Introduction of the company 1–9
- Introduction
- History of the company
- Activities of the company
- Achievement of the company
- General information
- Distribution of the share holdings
- Categories of shareholder
2 Working Capital Management 11 – 27
- Introduction of working capital
- Factor affecting
- Working Capital Finance
- Working Capital Assessment
- Operating Cycle
- Ratio Analysis
3 Working Capital Analysis 28 – 47
- Management of Receivable
- Management of Inventory
- Management of Cash
4 Findings 48 -50
5 Suggestions 51 – 52
Bibliography 54 – 55
Annexure 56 – 58
CHAPTER: 1
INTRODUCTION OF THE COMPANY
Garden Silk Mills Ltd. is one of the leading & oldest manufactures
of synthetic in India. Garden Silk Mills Ltd. has been exporting their
products to European markets since late 1970s. The company has made
vertical & horizontal integration from its establishment.
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 Mill’s Complex, Sahara Gate, Surat.
Today the company has total 293 its own retail and authorized outlets all
over India.
The company has achieved a very good brand name in Indian &
International Market of Sarees & Dress Materials.
The company has achieved sales during financial year 1997-1998
of Rs.58,871.04 lacs & Rs.46,044.16 lacs during 1998-1999.
and continues to be, the initiator of the majority of new textile varieties
woven and processed in Surat, is at present, the consumer of
approximately 50 percent of polyester yarn in India. The company
believes that designs are a key factor in its market and used to produce
some 200 different printed designs each month.
Board of Director
Company Secretary
Kamlesh Vyas
Auditors
Natvarlal Vepari & Co.
Charted Accountants
Bankers
Bank of Baroda
Allahabad Bank
State Bank of Saurashtra
Bank of India
Working Capital Management
Registered Office
Garden Mills Compound,
Sahara Gate,
Surat-395010.
Corporate Office
Manek Mahal,
90, Veer Nariman Road,
Mumbai-400020.
Plants
i) Garden Mills Compound, Sahara Gate, Surat
ii) Village Vareli, Tal.Palsana, Dist.Surat
iii) Village Jolva, Tal.Palsana, Dist.Surat
No. of
No. of % of % of
No. of Shares Shares
Shareholders Shareholders Shareholding
Held
Working Capital Management
12475
Upto 5000 98.49 6796186 17.75
1
5001-10000 1096 0.87 879711 2.30
10001-20000 412 0.33 623913 1.63
20001-30000 136 0.11 349085 0.91
30001-40000 59 0.05 213981 0.56
40001-50000 42 0.03 198859 0.52
50001-100000 69 0.05 507057 1.32
2872176
100001 & Above 105 0.08 75.01
8
12667 3829056
Total 100.00 100.00
0 0
Categories of Shareholders
No. of Holding
Category
Shares Held Strength
Working Capital Management
Chairman &
Managing
Director
General
Finan
Manage Import & Product
ce
Organizationr Structure
Export ion
Direct
Marketi Director Director
or
ng
Head of
the
Departme
nt
Staff
Working Capital Management
CHAPTER: 2
WORKING CAPITAL MANAGEMENT
Introduction of Working
Capital
Working Capital Management
The need for working capital to run the day to day business
activities can not be overemphasized. We will hardly find a business firm
that does not require any amount of working capital.
Working Capital Management
current assets. It should be realized that the working capital needs of the
firm might be fluctuating with changing business activity.
year and include creditors, bills payable and outstanding expenses. Net
working capital can be positive or negative. A positive net working
capital will arise when current assets exceed current liabilities. A negative
net working capital occurs when current liabilities are in excess of current
assets.
Nature of business
Credit Policy
Availability of Credit
Operating Efficiency
The use of working capital is improved and pace of cash conversion cycle
is accelerated with operating efficiency.
Once the level of working capital has been determined, a firm has
to concentrate how the same will be financed, i.e. a firm must have to
find out the sources of funds to finance is current assets. Different
financing policies may be adopted for this purpose.
Working Capital Management
12000
9487.19 9666.14
10000
8000 6923.53
R
s
L
.
a 6000
c
I
s 4436.67
n
4000
2000
0
1999-00 2000-01 2001-02 2002-03
Year
Operating Cycle
Operating Cycle is the time duration required to convert sales,
after the conversion of resources into inventories, into cash. The
Operating Cycle of a manufacturing company involves five phases.
Working Capital Management
100
84
80
63
D 60
a 49
y
s 40 39
20
0
1999-00 2000-01 2001-02 2002-03
Year
Working Capital Management
RATIO ANALYSIS
Current Ratio
0
1999-00 2000-01 2001-02 2002-03
Year
Working Capital Management
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 = ----------------------------------
Current Liabilities
D 3
a
y 1.96 1.93
s 2
1.47
1 0.84
0
1999-00 2000-01 2001-02 2002-03
Year
0.8
D 0.6
a
y
s 0.4
0.3
0.22 0.25
0.2
0.1
0
1999-00 2000-01 2001-02 2002-03
Year
Current Assets
Working Capital Management
2.5 2.24
2
D
a 1.42 1.46 1.42
1.5
y
s
1
0.5
0
1999-00 2000-01 2001-02 2002-03
Year
CHAPTER: 3
Working Capital Management
Management of Receivable
Management of Inventory
Management of Cash
Working Capital Management
MANAGEMENT OF RECEIVABLE
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.
Credit Policy
A firm’s 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.
Collection Efforts determine the actual collection period. The lower the
collection period, the lower the investment in accounts
receivable and vice versa.
the higher the value of debtors’ turnover, the more efficient is the
management of credit.
Total Sales
Debtors Turnover Ratio = ----------------------
Average Debtors
365 days
Collection Period = ---------------------------------
Debtors Turnover Ratio
20
18
15.12
16 13.8
D 14
12 10.43
a
10
y
8 6.11
s 6
4
2
0
1999-00 2000-01 2001-02 2002-03
Year
Working Capital Management
60
60
50
D 40 35
a
30 26 24
y
s
20
10
0
1999-00 2000-01 2001-02 2002-03
Year
MANAGEMENT OF INVENTORY
Nature of Inventories
Raw Materials are those basic inputs that are converted into finished product
through the manufacturing process. Raw material inventories are those
units which have been purchased and stored for future production.
Types of Inventory:-
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.
Working Capital Management
When inventory carrying cost and ordering cost are balanced, total
cost of ordering quantity is lowest and therefore it is called economic
order quantity.
There are basically two methods of determining EOQ
1. Graphical Method
2. Formula Method.
1. Graphical Method:
Cost
In Rs.
Ordering cost
EOQ Quantity
2. Formula Method:-
EOQ = √ 2AO
C
Where,
A = Annual consumption
O = Ordering cost
Working Capital Management
Group: A: It includes those items which are very important and of high
value but form use a small proportion of total quantity of inventory.
Hypothetical Example:
No. of items ( In % of Value of items (in % of total
Class
total no. of items) value of inventory
A 10 75
B 25 20
C 65 05
100 5%
95
20%
75
C
Group
A B
75% Group
10 35 100
Implementation of System:-
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.
12
10.23
10
8.19
7.16 7.68
D 8
a
6
y
s 4
0
1999-00 2000-01 2001-02 2002-03
Year
60
50
48
50 45
40 36
D
a
30
y
s
20
10
0
1999-00 2000-01 2001-02 2002-03
Year
Working Capital Management
MANAGEMENT OF CASH
1. Transaction motive
2. Precautionary motive
3. Speculative motive
4. Compensating Motive
Cash Ratio
10 9.36
9
8 7.45
D 7 5.79
a 6
5 4.34
y
4
s
3
2
1
0
1999-00 2000-01 2001-02 2002-03
Year
Working Capital Management
FINDINGS
Working Capital Management
Working Capital Management
SUGGESTIONS
Working Capital Management
ANNEXURE
Working Capital Management
Sources Of Fund
1. Shareholder Fund
Share Capital 3829.06 3829.06 3829.06
Reserve & Surplus 30224.60 26653.49 27078.95
34053.66 30482.55 30908.01
2. Loan Funds
Secured Loan 9512.75 9336.48 9939.26
Unsecured Loan 84.40 4764.55 7224.22
9597.15 14101.03 17163.48
Total 43650.81 44583.58 48071.49
Application Of Fund
1. Fixed Assets
Gross Block 39640.88 43320.78 55686.81
Less : Depreciation 16594.55 18783.39 21000.06
Net Block 23046.33 24537.39 34686.12
Less : Lease Adjs. A/C 6.89 6.89 0.00
Capital Wip 1482.79 3811.19 2657.82
24522.23 28341.69 37343.94
2. Investment 5760.96 4070.30 3284.61
3. Current Assets
Inventories 5428.34 5878.52 5123.24
Sundry Debtors 3120.00 3423.73 3797.57
Cash & Bank Balance 1553.20 4457.39 1000.27
Loan & Advances 6390.40 5915.06
7352.98
Other Current Assets 0.00 0.00
16491.94 19674.70 17274.06
Less : Current Liabilities 2323.87 3325.99 4292.90
Provision 854.14 761.51 1429.04
3178.01 4093.50 5721.94
13313.93 15581.20 11552.12
4. Deferred Tax Liability 0.00 -3507.73 4210.73
5. Misleading Expenses 53.69 98.12 101.55
43650.81 44583.58 48071.49
Working Capital Management
BIBLIOGRAPHY
Books
Working Capital Management
Financial Management
By I.M.Pandey (Sixth Edition)
Websites
www.GardenVareli.com
www.CorporateInformation.com
CHAPTER: 1
Working Capital Management
Introduction
History of the Company
Activities of the Company
Achievement of the
Company
General Information
Distribution of the
Company
Categories of Shareholders