Project Report

(Project Semester 1June-15July 2019)

“(Comparative study on working capital management through ratio analysis of
financial year 2018-19 & 2017-18)”
Submitted by

(Radhika Bhatia)
Student ID: 17BBAN055

ICONIC FASHION RETAILING PVT LTD

Under the Guidance of

Faculty Internship Guide: Dr Monu Kuruvilla

Designation: Assistant Professor

Industry Guide: Mr Shankar Sharma

Designation: Accounts head

Faculty of Management

JECRC UNIVERSITY, JAIPUR

1June To 15 July, 2019

1
CERTIFICATE

2
 Declaration

I hereby declare that the project work entitled “working capital management”
is an authentic record of my own work carried out at “Jaipur” as requirements
of six months project semester for the award of degree of “BACHELOR OF
BUSINESS ADMINSTRATION (BBA)”. All the data represented in this
project is true and correct to the best of my knowledge and believe.

I also declare that this project report is my own preparation and not copied
from anywhere else.

I also declare that all the information collected from various secondary sources
has been duly acknowledged in this project report.

Date

15/7/2019

Signature

3
 Preface

This project report has been prepared in partial fulfillment of the requirement
for B.B.A. in Semester V in the academic year 2019-20. To prepare the project
report, I have spent my internship schedule in ICONIC FASHION
RETAILING PVT LTD, during the period of 45 days. The learning and
knowledge gained during my practical studies at the company is presented in
this project report.

I have put my best efforts to compile the information and data to the best level
of accuracy for preparation of the project report.

4
 ACKNOWLEDGEMENT
This project is an insightful experience of my internship at ICONIC
FASHION RETAILING PVT LTD, JAIPUR. I would like to thank Dr. Monu
Kuruvilla (Assistant Professor, JECRC University, Jaipur) for not only giving
me the opportunity to work on this project, but also provided me with sound
guidance and the necessary facilities to carry out the project. I thank him for
giving me numerous assignments beyond my project and expose me to the
entire gamut of activities and made me to learn more beyond my project. Also,
I’m thankful to Mr. Shankar Sharma (Accounts Head) at ICONIC FASHION
RETAILING PVT LTD, JAIPUR, for supporting me all through the internship
duration at the company.

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 TABLE OF CONTENTS

SR.
NO. CHAPTERS PAGE NO.
1 TITLE 1
2 CERTIFICATE 2
3 DECLARATION 3
4 PREFACE 4
5 ACKNOWLEDGEMENT 5
6 TABLE OF CONTENTS 6
7 ABSTRACT 7
8 INTRODUCTION 9
9 COMPANY PROFILE 13
10 BOARD OF DIRECTORS 14
11 REVIEW OF LITERARTURE 15
12 RESEARCH OBJECTIVE & METHODOLOGY 19
13 STATEMENT OF THE PROBLEM 20
14 OBJECTIVE OF THE STUDY 25
15 SCOPE OF THE STUDY 27
16 NEED AND IMPORTANCE OF THE STUDY 28
17 LIMITATION OF THE STUDY 29
18 CONCEPTUAL DISCUSSION 30
19 DATA COLLECTION METHOD 59
20 DATA ANALYSIS 65
FINDINGS, SUGGESTIONS AND
23 CONCLUSION 73
24 MAJOR FINDING 74
25 CONCLUSION OF THE STUDY 75
26 SUGGESTIONS AND RECOMMENDATIONS 75
27 ANNEXURE 76
28 SUPPORTING DOCUMENT 77
29 BIBLIOGRAGHY 79

6
 Executive Summary

This project entitled “A study on Working Capital Management of Iconic

Fashions Pvt Ltd” is aimed at finding out. In this, project an attempt will be
made to understand the concept will be made to understand the concept of
Working Capital managed by the Iconic Fashions Retailing Pvt Ltd. The study
is also made to understand the flow of funds required to run the daily
operations of the company and also the liquidity position of the company.
Working capital constitute a major portion of its resources, a thorough study
of its working capital management will be done broadly covering: Receivables
Management, cash management and inventory management.

The company wants to know, about the working capital management of

retailing industries towards Iconic Fashion Retailing Pvt Ltd in Jaipur city.
And what are the other factors considered by the investors while selecting a
mutual fund and to state the investment objective after each investment is
made.

To achieve the objective I have collected data from different financial

statement of previous years and firm’s CA in the form of analyzing.

7
 ABSTRACT

This project is based on the study of working capital management in

ICONIC FASHION RETAILING PVT LTD. An insight view of the project
will encompass – what it is all about, what it aims to achieve, what is its
purpose and scope, the various methods used for collecting data and their
sources, including literature survey done, further specifying the limitations of
our study and in the last, drawing inferences from the learning so far.

The working capital management refers to the management of working

capital, or precisely to the management of current assets. A firm’s working
capital consists of its investments in current assets, which includes short-term
assets— cash and bank balance, inventories, receivable and marketable
securities. This project tries to evaluate how the management of working
capital is done in ICONIC FASHION RETAILING PVT LTD through
inventory ratios, working capital ratios, trends, computation of cash,
inventory and working capital, and short-term financing.

Though, short span of 45 days was bit less for learning as there was huge
number of things to learn from, still tried my best to gain some good practical
knowledge over there.

8
Chapter 1
INTRODUCTION

9
ICONIC FASHION RETAILING PRIVATE LIMITED is a fashion brand
where popular brands are found under one roof. ICONIC FASHION
RETAILING PRIVATE LIMITED was registered at registrar of the
companies Jaipur on 13th May 2011. and is categorized as Company limited by
Shares and a Non-govt company. Iconic Fashion Retailing Private Limited's
Corporate Identification Number (CIN) is U17119RJ2011PTC035188 and
Registration Number is 035188. ICONIC FASHION RETAILING PVT LTD
registered address on file is 601, 6th floor Ganga Heights SB-154, Tonk road,
Jaipur RJ 302015, Rajasthan, India. The company is involved in
manufacturing - textiles activities. The main objects to be pursued by the
company on its incorporation are, to carry on the business of manufacturers,
importers and exporters, whole sale and retail dealers of and in men’s,
women’s and children clothing and wearing apparel of every kind, nature and
description including shirts, bush- shirts, pajamas suits, vests, suits, foundation
garments for ladies dresses, braissers, maternity belts, knee caps, coats
nighties and so on. To carry on the business of manufacturers, importers and
exporters, whole sale and retail dealers of and hosiery goods of every kind,
nature and description for men, women and children including vest, socks,
stockings, sweaters, laces and so on and of all or anything which is used in
hosiery goods. To carry on the business of manufacturers, stitebers robe,
readymade garments and apparels and all kinds of synthetic fibers and woolen
fabric and all other types of materials as may be conveniently carried by the
business firms.

ICONIC FASHION RETAILING PRIVATE LIMITED includes as many as

110 brands – international and indigenous brands. Few famous brands
included are TOMMY HIFIGER, VERO MODA, GAP, CALVIN KLIEN,
FOREVER, NAUTICA, JACK & JONES, LABEL, TOM TAILOR, GANT,
ONLY, etc. It has its personal brand too that is ROOTED & ICONIC KIDS.

The journey of Iconic began in 2013 with an ambitious goal to make fashion
accessible. Back by the grass root understanding of the retail industry in India,
they bring some of the choicest brands under a single roof that cater to the

10
needs of the affluent customer whilst maintaining the value and pride of
international brands that they have on board. They have a growing portfolio of
domestic and international brands through dedicated retail outlets at premium
locations across India. In just few years, they have grown from 8 brands to
more than 110 brands. Iconic store offers luxuriant and contemporary
shopping vibe across 17 stores in cities like Delhi, Gurgaon, Noida, Bangalore
Hyderabad, Ahmedabad, Bhubaneshwar, Jaipur, Udaipur and many more.

At Iconic Kids they understand that parenting can be a wonderful, frustrating,

hilarious, exhausting and rewarding time, that’s why they declared a mission
to meet the needs and aspirations of parents for their children. Iconic Kids
carries with them a reputation for quality, safety and innovation in providing
products for babies to young children. With their stores present in Delhi NCR,
Jaipur, Udaipur, Ganganagar, Ahmedabad, Hyderabad, and many more, we
are passionate about their commitment to offering customers a multi- brand
shopping environment under one through a large format retail stores, so that
parents can meet the needs and aspirations for their children easily.

The aim is to build Iconic Kids into India’s leading specialist retailer of
parenting and children’s products, developing innovative and exciting own-
brand under Iconic Kids along with the world renowned brands like Tommy
Hilfiger, Gant, Nautica kids, US Polo, Allen Solly Junior, Adidas junior, Puma
kids, Chicco, Blue giraffe, Bells & whistles, Gini &Jony and many more-
Iconic Kids along with its best in class expertise, brands and specialized staff.

The following are the stores across India:

1. Ahmedabad
 Ahmedabad One Mall
 Iconic Vivan Square Mall
2. Bangalore
 VR Mall
3. Bhiwadi
 Iconic – Capital Mall
4. Bhopal
 Iconic – DB Mall

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5. Bhubaneshwar
 Iconic – Esplanade Mall
6. Delhi
 Iconic – Pacific Mall – Subhash Nagar
7. Ganganagar
 Iconic fashion Retailing
8. Gurgaon
 Iconic – Ambience Mall
 Iconic Kids – Ambience Mall
 Iconic – Ardee Mall
9. Hyderabad
 Iconic Kids – Forum Sujana Mall
10. Jaipur
 Iconic – WTP Mall Jaipur
 Iconic- World Trade Park Mall
 ICONIC – Triton Mall
11. Jodhpur
 Iconic – Jodhpur
12. Noida
 Iconic Fashion – Logix Mall
 Iconic Kids- Mall of India
13. Pune
 Iconic – The Pavillion
14. Udaipur
 Iconic – Celebration Mall

12
 COMPANY DETAILS

Basis Details
CIN U17119RJ2011PTC035188
ICONIC FASHION RETAILING PRIVATE
Company Name LIMITED
Company Status Active
RoC RoC- Jaipur
Registration Number 35188
Company Category Company Limited by Shares
Company Sub Category Non-
Government Company non-Government Company
Class of Company Private
Date of Incorporation 13-05-2011
Age of Company 8 years
Activity Spinning, weaving and finishing of textiles

BOARD OF DIRECTORS

13
The board of directors is a group of persons who jointly supervise the
activities of an organization, which can either be a for profit business, non
profit organization, or a government agency. Such a board’s powers, duties
and responsibilities are determined by government regulations (including the
jurisdiction’s corporations’ law) and the organizations own constitution and
bylaws. These authorities may specify the numbers of the board, how they are
to be chosen, and how often they are to meet.

Number of directors until otherwise determined by the resolution of the

company in general meeting and subject to the provisions of the companies
act,2013 the number of directors shall not be less than 2 and more than 15.
The first directors of the company shall be Pawan Khandelwal and Pramila
Khandelwal. the remuneration of the directors, key managerial personnel
shall be decided by the board in any manner they deem to fit from time to
time. In addition to the remuneration payable to them as decided by the Board,
the directors may be paid siting fees and all traveling, hotel and other expenses
properly incurred by them.

The board of directors of Iconic Fashion Retailing Pvt Ltd are:

The company has 3 directors and 1 reported key management personnel.

The longest serving directors currently on board are Pawan Khandelwal and
Pramila Khandelwal who were appointed on 13th May 2011. They have been
on the board for more than 8 years. The most recently appointed director is
Tejas Chhanlal Joshi, who was appointed on 13th September,2019.

Tejas Chhanlal Joshi has the largest number of other directorships with a seat
at a total of 12 companies. In total, the company is connected to 11 other
companies through its directors.

14
Literature
Review

15
The study is based only on Secondary Data and so, it is an in depth analysis
that tells us that in most cases research work is observed and focused mainly
on two aspects, working capital on profitability of the firm and working
capital management. The chief issues with previous literature are lack of
survey- based approach and lack of methodical theory advance study, which
gives direction is given in this paper may help to develop a better
understanding of determinants and practices of working capital management.

Review of literature is an important step in the empirical research. This will

enable the researcher to find out the research gap where he can concentrate on
for his research. The following are some of the reviews of the studies
previously undertaken by the researchers’ world over. The reviews are
classified as Indian studies and the studies undertaken abroad.

1. AMDT, JOHN, (1964)

In his research enrich says that an important outcome of the interplay
between satisfaction and positive word of mouth may be pointed out as
the positive communication about a textile shop, which will always act
as a ‘reference’ among consumers with regard to both routine and
special buying. This enables the retailers to fortify their market share
ever in the midst of keen competition. A favorable word of mouth
communication increases the profitability of purchase while exposure
to unfavorable comments decreases the probability. Facility for
transaction by credit cards can be pointed out as the recent addition to
the parameters to judge the functional features of textile shop.

2. ASSAEL, H, (1990)
Points out those textile manufactures occasionally introduce new
texture, design, style and color in order to comply with the
requirements of those consumers who are sensitive to novelty and
variety. This trend is very prominent among manufacturers of
readymade garments like jeans, shirt, kids wear and curdier. It is

16
 reasonable to note that consumers are generally resistant to new textile
products if they are costly. Price promotion is a short-term discount
offered to get consumers to try a product. Textile manufacturers
occasionally introduce new texture, design, style and color in order to
comply with the requirements of those consumers who are sensitive to
novelty and variety.

3. AVINASH MAYEKARV (2008)

Presented marketing challenges and opportunities of textile retailers of
both within and outside India. He pointed out that the marketing
challenges before Indian textile industry are immature market due to
the unawareness and consumer behavior, voluminous products,
understanding customer needs absence of research and development
facilities and new products development, lack of support from the
government and secretive markets i.e. no information is available and
higher cost. He also highlighted the following marketing opportunities
for Indian textile industry. Higher demand for table cover and napkins,
eco friendly carry bags decorative wall coverings, decorative floor
coverings, synthetic leather substrate, new product developments i.e.,
innovative market segments, roof liners, interlining, insulation
materials, hygiene products, wipes, cotton pads and uniforms.

4. BELCH, E.G, (1993)

According to often consumers, show much confidence on the
reliability of news paper advertising. The extent of information brought
by newspaper advertisement and its replication will be enable them to
take the appropriate buying decision. Most consumers rely on
newspaper not only for news, information and entertainment but also
for information to make consumer decisions. The vernacular edition
outpaces the nation dailies in terms of circulation. Owing to the high
literacy rate, advertisements in such dailies tend to have a greater
impact on readers considering the impact and coverage, market,

17
consumer products are advertised through newspapers. Textile dealers
adopt consumers promotion schemes such as price off, gift schemes,
incentives, etc. They consider newspaper advertising an ideal method
for giving popularity to such schemes among the target customers.
During festival seasons, textile dealers opt for newspaper as the source
of the advertisement for the sake of further influencing their patrons.

18
Chapter 2
Research Objective
& Methodology

19
STATEMENT OF THE PROBLEM

The project requires a detailed understanding of the concept “Working Capital

Management”. Therefore, firstly we need to have a clear idea of what is
working capital, how is it managed and what are the different ways in which
the financing of working capital is done in the company.

The management of working capital involves managing inventories, accounts

receivables, and payable and cash. Therefore, one also needs to have a sound
knowledge about cash management, inventory management and receivables
management.

Then comes the financing of working capital requirement, i.e. how the
working capital is financed, what are the various sources through which it is
done.

And, in the end, suggestions and recommendations on ways for better

management and control of working capital are provided.

The researcher aims to find out the liquidity and profitability position of the
company. The study is concerned with problems involved in working capital
like estimation of the company and provisions of working capital at the time it
is needed.

Working capital represents that part of resources of business, which makes the
business work. In the absence of proper management of working capital, it
would be difficult to achieve the requirement of the company.

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 RESEARCH DESIGN

The research design used for this study is of the descriptive type. Descriptive
research studies are those studies which are concerned with describing the
characteristics of a particular individual or a group.

Descriptive type of study is used because the research is based on the

secondary data and not the primary data. The research is a comparative
analysis of working capital management through ratio analysis of financial
year 2018-19 and 2017-18.

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TYPES OF RESEARCH
Research Methods

Descriptive research: will be used to describe the characteristics of population

or phenomenon that is being studied. It primarily focusses on describing the
nature of a demographic segment, without focusing on “why” a certain
phenomenon occurs.

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 OBJECTIVE OF THE STUDY

1. To compare the effectiveness of working capital management policies

with the help of accounting ratios of Iconic Fashions Retailing Pvt Ltd
of financial year 2018-2019 and 2017-2018.
2. To make suggestions for policy makers for effective management of
working capital.

23
Scope, Importance
and Limitation
of the Study

24
 SCOPE OF THE STUDY

The scope of the study is to provide an insight into concept of working capital
management and illustrate it by actually working capital management of
Iconic Fashions Retailing Pvt. Ltd. This study also provides insight of the
customers preference of Iconic Fashions Retailing Pvt. Ltd. and its market
share as the competitor.

Working capital is the money used to make goods and attract sales. The less
working capital used to attract sales, the higher is likely to be the return on
investment. Working capital is about the commercial and financial aspects of
the Inventory, Credit, Purchasing, Marketing and royalty and investment
policy. The higher the profit margin, the lower is likely to be the level of
working capital tied up in creating and selling titles. The importance of
working capital management stems from the two reasons viz.

1. A substantial portion of total investments is invested in current assets.

2. The level of current assets will change quickly with the variation in
sales.

Hence, an attempt should be made to analyze the size and the composition of
working capital and whether such an investment will lead to increase of
business over a period of time. After determining the requirements of current
assets, one of the important tasks of the financial manager is to select an
assortment of appropriate sources of finance for the current assets.

The efficient utilization of funds is very important in an organization. The

scope of this project is to analyze the efficiency utilization of working capital.
This project document emphasis in handling the various techniques in
articulating the company’s strengths and weakness and its growth for the
specific period of time. So, this project will help the organization’s future by
suggesting means to means to metering the optimal level is working capital.

25
 NEED AND IMPORTANCE OF THE STUDY

1. Their projects are helpful in knowing the company’s position of funds

maintenance and setting the standards for working capital inventory
levels, current ratio levels, quick ratio, current amount turnover levels,
web turnover levels.
2. This project is helpful to the managements for expanding the dualism
and the project viability and the present availability of the funds.
3. This project is also useful as it companies the present year data with
the previous year data and thereby it shows the trend analysis, i.e.
increasing funds and decreasing funds.
4. The project is done entirely as a whole entirely. It will give overall
view of the organization and it is useful in further expansion decision
to be taken by the management.

26
 LIMITATIONS OF THE STUDY

Following were the limitations:

1. The time was limited.

2. The study of working capital management is based solely upon the
annual reports of the company in the hard copy and through company
websites.

27
Chapter 3
Conceptual
Discussion

Overview of working capital management

28
Working capital is a financial metric which represents operating liquidity
available to a business, organization or other entity including governmental
entity. Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital. Gross working capital equals to current
assets. Net Working Capital (NWC) is calculated as current assets minus
current liabilities. It is a derivation of working capital that is commonly used
in valuation techniques such as DCF’s (Discounted Cash Flows). If current
assets are less than the current liabilities, an entity has a working capital
deficiency, also called a working capital deficit.

A company can be endowed with the assets and the profitability but short of
liquidity if its assets cannot readily be converted into cash. Positive working
capital is required to ensure that a firm is able to continue its operations and
that it has sufficient funds to satisfy both maturing short- term debts and
upcoming operational expenses. The management of working capital involves
managing inventories, account receivable and payable and cash.

Working capital refers to that part of firm’s capital which is required for
financing short term or current assets such as cash, marketable securities,
debtors and inventories.

Funds, thus, invested in current assets keep revolving fast and are being
constantly converted into cash and this cash flows out again in exchange of

29
other current assets. Hence, it is also known as revolving or circulating or
short- term capital.

Working capital management is concerned with problems that arise in

attempting to manage the current assets, the current liabilities and the inter
relationship that exist between them.

The term current asset refers to those assets which in ordinary course of
business can be, or, will be, turned into cash within one year without
undergoing a diminution in value and without disrupting the operation of the
firm. The major current assets are cash, marketable securities, account
receivables and inventory.

The current liabilities are those liabilities which are there at the inception to be
paid in ordinary course of business, within a year, out of current assets or
earnings of the concerned. The basic current liabilities are account payable,
bill payable, bank over-draft and outstanding expenses.

The goal of working capital management is to manage the firm’s current assets
and current liabilities in such a way that the satisfactory level of working
capital is mentioned.

Definition:

According to Guttmann & Dougal: “Excess of current assets over current

liabilities.”

According to Park & Gladson: “The excess of current assets of a business (i.e.
cash, accounts receivables, inventories) over current items owned by the
employees and others (such as salaries, wages payable, accounts payable,
taxes owned by the government).”

Capital required by the business can be classified under two main categories:

1. Fixed capital
2. Working capital

Every business need funds for two purposes for its establishment and to carry
out its day to day operations. Long term funds required to create production
facilities through purchase of fixed assets such as plant and machinery,

30
building, furniture, etc. Investments in these assets represents that part of
firm’s capital which is blocked on permanent or fixed basis and is called fixed
capital. Funds are also needed for short term purposes for the purchase of raw
material, payment of wages and other day-to- day expenses etc.

ADVANTAGES OF WORKING CAPITAL

31
 1. It helps the business concern in maintaining the goodwill.
2. It can arrange loans from banks and others on easy and favorable
terms.
3. It enables a concern to face business crisis in emergencies such as
depression.
4. It creates an environment of security, confident, and overall efficiency
in a business.
5. It helps in maintaining solvency of the business.

DISADVANTAGES OF WORKING CAPITAL

1. Rate of return on investments also fall with the shortage of working

capital.
2. Excess working capital may result into overall inefficiency in
organization.
3. Excess working capital means ideal funds which earn no profits.
4. Inadequate working capital cannot pay its short term liabilities in time.

32
CONCEPT OF WORKING CAPITA1.L

There are two concepts of working capital:

1. Net working capital

2. Gross working capital

The gross working capital is the capital invested in the total current assets of
the enterprises. The current assets are those assets which can convert into cash
within a short period normally one accounting period.

CONSTITUENTS OF CURRENT ASSETS

1. Cash and cash in hand

2. Bills receivables
3. Sundry debtors
4. Short term loans and advances
5. Inventories of stock as:
a. Raw materials
b. Work-in progress
c. Stores and spares
d. Finished goods
6. Temporary investments
7. Prepaid expenses
8. Accrued income
9. Marketable securities

In a narrow sense, the term working capital refers to the net working capital.
Net working capital means excess of current assets over current liabilities.

NET WORKING CAPITAL= CURRENT ASSETS – CURRENT

LIABILITIES

Net working capital can be positive or negative. When the current assets
exceed the current liabilities then current assets are more. Current liabilities
are those liabilities which has to be paid from ordinary expenses in the near
future out of current assets of a business.

33
CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued expenses or outstanding expense.

2. Short term loans, advances or other expenses.
3. Dividends payable.
4. Bank overdraft.
5. Provisions for taxation.
6. Sundry creditors.
7. Bills payable.

CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified in two ways:

1. On the basis of concept

2. On the basis of time.

On the basis of concept, working capital can be classified as gross working

capital and net working capital. On the basis of time, working capital can be
classified as permanent and temporary working capital.

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to

ensure effective utilization of fixed facilities and for maintaining the
circulation of current assets. Every firm has to maintain a minimum level of
raw material, work-in process, finished goods and cash balance. The minimum

34
level of current assets called permanent or fixed working capital as this part of
working is permanently blocked in current assets. As the business grow the
requirement of working capital increases due to increase in current assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which

is required to meet the seasonal demands and some special exigencies.
Variable working capital can be classified as seasonal working capital and
special working capital. The capital required to meet the seasonal needs of the
enterprise is known as seasonal working capital. Special working capital is
that part of working capital which is required to meet the special exigencies
such as launching of extensive marketing for conduct research etc.

Temporary working capital differs from permanent working capital that is

required for short periods and cannot be permanently employed in the
business.

35
IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING
CAPITAL

PAYMENT
TO
SUPPLIERS

EASY DIVIDEND
LOAN DISTRIB-
FROM UTION
BANKS
SIGNIFIC-
ANCE OF
WORKING
CAPITAL

INCREASE
INCREASE
EFFICIEN-
DEBT
CY
CAPACITY

INCREASE
IN FIX
ASSETS

 SOLVENCY OF THE BUSINESS

Adequate working capital helps in maintaining the solvency of the
business by providing uninterrupted production.
 GOODWILL
Sufficient amount of working capital enables the firm to make prompt
payments and makes and maintain the goodwill.
 EASY LOANS
Adequate working capital leads to high solvency and credit standings
can arrange loans from bank and other on easy and favorable terms.

36
 CASH DISCOUNTS
Adequate working capital enables a concern to avail cash discounts on
the purchases and hence, reduces cost.

 REGULAR SUPPLY OF RAW MATERIALS

Sufficient working capital ensures regular supply of raw material and
continuous production.
 REGULAR PAYMENTS OF SALARIES, WAGES AND OTHER
DAY TO DAY COMMITMENTS
It leads to satisfaction of the employees and raise the morale of its
employees, increases their efficiency, reduces wastage and costs and
enhances production and profits.
 ABILITY TO FACE CRISIS
A concern can face the situation during the crisis.

37
FACTORS DETERMINING THE WORKING CAPITAL
REQUIREMENT

1. NATURE OF BUSINESS
The requirement of working capital is very limited in public utility
undertakings such as water supply, electricity and railways because
they offer cash sale only and supply services, not products and no
funds are tied up in inventories and receivables. On the hand the
trading and financial firms requires less capital in fixed assets but have
to invest large amount of working capital with fixed investments.
2. SIZE OF THE BUSINESS
Greater the size of the business, greater is the requirement of the
working capital.
3. PRODUCTION POLICY
If the policy is to keep the production steady by accumulating
inventories it will require higher working capital.
4. LENGTH OF PRODUCTION CYCLE
The longer the manufacturing time the raw material and the other
supplies have to be carried for a longer in the process with progressive
increment of labor and service costs before the final product is
obtained. So, working capital is directly proportional to the length of
the manufacturing process.

Sources of working capital

The company can choose to finance its current assets by

1. Long term sources.

2. Short term sources.
3. A combination of them.

Long term sources of permanent working capital include equity and

preference shares, retained earnings, debentures and long-term debts from
public deposits and financial institutions. The long-term working capital needs
should be met through long term means of financing. Financing through long
term means provide stability, reduces risks or payment and increases liquidity

38
of the business concern. Various types of long-term sources of working capital
are summarized as follows:

1. Issue of shares:
It is the primary and the most important source of regular or permanent
working capital. Issuing equity shares as it does not create and burden
on the income of the concern. Nor the concern is obliged to refund
capital preferably raise permanent working capital.
2. Retained earnings:
Retained earnings accumulated profits are permanent sources of
working capital. It is regular and the cheapest. It creates not charge on
future profits of the organization.
3. Issue of debentures:
It creates a fixed charge on future earnings of the company. Company
is obliged to pay interest. Management should make wise choice in
procuring funds by issue of debentures.

Short term sources of temporary working capital are required to meet the
day to day business expenditures. The variable working capital would finance
short term sources of funds. And only the period needed. It has the benefits of,
low costs and establishes a closer relationship with the banker.

Some sources of temporary working capital are summarized below:

1. Commercial banks:
A commercial bank constitutes significant sources for short term or
temporary working capital. This will be in the form of short-term
loans, cash credit and over draft through discounting the bills of
exchange.
2. Public deposits:
Most of the companies in recent years depend on this source to meet
their short-term working capital requirements ranging from 6 months
to 3 years.
3. Various credits:
Trade credit, business credit papers, and customer credit are other
sources of short-term working capital. Credit from suppliers, advances

39
 from customers, bills of exchanges, etc. helps to raise temporary
working capital.
4. Reserves and other Funds:
Various funds of the company like depreciation fund, provision of tax
and other provisions kept with the company can be used as temporary
working capital. The company can meet its working capital needs
through both long term and short-term funds. It will be appropriate to
meet at least 2/3 of the permanent working capital equipment from
long term sources, whereas, the variable working capital should be
financed through short- term sources. The working capital financing
mix should be designed in such a way that the overall cost of working
capital is the lowest, and the funds are available on time and for the
period they are really required.

40
SOURCES OF ADDITIONAL WORKING CAPITAL

1. Existing cash reserves

2. Profits (when you secure it as cash)
3. Payables (credit from suppliers)
4. New equity or loans from shareholders
5. Bank overdrafts line of credit
6. Long term loans

If we insufficient working capital and try to increase sales, we can over stretch
the financial resources of the business. This is called overtrading. Early
warning signs include:

1. Pressure on existing cash

2. Exceptional cash generating activities. Offering higher discounts for
clear cash payments.
3. Bank overdraft exceeds authorized limits.
4. Seeking greater overdrafts or lines of credit.
5. Part paying suppliers or their creditors.
6. Management pre occupation with surviving rather than managing.

Different Aspects of Working Capital Management:

 Management of inventory
 Management of receivables/ debtors
 Management of cash
 Management of payables/ creditors

MANAGEMENT OF INVENTORY

Inventories constitute the most significant part of current assets of a large

majority of companies. On an average, inventories are approximately 60% of
the current assets. Because of large size, it requires a considerable amount of
funds. The inventory means and includes the goods and services being sold by
the firm and the raw materials or other components being used in the
manufacturing of goods and services.

41
Nature of inventories

The common type of inventories for most of the business firms may be
classified as raw materials, work- in process and finished goods.

 Raw materials: It is the basic inputs that are converted into finished
products through manufacturing process. Raw material inventories are
those units which have been purchased and stored for future
productions.
 Work- in process: Work-in process is semi- manufactured products.
They represent products that need more work before they become
finished products for sale.
 Finished Goods: They are completely manufactured products which
are ready for sale. Stock of raw materials and work in process facilitate
production, while stock of finished goods is required for smooth
marketing operations. Thus, inventories serve link between the
production and consumption of goods. The levels of three kind of
inventories for a firm depend on the nature of business. A
manufacturing firm will have substantially high level of all three kinds
of inventories. While retail or wholesale firm will have a very high
level of finished goods inventories and no raw materials and work in
process inventory.

42
So operating cycle can be known as following:

43
Need to hold inventories

Maintaining inventories never involves trying up company’s funds and

incurrence of storage and holding costs. There are three general motives of
holding inventories:

 Transactions motive: It emphasizes the need to maintain inventories to

facilitate smooth production and sales production.
 Precautionary motive: It necessitates holding of inventories to guard
against the risk of unpredictable changes in demand and supply forces
and other forces.
 Speculative motive: It influences the decision to increase or reduce
inventory levels to take advantages of price fluctuations.

MANAGEMENT OF RECEIVABLES/ DEBTORS

The receivables (including the debtors and the bills) constitute a significant
portion of working capital. The receivables emerge whenever goods are sold
on credit and payments are deferred by customers. A promise is made by the
customers to pay cash within the specified period. The customers from whom
receivables or book debts are to be collected in future are called trade debtors
and represents the firm’s claim or assets. Thus, receivable is a type of a loan
extended by the seller to the buyer to facilitate the purchase process.
Receivable management may be defined as collection of steps and procedure
required to properly weight the costs and benefits attached with the credit
policy. The receivable management consist of matching the cost of increasing
the sales (particularly credit sales) with the benefits arising out of increased
sales with the objective of maximizing the return on investment of the firm.

Nature

The term credit policy is used to refer to the combination of three decision
variables:

 Credit standards: It is the criteria to decide the type of customers to

whom goods can be sold on credit. If a firm has slow – paying
customers, its investment in accounts receivables will increase. The
firm will also be exposed to higher risk by default.

44
  Credit terms: It specifies duration of credit and terms of payment by
customers investment in accounts receivables will be high if customers
are allowed extended time period for making payments.
 Collection efforts: It determine the actual collection period. The lower
the collection period, the lower the investment in accounts receivables
and vice versa.

MANAGEMENT OF CASH

Cash management refers to the management of cash balance and the bank
balance and also includes the short-term deposits. Cash is the important
current asset for the operations of the business. Cash is the basic input needed
to keep the business running in a continuous basis. It is also the ultimate
output expected to be realized by selling the service or product manufactured
by the firm. The term cash includes coins, currency, and cheque held by the
firm and balance in the bank accounts.

Factors of Cash Management:

Cash management is concerned with the managing of:

 Cash flows into and out of the firm

 Cash flows within the firm
 Cash balance held by the firm at a point of time by financing deficit or
investing surplus cash. Sales generate cash which has to be disbursed
out. The surplus cash has to be invested while deficit has to borrow.
Cash management seeks to accomplish this cycle at a minimum cost
and it also seeks to achieve liquidity and control.

Motives of holding cash

A distinguishing feature of cash as an asset is that it does not earn any

substantial return for the business. Even though firm hold cash for following
motives:

1. Transaction motive
2. Precautionary motive
3. Speculative motives

45
 4. Compensatory motive

Transaction motive: This refers to the holding of cash to meet routine cash
requirement to finance. The transactions, which a firm carries on in the
ordinary course of business.

Precautionary motive: This implies the needs to hold cash to meet

unpredictable contingencies such as strike, sharp increase in raw materials
prices. If a firm can borrow at short notice to pay them unforeseen
contingency, it will need to maintain relatively small balances and vice-versa.

Speculative motives: It refers to the desire of the firm to take advantage of

opportunities which present themselves at unexpected movements and which
are typically outside the normal course of business.

Compensatory motive: Bank provides certain services to their client free of

cost. They therefore, usually require client to keep minimum cash balance with
them to earn interest and thus, compensate them for the free service so
provided.

MANAGEMENT OF PAYABLES/CREDITORS

Creditors are a vital part of effective cash management and should be managed
carefully to enhance the cash position. Purchasing initiates cash outflows and
an over-zealous purchasing function can create liquidity problems. Consider
the following:

1. Who authorizes purchasing in our company-is it tightly managed or

spread among a number of people?
2. Are purchase quantities geared to demand forecasts?
3. Do we use order quantities which take account of stock-holding and
purchasing costs?
4. Do we know the cost to the company of carrying stock?
5. Do we have alternative source of supply?
6. How many of our suppliers have a returns policy?

46
 7. Are we in a position to pass on cost increases quickly through price
increase?

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in

attempting to manage the current assets, current liabilities. The basic goal of
working capital management is to manage the current assets and current
liabilities of a firm in such a way that a satisfactory level of working capital is
maintained, i.e. it is neither adequate nor excessive as both the situations are
bad for any firm. There should be no shortage of funds and also no working
capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES
of a firm has a great on its probability, liquidity and structural health of the
organization. So, working capital management is three dimensional in nature
as:

 It concerned with the formulation of policies with regard to

profitability, liquidity and risk.
 It is concerned with the decision about the composition and level of
current assets.
 It is concerned with the decision about the composition and level of
current liabilities.

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the center of a business.
Adequate amount of working capital is very much essential for the smooth
running of the business. And the most important part is the efficient
management of working capital in right time. The liquidity position of the firm
is totally affected by the management of working capital. So, a study of
changes in the uses and sources of working capital is necessary to evaluate the
efficiency with which the working capital is employed in a business. This
involves the need of working capital analysis.

The analysis of working capital can be conducted through a number of

devices, such as:

 Ratio analysis

47
  Fund flow analysis
 Budgeting

METHODS OF WORKING CAPITAL ANALYSIS

There are so many methods for analysis of financial statements but Iconic
Fashion Retailing Pvt Ltd used the following techniques:

 Comparative size statements

 Trend analysis
 Cash flow statement
 Ratio analysis

A detail description of these methods is as follows:

COMPARATIVE SIZE STATEMENTS

When two or more than two years figures are compared to each other than we
called comparative size statements in order to estimate the future progress of
the business, it is necessary to look the past performance of the company.
These statements show the absolute figures and also show the change from
one year to another.

TREND ANALYSIS

To analyze many years financial statements Iconic Fashion Retailing Pvt Ltd
uses this method. This indicates the direction on movement over the long time
and help in the financial statements.

Procedure for calculating trends:

1. Previous year is taken as a base year.

2. Figures of the base year are taken 100.
3. Trend % are calculated in relation to base year.

48
 CASH FLOW STATEMENT

Cash flow statements are the statements of changes in the financial position
prepared on the basis of funds defined in cash or cash equivalents. In short
cash flow statement summarizes the cash inflows and outflows of the firm
during a particular period of time.

Benefits for the Iconic Fashion Retailing Pvt Ltd:

1. To prepare the cash budget.

2. To compare the cash budgets.
3. To show the position of the cash and cash equivalents.

49
 RATIO ANALYSIS

Ratio analysis is the process of the determining and presenting the relationship
of the items and group of items in the statements. Ratio analysis is one of the
important and generally used technique for analysis of financial statement. A
ratio is simply one number exposed in term of another. It is found by dividing
one number, the base, into the other. The percentage is one kind of ratio in
which the base is taken as equaling to 100 and the quotient is expressed as per
100 of the base. Ratio analysis is an attempt to present the information of
financial statement in simplified, systematized and summarized form.

Ratio analysis measures the profitability, efficiency and financial soundness of

the business. In the word of Meyers, ratio analysis is “a study of relationship
among the various financial factors in a business”. In modern world each and
every business to run it smoothly and well it necessary that in each and every
step business man have to take some decisions. Decisions are started when the
resources are limited. In resources both physical and economical resources are
included. For better results resources are to be used carefully. For better
results, the decisions are to be taken from the available by the managing
director. The managing director runs the business, so he/ she has to take each
and every decision. Ratio analysis is one of the techniques of financial
analysis where ratios are used as a yardstick for evaluating the financial
conditions and performance of the firm. Analysis and interpretation of various
accounting ratios gives a skilled and experienced analyst, a better
understanding of the financial conditions and the performance of the firm that
what he could obtain only through a perusal of financial statements. Ratios are
relationships expressed in mathematical terms between figures, which are
connected with each other in same manner. Obviously, no purpose will be
served by comparing two sets of figures which are not connected to each
other. Moreover, absolute figures are also unfit for comparisons. Accounting
ratios are, mathematical relationships expressed between inter – connected
accounting figures.

50
Benefits of ratio analysis to Iconic Fashion Retailing Pvt Ltd:

1. Helpful in analysis of financial statements.

2. Helpful in comparative study.
3. Helpful in locating the weak spots of the Iconic Fashion Retailing Pvt
Ltd.
4. Helpful in forecasting.
5. Estimate about the trend of the business.
6. Fixation of ideal standards.
7. Effective control.
8. Study of financial soundness.

51
 TYPES OF RATIOS:

1. Liquidity ratio: They indicate the firm’s ability to meet its obligation
out of the current resources.
 Current ratio = current assets/ current liabilities
 Quick ratio = liquid assets/ current liabilities
 Liquid assets = current assets – stock – prepaid
expenses
2. Leverage or capital structure ratio: This ratio discloses the firm’s
ability to meet the interest costs regularly and long-term solvency of
the firm.
 Debt- equity ratio = Long term loans/ shareholder’s funds or
Net worth
 Debt to total fund ratio= Long term loans/ Shareholder’s
funds+ Long term loans
 Proprietary ratio = Shareholder’s funds/ Shareholder’s funds+
Long term loans
3. Activity ratio or Turnover ratio: They indicate the rapidity with
which the resources, available to the concern beings used to produce
sales.
 Stock turnover ratio = Cost of goods sold/ Average stock
 Average stock = Opening stock+ Closing stock/ 2
 Debtors turnover ratio = Net credit sales/ Average debtors +
Average bills receivables
 Average collection period = Debtors + B/R / Credit sales per
day
 Credit sales per day = net credit sales of the year/365
 Creditors turnover ratio = Net credit purchases / Average
creditors + Average B/P
 Average payment period = Creditors + B/P / Credit purchase
per day

52
  Fixed assets turnover ratio = Cost of goods sold/ Net fixed
assets
 Net Fixed Assets = Fixed assets – depreciation
 Working capital turnover ratio = Cost of goods sold/ Working
capital
 Working capital = Current assets – current liabilities
4. Profitability ratios or income ratios: The main objective of any
business concern is to earn profits. A business must be able to earn
adequate profits in relation to the risk and the capital invested in it.
 Gross profit ratio = Gross profit/ Net sales* 100
 Net sales = sales – sales return
 Net profit ratio = Net profit/ Net sales* 100
 Operating net profit = operating net profit/ Net sales *
100 or gross profit – operating expenses
 Operating ratio = Cost of goods sold + Operating expenses/ Net
sales * 100
 Cost of goods sold = Net sales – gross profit, Operating
expenses = Office and administration expenses +
selling and distribution expenses + discount + bad
debts + interest on short term loans
 Earnings per share (E.P.S) = Net profit – dividend on
preference share / No. of equity shares
 Dividend per share (D.P.S) = dividend paid to equity
shareholders/ no. of equity shares *100
 Dividend payout ratio (D.P.) = D.P.S./E.P.S. *100

OPERATING CYCLE OF WORKING CAPITAL

Sufficient working capital is necessary to sustain sales activity. Technically

this is referred to as an operating/ cash cycle. It can be said to be at the heart of
the need of working capital. Cash/operating cycle is the length of time
necessary to complete following event.

1) Convert cash into raw material.

2) Raw material into goods in process.

53
 3) Goods in process into finished goods.
4) Finished goods into debtors through credit sales, and debtor into cash

OPERATING CYCLE

The Working Capital cycle or Cash Conversion cycle as it is also called is

usually expressed in terms of the number of days. This figure is the average
time that it takes to turn investment in books into cash and profit. Payback
expresses the number of days required to recoup the original investment on a
single title. In the organization’s Balance Sheet, there will be the costs of
paper, titles still under development, and author advances of books already
and not yet published. In addition, there will be the cost of stocks of unsold
books, Accounts Receivable, and Accounts Payable.

Determinants of working capital

The requirements of working capital generally vary from industry to industry,

concern to concern and time to time. Comparing the production cycle of
BHEL with any of the FMCG Company we will notice that, BHEL takes
considerably longer period to manufacture a turbine while in FMCG
companies’ like HLL or P&G takes few minutes to manufacture their product.
Working capital in these companies can be even negative as they take credit
from suppliers and sell their products on cash. So current liabilities are higher
due to which figure of working capital can be negative. The various factor
which influence the amount of working capital required by a business
enterprise, may be grouped under two heads.

1) Internal factor: - The factor which are within the control and competence
of management. These may include the risk-taking attitude of management,
turnover of receivable and inventories terms of purchase and sale s and credit
rating etc.

2) External factor: - these may include the nature of business, volume of

production and sales and business cycle.

54
PERMANENT AND TEMPORARY WORKING CAPITAL

The operating cycle thus crates the need for current assets (working capital).
however, this need does not come to an end after the cycle is completed. It
continues to exist. Thus, the distinction between permanent and temporary
working capital should be known. Business keeps on going even after the
realization of cash from customers, which creates the need for regular supply
of working capital. However, the magnitude of Working capital required is not
constant, but fluctuating. To carry on business, a certain minimum level of
Working capital is necessary on a continuous and uninterrupted basis. For all
practical purpose, this requirement has to be met permanently as with other
fixed assets. This requirement is referred to as Permanent or fixed Working
capital. Any amount over or above the permanent level of Working capital is
temporary, fluctuating or variable Working capital. This portion of the
required Working capital is needed to meet fluctuation in demand consequent
upon changes in production and sales as a result of seasonal changes. The
basic distinction between these two is:

Permanent & Temporary Working Capital

35
30
25
20
25 26 25
15 21 19
17
10 10 13
10 9
5 2
5 5 5 5 5 5 5 5 5 5 5
0

Permanent working capital Temporary working capital

55
IMPORTANCE OR ADVANTAGES OF WORKING CAPITAL

Working capital is the blood and nerve center of a business. Just as circulation
of blood is essential in the human body for maintaining life, working capital is
very essential to maintain the smooth running of a business. No business can
run successfully without an adequate amount of working capital. The main
advantages of maintaining adequate amount of working capital are as follows:

 Solvency of the business.

 Goodwill
 Easy loans
 Cash discounts
 Regular supply of raw materials
 Regular payment of salaries, wages and other day-to-day
commitments.
 Exploitation of favorable market conditions.
 Ability to face crisis
 Quick and regular return on investments

56
Chapter 4
Collection of Data

57
The task of data collection begins after a research problem has been defined
and research design/plan chalked out. The collection of data is done to support
tour findings and interest the result whether the result you have found in
according to your hypothesis or not. The data can be collected by various
methods. These are broadly classified into two ways, as follows:

1. PRIMARY DATA
2. SECONDARY DATA

SECONDARY DATA:

1. From Internet
2. Government publications

Secondary data

Secondary data was collected through various annual reports, document

charts, management information, etc. and also collected through various
magazines, books, newspaper, internet etc.

The analysis of information gathered has been made on the basis of

clarifications sought during the personal discussions with concerned people
and perception during the personal visits to the important areas of services.

58
 DATA TYPES

The project seeks to generate both qualitative and quantitative data.

The Quantitative data will help to analyze the share, the impact of POP
displays and the stock availability.

The Qualitative data will help in making some subjective generalizations and
bringing out excess that can be experimented to see if they can be used for
improvement of the execution standards.

Sources of data:

Secondary sources:

Publications of the banks

Business magazines

Journals, textbooks, etc.

Websites

Annual Reports

SECONDARY DATA; The secondary data are those data which have already
been collected by someone else and which had been pass through statistical
process.

59
Data Analysis &
Interpretation

60
It is also known as “working capital ratio”. It is a measure of short-term
financial strength of the business and shows whether the business will be able
to meet it’ s current liabilities as when they mature.

Current Assets including assets which can be converted in to cash easily and
itself like market securities debtors, inventory, prepaid expenses etc.

Current Liabilities included creditors, bills payable, accrual expenses, short

term bank loan, income tax liabilities and long-term debt maturity in current
year. In short it can be said as all obligations within a year are included in
current liabilities.

1. Current ratio is a measure of the firm’s short-term solvency. It

indicates the availability of current assets in rupee of current liabilities.
As a conventional rule, a current ratio should be or slightly more. It
focuses the strong of weak position of the company.

Current Ratio = Current assets

Current liabilities
For the year:

2018-2019:
Current assets= Rs 1,19,14,65,410
Current liabilities = Rs 1,03,85,42,279
Current ratio = 1.089

2017-2018:

Current assets = Rs 98,35,31,298

Current liabilities = Rs 85,39,90,630
Current ratio = 1.156

YEARS CURRENT RATIO

2018-2019 1.089:1
2017-2018 1.156:1

61
 1.18
1.156
1.16

1.14

1.12

1.1 1.089

1.08

1.06

1.04
CURRENT RATIO CURRENT RATIO
2018-19 2017-18

Interpretation:

It is generally believed that 2:1 ratio shows a comfortable working capital

position. The tendon committee appointed by RBI had wide recommended a
current ratio of 2:1.

Company has tried to maintain this ration and has tried to increase it by year
by year. A current ratio is 1.089 in the current year but in the other year the
ratio is nearer to 1.2:1 so we can say that the company is having comfortable
working capital ratio.

2. Acid test ratio is a measure of absolute liquidity may be obtained only

cash and bank balance as well as ready marketable security with liquid
liabilities. This is every existing standard of liquidity and it is
satisfaction if the ratio is 1.50:1.

Acid test ratio = Quick assets

Current liabilities
For the year:

2018-19:

Quick assets = Rs 1,19,14,65,410 – Rs 97,65,47,748

Rs 21,49,17,662

62
Current liabilities = Rs 1,03,85,42,279

Acid test ratio = 0.269:1

2017-2018:

Quick assets = Rs 98,35,31,298 – Rs 82,18,94,531

= Rs 16,16,36,767

Current liabilities = Rs 85,39,90,630

Acid test ratio = 0.189:1

YEARS ACID TEST RATIO

2018-19 0.269:1
2017-18 0.189:1

Acid test Ratio

0.3

0.25

0.2

0.15

0.1

0.05

0
ACID TEST RATIO ACID TEST RATIO

2018-19 2017-18

Interpretation:

Acid test ratio is nearer in the current year that is 0.269:1 as compared to
previous year which is 0.189:1. Therefore, we can say that the acid test ratio of
the company is satisfactory. So, we can conclude that this ration is in favour of
Iconic Fashion Retailing pvt. Ltd.

3. Debtors turnover ratio

This ratio shows the proportion of sales to average receivables. It shows the
efficiency of the collection policy of the firm. The higher the ratio, the less

63
satisfactory position of the firm. Higher ratio indicates weak collection policy
of the firm.

Debtors turnover ratio = credit sales

average receivables

Interpretation

We know that higher debtor’s turnover ratio is not good for the company.

And here, in this organisation, it does not follow credit sales. Therefore, no
debtor’s turnover ratio.

4. Creditors turnover ratio

Creditor’s turnover ratio Creditor’s turnover ratio shows the proportion of

purchase to account payable number of days within which we make payment
to our creditors for credit purchases estimated the creditors ratio. If this ratio is
higher it means company has to check whether company is making payment
within credit period available. If it is making payment before the due date
means the company is not taking full advantage of it credit period and if
company making the payment the period that indicates that the company is not
taking the benefit of discount allowed.

Creditor’s turnover ratio = credit purchases

Average payables

Interpretation

Higher Ratio of creditor turnover forces the company to check that payment is
made with in credit period properly or not. Here, the organisation does not
follow any policy of credit purchases, hence, average payables.

5. Inventory turnover ratio

This ratio is also known as “stock turnover ratio”. The number of times the
average stock is turnover during the year is known as stock turnover. It is
computed by deciding the sales by the inventory. The ratio is important in
joining the ability of management which it can move the stock.

64
 Inventory turnover ratio = net sales

Average inventory

For the year:

2018-2019

Net sales = Rs 1,79,19,79,517

Average inventory = Rs48,82,73,874

Inventory turnover ratio = 3.67 times

2017-2018

Net sales = Rs 1,31,25,64,380

Average inventory = Rs 41,09,47,265.5

Inventory turnover ratio = 3.193 times

YEARS TURNOVER RATIO

2018-2019 3.67
2017-2018 3.193

Inventory turnover ratio

3.8

3.6

3.4

3.2

2.8
Inventory turnover ratio Inventory turnover ratio

2018-19 2017-18

Interpretation

Higher the ratio more profitability the business would be. The ratio is joining
the ability of management with which it can move the stock. The company has

65
succeeded in increasing this ration as we can see that the current year’s ration
is 3.67 times which is more than the previous year.

6. Net working capital turnover ratio

Net working capital turnover ratio is obtained by net working capital joining to
sales. The excess of current assets over current liabilities is called working
capital. It is found for measuring firm liquidity. It also measures the firm
potential reserve of funds.

Net working capital turnover ratio = sales

Net working capital

For the year:

2018-19

Sales = Rs 1,79,19,79,517

Net working capital = Rs 1,19,14,65,410 – Rs 1,03,85,42,279

Rs 15,29,23,131

Net working capital turnover ratio = 11.71 times

2017-18

Sales = Rs 1,31,25,64,380

Net working capital = Rs 98,35,31,298 – Rs 85,39,90,630

Rs 12,95,40,668

Net working capital turnover ratio = 10.132 times

YEARS TURNOVER RATIO

2018-19 11.71
2017-18 10.132

66
 Net working capital turnover ratio
12
11.5
11
10.5
10
9.5
9
Net working capital turnover ratio Net working capital turnover ratio

2018-19 2017-18

Interpretation

As per the balance sheet data of net working capital turnover ratio has quite
increased in the current year. The ratio is 11.71 in the current year as
compared to 10.132 of the previous year. So, this means that the higher the
ratio the higher will be the working capital of the company.

STATEMENT OF RATIO ANALYIS

RATIO 2018-19 2017-19

Current ratio 1.089:1 1.156:1
Acid Test ratio 0.269:1 0.189:1
Inventory turnover ratio 3.67 3.193
Net working capital 11.71 10.132
turnover ratio

67
Chapter 5
Findings,
Suggestions &
Conclusions

68
MAJOR FINDINGS

Findings of working capital management of Iconic Fashion Retailing Pvt.

Ltd.:

 The company is having comfortable working capital position.

 The absolute liquidity of the Iconic Fashion Retailing Pvt. Ltd. is in
favor.
 The inventory turnover ratio has increased from the previous year.
 The working capital ratio of the company is best at 11.71 times for the
current year. So, it indicates better working capital condition of the
company.

Suggestions

The recommendation & suggestion for effective management of working

capital at Iconic Fashion Retailing Pvt Ltd are given bellow:

 For the inventory, in order to improve the Iconic Fashion Retailing Pvt.
Ltd. can reduce the level of stocks by restoring the phased selling i.e.
buying according to the requirement and disposing off or recycling the
unserviceable inventories.
However, the lower turnover stock may also be due to the problems
with generation of sales. Inventory management is of great concern for
the Iconic Fashion Retailing Pvt. Ltd. especially stores and spares. The
purchase management should take proper steps for procurement of
inventories.
 The company must take certain steps to decrease the working capital
cycle. One way can be better management of inventories.
 the Iconic Fashion Retailing Pvt. Ltd. is suggested to maintain a
balance in capacities, synchronization of various inputs availability of
some materials or parts of which are not easily available.
 It should maintain inventory at an optimum level rather than very
optimistic level.
 The procurement for materials requisition processing should be
reduced so as to minimize the lead time.

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Conclusion of finding

In the present study I have analyzed the working capital management of Iconic
Fashion Retailing Pvt Ltd. The study involves practical and conceptual over
view of decisions concerning current assets like cash and bank balance
,inventories( like raw materials ,work- in- process, finished goods ),sundry
debtors, loans and advances, other current assets and current liabilities like
sundry creditors, securities and other deposits, other current liabilities and
provisions of Iconic Fashion Retailing Pvt Ltd. Was with the objective of
maximizing the overall net profit of the bank. And complete synchronization
and coordination among the working capital components which shall
contribute to optimum level of operations. Mismanagement of each or any of
these components shall be detrimental to the objectives of efficient operation,
profitability and maximization of overall value of the bank. The working
capital limits would be considered only after the project nearing completion
and after ensuring control over the inventory. The inventory is a great concern
for Iconic Fashion Retailing Pvt Ltd and it need proper procurement and
management. Eligible working capital limits would be assessed by cash
Budget method and Projected production method depending the market
condition, scale of operation, nature of activity/enterprise and duration/length
of operating cycle etc.

70
Chapter 6
Annexure

71
SUPPORTING DOCUMENT

BALANCE SHEET OF ICONIC FASHION RETAILING PVT LTD

BALANCE SHEET AS AT 31ST MARCH 2019:

AS AT THE END

PARTICULARS NOTE OF CURRENT

REPORTING
PERIOD
31-03-2019

I EQUITY & LIABILITIES

1 SHARE HOLDERS' FUNDS
a. SHARE CAPITAL 2 80000000
b. RESERVES AND SURPLUS 3 352991218

432991218

2 NON-CURRENT LIABILITIES: -
a. LONG TERM BORROWINGS 4 314777476

314777476

3 CURRENT LIABILITIES: -
a. SHORT TERM BORROWING 5 263094022
TRADE PAYABLES 6 747808786
c. OTHER CURRENT LIBILITIES 7 27103610
d. SHORT TERM PROVISIONS 8 535862

1038542279

TOTAL 1786310973

II ASSETS
1 NON-CURRENT ASSETS:
a. FIXED ASSETS 9
-TANGIBLE ASSETS 455280142
-INTANGIBLE ASSETS 535160
-CAPITAL WORK-IN-PROGRESS 36792086
b. DEFFERED TAX ASSETS [NET] 10 1412173
c. OTHER NON-CURRENT ASSETS 11 100826002

594845563

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2 CURRENT ASSETS:
a. INVENTORIES 12 976547748
b. TRADE RECEIVABLES 13 11221508
c. CASH & CASH EQUIVALENTS 14 34858805
d. SHORT TERM LOANS & ADVANCES 15 11638433
e. OTHER CURRENT ASSETS 16 157198916

1191465410

TOTAL 1786310973

73
Bibliography

74
BOOKS REFERED

I.M. Pandey- Financial Management

Vikas Publishing House Pvt Ltd. – Ninth Edition 2006.

M.Y. Khan and P.K. Jain, Financial Management

Vikas Publishing House Ltd. – New Delhi.3.

K.V. Smith – Management of Working Capital

Mc – Grow – Hill New York

Satish Inamdar – Principles of financial management

Everest Publishing House

WEBSITES

www.iconicindia.com

www.zaubacorp.com

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