Professional Documents
Culture Documents
I had the opportunity to take up the Internship Project at Vardhman textiles limited .
During the project I had the privilege of being guided by Mr. Ajay Sharma, Executive in
Finance department.
Vardhman, a household name in Northern India, has carved out a niche for itself in textile
industry. The Vardhman group was setup in 1962 by late Lala Rattan Chand Oswal, father
of present Chairman cum Managing Director, Sh. S.P. Oswal. Vardhman aims to be
world class textile organization producing diverse range of products for the global textile
market. Vardhman seeks to achieve customer delight through excellence in manufacturing
and customer service based on creative combination of state-of-the-art technology and
human resources.
My project is study of inland bill discounting under letter of credit and Analysis of
Working capital and of Yarn division Of Vardhman textiles limited.
The study was conducted at the commercial department of textiles limited under Account
Receivable Department.
The project was of 6 weeks duration. During the project interviewed the executives & staff
to collect the data, & also made use of company records & annual reports. The data
collected were then compiled, tabulated and analyzed.
The objective of my internship was the knowledge of sale under letter of credit of yarn
customers and to operate the working capital cycle of the management.
Working Capital Management is a very important facet of financial management due to:
Investments in current assets represent a substantial portion oftotal investment.
Investment in current assets & the level of current liabilities have toBe geared
quickly to change sales.
Some the points to be studied under this topic are:
A study of letter of credit deals with studying and understanding the Letter of credit,
different fields of letter of credit and different types of L/C charges namely L/C Advising
charges, L/C Amendment charges and discrepancy charges and calculating saving
potential and making recommendations.
A letter of credit (LC) is a binding document that a buyer can request from his bank in
order to guarantee that the payment for goods will be transferred to the seller. Basically, a
letter of credit gives the seller reassurance that he will receive the payment for the goods.
By studying the LC of Yarn division I came to know
All the dealing of LC is centralized of yarn customers.
It reduces the credit risk of company
It even reduces the payment delays
It increase the liquidity position of company
Some suggestions for the company are
• The prices should be less to re-establish the market for Yarn.
The English name “letter of credit” derives from the French word “accreditif”, a power to
do something, which in turn is derivative of the Latin word “accreditivus”, meaning
trust.
A letter of credit is basically a document issued by a bank guaranteeing a client's ability to
pay for goods or services. A bank or finance company issues a letter of credit on behalf of
a buyer, authorizing the seller to obtain payment within a specified timeframe once the
terms and conditions outlined in the letter of credit are met. The letter of credit acts like an
insurance contract for both the buyer and seller and practically eliminates the credit risk
for both parties, while at the same time reducing payment delays. A letter of credit
provides the seller with the greatest degree of safety when extending credit. It is useful
when the buyer is not well known and when exchange restrictions exist or are possible.
The LC can also be the source of payment for a transaction, meaning that a will get paid
by redeeming the letter of credit. Letters of credit are used primarily in international trade
transactions of significant value, for deals between a supplier in one country and a
customer in another. The parties to a letter of credit are usually a beneficiary who is to
receive the money, the issuing bank of whom the applicant is a client, and the advising
bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e.,
cannot be amended or canceled without prior agreement of the beneficiary, the issuing
Seller Bank
Buyer Bank
Seller Buyer
Carrier
After a contract s concluded between buyer and seller, buyer bank supplies a letter of
credit to the seller
Carrier
Seller provide bill of lading to a bank in exchange for payment. Seller’s bank exchanges
bill of lading for payment from a buyer’s bank. Buyer’s bank exchange bill of lading for
payment from buyer.
Seller Bank
Buyer Bank
Seller Buyer
Carrier
Seller Bank
Seller Buyer
Carrier
1. Applicant
The applicant is the party who requests and instructs the issuing bank to open a letter of
credit in favor of the beneficiary. The applicant usually is the importer or the buyer of
goods and/or services. The applicant can also be another party acting on behalf of the
importer, such as a confirming house. The confirming house is equivalent to a buying
office, it acts as an intermediary between buyer and seller, and it can be located in a third
country or in the seller’s country.
3.Issuing Bank
The issuing bank's liability to pay and to be reimbursed from its customer becomes
absolute upon the completion of the terms and conditions of the letter of credit. Under the
provisions of the Uniform Customs and Practice for Documentary Credits, the bank is
given a reasonable amount of time after receipt of the documents to honor the draft.The
issuing banks' role is to provide a guarantee to the seller that if compliant documents are
presented, the bank will pay the seller the amount due and to examine the documents, and
only pay if these documents comply with the terms and conditions set out in the letter of
credit.Typically the documents requested will include a commercial invoice, a transport
document such as a bill of lading or airway bill and an insurance document; but there are
many others. Letters of credit deal in documents, not goods.
4.Advising Bank
An advising bank, usually a foreign correspondent bank of the issuing bank will advise the
beneficiary. Generally, the beneficiary would want to use a local bank to insure that the
letter of credit is valid. In addition, the advising bank would be responsible for sending the
documents to the issuing bank. The advising bank has no other obligation under the letter
of credit. If the issuing bank does not pay the beneficiary, the advising bank is not
obligated to pay.
1.Commercial and stand by L/C: Commercial letters of credit are used primarily to
facilitate foreign trade. The commercial letter of credit is the primary payment mechanism
for a transaction. It is a contractual agreement between a bank, known as the issuing bank,
on behalf of one of its customers, authorizing another bank, known as the advising or
confirming bank, to make payment to the beneficiary. The issuing bank, on the request of
its customer, opens the letter of credit. The issuing bank makes a commitment to honor
drawings made under the credit. The beneficiary is normally the provider of goods and/or
services. Essentially, the issuing bank replaces the bank's customer as the payee The
standby letter of credit serves a different function. The standby letter of credit serves as a
secondary payment mechanism. The bank will issue the credit on behalf of a customer to
provide assurances of his ability to perform under the terms of a contract. A bank will
issue a standby letter of credit on behalf of a customer to provide assurances of his ability
to perform under the terms of a contract between the beneficiary. The parties involved
with the transaction do not expect that the letter of credit will ever be drawn upon. The
standby letter of credit assures the beneficiary of the performance of the customer's
obligation. The beneficiary is able to draw under the credit by presenting a draft, copies of
invoices, with evidence that the customer has not performed its obligation. The bank is
They are issued by banks to stand behind monetary obligations, to insure the refund of
advance payment, to support performance and bid obligations, and to insure the
completion of a sales contract. The credit has an expiration date.The standby letter of
credit is often used to guarantee performance or to strengthen the credit worthiness of a
customer. In the above example, the letter of credit is issued by the bank and held by the
supplier. The customer is provided open account terms. If payments are made in
accordance with the suppliers' terms, the letter of credit would not be drawn on. The seller
pursues the customer for payment directly. If the customer is unable to pay, the seller
presents a draft and copies of invoices to the bank for payment.
3) Sight or usance letter of credit: All letters of credit require the beneficiary to present
a draft and specified documents in order to receive payment. A draft is a written order by
which the party creating it, orders another party to pay money to a third party. A draft is
also called a bill of exchange. There are two types of drafts: sight and time. A sight draft is
DATE OF ISSUE :
This clause shows that date on which the opening bank has issued the L/C.
AMOUNT OF CREDIT IN :
US DOLLARS /EURO/ANY
OTHER FREELY
EXCHANGEABLE CURRENCY
(IN FIGURES & WORDS)
SHIPMENT TO :
It’s that place where the goods are sending by the seller. And generally its that country
where the buyer lives.
DESCRIPTION OF GOODS :
Description of Materials
Size ( in mm) and Quantity (in MT)
Specification
Tolerance
Quantity
Quantity Tolerance
Price per MT (in USD/Euro/any other freely exchangeable currency)
DOCUMENTS REQUIRED :
Beneficiary’s Commercial Invoice - one original plus two signed copies covering
materials shipped. Invoices will be raised on the basis of (THEORETICAL/ ACTUAL/
DRAFT SURVEY) WEIGHT.
After opening the L/C concerned unit makes the sale to the customers as per agreed
terms and conditions stipulated in the L/C. Then concerned unit sent the invoice and
other papers to the centralized accounting cell for lodging the documents with the
bank.. This documents consists of
Bill of exchange
Original invoice
Original G/r copy
Packing list
Copy of L/C
On the Due date mentioned in the L/C, we receive the realization advice from the bank,
where we have lodged the document drawn under L/C. after getting the advice from the
bank, we credit the customers with the amount we have realized
To bank XXXX
( BEING AMOUNT OF OVERDUE INTEREST DEBITED
TO PARTY ACCOUNT AGST IBD NO. ON DATED
2. Bill Receivables
3. Sundry Debtors
5. Inventory of Stock
6. Prepaid expenses
Production policy.
Seasonal variation.
Credit policy
Business cycle.
Other factors.
Working Capital is the blood and the nerve centre of business. Just as the blood circulation
is essential in the human bodies for maintaining life, working capital is very important to
maintain the running of business. No business can run successfully without an adequate
amount of working capital.
The advantages are as follows:
Solvency of the business. Adequate working capital helps in maintaining solvency
of the business by providing uninterrupted flow of production.
Goodwill. Sufficient working capital enables a business concern to make prompt
payments.
Easy loan. A concern having adequate working capital high solvency and good
credit standing can arrange loans from banks and others on easy terms.
Cash discounts. Adequate working capital also enables a concern to avail cash
discounts on the purchase and hence it reduces costs.
Regular payments of salaries, wages and other day to day commitments. A
company which has adequate working capital can make regular payments of
salaries, wages and other day to day commitments with raises the morale of its
employees, increases their efficiency, reduces wastages and enhances production
and profits.
Exploitation of favorable market conditions. Only concerns with adequate
working capital can exploit favorable market conditions such as purchasing its
requirement in bulk when the prices are lower and holding its inventory for higher
prices.
Ability to face crises. Adequate working capital enables the concern face business
crises in emergencies such as depression because during such periods, generally,
there is much pressure on working capital
To incur day-to-day expenses and overhead costs such as fuel, power and office
expenses etc.
The operating cycle refers to the length of the length of time between the firms paying the
cash for the material, entering into the production process\stock and the inflow of cash
from debtors. There is a complete cycle from cash to cash where in cash gets converted
into raw material, work-in-progress, finished goods debtors and finally in cash. Short-term
funds are required to meet the requirements of the funds during this time period this time
period depends on the length of time within which the original cash gets converted into
cash again. The determination of working capital cycle helps in the forecast, control and
management of working capital. It indicates the total time lag and the relative significance
of constituent parts.
FINISHED GOODS
WORK-IN-PROGRES
DEBTORS
RAW MATERIAL
CASH
The bank credit is the primary institutional source of working capital finance. The bank
provides finance through loan agreements, overdrafts, cash credit, purchasing of bills, and
term loans. Banks have been certain norms in granting working capital finance to
companies. These norms have been greatly influenced by the recommendation of various
committee appointed by RESERVE BANK OF INDIA from time to time.
VARDHMAN TEXTILES LIMITED finance his working capital from the different banks
like ICICI BANK, STATE BANK OF INDIA, ALLAHABAD BANK,PUNJAB
NATIONAL BANK. Company finances the amount according to its need according to its
need of working capital requirement.
BANKS RS
ICCI 5 crore
Bill Payable
Sundry creditors
Outstanding expenses
Dividend payable
Bank overdraft
1. Bergami Robert (2007) analysis that that international trade transactions carry
inherently more risk than domestic trade transactions, because of differences in
culture, business processes, laws and regulations. It is therefore important for traders
to ensure that payment is received for goods dispatched and that the goods received
and paid for comply with the contract of sale. One effective way of managing these
risks has been for traders to rely on the letter of credit as a payment method. However
for exporters in particular, the letter of credit has presented difficulties in meeting the
compliance requirements necessary for the payment to be triggered. The current rules
that govern letter of credit transactions(UCP 500) have been under review for the past
three years and an updated set of rules (UCP 600) is expected to be introduced on
1July 2007. This paper focuses on the changes mooted for 2007and compares these
main issues with the existing rules and other associated guidelines and regulations
governing this method of payment. This paper considers the implication to changes of
letter of credit transactions and the sharing of risk. Firstly the paper provides some
background to letters of credit, then comments on existing literature and models, and
subsequently an analysis of the most important changes to the existing rules, before
reaching a conclusion. The conclusion is that the UCP 600 have not paid enough
consideration to traders and service providers and are likely to engender an
environment of uncertainty for exporters in particular.
2. Dolan John (2007) analysis that The Law of Letters of Credit – Commercial and
Standby Credits is the four the Edition of a traditional treatise on a rather narrow legal
subject. Letters of credit fall into two categories: (1) commercials, which find use in
international sales; and (2) standbys that are a common device in many domestic
transactions. As international trade becomes more and more rationalized, the use of
commercials has diminished; but the use of the standby has enjoyed something of a
3. Padachi Kesseven (2006 ) analysis that A well designed and implemented working
capital management is expected to contribute positively to the creation of a firm’s
value The purpose of this paper is to examine the trends in working capital
management and its impaction firms’ performance. The trend in working capital needs
and profitability of firms are examined to identify the causes for any significant
differences between the industries. The dependent variable, return on total assets is
used as a measure of profitability and the relation between working capital
management and corporate profitability is investigated for a sample of 58small
manufacturing firms, using panel data analysis for the period 1998 –2003. The
regression results show that high investment in inventories and receivables is
associated with lower profitability. The key variables used in the analysis are
inventories days, accounts receivables days, accounts payable days and cash
conversion cycle. A strong significant relationship between working capital
management and profitability has been found in previous empirical work. An analysis
of the liquidity, profitability and operational efficiency of the five industries shows
significant changes and how best practices in the paper industry have contributed to
performance. The findings also reveal an increasing trend in the short-term component
of working capital financing.
6. Schelin Johan (2004) studied that This thesis give a historical introduction in foreign
trade and letters of credit. The reasons for using letters of credit will be shown. The
legal relationships of the concerned parties will be analysed. The doctrine of strict
compliance will be explained. Then problems will be worked out: the different
interpretation of strict compliance, the fraudulent exception and questions of liability if
the doctrine of strict compliance was not carefully used. The thesis bases on German
law, but tries, whenever useful, to compare with law of other countries and / or
International law. At the end of the thesis a critical outlook will follow. The analyse of
problems concerning the strict compliance lead to the result that still today, about 100
years after letters of credit became a common method to pay, problems exist. One of
these problems is the different interpretation of courts in different countries. Especially
the considerations of German courts that strict compliance must be interpreted in the
frontiers of good faith and that letters of credit must be interpreted as will declarations.
7. Shelton Fred (2002) studied that Working capital, an important liquidity indicator, has
historically been a major benchmark of the surety and credit-granting institutions. In
today’s environment, because of the tight bond and credit markets, both institutions
are scrutinizing the amount and quality of working capital more than ever. The fewer
resources that need to be invested in working capital, after recognizing liquidity risk,
the better.
9. Mills Geofrey (1996) analysis that the impact of inflation on the capital budgeting
process. It has shown that it is reasonable to expect that the cost of capital will increase
at the same rate as the rate of inflation on an ex ante basis, and that this increase will
be a multiplicative relationship. In addition, the paper has shown that the capital
budgeting process is not neutral with respect to inflation, even if output prices rise at
the same rate as costs. Of critical importance is the degree of net working capital as a
proportion of the overall financing required, the higher the net working capital the
greater being the impact of inflation on capital spending. Finally, it would appear that
corporate financial behavior is influenced by inflation. Inflation will cause the firm to
reduce its capital budget, to attempt to reduce net working capital, and to alter the
debt/asset ratio using short term debt, thus driving up short term rates relative to long
term rates.
Vardhman is a major integrated textile producer in India. The Group was setup in 1965
at Ludhiana, Northern India. Since then, the Group has expanded manifold and is today,
one of the largest textile conglomerates in India. The Group portfolio includes
Manufacturing and marketing of Yarns, Fabrics, Sewing Threads, Fiber and Alloy Steel.
The group started its corporate journey with an installed capacity of 6000 spindles in
1965 under the flagship company Vardhman Spinning & General Mills Limited (now
known as Vardhman Holdings Limited and is an investment arm of the Group) in
Ludhiana. Over the years the group has expanded its spinning capacities besides adding
new businesses. The group has also diversified into yarn processing, weaving, And
Sewing Thread, fabric processing, acrylic fiber manufacturing and into special/ alloy
steels. Today, close to 20,000 people are the Organization is most important asset its
human capital
The Vardhman group comprises of three listed and two unlisted companies-
Listed Companies
Listed companies
Vardhman Textiles Limited (formerly Mahavir Spinning Mills Limited)
Vardhman Acrylics Limited
Vardhman Holdings Limited1 (formerly Vardhman Spinning & General Mills
Limited)
Unlisted Companies
VMT Spinning Company Limited
Vardhman Threads Limited
The “Flame” signifies growth i.e. growth of the company along with the growth of each
and every individual associated with it whether he/she is a worker , a white collar
employee, a shareholder or a customer.
The “Stick” symbolizes cotton that is the basic raw material of the core product of
Vardhman. The “V” stands for the Vardhman Group
.
The industrial city of Ludhiana, located in fertile Malwa region of central Punjab is known
as the “MANCHESTER OF INDIA”. Within the precincts of the city is located
The corporate head quarters of Vardhman group, A household name in northern India.
The Vardhman group , born in 1965 under the entrepreneurship of late Lala Rattan Chand
Oswal has today blossoms into the one of the larger textile business houses in India .
At its inception, vardhman has installed capacity of 14000 spindles. Today: its capacity
has increase multifold to over 5.5 lacs spindles. In 1982 the group enters sewing threads
market in company, which was the forward integration of business. In 1990, it undertook
yet another diversification – this time into the weaving business. The grey fabric weaving
unit at Baddi, commissioned in 1990 with a capacity of 20,000 meters per day , has
already made its mark as a quality producer of grey poplin, sheeting, shirting in the
domestic as well as foreign market . This was followed by entry into fabric processing by
setting up of AURO TEXTILES at BADDI, which currently has a processing of 1,00,000
meters per day. In the year 1999, the group has added yet another feather to its cap with a
setting of VARDHMAN ACRYLICS LTD in. The company also has a strong presence in
the markets of JAPAN, HONG KONG, KOREA, and UK & EUROPE in addition to the
domestic market. Adherence to systems & true dedication to quality has resulted in
obtaining the coveted ISO 9002/ISO 14002 quality awards which is the first in
textileindustry.
Faith in bright future of Indian textile industry & hence continues expansion areas
“which we know best”.
Products to be of best available quality for premium market segments through TQM &
ZERO DEFECT implementation in all functional areas.
World class manufacturing facilities with most modern R&D & process technology
MISSION
VARDHMAN aims to be a WORLD CLASS TEXTILE organization producing diverse
range of products for the global textile market. VARDHMAN seeks to achieve customer
delight through excellence in manufacturing & customer service based on creative
BOARD OF DIRECTORS
VICE PRESIDENT
MANAGERS (M1-M4)
EXECUTIVES (E1-E2)
OFFICERS (O1-O2)
STAFF (S1-S4)
Vardhman Spinning and General Mills Ltd. was the 1st textile company to be awarded
ISO-9002 and ISO-14002 certificate in 1993.
It is the largest manufacturer and exporter of cotton yarn from India.
It is the second largest producer of sewing threads in Indi
It is a larger producer of acrylic fiber and finished fabrics
GROUP OF COMPANIES
Y Yarn
C Cotton Yarn
F Fabric
Spindle Capacity
Fabric Business
Fabric Production in Lac (100 thousand) Metres/Month
Auro Textiles (Existing) 42
Post Expansion 85-90
Steel Business
Production in Metric Tonnes/Annum
SMS 100000
Rolling Mill 84000
Yarns
The group is one of the largest spinning group of the country with a spindlier of over
5, 50,000. The group has 12 production plants located in the states of Punjab, Himachal
Pradesh and Madhya Pradesh. In many of the yarn market segments, Vardhman holds
the position of market leader besides being a large and reliable supplier in the country.
Vardhman is also the largest exporter of yarn from India. The group yarn exports amount
to over US$ 100 million covering the most quality conscious markets in theworld. The
total export of Cotton yarn of the group is about 6% of total export of cotton yarn from
the country.
Sewing Threads
Vardhman entered the Sewing thread business in 1982 as a forward integration to its
yarn business. The group had to struggle for survival being pitted against a large
multinational organization. Today with approximately 25 metric tonne/per day of sewing
thread manufacturing capacity in its plant at Hoshiarpur, Ludhiana, Baddi & Perundurai.
Vardhman threads have emerged as second largest sewing thread brand in the country.
Fibre
In 1999 the group set up an Acrylic staple fibre plant at Bharuch in Gujarat in
collaboration with Marubeni and Japan Exlan of Japan. The plant has annual capacity of
18500 metric tonnes per annum.
Steel
The steel business was setup in 1973 as diversification with a capacity of 35000 million
tones per annum. Later on group acquired a steel plant from Mohta Group of Industries
in 1988 and converted this loss making unit into a profitable business in first year of
operation with the Group. Subsequently the steel mill has been modernized and
expanded to a capacity of 100000 million tonnes per annum. Catering to high technology
Quality conscious alloy steel segment, the unit has a reputation of being a dependable
FINANCIAL STATUS
% SALES REVENUE
fabric, 13%
steel, 15%
yarns , 57%
sewing
thread, 15%
Every company is required to maintain proper books of account to record all the
transactions in the course of its business operations .it is necessary that the transactions
should be properly accounted for in the books of account so that they give a true and fair
view of the state of affair of the business.
Accounting is a service activity. Its function is to provide quantitative information
primarily of financial nature about economic entities that is intended to be useful in
making economic decision, in making reasoned choices among alternative course of
action
Accounting records only monetary transactions. Events of transactions which can not be
expressed in money, do not find place in the booked of account though they may be very
useful for the business.
The life of the business is divided in to appropriate segments for studying the results
shown by the business after each segment. this is because though life of the business is
considers to be indefinite ,the measurement of the income and studying the financial
position of the business after a very long period would not be helpful in taking proper
corrective steps at the appropriate time . It is therefore, necessary that after each segment
or time interval the businessman must stop and see back how things are going. in
accounting such a segment or time interval is called accounting period it is usually of a
year started from April and ended on March.
At the end of each accounting period an income statement and balance sheet are
prepared. The income statement discloses the profit & loss made by the business during
the accounting period while balance sheet depicts the financial position of the business
as on the last day of the accounting period. While preparing these statements a proper
Economic activities are those which includes buying and selling of goods and services
for purpose of profit. These activities are related to business. The main objective of the
business is to earn profits. This exchange is termed as TRANSACTION. A transaction
means a transfer from one person to another in money or money’s worth. Hence,
exchange of money, goods or services between persons or parties is known to have
resulted in a transaction. In each organization transactions are effected. The goods are
purchased from one market at a certain rate and then these goods are sold in another
market at higher price. However , in some cases organizations incur some losses instead
of profits, which may occur due to any reasons. So to achieve the purpose of recording a
will devised system plays a dominant role in an organization.
In VARDHMAN SPINNING AND GENERAL MILLS there is a finance department
headed by Mr.Bhushan Punj. ERP system is installed to deal with the finance problems
and to derive the maximum benefits of ERP system a concept of ‘ CENTRALISED
ACCOUNTING CELL’. Under this concept of centralization, all types accounting of
Debtors and Creditors of all units at one single platform i.e. at accounts department
VARDHMAN Ludhiana. The basic reason behind its implementation was to improve the
accounting relating to the customers and suppliers
Accounts Department
Accounts Payable
ACP
Accounts Receivable
ACR
Accounts Receivable is the amount owed to a company from customers who have
purchased goods or services on credit.
Account Receivable is a multi-company and open item debtors system and is fully
integrated with Configurable Enterprise Accounting (General Ledger). Customer
accounts can be maintained for one or multiple companies. Every invoice or payment
transaction can be stored separately, enabling individual payments to be applied
against individual invoices for the customer. Unpaid or partially paid invoices remain
on file until paid or written off. Accounts Receivable collects and reports information
to assist in collecting receivables, assessing credit and reducing bad debt. It generates
an audit report during each transaction posting session indicating that all transactions
are posted during the session.
ACR Reports and Inquires – This includes aging, standard receivable reports and
inquiries to assist in managing Accounts Receivable operations effectively.
Process Flow
Configurable
Ledger
ACR
Reports
Account
Inquiry
ACR Setup
This chapter describes in detail various setup for system parameters and master files
required for implementation of BPCS ACR module. These are explained as below.
• Company Name
• Address
• Currency Code
Compa Name
ny
Code
VARDHMAN TEXTILES
20
LIMITED.
40 VMT SPINNING MILLS LTD.
50 VARDHMAN THREADS LTD.
Reason Code - Reason codes are used to link a transaction in Cash and Memo
posting with an event. It allows creating journal entries and posting them to General
Ledger. (Described in detail in Configurable Enterprise Financial Manual Part-1). In
Vardhman setup following are some examples of reason codes being used and the
complete list is available in the system
Reas
Unit Event Name
on
Customer
Description
Type
FBD FABRIC – DOMESTIC
FBE FABRIC – EXPORTS
YND YARN – DOMESTIC
YNE YARN – EXPORTS
SCD SCRAP DOMESTIC
WSD WASTE DOMESTIC
STD SEWING THREAD – DOMESTIC
STE SEWING THREAD - EXPORTS
Bank Code – It is a three character alphanumeric code used along with company and
currency to define a unique bank account code. At least one valid bank code must be setup
before issue any cash payment. In Vardhman setup following are some examples of bank
codes being used and the complete list is available in the system.
Document Sequence
Co Prefix
de
20 VARDHMAN EV DIRECT INVOICING
SPG &
GENERALMILL
S
20 ARISHT SPG ZB BILLING FROM SALE
• Company code
• Address
• Phone Number
• Fax Number
• Customer Type
• Payment type
• Term Code
• Credit Days
• Credit Limit
• Document Prefix
In Vardhman setup following are the ranges used for codifying different types of
customers.
ACR Processing
Here we will describe in detail the steps required to process following types of transactions
available in Accounts Receivable Application.
ACR REPORTS
Report Name
• Customer Outstanding Unit Wise
• CMY Customer Outstanding Exception Report
• Payment not received against Invoices
• Customer Outstanding Invoice Wise (buckets)
• Collection breakup summary
• Customer outstanding (cmy)
• Customer outstanding prefix wise as on date
• Zone/ agent wise customer wise outstanding
• Product wise outstanding
• Customer wise invoice details
• Sales tax return (within state & out of state), bt, consignment agents
• Interest calculation
• Customer wise balance confirmation letter
• Cash receipt journal
YARN
The VARDHMAN range of yarn was a humble beginning. Tree decades of hard work,
commitment and constant innovation have resulted in well earn trust and goodwill of our
customers across the globe.
At VARDHMAN we move with a notion that customer serves is a way of life. We strive
to provide our customers delight with 3P service –PROMPT, POLITE
&PERSONALIZED
It today have a capacity of over half a million spindles along with two dyeing plants
bearing a capacity of more than 27 tones yarn & 22 tones fibers per day. Our goal,
therefore calls for serving our customers with multiple of products meeting the most
diverse of requirement. This, infect has position VARDHMAN as a” SUPER MARKET
of high quality yarn”.
YARN OPERATIONS
The unique combination of man & machine, competing & supplementing each other
with continuos increase in productivity has enable VARDHMAN to dexterously ripe the
fruit of economies of scale & process variety of raw material required for variety of end
products to textiles.
Evenness results falls in 5% to 15% of user standards achieved through
DOMESTIC COLLECTION
Domestic collection means collection, which are collected by Ludhiana branch and
corporate centralized market yarns department. in this system they collect the cheque or
demand draft from the yarns customers and handed over it over to the centralized
accounting cell for the depositing the same in to the bank on daily basis. After receiving
all cheque on a particular day the e centralized accounting cell deposit the instruments in
to the bank for clearing.
After depositing the collections into the bank, the ACR section account for the same in
respective customer’s accounts on basis of advise sent to bank on day -to -day basis.
RESEARCH METHODOLOGY
DATA TYPE
SAMPLE SIZE
The sample size for the study of the project was yarn division of VARDHMAN GROUP
LTD.
RESEARCH DESIGN
STEP 1- To study the ACR module of yarn division
STEP 2 – understanding various methods used for collection of debtors to study
procedure followed for LC in Vardhman
STEP 3 – Data Analysis of working capital through Ratios
DATA COLLECTION
The information is collected through the PRIMARY SOURCES like:
Talking with the employees of the department.
Getting information by observations e.g. in manufacturing processes.
Discussion with the head of the department.
Data was collected from following SECONDARY SOURCES like
1. Corporate department
a) Marketing department
b) Finance department
2. ACR reports
3. MIS Department
The collected information was edited & tabulated for the purpose of analysis.
CURRENT LIABILITIES
CURRENT RATIOS
12
10
8
CURRENT
6 11.2 RATIOS
4 6.71
2
0
2006-07 2007-08
Interpretation:
A relatively high current ratio is an indication that the firm is liquid and has ability to
pay its current obligations in time as and when they become due. On the other hand, a
relatively low current ratio represents that the liquidity position of the firm is not good
and the firm shall not be able to pay its current liabilities in time without facing
CURRENT LIABILITIES
CURRENT
LIABILITIES 102,809,874.03 160,310,964.06
LIQUID RATIO
5
4
3
LIQUID RATIO
2 4.19
1 1.56
0
2006-07 2007-08
Interpretation:
Usually, a high acid test ratio is an indication that the firm is liquid and has the ability to
meet its current or liquid liabilities in time and on the other hand a low quick ratio
represents that the firm’s liquidity position is not good.
As a rule of thumb or as a convention quick ratio of 1:1 is considered satisfactory.
CURRENT LIABILITIES
0.05
0.04
0.03 ABSOLUTE
0.02 0.045 LIQUID RATIO
0.029
0.01
0
2006-07 2007-08
Interpretation:
4.8
4.7
4.6 STOCK
4.76 TURNOVER
4.5 RATIO
4.4 4.46
4.3
2006-07 2007-08
Interpretation:
Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually,
a high inventory turnover indicates efficient management of inventory because more
frequently the stocks are sold; the lesser amount of money is required to finance the
inventory. A low inventory turnover implies an inefficient management of inventory. We
can clearly view that stock turnover ratio has improved.
AVERAGE DEBTORS
30
25
20 DEBTORS
15 TURNOVER
25.09
10 RATIO
5 11.81
0
2006-07 2007-08
Interpretation:
Debtors velocity indicates the number of times the debtors are turned during the year.
Generally, the higher the value of debtors turnover the more efficient is the management
of debtors/sales or more liquid are the debtors. Similarly, low debtors turnover implies
inefficient management of debtors/sales and less liquid debtors.
We can see debtors turnover ratio 25.09 is very high which may imply a firm’s inability
due to lack of resources to sell on credit thereby losing sales and profits
15
2006-07
2007-08
31
Interpretation:
AVERAGE CREDITORS
16
15
14 CREDITORS
TURNOVER
13 14.9 RATIO
12 12.77
11
2006-07 2007-08
Interpretation:
The ratio indicates the velocity with which the creditors are turned over in relation to
purchases. Generally, higher the creditors velocity better it is or otherwise lower the
creditors velocity, less favorable are the results
24 2006-07
29 2007-08
Interpretation:
The average payment period ratio represents the average number of days taken by the
firm to pay its creditors. lower the ratio the better the liquidity position of the firm, as in
2207-08 Vardhman payment period reduces to 5 days its shoe the liquidity position of
company increased.
5
4
WORKING
3 CAPITAL
2 4.01 TURNOVER
3.2 RATIO
1
0
2006-07 2007-08
Interpretation:
This ratio indicates the number of times the working capital is turned over in the course
of year. This ratio measures the efficiency with which the working capital is being used
by a firm.
A higher ratio indicates efficient utilization and low ratio indicates otherwise.
But a very high ratio is not a good situation for any firm and hence care must be taken
while interpreting the ratio
SALES
NET PROFIT
10.4
10.2 10.2
10
NET PROFIT
9.8 9.78
9.6
9.4
2006-07 2007-08
Interpretation:
The ratio is very helpful as if the profit is not sufficient, the firm shall not be able to
achieve a satisfactory return on its investment. This ratio also indicates the firm capacity
to face adverse economic conditions such as price competition, low demand, etc.
Higher the ratio, the better is the profitability
A. C.ASSETS
B. C.LIABILITIES
Interpretation:
LIMITATIONS
Working capital is powerful tool of determining company’s strength and weakness. But
the analysis is based on the information available in the financial statements, which are
as follows:
Working capital study is only based upon monetary information and non-
monetary factors are ignored.
As working capital is prepared on the basis of going concern, it does not give
extract position. Thus accounting concept and conventions causes a serious
limitation to financial analysis.
Analysis is only a mean and not an end in itself. The analyst has to make
interpretation and draw his/her conclusion. Different people may interpret the
same analysis in different ways.
1. Standard current ratio is 2:1 and for industry it is 1.33:1. Vardhman ratio not satisfied
4. Debtors of the company were high; they were increasing year by year, so more funds
were blocked in debtors. But now recovery is becoming faster.
5. Debtors turnover ratio is increase which is beneficial for the company because as
ratio increases the number of days of collection for debtors decreases.
6. Inventory turnover ratio is improved which means inventory is used in better way so
it is good for the company.
The sale of Vardhman Group is more in Ludhiana market in comparison to other mills.
The customers are giving faith in its quality. Oswal, Malwa & Sharman respectively
stand in close competition with Vardhman. The price of Vardhman for all yarns are the
highest because of its high quality standards and their expense on extensive sales
promotion. The other factors that contribute for its maximum sales are its timely supply
In this project we have discussed what is letter of credit and how inland bill discounting
done under it and working capital and help in analysis short term financial position of
company
Letter of credit means when a bank or finance company issues a document on behalf of
an buyer, authorizing the seller to obtain payment within a specified timeframe once the
terms and conditions outlined in the letter of credit are met.
Working Capital is the lifeline of every industry, irrespective of whether it’s a
manufacturing industry, services industry. Working Capital is the prime and most
SUGGESTIONS
Since the customer is very specific in terms of value so the company can introduce
new and alternative products whenever possible by adjusting the raw-material
mixing as a result achieve better profitability.
Not only for yarn customers but for other product customer dealing under letter of
credit should done
• REFERENCE TO A BOOK
1. Bergami Robert, (2007), “Will the UCP 600 Provide Solutions to Letter of
Credit Transactions?” International Review of Business Research
Papers,Vol.3 No.2, June 2007, Pp. 41 - 53
• WEB PAGES
www.google.com
http://en.widipedia.org/wiki/Letters_of_credit
www.vardhman.com