summer training project of textile industry"manjinder singh"

REPORT ON SUMMER TRAININGON

WORKING CAPITAL MANAGEMENT

UNDER TAKEN AT

OSWAL WOOLLEN MILLS LTD. Sherpur, G.T. Road, Ludhiana

In the partial fulfillment of the

requirements for the award degree

of

MASTER OF BUSINESS ADMINISTRATION

Submitted by:MANJINDER SINGH

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ACKNOWLEDGEMENT

ACKNOWLEDGEMENT

It is always difficult to acknowledge, so precocious adapt as that of learning, as it is only a debt

that is difficult to repay expect through gratitude. There are occasions where mere expressions of

words stand nowhere near the feeling felt. The completion of this training with its report is such

one occasion.

I take this opportunity to express my warmest appreciations and give special recognition to all

those individual who have contributed immensely to make this project report.

The formal statement of acknowledgement will hardly meet the ends of justice in the matter of

expressing a sense of gratitude to my college authorities Coordinator Mrs. Shelly, lect. Miss

Swati, Mr. R.M. Sood {finance controller of Oswal woollen mills ltd.} and whole team of

finance dept. of Oswal woollen mills ltd for giving practical dimensions to my theoretical

studies in the form of training and framing report which is suitable and highly beneficial.

Above all, I accord cordial regards to my loving parents and grateful to almighty for bringing me

up in an atmosphere of life and confidence and infusing in me the spirit to the face challenges of

life bravely that made me really work towards the goal of success.

Last but not least the least. I express my gratitude to all those to have helped me, guided me,

encourage me but have been inadvertently left out.

MANJINDER SINGH

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BONAFIDE CERTIFICATE

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EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

OSWAL WOOLLEN MILLS LIMITED (OWM) is a flagship company of the Nahar group of

the companies. The Nahar group is an industrial conglomerate based at Ludhiana in Punjab with

the group turnover in excess of Rs. 19000 million for the 2006. OSWAL WOOLLEN MILLS

LTD is the company of NAHAR GROUP Under the stewardship of his son, SHRI JAWAHAR

LAL OSWAL; the company diversified and expanded its business interest beyond yarns.

Garments, hosiery products. OSWAL WOOLLEN MILLS LTD. is the flagship company of

NAHAR GROUP. It has variety in its basket. The company are registered owners of well-known

trade name “MONTE CARLO” for selling company woollen hosiery and cotton garments

‘Monte Carlo’ has been recognized as ‘super brand’ for woollen hosiery garments since fiscal

2003 by international society of super brands. India contributes to about 25% share in the world

trade of cotton yarn.

The project entitled “Working Capital Management and its Appraisal in OSWAL

WOOLLEN MILLS LTD. The term of study was kept limited to make the title true. The purpose

of the report is to get the in depth understanding of the process of working capital management.

With the growing Indian economy and the government policies for infrastructure the demand for

garments is increasing and seeing this as an opportunity is under taking many new projects for

expansion of the production which are under implementation for increasing the capacity of the

plants. Because the textile industry is a sun rising company which means that three basic needs

of the people are cloth, meal and house. So the one of thing that is cloth produced in textile

industry. So, it is sun rising company. Working capital has been analyzed in two ways – overall

study of the working capital of OSWAL WOOLLEN MILLS LTD.

Borrowings are an important ingredient of funding a business entity. The lenders must feel

comfortable with their clients and OSWAL WOOLLEN MILLS LTD. enjoys this position

among their lenders. Borrowing is done for working capital requirement i.e., to meet the day to

day requirement for smooth functioning of the production, and term loans for projects of

capacity expansion. Major portion of the borrowing is done from banks at better rate of interest.

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The performance of the textile division of the company during the year was satisfactory. The

annual turnover the nahar group is 19000 million and alone company have annual turnover of

550 million. The Company has posted yet another impressive for the 2007-08 results, which has

surpassed all respective previous levels. It has shown substantial growth in turnover, cash profit,

profit before tax and profit after tax.

The objective of this project work is to focus on the working capital of the Oswal Woollen Mills

Ltd. The project contain the basic postulates of working capital, procedure of analysis of

working capital, ratio being used to define the working capital and the impact of working capital

in the company in case of excess or inadequacy. Also, the project contains analysis of estimation

of working capital requirement and the procedure to estimate working capital requirement in

manufacturing and trading concern and from the data available it can be concluded that it holds a

very strong position in the market.

Setting up an organization for the working capital management is the

precondition to control working capital effectively and sustainably. Firstly, it

is essential to define who is responsible for the controlling process. The

figure must be calculated, planned and improved. Therefore further key

ratios must be defined and targets set. In addition, continual target-

performance comparisons must be conducted as well as defining measures

for improvement. These measures advance the effectiveness of the working

capital key processes; the forecast-to-fulfill process, the order-to-cash

process and the purchase-to-pay process.

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TABLE OF CONTENTS

S.NO.CHAPTER

NO.TITLE Page .No.

1 CHAPTER.1 INTRODUCTION TO WORKING CAPITAL 9-19

2 (A) WORKING CAPITAL MEANING & SCOPE 11

3 (B) MPBF 16

4 (C) REVIEW OF LITERATURE 17

5 CHAPTER.2 ABOUT TEXTILE INDUTRY & COMPANY PROFILE 20-48

6 (A) OVERVIEW OF INDIAN TEXTILE INDUSTRY 21

7 (B) LEADING TEXTILE MILLS 32

8 (C) COMPANY PROFILE 35

9 (D) COMPANY MAJOR EVENTS 42

10 (E) AWARDS 44

11 (F) PRODUCTS 45

12 (G) EXPORT MARKETS 48

13 CHAPTER.3 OBJECTIVES & RESEARCH METHODOLOGY 49-52

14 (A) OBJECTIVES OF THE STUDY 50

15 (B) RESEARCH METHODOLOGY 51

16 (C) SOURCES OF DATA 52

17 CHAPTER.4 WORKING CAPITAL ANALYSIS OWM 53-76

18 (A) INTRODUCTION TO W.C. ANALYSIS 54

19 (B) KEY WORKING CAPITAL RATIOS 55

20 (C) STATEMENT SHOWING CHANGE IN WORKING

CAPITAL FOR OSWAL WOOLLEN MILLS LTD

57

21 (D) CALCULATION OF WORKING CAPITAL FOR OWM 59

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22 (E) ANALYSIS OF VARIOUS COMPONENTS OF W.C 60-67

23 (F) WORKING CAPITAL RATIO’S OF COMPANY 68-76

24 CHAPTER. 5CONCLUSION & SUGGESTIONS 77-80

25 (A) CONCLUSION 78

26 (B) SUGGESTIONS 80

27 BIBLIOGRAPHY 81-82

27 ANNEXURE’S

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INTRODUCTION

TO

WORKING CAPITAL

(A) WORKING CAPITAL - Meaning of Working Capital

Capital required for a business can be classified under two main categories via,

1) Fixed Capital

2) Working Capital

Every business needs funds for two purposes for its establishment and to carry out its day-

to-day operations. Long terms funds are required to create production facilities through purchase

of fixed assets such as p & m, land, building, furniture, etc. Investments in these assets represent

that part of firm’s capital which is blocked on permanent or fixed basis and is called fixed

capital. Funds are also needed for short-term purposes for the purchase of raw material, payment

of wages and other day – today expenses etc.

These funds are known as working capital. In simple words, working capital refers to that part of

the firm’s capital which is required for financing short- term or current assets such as cash,

marketable securities, debtors & inventories. Funds, thus, invested in current assts keep

revolving fast and are being constantly converted in to cash and this cash flows out again in

exchange for other current assets. Hence, it is also known as revolving or circulating capital or

short term capital.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

The gross working capital is the capital invested in the total current assets of the enterprises

current assets are those

Assets which can convert in to cash within a short period normally one accounting year.

CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances.

5) Inventories of stock as:

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a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

In a narrow sense, the term working capital refers to the net working. Net working capital is the

excess of current assets over current liability, or, say:

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current assets exceeds the current

liabilities are more than the current assets. Current liabilities are those liabilities, which are

intended to be paid in the ordinary course of business within a short period of normally one

accounting year out of the current assts or the income business.

CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation , if it does not amt. to app. Of profit.

6. Bills payable.

7. Sundry creditors.

The gross working capital concept is financial or going concern concept whereas net working

capital is an accounting concept of working capital. Both the concepts have their own merits.

The gross concept is sometimes preferred to the concept of working capital for the following

reasons:

1. It enables the enterprise to provide correct amount of working capital at correct time.

2. Every management is more interested in total current assets with which it has to operate then

the source from where it is made available.

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3. It take into consideration of the fact every increase in the funds of the enterprise would

increase its working capital.

4. This concept is also useful in determining the rate of return on investments in working capital.

The net working capital concept, however, is also important for following reasons:

• It is qualitative concept, which indicates the firm’s ability to meet to its operating expenses

and short-term liabilities.

· IT indicates the margin of protection available to the short term creditors.

· It is an indicator of the financial soundness of enterprises.

· It suggests the need of financing a part of working capital requirement out of the permanent

sources of funds.

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in two ways:

o On the basis of concept.

o On the basis of time.

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

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

Ø Permanent or fixed working capital.

Ø Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

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

utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has

to maintain a minimum level of raw material, work- in-process, finished goods and cash balance.

This minimum level of current assets is called permanent or fixed working capital as this part of

working is permanently blocked in current assets. As the business grow the requirements of

working capital also increases due to increase in current assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

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

meet the seasonal demands and some special exigencies. Variable working capital can further be

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classified as seasonal working capital and special working capital. The capital required to meet

the seasonal need of the enterprise is called seasonal working capital. Special working capital is

that part of working capital which is required to meet special exigencies such as launching of

extensive marketing for conducting research, etc.

Temporary working capital differs from permanent working capital in the sense that is required

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

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run its business

operations. It should have neither redundant or excess working capital nor inadequate nor

shortages of working capital. Both excess as well as short working capital positions are bad for

any business. However, it is the inadequate working capital which is more dangerous from the

point of view of the firm.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS

2. SIZE OF THE BUSINESS

3. PRODUCTION POLICY

4. LENTH OF PRDUCTION CYCLE

5. SEASONALS VARIATIONS6. WORKING CAPITAL CYCLE

7. RATE OF STOCK TURNOVER

8. CREDIT POLICY

9. BUSINESS CYCLE

10. RATE OF GROWTH OF BUSINESS

11. EARNING CAPACITY AND DIVIDEND POLICY

12. PRICE LEVEL CHANGES

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Financing Working Capital

Now let us understand the means to finance the working capital. Working capital or current

assets are those assets, which unlike fixed assets change their forms rapidly. Due to this nature,

they need to be financed through short-term funds. Short-term funds are also called current

liabilities. The following are the major sources of raising short-term funds:

I. Supplier’s Credit

At times, business gets raw material on credit from the suppliers. The cost of raw material is paid

after some time, i.e. upon completion of the credit period. Thus, without having an outflow of

cash the business is in a position to use raw material and continue the activities. The credit given

by the suppliers of raw materials is for a short period and is considered current liabilities. The

loans are available for creating the following current

Assets:

A. Stock of Raw Materials b. Stock of Work in Process

c. Stock of Finished Goods d. Debtors

Banks give short-term loans against these assets, keeping some security margin.

The advances given by banks against current assets are short-term in nature and banks have the

right to ask for immediate repayment if they consider doing so. Thus bank loans for creation of

current assets are also current liabilities.

ii. Promoter’s Fund

It is advisable to finance a portion of current assets from the promoter’s funds. They are long-

term funds and, therefore do not require immediate repayment.

These funds increase the liquidity of the business.

Bank Credit (Working Capital Finance by Commercial Banks )

Bank credit is the primary institutional source of working capita finance in India. The different

forms in which the banks normally provide loans and advances are as follows:

a. Loans

b. Cash Credits

c. Overdrafts

d. Purchasing and Discounting of bills:

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(B) Computation of Maximum Permissible Bank Finance(MPBF):

The Tandon Committee had suggested three methods for determining the maximum permissible

bank finance (MPBF).

They are

Method 1: MPBF=0.75(CA-CL)

Method 2: MPBF=0.75(CA)-CL

Method 3: MPBF=0.75(CA-CCA)-CL

Where CCA=Core Current Assets- this represents the permanent component of working capital.

e.g. Total current assets required 40,000

Current liabilities other than bank borrowings 10,000

Core current assets 5,000

1st Method

Total current assets required 40,000

Less current liabilities 10,000

Working Capital Gap 30,000

Less 25% from Long term sources 7,500

Maximum permissible bank borrowings 22,500

2nd Method

Current Assets required 40,000

Less 25% to be provided from long term funds 10,000

Less Current Liabilities 30,000


3rd Method

Current assets 40,000

Less Core Current assets 5,000

35,000

Less 25% to be provided from long term funds 8,750

26,250

Less current liabilities 10,000


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(C) REVIEW OF LITERATURE

Stephen Bush (2008) Commercial borrowers sometimes overlook short-term options for

commercial loans. In the current recessionary conditions, it is wise to explore all working capital

management options. This article will shed some light on shorter-term choices such as short-term

commercial mortgages and business cash advances. Due to misunderstandings about long-term

commercial financing, short-term commercial loans are often not considered properly. Although

long-term commercial real estate financing options are often appropriate, there are practical

short-term business financing choices that will be more workable and profitable for commercial

borrowers. The most critical short-term commercial financing techniques typically include short-

term merchant cash advance and credit card processing programs and commercial real estate

loan programs. Both working capital funding approaches are frequently a source of confusion for

business owners.

Bebehuk L., and L. stole (2009) Working capital is the cash needed to carry on operations

during the cash conversion cycle, i.e. the days from paying for raw materials to collecting cash

from customers. Raw materials and operating supplies must be bought and stored to ensure

uninterrupted production. Wages, salaries, utility charges and other incidentals must be paid for

converting the materials into finished products. Customers must be allowed a credit period that is

standard in the business. Only at the end of this cycle does cash flow in again.

Allensius (2009) there will usually be only a few business financing sources that are regularly

successful at executing the credit card financing and processing. There are key difficulties to

avoid with a working capital advance, and selecting an effective funding source is essential to an

appropriate business cash advance program.A long-term commercial mortgage is appropriate for

many businesses that own commercial property. Commercial property should be financed with

an appropriate combination of short-term and long-term funding. It is wise to consider long-term

Business financing of up to 30 years when a longer-term commercial real estate loan is feasible.

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Gamble, Richard H. (2005) Working capital management (WCM) is a holistic approach to

managing capital that can increase a company's cash flow and operational profits, but has yet to

receive widespread acceptance. WCM is unlike traditional cash management with its emphasis

on float and collection and disbursement programs. WCM addresses the full time-line from raw

material to payment, and strives to free capital wherever possible. Just-in-time inventory

management is a good example of WCM. WCM runs counter to the standard divisional lines

around which most companies are organized; its acceptance may increase, however, as US

businesses strive to become more efficient and competitive, and as financial professionals grow,

learn, and assume greater responsibilities for their companies' futures.

Dittmar, A. and J. Mahrt, 2005 Working capital management is important part in firm financial

management decision. An optimal working capital management is expected to contribute

positively to the creation of firm value. To reach optimal working capital management firm

manager should control the tradeoff between profitability and liquidity accurately. The purpose

of this study is to investigate the relationship between working capital management and firm

profitability. Cash conversion cycle is used as measure of working capital management. This

study is used panel data of 1628 firm-year for the period of 1996-2006 that consist of six

different economic sectors which are listed in Bursa Malaysia. The coefficient results of Pooled

OLS regression analysis provide a strong negative significant relationship between cash

conversion cycle and firm profitability. This reveals that reducing cash conversion period results

to profitability increase. Thus, in purpose to create shareholder value, firm manager should

concern on shorten of cash conversion cycle till accomplish optimal level.

Beneda, Nancy, Zhang, Yilei 2006 the current study contributes to the literature by examining

impact of working capital management on the operating performance and growth of new public

companies. The study also sheds light on the relationship of working capital with debt level, firm

risk, and industry. Using a sample of initial public offerings (IPO's), the study finds a significant

positive association between higher levels of accounts receivable and operating performance.

The study further finds that maintaining control (i.e. lower amounts) over levels of cash and

securities, inventory, fixed assets, and accounts payables appears to be associated with higher

operating performance, as well. We find that IPO firms which are experiencing unusually high

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growth tend not to perform as well as those with low to moderate growth. Further firms which

are experiencing high growth tend to hold higher levels of cash and securities, inventory, fixed

assets, and accounts payables. These findings tend to suggest that firms are willing to sacrifice

performance (accept low or negative operating returns) to increase their growth levels. The

higher level of growth is also associated with higher operating and financial risk. The findings of

this study suggest that perhaps IPO firms should stay more focused on their operating

performance than on maintaining high growth levels.

James Michael Wahlen 08 In this paper we review the academic evidence on earnings

management and its implications for accounting standard setters and regulators. We structure our

review around questions likely to be of interest to standard setters. Specifically, we review the

empirical evidence on which particular accruals are used to manage earnings, the magnitude and

frequency of any earnings management, and whether earnings management affects resource

allocation in the economy. Our review identifies a number of important opportunities for future

research on earnings management.

D'Attilio, David F. Net working capital forecasts play a vital role in cash flow projections. Care

should be taken to create accurate projections of net workingcapital, defined as current assets

minus current liabilities, by avoiding errors in financial data. Analysis reveals that small

differences in asset/liability reports can cause significant distortions in working capital forecasts.

In order to achieve reliable forecasts, it is necessary to adopt a combination of macro and micro

approaches which have been proven to produce reasonably accurate data.

Neung Kim, Kyungho Kim The three best macro-economic indicators for 24 various industries

are identified using E.I. Altman's Z-score. The Altman's Z-score is used to measure overall

business financial conditions. These are the prime bank rate, the three-month US Treasury Bill

rate and the corporate AAA bond rate. The three variables are found to be relevant predictors for

business financial conditions since they have highly negative correlations with Z-scores.

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ABOUT TEXTILE INDUTRY

&

COMPANY PROFILE

(A) Overview of the Indian textile industry

Segments of Indian Textile Industry

Indian Textile Industry can essentially be categorized into two segments:-

1. Organized Textile Industry

2. Unorganized Textile Industry Unorganized sector is the dominant part in this industry which

mainly utilizes the traditional practices (woven or spun ) in cloth production and hence is

labor intensive in nature. This industry is characterized by the production of clothes either

through weaving or spinning with the help of hands. The decentralized nature is considered

as another important feature of the unorganized textile industry in India.

The other half of the Indian Textile industry is a highly organized one with immense importance on capital intensive production process. This sector is characterized by sophisticated mills where technologically advanced machineries are utilized for mass production of textile products.

Sub-Sectoral Categorization of Indian Textile Industry

Textile Industry based on fiber produced through man made means or natural cotton

Yarn industry utilizing fiber or filament of the man made type

Textile industry involved in the production of wool, its derivatives and final woolen products

Production, processing of Jute and the textile industry based on it

Textile industry involved in the mass production of natural silk along with derivative and

final products from silk

Handloom Industry

Handicrafts industry which is basically unorganized in nature

Sub-Categorized sectors of the Indian textile Industry

Textile Industry based on fiber produced through man made means or natural cotton In the whole

Indian textile industry, this sector has come as the largest producer of textile products. This

industry has also proved its potential in employing the maximum number of people in the entire

industry which has been calculated to be around a whooping one million workers. As per the

latest records (31.01.2007) of Ministry of Textiles, the total number of mills in this particular

sector is 1818 in number. The installed capacity of all these mills accumulates to 35.37 million

spindles and 0.45 million rotors

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During the year 2000-2001, the total amount of spun yarn produced was 3160 million kgs. This

amount saw an increase of around 400 million kgs within the period of 2000-2001 to 2005-2006.

Spun Yarn industry can again be divided into two sub-sectors:-

Cotton Yarn producing industry the production of this industry type is heavily dependent on

the yearly production of cotton which again depends on the vagaries of nature. Hence it has

been observed that the rate of production in this sector shows fluctuating trend.

Completely non cotton blended yarn producing industry

This industry type is a consistent performer where its rate of production has increased at a

consistent rate. It has been observed that between the period 1999 and 2005, capacity utilized in

this sector has varied anything between 80% and 93%.

Organized sector in Textile Industry is passing through a stage of stagnation and the main reason

behind it is transformation in the structural set-up of the industry. It has been found out that the

weaving sector is delinked from the spinning sector which has led to the rise of power looms of

decentralized nature. Over the years, the production capacity of this organized sector has seen an

absolute decrease of 0.54 lakh between March 2000 and January 2007.

Cloth production has also evidenced a declining trend during 2000-2006 with an absolute

decrease of ninety four million square meters. The annual growth rate of total cloth production in

the textile industry has been calculated to be around 5.24 % between 2000-2001 to 2005-2006.

But stratified result of this industry show that during the above mentioned period, the organized

sector of this industry has posted fluctuating results whereas the unorganized one has performed

positively with an yearly rate of growth amounting to 5.4%.

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Investment In Indian Textile Industry

Investment in Indian Textile Industry

The scenario of investment in the Indian textile industry started to change after the inception of

the special “Textile Package” during the 2003-2004 budgets. The recommendations made in the

budget included the reforms that are required to be made in the fiscal policy of the Indian textile

Industry for attracting investment in this industry. The policy matters associated with

restructuring of debt for financial viability of this industrial sector are also being addressed in

this budget. A fund was set up in accordance with the recommendations of the aforesaid budget

with an initial principal amount of Rs. 3000 crores. This fund was meant for restructuring of the

textile sector.

Factors responsible for wooing the investors in Indian textile industry:-

The size of the textile along with apparel market in India is quite big.

Performance of this industry has been consistent right from the start of the new millennium.

Availability of the skilled labor in India is comparatively cheap in relation to the same in

other parts of the world.

The policies related to the Foreign Direct Investment in India are comparatively lenient and

are transparent in nature among all the developing countries.

There is no limit on foreign direct investment in the textile industry and hence 100% direct

investment can be done by the foreign capitalists in the Indian textile industry.

Foreign Investments done in the Indian Textile Industry through the automatic route offers a

hassle-free way of investing. These investments are not required to be approved by the

government or the apex bank of India, RBI. The foreign investors are only required to make a

notification to the regional office of the apex bank only after receiving the receipt of the

remittance. This notification is required to be done within thirty days from the date of

receiving the remittance. The ministry concerned with the development of Textile Industry in

India has formed a special cell for attracting FDI in this sector. Objectives of this special cell

for wooing FDI are :-

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This cell helps the willing foreign companies to find out viable partners meant for floating a

joint venture company in order to produce textile products.

FDI special cell acts as the mediator between the foreign investor and the different

organizations for setting up the textile industry. The specialized helps that are given by this

cell involve advisory support along with assistance.

At the time of operation of the textile industry set by the foreign investor certain problems

may crop up. These problems are sorted out by the FDI cell.

FDI cell monitors as well as maintains the data related with the total production of the textile

sector. They also collect the stratified data of production by both domestic industry as well as

the industry set up by the foreign investor. In the financial year 2005-2006, it has been found

out that the percentage share of the textile industry in the total foreign investment done was

1.02%.

As a part of domestic textile sector expansion, the companies of Indian origin are also not far

behind in making investments. Arvind Mills Limited is expanding its production as well as

capacity base through the construction of two new industrial set ups in Bangalore and

Ahmadabad.

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Government Policies Relating to the Textile Industry in India

Introduction

The Indian textile industry is one of the largest industries in the world. The Ministry of Textiles

in India has formulated numerous policies and schemes for the development of the textile

industry in India. Some of them are detailed in the following sections.

National Textile Policy

The National Textile Policy was formulated keeping in mind the following objectives:

Development of the textile sector in India in order to nurture and maintain its position in the

global arena as the leading manufacturer and exporter of clothing.

Maintenance of a leading position in the domestic market by doing away with import

penetration.

Injecting competitive spirit by the liberalization of stringent controls.

Encouraging Foreign Direct Investment as well as research and development in this sector.

Stressing on the diversification of production and its up gradation taking into consideration

the environmental concerns.

Development of a firm multi-fiber base along with the skill of the weavers and the craftsmen.

Such goals are set to meet the following targets:-

The size of textile and apparel exports must reach a level of US $50 billion by the year 2010.

The Technology Up gradation Fund Scheme should be implemented in a strict manner.

The garments industry should be removed from the list of the small scale industry sector.

The handloom industry should be boosted and encouraged to enter into foreign ventures so as

to compete globally. The National Textile Policy has also formulated rules pertaining to

certain specific sectors. Some of the most important items in the agenda happens to be the

availability and productivity along with the quality of the raw materials. Special care is also

taken to curb the fluctuating price of raw materials. Steps have also been taken to raise silk to

the international standard.

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Government policy on cotton and man-made fiber:-

One of the principal targets of the government policy is to enhance the quality and production of

cotton and man-made fiber. Ministry of Agriculture, Ministry of Textiles, cotton growing states

are primarily responsible for implementing this target.

Other thrust areas:-

Information Technology

Information technology plays a significant role behind the development of textile industry in

India. IT (Information Technology) can promote to establish a sound commercial network for the

textile industry to prosper.

Human Resource Development

Effective utilization of human resource can strengthen this textile industry to a large extent.

Government of India has adopted some effective policies to properly utilize the manpower of the

country in favor of the textile industry.

Financing arrangement

Government of India is also trying to encourage talented Indian designers and technologists to

work for Indian textile industry and accordingly government is setting up venture capital fund in

collaboration with financial establishments.

Acts

Some of the major acts relating to textile industry include:

Central Silk Board Act, 1948

The Textiles Committee Act, 1963

The Handlooms Act, 1985

Cotton Control Order, 1986

The Textile Undertakings Act, 1995 Government of India is earnestly trying to provide all the

relevant facilities for the textile industry to utilize it's full potential and achieve the target. The

textile industry is presently experiencing an average annual growth rate of 9-10% and is expected

to grow at a rate of 16% in value , which will eventually reach the target of US $ 115 billion by

2012. The clothing and apparel sector are expected to grow at a rate of 21 %t in value terms.

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Textile Industry Exports:-

Introduction

Textile industry plays a significant role in the growth of Indian economy and it is an important

component of global trade. Textile industry accounts for about one third of India's total export

earnings. It is regarded as the second largest industry of India and is the largest foreign export

earner, accounting for 35% of the gross export earnings in trade. During 1992-93 and 2001-02,

textile exports recorded an increase at a compound annual growth rate of 14.01%. Handloom and

cotton are the two most significant sectors in textile industry. These two sectors together

contribute the major portion of total textile export in India.

Trading partners

Leading trading partners of India are Malaysia, Australia, Kazakhstan, USA, South Africa,

Romania, Argentina, Egypt, Germany, Finland, and Turkey.

India's export to Malaysia

Malaysia imports various types of textile products from India to meet the requirements of raw

materials for it's emerging garment industry. Malaysia's total textile imports are estimated to

exceed US$ 1.5 billion annually. Malaysia's major importing products include woven man-made

fiber fabrics, apparel accessories, textile yarn, knitted and crocheted fabrics, and women’s

apparel.

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India's export to USA

USA is regarded as the largest textile and apparel market in the world, which amounts to over

$200 billion annually. In 2006, about 45% of the U.S. market demand was met with imported

products, which accounted for 20% of the overall global textile and apparel imports. In 2003, the

total imports of clothing and textiles by USA was 80% (US $ 71 bn) and 20% (US $ 18 bn),

respectively. Asia contributed the most, specifically India. India basically supplied readymade

garments to USA.

India's export to Australia

Australia is considered as one of the most open textile markets in the world. Major textile

imports include apparels and made-ups under chapter 62, 61 and 63, specifically polyester-cotton

and polyester-viscose types. Bulk of cotton and hand-made fibers are:-

Also imported from countries like India.

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Indian exports of textiles to Germany

Germany can be regarded as one of the leading importers of Indian handmade fiber textiles.

Germany is also an important market in EU (European Union), specifically for textile and

clothing, with a total market size of about US $ 34 billion (in 2005).During 2005-06, the total

German imports of textile products from India amounted to Rs. 4714.59 crores and in the same

year, the total imports value of Synthetic and Rayon textiles from India amounted to Rs. 254.63

crores, showing a growth of 58.43% comparing to the performance of previous year.

Indian exports of textiles to EU (European Union )

EU overpowered USA as becoming the largest market for textiles and clothing in the world. Asia

predominates the EU market in both clothing and textiles, with 30% (US $ 30 bn) and 17 % (US

$ 8 bn) share, respectively. India is one of the leading suppliers of textile products to the EU

market and ranked fourth, ahead of other textile exporters like Mexico, Bangladesh and Turkey,

with a market share of 5.2% (US $ 0.45 bn).

Current trend Industry sources reveal that India's textile exports are likely to fall short by over

16% from the expected target. This is happening because of an increase in value of money and

slowing down of investment. Shekhar Agarwal, chairman, Confederation of Indian Textile

Industry opines that in 2007, the textile exports in India will not surpass $ 20.5 billion mark,

witnessing a negative growth in exports, specifically in segments like garments. Garments

accounts for about half of the overall textile exports by India. Agarwal also expressed his doubts

about implementing the projected investment of Rs. 1,94,000 crore in the 11th Five Year Plan

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(2007-12). Source from Business Standard reveals that the Indian government is expected to

export around 20 % more raw cotton than before.

Indian textile exports to USA and China are growing rapidly. B.K. Patodia, chairman of India's

Cotton Textiles Export Promotion Council, expressed that China and India are speedily

becoming the two biggest textile players in the world.

CRISIL (Credit Rating Information Services of India Limited), India's leading Ratings,

Research, Risk and Policy Advisory Company predicts that India's textile export earnings will

increase from USD 17 billion (FY 2006) to around USD 40 billion by FY(Financial Year) 2011.

Global Trade in Textile and Clothing

In 2003, the overall global trade in textiles and clothing amounted to US $ 385 billion, of which

textiles alone contributed 43%. Developed countries contribute about one third of the total global

exports of textile and clothing.

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Leading Indian Textile Mills

Some of the leading Textile Mills in India include

Adarsh Textile Mills : Manufacturer and exporter of good quality woolen and synthetic

blankets.

Amritsar Swadeshi Woolen Mills : Pioneer in manufacturing heavy woolen yarn and largest

manufacturer of fabric.

Aroon Mills : Manufacture of textile auxiliaries

Mohan Thread Mills : Manufacturer of high quality embroidery yarn and threads

Market estimation

In 1997, the overall Indian market for the textile machinery was approximated at USD 895

million and was estimated to grow at an average annual growth rate of 6%.

Factors responsible behind the growth of textile machinery in India

Some of the major factors responsible behind the growth of textile machinery sector are:

An immense demand of Indian apparels and textiles in the international market

Low custom duties on imported textile machinery

Less tight government restrictions on imported goods Major trading partners regarding

import of textile machineries include U.S., Germany, Switzerland and U.K. India ranks

second in the global textile industry and accounts a major portion to the overall Indian

exports. For the sustenance of this growth and to maintain the competence in the

international market, the textile mills in India need to be modernized.

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(B) Leading Textile mills in India :-

Some of the major textile mills in India are:

1. Raymond Ltd., Mumbai

2. Grasim Industries Ltd., Nagda

3. DCM Textiles, New Delhi

4. S. Kumars, Kolkata

5. Reliance Industries, Ahmedabad

6. Mafatlal Industries, Mumbai

7. Arvind Mills Ltd., Ahmedabad

8. Ashima Syntex, Ahmedabad

9. NAHAR SPINING, LUDHIANA

10. Hisar Spinning Mills Ltd.

11. Anand Silk Mills, Valsad

12. Titex Silk Mills,Valsad

13. Shree sainath Silk Mills, Valsad

14. Shreeji Trading Company, Surat

15. Garden Silk Mills Ltd., Surat

16. Raj Rayon Ltd., Mumbai

17. The Bombay Dyeing & mfg. Pvt Ltd., Mumbai

18. Shiyaji Silk Mills Ltd, Thane

19. Nirmala Fabrics, Thane

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SWOT ANALYSIS OF INDIAN TEXTILE INDUSTRY

Strength

• Post 2005, removal of quota restrictions to give a major boost.

• Export target in textile at USD 50 Billion by 2010.

• Low per capita consumption in India (2.8 vs. Global average of 6.8).

• Cost competitiveness.

Weeknesses

• Fragmented Industry

• Effect of Historical Government Policies

• Technological Obsolescence

Oppurtunities

• Indian companies need to focus on Product Development

• Increased use of CAD to develop designing capabilities

• Investing in Trend Forecasting to enable the growth of industry

Threats

• Competition in Domestic Market

• Need to improve the Working Conditions of the people who are involved in this profession.

• Need to revamp Consumer Consciousness

• Tackle Chinese Aggression over the International Market

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RECOMMENDATIONS

• Setting up Textile Industries oriented SEZs

• Starting up new courses like Textile Manufacturing and Textile Technology at ITIs and

Engineering Institutes

• Liberalized labour laws, tax and other benefits of a Special Economic Zone need to be

implemented

• Access to high quality and cost-effective manpower

• Excellent connectivity by road, rail air and ports and Single-window clearance

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(C) COMPANY PROFILE

OSWAL WOOLLEN MILLS LIMITED (OWM) is a flagship company of the Nahar group of

the companies. The Nahar Group is an industrial conglomerate based at Ludhiana in Punjab with

the group turnover in excess of Rs. 19000 million. The Nahar Group is one of the oldest and

well recognized businesses in India. The company was incorporated in 1949 by late Mr. Vidiya

Sagar oswal. Father of jawahar lal Oswal. The company’s present chairman and managing

director. The company is one of the pioneers of the organized Indian woollen hosiery industry.

The company made a beginning as a manufacturer of hosiery items. Which was followed by

setting up a worsted woollen spinning plant of 800 spindles in 1954 {today .4 million spindles}

to serve as a backward integration of the then existing manufacturing activities. The company

believes that this worsted woollen spinning in the northern India.

Matching ahead in the journey pace with overall industrial development in India the company is

now a a vertically integrated woollen textile company, having presence in diverse market, with

wide range of products including wooollen hosiery and cotton garments. In company’s woollen

hosiery segment, we start our operations with import of raw greasy wool mostly from Australia

and company products include various types of specialty yarns, such as, worsted woollen yarn,

acrylic yarn, various types of wool based blended yarn, fancy yarn, hand knitting and hosiery

garments etc. The company subsequently added cotton garments to company existing product

portfolio during fiscal 2002, which we outsource as per our requirements and sell under company

own brand name. Since march 2006, the company have started manufacture of indigo dyed

specialty denim fabric, which has added to our existing range of product portfolios.

The company manufacture facilities are spread across various locations in and around Ludhiana

in Punjab fully backed by the facilities for product, design studio and efficient sampling

infrastructure to provide quality products to our customers. Currently, The company over 4000

persons and company present manufacturing facilities include 26,248 spindles to manufacture

worsted woollen yarn besides machines, knitting, dyeing and finishing. Presently, the company

manufacturing facilities are producing approximately 2.5 million lbs of wool tops per annum,

7,50,000 pieces of readymade knitted garments per annum and 1 million meters of denim fabric

per annum.

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The company are registered owners of well-known trade name “MONTE CARLO” for selling

company woollen hosiery and cotton garments ‘monte carlo’ has been recognized as

‘superbrand’ for woollen hosiery garments since fiscal 2003 by international society of

superbrands. The company distribution channel comprises of a mix ‘ monte carlo exclusive

brand outlets’, network of national chain stores and multi brand outlets. The company products

in woollen hosiery segment are also sold under the brand name “CANTERBURY” , for premium

quality woollen hosiery garments and “OWM” for company specialty woollen yarn etc.

including the hand knitting yarn. The company also have landed properties admeasuring

approximately 5.01 acres in gurgaon and 12.70 acres in Chennai which have been leased have

been leased out and are contributing significantly to the overall revenue and profitability of the

our company. These properties are apart from the landed properties that we own in and around

ludhina in which company manufacturing facilities are based.

The company total income and restated profit after tax in fiscal 2006 were at Rs. 2532.85 million

and 148.48 million 148.48 million respectively. For the six months ended September 30, 2006,

the company restated total income and restated profit after tax were at Rs. 1427.93 million and

Rs. 101.57 million respectively.

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GROUP OF COMPANIES

Oswal Woollen Mills Ltd.

Nahar Spinning mills Ltd.

Nahar Exports Ltd.

Nahar international Ltd.

Oswal Cotton Mills Ltd.

Nahar Industrial Enterprise Ltd.

Nahar Industrial Infrastructure Corp. Ltd.

Nahar Sugar & allied industrial Ltd.

Rishab Spinning Mills

Arham Spinning Mils

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GENERAL INFORMATION

Registrar office of OSWAL WOOLLEN MILLS LTD.:-

OSWAL WOOLLEN MILLS LIMITED

G.T. ROAD, SHERPUR,

LUDHIANA, 141003, PUNJAB {INDIA}

TEL: +91 161 2542501

FAX: +91 161 2542509

WEBSITE: www.owmnahar.com

Address of registrar of companies:-

Registrar Of Companies Punjab, Himachal Prdesh And Chanigarh

Kothi No.286,

Defense colony,

Jalandhar 144001,\

Punjab India.

Company secretary and compliance officer

Mr. Nitin Sharma

G.T. Road, Sherpur,

Ludhiana 141003 Punjab India.

Tel: +91 161 2542501-07

E-mail: [email protected]

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mailto:[email protected]

http://www.owmnahar.com/

MANAGEMENT

The following persons constitute the company’s board of directors:-

a) Mr. Jawahar Lal Oswal, chairman and managing director;

b) Mr. kamal oswal, director;

c) Mr. Dinesh Oswal, Director;

d) Mr. Sandeep Jain, executive director;

e) Mr. Dinesh Gogna, Executive director corporate finance and taxation;

f) Dr. O.P. Sahni, Independent additional director;

g) Mr. Amarjeet Singh, Independent director;

h) Dr. Ms. H. K. Bal, Independent additional director;

i) Mr. K.S. Maini, Independent additional director; and

j) Dr. Suresh Kumar Singla, Independent additional director.

FINANCE CONTROLLER OF OSWAL WOOLLEN MILLS LTD.

MR. R.M.SOOD

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COMPANY BUSINESS PHILOSOPHY

The business, which started with a modest beginning 0f 800 spindles for worsted spinning to

become a large woollen textile player believes in the philosophy ‘ success is tradition and growth

is imperative’. Since beginning company focus has been achieving economies in the scale of

production, rationalize cost, integration of operations thereby increase the revenue from year to

year.

The company view on costs has never refrained from rewarding the work force of company.

Until date we have enjoyed cordial with company work force at all levels, keeping in mind

company philosophy and to meet out any contingency company have always developed second

line of key managerial personnel. Company human resource development policy are designed to

motivate achieve goal and excellence in management. The company have always remained

conscious about prevalent fashion and design and quality translated into high level of consumer’s

satisfaction. Company has also kept fully abreast with latest trend prevailing in domestic as well

as international markets. The company philosophy is not only to earn profit but prosperity of

other stakeholders.

Company competitive strengths

Extensive experience of company promoters Owners of well known and established brands of ‘Monte Carlo and OWM’ The landed property in Gurgaon and Chennai Fully integrated woollen operations Wide and various ranges of products Quality standard

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OWM key strategies

Established Monte Carlo as on all seasons pan India brand

Further strengthening company retail presence

Increasing product range

Foraying into kids wear

Cost reduction

Enhancing manufacturing capacities

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(D) Company major events

Year Event

1949 Company worsted was incorporated as public limited company with a woollon

hosiery knitwear unit, a worsted spinning plant, barrack blanket weaving and

finishing plant at unit no. 1 at miller Gang, Ludhiana.

1950 First worsted spinning plant at unit 1. G.T. Road, Miller Ganj, Ludhiana.

1960 Set up unit no. 3 at G.T. Road, Sherpur, Ludhiana for combing spinning dyeing,

weaving and processing.

1968 Commenced export of knitted hosiery.

1969 Set up vanaspati manufacturing plant at unit no. 3, G.T. Road, Sherpur, Ludhiana.

1972 Set up unit no. 5 at industrial area’ A’, Ludhiana for manufacturing woollen hosiery

knitwear.

1973 Set up a new Vanaspati plant at Chennai, Tamilnadu.

1974-1985 Launched our “MONTE CARLO” brand.

Established an OWM export house

Received recognition as an export house under the EXIM policy

Recognized as one of the first five “trading house” under the EXIM policy

1981-82

Outbreak of fire at our office G.T. Road Miller Ganj, Ludhiana.

1993 Set up a unit no. 4 at G.T. Road Ludhiana, a lamb’s wool plant, to produce high

value, fine micron lamb’s wool yarn for top class knitwear.

1995 Launched “CANTERBURY” brand.

1998 Closed company vanaspati and vegetable oil unit at Chennai and Ludhiana.

2002 Extended the application of “MONTE CARLO” brand to cotton segment.

2004 Commenced operations for augmentations and up-gradation of spinning and

knitting capacities started at unit no. 3.

2005 Operationalised the co-generation and up-gradation of spinning and knitting

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capacities started at unit no. 3

2006 The first phase of the denim plant at Lalru, Punjab was commited.

Started appointment franchises for retail outlets for marking our own

products as well as products imported from abroad/outsourced from

manufacture of repute.

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(E)AWARDS

Nahar Group has been honored with prestigious National Export Award for outstanding

export performance and also, the Texprocil Trophy by the Textiles Export Promotion council

for outstanding export performance in yarn.

1995 to 1999 “best exhibited product” by the Woolmark Company for ‘Monte Carlo’

woollen hosiery garments.

‘Super brand’ recognition for ‘Monte Carlo’ woollen garments by international society for

super brands.

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(F) PRODUCTS

Yarn Products

Nahar Group surges ahead to establish itself as a reputed Industrial Conglomerate with a wide

ranging portfolio of yarns that offers every thing. A desiring customer can look for :

100% Cotton Yarns 100% Cotton Dyed yarns 100% Polyester Yarn Industrial Yarns Open end yarns Open end slub yarns Blended yarns 100% Acrylic Yarns .Industrial Yarns Specialized Yarns

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Fabric Products

Blends:- 100% Cotton & Cotton Blends (Poly-cotton, Cotton-Stretch & Cotton-Tencil etc.)

Woven Vibrancy:- Twills, Dobbies, Broken Twills, Ripstop, Ottoman, Chinos, Satins, Tussors,

Bedford Cord, Cavallery Twill, Canvas, Gabardine…………..

Utility:- Garments (Tops, Bottom & Outerwear)

GSM :- 100 gms to 330 gms

Yarns Used:- Single & Double Count with different counts (7’s and 60’s) technologies such as

open end, Ringspun, Combed, Compact, Multicount & Slubs

Performance Fabrics

High Density constructions

AIRO Finish

Bio Polish

Nano Care

Soil Release

Microsanding

Anti Bacteria

Frost Free

Wrinkle Free

Stain Guard

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Sugar products

NAHAR SUGAR represents the Group’s concerted thrust towards exploring new need based

areas in tune with the larger context of customer needs and market demands.

Established in 1993 as Nahar Sugar & Allied Industries Limited (NSAIL) in the assisted sector

with PSIDC presently is a unit of Nahar Industrial Enterprises Limited (NIEL), as a result of

NSAIL’s merger with Nahar Industrial Enterprises Limited in 2005.

Installed capacity of 2,500 tons of cane crushed per day (“TCD”) at District Fatehgarh Sahib,

Punjab for producing all types and grades of sugar and allied products.

Cogeneration power plant of 8 MW.

Excess power generated by the sugar business is utilized in the company’s other businesses.

Upcoming product of company

Corduroy

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EXPORT MARKETS

Usa, United Kingdom, Germany, Russia, Japan, Australia, New-Zealand, Holland, Thialand, Hong-Kong, Singapore, Taiwan, South Korea, Malaysia, Mauritius, Dubai, Bahrain, South Africa, Canada, Egypt, Israel, and Bangladesh.

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OBJECTIVES OF THE STUDY

&

RESEARCH METHODOLOGY

OBJECTIVES OF STUDY

The chief objective of the current study is to analyses short term capital investment and

management of the present company;

1:- To know the working capital requirement of the company.

2:- To know liquidity position of the company.

3:- To find the future need of the working capital management in running organization.

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RESEARCH METHODOLOGY

RESEARCH

Research in common parlance refers to a search for knowledge. One can also define research as a

scientific and systematic search for pertinent information on a specific topic. Research is an

academic activity as such the term should be used in a technical sense. Research refers to:

Defining and redefining problem

Formulating hypothesis or suggested solutions

Collecting, organizing and evaluating data

Making deductions and reaching conclusions

At last carefully testing the conclusions to determine whether they fit the formulating

hypothesis.

RESEARCH PROCESS

Research process consists of series of action or steps necessary to effectively carry out research.

These steps are to be followed in the same sequence. These steps are as follows:

Specifying research objective

Preparing a list of needed information

Designing the data collection project

Select a sample size

Organizing and carrying data and reporting the findings.

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SOURCES OF DATA

The sources of data means from where we have to get data. There are mainly two sources of

data. These are:

PRIMARY DATA:

Depending upon the nature of the problem, primary data can be collected through various

methods. In this study, personal interviews with senior officials of different departments of

corporate office, with OSWAL WOOLLEN MILLS LIMITED and various members of finance

and accounts department of the company.

SECONDARY DATA:

The secondary data are those data which have already been collected by someone else and which

have already been passed through statistics process. I get published data as maintained by

company like company manuals, annual reports balance sheets etc.

Data collected through websites also.

REPORT WRITING AND PRESENTATION

Report encompasses- charts, diagrams

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WORKING CAPITAL ANALYSIS

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business. Adequate amount of

working capital is very much essential for the smooth running of the business. And the most

important part is the efficient management of working capital in right time. The liquidity position

of the firm is totally effected by the management of working capital. So, a study of changes in

the uses and sources of working capital is necessary to evaluate the efficiency with which the

working capital is employed in a business. This involves the need of working capital analysis.

The analysis of working capital can be conducted through a number of devices, such as:

1. Ratio analysis. 2. Fund flow analysis. 3. Budgeting.

1. RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The technique of ratio analysis

can be employed for measuring short-term liquidity or working capital position of a firm. The

following ratios can be calculated for these purposes:

1. Current ratio. 2. Quick ratio

3. Absolute liquid ratio 4. Inventory turnover.

5. Receivables turnover. 6. Payable turnover ratio.

7. Working capital turnover ratio 8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source from which additional

funds were derived and the use to which these sources were put. The fund flow analysis consists

of:

a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position (working capital)

business enterprise between beginning and ending of the financial dates.

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KEY WORKING CAPITAL RATIOS

The following, easily calculated, ratios are important measures of working capital utilization.

Ratio Formulae Result Interpretation

Stock

Turnover

(in days)

Average Stock *

365/

Cost of Goods

Sold

= x days On average, you turn over the value of your entire

stock every x days. You may need to break this

down into product groups for effective stock

management.

Obsolete stock, slow moving lines will extend

overall stock turnover days. Faster production,

fewer product lines, just in time ordering will

reduce average days.

Receivables

Ratio

(in days)

Debtors * 365/

Sales

= x days It takes you on average x days to collect monies

due to you. If your official credit terms are 45 day

and it takes you 65 days.

One or more large or slow debts can drag out the

average days. Effective debtor management will

minimize the days.

Payables

Ratio

(in days)

Creditors * 365/

Cost of Sales (or

Purchases)

= x days On average, you pay your suppliers every x days. If

you negotiate better credit terms this will increase.

If you pay earlier, say, to get a discount this will

decline. If you simply defer paying your suppliers

(without agreement) this will also increase - but

your reputation, the quality of service and any

flexibility provided by your suppliers may suffer.

Current Ratio Total Current

Assets/

Total Current

= x times Current Assets are assets that you can readily turn

in to cash or will do so within 12 months in the

course of business. Current Liabilities are amount

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Liabilities you are due to pay within the coming 12 months.

For example, 1.5 times means that you should be

able to lay your hands on $1.50 for every $1.00 you

owe. Less than 1 times e.g. 0.75 means that you

could have liquidity problems and be under

pressure to generate sufficient cash to meet

oncoming demands.

Quick Ratio (Total Current

Assets -

Inventory)/

Total Current

Liabilities

= x times Similar to the Current Ratio but takes account of

the fact that it may take time to convert inventory

into cash.

Working

Capital Ratio

(Inventory +

Receivables -

Payables)/

Sales

As %

Sales

A high percentage means that working capital

needs are high relative to your sales.

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Statement showing change in working capital for oswal woollen mills ltd:-

(Rs. in lacs)

Particulars 07-08 08-09 Increase ( + ) Decrease (- )

Current Assets

Inventories 12800.83 18715.45 5914.62 --

Sund. Debtors 6186.63 7894.50 1707.87 --

Cash & Bank 2930.89 275.00 -- 2655.89

Loan & Advances 7201.48 3775.00 -- 3426.48

Total ( A ) 29119.83 30659.95

Current Liabilities

C.L.and provisions 8872.37 10160.2 -- 1287.83

Total ( B ) 8872.37 10160.2

( A-B ) 20247.46 20499.75 7622.49 7370.20

↑ in working capital 252.29 252.29

Total 20499.75 20499.75 7622.49 7622.49

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Statement showing change in working capital for oswal woollwn mills Ltd.:

( Rs.in lacks)

Particulars 08-09 09-10 Increase ( + ) Decrease ( - )

Current Assets

Inventories 18715.45 22094.36 3378.91

Sund. Debtors 7894.50 9830.00 1935.50

Cash & Bank 275.00 2740.00 2465.00

Loan & Adv. 3775.00 3971.50 196.5

Total ( A ) 30659.95 38635.86

Current Liabilities

C.L. & provisions 10160.2 11430.36 1270.36

Total ( B ) 10160.2 11430.36

( A-B ) 20499.95 27205.50 7975.91 1270.36

↑ in working capital 88.93 6705.55

Total 27205.50 27205.50 7975.91 7975.91

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CALCULATION OF WORKING CAPITAL FOR OSWAL WOOLLEN

MILLS LTD.

(Rs.in lacks)

YEAR 31.03.08 31.03.09 31.03.10

CURRENT ASSETS

INVENTORIES 12800.83 18715.45 22094.36

SUNDRY DEBTORS 6186.63 7894.50 9830.00

CASH AND BANK 2930.89 275.00 2740.00

LOANS & ADVANCES 7201.48 3775.00 3971.50

TOTAL CURRENT ASSESTS 29119.83 30659.95 38635.86

LESS:-

CURRENT LIABILITIES AND PROVISIONS

C.L. & PROVISIONS 8872.37 10160.2 11430.36

TOTAL C.L. 8872.37 10160.2 11430.36

NET CURRENT ASSETS 20247.46 20499.75 27205.50

BANK BORROWINGS FOR

W.C.

13821.40 12500.00 15000.00

NET WORKING CAPITAL 6426.06 7999.75 12205.50

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ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL

INVENTORY ANALYSIS

Inventory is total amount of goods and materials content in a store of factory at any given time.

Inventory means stock of three things:-

1. Raw materials

2. Semi finished goods.

3. Finished goods.

POSITION OF INVENTORY IN OSWAL WOOLLEN MILLS LTD (Rs.in lacks)

PARTICULAR 2008 2009 2010

STORES 587.19 482.00 548.25

RAW

MATERIAL6473.42 9746.10 11705.50

FINISHED

GOODS3834.44 5554.20 6500.47

W.I.P 1905.78 2947.15 3340.14

TOTAL 12800.83 18729.45 22094.36

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Analysis through chart:

2008 2009 20100

2000

4000

6000

8000

10000

12000

14000

587.19 482 548.25

6473.42

9746.1

11705.5

3834.44

5554.2

6500.47

1905.78

2947.153340.14

INVENTORY

STORESRAW MATERIALFINISHED GOODSW.I.P

YEARS

AMO

UNTS

(IN

LACK

S)

INTERPRETATION:

As we analyze the financial statements of the company we come to know that the sale of the

company increases so as we know that the sales increases due increase in the demand of the

product. So in order to meet the demand of the customers company has to increases its

production. And in order to increase the production company needs more raw materials. so we

can see that Raw material for the financial year 2008 was 6473.42 and it is increase to 9746.1

and then it is increased to 11705.5 for the year 2010. So, we can say that raw material is

increased by 3272.68 in 2009 and then 1956.4 for 2010. This is necessary for smooth production

so that there is no shortage of raw material, and also to avoid the un necessary delays in

production.

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SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and fall under

current assets. Debtors will arise only when credit sales are made

Position of Sundry Debtors in OSWAL

(Rs.in lacks)


Receivable other than

export and deferred

5696.31 7457.00 8955.00

Export receivable 490.32 437.50 875.00

TOTAL 6186.63 7894.50 9830.00


2008 2009 2010

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

5696.31

7457

8955

490.32 437.5875

RECEIVABLE ANALYSIS

Recevinable other than export and deferred

Export receivable

YEARS

AM

OU

NT

S (

IN L

AC

KS

)

INTERPRETATION

As we analyze the above table we come to know that debtors in 2009 it increases by 1707.87 and

in 2010 by 1935.5. So we can say that credit sales of company also increases because debtors

and bill receivables only arises when credit sales are made.

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CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset and vital current assets, it is an important component of

working capital.

Position of Cash and Bank Balance in OAWAL

(Rs.in lacks)


CASH IN HAND &

WITH BANK

2930.89 275.00 2740.00

TOTAL 2930.89 275.00 2740.00


2008 2009 2010

0

500

1000

1500

2000

2500

3000

3500

2930.89

275

2740

CASH & BANK BALANCE ANALYSIS

YEARS

AM

OU

NT

(IN

LA

CK

S)

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INTERPRETATION

From the above table we can see that Cash balance of the company is decreased to 275.00 from

2930.89 in financial year 2009 and in 2010 it is increased to 2740.00. So we can say that cash

balance of the company is very much fluctuating in 2009 and 2010. It means there is lack of

proper method and technique to maintain liquidity position of the company.

LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties, company, employees

for a specific period of time and in return they will be liable to make timely repayment of that

amount in addition to interest on that loan.

Position of Other Loans & Advances in OSWAL

(Rs. in lacks)


ADVANCE TO SUPPILERS 1533.27 1450.00 1490.00

ADVANCE PAYMENT OF

TAXES

705.65 ------ ------

PREPAID EXPENSES &

ADVANCES

2378.11 2250.00 2335.00

DUTY DRAWBACK & CASH

INCENTIVES

82.18 75.00 146.50

INVESTMENT OTHER THAN

LONG TERM

2502.27 ----- ------

TOTAL 7201.48 3775.00 3971.50

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2008 2009 20100

500

1000

1500

2000

2500

3000

1533.27 1450 1490

705.65

0 0

2378.112250 2335

82.18 75 146.5

2502.27

0 0

LOANS & ADVANCES

ADVANCE TO SUPPILERS

ADVANCE PAYMENT OF TAXES

PREPAID EXPENSES & ADVANCES

DUTY DRAWBACK & CASH IN-CENTIVES

INVESTMENT OTHER THAN LONG TERM

YEARS

AMO

UNT

(IN LA

CKS)

INTERPRETATION

From above we can see that the advance payment supplier is decreased by 5.43% for the

financial year 2009 from 1533.27 of the previous 2008 and then it is increased by 2.75% in 2010

i.e. 1490 so we can say that advance payment to the supplier is increased in 2010.so we can say

that company want to take advantage of cash discount which is provided by the supplier for the

advance cash payment made by the Company and it also have positive impact on goodwill of

company and it’s the sign of satisfactory financial position of the company.

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CURRENT LIABILITIES ANALYSIS

Current liabilities are any liabilities that are incurred by the firm on a short term basis or current

liabilities that has to be paid by the firm with in one year.

Position of Other Current Liabilities in OSWAL

(Rs.in lacks)

PARTICULARS 2008 2009 2010

i. Creditors for purchases 2716.71 3726.00 4278.00

ii. Bills payable under L/C for raw

material

3016.18 2475.80 2900.00

iii. Advance received from

customers

225.14 300.00 357.00

iv. Accrued expenses 1271.96 1402.50 1475.00

v. Statutory liability 257.86 290.00 332.00

vi. Installment of fixed asset loans

due to within a year

1380.96 1965.90 2088.36

TOTAL 8872.37 10160.20 11430.36

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2008 2009 20100

500

1000

1500

2000

2500

3000

3500

4000

4500

2716.71

3726

4278

3016.18

2475.8

2900

225.14 300 357

1271.96 1402.5 1475

257.86 290 332

1380.96

1965.9 2088.36

CURRENT LIABILITIES & PROVISIONS

Creditors for purchases

Bills payable under L/C for raw ma-terial

Advance received from customers

Accrued expenses

Statutory liability

Installment of fixed asset loans due to within a year

YEARS

AMO

UNT

(IN LA

CKS)

INTERPRETATION If we analysis the whole current liability we can see that current liability is increased by 1287.83

and 1270.16 for the financial year 2008-09 and 2009-10 respectively. It is increasing by 13.5

respectively. If we see only creditors for purchase we got can say that in 2009 it is increased by

1009.29 in 2009 from 2716.71 for the financial year of 2009 and it is increased by 552 in 2010.

So we can say that the purchase of the company is increasing in all financial year annually

increased by 12% and we can also see that advances received from customers are also increasing

that is in 2009 it is increased by 74.86 from 225.14 and 57 in 2010. So we can say that more cash

is coming so we can say that liquidity position of the company becoming strong.

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WORKING CAPITAL RATIO’S OF COMPANY

GROSS PROFIT RATIO OF OSWAL WOOLLEN MILLS Ltd.

Gross Profit Ratio

Gross Profit * 100

Sales

2008 2009 2010

Gross Profit ratio: - 18.11 17.99 18.82

ANALYSIS THROUGH CHART

2008 2009 201017.417.617.8

1818.218.418.618.8

19

18.11 17.9899999999998

18.82

GROSS PROFIT RATIO

YEARS

Interpretation

Gross profit ratio of the company is 18.11% for the year 2008 and it is decreased to 17.99% in

2009. It is because the cost of the company has minor increase because of increase in raw

material cost. Then company’s gross profit ratio increased to 18.82 which is best for company so

we can say that company’s position is strong for the financial year 2010.

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NET PROFIT RATIO OF OSWAL WOOLLEN MILLS Ltd.

Net Profit Ratio

Net Profit * 100 Sales

2008 2009 2010

Net Profit ratio: - 4.72 4.02 5.38


2008 2009 2010

0

1

2

3

4

5

6

4.72

4.02

5.38

NET PROFIT RATIO

YEARS

Interpretation Company’s net profit is 4.72% in the year 2008 and then it is decreased to 4.02 in 2009. But in

2010 by covering minor decrease in previous year with, 70%. But from above data and by seeing

the overall earning we can say that company is in good position.

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POSITION OF RECEIVABLE RATIO IN OSWAL

FORMULA

DEBTORS

RECEIVABLE RATIO = ---------------- * 365

SALES

YEAR 31.03.2008 31.03.2009 31.03.2010

RECEIVABLE RATIO (IN DAYS) 62 65 70


2008 2009 2010

58

60

62

64

66

68

70

72

62

65

70

RECEIVEABLE RATIO (IN DAYS)

YEARS

DA

YS

INTERPRETATION

From the above table and diagram we can say that company has good debt collection period

because the company have low debt collection period. But the companies debt collection period

for the year 2008 is 62 and then it is increased to 65 in 2009 then 70 in 2010. So we can say that

the company’s debt collection period is increasing averagely by 4 days per year. We can say that

the company has no impact on slow down of economy. So we can say that overall position of the

company is satisfactory.

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POSITION OF PAYABLE RATIO IN OSWAL

FORMULA CREDITORSPAYABLE RATIO= ----------------------------- PURCHASES

YEAR 31.03.08 31.03.09 31.03.10

PAYABLE RATIO (IN DAYS) 85 70 78


2008 2009 2010

0

10

20

30

40

50

60

70

80

90 85

70

78

Chart Title

YAER

DA

YS

INTERPRETATION

Oswal woollen mills ltd has good payable ratio like receivable ratio. The company has averagely

77 days of payable ratio. So it is good for company because lower the payable ratio means the

company liquidity position is strong.

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POSITION OF CURRENT RATIO IN OSWAL

FORMULA

TOTAL CURRENT ASSETS

CURRENT RATIO= --------------------------------------------

TOTAL CURRENT LIABILITIES

YEAR 31.03.08 31.03.09 31.03.10

CURRENT RATIO 1.28 1.35 1.46


2006 2009 2010

1.15

1.2

1.25

1.3

1.35

1.4

1.45

1.5

1.28

1.35

1.46Chart Title

YAER

INTERPRETATION

The current ratio of the unit is less than standard. The current ratio should be 2:1 but it is not. But

the company have 1.28 in 2008 1.35 in 2009 and 2.46 in 2010. So we can say that the company

is in not in position as it need.

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POSITION OF QUICK RATIO IN OSWAL

FORMULA

TOTAL CURRENT ASSETS - INVENTORIESQUICK RATIO= ----------------------------------------------------------------- TOTAL CURRENT LIABILITIES

YEAR 31.03.08 31.03.09 31.03.10

QUICK RATIO 0.72 0.53 0.63


2008 2009 2010

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.80.720000000000001

0.53

0.630000000000009

Chart Title

YEAR

INTERPRETATION

If we consider the data of the company we can say that this ration is also not matching with

standard that is 1:1. The company have quick ration .72 in 2008 than it is decreased to .53 in

2009 and then it increased to .63 in 2010.

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POSITION OF INVENTORY TURNOVER RATIO OSWAL

FORMULA

CLOSING STOCKSTOCK TURN OVER RATIO (IN DAYS) = ----------------------------------- * 365 COST OF GOODS SOLD

YEAR 31.03.08 31.03.09 31.03.10

STOCK TURNOVER RATIO 127 154 156(IN DAYS)


2008 2009 2010

0

20

40

60

80

100

120

140

160

180

127

154 156Chart Title

YEAR

DA

YS

INTERPRETATION

Inventory turnover ratio increasing of the company. Inventory turnover ratio is higher in the

2010. This is because effect of the raw material. The company is using its inventory in a good

manner.

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POSITION OF DEBT-EQUITY RATIO IN OSWAL

Formula = Debt / Equity

Calculation of debt-equity ratio at OWL:

Particulars 2007-08 2008-09 2009-10Long Term Debt 18779.64 17511.01 16713.49Net Worth 13290.28 15472.58 18911.22D/E Ratio 1.41:1 1.13:1 0.88:1


2009 2009 2010

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6 Chart Title

YEAR

D/E

Ra

tio

Interpretation Oswal Woollen Mills Ltd. has a decreasing trend in d/e ratio so we can say that it is using its

funds and not taking loans from banks. Equity is more than debt that shows a very strong

position in whole market. Using lower debts decreases the cost as well as risk. So company is in

good position.

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MAJOR FINDINGS

Statement Showing Difference from Previous Year OF OSWAL

(amt. in lacks)

Particulars 06-07 07-08

Investments 40.44

by 2.94%

3.87

by 0.29%

Inventories 2032.18

by 21.50%

1317.70

by 11.48%

Sundry Debtors 762.68

by 18.40%

1278.06

by 26.04%

Cash & Bank 454.61

by 447.41%

2374.67

by426.93%

Current Liabilities 4216.26

by 60.50%

-2141.37

by 19.14%

General reserve 1402.72

by 25.03%

2127.56

by 30.36%

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CONCLUSION

CONCLUSION

By concluding the study about the working capital it is find that working capital management of

Oswal woollen mills ltd. Is too good. Oswal woollen mills ltd. Has sufficient funds to meet its

current obligation every time which is due to sufficient profits and efficient management of

Oswal woollen mills ltd.

Cash management and receivable management are too much good because of centralized control

on these. Raw material for the all units of oswal group is purchased by corporate office in bulk

which Is the best way. Safety measures for inventories are also quiet sufficient in company.

Overall the working capital management of oswal woollen mills ltd is very much efficient.

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SUGGESTIONS

SUGGESTIONS

Management should make the proper use of inventory control techniques like fixation of

minimum, maximum and ordering levels for all the items for less blockage of money.

The unit should also adopt proper inventory control like ABC analysis etc. This inventory

system can make the inventory management more result oriented The EOQ can be followed

in stores

Due to competition prices are market driven and for earning more margin company should

give the more concentration on cost reduction by improving its efficiency

The investments of surplus funds are made by the corporate office and the unit is not

generally involved while taking decisions with regard to structure of investment of surplus

funds. The corporate office should involve the units so as to better ascertain the future

requirements of funds and accordingly the investments are made in different securities.

The company is losing its overseas customers due to decrease in exports so the sufficient

amount of exports should the maintained.

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BIBLIOGRAPHY

BIBLIOGRAPHYReferences

1. Stephen Bush (2008) “Seizing new treasures with aggressive cash management” cash

flow magazine Paper No- 02-01.

2. Bebehuk L. and L. stole (2009) “Organize Turn tax dollars into working capital” Rush,

George pg- 02-01.

3. Allensius (2009) “MANAGEMENT WORKING CAPITA” Working Paper No- 02-01.

4. Gamble, Richard H. (2005) “Working capital managers: muscling into a larger role”

Cash flow Magazine 0196-6227

BOOKS

Financial management: Pandey IM, vikas publishing house.

ANNUAL REPORTS OF OWM

WEBSITES

http://www.owmnahar.in/

http://www.economywatch.com/business-and-economy/textile-industry-overview.html http://www.economywatch.com/business-and-economy/textile-mills.html http://www.allprojectreports.com/working_capital_analysis/

working_capital_analysis.htm http://www.faqs.org/abstracts/ journal.org/submissions/

isfa2009_submission_13.doc+abstract+of+working+capital&cd=24&hl=en&ct=clnk&gl

=in

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http://www.allprojectreports.com/working_capital_analysis/working_capital_analysis.htm

http://www.allprojectreports.com/working_capital_analysis/working_capital_analysis.htm

http://www.economywatch.com/business-and-economy/textile-mills.html

http://www.economywatch.com/business-and-economy/textile-industry-overview.html

summer training project of textile industry"manjinder singh"

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