A STUDY ON WORKING CAPITAL

MANAGEMENT AT SRI SOWDESWARI

MILLS, SALEM

PROJECT REPORT

Submitted by

USHARANI. T
(Reg. No.098001604058)

In partial fulfillment for the award of the degree

Of

MASTER OF BUSINESS ADMINISTRATION

IN

GNANAMANI COLLEGE OF TECHNOLOGY

PACHAL, NAMAKKAL – 637 018
MAY - JUNE - 2011
 GNANAMANI COLLEGE OF TECHNOLOGY
PACHAL, NAMAKKAL – 637 018

Department of Management studies

PROJECT WORK

MAY - JUNE - 2011

This is to certify that the project entitled

A STUDY ON WORKING CAPITAL MANAGEMENT AT

SRI SOWDESWARI MILLS, SALEM

is the bonafide record of project work done by

USHARANI. T
Register no: 098001604058

Of MBA (Master of Business Administration) during the year 2010 - 2011

---------------------- ----------------------------
Project Guide Head of the Department

Submitted for the Project Viva- Voce examination held on

---------------------- --------------------------
Internal Examiner External Examiner
 DECLARATION

I affirm that the Project work titled ‘ A Study on working capital

management at sri sowdeswari mills, salem’ being submitted in partial
fulfillment for the award of Master of Business Administration (MBA)
is the original work carried out by me. It has not formed the part of any other
project work submitted for award of any degree, either in this or any other
university.

---------------------------------
Signature of the student
(USHARANI. T)
(098001604058)

I certify that the declaration made above by the student is true

---------------------------------
Signature of the guide
(R. NIRMALA RANI., M.Com., M.Phil., MBA)
Head, Department of MBA
 ACKNOWLEDGEMENT

I express my heartful gratitude and thanks to Dr. T. ARANGANNAL,

Chairman, and Smt. P. MALALEENA chairperson of GNANAMANI
COLLEGE OF TECHNOLOGY, Namakkal who provide all the facilities and
necessary encouragement during the course of the study.
I ever remain our PRINCIPAL DR.V.BASKARAN GNANAMANI
COLLEGE OF TECHNOLOGY, Namakkal for granting me the permission to
carry out my project work.
I wish to convey my sincere and Heartful thanks to my Head of the
Department and Guide R. NIRMALA RANI, GNANAMANI COLLEGE OF
TECHNOLOGY, Namakkal for her constant encouragement and valuable
support through out the study.
I express my profound gratitude to my company guide
Mr. SARAVANAN. A (manager) for this valuable guidance at ever stage of my
Project report.
Above all expresses my sincere thanks to my parents who provide all the
necessities in ensuring my successful completion of the project.

------------------------
-----
(USHARANI. T)
 CONTENTS

CHAPTER TITLE PAGE

No NO
ACKNOWLEDGEMENT

CONTENT

ABSTRACT

LIST OF TABLES

LIST OF CHARTS

I INTRODUCTION 1
1.1 Statement of the Problem 2
1.2 objectives of the study 3
1.3 Scope of the study 4
1.4 Limitations of the study 5

II REVIEW OF LITERATURE 14
III RESEARCH METHODOLOGY 22
IV DATA ANALYSIS AND INTERPRETATION 23
V FINDINGS, SUGGESTIONS AND CONCLUSION 58

BIBLIOGRAPHY 61

APPENDIX 63
 ABSTRACT

The project work titled as “A Study on working capital management with Special
Reference of SRI SOWDESWARI MILLS Salem.” The study of working capital
management reveals the financial position of the company. This study was conducted for
showing the financial performance of the company for the period of five years. Primary
data obtained by discussion with officials of SRI SOWDESWARI MILLS. Secondary
data was collected on the five years annual report of the company. The various tools used
for the study are Ratio analysis, schedule of changes in working capital ,

LIST OF TABLES
TABLE NAME OF THE TABLES PAGE
NO. NO.
1 STAEMENT OF CURRENT ASSETS AND CURRENT 23
LIABILITIES FOR 2004 & 2005

2 STAEMENT OF CURRENT ASSETS AND CURRENT 26

LIABILITIES FOR 2005 & 2006

3 STAEMENT OF CURRENT ASSETS AND CURRENT 29

LIABILITIES FOR 2006 & 2007

4 STAEMENT OF CURRENT ASSETS AND CURRENT 32

LIABILITIES FOR 2007 & 2008

5 STAEMENT OF CURRENT ASSETS AND CURRENT 35

LIABILITIES FOR 2008 & 2009

6 NET WORKING CAPITAL FOR LAST 5 YEARS 38

7 DEBTORS TURNOVER RATIO 40

8 DEBT COLLECTION PERIOD 42

9 CURRENT RATIO 44

10 QUICK RATIO 46

11 NETWORKING CAPITAL RATIO 48

12 CASH TO CURRENT ASSETS 50
13 CASH TURN OVER RATIO 52
14 DEBTORS TO CURRENT ASSETS RATIO 54
15 INVENTORY TO CURRENT ASSETS RATIO 56

LIST OF CHARTS

CHART NO. NAME OF THE CHARTS PAGE NO.

1 NET WORKING CAPITAL FOR LAST 39
5EARS

2 DEBTORS TURNOVER RATIO 41

3 DEBT COLLECTION PERIOD 43

4 CURRENT RATIO 45

5 QUICK RATIO 47

6 NETWORKING CAPITAL RATIO 49

7 CASH TO CURRENT ASSETS 51

8 CASH TURN OVER RATIO 53

9 DEBTORS TO CURRENT ASSETS RATIO 55

10 INVENTORY TO CURRENT ASSETS RATIO 57

 INTRODUCTION
Finance is the lifeblood of a business. Working capital signifies funds required
for day-to-day operation of the firm. As the world is fast developing it creates stiff
competitions between countries in the form of economic development. Any country
wants to survive must be very updating, hard working, innovative and quick reactor
by forth effort immediately.
Nowadays, hard working and updating of information is necessary to with
stand in the competitive market. So for that comparison of our work system with other
companies is a must.
This research in working capital management helps to understand the
utilization of the stock, work in progress, finished goods. It also furnishes the
composition of current asset and current liabilities of the company. If the company
utilizes the working capital effectively it would become market leader in the world.
Working capital management or short-term financial management is a significant
facet of financial management. It is important due to two reasons:
 Investment in current assets represents a substantial portion of total
investment.

 Investment in current assets and the level of current liabilities have to be

geared quickly to changes in sales.

Working capital involves activities such as arranging short-term finance, negotiating

favorable credit terms, controlling the movement of cash, administrating accounts
receivables, and monitoring the investment in inventories also take a great deal of time
 PROBLEM OF STUDY

The study encompasses an analysis on financial position of SRI

SOWDESWARI MILL. The study is performed in order to identify the problems
and to provide some alternative solutions. It is helpful to the company to raise up
their financial position.

In order to identify the financial position, we can analyze the financial

statements of SRI SOWDESWARI MILL. It is a helpful tool to the management
because by using this we can ascertain the financial strengths and weaknesses of
the company.
 OBJECTIVES OF THE STUDY

 To analyze the working capital management of SRI SOWDESWARI

MILL., for the period of five years from 2004-2005 to 2008-2009.

 To study the structure and growth of working capital of the company

and its impact on profitability.

 To compare various working capital ratios for the study period.

 To access the effectiveness of the company in managing the different

elements of working capital.

 To estimate the future working capital requirements.

 SCOPE OF THE STUDY
The study is conducted at “SRI SOWDESWARI SPNNING MILL” for 3 months
duration. The study of Working capital management is purely based on secondary data
and all the information is available within the company itself in the form of records.
To get proper understanding of this concept, I have done the study of the balance
sheets, profit and loss account’s, cash accounts, trial balance, cost sheets. I have also
conducted the interviews with employees of accounts and finance department and
stores department. So, scope of the study is limited up to the availability of official
records and information provided by the employees. The study is supposed to be
related to the period of last five years.
 LIMITATIONS OF THE STUDY
 As central purchase office purchase raw material and central marketing yarn
make sales. So more detailed information cannot be received about these.
 Cash from debtors are collected by the corporate office through commission
agents. So efforts for collection of debtors cannot be clearly known from SRI
SOWDESWARI MILL.
 Investment of funds are also made by corporate office, so it becomes difficult
to know that how much investment is made in different ways for continuous
availability of funds.
 HISTORY OF THE INDIAN TEXTILE INDUSTRY
The human need is to eat well for to be alive and shelter to protect them from
discomforts of nature and a place to live in. Human beings also need something to
cover their body to protect from diverse climates and to add the appearance. Earlier
there was a time when the human being known nothing about the cloth to wear. The
human beings first use plant barks, leaves and animal skin to wrap around them. Then
as the development of brain took place, they started to explore other possibilities and
invent more in this area. There is constant search for clothing and it led to the
knowledge of sources from vegetation i.e. Cotton and from animals i.e. wool, which
could be knitted and woven to manufacture clothes to wear.

The commercial development of man-made fiber began late in the 19th Century,
experienced much growth during the 1940’s, expanded rapidly after world War – II
and in the 1970’s was still the subject of extensive Research and Development.

The spinning and weaving both are very common and attached with each other in all
parts of the world. We talk of the ancient times, when maximum work like weaving
of the clothes was done manually, but all the things were being done for the right
perspectives. From time to time in this world development had taken place, which has
been found to be a continuous process. Similarly considering the developments in the
Spinning and Weaving lot of improvements has come-up. Because earlier too was the
Cotton crop was grown by the farmers, but its end use was not done in an effective
way, which seems good. So much thick fiber was produced and accordingly its
impact for the fabric preparation.
 APPARATUS USED FOR SPINNING AND WEAVING DURING PRE-
INDEPENDENCE PERIOD

Before Independence we talk of the political leaders like Mahatma Gandhi, who had
always insisted to use Khadi Clothes and even self-spinning and weaving. It is also
called as self-dependence for all needs. Such a good initiatives had come-up at India
level amongst the followers of the Leader – Mahatma Gandhi. On the other side too
such initiatives had been proved very good and had attracted many other western
countries to follow such practices and show their excitedness. Though in case we talk
of the English rule before the Independence i.e. 1947, it was not appreciated by the
English Rulers, but after the freedom these leaders had got very good appreciation
particularly for the self spinning and weaving and in an overall manner this sector of
Spinning and Weaving was industrialized even after the independence too on the basis
of Indian cotton growers.

It is needless to mention here that through out India, cotton growers belts are available
and after independence even English people take their raw material from here and had
established themselves with the Spinning and Weaving industries. Overall In India no
such preferences for the Spinning and Weaving industries were made, however the
Library research reveals that the first Cotton mill had been established in India during
1854 named as Bombay Spinning and Weaving company. Though the Cotton
industry had progressed a lot, but in case we say that India alone is heading this world,
it is wrong. Though in India Textile Machine manufacturers are there and one or two
decades ago they were the market leaders, but with the help of the other parts/people
of world i.e. Germany, Switzerland etc., India had made a very good recognition in
the yarn market.
Because Indian Industrial Organizations have also initiated towards the most
modernized machinery produced by Schlafhorsts – Germany, Luwa – Humidification
systems, Switzerland. This is just the example of the development, that in India too
the most modern machinery is being installed. However, it is an evident that the
Indian yarn is always running on the development trend since its Inception of first unit
in Bombay, but its position in the international market has not appeared so good.
Because many other countries like China as Cotton Textiles has went ahead. Though
till today India has achieved a lot in the Textile Industry and almost 700 Textile units
are working successfully, because India is having at present more than 20 Million
spindles and a weaving capacity of more than 2.5 Lac looms and the total output value
of the same is around Rs.1500 Cores, employing more than 10 Lac of workers
directly.

The invention and production of man made thirty three fibers that is synthetic fibers
like Nylon, Acrylic fibers, Polyester Fiber, Viscose, Filament yarns, Melange yarn,
etc., which ultimately had given a good blow to grow for the Cotton Textile Industry
and know occupy a major part of consumer acceptance. About 50 countries have been
importing such material from India and the description of the Spinning and weaving
industry had remained incomplete without referring to the woolen industry.
 Company Profile
Sri Sowdeswari Mills:
Sri Sowdeswari Mills, one of the oldest mills in the city of Salem, was
incorporated in the year 1933 with a commissioned capacity of 15000 spindles.
The mill, due to various managerial inefficiencies coupled with financial
irregularities, ceased its operations intermittently and was under closure from
March 1968 to November 1972. Thereafter, the management of the mill was
taken over by the Tamilnadu Textile Corporation Limited under the Industries
Development and Regulatory Act on 22/11/1972 and started functioning again
from14/01/1973.
Subsequently, the mill was nationalized under sick Textiles Undertakings
(Nationalisation) Act, 1974 with effect from 01/04/1974 and became a unit of
National Textile Corporation Limited (Tamilnadu and Pondichery) Limited, a
subsidiary company of National Textile Corporation Limited, New Delhi. Upon
merger of subsidiary companies by the holding company, the mill is now
placed under the control of Southern Regional Office at Salem.
The mill has been identified as one of the viable unit of the Corporation and
hence a revival package has been worked out for this mill as at an outlay of
Rs.17.69 crores. The package, inter alia, includes acquisition of new production
machinery, augmenting working capital and compensation for surplus workmen
who would be retired under voluntary retirement scheme of the Corporation.
The commissioned capacity of the mills which is at present 30000 spindles
would go up to 32000 spindles after modernization. The mill is capable of
producing super fine cotton combed yarn and medium/coarse polyester cotton
and polyester viscose blended yarn.
After modernization, the mill is projected to produce 26.26 lakhs Kgs.
Focusing on production of value added yarn for exports as well as domestic
markets.
The mill, as a preclude to the export of yarn, has started implementing ISO
9001:2000 Quality Management System and the certification process is expected
to be completed by September 2008.
PROCESS OF MANUFACTURING
MIXING:
Cottons of different proportions are hand opened and laid into different layers
according to the quality of cotton and depending on the end use (yarn quality
requirement).
BLOWROOM:
The cotton is well opened and cleared to remove the foreign matter such as seed
bits, leaf bits etc, and a thin uniform sheet of 40” width and rolled in lengths of about
40mins known as LAP.
CARDING:
The laps received from blow room is further opened and cleaned and a clean
rope like material known as card silver is produced and stored in cans.
COMBINING:
It is an optimal special process to remove short fibers ,neps etc. from the card
silver to improve the quality of yarn in order to produce COMBED YARN.
DRAWING:
The card silvers or combed silvers (6 to 8 nos) are passed through this machine ,
to make the fibers in silver in parallel and more even , in order to improve the quality
of the final yarn.
SIMPLEX:
The drawing silver is thinned and made to a strand of required size known as
ROVE ,and wound into bobbins of 1 to 1.6 kg weight . The thinning process of
material is known as drafting.
RING SPINNING:
The Roving bobbins received from simplex is fed in ring spinning frames, where
the material is further thinned down , twisted and yarn is formed which is wound on
small copes of 50 to 60gms.
CONE WINDING:
The yarn in small cops is wound into bigger packages known as cones of required
weight (1.25 kg) after cleaning the impurities from Ring spinning yarn.
CONE PACKING:
The yarn is packed in pre-stitched Polywoven bags ,with 40 cones of 1.25 kg ,to
produce 50 kg BAGS or according to market requirement ,in order to dispatch to
various market centres/ depots for sale.
 ORGANISATION CHART

Managing Director

General Manager

Finance
Human resource Production
Admin Manager Manager
Manager Manager

Maintenance Dept

Employee details
Department

Accounance
Sampling Dept /Quality Control management
Dept/Accessories Dept /Fabric Dept
 Chapter - II
REVIEW OF LITERATURE

DEFINITON
The American Institute of Certified Public Accounts, USA has defined
working capital as “the net working capital, represented by the excess of current assets
over currently liabilities, identifies the relatively liquid portion of total enterprise
capital which consist a margin of buffer for maturing obligation with the ordinary
cycle of the business”.

CIRCULATING SYSTEM OF WORKING CAPITAL

Working capital is also known as “circulating capital of current capital’. The
use of terms circulating capital instead of working capital indicates that it flows is
circular in nature. For every business enterprise, there will be flow of natural cycle of
activities for its perpetual endowments.
The funds is business are obtained from the issue of shares, debentures, and
long-term arrangements and from business operation. A huge part of the funds is used
for day-to-day operation of the business i.e., to pay wages and overhead expenses for
the raw materials processed. This makes possible the stocking of finished goods by
whose profits are generated.
CONCEPT OF WORKING CAPITAL:

1. Gross Working Capital

It is simply called working capital refers to the firm’s investment
in current assets so the total current assets of the firm are known as gross
working capital.

2. Net Working Capital

It represents the difference between current assets and current
liabilities. Net working capital may be positive or negative. Positive net
working capital is that when current assets are more than current liabilities.
But when current liabilities become more than current assets than it is
negative working capital.

TYPES OF WORKING CAPITAL:

1. Permanent Working Capital:

As the operating cycle is a continuous process so the need for working capital
also arises continuously. But the magnitude of current assets needed is not
always same; it increases and decreases over time. However there is always a
minimum level of current assets. This level is known as permanent or fixed
working capital.

2. Temporary Working Capital:

The extra working capital needed to support the changing production and sales
activities, is called variable or functioning or temporary working capital.
NEED FOR WORKING CAPITAL:

The need for working capital cannot be overemphasized. The need of working capital
arises due to the time gap between production and realization of cash from sales. So
the working capital or investment in current assets becomes necessary need for
working capital. It arises due to following reasons:-

OPERATING CYCLE
“Operating cycle is the time duration requires for converting sales into cash after the
conversion of resources into inventories.”

First of all a firm purchase Raw Material, then after some processing it is converted
into work–in–progress and after this further processing is done to convert work–in–
progress in finished goods. After the raw material is converted into finished goods,
sales are made. Sales are no always full cash sales; there are credit sales also. These
credit sales after some period are converted into cash. So the whole process takes the
time. This time taken is known as the length of operating cycle. So operating cycles
includes:-

1. Raw Material conversion period (RMCP)

2. Work–in – progress conversion period (WIPCP)
3. Finished goods conversion period (FCP)
4. Debtors Conversion period (DCP)
operating cycle :-

Raw Material

Work in
Progress

Cash Collection
from
Debtors Sales
Finished Goods

Credit Cash Sales

Sales

If the length of the operating cycle has short length period then less working capital is
required. So working capital requirement is directly related with operating cycle.
Operating cycle may be of two types
1. Gross Operating cycle
2. Net operating cycle
1. Gross Operating cycle
Gross Operating cycle is the total time period from the conversion of Raw Material
into finished goods and finished goods into sales and then sales into cash.
GOC =RMCP + WIPCP + FCP + DCP
2. Net Operating Cycle
As we provide period to debtors for the payments, our creditors also provide period
to us for payment to them. So this reduces our requirement of working capital. This
also affects the operating cycle. Operating cycle’s length reduces with so many
days as provided by the creditors to us. The difference between gross operating
cycle and period allowed by the creditors for payment is known as net operating
cycle.
FACTORS INFLUENCING WORKING CAPITAL
The need of working capital is not always the same it varies from year to year or even
month. To month depending upon a number of factors. There is a set of rules or
formulate to determine the working capital needs of the firm.
In order to determine the proper amount of working capital of a concern, the
following factors should be considered carefully.

1. Nature of business:

The amount of working capital is basically related to the nature and volumes of
business in concerns where the cost of the raw materials to be used in the
manufacturing of a product is very large in proportion to its total cost of
manufacturing the requirement of working capital will be very large.

2. Size of the business unit:

The size of business unit has an important impact on its working capital needs.
Size may be measured in terms of scale of operation. A firm with large scale of

operation will need more working capital than a small firm.

3. Seasonal variation

Seasonal industries require more working capital to stock the raw material
during the season.

4. Time consumed in manufacturing:

The average time taken in the process of manufacture is also an important

factor in determining the amount of working capital. The longer the period of
manufacturing the larger the inventory required.
5. Turnover of circulating capital:

Rapidly of turnover determines the amount of working capital. The faster the
sales the larger the turnover hence less working capital

6 .Need to scope raw material and finished goods:

In industries where raw material are bulky and best purchase in large
quantities such as cement of where labor stoppage is frequent large of working capital
is required

7. Growth and expansion:

Growing concern requires more working capital than those that are static. It is
logical to expect larger amount old working capital in a growing concern to meant its
growing need of funds.

8. Inventory turnover:

With a better inventory control, a firm is able to reduce its working capital
requirements. If the inventory turnover is high the working capital requirements will
be low.

9. Dividend policy:
 Dividend policy and working capital are interrelated. Management takes a view
of current assets before declaring a dividend.

10. Price level changes:

Rising price level requires more working capital to maintain the same level of current
assets.

CONCEPT OF CASH MANAGEMENT

Cash management is one of the key areas of working capital management. Cash
is the most liquid current assets and is the common denominator to which all current
assets can be reduced. This underlines the significance proportion of many firm’s
assets, the efficient management of these funds could increase corporate earnings by
millions. The goal of cash management is to reduce the amount of cash on hand,
thereby increasing profitability, without reducing business activities of exposing the
firm to under risk.

OBJECTIVES
(1) To meet the cash disbursement needs.
 (2) To minimize funds committed to cash balances.

CONCEPT OF RECEIVABLES MANAGEMENT

Trade credit is considered as an marketing tool. It credits book debts or
account receivable. A firm grants trade credit to protect its sales from the competitors
and to attract the potential customer too buys its products at favorable terms.
Receivable constitute a substantial portion of current assets of several firms. The
interval between the date of sale and the date payment has to be financed out of
working capital. This necessitated the firm to get funds from banks or their sources.
Thus trade debtors represent investment. As substantial amount are tied up in the
trade debtors it needs careful; analysis and proper management.
INVENTORY MANAGEMENT
The inventory management is to minimize the total costs of carrying and
financing goods while providing full support to the marketing efforts of the firm.
Inventory management like the management of other current assets should be related
to overall object of the firm. Efficient management of inventory would ultimately
results in the maximization of owner’s wealth. If the cash requirement have to be
minimized inventory should be turned over ask quickly as possible, avoiding stock
outs that might result in closing down the production line or lead to a loss of sales

Chapter - III
RESEARCH METHODOLOGY

RESEARCH DESIGN
The research design followed to study the working capital management SRI
SOWDESWARI SPNNING MILLS is Descriptive and Analytical Research Design.
SOURCES OF DATA
The data required for the study has been collected form the secondary sources.
The relevant figures were taken from the annual reports, audited accounts, files, and
manuals of finance department.
ANALYTICAL TOOLS USED
The analysis is carried on with the help the following financial statement analysis:
 Schedule of changes in working capital

 Ratio analysis

 Management of working capital

1. Cash management

2. Receivable management

3. Inventory management.

CHAPTER - IV
ANALYSIS AND INTERPRETATION
SCHEDULE OF CHANGES IN WORKING CAPITAL
TABLE -1
STAEMENT OF CURRENT ASSETS AND CURRENT LIABILITIES FOR 2004 -
2005
PARTICULARS 2004 2005
(Rs.in lakhs) (Rs.In lakhs)
CURRENT ASSETS

INVENTORIES 1242.28 858.64

SUNDRY DEBTORS 753.62 1282.81

CASH & BANK 197.62 47.72

BILLS RECEIVABLE 854.50 590.10

CURRENT LIABILITIES

CREDITORS 10315.04 8524.24

BILLS PAYABLE 326.57 306.58

SOURCE: SECONDARY DATA

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR 2004 – 2005

CHANGES IN WORKING
PARTICULARS 2004 2005 CAPITAL
(in lakhs) (in lakhs) INCREASE DECREASE
(Rs.in lakhs) (Rs.in lakhs)

CURRENT ASSETS

-
Inventories 1242.28 858.64 383.64

Sundry debtors 753.62 1282.81 529.19 -

Cash & Bank 197.62 47.72 - 149.90

 Bills receivable 854.50 590.10 - 264.40

Total Current Asset 3048.02 2779.27

CURRENT
LIABILITIES

Creditors 10315.04 8524.24 1790.80 -

Bills Payable 326.57 306.58 19.99 -

Total Current
Liability 10641.61 8830.82

Working Capital 7593.59 6051.55

Increase in Working
Capital 1542.04 1542.04

Total 7593.59 7593.59 2339.98 2339.98

INTERPRETATION:

 There is increase working capital of Rs.1542.04 lakhs due to decrease in

current assets (i.e. inventories, cash &bank, bills receivable)

 There is also increase in current assets (sundry debtors) and also decrease in
current liability (creditors and bills payable).

 Hence the net effect is increase in working capital.

 TABLE - 2
STATEMENT OF CURRENT ASSETS & LIABILITIES FOR 2005 & 2006
PARTICULARS 2005 2006
(Rs.in lakhs) (Rs.in lakhs)
CURRENT ASSETS

INVENTORIES 856.64 978.30

SUNDRY DEBTORS 1282.81 1212.38

CASH & BANK 47.72 783.37

BILLS RECEIVABLE 590.10 510.37

CURRENT LIABILITY

CREDITORS 8524.24 7454.37

BILLS PAYABLE 306.58 423.83

SOURCE: SECONDARY DATA

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR 2005 -2006

PARTICULARS 2005 2006 CHANGES IN WORKING CAPITAL

(in lakhs) (in lakhs) INCREASE DECREASE
(Rs.in lakhs) (Rs.in lakhs)

CURRENT ASSETS

Inventories 856.64 978.30 119.66 -

Sundry debtors 1282.81 1212.38 - 70.43

Cash & Bank 47.72 783.37 735.65 -

Bills receivable 590.10 510.37 - 79.73

Total Current Asset 2778.99 3484.42

CURRENT
LIABILITIES

Creditors 8524.24 7454.37 1069.87 -

Bills Payable 306.58 423.83 - 117.25

Total Current
Liability 8830.82 7878.20

Working Capital 6051.55 4393.78

Increase in Working
Capital 1657.77 1657.77

Total 6051.55 6051.55 1925.18 1925.18

INTERPRETATION:

 There is a net working capital (1657.77) lakhs due to decrease in current

assets(i.e. debtors, bills receivable)

 There is also increase in current assets (inventories, cash and bank) and also
decrease in current liability (creditors) and increase in (bills payable).

 Hence the net effect is increase in working capital.

 TABLE - 3.
STATEMENT OF CURRENT ASSETS & LIABILITIES FOR 2006 - 2007
PARTICULARS 2006 2007
(Rs.in lakhs) (Rs.in lakhs)
CURRENT ASSETS

INVENTORIES 978.30 1149.21

SUNDRY DEBTORS 1212.38 1202.45

CASH & BANK 783.37 289.61

BILLS RECEIVABLE 510.37 722.40

CURRENT LIABILITY

CREDITORS 7554.37 7948.11

BILLS PAYABLE 423.83 503.30

SOURCE: SECONDARY DATA

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR 2006 -2007

PARTICULARS 2006 2007 CHANGES IN WORKING CAPITAL

(in lakhs) (in lakhs) INCREASE DECREASE
(Rs.in lakhs) (Rs.in lakhs)

CURRENT ASSETS

Inventories 978.3 1149.21 170.91 --

Sundry debtors 1212.38 1202.45 - 9.93

Cash & Bank 783.37 289.61 - 493.76

Bills receivable 510.37 722.4 212.03 -

Total Current Asset 3484.42 3363.67

CURRENT
LIABILITIES

Creditors 7454.37 7948.11 - 493.74

Bills Payable 423.83 503.3 - 79.47

Total Current
Liability 7878.20 8451.41

Working Capital 4393.78 5087.74

Decrease in Working
Capital 693.96 693.96

Total 5087.74 5087.74 1076.90 1076.90

INTERPRETATION:

 There is a net decrease working capital (693.96) lakhs due to decrease in

current assets (i.e. debtors, cash &bank)

 There is also increase in current assets (inventories, bills receivable) and also
increase in current liability (creditors and bills payable).

 Hence the net effect is decrease in working capital.

 TABLE - 4
STATEMENT OF CURRENT ASSETS & LIABILITIES FOR 2007 - 2008
PARTICULARS 2007 2008
(Rs.in lakhs) (Rs.in lakhs)
CURRENT ASSETS

INVENTORIES 1149.21 1176.02

SUNDRY DEBTORS 1202.45 724.67

CASH & BANK 289.61 475.60

BILLS RECEIVABLE 722.40 919.82

CURRENT LIABILITY

CREDITORS 7948.11 7835.02

BILLS PAYABLE 503.30 441.04

SOURCE: SECONDARY DATA

 SCHEDULE OF CHANGES IN WORKING CAPITAL FOR 2007 -2008

PARTICULARS 2007 2008 CHANGES IN WORKING CAPITAL

(in lakhs) (in lakhs) INCREASE DECREASE
(Rs.in lakhs) (Rs.in lakhs)

CURRENT ASSETS

Inventories 1149.21 1176.02 26.81 -

Sundry debtors 1202.45 724.67 - 477.78

Cash & Bank 289.61 475.6 185.99 -

Bills receivable 722.40 919.82 197.42 -

Total Current Asset 3363.67 3296.11

CURRENT
LIABILITIES

Creditors 7948.11 7835.02 113.09 -

Bills Payable 503.30 441.04 62.26 -

Total Current
Liability 8451.41 8276.06
Working Capital 5087.74 4979.95
Increase in Working
Capital - 107.79 107.79

Total 5087.74 5087.74 585.57 585.57

INTERPRETATION:

 There is a net increase working capital (107.79) lakhs due to decrease in

current assets(i.e. debtors) and also increase in current assets (inventories, cash
& bank, bills receivable)

 There is also decrease in current liability (creditors and bills payable).

 Hence the net effect is increase in working capital.

 TABLE - .5
STATEMENT OF CURRENT ASSETS & LIABILITIES FOR 2008 & 2009
PARTICULARS 2008 2009
(Rs.in lakhs) (Rs.in lakhs)
CURRENT ASSETS

INVENTORIES 1176.02 1176.12

SUNDRY DEBTORS 724.67 538.87

CASH & BANK 475.60 535.77

BILLS RECEIVABLE 919.82 494.98

CURRENT LIABILITY

CREDITORS 7835.02 7525.94

BILLS PAYABLE 441.04 468.05

SOURCE: SECONDARY DATA

 SCHEDULE OF CHANGES IN WORKING CAPITAL FOR 2008 -2009

CHANGES IN WORKING
PARTICULARS 2008 2009 CAPITAL
(Rs. (Rs.
in lakhs) in lakhs) INCREASE DECREASE
(Rs.in lakhs) (Rs.in lakhs)

CURRENT ASSETS

Inventories 1176.02 1176.12 0.10 -

Sundry debtors 724.67 538.87 - 185.80

Cash & Bank 475.6 535.77 60.17 -

Bills receivable 919.82 494.98 - 424.84

Total Current Asset 3296.11 2745.74

CURRENT LIABILITIES

Creditors 7835.02 7525.94 309.08 -

Bills Payable 441.04 468.05 - 27.01

Total Current Liability 8276.06 7993.99

Working Capital 4979.95 5248.25

Decrease in Working Capital 268.3 268.30

Total 5248.25 5248.25 637.65 637.65

INTERPRETATION:

 There is a net decrease working capital (268.30) lakhs due to decrease in

current assets (i.e. debtors, bills receivable)

 There is also increase in current assets (cash & bank) and also decrease in
current liability (creditors) increase liability bills payable.

 Hence the net effect is decrease in working capital.

 TABLE - .6
NET WORKING CAPITAL FOR LAST 5 YEARS
YEAR NET WORKING CAPITAL

(Rs.in lakhs)

2004-05 6051.55

2005-06 4393.78

2006-07 5087.74

2007-08 4779.95

2008-09 5248.25
 CHART - 1
NET WORKING CAPITAL FOR LAST 5 YEARS

INTERPRETATION:
 The net working capital of SRI SOWDESWARI MIIS. shows an increasing
trend and later decreasing.

 The main reason for the decreasing trend is due to the increasing creditors year
after year.
  It also indicate weak cash balance to meet the liabilities and every year the
current liability has been continuously increasing.

TABLE - 7
RATIO ANALYSIS
DEBTORS TURNOVER RATIO
TABLE SHOWS CREDITSALES AND AVERAGE DEBTORS
FROM 2005-2009
YEAR CREDIT SALES AVERAGE DEBTORS
DEBTORS TURNOVER
RATIO
2004-05 20741.11 641.405 32.33
2005-06 18652.01 606.19 30.00
2006-07 17452.36 601.225 29.00
2007-08 10200.29 362.335 28.15
2008-09 14200.29 269.435 45.28

SOURCE: SECONDARY DATA

NET CREDIT SALES
DEBTORS TURNOVER RATIO = ---------------------------------------
AVERAGE DEBTORS
 CHART - 2
DEBTORS TURNOVER RATIO

INTERPRETATION:

 In 2006-07, the debtors turnover ratio has been decreased due to market
condition which promoted all manufactures to push sales through credit sales
and after 2006, the debtors turnover ratio has been reducing. In 2009 it is
higher i.e (45.28).

 The turnover is high and shows that bulk of sales in cash.

 TABLE - 8
DEBT COLLECTION PERIOD
TABLE SHOWS DAYS & DEBTORSTURNOVER RATIO
FROM 2005 –2009
YEAR DAYS DEBTORS DEBT
TURNOVER COLLECTION
RATIO PERIOD
2004-05 360 32.33 11.35
2005-06 360 30 12
2006-07 360 29 12.4
2007-08 360 28.15 12.78
2008-09 360 45.28 7.9

SOURCE: SECONDARY DATA

360
DEBT COLLECTION PERIOD = -----------------------------------------
DEBTORS TURNOVER RATIO
 CHART - 3.
DEBT COLLECTION PERIOD

INTERPRETATION:

 In 2007-08 , the debt collection period has been higher 12.78, it is due to
market condition leads to decrease in debtors turnover ratio and debt collection
period .

 It is due to effective collection of debts from debtors.

 TABLE - 9
CURRENT RATIO
TABLE SHOWS CURRENT ASSETS & CURRENT LIABILITY
FROM 2005 -2009
YEAR CURRENT CURRENT CURRENT
ASSETS LIABILITY RATIO
2004-05 2779.27 8830.82 0.31
2005-06 3484.42 7878.20 0.44
2006-07 3363.67 8451.41 0.39
2007-08 3296.11 8276.06 0.39
2008-09 2745.74 4993.99 0.54

SOURCE: SECONDARY DATA

CURRENT ASSETS
CURRENT RATIO = ---------------------------------
CURRENT LIABILITY
 CHART - 4
CURRENT RATIO

INTERPRETATION:

 The ideal current ratio is 2:1 but in our organization current ratio are less than
one due to more current liability.

 This ratio shows company’s poor performance in working capital

management.
 TABLE - 10
QUICK RATIO
TABLE SHOWS QUICK ASSETS & CURRENT LIABILITY
FROM 2005-2009
YEAR QUICK ASSETS CURRENT QUICK RATIO
LIABILITY
2004-05 1555.25 8830.82 0.176
2005-06 2256.18 7878.20 0.286
2006-07 2240.00 8451.41 0.265
2007-08 2072.02 8276.06 0.250
2008-09 1499.81 4993.99 0.300

SOURCE: SECONDARY DATA

QUICK ASSETS
QUICK RATIO = ------------------------------
CURRENT LIABILITY
 CHART - 5
QUICK RATIO

INTERPRETATION:

 The ideal quick ratio is 1:1 but in our organization it is fluctuating in all years.

 This shows poor management of quick current assets.

 TABLE - 11
NET WORKING CAPITAL RATIO
TABLE SHOWS SALES & WORKING CAPITAL FROM 2005 - 2009
YEAR SALES WORKING RATIO
CAPITAL
2004-05 20652.01 6051.55 3.41
2005-06 19452.36 4393.78 4.42
2006-07 12200.29 5087.74 2.39
2007-08 16200.29 4779.95 3.38
2008-09 18400.37 5248.25 3.50

SOURCE: SECONDARY DATA

SALES
NET WORKING CAPITAL RATIO = -------------------------------------
WORKING CAPITAL

CHART - 6
NETWORKING CAPITAL RATIO
INTERPRETATION:

 The chart shows the ratio of sales to working capital.

 The ratio was highest in 2005-06 at 4.42 times due to smaller increase in
current liabilities thereby reducing the working capital requirements.

 In later years the firm has seen a decrease in the rate of turnover due to
considerable decrease in current liabilities.
 TABLE - 12
MANAGEMANT OF WORKING CAPITAL
CASH MANAGEMENT
CASH TO CURRENT ASSETS RATIO
TABLE SHOWS CASH TO CURRENT ASSETS FROM 2005 - 2009
YEAR CASH CURRENT RATIO
ASSETS
2004-05 47.72 2779.27 1.71
2005-06 783.37 3484.42 2.24
2006-07 289.61 3363.67 8.60
2007-08 475.60 3296.11 14.42
2008-09 535.77 2745.74 19.51

SOURCE: SECONDARY DATE

CASH
CASH TO CURRENT ASSETS RATIO = -------------------------------
CURRENT ASSETS
 CHART - 7
CASH TO CURRENT ASSETS

INTERPRETATION:

 The above chat shows the cash holding in relation cash to total current asset.

 The cash been holding had been lowest in 1.71in 2004-05.

 Hence the cash position is weak in 2005.it is increasing from the year 2005-06
onwards.
 TABLE - 13
CASH TURN OVER RATIO

TABLE SHOWS SALES TO CASH FROM 2005 - 2009

YEAR SALES CASH RATIO
2004-05 20652.01 47.72 432
2005-06 19452.36 783.37 25
2006-07 12200.29 289.61 42
2007-08 16200.29 475.60 35
2008-09 18400.37 535.77 34

SOURCE: SECONDARY DATA

SALES
CASH TURN OVER RATIO = ------------------------------
CASH
 CHART - 8
CASH TURN OVER RATIO

INTERPRETATION:

 The above chart shows that the ratio of sales to cash balance of the company
over a period of study.

 This ratio is highest in the 2004-05

 .Cash turnover ratio fluctuating in other four years.

 TABLE - 14
RECEIVABLE MANAGEMENT
DEBTORS TO CURRENT ASSETS RATIO
TABLE SHOWS DEBTORS &CURRENT ASSETS FROM 2005-2009
YEAR DEBTORS CURRENT RATIO
ASSETS
2004-05 1282.81 2779.27 46.15
2005-06 1212.38 3484.42 34.79
2006-07 1202.45 3363.67 35.74
2007-08 724.67 3296.11 21.98
2008-09 538.87 2745.74 19.62

SOURCE: SECONDARY DATA

DEBTORS
DEBORS TO CURRENT ASSETS RATIO = ------------------------- *100
CURRENT ASSETS
 CHART - 9
TABLE SHOWS DEBTORS TO CURRENT ASSEST

INTERPRETATION:

 The above chart shows the investment in debtors in relation to current assets.
This ratio is highest in the year 2004-05.

 This ratio is fluctuating in other four years.

 It source weak in debtor’s management.

 TABLE – 15
INVENTORY MANAGEMENT
INVENTORY TO CURRENT ASSETS RATIO
TABLE SHOWS INVENTORIES & CURRENT ASSETS
FROM 2005 - 2009
YEAR INVENTORIES CURRENT RATIO
ASSETS
2004-05 858.64 2779.27 30.89
2005-06 978.30 3484.42 28.09
2006-07 1149.21 3363.67 34.16
2007-08 1176.02 3296.11 35.67
2008-09 1176.12 2745.74 42.83

SOURCE: SECONDARY DATA

INVENTORIES
INVENTORY TO CURRENT ASSETS RATIO = -------------------------------- * 100
CURRENT ASSETS
 CHART - 10
INVENTORY TO CURRENT ASSETS RATIO

INTERPRETATION

 The above chart shows the percentage of inventory investment in Current

assets.

 The investment in inventory is the highest during 2008-09 at 42.83%.

 It can be interpreted that the firm holds more than 50% of the investment in
current assets in the form of inventory during the period of study i.e., 2005-
2009.
 CHAPTER - V
FINDINGS SUGGESTIONS AND CONCLUSION
FINDINGS
1. The net working capital high in 2004-05 during the study period. But
later it will keep on decreasing it is because of increase current liability
may lead to negative net working capital (CA-CL).

2. The Debtor Turnover Ratio decreasing but later increasing highly in

2008-09 (45.28 times) during the study period due to bulk of sales in

3. The Debt-collection Period is high in 2007-08(i.e. 12.7 days) it is due to

market condition leads to decrease in debtors turnover ratio and debt
collection period.

4. The company has a lesser current ratio from last five years. It is less
than the ideal ratio of 2:1 due to more credit sales.

5. The quick ratio is less than the ideal ratio of 1:1 during this study period
2004 to 2009.

6. The working capital turnover ratio has been higher in 2005-06 at (4.42
times) .but later decreasing due to smaller increase in current liability
there by reducing their working capital requirements

7. Cash to current assets is lowest in 2004-05 (1.71).Hence the cash

position is weak, but later it will keep on increase cash to current assets.

8. The cash turnover ratio is highest in 2004-05 (4.32).later it will cash

turnover ratio fluctuating in other years.

9. The debtor to current assets ratio is high in the year 2004-05.but later it
will decreasing due to weak in debtors management.
 10. The inventories to current assets ratio is fluctuating during the study
period.

SUGGESTIONS
 The company should concentrate to maintain the liquidity position on cash
balance and try to mobilize the funds from banks or other financial institutions.
The company has to take proper decision to maintain the current assets and
current liabilities.

 The liquidity position of the company is very low, therefore, the company
should take more long term funds or the company should reduce the
dependence on current liability.

 The solvency position of the company is very low, therefore the company
should depend on alternative source of fund or any other financial institution..
,
 The networking capital shown negative trend for the last five years, it is
because of increase current liability. Therefore the company should go for cash
sales, it will help to more cash purchase so, it will reduce the sundry creditors
and increase in current assets, it may result in positive net working capital but it
will take for a long period of time

 The company should take additional working capital in terms of long term
funds and from other financial institutions and the company should take proper
decisions that the major sales be on cash sales. This will leads to increase the
inventory, debtors, cash and bank balances, (all current assets). this will lead to
decrease in current liability and finally the working capital shows the positive
trend.

CONCLUSION

The result of the study clearly brings out the relative inefficiency of the
company with regard to working capital. The financial performance of the
company is very low in each department. The result of the study is restricted to
those six years only. The important factor which is worth mentioning here is
that the company has to use the resources as the effective as to improve the
financial position of the company.

The recommendations have been put forward to management for its

consideration. Even though the recommendation done based on the projection
of the historical data available in the books of accounts, the management has to
take effort to implement the necessary steps by looking into the financial
performance of the previous year. A successful financial executive is interested
not in maintaining good current ratio but an adjustable account of current
assets, so that the business may operate smoothly.. thus the working capital
concept is more important to the management in order to maintain the current
assets and current liabilities.
 BIBLIOGRAPHY

• PANDEY I.M. - FINANCIAL MANAGEMENT - NEW DELHI, VIKAS

PUBLISHING IUSE PUT LTD,2000

• KHAN. M AND JAI P.K. – FINANCIAL ACCOUNTING , NEW DELHI, TATA

MEGRAW HILL PUBLISHING COMPANY LTD – 2000, 3RD EDITION

• MAHESWARI S.N – PRINCIPLES OF MANAGEMENT ACCOUNTING – NEW

DELHI –SULTAN CHAND & SONS,-2001.

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WWW.FINANCIALEXPRESS.COM

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