working capital management @ gadag textile project report

THE GADAG CO-OPERATIVE TEXTILE MILL LTD, GADAG.

EXECUTIVE SUMMARY

The project has been under taken under as the part of master of business

administration course as per the direction of Karnataka university dharwad. The

second year MBA students will take part in this project were the summer inplant

project for the period of two months and the project is related to finance and the topic

of this project is “The study of working capital management”

The Gadag co-operative textile mill ltd established in 1972 by late

shri.K.H.Patil at Hulkoti in Gadag district. It is producing main product as yarn. The

company started with a production cost of RS.220lakhs.It is started producing yarn in

the year 1973.

A G.C.T.M has an arrangement of different department of the dependent

parts of functions and their interrelation in the structure form to provide the necessary

efforts of groups of individuals will be directed towards a common objective. So as to

identify the problems of such a title and give suggestions and conclusions. In addition to

this concept studying the over all organization role of different department functions of

their respective departments, procedures and policies.

The project is mainly focuses on the industry profile, company profile, SWOT

analysis, annual report and about working capital and ratios. this project studies

different department at the Gadag co-operative textile mill ltd. The functions of each

department and the organization in the company along with it covers the duties and

responsibilities of all the staff members type of decision making followed by the mill

and it also includes quality policy export oriented unit etc of the mill.

DESIGN OF THE STUDY

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Title of the study

“To study on working capital management” at The Gadag Co-operative Textile Mill

Ltd. Hulkoti”

OBJECTIVES OF THE STUDY:

1) To study the working capital management.

2) To know the sources of working capital.

3) To study the different components of working capital of the company.

4) To calculate the operating cycle of an organization.

5) To calculate the working capital of an organization.

6) To study the liquidity position of the company with the help of ratios.

METHODALOGY

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PRIMARY DATA: The information collected from personal interaction with manager and other staffs

SECOUNDRY DATA: The annual report of the company and company website

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INDUSTRY PROFILE

The Indian Textile Industry occupies an important place in the Economy

of the Country because of its contribution to the Industrial Output, Employment

Generation and Foreign Exchange Earnings. At present, the contribution of the textile

Industry to GDP is about 4 percent. The textile industry provides direct employment

to about more than 35 million people and is the second largest employment provider

in India next to agriculture. The contribution of this industry to gross export earnings

is about 31% of the country.

The Textile Industry is a self-reliant industry from the production

of raw materials to the delivery of final products with considerable value addition at

each stage of processing. The industry was delicensed in 1991 and under the current

policy no prior government approval is necessary to set up textile mills. The per

capita cloth availability in the country has increased from 24.1 square meters in 1991

to 30.7 square meters in 2000-01.The textile sector including the garment sector has a

continual increase in the FDI inflow from Rs.80.99 million to Rs.234.73million.

From growing its own raw material (cotton, jute, silk and wool) to

providing value added products to consumers (fabrics and garments), the textile

industry covers a wide range of economic activities, including employment generation

in both organized and unorganized sectors. Manmade fibers account for around 40 per

cent share in a cotton dominated Indian textile industry. India accounts for 15% of

world's total cotton crop production. And it is the second largest employer after the

agriculture sector in both rural and urban areas. India has a large pool of skilled low-

cost textile workers, experienced in technical skills. Almost all sectors of the textile

industry have shown significant achievement. India's cotton textile industry has a high

export potential. Cost competitiveness is driving the penetration of Indian basic yarns

and grey fabrics in international commodity markets. Besides natural fibers such as

cotton, jute and silk, synthetic raw material products such as polyester staple fiber,

polyester filament yarn, acrylic fiber and viscose fiber are produced in India.

From 1st January 2005, all textile and clothing products would be

traded internationally without quota-restrictions. And this impending reality brings the

issue of competitiveness to the fore for all firms in the textile and clothing sectors,

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including those in India. With the dismantling of quotas in 2004 under mandate from

the Agreement in Textile and Clothing of the WTO, the focus has clearly shifted to

the future of the Indian textile and clothing exports. It is imperative to understand the

true competitiveness of Indian textile and clothing firms in order to make an

assessment of what lies over a period of time.

Global trade in Textile and clothing -India’s performance

During the MFN period, the textile exporters from industrial countries and those from

developing countries merely changed shares between themselves during 24 years .The

share of industrial countries declined by almost as much (19.2%) as was the gain in

the share of developing countries (18.8%). Clothing exporters, however, exhibit

significant changes, with the share of top exporters having declined by 13.8%.

New entrants have come in as well as some old ones have been knocked out. Of these

new entrants, most- if not all- are from developing countries, since the share of

industrial countries has declined during the period, and that of developing countries

has increased. The countries that are gaining share in clothing exports are the

ones whose industries are integrated to one or the other advanced country

through some policy-induced preferential arrangements. Mexico, Caribbean

region, East European countries and Mediterranean countries are capturing much of

the space vacated.

There has been a much deeper globalization in clothing than in textiles. Indeed, that

has been one of the principal reasons for the developed countries agreeing to an

eventual phase-out in the UR of negotiations. While in textiles, there was an

inexorable shift away from developed countries in 1973 to1997 and to developing

countries at large, in clothing the shift away from developed countries is increasingly

being grabbed by ‘preferred’ developing countries.

Thus, in clothing, the non-preferred group of developing countries is fighting amongst

themselves for a pie that is increasingly declining.

One should expect a much higher level of intra-industry and intra-firm trade in

clothing than in textiles. This is entirely compatible with the fact that it is the trade in

Clothing that is growing faster than that in textile.

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And this trend is likely to deepen, as Clothing retailers consolidate, and Outward

Processing Trade (OPT) traffic increases. The Opportunity clearly lies much more in

clothing, though the caveat is the exporting.

Country would have to achieve the ‘preferred’ status, and integrate its manufacturing

with that of an importing country in order to continue exporting to the restricted

markets. The pressure to export would intensify in the years to come since 80% of

additional output during 1995-2005 is expected to be located in developing countries.

On the other hand, only 50% of the additional fibre consumption would originate in

developing countries.

COMPANY PROFILE

COMPANY DETAILS:

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Name of the mill : - The Gadag Co-operative Text

Mill Ltd Hulkoti.

Famous name : - The G.C.T.M Ltd Hulkoti

Address : - The G.C.T.M Ltd Hulkoti

Post: Hulkoti 582205

Tq &Dist: GADAG

Karnataka

Phone no: 289042, 289371

Mobile: 9449570255

email:[email protected]

Registered office : - Hulkoti

Tq &dist: Gadag

Registration : - The mill has been registered under

The Karnataka co-operative society

act 1959

Registration No : - RCS 2022/72-73

Establishment : - 08-07-1972

Production began : - 1973

Sales turn over : - 25 crores

Nature of business : - production and sale of yarn

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Background of the company

The village hulkoti comprises of various sections of people and since long it has

been the cradle of co-operative movement in having the first primary credit co-

operative society established in the erstwhile Bombay state. The occupation of the

village is mainly agriculture. The farmer and farm laborers form a nucleus of this rural

area. The main crops grown around hulkoti are jowar, cotton, groundnut, chilly and

other pluses.

Since there are no other major irrigation projects, dry land cultivation is the only

way for the farming community. Agriculture produce particularly cotton, groundnut,

jowar etc. were being marketed to the tune of Rs/90 to 100 crores per annum in and

around gadag. Prior to the emergence of the Gadag Co-operative cotton sale Society

Ltd., Gadag farming community was exploited by private traders and commission

agents.

It is at this juncture, realizing the need for upliftment of mach neglected farmers

community and to improve the lot of rural area, Late Shri K.H.Patil, a son of soil and

veteran co-operator devoted he time fully for the establishment of

a co-operative network around hulkoti providing various amenities and scope for

development of farmers which went ahead against all odds both traditional and political

till he transformed a vision into a reality. This Endeavour had transformed into worthy

institution located on either side of highway no 63 between hulkoti and Gadag

After successful setting up of Ginning and pressing unit by the Gadag Co-

operative cotton sale society, the next ambition of our Co-operator, was to establish a

spinning Mill of 25,000 spindles capacity which would consume the main agriculture

produce by paying remunerative prices to cotton growers and to save the farming

community from the cluthes of private traders

It is with this ideal background The Gadag Co-operative mill was established in

the year 1972 with the project cost of Rs 220 lakhs and commenced its trail production

in April 1973 we have a feather in the cap for having installed 25000 spindles capacity

mill in a record time in the entire country.

MODERNIZATION PROGRAM

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After a period of 18 years there was a need for upgrading technology

of certain machines and to eater to the export needs, the Management proposed a

Modernization Programme at a cost of Rs. 429.00 Lakhs. The term, lending

institutions sanctioned Rs. 236.69 Lakhs and the balance Rs. 192.31 lakhs was from

the internal resources of the Mills. The Mill replaced Carding Machines, winding

machines and added one Open End Spinning machine and one Imported Auto Conner

of latest technology. With the implementation of this Project there was improvement

in the productivity and the quality of the finished product.

To meet the standards of the quality yarn in demand, both in domestic as well as in

International markets, the Management of the Mills thought it inevitable to launch

another Modernization Programme covering Machinery from blow room to Spinning

was planned. This programme, with an estimated cost of Rs. 920 Lakhs was approved

by the national Co-operative Development Corporation (N.C.D.C.) and the Government

of Karnataka.

As part as Modernization Programme, N.C.D.C. has sanctioned Rs. 736.00 Lkahs,

while Government of Karnataka contributed Rs. 136.00 Lkahs as share capital. The rest

amount of Rs. 46.00 Lkahs was mobilized from Members of the Society through shares.

With successful implementation of 2nd Phase of Modernization Programme, the latest

version of Auto leveler Machinery at Carding and Drawing Sections are inducted and

commissioned. Following this, efforts are being made to raise the productivity to high

standards. Further, completion of Modernization enables us to qualitative requirement

of requirement of International market Standards.

BASIC CONCEPTS USED IN TEXTILE MILL

Fiber : A slender filament ; a fine thread like part of a

substance

.

Kapas : Cotton with seeds and impurities

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Lint : Cotton free from seeds and impurities

Ginning : The mechanical process of separating the cotton

Fiber from seeds

Bale : A bundle or packages of cotton compressed and

Bound with cord or wire weight round about 170

Kgs.

Spinning : The process of drawing out and twisting the fiber

of cotton, Wool etc. Into thread or yarn either by

hand or machine.

Spindles : The rods or pins of spinning machine known as

The ring frame holding the bobbins on the which

yarn wound as it is spun . Such spinning is

expressed in terms of the number or spindles or

rotors.

Rotors : In the modern of spinning known as the open end

spinning instead of spindles rollers are used.

Yarn : A textile thread obtained by twisting of

consecutively Disposed and Straightened

ultimate composite fibers.

Hank & cones: Yarn is supplied to the market in to different

forms hank yarn and cone yarn Hank yarn is

convenient form of bleaching, and transport but

needs winding before placing on the loanIt is

used by hand loom weavers .Cone yarn however

eliminates the Need form winding and can be

directly used in power looms .

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Count : A count is measure of thickness or fitness of yarn

The various counts groups manufactured are 10s,

20s, 24s, 30s,32s,34s,40s, 60s, 80s 100s both in

Hank and Cone. Lower counts indicates coarse

yarn and higher counts indicates fine Yarn

Objectives of the company

To satisfy customers by integrating their needs in the mill yarn.

To sustain a mill of able and committed employees and provide opportunities for

growth and development.

To improve the process of managing mill affairs through proper planning, timely

improvement of plan and performance review.

To faster culture innovation with the application of new ideas and methods to solve

the business problems.

To provide the employment opportunities to Men& women of rural area

Nature of business carried

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The first step the company purchases the raw material i.e. cotton from the farmers

then it mixes it with different quality of cotton according to the quality of yarn they

needed.

The next step is cleaning the minor part and spraying the water to it. Then it kept

one day in cool place. Next step it goes to the major cleaning part it goes to all the

cleaning of the cotton.

The next process is carding here the cotton will become smoothly and white.

Next goes to the simplex method in this method cotton becomes big layers and it makes

the group of layers

The next process is procedure is rolling and grilling here the big layers are rolled

and it is separated from the group and comes in the form of loose thread and next

process is drafting and twisting and the thread becomes strong and it comes layer by

layer in the form of thin yarn. The next is nothing here if thread goes into two parts the

machine will join it and it is called noting process.

Finally after all these process the raw material is converted into the finished

goods which are in the form of yarn.

VISION MISSION QUALITY

VISION: To be a premier textile company with a clear focus to become globally

competitive, through growth and technology up gradation committed to excellence in

quality service and co-operatives

MISSION: To purchase the creation of values for all its customers, share holders,

employees and society at large

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QUALITY POLICY: The company will give main importance to the satisfaction

of the customers by producing good quality yarn and produce yarn to meet with the

market position the company will not see with the quality of raw material. The company

is also having a quality control department to check out the yarn quality in overall

stages to take any corrections required immediately.

PRODUCT PROFILE

The following table indicates the production performances/ progress since 2003-04 to

2007-08

sl Particulars 2003-04 2004-05 2005-06 2006-07 2007-08

A.

1.

2.

3.

Production

Cotton consumed

kgs in lakhs

Value in lakhs Rs.

Yarn produced in lakhs

kgs

33.37

1894.90

28.01

35.20

1812.25

29.57

32.31

1375.00

26.80

32.49

1460.90

27.53

32.39

165615

27.83

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B.

1.

2.

Cac capacity Utilization an

productivity

Spdl utilization %

Production

(converted to 40s)in

gram per spindle

63.57

84.00

71.39

82.37

73.49

82.15

73.97

83.15

69.81

86.20

THE MARKET AREA

The mill has its market overall the different areas of the country like N.H.D.C.,

K.H.D.C., malligov, sollapur, ichalkaranji, Bangalore.

OWNERSHIP PATTERN

The G.C.T.M. ltd is situated in the village hulkoti of Karnataka. Shri D.R.Patil and

H.M.Soppin are the chairman and vice chairman of the G.C.T.M. hulkoti.

S.L.

No:

Name Designation

1 Shri D. R. Patil Chairman

2 Shri H.M. Soppin Vice Chairman

3 Shri R.M. Mulimani Director

4 Shri V.B. Inamati Director

5 Shri T.B. Mundavad Director

6 Shri C.B. Karikatti Director

7 Shri V. R. Naganur Director

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8 Shri S.B. Balaraddi Director

9 Shri S.B. Bhasetti Director

10 Shri S.C. Kanavi Director

11 Shri S.C. Huilgol Director

12 Shri G.N. Patil Director

13 Shri A.S. Patil Director

14 Shri R.B. Hosamani Director

15 Shri B.H. Dyavanashi Director

16 Shri S. K. Kuradagi Director

17 Shri D.S. Odugoudar Director

18 Shri R.Y.

Kempalinganagoudar

Director

General Manager

District Industries center Gadag Director

Deputy Director of Handlooms

And Textile Inviters

Joint Registrar of

Co-operative societies Director

Shri T. Shantaveerappa

Managing Director Director

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COMPETITORS INFORMATION

The competitors for G.C.T.M are

Banhatti co-operative spinning mill. Banhatti.

Raitara sahakari noolina girani. Rannebennur.

The farmer’s co-operative spinning mill ltd. Hulkoti.

Sangoola mills solapur.

INFRASTRUCTURE FACILITY

Head office: The head office of G.C.T.M is located in hulkoti the function of finance,

marketing and raw material procurement are carried by head office only it doesn’t have

its branch.

Land: The mill is established in the rural area near gadag at village hulkoti with

approval of the site selection committee. The total area covered is of 90528.25 sq ft out

of which build up area is 643.45 sq mt. there is the beautiful garden plantations

pollution free and healthy environment in the mill area.

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Other facilities: The mill has provided an quarters facilities to the workers and there

is an rest room for workers and drinking water facility and also cultural activities in

independence day, republic day, and workers day will be held and there is also an

canteen facility provided by the mill

AWARDS

The mills has got an some awards for continuously three years in the year 1978-79,

1979-80, 1980-81, the mill has ranked first for India and second for Asia.

The two awards were pretend to the mill as per the techno-economic data

presentation which is made by the mill in the Pune on 10th April 2005 the award for the

operating net profit per installed spindle and operating cash profit per installed spindle

has got

WORK FLOW OF MILL

MIXING: Bales of different counts are mixed along with usable wastes, on

different percentage in the mixing bins, cotton bales of different quality are opened and

stacked, called stock mixing, 24 Hours for conditioning before it is process further.

BLOW ROOM: Cotton in losses form is spending on mixing bale openers and

taken further of different cleaning points where the cotton is beaten and trash is

extracted. Finally converted into Lap form of different length, weigh per yard,

depending on the count.

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CARDING: Lap form Blow room feed to Cards where the cotton is converted from

Lap form to sliver form. During this process trash, short fibers and other impurities are

extracted the different cleaning points, like licker in, Flats section Units. The sliver is

produced of different Hank depending on the counts.

PREPARATORY: Cards sliver is drawn through different drafting Rollers and the

sliver is elongated and increasingly the length of the sliver and radiating in the cross

section by passing through different drafting rollers and convert into a suitable package

by giving little twist to the material called Rove and wound on a Bobbin.

SPINNING: The bobbins from the Preparatory process are feed to the drafting rollers

as final treatment to the material and further increasing the length and reduction the

cross section of the material. This process the material process through Ring and

Traveler and would on the bobbin to form a suitable package the giving optimum of the

twist depending on count of the yarn.

CONE WINDING: Here the yarn spun is cleaned by passing through cleaning

devise called slub catcher and would through suitable package of required length and

weight in the form of a Cone.

DOUBLING: Here two yarn of the same count are doubled by giving necessary

twist in the form of package called bobbins.

REELING: Here single yarn or doubled yarn are wound on the swifting of the

machine called Reel in the form of Hank and are make in the form of Knots. There are

two types, a Plain or Cross Reel.

BUNDLING & BALING: Here the number of knots plain or cross is in a press

depending on the count and weight of the boundless are as per requirements. Bundles

are pressed in the form of Bale depending on the count, Plain or Cross as per the

requirement from the market.

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PACKING: Here number of cones or cheeses is bagged depending on the count of

the yarn number of cones and weight of the cones. Depending on the requirement of the

market.

DEPARTMENTAL STUDY

FINANCE DEPARTMENT

Finance department is the department which looks after the financial position of the

mill and takes over the investment decision, finance decision the mill has started with

its project cost of Rs.220 lakhs which contributed of Rs. 40 lakhs from members share,

Rs. 80 lakhs is of government share and remaining of Rs 100 lakhs is of term

loan(I.F.C.I)

MEMBER AND SHARE CAPITAL

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Sl.no Category

No of share

holders

Paid up share

Capital

1

2

3

“A”class

((individual/society)

“B” Class (K.A.I.C)

“C” Class (State govt)

3014

1

1

Rs.107.47 lakhs

Rs.015.00 lakhs

Rs.695.26 lakhs

TOTAL 3016 Rs.817.73 lakhs

Mill has funds that may be raised

1) By issue of Shares

2) By receiving deposits from members.

3) By raising loans

4) By entrance fees

5) By accepting donations, subsidies and grants.

6) By commercial institutions.

After starting of mill after the 18 years the mill has been modernized at cost of

Rs. 429 lakhs the leading institutions has sanctioned of Rs.236.69 lakhs and remaining

balance of Rs.192.31 is from the mill itself and 2nd time modernization has done of Rs

920 lakhs which the amount is given by the N.C.D.C.( national co-operative

development co-operation) and government of Karnataka as the part N.C.D.C has

sanctioned Rs.736 lakhs and 136 lakhs by govt of Karnataka and rest of amount Rs. 46

lakhs is from members of society

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The mill is invested of Rs 1771.45 lakhs and of Rs. 40 lakhs share capital to the state

government and paid the loan amount of Rs.100 lakhs of Rs. I.F.C.I term loan and also

paid the first modernization loan of Rs. 236.69 lakhs

The mill will be raised its fund by issuing of share, receiving deposit from members

by taking loans and debentures and also accepting subsidies and donations and the

sources of finance for the mill is from the K.C.C bank, N.C.D.C. loan, and bijapur

D.C.C. bank ltd.

HUMAN RESOURCE DEPARTMENT

The human resource department of the mill is recruiting, selecting seeing welfare of

the employees and providing necessary facilities for the workers. Were as in the Gadag

co-operative textile mill there are 744 workers here 85 are staff members, 650

workers and 9 are securities

The facilities for the worker are transportation, medical, canteen, provident fund,

gratuity There are 3types of workers are there first selected (fresh) workers will be

taken as a trainee and in trainee there are two stages first stage trainee and second stage

trainee and after trainee they will be treated as badli and then as permit.

The mill works for 24 hours which is in 3 shifts no women workers are permitted

for night shift and the labour turnover is of 30 to 35 the over time duty is also there and

will be paid in double as per there working hours

The salary for the workers are paid in as the basic salary + ESI (employee state

insurance) + provident fund of 12% and bonus of 8.33% will be given and salary for 1 st

stage trainee is Rs.60 and for 2nd stage trainee Rs.65 and for badlis it depend on there

work which is of Rs.75-103 and for permits also depend on there work load and shift

allowance of Rs.250 for 26 days and of Rs 312 is attendance allowance for 26

attendance per month. The recruiting of staff will be done by managing director, general

manager, asst manager and H.R. manager and other workers will be selected by the H.R

department

The G.C.T.M also provided quarters for workers with rent of Rs.20 per month and

has a transportation facility from Gadag to hulkoti and in the G.C.TM. the cultural

activities also be held on independence day republic day, and on workers day.

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PRODUCTION DEPARTMENT

The G.C.T.M. is the mill which produces the yarn which are in of two types one

is in cone and another as hank .The product has been done from cotton to final product

i.e yarn. In the mill it has purchased machines from m/s lakshmi from coimbatore

The mill works 24hour of its production and it has 3shifts the first shift is handled

by production manager and 2nd shift by deputy spinning master and 3rd shift is handled

by spinning supervisor and the has 7500kg of daily production

PROCESS OF PRODUTION

MIXING: Bales of different counts are mixed along with usable wastes, on

different percentage in the mixing bins, cotton bales of different quality are opened and

stacked, called stock mixing, 24 Hours for conditioning before it is process further.

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BLOW ROOM: Cotton in losses form is spending on mixing bale openers and

taken further of different cleaning points where the cotton is beaten and trash is

extracted. Finally converted into Lap form of different length, weigh per yard,

depending on the count.

CARDING: Lap form Blow room feed to Cards where the cotton is converted from

Lap form to sliver form. During this process trash, short fibers and other impurities are

extracted the different cleaning points, like licker in, Flats section Units. The sliver is

produced of different Hank depending on the counts.

PREPARATORY: Cards sliver is drawn through different drafting Rollers and the

sliver is elongated and increasingly the length of the sliver and radiating in the cross

section by passing through different drafting rollers and convert into a suitable package

by giving little twist to the material called Rove and wound on a Bobbin.

SPINNING: The bobbins from the Preparatory process are feed to the drafting rollers

as final treatment to the material and further increasing the length and reduction the

cross section of the material. This process the material process through Ring and

Traveler and would on the bobbin to form a suitable package the giving optimum of the

twist depending on count of the yarn.

CONE WINDING: Here the yarn spun is cleaned by passing through cleaning

devise called slub catcher and would through suitable package of required length and

weight in the form of a Cone.

DOUBLING: Here two yarn of the same count are doubled by giving necessary

twist in the form of package called bobbins.

REELING: Here single yarn or doubled yarn are wound on the swifting of the

machine called Reel in the form of Hank and are make in the form of Knots. There are

two types, a Plain or Cross Reel.

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BUNDLING & BALING: Here the number of knots plain or cross is in a press

depending on the count and weight of the boundless are as per requirements. Bundles

are pressed in the form of Bale depending on the count, Plain or Cross as per the

requirement from the market.

PACKING: Here number of cones or cheeses is bagged depending on the count of

the yarn number of cones and weight of the cones. Depending on the requirement of the

market.

The mill has 32.39 lakh kg of cotton has consumed in 2007-08 and 27.86 lakh kgs

of yarn is produced and 69.81% of spindle has been utilized

PURCHASE DEPARMENT

The purchasing of cotton is made through the conducting business committee

meeting were as the purchasing of cotton is made on every weekly of 500 to 600 bales

were as every one bale consists of 165 kgs the mill purchases different variety of cotton

such as NH44, J34, MBCH, BHARAMA, 26MM, and 28MM

The purchase of cotton is made from local which is at open auction market by the

Gadag co-op cotton sale society, T.A.P.C.S.M of annigeri were as these local cotton is

graded by the A.P.M.C authority. The purchases are also made from CCI (cotton co-

operation of India, maharastra co-operative federation, shanthi textile Mumbai, baradia

cotton company Mumbai and B.M. kollar from gokak

The price for the local is more of Rs.100-150 than the market rates and were as the

department purchase right material, right quality, and right quantity of cotton for the

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mill and the mill collects the sample and makes the laboratory test and make sure of

quality which they requires and make business committee meeting and gives order of

purchasing and the payment of purchased material is made after 30 days of purchasing

to the suppliers

STORE DEPARTMENT

Objectives of the Stores Department :

1) Concentrating towards smooth running of the production process.

2) Facilitating all required equipments on time .

3) Reduction of Inventory equipments on time .

4) Working like a traffic signal to signalize to all equipments.

5) Proper maintenance of all equipments

The mills storage has divided in 2 sub department which one is of material store and

general stores and there are 11000 items are maintained in these department and the

mill has an 7500 metric ton of storage capacity and stock of 2000 metric ton of capacity

in godown. The store department’s construction costs of Rs 13.18 crores and the

department is using two ledgers one is material receipt ledger and material issued

ledger.

QUALITY CONTROL DEPARTMENT

FUNCTION OF THE QUALITY CONTROL DEPARTMENT :

Random lab weight checking

Within lap variation

Cleaning efficiency

Waste study speeds

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Wrapping checking

Naps study

Uniformity checking

Idle spindle

Top roller pressure checking

Rewinding study

Gauge and tension weight checking

Knot inspection

Knot weight checking

This is the department which checks out the quality of the cotton and the

produced yarn in the mill. The department which checks quality before purchasing of

cotton by taking sample from supplier. the G.C.T.M has its laboratory for testing of the

cotton and the lab has installed of 1.25 crore worth of machines which is of

computerized machines the quality control also helps in minimizing cost and improves

in working condition it also helps the G.C.T.M to know the cost of there product

The cotton testing is having some steps of testing of cotton the cotton testing is

made on H.V.I (high volume instrument) the testing of material is made out of one bale

half kg will be taken testing is made of its length, strength (grass per tex), informative

ratio, maturity ratio the mill is using 26mm type of cotton for coarser, 28mm for 30s,

34s, and 40s yarn, and 31mm for 60s and above.

In blow room lap weight checking its speed and settings cleaning efficiency and

next in carding department checking of the waste and C.V%(coefficient variation)

unevenness testing 120mtrs of sliver and variation of length is made by oster testing

monthly there will be wheel checking and next drawing is made and in drawing

wrapping checking is made it is of weight checking and study of breakage and setting of

an weight is by automation and next in simplex department spindles are checks hanks

are also checks and its stretching percentage is tested and in spinning department

checking of single yarn strength and double yarn strength and checks yarn fast per kms

and next is of winding which in winding it is made of rewinding of auto counts and

BABASAB PATIL 26


makes cone weight checking and next is reeling were as knot has been tested which is

of starting end to finishing end has been checked and next is doubling in this checking

for the covering of doubling and lastly baling and packing which checks the bale

weight, packet weight, bundle weight and tare weight checking is made

MARKETING DEPARTMENT

The marketing department has kept an long relationship with its customers from

purchasers and suppliers. The mill manufacture hank yarn and cone yarn as per the

market demands the sale of hank yarn and cone yarn is of 40:60 the daily production of

yarn is about 7500 kgs

Were mill works 24 hours for all seven days a weak

The selling of yarn is given to the weavers co-operative apex organization and

Karnataka handloom development corporation the mill gets order by phones by there

own sales depot and by local agents. The marketing department fixes the price of yarn

before fixing of price the department look after the total cost of production and market

demand and checking competitors price rate and quality and customers ability of

purchasing

The mill has direct and indirect channels of distribution were as in the direct channel

is from direct mill to the traders and indirect channel it is from mill to the agents and

then to the customers

ADMINISTRATIVE DEPARTMENT

The administrative department is the department which looks after the payment

of salaries, income tax purchasing and the department which maintains the files and

BABASAB PATIL 27


records etc. up to the date and collecting and presenting data of record and the

department which maintains office and provides the necessary required facilities

The administration department which decides on giving yearly bonus and to

provide the finance to all department and the department which conducts the meeting,

implementing the polices, controlling of different department and finally it is a

department which controls over all the activity of the mill.

MAINTENANCE DEPARTMENT

It is the department which has an relationship with the production

department. This department helps in maintaining of plant and machinery which to

work properly. If there is of any cause in machines the technicians are there to look

after and make repairs and maintain and look over all machines daily the department

keeps the stock of important spare parts of machine and it maintains.

The department which looks over the blow rooms its new lines, pre opener,

mbo, mono-cylinder, unimix, ERM, VXL, in blow room these all machines will make

cleaning for every 10 days and while cleaning if there is any repair then it that part will

make repair if it is need of replacement it will be replaced. In carding room half setting

is done for once in 15 days and full setting is done once in 3 months and larrikin wire

changing has been done for every 9 months

In the simplex department the general cleaning will be done for every 15 days

and in spinning department there is also general cleaning will be done for every 10 days

and spindle oil changing for every 6 months and spindle gauge also for 6 months and in

winding general cleaning has been done once in a week and spindle servicing is done

once in 30 days and in reeling oiling will been made once in a month and in packaging

cleaning once in a month will be done like these the maintenance department will

maintain the all department of the G.C.T.M.

BABASAB PATIL 28


SWOT ANALYSIS

STRENGTHS

1) Good reputation in the market

2) Good network of dealers

3) Well connected with roads

4) Well established in infrastructure facilities

5) 45% share capital given by the government

6) New specialized types of machines

7) Good support from the farmers as well as from the society

8) Financially strong

WEAKNESSES

1) No nation wide brands

2) Less sales promotion activities

3) Large work force

4) Partly automated

5) Lack of R&D

6) Low labour productivity

7) Not concentrating towards competition

BABASAB PATIL 29


OPPORTUNITIES

1) Land is available for expansion

2) Company can tie with other reputed company

3) Existence of a large market

4) Possibility of 100% automations

5) Market expansion

6) They are shortly getting the ISO 9001

THREATS

1) Decreasing in agricultural production

2) Globalization and liberalization

3) Cut through the competition

4) Taste and fashion of customers turning towards the ready

Made Garments

5) Negligence of Government as well as less guidance and low

BABASAB PATIL 30


Support from the Government

WORKING CAPITAL

MEANING AND DEFINITION OF WORKING CAPITAL

Working capital is the amount of funds which a company has to finance its day to

day operations it can be regards as the part of capitals which the capitals is basically

classified into fixed and working.

Fixed capital is normally invested in fixed assets and working capital in current

assets. It is used in day to day operations. These are the funds that are invested in

current assets. The form of these current assets keeps on changing. Ex: Raw material to

work in progress to finished product. , so it is also called circulating capital.

A study of working capital is of major part of the external and internal analysis

because of its close relationship with the current day to day operation of the business.

Working capital consists of broadly for that the assets of a business that are used at

related current operation and is represented by raw material, stores, work in progress,

and finished goods merchandise, bills receivable.

BABASAB PATIL 31


Definition of working capital

Gerstenberg

“working capital means current assets of company that are changed in the

ordinary course of business from one form to another, ex: from cash to inventories,

inventories to receivables, receivables into cash”

Shubin

“ Working capital is the amount of funds necessary to the cost of operating the

enterprise. Operating expenses involve investment in current assets, payment towards

overhead and expenses. Investment made in these heads is classified as working

capital”.

J. smith

“ The sum of the current assets is the working capital of the business”

’’WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITY”

BABASAB PATIL 32


CONCEPT OF WORKING CAPITAL

There are two concepts of working capital that are:

1) Balance sheet concept

2) Operating cycle concept.

1) Balance sheet concept:

Working capital as per this defined in terms of current assets and current liabilities.

Balance sheet concept further classifies working capital into a) gross and b) net working

capital.

a) Gross working capital: it refers to total investment made in current assets. It is also

called circulating rotating from one head to another. Ex. Cash to raw material, raw

material to finished products, finished products to debtors, and debtors to cash. This

concept stresses on quantity aspect; i.e. to refer to total investment made in different

current assets. Bonneville and beway have defined gross working capital as ’’ any

fund received which increases the current assets”.

b) Net Working capital: as per this concept working capital is the difference between

current assets and current liabilities. This concept stresses on quality aspect of

working capital. The difference between current assets highlights on liquidity aspect

and quality of current assets. A firm that has excess of current assets over liabilities is

said to possess adequate liquidity. On the contrary firm that has excess of current

liability over current assets means it does not have adequate liquidity. It means that

part of current assets of such firm are financed through fixed assets.

BABASAB PATIL 33


2) Operating cycle concept:

Operating Cycle or Working Capital Cycle indicates the length of time between

affirms paying for raw materials entering into finished stock and receiving cash on the

sales of such Finished Stock.

This operating cycle differs from firm to firm. Longer the operating cycle greater

will be the amount of Working Capital required and vice versa. Thus it plays an

important role in determining the Working Capital needs of a firm.

OPERATING CYCLE CHART

BABASAB PATIL

Cash Raw Materials

Work In Process

Finished goodSales

Debtors

34


Operating Cycle is the time duration required to convert sales, after the

conversion of resources into inventories, into cash. The operating cycle of a G.C.T.M

involves three phases.

1. Acquisition of resources such as raw material, labour, power and

fuel etc.

2. Manufacture of the product which includes conversion of raw

material into work-In- progress into finished goods.

3.Sales of the product either for cash or on credit. Credit sales creates

book Debts for collection.

In the THE GADAG CO-OPERATIVE TEXTILE MILL LTD (manufacturing

concern), the working capital operating cycle starts with the purchase of raw materials

and ends with the realization of cash from the sale of finished products. It is also

called as cash conversion cycle, production cycle etc. It involves the purchase of raw

materials and stores, its into stocks of finished goods through the work-in-Progress

with the progressive increment of labor and service costs, conversion of finished

goods (Yarn Products) into sales, Debtors and receivables and ultimately realization

of cash and this cycle continuous again from cash to purchases of raw material and so

on.

BABASAB PATIL 35


CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified on the basis of concept and on the basis of time.

Various types of working capital are as follows

1) On the basis of concept :

Working capital on this basis of concept is classified into

A) Gross working capital: It refers to total investment made in current asset.

Current assets are the asset which can be converted into cash within a short period

of an accounting year. Current assets include cash, debtors, bills receivables and

short term securities etc.

B) Net working capital: It is the difference between current assets and current

liabilities. Current liabilities are those claims of outsiders which are expected to

mature for payment within an accounting year and include creditors, bills payable

and outstanding expenses. Net working capital can be positive or negative.

BABASAB PATIL

KINDS OF WORKING CAPITAL

1. ON THE BASIS OF CONCEPT

2. ON THE BASIS OF

TIME

GROSS WORKING CAPITAL

NET WORKING CAPITAL

PERMANENT OR FIXED

TEMPORARY OR

VARIABLE

REGULAR RESERVE SEASONAL SPECIAL

36


Positive net working capital will arise when current asset exceeds current

liabilities. A negative net working capital occurs when current liabilities are in

excess of current assets.

2) On the basis of time :

Classification of working capital in this case is made on the basis

of time for which investment is required. Kinds of working capital in

this category are:

1) Permanent : Some portion of working capital always remain permanent or fixed.

This refers to minimum investment a firm has to make and keep in certain current

assets. Firm has to always maintain minimum cash balance, inventory, debtors etc.

as there current assets are required permanently. They are normally financed

through long term capital.

Such permanent working capital is further classified into

a) regular and b) reserve

a) Regular: regular permanent working capital is used in

routine business operations.

b) Reserve: reserve working capital refers to some portion of working capital that is

kept as reserve to meet any contingency.

2) Temporary working capital: required of such capital varies or fluctuates depending on

season. Its requirement is not continous it is normally finance through short term

sources, like overdraft, cash credit and other short term liabilities.

Temporary working capital is further classified into:

A) Seasonal working capital: requirement of working capital is based on

particular seasons

ex; winter, summer or festival seasons etc during these seasons there will be

additional demand for the products. To meet out such demand firm has to make

additional arrangement of working capital.

BABASAB PATIL 37


B) Special working capital: requirement of such working capital is necessitated to meet

demands of special occasion’s ex. Occasion of world cup cricket, Olympics, kumba

mela, elections. During these special occasions demand for goods and service will

increase. To meet such special demand firm has to make temporary arrangement of

working capital

DETERMINANTS OF WORKING CAPITAL

Requirement of working capital differs from one firm to other. This is because of

business conditions and policies of conducting business differ. Working capital required by

each from is determined by following factors.

1) Nature of business: important factor that determines requirement of working capital is

nature of business a firm is undertaking. Firm that are engaged in production and marketing

need more working capital compared to the firm that are in trading or service oriented

business. This is because manufacturing units need more current assets compared to service

oriented units.

2) Size of business: Size of the business obviously determines the requirement of the

working capital bigger the size more is the requirement of the working capital. Larger the

scale of operations, larger the investment required in current assets.

3) Operating cycle: Operating cycle means period from which investment is locked

up in different operations. Longer the period of inventory holding, work in progress, finished

goods etc more is the investment needed in the operations. This necessities more investment

in current assets.

4) Stock turn over: stock turnover refers to number of times stock is turned over that

is it refers to sales. Quicker the stock turn over (quick sales) less is the working capital. Slow

pace of stock turnover demands more investment is locked up in operation.

5) Credit policy: Credit policy of the firm will influence requirements of working

capital. Firms that offer liberal credit to the debtor have make more investment in production

operations. Such firms need more working capital to keep their production operation

continuous. Requirement of working capital will be much more if the firm buys on cash and

sells on credit. On the contrary firms that buy on credit and sell on cash basis need less

working capital.

6) Production policy: Firms that undertakes all production operations within the

organization need more working capital. Such firms have to make investment to manufacture

BABASAB PATIL 38


every component or part. On the contrary, firms which undertake outsourcing that is buying

some of the components or parts from out side agencies need less working capital.

7) Growth of business: Firms that are experiencing growth need more working

capital. Such firms have to constantly increase their production levels. To meet rising needs

of sales targets. They need to continuously increase investment in current assets.

8) Earning capacity and its appropriation: firms that earn sufficient profits and invest

a portion of profit in business needs less working capital. Ploughing back of profits and

accumulated reserves will minimize dependency on external capital for working capital

needs. On the contrary firms that follow liberal divided policy are firms that do not have

adequate surplus need to borrow more to meet regular working capital needs.

Needs of Working Capital:

The need for working capital to run the day-to-day business activities cannot

be overemphasized. We will hardly find a business firm which does not required any

amount of working capital. Indeed, firms differ in their requirements of the working

capital.

The firm’s aim is that maximizing the wealth of shareholders. Earning a steady amount of profit requires successful sales activity. The firm has to invest enough funds in current assets for generating of sales activity. Current assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash. Therefore Working Capital required for:

1) To meet the cost of inventories including total of raw materials purchased parts,

operating

Supplies, work in progress, finished goods.

2) To pay wages, salaries, for indirect labor, clerical staff, managerial and

supervision staff.

3) To meet overhead costs, including those of maintenance services activities, fuel,

power charges, taxes and general expense administration.

4) To bear the expansion (with regard to promotion of sales) e.g. expenses on

packing, advertisement, salesmanship, Sales Servicing, After requires, Credit

Facilities, Delivery Services, etc.

BABASAB PATIL 39


IMPORTANCE OF WORKING CAPITAL

Even though the skills for maintaining the working capital are somewhat

unique, the goals are the same-viz. to make an efficient use of funds for minimizing

the risk of loss to attain profit objectives.

Firstly, the adequate of working capital contributes a lot in raising the credit-standing

of a corporation in terms of favorable rates of interest on bank loan, better terms on

goods purchased, reduced cost of production on account of the receipt of cash

discounts, etc.

Secondly, a company with sufficient working capital is always in a position to take

the advantage of any favorable opportunity either to purchase raw materials or to

execute a special order or to wait for better market position.

In the third place, the ability to meet all reasonable demands for cash without

inordinate delay is a great psychological factor to improve the all rounds efficiency of

the business.

Lastly, during slump the demand for working capital, instead of coming down, shoots

up. A good amount of working capital is locked up in the inventories and book debts.

Concerns having ample resources can tide over that period of depression.

Thus, working capital is regarded as one of the conditioning factors in the long run

operations of the firm, which is often inclined to treat it as an issue of short run

analysis and decision making.

Components of Working Capital:

There are two components of Working Capital

A. Current Assets

BABASAB PATIL 40


B. Current Liabilities

A) Current Assets:

Components of Current Assets are as follows:

1. Cash & Bank Balance

2. Stock of Raw Material at cost- work in process and Finished

Goods.

3. Advanced Recoverable in Cash or kind or kind or for value to

be received.

4. Deposits under the company scheme.

5. Advanced payment of income takes credit certificates..

6. Outstanding debts for a period exceeding six months.

7. Balance with central excise authorities.

B) Current Liabilities:

Components of Current Liabilities are as follows:

1. Sundry Creditors for the goods and expenses.

2. Income tax deducted at sources from contractors.

3. Expenses Payable.

4. Unclaimed Dividend.

5. Security Deposits.

6. Liabilities for bills discounted.

7. Bank Overdraft Acceptance.

Working Capital Management concerned with the following aspects:

1. Cash Management:

Cash is the important current asset for the operation of the business. cash is

the basic input needed to keep the business running on a continuous basis; it is also

the ultimate output expected to be realized by selling the service or product

manufactured by the firm. The firm should keep sufficient cash, neither more nor less.

BABASAB PATIL 41


Cash is the liquid form of an asset. It is the ready money available in the

firm or with the business, essential for its operations. A firm needs the cash for the

following three purposes:

(a) The Transaction Motive:

(b) The Precautionary Motive:

(c) The Speculative Motive:

2. Receivables Management:

Receivable represents amounts owed to the firm as a result of sale of

goods or services on the ordinary course of business. These are claims of the

firm against its customers and form part of its current assets. These receivables

are carried for the customers. The period of credit and extent of receivables

depends upon the credit policy followed by the firm. The main purpose of

maintaining or investing in receivables is to meet competitors, to increase sales,

and to maintain a cordial relationship with the clients.

3. Inventory management:

Every enterprise needs inventory for smooth running of its activities. It

serves as a link between production and distribution process. There is, generally a

time lag between the recognition of a need and its fulfillment. The greater the time

lag, the higher the requirements for inventory. The unforeseen fluctuations in

demand and supply of goods necessitate the need for inventory. Moreover, it

provides a cushion for future price fluctuations.

ANALYSIS AND INTERPRETATION

Statement of changes in working capital

Particulars As @

31/3/05

As @

31/3/06

Effect

of wc

Increase

decrease

BABASAB PATIL 42


A. Current assets

Cash on hand

Cash at bank

F.D with bank

Deposits

Sundry debtors

Pre university college

Loan to FCSM

Advances

Other receivables

Closing stock

Total current assets

B. Current liabilities

Current liabilities

Bonus provision payable

Other payables

Total current liability

Net working capital(A-B)

Increase or decrease in

working capital

Total working capital

15143

5027449

16051822

4628150

35371142

255296

8500000

1616172

633633

52948390

125047200

40050746

1254248

2090328

43395322

81651878

81651878

41550

4634497

246822

4630150

51579031

255296

8500000

4062468

631633

53043163

127624611

49098335 1280042

2713579

53091956

74532655

7119223

81651878

26407

2000 16207888

2446296

94773

18777364

7119223

25896588

392952

15805000

2000

9047589 25794

623252

25896587

25896558

INTERPRETATION

The statement shows that the changes in working capital in the year 2004-05 and

2005-06. It shows how the current assets and current liabilities are changes in two

years the different between current asset and current liabilities i.e. net working capital

of two years 2004-05 and 2005-06 is Rs 81651878 and Rs 74532655 respectively it

BABASAB PATIL 43


shows the working capital decreases of Rs 7119223 in 2005-06 which compare to

2004-05. Here due to decrease the firm is not satisfactory with its working capital

In current assets

1. cash in hand increases of Rs 26407

2. cash at bank is decreasing of Rs 392953

3. F.D with banks is also decreased Rs 15805000

4. deposits has increased of Rs 2000

5. sundry debtors has increased of Rs 16207888

6. advances has increased to Rs 2446296

7. other receivables has decreases of Rs 2000

8. closing stock has increased to Rs 94773

In current liabilities

1. bonus provision is increasing of Rs 25794

2. other payables is increasing of Rs 623252

3. other liabilities are increased to Rs 9047589


Particulars As @

31/3/06

As @

31/3/07

Effect

of wc

Increase

Decrease

BABASAB PATIL 44


A. Current assets

Cash on hand

Cash at bank

F.D with bank

Deposits

Sundry debtors


Loan to FCSM ltd

Advances

Other receivables

Closing stock



Current liabilities


Other payables


Net working capital(A-B)


working capital


41550

4634497

246822

4630150

51579031

255296

8500000

4062468

631633

53043163

127624611

49098335 1280042

2713579

53091956 74532655

10082999

84615654

20530 18446450

265078

4630150 47320434

255297 8500000

5151421 500000

62356456

147445816

58462247 1395879

2972036

62830162 84615654

84615654

13811952

18256

1088953

9313293

24232454

24232454

21020

4258597

131633

9363912115837

258457

14149456

10082999

24232454

INTERPRETATION

This statement shows that the changes in working capital in the year 2005-06

and 2006-07. it shows the current assets and current liabilities i.e net working capital

of two years is 2005-06 and 2006-07 is rs 74532655 and rs 84615654 respectively. It

BABASAB PATIL 45


shows the working capital increases Rs 10082999 in the year 2006-07 compare to

2005-06 by increasing the firm is satisfactory with its working capital.

In current assets

1. cash in hand has decreased by Rs 21020

2. cash at bank is increased to Rs 13811952

3. F.D with bank is increasing of Rs 18256

4. there is no increase or decrease in deposits

5. sundry debtors is decreased to Rs 4258597

6. advances paying increased to Rs 1088953

7. other receivables has decreased to r 131633

8. closing stock is increased to Rs 9313293

In current liabilities

1. bonus provision is increased of Rs 115837

2. other payable is also increased of Rs 258457

3. other liabilities is increased to Rs 9363912


Particulars As @

31/3/07

As @

31/3/08

Effect

of wc

Increase

decrease

A. Current assets

Cash on hand 20530 40460 199302217724

BABASAB PATIL 46


Cash at bank

Fd with bank

Deposits

Sundry debtors


Loan to fcsm ltd hulkoti

Advances

Other receivables

Closing stock

Recvd from NCDC



Current liabilities


Other payables

NCDC payable


Net current assets(A-B)


working capital


18446450

265078

4630150 47320434

255297 8500000

5151421 500000

62356456- --------------------------

147445816

58462247 1395879

2972036

62830162 84615654

6991114

91606768

16228726

275078

4431466 51709943

255297 8500000

5687379 535374

58071755 1319412

147054890

49593596 1564000

2971114 1319412 55448122 91606768

91606768

10000

4389509

535958 35374

1319412

8868651

922

15179756

15179756

198684

4284700

168121

1319412

8188641

6991114

15179756

INTERPRETATION

The statement shows that the changes in working capital in the year 2006-07

and 2007-08 it shows how the current assets and current liabilities are changes in the

two years the difference between current assets and current liabilities i.e. net working

capital of the two years is 2006-07 and 2007-08 is Rs 84615654 and 91606768

respectively. It shows the working capital increases of Rs 6991114 in the year 2007-

BABASAB PATIL 47


08 compare to 2006-07 by the increase in the net working capital firm is satisfactory

with its working capital

In current asset

1. cash in hand increased of Rs 19930

2. cash at bank increased of Rs 2217724

3. F.D. with bank has increased of Rs 10000

4. deposits has decreased to Rs 198684

5. sundry debtors has increased to Rs 4389509

6. advances paying is increased to Rs 535958

7. other receivables also increases of Rs 35374

8. closing stock has decreased of Rs 4284700

9. there is a receivables from NCDC of Rs 1319412

In current liability

1. bonus provision has increased of Rs 168121

2. other payable has decreased of Rs 922

3. payable of received of NCDC of Rs 131912

4. other liabilities has decreased to Rs 8868651


Particulars As @

31/3/08

As @

31/3/09

Effect

of wc

Increase

decrease

A. Current assets

Cash on hand

Cash at bank

40460 16228726

275078

277094 19346310

311758413366

BABASAB PATIL 48


Fd with bank

Deposits

Sundry debtors


Loan to fcsm ltd hulkoti

Advances

Other receivables

Closing stock

Recvd from NCDC



Current liabilities


Other payables

NCDC payable


Net working capital (A-B)


working capital


4431466

51709943

255297 8500000

5687379 535374 58071755 1319412

147054890

49593596 1564000

2971114

1319412 55448122

91606768

91606768

275078 4052950

51003132

255297 8500000

48584281021508

46289123-----------

135628920

524862261227535

4744789

58458550

77170370

14436398

91606768

486134

336465

1319412

5259595

14436398

19695992

378516

706810

828951

117826321319412

2892630

1773675

19695992

19695992

INTERPRETATION

The statement shows that the changes in working capital in the year 2007-08 and 2008-09 it shows how the current assets and current liabilities are changes in the two years the difference between current assets and current liabilities i.e. net working capital of the two years 2007-08 and 2008-09 is Rs 91606768 and Rs 77170370 respectively it shows the decreasing of Rs 14436398 in 2008-09 which compare to 2007-08 by decreasing in net working capital the firm is not satisfactory with its working capital

In current assets 1. cash in hand has decreased of Rs 133662. cash at bank is increased of Rs 3117584

BABASAB PATIL 49


3. F.D with bank has no changes 4. deposits has been decreased of Rs 378516 5. sundry debtors has decreased to Rs 7068106. advances is decreased of rs8289517. other receivables has increased of Rs 4861348. closing stock is decreased to Rs 117826329. received from NCDC of Rs 1319412 is decreased

In current liability1. bonus provision is decreased to Rs 3364652. other payables is increases of Rs 17736753. NCDC payables in decreased of Rs 13194124. other liabilities has increased of Rs 2892630

CALCULATION OF OPERATING CYCLE OF THE G.C.T.M. LTD

Investment in working capital is influenced by four key events in the production and sales cycle of the G.C.T.M

Purchases of raw materials Payment of raw materials Sale of finished goods Collection of cash for sale

The firm begins with the purchase of raw material which are paid for after a delay which represent the account payable period. The firm converts the raw material into finished goods and then sells the same. The time lag between the purchase of raw

BABASAB PATIL 50


materials and sale of finished goods is the inventory period customers pay there bills some time after the sales. The period that elapses between the date of sales and date of collection of receivable is the accounts payable period. The time that elapses between the purchase of raw materials and the collection of cash for sales is referred to as the operating cycle. Where as the time length between the payment for raw material purchases and the collection of cash for sales is referred to as the cash cycle. The operating cycle is the sum of the inventory period and the accounts receivable period, whereas the cash cycle is equal to the operating cycle less the accounts payable period. From the financial statement of the firm we can estimate the inventory period, the accounts receivable period and accounts payable period.

Inventory period = average inventory Annual cost of goods sold/365

Average receivable period = average accounts receivable Annual sales

Accounts payable period = average accounts payable Annual cost of goods sold/365

Financial information of THE G.C.T.M. Ltd 2005-2006

Particulars P&l a/c data Particular Beginning EndingSales Cost of goods sold

231390442206149519

InventoryA/c receivable A/c payable

46919052 633633 1254248

46274537 631633 1280042

Sales = sales + yarn sales + other sales 228943400 + 700864 + 1746178

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= 231390442

Cost of production 210628618Add opening stock of finished goods 20107336 230735954Less closing stock of finished goods 24586435 Cost of goods sold 206149519

Inventory period = average inventory Annual cost of goods sold/365 = 46596794 206149519/365

= 46596794 564793 = 82.50


= 632633 231390442/365

= 632633 633946

= 0.99

Accounts payable period = average accounts payable

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Annual cost of goods sold/365

= 1267145 206149519/365

= 1267145 56479320 = 2.24

Operating cycle = inventory period + accounts receivable period = 82.50 + 0.99

= 83.49

Cash cycle = operating cycle – accounts payable period = 83.49 – 2.24 = 83.49



254655866 215192439


46274537 631633 1280042

50785141 500000 2972036

Sales = sales + yarn sales + other sales 3484623 + 250490529 + 680714

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= 254655866


Inventory period = average inventory Annual cost of goods sold/365 = 48529839 21519439/365

= 48529839 589568 = 82.31


= 565816 254655866/365

= 565816 697687

= 0.81


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= 2126039 215192439/365

= 2126039 589568 = 3.60

Operating cycle = inventory period + accounts receivable period = 82.31 + .81

= 83.12




274253348 244014252


55889767 500000 2972036

50785141 1854786 4290526

Sales = sales + yarn sales + other sales 262156033 + 1131833 + 10965481 = 274253348

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Inventory period = average inventory Annual cost of goods sold/365 = 106674908/2 244014252/365

= 53337454 668532 = 79.78


= 2354786/2 274253348/365

= 1177393 751379

= 1.56


= 7262562/2 244014252/365

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= 3631281 668532 = 5.43


= 81.34




256739185 231802183


50785141 1854786 4290526

39186088 1021508 5972323

Sales = sales + yarn sales + other sales 13609228 + 242486231 + 643726 = 256739185

Cost of production 233038800Add opening stock of finished goods 22012721 255051521Less closing stock of finished goods 23249338

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Cost of goods sold 231802183

Inventory period = average inventory Annual cost of goods sold/365 = 89971229/2 231802183/365

= 44985614 635074 = 70.83


= 2876294/2 256739185/365

= 1438147 703395

= 2.04


= 10262849/2 231802183/365

= 5131424 635074 = 8.08

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= 72.87


Years Inventory period

Account receivable period

Account payable period

Operating cycle

Cash cycle

2005-06 82.50 0.99 2.24 83.49 81.252006-07 82.31 0.81 3.60 83.12 79.522007-08 79.78 1.56 5.43 81.34 75.912008-09 70.83 2.04 8.08 72.87 64.79

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operating cycle

6668707274767880828486

2005-06 2006-07 2007-08 2008-09

years

day

s

Series1

INTERPRETATION :

Here the firm’s operating cycle has continuously decreased from 83 days during 2005-06 to 73 days during 2008-09. The operating cycle of the firm is satisfactory because it has come down by 10 days. The firm’s cash cycle is also satisfactory as it has decreased from 82 days to 65 days during 2005-06 to 2008-09. However it is also observed that the debtor’s collection period has increased from 0.99 days to 2.08 days during the same time period.

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RATIO ANALYSIS

INTRODUCTION

The ratio analysis is one of the most important and powerful tools of financial

analysis. It is the process of establishing and interpreting various ratios. It is with

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the help of ratios that the ratios that the financial statement can be analyzed more

clearly and decisions made from such analysis.

CONCEPT OF RATIO

A ratio is a simple arithmetical expression of the relationship of one number to

another. It may be defined as the indicated quotient of two mathematical

expressions. According to Accountant’s handbook by Wixonkell and Bedford, a

ratio “is an expression of the quantitative relationship between two numbers”.

RATIO ANALYSIS

Ratio analysis is the technique of calculation of number of accounting ratios from

the data found in the financial statements, the comparison of the accounting ratios

with those of the previous years or with those of other concerns engaged in similar

line of activities or with those of standard ratios and the interpretation of the

comparison.

CURRENT RATIO The current ratio of a unit measures firm’s short-term solvency, that is, its

ability to meet short-term obligations. It is the ratio of total current assets to total

current liabilities.

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The current ratio measures the ability of the firm to meet its current liabilities-

current assets get converted into cash in the operating cycle of the firm and provide

the funds needed to pay current liabilities.

It is calculated by dividing total current assets by total current liabilities:

CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITES

Sl.no Years Current assets

Current liability

Current ratio

1 2004-05 125047200 43395322 2.88

2 2005-06 127624611 53091956 2.40

3 2006-07 147445816 62830162 2.34

4 2007-08 147054890 55448122 2.65

5 2008-09 135628920 58458550 2.32

current ratio

0

0.5

1

1.5

2

2.5

3

3.5

2004-05

2005-06

2006-07

2007-08

2008-09

years

rati

o

Series1

INTERPRETATION: The standard for current ratio is 2:1 but the firm’s current ratios are more than the standard the highest ratio is 2.88 in the year 2004-05 and the lowest ratio is 2.31 in the year 2008-09. And also it found that there is an excess amount in current assets its

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shows that the firm is not utilizing the funds from current assets properly the firm need to concentrate on its excess amount.

QUICK RATIO

This ratio is also termed as Acid-test ratio. A Quick ratio is concerned

with, the relationship between quick assets and current liabilities.

It is a measure of liquidity calculated dividing current assets minus inventory and

prepaid expenses by current liabilities.

The Quick Ratio is the ratio between quick current assets and current liabilities.

It is calculated by dividing the Quick Current Assets by the Current Liabilities.

QUICK RATIO = QUICK ASSETS/QUICK LIABILITES

Quick asset = current assets –inventory, prepaid expensesQuick liability = current liability – bank overdraft

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Sl.no Years Quick assets Quick liability

Quick ratio

1 2004-05 72098810 30847985 2.33

2 2005-06 74581448 53091956 1.40

3 2006-07 85089360 62830162 1.35

4 2007-08 88983135 55448122 1.60

5 2008-09 89339797 58458550 1.52

quick ratio

0

0.5

1

1.5

2

2.5

2004-05

2005-06

2006-07

2007-08

2008-09

years

rati

o

Series1

INTERPRETATION: The standard ratio for quick ratio is 1:1 but the firms quick ratio are more than the standard the highest quick ratio is 2.33 and lowest quick ratio is 1.35 so it found that there is quick ratio is more than the standard by having more the ratio it shows that th. So the has to concentrate for collection of funds.

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INVENTORY TURNOVER RATIO

Inventory turnover ratio is the ratio, which indicates the number of times

the stock is turned over i.e., sold during the year. In other words, it is the ratio

between the cost of goods sold and closing stock. This ratio can be calculated as

follows.

INVENTORY TURNOVER = COST OF GOODS SOLD AVERAGE INVENTORY

Sl.no years Cost of goods sold

Average Inventory

Ratio

1 2004-05 256843587 46438421 5..53

2 2005-06 206149519 46596794 4.42

3 2006-07 215192439 51082152 4.21

4 2007-08 244014252 53337454 4.57

5 2008-09 231802183 44985614 5.15

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INTERPRETATION:

The inventory turnover ratio shows how the inventory is turning into receivables through sales. Here in the firm highest inventory turnover is 5.53 in 2004-05. it indicates that there was a good inventory management in 2004-05 whereas in the year 2006-07 there is low inventory turnover which implies that in 2006-07 there was excessive inventory levels than warranted by production and sales activity. In the year 2008-09, the inventory turnover is 5.15.

GROSS PROFIT RATIO.

The gross profit ratio reflects the efficiency with which management produces each unit of product. This ratio indictes the average spread between the cost of goods sold and the sales revenue

GROSS PROFIT RATIO = GROSS PROFIT /SALES

Sl.no years GROSS PROFIT

SALES RATIO

1 2004-05 2536378 269932512 0.93

2 2005-06 15767888 231390442 6.81

3 2006-07 27291869 254655866 10.71

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4 2007-08 10816537 274253348 3.94

5 2008-09 4049865 256739185 1.57

RATIO

0

2

4

6

8

10

12

2004-05

2005-06

2006-07

2007-08

2008-09

YEARS

RA

TIO

S

RATIO

INTERPRETATION: . The gross profit ratio is not satisfactory because this ratio is not stable it is fluctuating widely by year by year from the year 2004-05 to 2008-09. the highest ratio is 10.71 and the lowest ratio is 0.93 here the firm has higher the sales in 2006-07 so the ratio is high and due to lower the sales or higher the cost of good so in the year 2004-05 it is low.

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WORKING CAPITAL TURNOVER RATIO

The ratio, which expresses the relationship between the working capital and

sales, is called as Working capital turnover ratio. It is calculated as follows

NET CURRENT ASSETS TURNOVER = SALES/ NET CURRENT ASSETS

Sl.no Years Sales Net current assets

Net current asset ratio

1 2004-05 269932512 81651878 3.30

2 2005-06 231390442 74532655 3.10

3 2006-07 254655866 84615654 3.00

4 2007-08 274253348 91606768 2.99

5 2008-09 256739185 77170370 3.32

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Net current asset ratio

2.8

2.9

3

3.1

3.2

3.3

3.4

2004-05

2005-06

2006-07

2007-08

2008-09

years

rati

o Net current assetratio

INTERPRETATION:

A working capital turnover ratio indicates that of high working capital turnover and low net working capital here in the firm there is an continuous decrease for 4 years but in last year it has been increased in working capital turnover ratio. The firm is satisfactory with its last year turnover ratio. The firm has to maintain in increasing the working capital turnover ratio.

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FINDINGS AND SUGGESTION

1. The current ratio of the firm is not satisfactory because the firm is not utilizing available recourses properly. The highest ratio is 2.88 recorded in the year 2004-05 and the lowest ratio is 2.31 recorded in the year 2008-09. So the current ratio is not satisfactory. The firm needs to concentrate on current assets. By utilizing the available resources properly the firm may improve the current ratio.

2. The quick ratio of firm is not satisfactory because in the firm’s quick assets there excess amount than requirement it shows that the company is not utilizing available resources properly. The highest quick ratio is 2.33 recorded in the year 2004-05 and the lowest ratio 1.35 recorded in the year 2006-07. The company needs to concentrate on quick assets. By utilizing quick assets properly the firm may improve this ratio.

3. the inventory turnover ratio is satisfactory because from the year 2004-05 it is go on decreasing but in the year 2008-09 it increased to 5.15 from 4.57 in the year 2007-08 so this ratio is satisfactory. The highest ratio 5.53 recorded in the year 2004-05 and lowest is 4.21 recorded in the year 2006-07.

4. .The gross profit ratio is not satisfactory because this ratio is not stable it is fluctuating widely by year by year from the year 2004-05 to 2008-09. the highest ratio is 10.71 and the lowest ratio is 0.93 here the firm has higher the sales in 2006-07 so the ratio is high and due to lower the sales or higher the cost of good so in the year 2004-05 it is low.

5. A working capital turnover ratio indicates that of high working capital turnover and low net working capital here in the firm there is an continuous decrease for 4 years but in last year it has been increased in working capital turnover ratio. The firm is satisfactory with its last year turnover ratio. The firm has to maintain in increasing the working capital turnover ratio.

6. Here the firm’s operating cycle has continuously decreased The

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operating cycle of the firm is satisfactory because it has come down by 10 days. The firm’s cash cycle is also satisfactory as it has decreased from 82 days to 65 days during 2005-06 to 2008-09. However it is also observed that the debtor’s collection period has increased from 0.99 days to 2.08 days during the same time period

7. The changes in working capital of 2004-05 and 2005-06 is 81651878 and 74532655 respectively it shows working capital decreased to 7119223 in 2005-06 which compare to 2004-05 here the decreasing the net working capital firm may not satisfactory with its working capital.

8. the changes in working capital of 2005-06 and 2006-07 is 74532655 and 84615654 respectively it shows the working capital increased of 10082999 in the year 2006-07 compare to 2005-06. By increasing net working capital the firm may satisfactory with its working capital.

9. the changes in working capital of 2006-07 and 2007-08 is 84615654 and 91606768 respectively it shows the working capital increased of 6991114 in the year 2007-08 compare to 2006-07. By increasing in net working capital the firm may satisfactory with its working capital.

10. the changes in working capital of 2007-08 and 2008-09 is 91606768 and 77170370 respectively it shows the working capital decreased of 14436398 in the year 2008-09 compare to 2007-08. By decreasing net working capital the firm is satisfactory with its working capital.

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SUGGESTIONS

1. To improve the current ratio and quick ratio the company need to concentrate on current assets by utilysing available resources in the current assets the company may improve its current ratio and quick ratio

2. The gross profit ratio is not satisfactory because there is more fluctuating in the ratios so company need to concentrate in its profits

3. during the year 2005 and 2006 the companies working capital is decreased due to less current assets and more liability so it has to make proper use of its current assets and to make improve.

4. during the year 2008 and 2009 the companies working capital again decreased so the firm has to has to concentrate on its current assets to maintain the business transaction .

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CONCLUTION:

This study helps to know that the companies financial position. The

sale of the company is decline in the year 2009. There is an increases cost in

some years so it is needs to reduce its costs.

As the study helps to know that the changes in financial statements

i.e. increase or decrease in the liabilities and assets. By the ratio analysis we

come to know that the companies solvency. The company have to take some

measures to control the costs. By working capital we comes to know its

working capital management

This study helps us to know that the companies financial position is

not appreciable because there is loss in the present year due to high expenses.

so it has to control the costs.

By the analysis of financial statements I conclude that, overall

financial performance of the company is not satisfactory. The company can try

to take a some measures to increase profit i.e. proper utilization of available

resources.

BIBLIOGRAPHY

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BOOKS : FINANCIAL MANAGEMENT : KHAN AND JAIN FINANCIAL MANAGEMENT : I.M.PANDEY

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working capital management @ gadag textile project report

Business

gadag cooperative textile

textile sector

indian textile industry

textile mills

indias cotton textile

gadag district

selfreliant industry

sources of working capital