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TRANING PROJECT ON WORKING CAPTIAL MANAGEMENT

PRESENTED BY:- SUMITROLL NO. 14104024MBA FINANCE

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ABOUT COMPANY NETWORK OF DCM TEXTILES SWOT ANALYSIS OF DCM TEXTILES OBJECTIVES OF THE STUDY WORKING CAPITAL MANAGEMENT FACTORS INFLUENCING WORKING CAPITAL

REQUIREMENTS EVALUATION OF WORKING CAPITAL MANAGEMENT RATION ANALYSIS CONCLUSIONS

CONTENT

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Delhi Cloth Mill The DCM group was founded by Lt. Lala Shri Ram in the year 1889 with

the establishment of Delhi Cloth Mill (DCM) which specialized in Textiles.

DCM Textiles, a unit of DCM Ltd. started its production in 1991 The name of the company was changed in 1994 to Delhi Commerce and

Manufacturing Company (DCM) to reflect the group’s diverse business activities covering the areas of:

Cotton Textiles Silk Textiles Woollen Textiles Readymade Garments Hand-crafted Textiles

ABOUT COMPANY

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Type: Public Founded: 1889 Registered office : New Delhi and listed at BSE and NSE Industry : Manufacturer & Exporter Products : 100% cotton carded and combed yarns spindle capacity: 1,15,000 Employs: more than 1500 Annual turnover : INR 5s00 cr. (2014-15) Website: yarn@dcmtextiles.com www.dcmtextile.co.in

PROFILE OF DCM TEXTILES

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The company is exporting to major World-markets including China, Colombia, Peru, Dominican Republic,  Spain, Portugal, Hong Kong, South Korea, Bangladesh, Venezuela, Egypt, Bulgaria, Italy, Sir Lanka, Mauritius, Vietnam, Singapore and Ukraine.

In India, DCM Textiles has presence in all the major Hosiery & Weaving markets like Delhi, Panipat, Ludhiana, Ahmadabad, Ichalkaranjli & Bhilwara.

The raw material can be purchased from various stats like; Haryana, Punjab , Rajasthan, Gujarat, M.P, Maharashtra and A.P

NETWORK OF DCM TEXTILES

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InternalAnalysis

ExternalAnalysis

SWOT ANALYSIS OF DCM TEXTILES

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STRENGTHS:-

• Availability of manpower.• High quality product.• Low price high quality.

WEAKNESS

• Heavy transport charges.• Poor customer care/service• Transaction cost• Bad working conditions

Continue…

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OPPORTUNITIES:-

• Technological up gradation.• Foreign market expansion.• Online ordering process.• Product expansion.• Market expansion. THREATS:-

• Entry of competitors• Product substitution• Dissatisfied customers

 

Continue…

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To study the sources and uses of the working capital.

To study the liquidity position through various working capital related ratios.

To study the working capital components such as receivables accounts, Cash management, Inventory management.

To make suggestions based on the finding of the study.

OBJECTIVES OF THE STUDY

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Working capital means the funds (i.e.; capital) available and used for day to day operations (i.e.; working) of an enterprise. It consists broadly of that portion of assets of a business which are used in or related to its current operations. It refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence.

In Accounting:

WORKING CAPITAL MANAGEMENT

working capital =Current assets - Current liabilities

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 To Maximize Profit Of The Firm. To Help In Timely Payment Of Bills. To Maintain Sufficient Current Assets. To Ensure Adequate Liquidity Of The Firms. It Protects The Solvency Of The Firm. To Discharge Current Liabilities. To Increase The Value Of The Firm. To Minimize The Risk Of Business.

OBJECTIVES OF WORKING CAPITAL MANAGEMENT

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To Purchase Raw Materials, Spare Parts And Other Component.

To Meet Over Head Expenses. To Hold Finished And Spare Parts etc. To Pay Selling & Distribution Expenses.

 THE NEED FOR THE WORKING CAPITAL

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OPERATING CYCLES OF WORKING CAPITAL

Finished goods

Work-in-progress

Accounts receivable

Raw materials

SuppliersCash

Wages, salaries, factory overheads

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Net Working Capital:-

Term Net working capital can be define in two way;◦ It is the difference between current assets and current liabilities.◦ Amount left for operational requirement.

  Gross Working Capital:-

Gross working capital means the total current assets. And On the basis of time working capital may be classified as:- Permanent working capital Temporary working capital

Classification of working capital

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Nature of business Seasonality of operations Production policy Market conditions Conditions of supply

FACTORS INFLUENCING WORKING CAPITAL REQUIREMENTS

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The working capital management needs attention of all the finance head/ working capital management is important for avoiding unnecessary blockage of fund. Like that liquidity is important at it refer to the short-term financial strength of company.

It is very important to have proper balance in regard to the liquidity of the firm.

Evaluation of working capital

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TABLE 1: CONSTITUENTS OF CURRENT ASSETS AND CURRENT LIABILITIES

PART- A: CURRENT ASSETSInventoriesRaw materials and componentsWork-in-progressFinished goodsOthersTrade debtorsLoan and advancesInvestmentCash and bank balance

PART-B: CURRENT LIABILITIESSundry creditorsTrade advancesBorrowings From Commercial banksOthersProvision

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Description of current assets and current liabilities 2014-15 (Rs.)

Stocks 795,807,291

Trade receivables 692,152,101

Cash & bank balances 53,105,704

Loans and advances 291,626,791

Other current assets 16,683,355

Current liabilities 1,307,725,193

Other Current liabilities 169,783,693

Provisions 7,675,657

Financial Statement Of Last Accounting Year

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YEAR ENDED WORKING CAPITAL

(RS. IN LAKHS)

31STMARCH 2005 1551.41

31STMARCH 2006 2251.10

31STMARCH 2007 4416.50

31STMARCH 2008 8095.09

31ST MARCH 2009 6179.17

31st MARCH 2010 11009.24

31st MARCH 2011 21071.99

31st MARCH 2012 93915.43

31st MARCH 2013 16601.39

31st MARCH 2014 42719.05

31st MARCH 2015 36419.06

WORKING CAPITAL YEAR ENDED

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Particulars

A) Current Assets: -i) Inventories ii) Sundry Debtorsiii) Cash & Bank

Balanceiv) Loans & Advances

V) Other current assets B) Current Liabilities:v) Current Liabilitiesvi) Provisions

Working Capital (A-B)Add: Provision for Contingencies

Net Working Capital Requirement

2010-11 2011-12 2012-13 2013-14 2014-15

1,539,676,299

524,540,343

8,16,190

170,483,304

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686,451,272

314,758,759

10,35,080

95,205,454

27,584,289

823,377,964

410,634,543

18,12,464

131,040,166

25,524,513

915,433,075

589,343,347

31,960,904

215,329,442

93,62,578

795,807,291

692,152,101

53,105,704

291,626,791

16,683,355

2,235,516,136 1,125,034,054 1,392,389,650 1,761,429,346 1849,375,242

11,11,85,084

17,131,893

1,185,267,850

612,642

1,225,303,015

1,072,656 1,327,748,129

6490678

1477,508,886

7,675,657

128,316,977 1,185,880,492 1,226,375,670 1,334,238,807 1,485,184,543

2107,199,159

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939,154,362

_

166,013,980

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427,190,539

_

364,190,699

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2,107,199,159 939,154,362 166,013,980 427,190,539

364,190,699

Table-1

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It is observed that current asset increase in 2012-13 as compare to 2011-12 but in the year 2014-15 it had been increase and the current liabilities has been in a decreasing trend in the year 2011-12 and 2012-13. Current asset increase in 2012-13 and again it increases 2013-14. It shows fluctuation in these years. Working capital of DCM Textile ltd indicates a good position as it shows the increasing trend except 2012-13 that represents the sound position of the company.

TABLE-1

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Particulars Previous year

31.03.2014

Current year

31.03.2015

Effect on working capital

increase Decrease

A) Current Assets: -i) Inventories ii) Sundry Debtorsiii) Cash & Bank

Balanceiv) Loans & Advances v) Other current assets

Total Current Assets:

B) Current Liabilities:vi) Current Liabilities vii) Provisions

Total Current Liabilities:

Working Capital (A-B)

Net Increase Or Decrease

In Working Capital

915,433,075

589,343,347

31,960,904

215,329,4429,362,578

795,807,291

692,152,101

53,105,704

291,626,79116,683,355

-

102,808,754

21,144,800

76,297,3497,320,777

119,625,784

-

-

- -

1,761,429,346 1,849,375,242

1,327,748,129

6,490,678

1,477,508,886

7,675,657

149,760,757

1,184,979

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-

62,999,840

1,334,238,807 1,485,184,543

427,190,539

427,190,539

364,190,699

364,190,699

Table-2

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Statement of changes in the working capital is prepared to show the changes in the working capital between the two balance sheet dates. This statement is prepared with the help of the current asset and current liabilities derived from the 2 balance sheets

So, An increase in current asset increases working capital A decrease in current assets decreases in working capital An increase in current liabilities decreases working capital. A decrease in current liabilities increase working capital

TABLE-2

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DCM Textiles , Hisar Balance Sheet as at March 31, 2015

    Amount in Rs.

  Note   As at

Mar. 31, 2015

  As atMar 31, 2014

  EQUITY AND LIABILITIES                         Shareholders’ funds          Share capital 2 -   -   Reserves and surplus 3 39,731,099   452,546,275         39,731,099   452,546,275         865,107,887   557,133,529   Non-current liabilities          Long-term borrowings 4 989,861,145   847,491,770   Deferred tax liabilities (net) 5 -   -   Other long-term liabilities 6 891,000   891,000   Long-term provisions 7 16,537,309   15,361,160         1,007,289,454   863,743,930   Current liabilities          Short-term borrowings 8 1,191,909,611   1,125,029,935   Trade payables 9 115,815,582   76,532,445   Other current liabilities 10 169,783,693   126,185,749   Short-term provisions 11 7,675,657   6,490,678         1,485,184,543   1,334,238,807                      3,397,312,983   3,207,662,542              

  ASSETS                         Non-current assets          Fixed assets          Tangible assets 12 1,482,104,164   639,262,313   Intangible assets 12 -   -   Capital work-in-progress   432,490   625,499,035         1,482,536,654   1,264,761,348   Non-current investments 13 -   -   Long-term loans and advances 14 65,401,086   181,471,847   Other non-current assets 15 -   -         1,547,937,740   1,446,233,195   Current assets          Inventories 16 795,807,291   915,433,075   Trade receivables 17 692,152,101   589,343,347   Cash and bank balances 18 53,105,704   31,960,904   Short-term loans and advances 19 291,626,791   215,329,442   Other current assets 20 16,683,355   9,362,578         1,849,375,242   1,761,429,346                          3,397,312,983   3,207,662,541

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Liquidity Ratios Solvency/Leveraging Ratios Coverage Ratios Activity/Turnover Ratios Profitability Ratios Investors Ratio

DATA ANALYSIS-INTERPRETATION OF RATIOS.

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Liquidity ratios measure the short-term solvency i.e. the firm’s ability to pay its current dues and also indicate the efficiency with which working capital is being used. Commercial banks and short-term creditors may be basically in the ratios under this group.

i. Current Ratio ii. Liquid ratio or Quick Ratio

LIQUIDITY RATIOS (SHORT-TERM LIQUIDITY)

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Current ratio is a relationship of current assets to current liabilities

Computation:- Current Ratio = Current Assets Current Liabilities

Current Ratio

Current ratio DCM textiles

2014-15 1.21

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Liquid ratio is a relationship of liquid assets with current liabilities. It is fairly stringent measure of liquidity.

A quick ratio of 1:1 is considered standard and ideal, since for every rupee of current liabilities, there is a rupee of quick assets. A decline in the liquid ratio indicates over-trading, which if serious may land the company in difficulties.

COMPUTATION;-  Liquid Ratio = Liquid Assets Current Liability

Liquid Ratio

LIQUID Ratio DCM Textiles

2014-15 0.39

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The term solvency implies ability of an enterprise to meet its long term indebtness and thus, solvency ratios convey the long term financial prospects of the company.

The shareholders, debenture holders and other lenders of the long-term finance/term loans may be basically interested in the ratios falling under this group.

SOLVENCY/LEVERAGE RATIO

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The debt-equity ratio is worked out to ascertain soundness of the long term financial policies of the firm. The ratio expresses a relationship between debt (external equities) and the equity (internal equities).

Debt equity ratio =1.08

COMPUTATION

Debt-Equity Ratio = Debt(long-term loans) Equity (shareholder’s funds)

Debt-Equity Ratio

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Profit as compared to the capital employed indicated profitability of the concern. A measure of profitability is the overall measure of efficiency.

The net profit ratio establishes the relationship between net profit and net sales expressed in percentage form.

Net Profit Ratio = 18.10

computation:-  Net Profit Ratio= Net Profit After Taxes x 100 Net Sales

PROFITABILITY RATIOS

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Interest coverage ratio: The interest coverage ratio establishes the relationship between PBIT ( profit before interest and tax) and debt interest. Interest Coverage Ratio = 11.5 Computation:-

  Interest Coverage Ratio = Net profit before interest and taxes Debt interest

COVERAGE RATIO

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These ratios are calculated on the basis of ‘cost of sale’ or ‘sale’.

Turnover indicates the speed with which capital employed is rotated in the process of doing business.

Activity ratio measures the effectiveness with which a concern uses resources as its disposal.

ACTIVITY (TURNOVER OR PERFORMANCE) RATIOS

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The working Capital turnover indicates the number of times a unit invested in working capital produces sale. In other words, the ratio shows the efficiency in the use of short-term funds for achieving sales.

Working capital Turnover Ratio =1.28

Computation:- Working Capital Turnover Ratio = Net Sales Working Capital

WOKING CAPITAL TURNOVER RATIO

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This ration indicates whether inventory has been efficiently used or not.

This ration indicates the relationship between the cost of goods sold during the year and average stock kept during that year.

Inventory Turnover Ratio =1.74

Computation:- Inventory Turnover Ratio = Cost Of Goods Sold

Average Inventories

Inventory Turnover Ratio

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The study duration (summer in plant) is short. The analysis is limited to just five years of data study (from

year 2011 to year 2015) for financial analysis. Limited interaction with the concerned heads due to their

busy schedule The findings of the study are based on the information

retrieved by the selected unit.

LIMITATION OF STUDY

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After studying the components of working capital management. It s found that the company has a very sound and effective policy and its performance is very good and has managed to make good profit. Company is competing well at the domestic as well as the international level because of its proper management of finance, specially the short term finance known as the working capital.

The company is a matured one and it has contributed well in the countries growth and development and will also continue to perform and contribute to the whole nation.

In conclusion, we can say that the company’s management is an effective one and knows well the management of finance; its working capital management system is very good.

 

CONCLUSIONS

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