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FINANCIAL MANAGEMENT

A STUDY ON WORKING CAPITAL ANALYSIS OF AN


ORGANISATION WITH SPECIAL REFERNCE TO BEAUTY
SILKS, EDAPPAL

PROJECT REPORT

SUBMITTED BY:

SHABNI K.A

ROLL NO: 42

IIIrd TRIMESTER

UNDER THE GUIDANCE OF

Prof. DEEPAK M

MBA DEPARTMENT

MES College of Engineering, kuttipuram

2018-2020

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TABLE OF CONTENTS

CHAPTER TITLE PAGE NO


1 Introduction 3-7
2 Industry & Company profile 8-10
3 Research methodology 11
4 Data analysis and interpretation 12-13
5 Findings, suggestions and conclusion 14-16
Bibliography 16

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CHAPTER 1

INTRODUCTION

INTRODUCTION

In financial management, two important decisions are very vital and crucial. They
are decision regarding fixed assets/fixed capital and decision regarding working
capital/current assets. Both are important and a firm always analyzes their effect to
final impact upon profitability and risk. Fixed capital refers to the funds invested in
such fixed or permanent assets as land, building, and machinery etc. Whereas
working capital refers to the funds locked up in materials, work in progress,
finished goods, receivables, and cash etc.

Thus, in very simple words, working capital may be defined as “capital invested in
current assets.” Here current assets are those assets, which can be converted into
cash within a short period of time and the cash received is again invested into these
assets. Thus, it is constantly receiving or circulating. Hence, working capital is also
known as circulating capital or floating capital.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital. These are:

1. Gross working capital: The gross working capital, simply called as working
capital refers to the firm’s investment in current assets. Current assets are the
assets, which can be converted into cash within an accounting year or operating
cycle. Thus, Gross working capital, is the total of all current assets. It includes

1. Inventories (Raw materials and Components, Work-in-Progress, Finished


Goods, Others)

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2. Trade Debtors

3. Loans and Advance

4. Cash and Bank Balances

5. Bills Receivables.

6. Short-term Investment

2. Net Working Capital: (Total Current Assets – Total Current Liabilities)

Net working capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders, which are expected to
mature for payment within an accounting year. Net working capital may be
positive or negative. A positive net working capital will arise when current assets
exceed current liabilities and a negative net working capital will arise when current
liabilities exceed current assets i.e. there is no working capital, but there is a
working capital deficit. It includes

1. Trade Creditors.

2. Bills Payable.

3. Accrued or Outstanding Expenses.

4. Trade Advances

5. Short Term Borrowings (Commercial Banks and Others)

6. Provisions

7. Bank Overdraft

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“Working Capital represents the amount of current assets that have not been
supplied by current, short term creditors.”

“Gross working capital refers to the amount of funds invested in current assets that
are employed in the business process while, Net Working Capital refers to the
difference between current assets and current liabilities.”

“Working Capital is the excess of current assets that has been supplied by the long-
term creditors and the stockholders.”

The two concepts of working capital, gross working capital and net working capital
are exclusive. Both are equally important for the efficient management of working
capital. The gross working capital focuses attention on two aspects How to
optimize investment in current assets? And how should current assets be financed?
While, net working capital concept is qualitative. It indicates the liquidity position
of the firm and suggests the extent to which working capital needs may be financed
by permanent sources of funds.

IMPORTANCE OF WORKING CAPITAL

Working capital is one of the important measurements of the financial position.


The words of H. G. Guttmann clearly explain the importance of working capital.
“Working Capital is the life-blood and nerve centre of the business.” In the words
of Walker, “A firm’s profitability is determined in part by the way its working
capital is managed.” The object of working capital management is to manage
firm’s current assets and liabilities in such a way that a satisfactory level of
working capital is maintained. If the firm cannot maintain a satisfactory level of
working capital, it is likely to become insolvent and may even be forced into

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bankruptcy. Thus, need for working capital to run day-to-day business activities
smoothly can’t be overemphasized.

REQUIREMENTS OF WORKING CAPITAL

There are no set rules or formula to determine the working capital requirements of
the firms. A large number of factors influence the working capital need of the
firms. All factors are of different importance and also importance change for the
firm over time. Therefore, an analysis of the relevant factors should be made in
order to determine the total investment in working capital. Generally the following
factors influence the working capital requirements of the firm:

• Nature and size of the business

• Seasonal fluctuations

• Production policy

• Taxation

• Depreciation policy

• Reserve policy

• Dividend policy etc

Objectives of the study

1. To what extent the management of working capital contribute to the overall


objective of the firm i.e. Wealth examination.
2. To understand relationship between working capital and sales.

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Limitations of the study

The following are the limitations of this study:

1. The data related to schedule of working capital is one month of two different
years.
2. Schedule of changes in working capital is only a rough figure not an accurate
data.
3. Due to time limit, I just conducted a pilot study.

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CHAPTER II

INDUSTRY PROFILE & COMPANY PROFILE

INDUSTRY PROFILE

Textile is a fabric that's knitted or woven and made from yarn. Thus,
the textile industry is the industry responsible for taking a raw material, like cotton
or wool, and spinning it into yarn that is later used to create a fabric. All of the
processes involved in the converting of the raw material into a finished product -
developing, producing, manufacturing, and distributing textiles - are included in
the industry. The textile industry is primarily concerned with the design and
production of yarn, clothing and their distribution. The raw material may be natural
or synthetic using products of the chemical industry. For textiles, like for many
other products there are certain national and international standards and regulations
that need to be compiled with to ensure quality, safety and sustainability.

INDIAN TEXTILE INDUSTRY

The Indian textile industry is one of the largest in the world with a massive raw
material and textiles manufacturing base. Our economy is largely dependent on the
textile manufacturing and trade in addition to other major industries. About 27% of
the foreign exchange earnings are on account of export of textiles and clothing
alone. The textiles and clothing sector contributes about 14% to the industrial
production and 3% to the gross domestic product of the country. Around 8% of the
total excise revenue collection is contributed by the textile industry. So much so,
the textile industry accounts for as large as 21% of the total employment generated
in the economy. Around 35 million people are directly employed in the textile
manufacturing activities. Indirect employment including the manpower engaged in

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agricultural based raw-material production like cotton and related trade and
handling could be stated to be around another 60 million.

STRENGTH OF TEXTILE INDUSTRY

 An independent and self reliant industry.


 Large and potential domestic and international market.
 Abundant raw material availability that helps industry to control costs and
reduces the lead time across the operation.
 Availability of low cost and skilled manpower provides competitive
advantages to industry.
 Availabilities of large varieties of cotton fiber.
 Promising export potential.
WEAKNESS OF TEXTILE INDUSTRY

 The industry is a highly fragmented industry.


 It is highly dependent on cotton.
 There is lower productivity in various segments.
 There is a decline in mill segment and unfavorable labor law.
 Lack of technological development that affect the productivity and other
activities in whole value chain.
 Lack of trade membership, which restrict to tap other potential market.

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COMPANY PROFILE

BEAUTY SILKS, EDAPPAL

The first textile showroom of beauty silks was started in 1921. They are doing
textiles business for last 97 years. They are dealing with the trading of readymade
garments, textiles and cosmetics items. They have showrooms with 1500 to 2000
square feet space each. Beauty Silks Edappal has succeeded in creating a good
reputation in the textile and clothing industry in just few years. They have achieved
this milestone by providing excellent services and product quality. Their main
motto is supplying quality and branded items with lowest price according to the
satisfaction of their customers.

Beauty Silks offers a range of branded Women, Men's and Kids apparel. The
extensive range for Women includes Designer Sarees, Lehenga Cholis, Churidars,
Kurtas and Formal Dress Materials for Weddings, Occasions and Daily wear. All
designs and creations available at Beauty Silks have been specially created to
appeal to a wide array of tastes and traditions and are suitable for a variety of
occasions from parties to bridal wear.

Beauty silks have 5 large retail textile showrooms in Kerala. Those are situated in
Puthanathani and Edappal of Malappuram district, Thriprayar and Chavakkad of
Thrissur district, and Pattambi of Palakkad district. They have more than 100
employees working for them in the Edappal showroom and more than 500 in
whole Kerala. Beauty silks have earned a phenomenal success in the world of
textiles. They further strive to acquire distinction in the textile industries by
attaining the position of a market leader. They also look forward to establish
standards of quality and adopt modern strategies in order to make their way to the
summit

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CHAPTER III

RESEARCH METHODOLOGY

 Geographical Area Covered

This survey is conducted in BEAUTY SILKS textile shop which situated in


Edappal.

 Collection of Data

Secondary data: - Secondary data is collected from referring books and surfing
the websites.

 Research Design

This study is conducted in the firm BEAUTY SILKS, EDAPPAL by using past
documents analysis. The data is collected directly attach with the project, then
analyzing the data and interpreting the results.

 Research method

Document analysis was used to collect data.

 Period of the study

The period of study is 2012-2013.

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CHAPTER IV

DATA ANALYSIS AND INTERPRETATIONS

Schedule of Changes in Working Capital

Particulars Amount(Rs)
Current Assets 31 March 2013 31 March 2012
Gross Block 71911.80 63885.40
(-) Acc. Depreciation 28729.20 28729.20
Net Block 43182.60 35156.2
Capital Work in Progress 1030.80 4466.50
Investments 28199.10 12337.80
Sundry Debtors 2246.80 2134.50
Cash and Bank 362.70 481.20
Loans and Advances 12859.10 20430.80
Total Current Assets 87881.1 83033.4

Current Liabilities 16067.20 20061.70


Provisions 695.50 697.50
Total Current Liabilities 16762.7 20759.2

Working capital (CA-CL)


Working Capital 71118.4 62274.2

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INTERPRETATION: As on March 31st 2013, the total current assets were
87881.1 /- and the total current liability on the same date were 16762.7/-. So the
working capital of that particular date was 71118.4/-. When it is compared with the
data on the date 31st March 2012, the total current assets was 83033.4/- and the
total liability was 20759.2 /- and the working capital requirements on that
particular date was 62274.2/-. In order to find out the working capital of the firm,
the following equation could be used;

Working capital = total current assets –total current liabilities

So the working capital of the firm showing increasing trend.

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CHAPTER V

FINDINGS, SUGGESTIONS, CONCLUSION

FINDINGS

 Current assets comprise a significant portion of total investment in assets of the


company. There is fluctuating and rather increasing trend of this during the
period 2012-2013 which shows management efficiency in managing working
capital in relation to total investment.
 According to this data, the total current liabilities are very less when it is
compared with current assets.
 In both years, the cause of showing increase in trend in working capital is due
to sales increment.
 So when the sales of the firm increase, it helps to increase the working capital
requirements of the organization.
 The working capital during the year 2012 was above 60000, and it increased in
the year 2013 and it became above 70000. From this point of view it
understands that proper management of working capital causes to profit
maximization and it also a great asset to the firm.
 The circulation of the working capital of the organization is less. Because there
is a high investment in current assets.

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SUGGESTIONS

 Company should make a policy in respect of investment of excess cash, if any;


in marketable securities and overall cash policy should be introduced. So it
helps to understand the effectiveness of working capital very well.
 Management should develop a credit policy and proper self realization system
from customers so that efficient and effective management of accounts
receivable can be ensured. This will significantly improve the profitability and
liquidity of the company.

CONCLUSION

The study conducted on the topic, working capital analysis of the firm with special
reference to BEAUTY SILKS, EDAPPAL revealed that, the proper management
of the working capital helps the firm to gain liquidity position in the market. The
study was conducted on the basis of the data was on 2012-2013. The management
itself mention that the data is a rough not the accurate one. So based on this data, it
helps to understand that, when the sales of the firm increase it cause to increase the
working capital of the firm.

Normally, in the beginning the funds are obtained from the issue of shares, often
supplemented by long term borrowings. Much of these collected funds are used in
purchasing fixed assets and remaining funds are used for day to day operation as
pay for raw material, wages overhead expenses. After this finished goods are ready
for sale and by selling the finished goods either account receivable are created and
cash is received. In this process profit is earned. This account of profit is used for
paying taxes, dividend and the balance is ploughed in the business.

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Working capital is considered to efficiently circulate when it turns over quickly. As
circulation increases, the investment in current assets will decrease. This is the
normal circulation of working capital which taken place in a firm.

Bibliography

 http://www.indianotes.com/research/analysis/company/companyfinancial.php?c
c=MTUyMDAwMjIuM
 http://www.moneycontrol.com/financials/bhartiairtel/financialgraphs/operating-
profit-ebitda-percentage/BA08
 Consolidated financial statement from BEAUTY SILKS,EDAPPAL

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