Escolar Documentos
Profissional Documentos
Cultura Documentos
Of
Submitted To:
Ms. Simranjeet Kaur
Submitted By:
ShwetaMalhotra
7NBLU011
By
(Shweta Malhotra)
(M.B.A 2007-2009)
Preface
The need to acquire knowledge and to develop the skills of
decision making in the field of financial management has never been
great as it is today infact the rapid industrialization that is taking place in
the country has brought an urgency for rapid development of managerial
abilities in graduate post graduate programs.
For such as educational activities it is essential not only to have
teaching material of sufficient depth and breathe of coverage but also to
provide it in a way that lends itself to be adapted to the most effective
pedagogy.
A project entitled Working Capital Management of Oswal
Woolen Mills Ltd. under the guidance of Ms. Simranjeet Kaur
(Project Guide) was undertaken by me in partial fulfillment of
requirement for degree of Master in Business Administration. I hope this
study will be useful for academic as well as practical purpose.
ACKNOWLEDGEMENT
First and foremost, I would like to express my deep sense of gratitude to
my esteemed supervisor, senior lecturer of Soft Skills Department of
INC, Ludhiana Ms. Simranjeet Kaur under whose competent guidance
and affectionate encouragement, I have been able to complete this
project. She needs a special mention in this project and I am greatly
indebted to her for her kind behaviour, sympathetic attitude, rich
experience and profound learning. Indefatigable fact finding zeal was a
source of constant inspiration.
It is impossible to acknowledge in the words the help, love & affection
that I have received from members of OSWAL WOOLLEN MILLS
LTD. who helped me in endeavour.
CONTENTS
Chapter No
Topics
Chapter 1
Summary of Project
Chapter 2
Chapter 3
Research Methodology
Chapter 4
Review of Literature
Introduction of Hatchback Cars
Company Portfolio
Chapter 5
Chapter 6
Chapter 7
Conclusion
Chapter 8
Bibliography
SUMMARY OF PROJECT
The Nahar Group- A renowned name in Indian industry is heading fast in
future with its wide range of products. Oswal Group started as a sock-knitting unit
in a rented room in Ludhiana. Although the beginning was small but the vision was
big. The burning desire to evolve grows and boundless enthusiasm made them to
achieve heights of success.
The Project undertaken is Working Capital Management and Various
Methods of Funding of Working Capital.
The project various methods of funding of working capital includes the
calculation of working capital for the funding purpose and deciding and opting for
the various funding methods of the working capital of OWM.
This project is done under the Finance department under Mr. R.M. Sood
Finance Controller of the company and is related to major specialization Finance.
In this project well acquaintance with the procedure followed in Oswal
Woollen Mills Ltd. for the management of working capital and different ways and
necessities of funding of working capital. It includes the various loans and funds
that are available for the funding of working capital for the exporters.
OBJECTIVES OF STUDY
1. Analyze the operating cycle of the company.
2. Analyze the trend in various components of working capital.
3. Analyze the different aspects of funding of working capital.
OBJECTIVES
The basic objective behind this project is to provide an analytical overview of
Working Capital Management at oswal woollen mills limited by bringing into use
various theoretical tools & skills which have been studied. This include studying &
analyzing various financial data over a period of 5 years with the aim of gaining
useful insight into skill needed for the controlling the movement of working capital.
Specific Objective:
The broad areas that have been analyzed are as follows:
1.
OPERATING CYCLE:
The operating cycle of the unit has been calculated for the past 3 years with the aim of
studying trends & commenting on the efficiencies achieved & the inefficiencies that
have developed.
2.
RATIO ANALYSIS:
The ratios calculated & analyzed have been broadly divided under four parameters
a) Ratio to analyze the liquidity position.
b) Profitability ratios.
c) Ratio to calculate the efficiency of working capital management.
d) Ratios to analyze the structural health of the divisions working capital structure.
3.
CASH MANAGEMENT:
To study the cash management of MIL regarding its collection, lead time like in case
of outstation cheques, payments, facility of CMS and RTGS etc.
4.
INVENTORY MANAGEMENT:
To study the Inventory management of MIL regarding its valuation model, tools and
techniques used to measure effectiveness of inventory, system of sourcing etc.
5.
LIMITATIONS
1. Insufficiency of Data
2. Shortage of time is also reason for incomprehensiveness.
3. Less cooperation from mill staff.
10
11
RESEARCH METHODOLOGY
Research design:
The research design is a pattern or an outline of research project working. It is a
statement of only essential elements of study, those that provide basic guidelines
for the details of the project. The present study is being conducted followed by
Descriptive Research Design.
Data Collection:
Primary as well as secondary data is used for the project. The research vehicle for
primary data collection is unstructured interview with the managers to get
information regarding all variables for working capital management.
Secondary data is collected from Annual Report, relevant files & records of Nahar
Industrial Enterprise Ltd.
Analysis of Data:
The information gathered are the policies & practices regarding management of the
working capital. Analysis is done in terms of theoretical concepts. Analysis of
working capital performance is done with the help of percentages by showing
graphs, ratios etc.
12
13
REVIEW OF LITERATURE
Introduction of Working Capital Management
Introduction
The developing economies are generally faced with the problem of insufficient
utilization of resources available to them. CAPITIAL is the scarcest productive in
such economies and proper utilization of this resource promote the rate of growth,
cuts down the cost of production and above all beefs up the efficiency of
productive system in any developed policy of such economies financial
management in such field of study that encompasses the detailed analysis of accept
of capital and its management.
Financial management can be divided into two broad area of responsibility as the
management of long-term capital and management of short funds or working
capital. The management of working capital, which constitutes a major area of
decision making for financial manager, is a continuing function, which involves
the control of low financial resources circulating in the enterprise in one form or
the other. It also refers to the management of current assets and current liability.
Efficient management of working capital is an essential pre-requisite for the
successful operation of a business enterprise and improving its rate of return on
capital invested in short term assets. In simple words working capital refers to that
part of the firms capital, which is required for financing short term needs of the
company. These funds keep revolving and are being constantly into cash. Hence it
is also known as revolving or circulating capital or short- term capital.
Management of working capital in a given enterprise has profitability and liquidity
implications. Working capital represented by current assets constitutes a document
and controllable segment of investment particularly in manufacturing enterprise
14
effort to prune it or optimize its size must promptly enhance the profitability
besides ensuring saving on avoidable outlays. These efforts would simultaneously
active the flow of funds through the enterprise by focusing attention on stranglers
such as dormant inventories and overdue outstanding and by curbing the long
established tendency of funds to stagnate at different stages in the enterprise
operations. Thus working capital offers a common front for profitability and
liquidity management.
Importance of working capital can further be judge from the fact the many a times
the main cause of the failure of business enterprise has been found to be the
shortage of current assets and their mishandling.
A business enterprise may be conceived as a continuous Stock-to-flow-to-stock
cycle, where each turn of the cycle is expected to add to the real stock of the
enterprise. Given a certain value of stock at the start of the period, the operations of
the company during the period are supposed to bring net positive flows into the
firm. If this not realized then stock tends to be eroded, a major component in
financial management of an enterprise. Working capital is popular name for such
flow of management.
The standard definition of working capital is:
Gross Working capital: - All the assets include cash and balance.
Net Working capital: - All the current assets, including cash and bank balance
minus all current liabilities.
Implication of gross working capital
Working capital is that it is prime facie indictors of cash realizable by the firm at a
given date (excluding cash and bank balance)
Implication of net working capital
Net working capital shows potential realizable cash after meeting cash obligations
on account of current liabilities.
15
BASIS: CONCEPT
BASIS:
TIME
PERMANENT
WORKING
CAPITAL
TEMPORARY
WORKING
CAPITAL
REGULAR
W. CAPITAL
SEASONAL
W. CAPITAL
RESERVED
W. CAPITAL
SPECIAL
W. CAPITAL
16
Rs. Lacs
11483.13
4908.57
556.22
30.80
3011.71
19990.43
Rs. Lacs
Rs. Lacs
Provisions
Inventories
Sundry Debtors
Cash & Bank
Balances
Other Current Assets
7333.45
1567.22
1.14
due
30.80 Provisions
17
11088.62
19990.43
19
OWM, as said earlier, procures WOOL (its basic raw material) which is a seasonal crop and is
imported mainly from Australia. So it needs to store the wool stocks for around six months in
its peak season. Its working capital limits are assessed on the basis of three months stock. And
the remaining is financed by taking a short term loan from its consortium banks.
20
Every business concern should have adequate working capital to run its business
operations. It should have neither redundant or excess working capital nor
inadequate nor shortage of working capital. Both excess as well as short working
capital positions are bad for any business. However, out of the two, it is the
inadequacy of working capital which is more dangerous from the point of view of
the firm.
Disadvantages of excessive working capital
1. Excessive working capital means idle funds which earn no profits for the
business & hence the business earns a proper rate of return on its investments.
2. When there is a redundant working capital, it may lead to unnecessary
purchasing & accumulation of inventories causing more chances of theft,
waste & losses.
3. Excessive working capital implies excessive debtors & defective credit policy,
which may cause higher incidence of bad debts.
4. It may result into overall inefficiency in the organization.
5. When there is excessive working capital, relations with banks & other
financial institutions may not be maintained.
6. Due to low rate of return on investments, the value of shares may also fall.
7. The redundant working capital gives rise to speculative transactions.
21
1. A concern, which has inadequate working capital, cannot pay its short term
liabilities in time. Thus, it will lose its reputation & shall not be able to get
good credit facilities.
2. It cannot buy its requirement in bulk & cannot avail of discounts, etc.
3. It becomes difficult for the firm to exploit favorable market conditions &
undertake profitable projects due to lack of working capital.
4. The firm cannot pay day-to-day expenses of its operations & it creates
inefficiencies, increases costs & reduces the profits of the business.
5. It becomes impossible to utilize the fixed assets due to non-availability of
liquid funds.
6. The rate of return on investments also falls with the shortage of working
capital.
22
That is the reason by expansion of 4352 worsted spindles and 432 semi worsted spindles,
opening up of new showrooms, its assessed working capital limits (Funds Based) have gone up.
2.
Manufacturing cycle
The manufacturing cycle comprises of purchase and use of raw materials and the
production of finished goods. Longer the manufacturing cycle, larger will be the
firms working capital requirements.
Since OWM is a fully integrated plant with using cotton as a raw material and producing
Denim Fabrics and Jeans wear, AND using wool as a raw material and producing sweaters
knitted tops etc. as finished product its manufacturing cycle is longer. Moreover, being raw
material i.e. cotton and wool are a seasonal products, Raw material cycle understandably
needs to be larger keeping in view the storage requirements of about 6-8 months stock in its
peak season.
3.
Sales growth
The working capital need of a firm increases as the sale grows. It is difficult to
precisely determine the relationship between the volume of sales and working capital
needs. As sales grow, the firm needs to invest more in inventories and debtors. These
needs become very frequent and fast when sales grow continuously.
The firms sales are growing in the past few years which require increased need of working
capital. It has nearly by 33.33% from 2005-06 to 2006-07 i.e. Rs. 32308 lacs from Rs. 24737
lacs.
OWM is in expansionary phase and its working capital limits (fund based) have
increased to Rs. 88 crores and non fund based working capital limits have increased to 80
crores.
23
Generally, rising prices will require a firm to maintain higher amount of working
capital. However, companies, which can immediately revise their product prices with
rising price levels, will not face a severe working capital problem. Effect of rising
prices will be different for different companies. Some will face no working capital
problem, while working capital problems of other may be aggravated.
Increase in cotton costs and other manufacturing inputs has obviously increase the working
capital needs of OWM. The cotton cost has gone from avg. Rs. 44/- per kg to Rs. 55/- per kg
thereby resulting increase by about 25% in raw material costs and the prices of wool have also
increased by 4% as compaired to base year.
6. Market condition
The degree of competition prevailing in the market place has an important bearing on
working capital needs. When competition is keen, a large inventory of finished goods
is required to promptly meet the needs of customers. Also lenient terms of credit are to
be given to attract the customers.
24
Since OWM sells its denim fabrics, sweaters, pullovers and other finished goods only on cash
basis, and it sells yarn at a credit period of 45-60 days, the debtors collection period is very
minimal. Major chunk of cash sales reduces its working capital cycle.
7. Production policy
In certain industries the demand is subject to wide fluctuations due to seasonal
variations. The requirements of working capital, in such cases, depend upon the
production policy. The production could be kept either steady by accumulating
inventories during slack periods with a view to meet high demand during the peak
season or the production could be curtailed during the slack season and increased
during peak season. If the policy is to keep production steady by accumulating
inventories it will require higher working capital.
OWM keeps normally SIX TO EIGHT month of productions raw material in stock and it
keeps one months stock in process and thereby keeping its production cycle to about 1.5
months.
25
A) INDUSTRY PROFILE
Textile Industry Overview
It has been rightly said that 21st Century will belong to Asia. This is getting clearer
and holds good even in case of Textile Sector. It is well known that with very high
labor costs in U.S.A and Europe, entire activity from spinning to garmenting will
shift to Asian countries like China, India, Bangladesh, Pakistan, and Sri Lanka etc.
With the abolition of Quota Regime, each country would try to grab maximum
share of world trade in textile and garment sector. Indian Textile Industry will have
to face fierce competition particularly from China, Pakistan, Bangladesh and Sri
Lanka. It is now very clear that China will secure much larger share vis--vis other
competing countries and India will have to settle down to a second position.
If you look at the global clothing scenario, where the textile market stands today is
worth more than $400 billion and it is still growing every year. As a result, the
recent globalization of the textile trade has opened up highly demanding and
evolving requirements for outsourcing in textiles.
Recent studies have highlighted that fabric weaving alone expends around 28
million tons of fiber every year. This figure is parallel to more than half of the
global textile market. It is predicted that global production will grow by 25%
between 2002 and 2010, to reach more than 35 million tons and Asia is one of the
key regions for growth.
26
27
It has only 2-3 % import intensity. About 38 million people are gainfully employed
with the industry making it the second largest employment providing sector after
agriculture. Textiles, alone, account for about 25 percent of India's total for
earnings. The industry is concentrated in Tirupur (Tamilnadu) and Ludhiana
(Punjab). Tirupur produces 60 percent of the country's total knitwear exports.
Knitted garments account for almost 32 percent of all exported garments. India's
textile industry since its beginning continues to be predominantly cotton based
with about 65 percent of fabric consumption in the country being accounted for by
cotton. India can envisage its textile sector becoming $100b industry by 2010. This
will include exports of $50b.
India: One-Stop Solution to Textiles Sourcing
Second largest producer of textile and man-made fiber/yarn.
Second largest produce of Jute contribution 65% to the world.
Second largest produce of silk contribution 19% of the world.
Third largest produce of cotton fiber accounting for15% to the world.
Third largest produce of cotton fabric.
Fifth largest produce of cotton fabric/yarn.
Contributes 23% of the world spindles.
Ministry of finance has added 165 new textile products under duty drawback
schedule. The new products included wool tops, cotton yarn, acrylic yarn, viscose
yarn, various blended yarn/fabrics, fishing nets etc.
28
ORGANISATION PROFILE
A) Review of literature on the organization
AN INTRODUCTION
THE NAHAR GROUP
"At Nahar,
excellence is always an ongoing journey
never destination"
The Nahar Group- one of the leading business groups of India came into
existence in 1949 with the initial efforts of three Oswal brothers, Sh. Vidya Sager
Oswal, Sh. Lachman Dass, and Sh. Rattan Chand Oswal. They started a hosiery
factory to manufacture socks only. It was a dynamism vision- hard work,
farsightedness, and co-cooperativeness of Sh. Vidya Sager Oswal that small factory
in the days of II World War bagged a contract from Military.
This was the zoom-up point for the Oswal brothers. On 23 rd June, 1949 the
Oswal hosiery factory spitted into
Oswal Woolen Mills, and
Oswal Spinning and Weaving Mills Ltd.
Sh. Vidya Sager Oswal and Sh Rattan Chand Oswal manage the OWM and
Sh. Lachman Dass headed OS&WM Ltd.
29
The initial capacity was 800 spindles. Sh. Vidya Sager Oswal gave a mission
to the company; it was to target three basic needs of Mankind- Food, Cloth and
Shelter, & it was a single minded pursuit of excellence relentless sprit of the
enterprise Nahar group has archived heights of success.
In 1956, the spindle capacity was increased to 2000 and in 1960, a hosiery
unit was attached to OWML and in 1965, the spinning capacity was raised to
12000 a distant memory as the Nahar Group surges ahead to establish itself as a
reputed industrial conglomerate with a wide range portfolio- cotton and woolen
yarns fabric processing, hosiery garments, knitwear sweaters, steel, soaps, sugar,
infrastructure development, information technology.
In the year 1960 the hosiery branch was also attached to OWM. By 1966 the
export market was trapped and during this process Russia was targeted.
It was in 1972 that Mr. Vidya Sagar Oswals vision again came into foreplay
when he concentrates on Backward Integration of the spinning and hosiery unit of
OWM. So a wool combing unit was set up. On the other hand of ROTI part of the
mission four solvent extraction unit two in Ludhiana and two in Madras were set
up.
But unfortunately in 1978 the Darbar brand of vanaspati started incurring losses
due to the inequitable policies of govt. to favor SSIS in this sector. So these
Vanaspati plants and refineries were closed.
The dyeing plant in-housing laboratories etc were also rerouted to make
OWM a composite unit. And at present OWM has a spindle base capacity of
26,248 spindles with other related facilities in house.
30
Today they step into the new millennium, those nascent days of 800 spindles
stand up become a distant memory as the Nahar group surged ahead to establish
itself as a reputed and respectful industry conglomerate with a wide ranging
portfolio spinning, knitting, fabrics, processing textile, hosiery, garments knitwear,
infrastructure and information technology. The group include following industrial
company.
Though in many areas Group has achieved market leadership but because of
tough competition it is pulled back to refocus, restructure and realign its corporate
blue print to establish a new and appropriate equation with the new market forces.
It encompass aspiration and consolidates brand equity for the domestic markets
regarding the first groups aggressive and market survey forays have helped, zoom
the export senses contributing to over one third of the present turnover of the
group.
Focusing the second market driven brand extensions pervading to their high
profile and top-line, Monte Carlo has met with resounding success Canterbury
another brand too is not far behind. Both are associated with the woolen Sweaters
and Jerseys.
Today with the brand extension on their mind brand equity as a game plan,
the group board based its range to introduce Monte Carlo cotton garment for Indian
market. To widen the project portfolio the group has recently put two project
spinning unit and denim fabric. The plant will manufacture super fine quality for
inland consumption as well as for export to other country with latest art of
technology in the world.
31
In the year the turn over of reach to a new peak at 1800 crore in the year
1999-2000 with a foreign exchange (of Rs 600 crore in it).the group continued
excellence in the export has been recognized by the government as well as the
export council of India and rewarded by several trophies, awards and certifications
by them.
Woolmark Certification on Monte Carlo Products.
Business Super brand Affiliation of Monte Carlo.
More Achievements
Monte Carlo and OWM yarns were exhibited as best products at
INTERNATIONAL WOOL SECTRRIAT in INDIA. It has been rated as best in
woolens and fashion.
From 1995 to 1999 Best Exhibited Product by the Wool mark Company
for Monte Carlo woolens.
32
NAHAR EXPORTS
33
34
The companys turnover is around Rs. 398 crores including exports of over Rs. 190
crores.
18.18crores. Works of the company are located at Ludhiana. Bhiwani and near
Chandigarh at Lalru.
2.
3.
Export Market:
Australia, New Zealand, Holland, Thailand, Hong Kong, Singapore, Taiwan, South
Africa, Canada, Egypt, Israel and Bangladesh.
4.
36
5.
OWM were the proud recipient of the Best exhibited Products award from the
international wool Secretariat for these two glamours brands.
6.
COTTON COUNTY
8.
Beyond their professional portfolio lies the human group that has always
2.
3.
Export award consecutively for five years (1989 to 1994) for exports
of
5.
6.
7.
the
year 2002-03
8.
Also NIEL, GARMENT UNIT is the recipient of State Level Safety Award.
37
9.
B) COMPANY PROFILE
i) Review of Literature
38
even used to give physical aid to his employer, and his salary was Rs.18 in 1924.
He was dynamic and was having the quality of Farsightedness.
He wanted to achieve something in his life so with the initial efforts of he
himself and his brothers Sh Lachman Dass Oswal and Sh. Rattan Chand Oswal, he
started a hosiery factory to manufacture socks only. It was his hard work that his
small Oswal hosiery factory in the days of II World War bagged a contract from
Military.
This was the zoom-up point for the Oswal brothers. On 23 rd June, 1949 the
Oswal hosiery factory spitted into Oswal Woollen Mills, and Oswal Spinning and
Weaving Mills Ltd.
Sh. Vidya Sager Oswal and Sh Rattan Chand Oswal manage the OWM and
Sh. Lachman Dass headed OS&WM Ltd. By the time of Jawaharlal Lal, the
present day owner of OWML, the group has already done five splits. It was in
1993 that after year of infighting Mr. Jawaharlal Lal Oswal split up form his father
Mr. Vidya Sager Oswal taking with him the groups choices companies OWML,
Oswal Fats and Oils, Punjab Comcast, Nahar Fibers and Nahar Exports.
This was called Nahar Group, which at present constitutes nine companies
viz. OWML, Nahar Spinning, Nahar Export, Nahar sugar, Nahar Industry
Enterprises Ltd, Nahar International, Nahar Fibers, Nahar Ind. Infrastructure, and
Nahar Fabrics and is headed by Mr. J.L Oswal. Today the turnover is more than Rs
2250 Crores.
39
SEASONS
There are mainly two seasons viz.,
PEAK SEASON: -
June to December.
LEAN SEASON: -
January to March.
became a name to reckon with, both in the domestic & international markets.
Research & Development also received focused attention & today the Company
boasts of North Indias most sophisticated laboratory, approved by the international
wool Secretariat (IWS)& is even authorized to act as a Quality Checking center for
other manufacturers.
Today OWM is the flagship company of the glorious Nahar Empire and a
proud owner of widely loved Super Brand in Knitwear, Monte Carlo and
Recognized Super Brand Canterbury. The product range include diverse types of
Woollen, Acrylic and Synthetic Blended Yarns, Lambs Wool Yarn, Woollen
Viscose & Acrylic Tops, Textile Fabric, Woollen Knitwear, Hosiery & Cotton
Garments.
Recently an ultra modern Lambs wool & Angora Spinning plant has been set
up, of which more than 50% manufacturer is for captive consumption. The balance
meets the requirements of other hosiery knitwear exporters in India. Further a
modernization cum balancing program has been introduced to upgrade its capacity
for manufacturing garments & fabrics for various Government & Defense
departments.
import of raw greasy wool mostly from Australia and our products include various
types of specialty yarns, such as, worsted woollen yarn, lamb wool yarn, acrylic
yarn, various types of wool based blended yarn, fancy yarn, hand knitting yarn and
knitted and hosiery garments etc. company subsequently added cotton garments to
our existing product portfolio during Fiscal 2002, which we outsource as per our
requirements and sell under our own brand name. Since March 2006, we have
started manufacture of indigo dyed specialty denim fabric, which has added to our
existing vast range of product portfolios. Currently, we are employing over 4,500
persons and our present manufacturing. Facilities include 26,248 spindles to
41
manufacture worsted woollen yarn besides machines for weaving, knitting, dyeing
and finishing. Presently, our manufacturing facilities are producing approximately
2.5 million lbs of wool tops per annum, 750,000 pieces of readymade knitted
garments per annum and 10 million meters of denim fabric per annum.
We are the registered owners of well-known trade name Monte Carlo for
selling our woollen hosiery and cotton garments. Monte Carlo has been
recognized as a Super brand for woollen hosiery garments since Fiscal 2003 by
International Society for Super brands. Our distribution channel comprises of a
mix of Monte Carlo Exclusive Brand Outlets, network of national chain stores
and multi brand outlets. Today, Oswal Woolen Mills Limited is a company that
owes its strength in the market & financial solidity to the foresight of its Chairman,
Jawahar Lal Oswal, the professional inputs of the Board of Directors and able them
of Managers. A closely knit team that keep close to them a formula of tremendous
success.
Chairman-Cum-Managing Director
Director
Director
Director
Executive Director
42
Executive Director
Additional Director
Additional Director
Additional Director
Additional Director
43
iv) Brands
THE WORLD OF
MONTE CARLO & CANTERBURY
KNITWEARS
MONTE CARLO
(Its the way you make me feel)
There is no other place that is exclusive and a trend-setter like Monte Carlo,
situated on the Rivera, 18 Kilometers E.N.E of France.
There you can see the latest in Fashion Courtesy of the rich and famous. You will
find the same class and luxury in our Scottish Lambs and Australian Merino Wool.
To ensure an exquisite degree of softness, the wool, which comes from
pedigree Australian Lambs, and Sheeps, is selected and when placed in the hands
of European designers, this exclusive quality wool is transformed into a collectors
item called Monte Carlo.
44
CANTERBURY
(Soft and sensual woolen wear)
It is whisper lite yet incredibly warm goes into it is appealing exclusive cash wool
and skilled fingers weave the yarn into exquisite shapes and patterns, thus
breathing life into designer dreams. Canterbury garment is a promise of warmth
and fascination forever.
C) PRODUCT PROFILE
PRODUCT PROFILE OF OWM:
Weaving yarns
ii.
iii.
Hosiery yarns
C. Textile fabrics
i.
Blankets
ii.
Scarfs
45
iii.
Gents Lohis
iv.
v.
Shawl
vi.
Woolen suiting
Pullovers
100% Acrylic yarn- Both from wet and dry spun acrylic fibers.
B) Worsted Yarns
Woolen woolen, woolen, and Acrylic blends
46
C) Dyed Yarns
They are also manufacturing dyed yarns. Fiber dyed and yarn dyed cotton
Acrylic /Cotton and Polyester/Cotton
D) Fancy Yarns
Manufactures of various types of fancy yarn on SAURFR ALLMA
FABRIC
Grey dyed-100% cotton and polyester/cotton
Knitted and Weaving
Rib Jacquard, Fleece, P.K. sheering, Velour, Single jersey and sinker
Plain-woven twills, Drills, Satin, Poplin, and Mats
GARMENTS
A) Woolen
Under woolen they are manufactures of renowned MONTE CARLO and
CANTERBURY range of woolen knitwear i.e. Pullovers, lady cardigans and
all types of woolen garments.
B) Cotton
Shirts, t-shirts for internationally known brands like GAP, REEBOK,
KOSUGI, SUN MARINO, MIZUNO, CARDIN and CHESTER FIELD
MFG CORP. (CMC)
They are also producing Woolen/Acrylic Blankets, mens Lohis &shawls.
STEEL
Alloys, Round and Stainless Steel, Round, Square and Flats.
47
VEGETABLES
Edible oils, Soaps, Fatty Acid, Glycerin, Oxygen Gas, Solvent Extracted Rice
Bran Oil. & Vanaspati.
EXPORT MARKETS
Argentina, Brazil, China, Columbia, Chile, Czech Republic, Israel, Lebanon,
Lithuania, Poland, Portugal, Peru, Turkey.
48
49
OPPURTUNITIES
1. With booming retail sector and big players like WALMART, BHARTI entering
into that field, OWM is also stepping ahead with a mission of opening up of
150 retail outlets all over India under a brand name MONTE CARLO.
51
THREATS
1. Mushrooming and upcoming of small hosieries in Ludhiana
2. Seasonal demand for their major product i.e. pullovers
52
53
2007
%age
2006
%age
11483.13
4908.57
556.21
3011.71
30.8
57.4
24.6
2.8
15.06
.15
9450.95
4145.89
101.61
1404.81
62.60
27.5
.67
9.3
0
19990.43
100.00
15103.29
100.00
7333.45
1567.22
1.14
5920
14821.8
49.5
10.57
.007
39.94
100.00
5448.32
979.67
1.4
4903.91
11433.30
47.65
8.6
0.012
42.9
100.00
Current Assets:
Inventories
Sundry Debtors
Cash & Bank balance
Loan & Advances
OTHER Current Assets
Current Liabilities:
Creditors
Other Liabilities
Accrued expenses
Provisions and loans
Total Current Liabilities
Thus we see from the common size statement that main components of current assets
are Inventories and Loans & advances. The share of inventories in 2006 was 62.60%
but now it decreased to 57.4% in 2007, which shows large sum of money has been
blocked in inventories. And 76 % of the Loans and advances comprise of Advances
made to directors of the company and 20.13% represents advance income tax paid.
54
PARTICULARS
Increase/
Decrease
(in Rs.)
Increase/
Decrease
(in %)
2007
2006
11483.13
4908.57
556.21
3011.71
30.8
19990.43
9450.95
4145.89
101.61
1404.81
0
15103.29
2032.18
762.68
454.6
1602.9
30.8
4887.14
21.5%
18.4%
447.39%
114%
32.35
7333.45
1567.22
1.14
5920
14821.8
5168.63
5448.32
979.67
1.4
4903.91
11433.30
3669.99
1885.13
587.55
(.26)
1016.09
3388.5
1498.64
34.6%
59.97%
(18.57%)
20.71%
29.64%
40.5%
Current assets
Inventories
Sundry debtors
Cash & Bank
Loan & Advances
Other Current Assets
Total Current Assets (A)
Creditors
Other liabilities
Accrued expenses
Provisions
Total Current Liabilities (B)
Working Capital
(A-B)
(Rs.Lacs)
Thus we see from the above table that the inventory has increased by 21.5% in 2007
from 2006. And further we know that, as discussed earlier, major portion of total
inventory is comprise of raw materials. The main factor of having large raw material
inventory was that the wool has to be imported from Australia. The company has done
cost-benefit analysis regarding storage cost etc. The cash and bank balances have
increased by 447% in 2007 from 2006. The main reason for such a sharp increase was
due to opening up of new showrooms where sales are done on cash basis and increase
in fixed deposits which they give for security purpose to banks. The creditors have
increased by 34.6 in 2007 from 2006 mainly due to sharp increase in amount
55
5168.63 lacs, an
(Rs. In 00000)
Particular
Total
current
assets
Total
current
liability
Net
working
capital
2007
19990.43
2006
15103.29
2005
16793
14821.8
11433.30
12115
5168.63
3669.99
4678
It is clear from the above graph that net working capital of OWM is increasing
consistently over the period of 2003-05 but it has decreased for the period 2005-06
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and again in 2006-07 it has shown an increase.. It is because of the expansion plans of
the company. Still the company is in their expansionary phases which will results into
more working capital in the coming years.
2003
2004
2005
2006
2007
37.6
0
44.88
52.68
117.07
183.85
11.17
13.19
16.04
13.09
13.83
20.87
32.26
42.74
24.13
30.18
69.64
90.33
111.46
154.30
227.86
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The operating cycle of OWM is increasing year by year, as it is clear from the above table. It is
important to note here is that it is the raw material conversion period which has increased
almost 5 folds from 2003 to 2007, forcing the overall operating cycle of OWM to increase.
As it is said earlier, the company has to store around 6 months of raw material i.e. WOOL,
since its a seasonal crop, in its peak season for steady production run throughout the year. The
company has a steady production cycle ranging from 1 month to 1.5 months throughout this
period.
2. RATIO ANALYSIS
A ratio is an arithmetical relationship between two figures. Financial ratio analysis is a
study of ratios between various items or group of items in financial statement,
turnover ratios have been used for analysis. Ratio analysis is the powerful tool of
financial analysis of accounting data. The relationship of the figures should be
meaningful. Financial analysis & ratio is used as an index or yardstick for measuring
performance of the firm.
Working capital is that part of total capital which is important in current assets, to get
better insights about the working capital position of the OWM, it is better to utilize
ratio analysis. To analyze the working capital position I shall here interpret the
following ratios of OWM for 2 consecutive financial years 2005-06 and 2006-07.
1.
Liquidity Ratio
a)
Current ratio
b)
Quick ratio
2.
Activity Ratios
a)
b)
3.
4.
1.
LIQUIDITY RATIOS: The liquidity aspect is essential for both the creditors as well
as management of a business enterprise. These ratios are used to judge a firms ability
to meet short term obligations. From them much insight can be obtained to present
cash solvency of the firm and its ability to remain solvent in the event of adversities.
We wish to compare short-term obligations with the short-term sources available to
meet these obligations.
a) Current ratio: - The current ratio is very popular financial ratio measure as the ability
of the firm to meet current liabilities. Current assets are converted into cash for the
payment of current liabilities. Apparently higher the current ratio the greater the short
term solvency, Current ratio of MIL can be shown as under: -
Current Assets_ _
Current Liabilities
Table showing the Current Ratio
(Rs Lacs)
Particulars
2007
Current assets
19990.43
15103.29
Current Liabilities
14821.8
11433.30
Current ratio
1.35
59
2006
1.32
A current ratio of 1.33:1 is generally considered satisfactory. The current ratio of the
unit is much in line with the recommended and it ensures the payment of dues in time.
b) Quick ratio: - Although current ratio is a valuable indicator of liquidity yet it may
lead to misleading conclusion, in case of inventories forms a major component of
current assets, the quick ratio is a fairly stringent measure of liquidity. It is based on
those
Current assets which are the highly liquid or which are easily converted into cash.
Inventories and prepaid expenses are excluded from this category, because these are
the best liquid component of and has the ability to pay its current liabilities in time
when these are due, the ratio may be expressed as:Liquid assets
Current liabilities
Table showing the Quick ratio
(Rs. Lacs)
Particulars
2007
2006
Quick assets
8507.3
5652.34
Current Liabilities
14821.8
Quick ratio
0.57
11433.3
0.49
The rule of thumb for quick ratio is 1:1. The ratio of the company is much less than
this. It shows risk on part of creditors to get the return. The ratio is falling
considerably. It is because of the fact that a large portion of current assets comprise of
inventories, a not so liquid asset.
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ACTIVITY RATIOS: The funds of creditors and owner are invested in various kinds
2.
of assets to generate sales and profits. Activity ratios measure how efficiently the firm
employs the assets. These ratios are based on the relationship between the level of
activity, represented by sales and level of various assets. The important turnover ratios
are:
a) Current assets turnover ratio: The idea of the current assets turnover is to ascertain
the contribution of the current assets to sales. The relationship indicates efficiency or
otherwise of the utilization of current assets to attain the maximum sales. It is a
relative measure as it is compared with previous year. Lower ratio tells us that the
company is employing more current assets for a given level of sales and vice-versa,
the ratio may be expressed as:-
Sales
Current Assets
Table showing current assets turnover ratio
(Rs. Lacs)
Particulars
2007
Sales
Current assets
32308.31
19990.43
Turnover ratio
1.62
2006
24737.58
15103.30
1.64
Thus current assets are contributing 1.62 times to sales in 2007 as compared to 1.64
in 2005, which shows the firm adopts the policy of high current assets.
b)
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indicates the effective utilization of working capital and a low ratio indicates
otherwise, the ratio may be expressed as on the following page:Sales
Net Working Capital
In the OWM, working capital turnover ratio can be made through following table: -
2007
2006
Sales
32308.31
24737.58
3693.63
3669.99
8.75
6.74
The above table shows that the net working capital turnover ratio of the unit is
increasing which means better utilization of funds by the company this year than the
previous year.
3.
4.
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2007
Inventories
Working capital
11483.13
3693.63
3.11
2006
9450.95
3669.99
2.58
The Above table shows that with the increase in Inventories as compares to year 2006,
there is increase in working capital too. As the ratio is more than 1:1, this implies that
there is insufficient working capital available to finance inventories.
3. INVENTORY MANAGEMENT
Inventories form a link between production and sales of a product. Inventories
consisting of raw materials, work-in-progress, and finished goods represent a
significant portion of total assets. 50-60% of the total current assets in Oswal Woollen
Mills Limited (OWM) are constituted by inventories. Because of the substantial
investment in inventory, the inventory management of the firm is highly crucial for the
successful management of its working capital.
Finished goods inventories are completely manufactured products that are ready for
sale. Stock of raw materials, work in progress facilitates production, while stock of
finished goods is required for smooth marketing operations. Thus, inventories serve as
a link between the production and consumption of goods. The levels of three of these
inventories depend upon the nature of the business. A manufacturing firm will have
substantially high level of all the three kinds of inventories.
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Textile companies like OWM having seasonal raw material i.e. Sheep wool, imported
largely from Australia, so has to store large amount of it. On the other hand,
inventories of consumer Product Company will not be large because of short
production cycle and fast turnover.
A fourth kind of inventory, company also maintains is Stores and spares. It include
office and plant cleaning materials, oil, fuel, light bulb and the like. These materials
do not directly enter production but are necessary for production process.
Usually, these Stores and spares are small part of the total inventory and do not
involve significant investment. Therefore, a sophisticated system of inventory control
may be maintained for them. The advantages of increased inventory are several but it
has a side i.e. a large amount of funds might be blocked in inventory and would also
require holding, handling charges, and other risks which the finance manager has to
look into, are price fluctuations and consumer rates. In dynamic industries the finance
manager also must take the threat of obsolescence into consideration.
Inventories should be increased as long as resulting savings exceed the total cost of
holding the additional inventory. This balance requires coordination between
production, marketing and finance areas of them.
VALUATION OF INVENTORY
The value of material has a direct bearing on the income of a concern, so it is
necessary that a method of pricing materials should be such that it gives a realistic
value of stock.
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There are various methods which are followed by financial management for the
valuation of raw material like FIFO, LIFO, average price method, weighted average
method, standard price method, market price method.
In OWM Ludhiana, they use the Weighted Average Method for valuation and pricing of
inventory. They use the software INGRESS whereby all the data is fed online which generates
monthly consumption report and stock valuation.
BUFFER STOCK
As OWM Ludhiana does its production on the base of regular basis i.e. operating
production so, they maintain its buffer stock at a higher level.
PURCHASES RELATED TO INVENTORY
OWM Ludhiana purchases most of its chemical from Sandows, BSF, ICI etc in the
domestic market and imports from Wonderful Company of China. This chemical is in
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the liquid and as well as in solid forms. Most of the imports are through Letters of
Credits and so their payments periods are pre-determined.
OWM LTD Ludhiana purchases more than 65% wool from Australia and rest 35%
from South Africa, Russia, Argentina and United States Of America etc. MIL has
storage areas in its own warehouse facilities in the unit itself.
It sources its raw material inventory through its own in house operations which work
regularly on this activity which helps in saving a lot of money and time.
Cotton is the other component which is used as a raw material. OWM sources its
cotton requirements from within Punjab as well as outside Punjab from Haryana and
Rajasthan etc. depending upon the requirements of fabric quality.
All the sourcing is made through material dept which is located at OWM head office
in Ludhiana.
SYSTEM OF SOURCING
1. First, the user raises the indent.
2. Then, that Indent is sent to the stores dept.
3. Stores dept. checks the item in inventory, if available, then provides and maintains the
re-order level and sends the requisition to purchase.
4. Purchase dept. sources it after costing and getting quotations from different suppliers.
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CASH MANAGEMENT
Cash management is related to the inflows and outflows of the cash of firm, cash
balance held by the firm, receipt and payment system of firm, cash budget, cash
forecasting techniques.
RECEIPT SYSTEM
1. The firm uses CMS (Cash Management Service) offered by its bankers for collections
within the country.
2. Firm has its tie-up with two banks for its collections. These banks are HDFC, and
ICICI BANK.
3. HDFC AND ICICI does not charge any charges for this service from OWM Ludhiana.
4. Due to credit of outstation cheques in two or three days clearing, it reduces its
financial cost significantly.
The customers also feel easy to make advance payments through CMS facility as they
have to arrange for the payment at their site only instead of sending it to head office of
OWM.
OWM has online internet banking of the following banks:
a)
b)
HDFC
c)
ICICI
With availability of online internet banking, it can efficiently monitor its cash flow
and without much dependence on banks.
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PAYMENT SYSTEM
a) OWM Ludhiana has a multi city cheque book system for its payment system. It has
at par facility for all out station creditors. Creditors are also happy to get prompt
credit of payments done by OWM. With at par facility cheques for all outstation
payments, better rates are negotiated with the suppliers.
b) With the Real Time Gross Settlement (RTGS), payment system has further
facilitated. RTGS facility is now being offered by almost all the member banks like:
(1)
(2)
Allahabad Bank
(3)
HDFC
(4)
ICICI
Allahabad bank offers RTGS facility free of charge whereas SBOP charges only upto
upper cap of Rs. 25/- per transaction. With RTGS, funds are electronically transferred
by one bank to another bank (irrespective of its location in India) on the very same
day.
OWM is required to make payments to various raw material suppliers which are not
covered under at par locations. Since SBop has branches at such remote areas. RTGS
is used to make payments where the supplier gets the credit on same day.
CASH BUDGET AND CASH FORECASTING TECHNIQUES
a) OWM Ludhiana prepares its cash budget on yearly basis.
b) Firms forecasting techniques are based upon its experience and previous budget.
c) Daily cash flow report is also maintained in the firm.
d) At least 15 lacs floating cash is maintained in the firm for daily transactions.
68
Trade credit
b)
Bank credit
c)
d)
Long term sources comprising equity capital and long term borrowings
At OWM Ludhiana there is primarily two sources for financing of working capital
a)
b)
Allahabad Bank,
(Leader)
(B Bank)
(C Bank)
(D Bank)
69
(A Bank)
Allahabad
SBOP
P&S
PNB
Total
Bank
52.80
52.80
26.40
26.40
8.80
8.80
0.00
00.00
88.00
88.00
48.00
48.00
12.21
24.00
24.00
113.24
8.00
8.00
00.00
00.00
00.00
11.80
80.00
80.00
137.25
113.01
163.64
16.80
11.80
305.25
Moreover, it raises ad-hoc short term loans for meeting its cotton stock and yarn
requirements from banks.
Secondly, OWM Ludhiana also finances its working capital requirement from Long
term sources comprising shareholders fund and long term borrowin
70
SUGGESTIONS
71
1. OWM should finance a major portion of its requirement of working capital through
short term sources of finance as they are cheaper than the long term sources. It
is financing a part of its working capital from long term sources of finance as it
is clear from the fixed assets to total long term fund ratio.
2. The Company is not adopting proper inventory systems like A.B.C. analysis, V.E.D.
analysis etc. this inventory system can make the inventory management more
result oriented. Since, inventory covers the major potion of OWMs current
assets; it should be given prime attention.
3. The company should do proper Cost-to-Benefit analysis before purchasing the raw
material i.e. wool for following months in light of its storage cost, current
prices, estimated future prices, further demand etc. along with the opportunity
cost of holding such inventory.
4. The short term liquidity of the firm is not satisfactory as it is clear from the quick
ratio which
is 0.26 for 2007. The company should take immediate steps towards its
improvement.
5. The surplus fund of the unit should be invested in some short marketable securities,
rather than providing it to its subsidiary free of cost, to improve profitability
along with liquidity.
6. The company should reduce its Production cycle to decrease its working capital
requirement. It can be done by reducing finished goods conversion period. As
OWM does its production on the job basis, it should not be difficult for the
company to reduce this.
72
73
CONCLUSION
OWM has opted for a moderate overall working capital policy. This suggests that it is
risk averse. It wants a reasonable profit with a reasonable amount of risk. If it goes in
for an aggressive policy the profits generated could be high but accompanied with the
high level of profits will come high level of risk, which they feel is not appropriate.
Since with this policy the profits being generated are substantially high a change in
the working capital policy is not called for.
On analyzing the operating cycle it has been found that the operating cycle has
increased by approx. 48% as that of previous year. The operating cycle can be
reduced to a greater degree by trying to get a reduction in the raw material conversion
period.
Since OWM produces only on orders therefore the inventory requirements for the
following months can be accurately forecasted. Since, the raw material i.e. cotton and
wool are a seasonal crop, it should be stored for following months by analyzing the
benefit of storing it, the storage cost associated with it, wool prices, its availability and
also further requirements of the company as per its orders. Every month if forecast is
made accordingly and order is placed, it would help in bringing down the time
required in the raw material storage period.
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Bibliography
www.google.com
www.yahoo.com
Finacial Management , I.M. Pandey
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