CHAPTER-1

INTRODUCTION

1
 Working capital management takes care of the problems that arise during the
management of current assets, current liabilities and interrelationship that exist between
them. Thus it is also known as current asset management and current liabilities from an
integral part in the balance sheet of the firm.

Working capital is an integral of overall corporate management, the finance

corporate management the finance manager has to carry out the finance function is the face of
risk cannot be predicated with certainty.

Finance is one of the basic foundations of all kinds of economic activities. Financial
management is one integral part of overall management. It is not a totally independent area it
is concerned with the acquisition, financing and management of assets with some overall goal
in mind. Financial management is important because it has an impact on all the activities of
financial management. The basic objective of financial management is to maintain the liquid
assets and maximization of the profitability of the firm. Efficient management of every
businesses enterprise is closely linked with efficient management of the finance. Maintenance
of liquid assets means that the firm has adequate cash in hand to meet its obligations at all
times. A business firm is a profit seeking organization; Profit maximization is also well
consideration to be an important objective of financial management.

Financial management is mainly concerned with the proper management of finance

function. Risk: cost and control considerations are properly balanced in a given situation and
there is optimum utilization of funds. Financial management emerged as a distinct field of
study at the turn of 20th century.

Financial management as an integral part of overall management is not totally

independent area. It draws heavily on related disciplines and various field of study is Such as
economics, accounting, marketing, production and quantitative methods. It helps in profit
planning, capital spending, measuring costs. Controlling inventory, accounts receivable, etc.
it is essentially helps in optimizing the financial from a given input of funds.

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 A study of financial management with particular reference to the working capital
management in any sector is a challenging task and endeavour in this direction is to analyze
the working capital balances management, receivables and inventory management. Working
capital is the amount required to meet day-to-day operation at the organization. An absence
of this makes the functioning of the organization blind. A proper study on working capital
management results in prevention of mismanagement and misutilization of funds.

Funds are required for two basic reasons in any organization. First, funds are needed
for the creation of productive, capital and purchase fixed assets. Secondary to finance a part
for the day-to-day running of business which in other words is the working capital.

Need for the study

3
 Working Capital are those funds, which are required for day-to-day operations of the
firm. It can be said that Working capital is the basic necessity of any organization. It is that
money without which the functioning of any industry becomes blind. The further
development of organization is difficult.

Working Capital gives an idea to the stakeholders as well as the management of any
firm about the functioning of it. Preparation of a separate statement of Working Capital gives
us an idea about the Gross as well as the Net Working Capital of the concerned firm of
organization. By this statement one can know or plan about the day-to-day expenses that the
firm meets. Therefore if is compared with the blood circulation in a body without which the
body cannot function. With this we can know the significance of Working Capital in any
firm. Working Capital is the difference between the current assets and current liabilities.

Working Capital must also be adequate (i.e.,) not too much and not too low. An
optimum level of it is to be maintained. Maintenance of optimum level of Working Capital is
a good sign for the progress of the organization.

The study of Working Capital Management in BAIC gives out the exact idea of
Working Capital because it is an organization with huge production and also requires huge
funds to meet its day-to-day expenses. To find out the optimal level of inventory and other
current assets for the operations of the firm. Hence the present study working capital
management was taken up in this company.

4
Objectives of the study

1. To study about an over view of capital management. with reference to

Visakhapatnam
2. To study about the working capital management of Brandix Apparel India City in
particular. with reference to Visakhapatnam
3. To study about the changes in working capital position during the study period.
with reference to Visakhapatnam
4. To study the working capital through ratios. with reference to Visakhapatnam
5. To offer appropriate suggestions where ever necessary. with reference to
Visakhapatnam

5
Methodology of the study

The data for the study has been collected from two sources:

1. Primary data
2. Secondary data

Primary Data

This project is based on primary data collected through personal interview with various
head’s of Account Department, and other concerned staff members of finance department.
But primary data collection had limitations such as confidentiality of information The
primary data is that data which is collected fresh or first hand, and for first time which is
original in nature. Primary data can collect through personal interview, questionnaire etc.
to support the secondary data.

Secondary Data

The entire study is based on secondary data collected from the Annual Report during the
years between 2014-2015 and 2018-2019 supported by various text books and internet sites.
The secondary data are those which have already collected and stored. Secondary data
easily get those secondary data from records, journals, annual reports of the company etc.
Secondary data also made available through trade magazines, balance -sheets, books of
Brandix Apparel India City in particular. Visakhapatnam. The basic objective of financial
management is to maximize shareholder’s wealth. For this it is necessary to generate
sufficient profits. The extent to it, which the profit can be earned, largely depends on the
magnitude of sales. However sales do not convert into cash instantly. There is invariable
the time gap between the sales of goods and receipts of cash. There is, therefore, a need
for working capital in the form of Current Assets to deal with the problem arising. Out of
the lack of immediate realization of cash again goods sold. Therefore, sufficient working
capital is necessary to sustain sales activity. Working capital is needed for the following
purpose:

6
Limitations of the study

Following limitations were encountered while preparing this project:

1. The study has completed by taking with the help Company’s Annual reports;

2. Due to the details available therein we could able to draw an report, BAIC art from

the verification of the present running data as the Company is busy with 3 rd Quarter

end Results which are in Progress.

3. The study is based on Six years annual reports i.e., from 2013-2014 to 2017-2018.

Conclusions and recommendations are based on those years.

4. The trend of last five year may help the Company to take preventive measures but the

funds flow and working capital will already been effected.

5. As the Data of the Other Competitors is not available in their web site unlike, it is not

possible to compare the details.

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CHAPTER-2

8
INDUSTRY PROFILE

The Indian textile industry has a significant presence in the economy as well as in the
international textile economy. It is contribution to the Indian economy that manifested in
terms of its contribution to the industrial production, employment generation and foreign
exchange earnings. It contributes 20 per cent of industrial production, 9 per cent of excise
collections, and 18 per cent of employment in the industrial sector, nearly 20 per cent to the
country’s total export earning and 4 per cent to the Gross Domestic Product.

Textile industry plays a significant role in the growth of Indian economy and it is an
important component of global trade. Textile industry accounts for about one third of India's
total export earnings. It is regarded as the second largest industry of India and is the largest
foreign export earner, accounting for 35 per cent of the gross export earnings in trade. During
1992-93 and 2001-02, textile exports recorded an increase at a compound annual growth rate
of 14.01 per cent. Handloom and cotton are the two most significant sectors in textile
industry. These two sectors together contribute the major portion of total textile export in
India.
Textile industry generally includes manufacturers, wholesalers, suppliers, and
exporters of cotton textiles, handloom, woollen textiles etc. This industry has the potentiality
of generating a large number of employment opportunities. About thirty five million people
are already engaged with this sector. In human history, past and present can never ignore the
importance of textile in a civilization decisively affecting its destinies, effectively changing
its social scenario. A brief but thoroughly researched feature on Indian textile culture.

History of Textile industry

India has been well known for her textile goods since very ancient times. The
traditional textile industry of India was virtually decayed during the colonial regime.
However, the modern textile industry took birth in India in the early nineteenth century when
the first textile mill in the country was established at fort gloater near Calcutta in 1818. The
cotton textile industry, however, made its real beginning in Bombay, in 1850s. The first
cotton textile mill of Bombay was established in 1854 by a Paris cotton merchant then
engaged in overseas and internal trade. Indeed, the vast majority of the early mills were the

9
handiwork of Parsi merchants engaged in yarn and cloth trade at home and Chinese and
African markets.
The first cotton mill in Ahmedabad, which was eventually to emerge as a rival centre
to Bombay, was established in 1861. The spread of the textile industry to Ahmedabad was
largely due to the Gujarati trading class.
The cotton textile industry made rapid progress in the second half of the nineteenth
century and by the end of the century there were 178 cotton textile mills, but during the year
1900 the cotton textile industry was in bad state due to the great famine and a number of mills
of Bombay and Ahmedabad were to be closed down for long periods.
The two world wars and the Swadeshi movement provided great stimulus to the
Indian cotton textile industry. However, during the period 1922 to 1937 the industry was in
doldrums and during this period a number of the Bombay mills changed hands. The Second
World War, during which textile import from Japan completely stopped, however, brought
about an unprecedented growth of this industry. The number of mills increased from 178 with
4.05 lakh looms in 1901 to 249 mills with 13.35 lakh looms in 1921 and further to 396 mills
with over 20 lakh looms in 1941. By 1945 there were 417 mills employing 5.10 lakh workers.
The cotton textile industry is rightly described as a Swadeshi industry because it was
developed with indigenous entrepreneurship and capital and in the pre-independence era the
Swadeshi movement stimulated demand for Indian textile in the country.
The partition of the country at the time of independence affected the cotton textile
industry also. The Indian union got 409 out of the 423 textiles mills of the undivided India.
14 mills and 22 per cent of the land under cotton cultivation went to Pakistan. Some mills
were closed down for some time. For a number of years since independence, Indian mills had
to import cotton from Pakistan and other countries. After independence, the cotton textile
industry made rapid strides under the Plans. Between 1951 and 1982 the total number of
spindles doubled from 11 million to 22 million. It increased further to well over 26 million by
1989-90.

Current Position of Textile Industry In India:

Textile constitutes the single largest industry in India. The segment of the industry
during the year 2000-01 has been positive. The production of cotton declined from 156 lakh

10
bales in 1999-2000 to 1.40 lakh bales during 2000-01. Production of man-made fibre
increased from 835 million kgs in 1999-2000 to 904 million kgs during the year 2000-01
registering a growth of 8.26per cent. The production of spun yarn increased to 3160 million
kgs during 2000-01 from 3046 million kgs during 1999-2000 registering a growth of 3.7per
cent. The production of man-made filament yarn registered a growth of 2.91per cent during
the year 1999-2000 increasing from 894 million kgs to 920 million kgs. The production of
fabric registered a growth of 2.7per cent during the year 1999-2000 increasing from 39,208
million sq mtrs to 40,256 million sq mtrs. The production of mill sector declined by 2.6 per
cent while production of handloom, power loom and hosiery sector increased by 2 per cent,
2.7 per cent and 5.1 per cent respectively. The exports of textiles and garments increased
from Rs. 455048 million to Rs. 552424 million, registering a growth of 21per cent. Growth in
the textile industry in the year 2003-2004 was Rs. 1609 billion. And during 2004-05
production of fabrics touched a peak of 45,378 million square meters. In the year 2005-06 up
to November, production of fabrics registered a further growth of 9 per cent over the
corresponding period of the previous year.

Structure Of Indian Textile Industry:

The textile sector in India is one of the worlds largest. The textile industry today is
divided into five segments:
Various Categories
Indian textile industry can be divided into several segments, some of which can be listed as
below:
 Cotton Textiles
 Silk Textiles
 Woolen Textiles
 Readymade Garments
 Hand-crafted Textiles

All segments have their own place but even today cotton textiles continue to dominate
with 73per cent share. The structure of cotton textile industry is very complex with co-
existence of oldest technologies of hand spinning and hand weaving with the most
sophisticated automatic spindles and loom. The structure of the textile industry is extremely
complex with the modern, sophisticated and highly mechanized mill sector on the one hand

11
and hand spinning and hand weaving on the other in between falls the decentralized small
scale power loom sector
Unlike other major textile-producing countries, India’s textile industry is comprised mostly of
small-scale, non integrated spinning, weaving, finishing, and apparel-making enterprises.
This unique industry structure is primarily a legacy of government policies that have
promoted labor-intensive, small-scale operations and discriminated against larger scale firms:
Composite Mills:
Relatively large-scale mills that integrate spinning, weaving and, sometimes, fabric
finishing are common in other major textile-producing countries. In India, however, these
types of mills now account for about only 3 per cent of output in the textile sector. About 276
composite mills are now operating in India, most owned by the public sector and many
deemed financially sick. In 2003-2004 composite mills that produced 1434 msq mts of cloth.
Most of these mills are located in Gujarat and Maharashtra.
Spinning:
Spinning is the process of converting cotton or manmade fibre into yarn to be used for
weaving and knitting. This mills chiefly located in North India. Spinning sector is technology
intensive and productivity is affected by the quality of cotton and the cleaning process used
during ginning. Largely due to deregulation beginning in the mid-1980s, spinning is the most
consolidated and technically efficient sector in India’s textile industry. Average plant size
remains small, however, and technology outdated, relative to other major producers. In
2002/03, India’s spinning sector consisted of about 1,146 small-scale independent firms and
1,599 larger scale independent units

Weaving and Knitting

The weaving and knits sector lies at the heart of the industry. In 2004-05, of the total
production from the weaving sector, about 46 per cent was cotton cloth, 41 per cent was
100per cent non-cotton including khadi, wool and silk and 13 per cent was blended cloth.
Three distinctive technologies are used in the sector handlooms, power looms and knitting
machines. Weaving and knitting converts cotton, manmade, or blended yarns into woven or
knitted fabrics. India’s weaving and knitting sector remains highly fragmented, small-scale,
and labor-intensive. This sector consists of about 3.9 million handlooms, 380,000 power
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loom enter-prises that operate about 1.7 million looms, and just 137,000 looms in the various
composite mills. Power looms are small firms, with an average loom capacity of four to five
owned by independent entrepreneurs or weavers. Modern shuttle less looms account for less
than one per cent of loom capacity.

Fabric Finishing:
Fabric finishing (also referred to as processing), which includes dyeing, printing, and
other cloth preparation prior to the manufacture of clothing, is also dominated by a large
number of independent, small-scale enterprises. Overall, about 2,300 processors are operating
in India, including about 2,100 independent units and 200 units that are integrated with
spinning, weaving, or knitting units.
Clothing:
Apparel is produced by about 77,000 small-scale units classified as domestic
manufacturers, manufacturer exporters, and fabricators (subcontractors).

Current Facts on India Textile Industry

 India retained its position as world’s second highest cotton producer.

 Acreage under cotton reduced about 1per cent during 2008-09.
 The productivity of cotton which was growing up over the years has decreased in
2008-09.
 Substantial increase of Minimum Support Prices (MSPs).
 Cotton exports couldn't pick up owing to disparity in domestic and international
cotton prices.
 Imports of cotton were limited to shortage in supply of Extra Long staple cottons.

India’s Major Competitors in the World

To understand India’s position among other textile producing the industry contributes
9 per cent of GDP and 35 per cent of foreign exchange earnings, India’s share in global
exports is only 3 per cent compared to Chinas 13.75 per cent. In addition to China, other
developing countries are emerging as serious competitive threats to India. Looking at export
shares, Korea (6 per cent) and Taiwan (5.5 per cent) are ahead of India, while Turkey (2.9 per
cent) has already caught up and others like Thailand (2.3 per cent) and Indonesia (2 per cent)
are not much further behind. The reason for this development is the fact that India lags
behind these countries in investment levels, technology, quality and logistics. If India were

13
competitive in some key segments it could serve as a basis for building a modern industry,
but there is no evidence of such signs, except to some extent in the spinning industry.

Textile Industry Trends in the Global Economy:

Textile production and consumption is an increasingly global affair as production

continues to shift to developing countries. Developing countries have seen an explosion in the
growth of their textile exports, and for many countries textiles are a significant portion of
their total exports. In response to increasing competition from low-value imports from
developing countries, industry leaders in developed countries have made significant capital
investments in order to increase productivity and move into advanced market sectors.
There are several trade agreements in place that impact world textile trade. The
African Growth and Opportunities Act, Andean Trade Preference Act, and Trade Promotion
Act are each designed to liberalize textile trade and provide equal market access to both
developing and developed countries. Despite the potential economic and social benefits, the
effectiveness of these trade policies is limited by special interest politics in the developed
world. The presence of a political economy in developed countries can affect both the
formation of and the adherence to international trade agreements; industry leaders can still
appeal to the World Trade Organization or their Trade Representative to protect domestic
industry.

Textile Industry Development in the Global Market:

In order to achieve economic growth and development, policy makers first encourage
the formation and growth of domestic industry. Through labor force mobilization and capital
development, a country shifts its basic factors of production from primary products, such as
localized agricultural goods, to industry. In recent years, the World Trade Organization and
other multilateral institutions have emphasized the importance of allowing developing nations
to enter the world market in order to achieve economic growth and development.
Recognizing the power of international markets, policy makers develop an export strategy
based on their comparative advantages in order to compete in an increasingly global
economy. 

Textile manufacturing is primarily a labor-intensive industry; because emerging

14
economies have a surplus of unskilled labor, the creation of a textile industry in a developing
country is both feasible and attractive from an economic growth perspective. Many countries
view the creation of a domestic textile industry as “an initial rung on the ladder of
industrialization. 

Industry Growth in Developing Economies

The textile industry is now “clearly a global enterprise” production shifted to
countries with a comparative advantage in labour-intensive manufacturing, and products are
shipped all over the world for consumption. Across a variety of countries, we see that
developing nations are claiming an increasing share of the global textile market. From the
mid-1960s to 1998, “the developing countries’ share of world textile exports grew from 15
per cent to 50 per cent and total exports of textiles and clothing by developing countries as a
group reached $213 billion in 1998”. Textiles compose a large portion of many developing
countries’ total exports.

The textile and apparel industries also compose a substantial part of Latin American
manufacturing exports. Although the region only captures about 3 per cent of the world
textile trade market, exports have grown by an average of 24 per cent over the last two
decades. Latin American producers face stiff competition from the East Asian countries:
nearly half of the producers of synthetic and blended textiles closed in São Paulo, Brazil
because of the intense penetration of imports from South Korea and China. China, South
Korea, and Taiwan in particular saw their collective export volume grow from US$42.4
million in 1963 to US$3315.2 million in 1984.

Industry Trends in the Developed World

The textile industry in developed countries has often found itself unable to
compete with low-value goods made with cheap labor in developing nations. As a result,
textile industry jobs continue to move out of industrial countries and into developing
countries. The textile and apparel industry has lost 700,000 jobs since NAFTA’s
implementation in January 1994; North Carolina alone lost 124,700 jobs. Textile output has
fallen 22.2 per cent since 1994, and apparel output has declined more than 14 per cent.

15
 However, the focus of production shifted into advanced market sectors and the
industry has maintained profitability by making sizeable capital investments in computer and
mechanization technology. Between 1975 and 1985, U.S. textile mills reinvested 80 to 85 per
cent of their retained earnings, spending $1.4 billion per year on new plant facilities and
equipment. Between 1984 and 1986 this figure rose to $1.6 billion per year. Firms invested in
computer-controlled systems and robotics in order to improve productivity while cutting
labour costs employs a “five minute rule. If the product requires more than five minutes of
labour, production is shifted overseas. As a result, domestic production concentrates on
specialty fabrics, which continue to succeed in the domestic and overseas markets. However,
even in the specialty fabrics divisions, the fabric is produced domestically and then shipped
to China to cut and sew the fabric into finished products.

Textile Trade Policies

The nature of global textile production and consumption patterns threatens domestic
workers in industrial nations. As a result, developed nations have succeeded in limiting
market access to countries with a comparative advantage in production by employing quotas,
tariffs, and other barriers to trade. Developing countries have also taken steps to protect their
domestic market from other developing and developed countries: “developing nations want
the growing textile and apparel markets within their countries for themselves”.
In 1984, tariffs in developing countries averaged from 25 to 75 per cent; Brazil
imposed tariffs of up to 205 per cent. Bolivia, Egypt, and Afghanistan outright ban certain
imports; furthermore, developing countries with the largest exports also tend to have the
highest tariffs to ensure their domestic industry will not be threatened.
Protectionist policies directly impact exporters in developing countries because they
are crowded out of the global market. “Each job saved in a developed country by tariffs and
quotas is estimated to cost about 35 jobs in developing countries.” In addition, quotas and
tariffs cause a direct welfare loss of around $24 billion per year and lost export revenues of
$40 billion. These figures can only begin to demonstrate the need to remove trade
restrictions. Again, developing countries stand to gain substantially from removal of their
own barriers.

Multi fibre Arrangement and the Agreement on Textiles and Clothing:

16
 The Multifibre Arrangement (MFA) was instituted in the WTO in 1974 to “achieve
the expansion of trade, the reduction of barriers to such trade, and the progressive
liberalization of world trade in textile products. While the MFA appears to be ideologically
supportive of expanding free trade in the textile industry, it was mostly used to protect
developed countries from low-value imports from developing nations. Therefore, the WTO
adopted the Agreement on Textiles and Clothing in 1995. The ATC takes place in four stages
designed to gradually integrate the textile industry to GATT rules. 16 per cent of textile
products will be traded according to GATT rules by the end of 1997, 33 per cent by year-end
of 2001, 51 per cent by year-end of 2004, and 100 per cent starting in 2005. These figures are
substantially higher than what is set forth in the MFA. MFA contains a mandatory provision
to increase the number of imports not subject to quotas by 6 per cent a year.
The International Monetary Fund estimated in 1984 that removing MFA quotas and
tariffs from textile goods could substantially increase exports from developing countries to
developed nations: an 82per cent increase is possible from developing nations to countries
that participate in the Organization for Economic Cooperation and Development (OECD)
alone. The ATC is set to expire in 2005, when 100% of textile trade will comply with GATT
rules. However, most countries back-loaded the products excluded from protectionist policies
many of the products excluded early in the process were not restricted in the first place nor
are they most sensitive to import competition.

Political Economy Considerations:

While economists and politicians generally agree that sustainable development,
economic growth, and the reduction of poverty are worthy goals for developing nations, it is
more difficult in practice to implement policies that achieve these goals. Textile
manufacturers in developed economies have traditionally influenced the country. Powerful
industries have proven their ability to influence policy makers to implement protectionist
policies, as demonstrated with the recent steel tariff increases. As long as interest group
politics dominate policy making, we can expect that government policy will serve the needs
of industry, not consumers. The WTO regulations aspire to reduce the possibility that
individual governments act in a way that hurts free trade.

Development of Textile Industry:

17
Early Textile Production:
Textile structures derive from two sources, ancient handicrafts and modern scientific
invention. The earliest were nets, produced from one thread and employing a single repeated
movement to form loops, and basketry, the interlacing of flexible reeds, cane, or other
suitable materials. The production of net, also called limited thread work, has been practiced
by many peoples, particularly in Africa and Peru. Examples of prehistoric textiles are
extremely rare because of the perish ability of fabrics. Weaving apparently preceded spinning
of yarn; woven fabrics probably originated from basket weaving. Cotton, silk, wool, and flax
fibers were used as textile materials in ancient Egypt; cotton was used in India by 3000 bce;
and silk production is mentioned in Chinese chronicles dating to about the same period. The
history of spinning technology will be touched on below in the section Production of yarn:
Spinning and that of weaving technology in the section Production of fabric.

Early Fabrics:
Many fabrics produced by the simple early weaving procedures are of striking beauty
and sophistication. Design and art forms are of great interest, and the range of patterns and
colours is wide, with patterns produced in different parts of the world showing distinctive
local features. Yarns and cloth were dyed and printed from very early times. Specimens of
dyed fabrics have been found in Roman ruins of the 2nd century and there is evidence of
production of printed textiles in India during the 4th century. Textiles found in Egypt also
indicate a highly developed weaving craft by the 4th century with many tapestries made from
linen and wool. Persian textiles of very ancient origin include materials ranging from simple
fabrics to luxurious carpets and tapestries.
Textiles in the middle Ages:
By the early Middle Ages certain Turkish tribes were skilled in the manufacture of
carpets, felted cloths, towels, and rugs. In Mughal India (16th–18th century), and perhaps
earlier, the fine muslins produced at Dhaka in Bengal were sometimes printed or painted.
Despite the Muslim prohibition against representation of living things, richly patterned
fabrics were made in Islamic lands. In Sicily after the Arab conquest in 827, beautiful fabrics
were produced in the palace workshops at Palermo. About 1130, skilled weavers who came
to Palermo from Greece and Turkey produced elaborate fabrics of silk interlaced with gold.

18
 Following the conquest of Sicily in 1266 by the French, the weavers fled to Italy;
many settled in Lucca, which soon became well known for silk fabrics with patterns
employing imaginative floral forms. In 1315 the Florentines captured Lucca, taking the
Sicilian weavers to Florence, a centre for fine woven woollens’ from about 1100 and also
believed to be producing velvet at this time. A high degree of artistic and technical skill was
developed, with 16,000 workers employed in the silk industry and 30,000 in the wool
industry at the close of the 15th century. By the middle of the 16th century a prosperous
industry in velvets and brocades was also established in Genoa and Venice.
Effects of the Industrial Revolution:

The textile industry, although highly developed as a craft, remained essentially

a industry until the 18th century. The advantages of cooperative operations were realized
much earlier, and numbers of workers occasionally operated together under one roof, with
one such group operating a mill in Zürich in 1568 and another in Derby, Eng., in 1717.
Factory organization became most advanced in the north of England, and the Industrial
Revolution, at its height between 1760 and 1815, greatly accelerated the growth of the mill
system.
John Kay’s flying shuttle, invented in 1733, increased the speed of the weaving
operation, and its success created pressure for more rapid spinning of yarn to feed the faster
looms. Mechanical spinners produced in 1769 and 1779 by Sir Richard
Arkwright and Samuel Crompton encouraged development of mechanized processes of
carding and combing wool for the spinning machines. Soon after the turn of the century the
first power loom was developed. The replacement of water power by steam increased the
speed of power-driven machinery, and the factory system became firmly established, first in
England, later in Europe and the United States.
From the 19th century to the present throughout the 19th century a succession of
improvements in textile machinery steadily increased the volume of production, lowering
prices of finished cloth and garments. The trend continued in the 20th century. Japanese
textile manufacturing.
Textile Industries of France and Germany:
French manufacture of woven silks began in 1480. Others were brought to weave
silk in Lyon, eventually the centre of European silk manufacture. Until 1589 most of the
elaborate fabrics in France were of Italian origin, but in that year Henry IV founded the royal

19
carpet and tapestry factory at Savonnières. By the time of Louis XIII (1610–43), French
patterned fabrics showed a distinctive style based on symmetrical ornamental forms, lacelike
in effect, perhaps derived from the highly regarded early Italian laces. French textiles
continued to advance in style and technique, and under Louis XVI (1774–93) design was
refined, with Classical elements intermingled with the earlier floral patterns. The outbreak of
the French Revolution in the 1790s interrupted the work of the weavers of Lyon, but the
industry soon recovered.
Textile Manufacture in England:
English textiles of the 13th and 14th centuries were mainly of linen and wool, and the
trade was influenced by Flemish fullers and dyers. Silk was being woven in London and
Norwich in 1455, and in 1564 Queen Elizabeth. The most important group of refugees, some
3,500, lived in Spite, a London settlement that became the chief centre for fine silk damasks
and brocades. These weavers produced silk fabrics of high quality and were known for their
subtle use of fancy weaves and textures. Norwich was also famous for figured shawls of silk
or wool.
United States:
The United States followed the British lead, using stolen blueprints and illegally
immigrating engineers. Samuel Slater (1768-1835) of Rhode Island pulled American cotton-
spinning technology by constructing carding, drawing, and roving machinery, and by
determining the operating and gearing ratios necessary to use water power. By 1850 the
American had built their own industrial revolutions around textiles, and use of abundant
water power in New England.
Asia:
Textile industry in Asia argues that between 1400 and 1800, South Asian textile
production adapted to economic and cultural cycles and was never displaced by cheaper or
higher-quality foreign imports, coming mainly from India. The example of Bandjarmasin, an
important Borneo port, demonstrates the dynamic between upstream and downstream
communities in a changing economy, the role of the arrival of Islam in the islands of
Southeast Asia, and the interplay of international trade and the local textile industry. The
growing European presence in the region was only one factor in the developments during this
period.
China:
In 1890 the first cotton textile factory was established in China, marking the
beginning of textile modernization in China. For the period 1890-1937 China was unable to
20
maintain control over the industry, which for the most part was controlled by foreign
investors. This was due in part to China's lack of capital and managerial knowledge and
techniques, which were supplied by such countries as Japan and Great Britain. However, the
industry greatly expanded during this period and had vast influence on the Chinese economy.
The new factory system resulted in a move from small-scale family production to mass
production. Since the textile industry was the largest in China and employed one-fourth of the
labor force, it had repercussions on the traditional society. The textile industry also formed
the basis for labor movements and collective bargaining and strikes.

Exports And Imports Of Textile Industry:

India textile industry is one of the leading in the world. Currently it is estimated to be
around US$ 52 billion and is also projected to be around US$ 115 billion by the year 2018.
The current domestic market of textile in India is expected to be increased to US$ 60 billion
by 2012 from the current US$ 34.6 billion. The textile export of the country was around US$
19.14 billion in 2016-17, which saw a stiff rise to reach US$ 22.13 in 2017-18. The share of
exports is also expected to increase from 4per cent to 7per cent within 2020. Following are
area, production and productivity of cotton in India during the last six decades.
Strengths
 Vast textile production capacity
 Large pool of skilled and cheap work force
 Entrepreneurial skills
 Efficient multi-fiber raw material manufacturing capacity
 Large domestic market
 Enormous export potential
 Flexible textile manufacturing systems

Weaknesses
 Increased global competition in the post 2005 trade regime under WTO
 Imports of cheap textiles from other Asian neighbors
 Use of outdated manufacturing technology
 Poor supply chain management
 Huge unorganized and decentralized sector

21
  High production cost with respect to other Asian competitors

India's export to Malaysia:

Malaysia imports various types of textile products from India to meet the requirements
of raw materials for its emerging garment industry. Malaysia's total textile imports are
estimated to exceed US$ 1.5 billion annually. Malaysia's major importing products include
woven man-made fiber fabrics, apparel accessories, textile yarn, knitted and crocheted
fabrics, and women’s apparel.

India's export to Malaysia:

Year Area in lakh Production in lakh bales of 170 Yield kgs per
hectares kgs hectare

22
 2007-2008 56.48 30.62 92
2008-2009 76.78 56.41 124
2009-2010 76.05 47.63 106
2010-2011 78.24 78.60 170
2011-2012 74.39 117.00 267
2012-2013 85.76 140.00 278
2013-2014 87.30 158.00 308
2014-2015 76.67 136.00 302
2015-2016 76.30 179.00 399
2016-2017 87.86 243.00 470
2017-2018 86.77 244.00 478
2018-2019 91.44 280.00 521
2019-2020 94.39 315.00 567
2020-2021 93.73 290.00 526

India's export to Australia:

Australia is considered as one of the most open textile markets in the world. Major
textile imports include apparels and made-ups under chapter 62, 61 and 63, specifically
polyester-cotton and polyester-viscose types. Bulk of cotton and hand-made fibers are also
imported from countries like India

23
 year
Quantity (in lakh bales of 170 kgs.) Value (` /Crores)

2008-2009 0.30 56.42

2009-2010 4.13 497.93
2010-2011 7.87 772.64
2011-2012 22.01 1967.92
2012-2013 22.13 2029.18
2013-2014 25.26 2150.01
2014-2015 17.67 1789.92
2015-2016 7.21 880.10
2016-2017 12.17 1338.04
2017-2018 5.00 695.77
2018-2019 5.53 752.29
2019-2020 6.50 986.33
2020-2021 7.00 N.A.

Indian exports of textiles to EU (European Union):

EU overpowered USA as becoming the largest market for textiles and clothing in the
world. Asia pre dominates the EU market in both clothing and textiles, with 30per cent (US $
30 bn) and 17 per cent (US $ 8 bn) share, respectively. India is one of the leading suppliers of
textile products to the EU market and ranked fourth, ahead of other textile exporters like
Mexico, Bangladesh and Turkey, with a market share of 5.2per cent (US $ 0.45 bn).

Year Quantity (in lakh bales of 170 kgs) Value (in `/Crores)

2008-2009 16.82 1655.00

2009-2010 3.50 313.62

2010-2011 1.01 86.72

2011-2012 0.65 52.15

2012-2013 0.60 51.43

24
2013-2014 0.50 44.40

2014-2015 0.83 66.31

2015-2016 12.11 1089.15

2016-2017 9.14 657.34

2017-2018 47.00 3951.35

2018-2019 58.00 5267.08

2019-2020 85.00 8365.98

2020-2021 50.00 N.A.

Current trend Industry sources reveal that India's textile exports are likely to fall short by over
16per cent from the expected target. This is happening because of an increase in value of
money and slowing down of investment. Witnessing a negative growth in exports,
specifically in segments like garments. Garments accounts for about half of the overall textile
exports by India. Implementing the projected investment of Rs. 1, 94,000 crore in the 11th
Five Year Plan (2007-12). Source from Business Standard reveals that the Indian government
is expected to export around 20 per cent more raw cotton than before. Indian textile exports
to USA and China are growing rapidly. China and India are speedily becoming the two
biggest textile players in the world.

25
26
 CHAPTER-3

COMPANY PROFILE

Brandix Apparel India City (BAIC) is conceptualized and managed by Brandix, Sri
Lanka’s largest apparel exporter. It offers a host of attractive financial and operational
incentives for investors and procedural ease for facilitating investment. It’s offering a unique
one-stop shop, with end-to-end apparel solutions; BAIC is a first of its kind in the world. It is
a veritable ‘Paradise’ for the global apparel industry.

27
 It’s based on a breakthrough ‘Fiber-to-Store’ concept; it will house world-class
apparel chain partners, from fashion design to manufacturing all underdone roof, offering
seamless integration and unmatched value.

BAIC is spanning across 1000-acres, it’s is located in the bustling city of

Visakhapatnam, in the State of Andhra Pradesh, India. It provides the platform to unlock the
massive synergies that India offer as a textile destination.

About BAIC:

Brandix Apparel India City has developed an ecologically sustainable site that features green
infrastructure and sustainable designs. BIAC’s integrated green infrastructure and efficient
engineering designs ensure that the final construction maximizes eco-industrial balance and
meet sustainability business objectives.

Brandix Apparel India City as a business group has been recognized and lauded in Sri
Lanka for its commitment to employees and the community. Brandix has extended the same
gesture to BIAC and its operations in Atchutapuram, Andhra Pradesh, India. Its community
projects in Atchutapuram are dedicated to supporting community service projects that focus
on water, health, sanitation, community empowerment and education.

Brandix Apparel India:

Brandix Apparel India, the Indian manufacturing arm of Brandix Lanka Ltd,
commenced commercial production for export at BAIC in July 2008. It has systematically
increased its local workforce, and today has a combined strength of 3300 associates, majority
women from neighboring villages, with world-class apparel being exported to top customers
in US and Europe.
The facility is located in Brandix Apparel India City (BAIC) SEZ being a
revolutionary development in the apparel industry; a unique, integrated apparel supply chain
city, managed by Brandix Lanka Ltd. BAIC spread over 1000 acres in the port city of
Visakhapatnam (or Vizag for short) in the eastern state of Andhra Pradesh, it brings alive an
avant-garde 'Fiber to Store' concept. BAIC will bring together world class apparel chain
partners from the design table to consumer brands in flawless integration.
Conceived and nurtured by Brandix, Sri Lanka's largest apparel exporter, BAIC
highlights India's phenomenal synergies in the world of textiles. To leverage India's immense

28
potential for economies of scale and other robust business fundamentals in its fast growing
economy, Brandix brings 30 years of industry expertise and invites other world class experts
to join its value chain to enjoy assured mutual benefits of investment.
It is initially located in PENDURTHI -VISAKHAPATNAM on August 2006.In January
2007 a production centre was opened at DUVVADA,VISAKHAPATNAM.
In July 2008 BRANDIX APPAREL INDIA (P) LTD is opened in BRANDIX APPAREL
INDIA CITY, as a manufacturing unit (wholesale) located at APSEZ ANDHRA PRADESH
SPECIAL ECONOMIC ZONE), Pudimadaka Road, Atchutapuram, and Visakhapatnam.

2.2.2 Brandix Vision:

The vision of the company is to be the inspired solution for branded clothing. Brandix
is supported by over 20 manufacturing facilities in Sri Lanka and strategically located
international sourcing offices.

Competencies Of Brandix:

Brandix strong competencies in product development, manufacturing and marketing,

are complimented by their most significant advantage in textiles. They make their own fabric,
threads, buttons and hangers.They also provide customers with R&D, washing, dyeing,
finishing, and quality control services. Their group-wide initiatives is to achieve
manufacturing and supply chain excellence, close collaboration with their suppliers, and sales
offices at the customer's doorstep all guarantee fast and flexible solutions from the source to
stores.

2.2.4 Milestones Of Brandix:

2001 Joint venture with Colombia Clothing Co Ltd

2002 Formed Brandix Lanka Ltd; "Brandix" - a new name, a new identity View Logo
Formation Video

2003 Strategic acquisition of Mast Industries' equity interests in our joint -

ventures Merger with the Jewelex Group. Restructure of Brandix Group into
Apparel, Textile and Accessories sectors

2004 Hanger’s joint venture formed A&E Brandix Hangers

2005 Established the Brandix Centre of Inspiration,

29
 Established the Automated Denim Plant

Established Brandix Active wear Ltd

MOU signed with Government of India for Brandix Apparel City, India.

2006 Brandix India Apparel City: launch of first manufacturing unit.

Garment Dyeing Joint-Venture: Stevenson’s Lanka.

Brandix Green Textile Processing Park, Horana signed MOU with

Government of Sri Lanka.

2007 Brandix was ranked as the country's largest apparel exporter for 2006-07 by the
Export Development Board, Sri Lanka.

2008 Brandix was once again ranked as the country's largest apparel exporter for 2007-
08 by the Export Development Board, Sri Lanka.

The newly converted Brandix Eco Centre in Seeduwa was ceremonially

inaugurated in April.

The Brandix Casual wear plant in Seeduwa achieved a global first in August
when it received the Platinum rating under the Leadership in Energy and
Environmental Design (LEED) Green Building Rating System of the US Green
Building Council (USGBC).

2009 Brandix Lanka was rated Platinum in the Corporate Accountability Rating
Survey.

The Brandix Green Project was judged as the National Winner for Sri Lanka at
the Energy Globe Awards 2008 presented by the Energy Globe Foundation.

Brandix Lanka Limited won the Corporate Social Responsibility Award

presented by the YPO-WPO Social Enterprise Network, USA.

Textured Jersey launched the in-region fleece programme for Victoria's Secret
PINK.

30
 Brandix was commended by the United Nations Global Compact as an example
of good CSR practice and compliance with the principles of the UNGC.

The Ceylon Chamber of Commerce recognized Brandix to be among the Top

10 Best Corporate Citizens for the year 2009

2010 The "Brandix Active wear" Company name was transformed to "Brandix
Essentials" in order to reflect the change in product focuses, specialization and
future business direction.

BOARD OF DIRECTORS:

Chairman- Desamanya Ken Balendra:

Ken Balendra joined the Board of Directors of Brandix Lanka Limited as its Non-
Executive Chairman in 2001, following one of Sri Lanka's most distinguished and respected
active business careers. During an illustrious professional life, he served as chairman of
several key institutions in Sri Lanka - John Keells Holdings Limited, Bank of Ceylon, the
Securities and Exchange Commission, the Insurance Board of Sri Lanka and the Ceylon
Chamber of Commerce.

31
Chief Executive Officer- Ashroff Omar:

Ashroff Omar, Chief Executive Officer of Brandix Lanka Ltd, is a leading

industrialist and a prominent figure in the apparel industry. The Brandix Group is the single
largest apparel exporter in Sri Lanka and is positioned as a leading apparel solutions provider
to many of the world's super brands.

Director-Aslam Omar:

Aslam Omar joined the business in 1984, and within a year began to successfully
manage and develop a growing number of subsidiaries under the emerging Brandix Group.
He was instrumental in forming alliances with Tyco A&E (USA), American & Efird Inc.
(USA) and T&S Buttons (Hong Kong) leading to successful joint ventures, namely Brandix
Hangers, American and Efird Lanka and Bangladesh and T&S Buttons respectively. These
companies have premium standings as trim suppliers to the apparel industry.

 Director -Feroz Omar:

Feroz Omar began his career as Managing Executive of MKC Industries, which was
the Group's maiden foray into the manufacture of knitted lingerie. As Brandix grew, logical
integration required a fabric processing mill, which he fulfilled by converting a Greenfield
site into Brandix Textiles - a leader in fabric manufacturing today, with a customer base that
spans the region. In addition, he is currently responsible for Ocean Lanka and Quenby Lanka
Prints, both of which he helped form, along with Brandix Casual wear Denim. The Brandix
Apparel India City project also falls under his purview.

Director -Ajit Johnpillai:

Ajit Johnpillai is the Director in charge of Brandix Casual wear; Brandix Finishing
and Comfort wear Limited. He is a former Financial Controller/Director of Smiths DIY
Group Limited in New Zealand, a US$ 50 million group that traded in hardware, builder's
supplies, and sports goods. Prior to this, he served as an Audit Manager with Ernst & Young,
in Bermuda and New Zealand.

Director -Udena Wickremasooriya:

Udena Wickremasooriya is the Director in charge of Brandix Intimate Apparel and

Brandix Essentials. He brings to Brandix extensive experience in the apparel industry with
focus on strategy, business turnaround and building strong performance cultures and teams,

32
both locally and internationally. Prior to joining the apparel industry, Mr. Wickremasooriya
worked in the FMCG Industry with Unilever Ceylon Ltd and the Banking industry with NDB
and held managerial positions in Supply Chain, Operations, Finance, IT and Human
Resources. He holds an MBA from the University of Sri Jayewardenepura, Sri Lanka and is a
Fellow of the Chartered Institute of Management Accountants, UK.

 Director -Trevine Jayasekara:

Trevine Jayasekara is the Group Finance Director of Brandix Lanka Limited and is
responsible for the overall finance function of the group, as well as related support functions.
As the former Group Finance Director of Aitkin Spence & Co., he held similar
responsibilities. Other positions Mr. Jayasekara held at Aitkin Spence include Director
Management Board, where he was responsible for finance, planning and IT for their entire
group, and Director Corporate Finance, where he spearheaded project evaluation, long-term
planning and treasury management.

ACHIEVEMENTS

LEED Certification:

Brandix is proud to receive the recent global recognition for its Eco Centre in
Seeduwa for Brandix Casualwear. The plant received Platinum rating in August 2008 under
the Leadership in Energy and Environmental Design (LEED) Green Building Rating System
of the US Green Building Council (USGBC).

33
WRAP (Worldwide Responsible Apparel Production

WRAP (Worldwide Responsible Apparel Production) is the most recognized

compliance standard in the United States for the apparel industry. It is an independent, non-
profit organization that endorses the certification of lawful, humane and ethical
manufacturing of apparel throughout the world.

Brandix has been accredited the SA 8000 Social Accountability standards established
by New York based Social Accountability International (SAI). The organization promotes the
global improvement of human rights for workers by collaborating with a range of
organizations including companies, trade unions and governments.

FAIR TRADE:

Brandix Textiles (BTL) accomplished another national first when its plant in
Makandura received its Fair Trade certification from the Institute for Market ecology (IMO)
of Switzerland. The company is Sri Lanka's largest woven fabric processor and the award is
an important development for it and the country. Another Brandix Group company, Brandix
Casual wear, Giritale, has also received this certification while Quenby Lanka Prints is in the
process of obtaining it.

OE100 (Organic Exchange):

The OE 100 certification from Organic Exchange (OE) is a set of industry compliance
standards for the global organic cotton textile industry. Within the Brandix Group, seven
companies have received this certificate and one, Quenby Prints Lanka, is in the process of
obtaining this important award. The Organic Exchange is a non-profit organisation that
promotes the global organic cotton industry and its members include many top international
retailers who have added organic cotton products into their offerings.

ISO 9001: The ISO 9001 certification is part of a suite of a system of quality management
standards stipulated by the international Organisation for Standardization (ISO). Currently,
Brandix Intimates, Katunayake, is ISO 9001 certified.

ISO 14001:The ISO 9001 certification is part of a family that covers environmental
management standards developed by the International Organisation for Standardization
(ISO).

OHSAS 18001 (Occupational Health & Safety Assessment Series):

34
 The OHSAS 18000 is an international occupational health and safety management
system specification which seeks to promote various improvements in the working
environment. Within the Brandix Group, Brandix Casual wear, Seeduwa, has been accredited
with this internationally renowned standard.

Brandix Organization Culture:

The Brandix Way of Life is their culture and permeates there whole organization. The
Brandix corporate 'personality' is determined by three overlapping areas: values, work culture
and social responsibility. Their way of working is all about accepting and embracing their
values, and acting with social responsibility. It's also about a young and dynamic entity which
supports its personalities to blossom in a vibrant environment.
The Brandix culture not only aligns associates with corporate goals, it moulds their
philosophy of work and therefore life. As well as encouraging associates to becoming
customer-focused, incorporating speed, flexibility, innovation and passion into their work
allows them to think more productively and perform for results.
Brandix culture of internal appreciation and recognition includes the Kaizen awards
for innovative thinking, merit awards for work and attendance, 'I value you' cards and gifts.
The 'Pat on the back' initiative promotes instant appreciation of behavior and performance
among colleagues. Their new programme GLOW (Great Lift off Work) enables social
interaction and the annual Brandix Nite celebrates outstanding executive team and individual
performance.
2.2.7 Location:
The Brandix Apparel City is located near ATCHUTAPURAM Mandal which is 45
kms from the Visakhapatnam Airport and from the city it is located at a distance of 47 kms,
which is 50 kms away from the Visakhapatnam Port. This apparel city is very near to Bay of
Bengal which makes the transportation process convenient through sea.
Corporate Office: The Corporate office means the Administrative office is located at
COLOMBO, SRI LANKA

35
36
 CHAPTER-4

THEORETICAL FRAME WORK

Working capital is the life and blood of the business. It signifies the funds to be kept
in reserves for day to day operations. Working Capital Management of the short term survival
is a prerequisite to long term succession aspects of the working capital management. The
trade-off between profitability and risk.

37
 There is a conflict between profitability and liquidity. If a firm does not have adequate
working capital i.e.., it does not invest sufficient funds in current obligation and thus invites
the risk of the bankruptcy. If the current assets are too large, the profitability is adversely
affected. The key strategies and considerations in ensuring a trade off between profitability
and liquidity is one of the major dimensions of the Working Capital Management.
Working capital management concerned with the problems that arise in better
relationship that exists between them. Here this in ordinary course of business can be turned
in to cash within one year without disrupting to operations firm. The securities, account
receivables and inventory are current liabili of working capital is to manage firm’s current
assets and current liabilities in such a way that a satisfactory level of Working Capital is
maintained.

Introduction:

Decisions relating to working capital and the short term financing are referred to as
Working Capital management. This involves managing the relationship between a firm’s
short term assets and its long term liabilities. The goal of Working capital management is to
ensure that the firm is able to continue its operations and that it has sufficient cash flow to
satisfy both maturing short term debts and upcoming operation expenses. By definition,
Working Capital Management entails short term decisions generally relating to the next one
year period which are “reversible”.
One measure of cash flow is provided by the cash conversion cycle. The net number
of days forms the outlay of cash for raw material to receiving payments from the customers.
As a management tool, this metric makes explicit the inter-relatedness of decisions relating to
inventory, accounts receivable and payable, and cash because this number effectively
corresponds to the time that the firm’s cash is tied up in operations and unavailable for other
activities, management generally aims at a low net count.

Need For Working Capital Management:

The need for the working capital arises from the presence of operating cycle or cash
cycle. The flow of cash, inventory, account receivable and bank and cash is called the
operating cycle.
It consists of three phases. They are as follows.

38
 1. Conversion of cash into inventory
2. Conversion of inventory into receivables
3. Conversion of receivables into cash

Operating cycle can be clearly represented as follows

Cash --------- Inventory --------- Receivables

Importance:
Establishment of any industry requires funds, which are invested in acquisition of
assets and in meeting out its liabilities. Assets and liabilities of any company can be classified
on the basis of duration in to assets fixed and current assets long liabilities and short term.
Assets are nothing but possession owned by firm which are capable of being expenses
in monitory terms whether tangible like land and buildings, stock etc. of intangible further
benefits uses these fixed assets are those assets which are permanent in nature and hold for
the use in business activities and not for sale. Examples of fixed assets are land, missionary,
building etc. Current assets of the company which in one on a king period, usually a year
examples of current assets are cash, short term investments, sundry debtors or account
receivables. Stock, loans and advances.
Liabilities are economic obligations of the company to pay cash provide goods or
services to outsiders. Including share holders liabilities may be long term or current long term
liabilities are those which are repayable over a period greater than the accounting period like
share capital, debentures, long term loans etc. Current liabilities on the other hand to be paid
within a period of one year like sundry creditors, bills payable, outstanding expenses, short
term loans etc.,

The Management Of Fixed Assets And Current Assets Differ In Three Important Ways:
1. In managing fixed assets the three factors is very important that is why discounting
compounding play a very important role in any capital budgeting decision. But because
the time frames of current assets are only of money it is less significant in the
management of current assets.
2. The liquidity position of firm dependent on the investment in current assets then
more than better where as the role of fixed as far as liquidity is concerned reliable.

39
 3. Any short run immediate need of the company whether it be used for cash or
adjustments to fluctuation in sales can be made only through adjustments. The level of
the various components of the current assets. The calls for efficient management of
current assets which form part of management of working capital.
Sources Of Working Capital:
The working capital requirements should be met both from long-term as well as
short-term sources of funds.

SOURCES OF WORKING CAPITAL

Permanent/Long-term Temporary/Short-term

Shares Commercial Banks

Debentures Indigenous Bankers

Public Deposits Trade Credits

Ploughing back of profit Instalment credit

Long form financial Institutions Advances
1. Permanent/Long-term working capital:
Permanent working capital should be financial in such a way that the enterprise may have its
uninterrupted use for sufficiently longer periods.
The sources of long-term working capital are:
1. Shares: A company can issue various type of shares as equity shares, preference
shares and deferred shares. Equity shares do not have any fixed commitment, preference
shares have a fixed rate and deferred shares cannot be issued by a public company.
2. Debentures: Debenture holders are to be paid a fixed rate of interest. The debentures
may be of various kinds such as simple, naked or unsecured debentures, secured or
mortgaged debentures, redeemable, irredeemable debentures, convertible, non-convertible
debentures. Interests on debentures have to be paid on certain predetermined intervals at fixed
rate and also debentures get priority on repayment at the time of liquidation.
3. Public Deposits: Public deposits are the fixed deposits accepted by a business
enterprise directly from the public. Public deposits have advantages such as very simple and

40
convenient source of finance, taxation benefits, trading on equity, inexpensive source of
finance but non-banking concerns cannot borrow by way public deposits more than 25% of
its paid up capital and free reserves.
4. Ploughing Back of Profits: This means the reinvestment by a concern of its surplus
earnings in its business. This method has a number of advantages as it is the cheats, no need
to keep securities; it ensures stable dividend policy and gains confidence of the public. But
excessive report may lead to monopolies, over capitalization and speculation, etc.
5. Long from Financial Institutions: Financial institution such as commercial Bank, life
insurance corporation (LIC), Industrial Financial Corporation of India (IFCI), Industrial
Development Bank of India (IDBI) etc provide short-term, medium-term and long-term
loans. Interest is charged at a fixed rate and repayment should be done by way of instalments.

2. Temporary/short-term working capital: Some amount of working capital may be required

to meet the seasonal demands and rise in prices, strikes etc. this proportion of working capital
given rise to temporary or variable working capital.

The sources of short-term working capital are:

a). Commercial banks: The major portion of working capital loans are provided by
commercial banks through a wide variety of loans tailored to meet the specific requirements
of a concern.
The different forms for providing loans and advances are:
 Loans
 Cash credits
 Overdrafts
 Purchasing and Discounting of bills

b) Indigenous Bankers: Private money-lenders and other country bankers used to be only
source of finance prior to the establishment of commercial banks. But even today some
business sources have to depend upon indigenous bankers for obtaining loans to meet their
working capital requirements.

41
c) Trade Credits: Trade credit arrangements of a concern with its suppliers an important
source of short-term finance. The main advantages of this source are; it is very convenient
method of finance, flexible but this method charges high prices and loss of cash discount.

d) Instalment Credit: This is another method by which the assets are purchased and the
possession of goods is taken immediately but the payment is made in instalments over a
predetermined period of time.

e) Advances: Some business houses get advances from their customers and agents against
orders and this source of finance for them and it is also a cheer source.

Concepts Of Working Capital:

There are two concepts of working capital

1) Gross working capital

2) Net working capital

42
1) Gross working capital:
In broad sense, the term working capital refers to the gross working capital and
represents the amounts of funds invested in current assets. Thus, gross working capital is the
capital invested in the total current assets of the enterprise. Current assets are those in which
the ordinary course of business can be converted into cash, within a short period, normally
one accounting year. The gross working capital is financial or going concern concept. Gross
concepts suitable for the company form of organizations. It is also known as current capital or
circulating capital.
The gross working capital is sometimes preferred to the net concepts of working
capital for the following reasons:
i. The enterprise can provide correct amount of working capital at the right time.
ii. Every management is more interested in the total current assets with which it has to
operate than the sources from where it is made available.
iii. The gross concept takes into consideration the fact that every increase in the funds of
the enterprise would increase its working capital.
Net working Capital:
In narrow sense, the term
Working capital = Current Assets – Current Liabilities
Net working capital may be positive or negative. When the current assets exceed the current
liabilities, the working capital is positive and the negative working capital results when the
current liabilities are more than current assets. Current liabilities are those liabilities, which
are intended to be paid in the ordinary course of business within a short period of normally
one accounting year, out of the current assets or the income of the business within a short
period of normally one accounting year, out of the current assets or the income of the
business. The net working capital concept, however, is also important for the following
incidence.
1. It is a qualitative concept which indicates firm’s ability to meet its operating
expenses and short terms liabilities.
2. It indicates the margin of production available to the short term creditor’s
i.e.., about excess of current assets over current liabilities.
3. It is an indicator of the financial soundness of an enterprise

43
 4. It indicates and suggests the need for financing and the part of the working
capital requirements out of permanent sources of funds.

The net concepts are suitable for proprietary form of organization such as sole trader or
partnership firm.

Classification Of Working Capital:

Working capital may be classified in two ways:

1. ON THE BASIS OF CONCEPT:

44
 Working capital

Gross Working Capital NetWorkingcapital

2. ON THE BASIS OF TIME:

Working capital

Permanent or Fixed Temporary or Variable

Regular Reserve Seasonal Special

1. On the basis of concept:

On the basis of concept, working capital is classified as gross working capital and net
working capital. The classification is important from the view of the financial manager’s.

2. On the basis of time:

On the basis of time, working capital may be classified as

 Permanent working capital
 Temporary working capital

Permanent Working capital:

This refers to the minimum amount of investment in all current assets, which required
at a time to carry out minimum level of business activities. In other words, it represents the
current assets required on continuing basis over the entire year. Tendon committee has
referred to this type of working capital as “core current assets”.
The following are the characteristics of this type of working capital:
1. Amount of permanent working capital remains in the business in one form or
another. This is particularly important from the point of view of financing.

45
 The suppliers of such working capital should not expect its return during the lifetime
of firm.
2. It also grows with size of the business. In other words, greater the size of the
business, greater is the amount of such working capital and vice-versa. Permanent
working capital is permanently needed for the business and therefore it should be
financed out of long-term funds. This is the reason why the current ratio has to be
substantially more than

Temporary working capital:

The amount of such working capital keeps on fluctuating from time to time on the
basis of business activities. In other words, it represents additional current assets required at
different times during the operating year.
Suppliers of temporary working capital can expect its return during off season when
the firm does not require it. Hence, temporary working capital is generally financed from
short-term sources of finance such as bank credit.

Regular working capital:

Regular working capital is the amount required to ensure circulation of current
Assets from cash to inventory from inventory to receivables, from receivables to cash so on.
Reserve working capital:
It is excess amount over the requirements for regular purpose which may be arise at the
constant periods such as strikes, lockouts, raise in prices, depreciation etc.

Seasonal working capital:

The capital required for the seasonal needs is known as seasonal working capital.
Special working capital:
The capital required to these special needs, is the special working capital. Special
working capital required to meet the special exigencies such as launching of extensive
marketing companies, research and development etc.

Factors Influencing Working Capital Requirements:

The working capital needs of a firm are influenced by numerous factors. They are:
1. Nature of business

46
 2. Working capital cycle
3. Seasonality of operations
4. Production policy
5. Market conditions
6. Conditions of supply

1. Nature of business:
The working capital requirement of firm is closely relating to the nature of its
business. A service firm, like an electricity undertaking, which has a short operating cycle
and which sells predominantly on cash basis, has a modest working capital requirement.

2. Working capital cycle:

The speed with which the working capital completes one cycle determines the
requirements of working capital longer the period of the cycle; larger is the requirement of
working capital.

3. Seasonality of operations:
Firms that have marked seasonality in their operation usually have highly fluctuating
working capital requirements. For example: firm manufacturing ceiling fans. The sale of
ceiling fans reaches a peak during the summer months and drops sharply during the winter
period. The need of working capital of such a firm is likely to increase considerably in
summer months and decrease significantly during the winter period. On the other hand, a firm
manufacturing a product like lamps, which have fairly even sales round the year, tends to
have stable working capital needs.

4. Production policy:
A firm marked by pronounced seasonal fluctuations in its sales may pursue a
production policy, which may reduce the sharp variations in working capital requirements.
For example: a manufacturer of ceiling fans way maintain steady production throughout the
year than intensifying the production activity during a peak business seasons such a
production activity during a peak business season may dampen the fluctuation in working
capital requirement.

5. Marketing conditions:
47
 The degree of competition in the market place has an important bearing on working
capital needs when competition is high; a larger inventory of finished goods is required to
promptly serve customers who may not be inclined to wait because other manufacturers are
ready to meet their needs. If the market is strong and competition is weak, a firm can manage
with a smaller inventory of finished goods because customers can be served with some delay.

6. Conditions of supply:
The inventory of raw materials, spares and stores depends on the conditions of supply. If
the supply is prompt and adequate, the firm can manage with small inventory. However if the
supply is unpredictable and scant, then the firm ensures continuity of production, would have
to acquire stocks as and when they are available and carry larger inventory on a average. A
similar policy may have to be followed when the raw material is available only seasonally
and production operations are carried out round the year

Objectives Of Working Capital:

There are five bold objectives of the management of working capital.
1. Maintenance of working capital at appropriate levels.

48
 2. Availability of ample funds as and when they are needed.
3. Regular payment of salary, wages and other day to day commitment.
4. Exploitation of favorable condition.
5. Quick and regular return on investment

Study Of Working Capital Management:

The management of working capital management has been studied under the three following
heads.
1. Management of cash balances
2. Management accounts receivables, Management of inventory

1. Management Of Account Receivables:

Receivables result from credit sales. A concern is required to allow credit sales in
order to expand its sales volume. It is not always possible to sell goods on cash basis only.
Meaning Of Receivables:
Receivables represents amount owed to the firm as a result of sale of goods or
services in the ordinary course of business. These are claims of the firm against its customers
and from trade receivables or book debts. The receivables are carried for the customers. The
period of credit and extent of receivables depends upon the credit policy followed by the
firm.

Policies From Managing Receivables:

The credit policy of any firm should be estimated in such a way that the benefits
likely to accrue from it. The credit policy should incorporate the following.

3.11 Credit Standards:

The term credit standards represent the basic criteria for the extension of credit to any
customer. This is done with the help of factors such as credit rating, credit references and
various financial ratios. The levels of sales and the amount of account are fairly liberal as
compared to sales under the restructure to tight credit standards.
The credit standards of any firm are usually determined by 5 ace’s namely
1. Capacity:
It refers to ability of the specific customer to manage the required sales of business.

49
2. Collateral:
It refers to the security in firms of assets owned by customers, which can be offered
by the customer to secure the amount of credit extended to him.
3. Capital:
It refers to financial soundness of customer’s i.e.., capacity to raise the required funds.

4. Condition:
It refers to the impact of economic environment of the country or the firm or special
circumstances offered by Government or local agencies, which may affect the customer’s
profitability to meet obligations.

5. Credit Terms:
This refers to stipulations under which the goods are sold on credit i.e.., terms and
conditions of trade relating to repayment. The components are:

a. Cash Discount:
It refers to that amount of discount, which is gives to customers on paying off his
debts within the stipulated period. Attractive cash discounts terms help in reduction of
reduction of average collection period and in turn reduce amount of investment in
receivables.

CASH MANAGEMENT:
Cash is the important current assets for the operations of the business. Cash is the
basic input needed to keep the business running on a continues basis ; it also the ultimate
output expected to be realized by selling the services are product manufactured by the firm

50
should keep sufficient cash, neither more nor less. Cash shortage will simply remain idle,
without contributing anything towards the firm’s profitability. Thus, a major function of the
financial manager is to maintain cash position.
Cash is the money, which a firm can disburse immediately without any restriction.
The term includes coins, currency and cheques held by the firm’s, and because in its
accounts. Some ties bear cash items, such as marketable securities or bank time deposits, are
also included in cash. The basic characteristics of near cash assets are that they can readily be
converted in to cash. Generally, when a firm has excess cash, it invests it in marketable
securities. This kind of investments contributes some profit to the firm.
Objectives Of Cash Management:
There are two basic objectives of cash management. They are
1. To meet the cash disbursement needs as per the payment schedule.
2. To meet the amount of funds help up as cash balance.

The basic objective of cash management is to meet all payments obligations in time. This
enquires the maintenance of sufficient cash funds help up as cash balance. The first two
BAIC poaches are mathematical and are outside our scope. Therefore, we look at only cash
budget.

INVENTORY MANAGEMENT:
Inventory Meaning:

51
 The term inventory refers to the stock pile of the product a firm is offering for sale
and the components that make up the product. In other words, inventory is composed of
assets that will be sold in future in the normal course of business operations. The assets which
firms store as inventory in anticipation of need are:
1. Raw materials
2. Work in process
3. Finished goods
4. Stores and Spares Inventory
5. Pipe line inventory (Goods in transit to warehouses)
Purpose Of Inventory:
1. For smooth flow of goods throughout the production process.
2. To protect against stock outs.(demand & supply changes)
3. To take advantage of order cycles.
4. To hedge against price fluctuations.
5. To meet customer demand and ensure customer satisfaction.
Evils Of Inventory:
1. Non value added costs
2. Opportunity costs
3. It deteriorates, obsoletes etc.

About inventory management:

It is concerned with keeping enough product on hand to avoid running out while at the
same time maintaining a small enough inventory balance to allow for a reasonable return on
investment. Proper inventory management is essential to the financial health of the
corporation; being out of stock forces customers to turn to competitors or results in a loss of
sales. Excessive level of inventory, however, results in large inventory carrying costs,
including the cost of the capital tied up in inventory.
The aspect of management of inventory is especially important in respect to the fact that in
country like India, the capital block in terms of inventory is about 50% of the current assets.
It is therefore, absolutely imperative to manage efficiently and effectively in order to avoid
unnecessary investment. Although to maintain low inventory may prove to be profitable but
to maintain very low inventory may prove risky on the contrary.

52
 This aspect of management if tackled in a proper way may prove to be a boon its
effective and efficient management would result in the maintaining of optimum level of
inventory. At this level the profitability of the organisation will not be jeopardised at the cost
of inventory.

Objectives Of Inventory Management:

53
 The two main reasons behind all this are, firstly, to maintain a inventory big enough
that the production and sales operation are carried on without any hindrance and secondly, to
minimize the investment in inventory, in order to maximize the profits. Both, excessive as
well as inadequate inventory level is not good. They are the two danger points that a
company should try to avoid and should always try to maintain optimum level of inventory.
The excessive investment in the inventory has the following drawbacks:
1. Unnecessary tie up of firm’s fund and loss of profit.
2. Excessive carrying cost.
3. The risk of liquidity.

Requirements For Effective Inventory Mangement:

1. A system to keep track of inventory on hand and on order.
2. A reliable forecast of demand
3. Knowledge of Lead times and Lead time variability and a classification
system.
4. Reasonable estimates of inventory costs (holding, ordering costs etc).

Cost of holding inventory:

1. Inventory cost
2. Carrying cost
3. Ordering cost
4. Costs of running cost
5. Stock out cost
6. Ordering, shipping and receiving cost.

ABC Analysis:

54
 It is an inventory application of the Pareto principal which states that there are a
“critical few and trivial man.” Idea is to establish inventory policies that focus resources on
the few critical inventory parts and not on many trivial ones. In this technique, the items of
inventory are classified according to value of usage. The higher value items have lower safety
stocks, because the cost of production is very high in respect of higher value items. The lower
value items carry higher safety stocks.
ABC analysis is exercised as follows:

 A ITEMS: very tight control and accurate records

 B ITEMS: less tightly controlled and good records
 C ITEMS: simplest controls possible and minimal records

The ABC analysis provides a mechanism for identifying items that will have a significant
impact on overall inventory cost, while also providing a mechanism for identifying different
categories of stock that will require different management and controls.

The ABC analysis suggests that inventories of an organization are not of equal value. Thus,
the inventory is grouped into three categories (A, B, and C) in order of their estimated
importance.

'A' items are very important for an organization. Because of the high value of these
‘A’ items, frequent value analysis is required. In addition to that, an organization
needs to choose an appropriate order pattern to avoid excess capacity.
'B' items are important, but of course less important, than ‘A’ items and more
important than ‘C’ items. Therefore ‘B’ items are intergroup items.
'C' items are marginally important. 

Valuation Of Inventory:
When finished goods are sold, the firm must assign a cost of goods sold. The cost of
goods sold appears on the income statement as an expense for the period and the balance
sheet inventory account is reduced by a like amount.
Four methods can be used to value the cost of goods sold:
1. Specific identification
2. First-in-first out (FIFO)
3. Last-in last out (LIFO)
4. Weighted average.

55
1. Specific identification:
Under specific identification a unique cost is attached to each item in inventory. Then
when an item is sold the inventory value is reduced by that specific amount. This method is
only when the items are high cost and move relatively slowly, such as would be the case for
an automobile dealer.

2. First-in-first out (FIFO):

In the “FIFO” method the units sold during a given period are assumed to be the first
units. That was placed in inventory. As a result, the cost of goods sold is based on the cost of
the order. Inventory items and the remaining inventory consist of the newer goods.

3. Last-in last out (LIFO):

“LIFO” is the opposite of “FIFO” the cost of goods is based on the last units placed in
inventory while the remaining inventory consists of the first goods placed in inventory.

4. Weighted average:

The weighted average method involved the computation of the weighted average.
Units cost of goods available for sale. From inventory, and this average cost is then applied
to the goods sold to determine the cost of goods sold.

Others Topics In Inventory Management:

1. Inventory control system
2. Just-in-time inventory
3. Out-sourcing
1. Inventory Control System:
Inventory control system runs the gamut from very simple to extremely complex,
depending on the firm and the nature of its inventory.
Computerized Systems:
Large companies employ computerized inventory control system. The computer starts
with an inventory count in memory as with drawls are made they are recorded by the
computer, and the inventory balance is revised.
2. Just-in-time inventory:
56
 A relatively new approach to inventory control called just-in-time is being used by more
and more firms throughout the world. Toyota, which pioneered the concepts, provides a good
example. Just-in-time system are also being adopted by smaller firms in fact, some
production experts say that small, companies are better positioned than large ones to use just-
in-time methods.
3. Out-sourcing:
Another important development related to inventory is out-sourcing which is the
practice of purchasing components rather than making them in house. It would be increasing

its use of out-sourcing is often combined with just-in-time systems to reduce inventory levels.

57
CHAPTER-5

58
\\

DATA AND INTERPRETATION

WORKING CAPITAL PERIODS FOR FIVE YEARS FROM THE YEAR 2016-2021
Rs In lakhs
YEAR
Item of Working Capital
2016-17 2017-18 2018-19 2019-20 2020-21
CURRENT ASSETS(A)
Inventory 6837.43 8048.63 10931.01 13052.73 15349.65
Debtors 1693.59 2159.10 3673.97 4802.13 6025.74
Cash & Bank Balances 517.63 918.37 603.14 412.01 310.44
Loans & Advances 3145.07 2893.23 2214.32 1719.29 1215.87
Total 12193.72 14019.33 17422.44 19986.16 22901.70
CURRENT
LIABILITIES(B)

Current Liabilities and

7170.82 9747.87 8145.11 12973.07 15397.16
Provisions

NETWORKING
5022.90 4271.46 9277.33 7013.09 7504.54
CAPITAL(A-B)
INCREASE OR
DECREASE 3760.45 751.44 5005.87 2264.24 491.45
INWORKING CAPITAL

59
WORKING CAPITAL

80000
60000
40000
YEAR 2020-21
20000 YEAR 2019-20
0 YEAR 2018-19
A) ry rs es es al B) ns B) L YEAR 2017-18
TS( nto bto anc anc Tot IES( isio (A- PITA
E e De l v T v L A YEAR 2016-17
A SS Inv k Ba Ad BILI Pro PITA G C
T n & IA d A IN
EN Ba ans T L s an G C RK
RR & o E N e IN O
sh L
CU Ca U RR biliti ORK INW
C Li a E
n t ETW EAS
e N CR
rr
Cu DE
O R
SE
REA
C
IN

Interpretation:
From the above table, it can be observed that, in the year 2016-17 the Net
working capital was Rs. 3760.45 lakhs. It has decreased to Rs 751.44 lakhs in 2017-18 that
means the profits decreased in the cash, debtors and bank balance has decreased in 2018-19.
In 2019-20, it has increased to Rs.2882.38 lakhs it indicates inventory, loans and advances
have decreased but the debtors, cash and bank balance increased. In 2018-19, the Net
working capital has decreased inventory, cash and bank balances, loans and advances
decreased. In 2020-21, the working capital decreased to Rs.491.95 lakhs. It clearly indicates
inventory, cash and bank balance has increased and debtors have also decreased. The
liabilities and provisions decreased so the working capital has also decreased.

60
STATEMENT (2016-2017) SHOWING CHANGES IN WORKING CAPITAL
Year Working Capital
Item of Working Capital
2016 2017 Increase Decrease
CURRENT ASSETS(A)
Inventory 6248.99 6837.43 588.44
Debtors 1678.21 1693.59 15.38
Cash & Bank Balances 403.27 517.63 114.36
Loans & Advances 2943.97 3145.07 201.10
Total 11274.44 12193.72 919.28
CURRENT
LIABILITIES(B)
Current Liabilities and
10031.43 7170.82 2860.61
Provisions
NETWORKING
1243.01 5022.90 3779.89
CAPITAL(A-B)
DECREASEINWORKING
3760.45
CAPITAL

Total 1303.38 1303.38 2860.61 2860.61

61
WORKING CAPITAL FOR THE YEAR 2016-2017

2016 2017

Interpretation:
From the table No. 4.4 during the year 2016-17, the current assets have been
increased from Rs. 10456.98 Lakhs to Rs.12193.72 lakhs. This has occurred due to the
increase in inventory by Rs.588.44 lakhs and sundry debtors by Rs.15.38 lakhs and also cash
and bank balance has increased by Rs.114.36 lakhs and loans and advances also increase by
Rs.201.10 lakhs.

The above financial position is good in terms of short run that is liquidity but solvency is
problem as in the long run the company is not maintaining enough inventories. Further the
creditors have decreased by Rs.2860.61 lakhs which is a clear indication of solvency
problems in long run.

62
STATEMENT 2017-2018) SHOWING CHANGES IN WORKING CAPITAL
Rs In lakhs
Year Working Capital
Item of Working Capital
2017 2018 Increase Decrease

CURRENT ASSETS
Inventory 6837.43 8048.63 1211.20
Debtors 693.59 2159.10 465.51

Cash & Bank Balances 517.63 918.37 400.74

Loans & Advances 3145.07 2893.23 251.84
Total 12193.72 14019.33 2077.45 251.84
CURRENT LIABILITIES
Current Liabilities and
7170.82 9747.87 2577.05
Provisions(B)
WORKING CAPITAL (A-
5022.90 4271.46 751.44
B)
DECREASE IN WORKING
751.44
CAPITAL
Total 5022.90 5022.90 499.60 499.60

63
WORKING CAPITAL FOR THE YEAR 2015-2016

2017 2018

Interpretation:
From the above table 4.3 during the year 2017-18 the current assets has increased
from Rs 12193.72 lakhs to Rs 14019.33 lakhs. This has occurred due to the increase in
inventory by Rs 1211.20 lakhs sundry debtors by Rs 465.51 lakhs, cash and bank balance by
Rs 400.74 and loans and advances also decreased by Rs 251.84 lakhs.
The above financial position is good in terms of short run i.e., liquidity but solvency is
problem as in the long run the company is not maintaining enough inventory. Further the
creditors have increased by Rs 2577.05 lakhs which is a clear indication of solvency
problems in long run.

64
STATEMENT (2018-2019) SHOWING CHANGES IN WORKING CAPITAL
Rs In lakhs
Year Working Capital
Item of Working Capital
2018 2019 Increase Decrease
CURRENT ASSETS
Inventory 8048.63 10931.01 2882.38
Debtors 2159.10 3673.97 1514.87
Cash & Bank Balances 918.37 603.14 315.23
Loans & Advances 2893.23 2214.32 678.91
Total 14019.33 17422.44 4397.25 994.14
CURRENT LIABILITIES
Current Liabilities and Prov
9747.87 8145.11 1602.76
(B)
WORKING CAPITAL (A-
4271.46 9277.33 5005.87
B)
INCREASING IN
5005.87
WORKING CAPITAL
Total 4271.46 4271.46 608.62 608.62

65
WORKING CAPITAL FOR THE YEAR 2018-2019

2018 2019

Interpretation:
From the table No. 4.4 represents changes in working capital during the year 2018-19,
the current assets have increased from Rs 14019.33 lakhs to Rs 17422.44 lakhs. This has
occurred due to increase in inventory by Rs 2882.38 lakhs and increase in sundry debtors by
Rs 1514.87 lakhs similarly cash & bank balance decreased by Rs 315.23 lakhs and loans &
advances by Rs 678.91 lakhs.
It shows that the inventory and debtors of current assets have increased the working
capital. Here liability has decreased during the year 2018-19. It indicates the working capital
has increased.

66
STATEMENT (2019-2020) SHOWING CHANGES IN WORKING CAPITAL
Rs.In lakhs
Year Working Capital
Item of Working Capital
2019 2020 Increase Decrease
CURRENT ASSETS
Inventory 10931.01 13052.73 2121.72
Debtors 3673.97 4802.13 1128.16
Cash & Bank Balances 603.14 412.01 191.13
Loans & Advances 2214.32 1719.29 495.03
Total 17422.44 19986.16 3249.88 686.16
CURRENT LIABILITIES
Current Liabilities and
8145.11 12973.07 4827.96
Provisions (B)
WORKING CAPITAL (A-B) 9277.33 7013.09 2264.24
INCREASE IN WORKING
2264.24
CAPITAL
9277.33 9277.33
Total 1578.08 1578.08

67
WORKING CAPITAL FOR THE YEAR 2017-2018

2019 2020
Interpretation:
During the year 2019-20 the current assets has increased from Rs 17422.44 lakhs to
Rs 19986.16 lakhs. There was increase in inventory by Rs 2121.72 lakhs and increase in
sundry debtors by Rs 1128.16 lakhs. Decrease in cash and bank balance by Rs 191.13 and
loans and advances also decrease by Rs 495.03 lakhs.
The above financial position is good in terms of short run that is liquidity but
solvency is problem as in the long run the company is not maintaining enough inventories.
Further the creditors have increased by Rs 4827.96 lakhs which is a clear indication of
solvency problems in long run.

68
 STATEMENT (2020-2021) SHOWING CHANGES IN WORKIN CAPITAL
Rs.In lakhs
Year Working Capital
Item of Working Capital
2020 2021 Increase Decrease

CURRENT ASSETS
Inventory 13052.73 15349.65 2296.92
Debtors 4802.13 6025.74 1223.61

Cash & Bank Balances 412.01 310.44 101.57

Loans & Advances 1719.29 1215.87 503.42

Total 19986.16 22901.70 3520.53 604.99

CURRENT LIABILITIES
Current Liabilities and Prov
12973.07 15397.16 2424.09
(B)
WORKING CAPITAL
7013.09 7504.54 491.45
(A-B)
DECREASEIN WC 491.45
Total 7013.09 7013.09 604.99 604.99

69
WORKING CAPITAL FOR THE YEAR 2020-2021

2020 2021

Interpretation:
During the year 2020-21 the current assets has increased from Rs 19986.16 lakhs to
Rs 22901.70 lakhs. There was an increase in inventory by Rs 2296.92 lakhs and sundry
debtors by Rs 1223.61 lakhs. Similarly in cash and bank balance by Rs 101.57 lakhs and
loans and advances also decreased by Rs 503.42 lakhs.
The above financial position is good in terms of short run that is liquidity but
solvency is problem as in the long run the company is not maintaining enough inventories.
Further the creditors have increased by Rs 2424.09 lakhs which is a clear indication of
solvency problems in long run.

70
RATIO ANALYSIS
Several ratios, calculated from the accounting data, can be grouped into various
classes according to financial activity or function to be evaluated. As stated earlier, the
parties interested in financial analysis are short-term and long-term creditors, owners and
management. Short-term creditors` main interest is in the liquidity position or the short-term
solvency of the firm. Long-term creditors`, on the other hand, are more interested in the
long-term solvency and profitability of the firm
1. Current Ratio:
Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity
and is most widely used to make the analysis of a short-term financial position or liquidity of
a firm.
Current ratio indicates the backing available to current liabilities in the form of
current assets. In other words, higher current ratio indicates that there are sufficient assets
available with the organization, which can be converted in the form of cash. A current ratio of
2:1 is supposed to be standard and ideal.
Current Ratio = Current Assets / Current Liabilities
Current Assets – Cash on hand, Cash at bank, Debtors, Inventory, Bills receivables, Short
term investments & Securities and Prepaid expenses
Current Liabilities – Creditors, Bills payable, Outstanding expenses, Bank overdraft (Short
term Profits)

Current Ratio
Current Assets Current Liabilities Ratio
(So Years urc
(Rs in Lakhs) (Rs in Lakhs) (In times)
e
2016-2017 12193.72 7170.82 1.70
2017-2018 14019.33 9747.87 1.43
2018-2019 17422.44 8145.11 2.13
2019-2020 19986.16 12973.07 1.54
2020-2021 22901.70 15397.11 1.48
Annual Reports of BAIC)

71
CURRENT RATIO

40000

35000
Ratio (In times)
30000 Current Liabilities (Rs in
Lakhs)
25000 Current Assets (Rs in
Lakhs)
20000

15000

10000

5000

0
2016- 2017- 2018- 2019- 2020-
2017 2018 2019 2020 2021

Interpretation:
From the above table, it can be observed that the current ratio between the current assets and
current liabilities for the year 2016-17 is 1.70 when compared to 2017-2018 current ratio
(1.43) is lower than the previous year. In the year 2015-16 the current ratio is 2.13 whereas in
2018-19 the current ratio is 1.54. Finally the current ratio in the year 2019-20 is 1.48
compared to 2016-17 and there was decrease in the ratio.
The ratio is mainly used to give an idea of the company‘s ability to pay back its short-
term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables).
The higher the current ratio, the more capable the company is of paying its obligations. A
ratio in each year suggests that the company would be able to pay off its obligations if they
came due at that point, but the company has shown constant decreasing trend in its financial
health in subsequent years, Since low current ratio does not necessarily mean that the firm
will go bankrupt, but it is definitely is not a good sign. Short term creditors prefer a high
current ratio since it reduces their risk.

72
2. Quick Ratio:
Quick Ratio is also called acid-test ratio, establishes the relationship between quick,

or liquid assets and current liabilities. As asset is liquid it can be converted into cash

immediately or reasonably soon without a loss of value. The quick ratio is found out by

dividing quick assets by current liabilities.

Quick Ratio = Quick Assets / Current Liabilities

Quick Assets = Current Assets – (Stock + Prepaid expenses)

Quick Ratio

Quick Assets Current Liabilities Ratio

Years
(Rs in Lakhs) (Rs in Lakhs) (In times)

2016-2017 16488.07 7170.82 2.29

2017-2018 17481.32 9747.87 1.79

2018-2019 18541.95 8145.11 2.27

2019-2020 19793.19 12973.07 1.52

2020-2021 20184.86 15397.11 1.31

(Source Annual Reports of BAIC)

73
 QUICK RATIO

40000

35000
Ratio (In times)
30000 Current Liabilities (Rs in Lakhs)
Quick Assets (Rs in Lakhs)
25000

20000

15000

10000

5000

0
2016- 2017- 2018- 2019- 2020-
2017 2018 2019 2020 2021

Interpretation:
From the above table, it can be observed that the quick ratio has decreased from 2.29
to 1.79 when compared to the 2016-17.Quick ratio is has increased from 1.79 to 2.27 during
the year 2018-19. And in the year 2020-21 the quick ratio has decreased to 1.31.
It indicates that, the conventionally quick ratio of 1:1 is considered to be
favourably satisfactory .It signifies that every one rupee of current liabilities the firm has one
rupee of quick assets to meet its current claims .Thus it indicates that the quick ratio of
company is not satisfactory and the company does not have enough quick assets to meet its
day to day financial obligations prudently. It also represents that liquidity position of the
company is not very satisfactory during the given years.

74
3. Inventory / Stock Turnover Ratio:
Inventory turnover ratio is the ratio of goods sold to average inventory. It is an
activity or efficiency ratio and it measures how many times per period, a business sells and
replaces its inventory again.
A high inventory turnover ratio indicates that maximum sales turnover is achieved with
the minimum investment in inventory. As such as a general rule, high inventory turnover
ratio is desirable.
Formula:
Inventory turnover ratio = cost of goods sold
Average inventory

INVENTORY / STOCK TURN OVER RATIO

Cost of goods sold Average Inventory Ratio

Years
(Rs in Lakhs) (Rs in Lakhs) (In Times)

2016-2017 24463.91 6543.21 3.73

2017-2018
27357.08 10861.74 2.51

2018-2019 36086.11 13514.13 2.67

2019-2020 49706.97 17457.37 2.87

2020-2021
68447.38 20727.55 3.30

(Source Annual Reports of BAIC)

75
INVENTORY / STOCK TURNOVER RATIO

90000

80000
Ratio (In Times)
70000 Average Inventory (Rs
Cost of goods sold (Rs
60000

50000

40000

30000

20000

10000

0
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021

Interpretation:
From the above table the stock turnover ratio from 2016-17 is at decreasing stage
3.73to2.87 and it has increased in 2019 by reaching to 3.30. Overall from 2020-2021 it has
decreased from 3.73 to 3.30. The ratio explains how many times stock turns in one year. If
the ratio is more the pertaining cycle rotation also more. Company is selling their stock
frequently. Which means, the company is holding low inventory, where too low inventory
turnover ratio results in loss of business opportunities, which means the company
experienced fluctuations in holding inventory because of proportion changes in average
inventory more than the change in cost of sales.
Every firm has to maintain a considerable level of inventory, so as to able to meet
the requirements of the business. But the level of inventory should neither be too high nor too
low. The inventory turnover ratio measures the velocity of conversion of stock in to sales.

76
4. Debtors Turnover Ratio:
It indicates the velocity of debt collection of a firm. In simple words it indicates the
number of times average debtors are turned over during a year.
Debtor’s turnover ratio or accounts receivable turnover ratio indicates the velocity of
debt collection of a firm. In simple words it indicates the number of times average debtors are
turned over during a year. The effect of a liberal credit policy may result in tying up
substantial funds of a firm in the form of trade debtors. Trade debtors are expected to be
converted into cash within a short period of time and are included in current assets. Hence,
the liquidity position of concern to pay its short term obligations in time depends upon the
quality of its trade debtors.

Credit sales
Debtors turnover ratio = ------------------------
Average Amount Receivables

DEBTORS TURN OVER RATIO

Sales Average Debtors Ratio

Years
(Rs in Lakhs) (Rs in Lakhs) (In Times)

2016-2017
24463.91 1685.908 14.50

2017-2018 27357.08 1926.34 14.20

2018-2019 36086.11 2916.53 12.37

2019-2020
49706.97 4238.05 11.72

2020-2021
68447.38 5413.93 12.64

(Source Annual Reports of BAIC)

77
Debtors Turn Over Ratio

80000
Ratio (In Times)
70000
Average Debtors (Rs in Lakhs)
60000 Sales (Rs in Lakhs)
50000
40000
30000
20000
10000
0
2016- 2017- 2018- 2019- 2020-
2017 2018 2019 2020 2021

Interpretation:
From the above table, it is observed that turnover ratio has decreased from 14.5 to
11.72 from the years 2016 to 2021, which reveals the number of times the average debtors is
collected during given accounting period. In the financial year 2018-19 the ratio increased
drastically to 12.64 due to rapid decline in debtors. The company has been adopting
conservative credit policy and possessing small percentage of credit sales on total sales in
every year. This is the main reason behind high debtor turnover ratio.
It indicates that low debtor turnover results inefficient management of debtors by
which debtors are not satisfactory over the period as they are not maintained same over the
period and it has been fluctuating greatly.

78
5. Inventory Holding Period:
It may also be interest to see average time taken for clearing the stocks. The can be
possible by calculating inventory conversion period. The period is calculated by dividing the
number of says by inventory turnover. The formula as:

Inventory Holding Period= No. of Working days/Inventory Turnover Ratio

Inventory Holding Period

Inventory turnover Ratio

Years No. Working days
ratio (In Times)

2016-2017
365 3.73 97.85

2017-2018
365 2.51 145.41

2018-2019
365 2.67 136.70

2019-2020
365 2.87 127.17

2020-2021
365 3.30 110.60

(Source Annual Reports of BAIC)

79
 Inventory Holding Period

600
Ratio (In Times)
500 Inventory turnover ratio
No. Working days
400

300

200

100

0
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021

Interpretation:
From the above table inventory holding period, in the year 2016-17 is 97.85 which
means the company holding inventory is too low, where too low inventory turnover ratio
results in loss of business opportunities. and in the year 2017-18 the ratio drastically
increased to 145.47 due to decrease in cost of goods sold followed by average inventory and
in the year 2019-20 the holding period decreased to136.70 due to increase in cost of goods
sold followed by slow decrease in average inventory decreased to 127.17 and in the financial
year 2021 the period further decreased to 110.60 due to increase in cost of goods sold and
decrease in average inventory. Thus it indicates the company is maintaining an acceptable
level of inventory to meet the requirements of business.

80
6. Debtors holding period:
The average collection period ratio represents the number of days which a firm has
to wait before its receivables are converted into cash. It measures the quality of debtors.
Generally, the shorter the average collection period the better is the quality of the debtors as a
short collection period implies quick payment by debtors.

Debtors holding period = No. of working days/ Debtor’s Turnover ratio

Debtors holding period

Debtors turnover Ratio

Years No. Working days
ratio (In Times)

2016-2017
365 14.50 25.17

2017-2018
365 14.20 25.70

2018-2019
365 12.37 29.50

2019-2020
365 11.72 31.14

2020-2021
365 12.64 28.87

(Source Annual Reports of BAIC)

81
 Figure No: 5.12
Debtors Holding Period

450

400

350
Ratio (In Times)
300 Debtors turnover ratio
No. Working days
250

200

150

100

50

0
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

Interpretation:
From the above table debtors holding period, in the year 2016-17 is 25.17 which
means the company holding debtor is too low and in the year 2014-15 the holding period
drastically increased to 25.70 due to decrease total sales followed by average debtor and in
the year 2018-19 the holding period increased to29.50 due to decrease in total sales followed
by slow increase in average. and in the year 2019-20 holding period increased to 31.14 and in
the financial year 2021 the period further decreased to 28.87 due to increase in total sales and
decrease in average debtor.

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Working Capital Turnover Ratio:
Working capital turnover ratio indicates the velocity of the utilization of net working
capital. This ratio indicates the number of times the working capital is turned over in the
course of a year. This ratio measures the efficiency with which the working capital is being
used by a firm. A higher ratio indicates efficient utilization of working capital and low ratio
indicates otherwise. But a very high working capital turnover ratio is not a good situation for
any firm and hence care must be taken while interpreting the ratio. Making of comparative
and Trend Analysis can at best use this ratio for different firms in the same industry and for
various periods. This can be calculated as follows:
Sales
Working Capital Turnover Ratio =
Net Working Capital

Net Working Capital = Current Assets - Current Liabilities

Working Capital Turnover Ratio

Ratio
Years Sales Working Capital
(In Times)

2016-2017
24463.91 5022.90 4.87

2017-2018
27357.08 42711.46 6.40

2018-2019
36086.11 9277.33 3.88

2019-2020
49706.97 70133.09 7,08

2020-2021
68447.38 7504.54 9.12

(Source Annual Reports of BAIC)

83
 Working Capital Turnover Ratio

Chart Title

70000
60000
50000
40000 2020-2021
30000
20000
10000
0
49706.97 70133.09 7,08
36086.11 9277.33 3.88
27357.08 42711.46 6.4
24463.91 5022.9 4.87
(In Times)
Sales Working Capital Ratio

Interpretation:
From the above table working capital turnover Ratio was 4.87 in the financial
year 2016 and in the year 2017 it is increased to 6.40 due to increase in working capital and
decrease in cost of goods sold and in the year 2018 the ratio decreased to 3.88 due to increase
in cost of goods sold followed by slow pace growth in working capital and in the year 2019
the ratio drastically increased to 7.08 due to increase in cost of goods sold followed by rapid
decline in working capital and in the financial year 2020 the ratio further increased to 9.12
due to further increase in cost of goods sold and decrease in working capital .Thus it
indicates that the company is utilizing its working capital

SUMMARY

84
 Working capital management is one of the most important aspects of financial
management. Working capital management is concerned with the problems that rise in
attempting to manage the current assets, and current liabilities and the relationship between
them. It also refer to management of short term financing, negotiating favourable credit
terms, controlling the movement of cash; administration account receivable and monitoring
the investments in inventories. The interaction between current assets and current liabilities is
therefore, the ma in theme of theory of working capital management.
Net working capital can be positive or negative. A positive net working capital will
arise when current assets exceed the current liabilities. A negative net working capital occurs
when current liabilities exceed the current assets. In 2016-17 there is inadequate working
capital which can threaten the short term solvency of the firm. In 2016-17, 2018 net working
capital is positive. The happened because of efficient management of current assets through
cash mobilization.
The company is maintaining working capital in positive track even when the liabilities
are huge it managed well in mid financial years. The company management has played there
role in continuing the working capital lifecycle. The company is playing good in collection
receivables and it has the capacity to convert receivables into cash. The company must do
much to be perfect in the par of current assets. It has been observed that the current ratio has
been decreased during the year 2016-17 to 2020-21. This shows that the firm is able to meet
its short term obligations in time.

FINDINGS

85
The following are the findings of the study:
1. During all the periods under observation there is increase in working capital. Such a
rise in working capital decreases the Return on Investment of the organization.
2. The company is playing good in collection receivables and it has the capacity to
convert receivables into cash. The company must do much better to be perfect in the
part of current assets.
3. The financial position as expressed by the ratios is fine in many aspects.
4. The average investment in working capital requirement is considerably decreased
during the period of study.
5. The firm current ratio is not satisfied in all the five years to standard current ratio of
2:1
6. The quick ratio is showing decreasing trend from last two years i.e., 2014 and 2015, it
is not below to the standard ratio of 1:1
7. Inventory turnover ratio in the last four years is showing fluctuations year by year.
8. The debtors’ turnover ratio has decreased drastically from the year 2014 continuously
due to increase in sales and increase in debtors which results efficiency.
9. The net working capital turnover ratio during the study period it’s increased it is
indication of liquidity it means its shows the company in ability meet it current
obligation.
10. The working capital turnover ratio has been increased from year to year. It indicates
good position. It observed that Earnings per Share is increased from 2016-17 to 2020-
21.

86
SUGGESTIONS
The following are the suggestions of the study:
1. The company should try to reduce the price of their products when ever
required to make stock clearance. Thus there is a need to improve stock
turnover ratio to improve up on operating cycle.
2. To improve the long term stability the rate of growth and profitability, it is
necessary to induce cost reduction techniques. This will again help in reducing
the investment in inventory and working capital.
3. While making additions to the fixed assets the company must make sure that it
doesn’t become over capitalization.
4. After the liberation, Indian textile industry is facing competition from foreign
investors in textile industry. BAIC has to develop proper strategy to face this
competition.
5. The firm has to take measures to control its inventory a high inventory leads to
unnecessary blockage of funds which results in company inefficiency in
managing stock.
6. The low ratio indicates inefficient management and utilization of fixed assets.
So, the company should make necessary efforts for efficiency in work.
7. The company has to concentrate on the credit policy provided to the debtors
which will increase the debtor’s collection and reduce bad debts.
8. The firm should improve its current assets to meet its short term obligations.
9. The firm should improve its liquidity assets, so as to maintain the standard
quick ratio 1:1.
10. The company should decrease its operating expenditures in order to increase its
profits.

CONCLUSION

87
The study on the working capital management of Brandix Apparel India Pvt Ltd.was taken
with a view to explore the scope for improvement of working capital management:
 Working capital position is good, but then there is always some scope improvement
and growth
 The due consideration to analysis, findings and suggestions the company can achieve
further success in terms of increasing sales and profitability.
 As with the minute changes that has been occurred in the ratios there can also be
covered with slow increases in the sales
 The study find out the company has higher current liabilities. So it is better to reduce
the liabilities portion
 The study find out company have got negative working capital past two years
 The company can take a challenge with its competitive and high spirit to face the
market.

BIBLIOGRAPHY
88
Textbook References:

Name of the Book Author

Financial Management I.M.Pandey

Financial Management S.C.Kuchal

Managerial Accounting Shashi Sharma and Gupta

Web Site References:

WWW.BRANDIXAPPARELCITY.COM

WWW.BRANDIX.COM

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