Final Project.

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INTRODUCTION

Management of working capital refers to the management of current asset as well as current liabilities. According to Hoagland “ Working capital is a descriptive of that capital which is not fixed but the more common use of the working capital is as the difference between the book value of current asset and current liabilities.”The word working capital is the combination of two words- (1) Working (2) capital. In business the word working with reference to capital means circulation of capital from one to another during day to day operation of a business whereas the word capital refers to the monetary value of all assets of the business. Thus, “working capital means that part of the total asset of the business that change from one form to another form in the ordinary course of the business.”Example: cash to inventories, inventories to receivable and from receivable to cash.

CONCEPT OF WORKING CAPITAL

There are to concept of working capital- gross and net.Gross working capital: it refers to the firm investment in current asset. Current assets are the assets which can be converted in to cash within an accounting year and including cash, short term securities, and debtors, bills receivable and stock. Net working capital: it is the excess of current asset and current liabilities. Current liabilities are those which are claimed by outsiders and expected to major for payment within an accounting year.

SIGNIFICANCE OF WORKING CAPITAL

1. It is short term capital.2. To maintain level of activity.3. To pay maturing obligation.4. To maintain the balance between profitability and liquidity.5. It is less risky.6. No provision for depreciation.7. Constantly converted in to cash.

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TYPES OF WORKING CAPITAL

Working capital can be divided into two categories on the basis of time:

Fixed working capital

Initial working capital: in the initial period of the business operation a company must have enough money to pay certain expenses, before the business yield receipts.Regular working capital: it is require continuing regular business operation. The excess of current asset minus current liabilities called as regular working capital.

Fluctuating working capital

Special working capital: in all enterprise some unforced circumstances events do occur when extra fund are needed to overcome such situation.Seasonal working capital: enterprise required additional working capital during a seasonal period.

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Circulation system of working capital

Working capital is required because of the time gap between the sales and the actual realization in cash. This time gap is technically termed as “operating cycle” of the business.

CashRaw materialWork in progressFinish goodsReceivable & debtorsCredit payment

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REPORT OF WORKING CAPITAL ON TEXTILE INDUSTRIES

LIST OF TEXTILE INDUSTRIES:

1) ARVIND MILLS2) BOMBAY DYEING3) RELIANCE4) SIYARAM5) RAYMOND6) CHIRIPAL7) GRASIM8) WELSPUN9) MAFATLAL10) SURAT TEXTILES

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FINANCIAL ANALYSIS

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ARVIND MILLS

Liquidity and Solvency Ratio

1. Current Ratio

Current Ratio = Current Assets / Current Liabilities

YEAR RATIOS2006-07 1.52:12007-08 0.87:12008-09 0.62:12009-10 3.26:12010-11 3.14:1

Interpretation:

The current ratio of 3.26:1 for company signifies that current assets are more than three-fold its obligations. Generally a current ratio of 2:1 is considered satisfactory. So there is sufficient cushion in the firm and even with two-thirds shrinkage in the value of its assets, it will beagle to meet its obligations in full.

2. Debt -Equity Ratio

D/E Ratio = Long-Term Debt / Shareholders' Equity

YEAR RATIOS2006-07 1.04:12007-08 1.37:12008-09 1.77:12009-10 1.32:12010-11 1.47:1

Interpretation:

If the ratio is more than 2:1, then it is danger signal for long term lenders. As here it is less than 2:1, it shows it provide sufficient protection to long term lenders.

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3. Long Term D ebt Equity Ratio

Long-Term Debt Equity Ratio = Long-Term Debt / Permanent Capital

YEAR RATIOS2006-07 0.782007-08 0.92008-09 1.772009-10 1.32010-11 1.58

Interpretation:

This ratio indicates the ability to pay back the long term borrowings, so the lower the ratio, the better it is. As we see that the debt equity ratio is increasing from 2008-09, this indicates that the company does not have sufficient funds to pay back its debts. The ratio should be ideally less than 1, but then as the ratio has slightly decreased from 2009 to 2010, this indicates that the company’s position has improved to some extent. But still the company is facing crisis in terms of paying back the long term borrowings. 4. Inventory Turnover Ratio

Inventory Turnover Ratio = Cost Of Goods Sold / Average Inventory

YEAR RATIOS2006-07 3.62007-08 4.132008-09 4.032009-10 5.372010-11 5.14

Interpretation:

A high inventory turnover ratio is good from the viewpoint of liquidity. It signifies how inventory sells fast. Here increasing ratio indicates good performance of the company in terms of inventory selling.

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5. Debtors Turnover Ratio

Debtors Turnover Ratio = Net Credit Sales / Average Debtors

YEAR RATIOS2006-07 8.44:12007-08 9.49:12008-09 7.66:12009-10 5.98:12010-11 6.52:1

Interpretation:

The ratio measures how rapidly receivables are collected. Here decreasing ratio indicates that the ability to quickly collect debts is reducing and that debts are not being collected rapidly.

6. Total Assets Turnover Ratio:

Total Assets Turnover Ratio = Cost Of Goods Sold / Average Total Assets

YEAR RATIOS2006-07 0.77:12007-08 0.74:12008-09 0.73:12009-10 0.70:12010-11 0.69:1

Interpretation:

The main objectives of the total assets turnover ratio are to measure how efficiency assets are employed. If the total assets turnover ratios high it implies that there is high degree of efficiency in assets utilization and vice-versa. Here, the ratio has decreased but quite insignificantly, so this suggests that the company is still in a good shape.

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7. Net profit margin ratio:

Net Profit Margin (%)= Earnings after Interest and Taxes (EAT) * 100 / Net Sales

YEAR RATIOS2006-07 1.882007-08 1.222008-09 1.992009-10 2.232010-11 2.24

Interpretation:

As we compare to last year ratio, this year the net profit ratio has increased this shows that the profitability has increase which is good for company. There should increase year by year or it should mention the same percentage as last year.

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BOMBAY DYEING

1. Current Ratio:


YEAR RATIOS2006-07 0.69:12007-08 0.59:12008-09 0.74:12009-10 0.86:12010-11 0.81:1

Interpretation:

Throughout the last 5 years, the company’s current ratio is less than 1. The ideal ratio is 2:1, So company is not at good position as far as current ratio is concerned.

2. D ebt-Equity Ratio:


YEAR RATIOS2006-07 2.67:12007-08 3.58:12008-09 10.1:12009-10 8.44:12010-11 3.84:1

Interpretation :

If the ratio is more than 2:1, then it is danger signal for long term lenders. As in the year 2008-09, the ratio is much more than 2:1, it shows it provide sufficient protection to long term lenders.

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3. Long Term D ebt Equity Ratio:


YEAR RATIOS2006-07 1.51:12007-08 1.83:12008-09 5.92:12009-10 8.44:12010-11 3.84:1

Interpretation:

This ratio indicates the ability to pay back the long term borrowings, so the lower the ratio, the better it is. As we see that the debt equity ratio is more than 1. The ratio should be ideally less than 1, but then as the ratio has increased in 2009 to 2010, this indicates that the company’s position is worst. But still the company is facing crisis in terms of paying back the long term borrowing.

4. Inventory Turnover Ratio:


YEAR RATIOS2006-07 3.01:12007-08 7.70:12008-09 11.76:12009-10 14.12:12010-11 9.79:1

Interpretation:


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5. D ebtors Turnover Ratio:


YEAR RATIOS2006-07 2.42:12007-08 3.64:12008-09 4.02:12009-10 3.19:12010-11 4.57:1

Interpretation:




YEAR RATIOS2006-07 0.34:12007-08 0.51:12008-09 0.72:12009-10 0.84:12010-11 1.22:1

Interpretation:

The main objectives of the total assets turnover ratio are to measure how efficiency assets are employed. If the total assets turnover ratio is high it implies that there is high degree of efficiency in assets utilization and vice-versa. Here, the ratio has increased but quite insignificantly, so this suggests that the company is still in a good shape.

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7. Net Profit Margin (%):


YEAR RATIOS2006-07 6.96:12007-08 1.73:12008-09 14.20:12009-10 1.73:12010-11 1.09:1

Interpretation:


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RELIANCE TEXTILE INDUSTRY

1. Current Ratio:


YEAR RATIOS2006-07 0.77:12007-08 1.01:12008-09 1.08:12009-10 1.11:12010-11 1.22:1

Interpretation:

Generally a current ratio of 2:1 is considered satisfactory. Here company is not able to increase its current ratio more than 2. Thus it will not be able to meet its obligations in full.



YEAR RATIOS2006-07 0.45:12007-08 0.46:12008-09 0.65:12009-10 0.49:12010-11 O.46:1

Interpretation:

If the ratio is more than 2:1, then it is danger signal for long term lenders. As here it is less than 1, it shows it provide sufficient protection to long term lenders.

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YEAR RATIOS2006-07 0.32:12007-08 0.35:12008-09 0.59:12009-10 0.44:12010-11 0.38:1

Interpretation:

This ratio indicates the ability to pay back the long term borrowings ,so the lower the ratio, the better it is. The ratio should be ideally less than 1. Here the company has the ratio lf less then 1. So the company is in good position.



YEAR RATIOS2006-07 10.65:12007-08 10.57:12008-09 12.92:12009-10 8.29:12010-11 9.59:1

Interpretation:


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YEAR RATIOS2006-07 28.29:12007-08 26.87:12008-09 26.29:12009-10 23.67:12010-11 17.05:1

Interpretation:

The ratio measures how rapidly receivables are collected. In the above debtors ratio the higher the ratio unsatisfactory position it shows,in the year 2006-07 near about 29 days are required so it is not good for the firm.



YEAR RATIOS2006-07 1.26:12007-08 1.5:12008-09 0.79:12009-10 1.48:12010-11 1.67:1

Interpretation:

Higher ratio indicates efficient management on inventories. Here the ratio is quite increasing. This means there is a quite efficiency on inventories.in 2010-11 the ratio has increased that means it is good for the firm.

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Interpretation:

It seems the ratio which was 14.45% in 2007-8 has decreased constantly which has become 8.08% which means profitability of the firm is not proper.

YEAR RATIOS2006-07 10.64:12007-08 14.45:12008-09 10.65:12009-10 8.35:12010-11 8.08:1

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SIYARAM SILK MILLS

1. Current Ratio:


YEAR RATIOS2006-07 0.96:12007-08 0.90:12008-09 0.98:12009-10 0.94:12010-11 0.98:1

Interpretation:

It is generally believed that 2:1 current ratio shows the comfortable working capital position. In the above all case it is less than 2:1 so the company would not be able to meet its obligations. 2. Debt-Equity Ratio


YEAR RATIOS2006-07 1.36:12007-08 1.86:12008-09 1.5:12009-10 0.99:12010-11 1.21:1

Interpretation:

In debt equity ratio lenders prefer low debt equity ratio which is preferable in 2009-10.3. Long Term D ebt Equity Ratio:


YEAR RATIOS2006-07 0.46:1

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2007-08 0.84:12008-09 0.87:12009-10 0.59:12010-11 0.44:1

Interpretation:

Higher the ratio,larger the safety margin. In above case it is quite higher.



YEAR RATIOS2006-07 7.05:12007-08 5.68:12008-09 7.21:12009-10 9.72:12010-11 6.15:1

Interpretation:

A high inventory turnover ratio is good from the viewpoint of liquidity. It signifies how inventory sells fast. In 2009-10 it is very good in comparison with other years.



YEAR RATIOS2006-07 4.52:12007-08 4.53:12008-09 5.26:12009-10 6.91:12010-11 5.67:1

Interpretation:

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Higher the ratio indicates short time lag between credit sales and cash collection. A lower ratio shows, the slackness in debt recovery.



YEAR RATIOS2006-07 1.67:12007-08 2.39:12008-09 1.84:12009-10 2.39:12010-11 1.78:1

Interpretation: If the total assets turnover ratio is high it implies that there is high degree of efficiency in assets utilization and vice-versa. Here, the ratio has decreased but quite insignificantly, so this suggests that the company is still in a good shape.



YEAR RATIOS2006-07 3.63:12007-08 1.59:12008-09 1.75:12009-10 4.18:12010-11 6.63:1

Interpretation:

In 2010-11 the profitability of the firm is very good as compare to other years. So it is in developing stage.

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RAYMOND TEXTILES

1. Current Ratio:


YEAR RATIOS2006-07 1.02:12007-08 1.23:12008-09 1.36:12009-10 1.60:12010-11 1.25:1

Interpretation: In all the cases the ratio has decreased as compare to the standard ratio 2:1.

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YEAR RATIOS2006-07 0.63:12007-08 0.58:12008-09 1.19:12009-10 1.07:12010-11 1.18:1

Interpretation:

A higher ratio means that outside creditors have a larger claim than the owners of the business. The pressure from the creditors would increase and there interference in management will also increase. In 2010-11 it has increased to 1.18.



YEAR RATIOS2006-07 0.44:12007-08 0.94:12008-09 0.99:12009-10 0.94:12010-11 1.00:1

Interpretation:

This ratio indicates the ability to pay back the long term borrowings, so the lower the ratio, the better it is. In 2006-07 the ratio is quite lower as compare to 2010-11.



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YEAR RATIOS2006-07 4.922007-08 4.352008-09 4.392009-10 5.122010-11 3.79

Interpretation:

Higher ratio indicates the unit functions on a comparatively low margin of profit. In 2009-10 it is 5.12 times.5. Debtors Turnover Ratio


YEAR RATIOS2006-07 5.03:12007-08 4.79:12008-09 4.71:12009-10 4.51:12010-11 4.86:1

Interpretation: A higher ratio indicates the quickness of the debts collected. Lower ratio would mean otherwise visa versa. In above case the higher ratio is in 2006-07 which is 5 times.



YEAR RATIOS2006-07 0.61:12007-08 0.58:12008-09 0.57:12009-10 0.56:12010-11 0.65:1

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Interpretation:



YEAR RATIOS2006-07 15.01:12007-08 4.71:12008-09 -18.34:12009-10 1.87:12010-11 -6.71:1

Interpretation:

In the current year the company is making loss which means the profitability of the firm is not satisfactory.

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CHIRIPAL1. Current Ratio


YEAR RATIOS2006-07 3.68:12007-08 4.41:12008-09 3.18:12009-10 2.27:12010-11 2.26:1

Interpretation:The ideal ratio for current ratio is 2:1but very high ratio means the idleness of funds which is shown in the above ratios.2. Debt -Equity Ratio


YEAR RATIOS2006-07 3.03:12007-08 2.30:12008-09 2.30:12009-10 2.09:12010-11 1.80:1

Interpretation:

Debt equity ratio measures the efficiency of the long term financial policies of the firm. Lenders prefer lower debt equity ratio in above case 2010-11 it is preferable.



YEAR RATIOS2006-07 2.44

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2007-08 1.672008-09 1.732009-10 1.622010-11 1.31

Interpretation:This ratio indicates the safety margin available to the suppliers of long term debts. Higher the ratio larger the safety margin. In 2008-09 it is very high. 4. Inventory Turnover Ratio


YEAR RATIOS2006-07 6.802007-08 4.732008-09 7.142009-10 5.622010-11 4.34

Interpretation:It measures how much sales has been generated. Higher ratio indicates efficient management on inventories. In the above case it is higher in 2008-09.



YEAR RATIOS2006-07 4.03:12007-08 3.79:12008-09 3.71:12009-10 3.51:12010-11 3.86:1

Interpretation:

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YEAR RATIOS2006-07 0.54:12007-08 0.50:12008-09 0.56:12009-10 0.53:12010-11 0.56:1

Interpretation:

If the total assets turnover ratios high it implies that there is high degree of efficiency in assets utilization and vice-versa. Here, the ratio has increased but quite significantly, so this suggests that the company is still in a good shape.



YEAR RATIOS2006-07 5.792007-08 2.212008-09 -4.432009-10 3.072010-11 3.51

INTERPRETATION: As compare to all the years the profitability is decreasing quite insignificantly which means the profitability position of the company is not satisfactory.

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GRASHIM

1. Current Ratio


YEAR RATIOS2006-07 0.85:12007-08 0.74:12008-09 0.79:12009-10 0.57:12010-11 1.37:1

Interpretation:The idle ratio for current ratio is 2:1 but in all the cases it is comparatively less which shows short term financial soundness of the business.

2. Debt -Equity Ratio


YEAR RATIOS2006-07 0.47:12007-08 0.39:12008-09 0.36:12009-10 0.15:12010-11 0.10:1

Interpretation:

Long term debt consists of long term liabilities that is a debentures mortgage which means lenders prefer lower debt equity ratio. In 2010-11 it is very satisfactory.



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YEAR RATIOS2006-07 0.412007-08 0.302008-09 0.312009-10 0.072010-11 0.09

Interpretation:

This ratio indicates the ability to pay back the long term borrowings, so the lower the ratio, the better it is. As we see that the debt equity ratio is constantly decreasing from 2008-09, this indicates that the company have sufficient funds to pay back its debts. 4. Inventory Turnover Ratio


YEAR RATIOS2006-07 17.752007-08 19.402008-09 13.102009-10 25.792010-11 13.86

Interpretation:

A high inventory turnover ratio is good from the viewpoint of liquidity. It signifies how inventory sells fast. Here increasing ratio indicates good performance of the company in terms of inventory selling. In 2010-11 it has decreased which is not proper for the company.



YEAR RATIOS

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2006-07 17.46:12007-08 15.19:12008-09 17.11:12009-10 18.21:12010-11 11.12:1

Interpretation:

The ratio measures how rapidly receivables are collected. Here decreasing ratio indicates that the ability to quickly collect debts it is reducing and that debts are not being collected rapidly.



YEAR RATIOS2006-07 0.94:12007-08 0.91:12008-09 0.85:12009-10 1.02:12010-11 0.51:1

Interpretation:

The main objectives of the total assets turnover ratio are to measure how efficiency assets are employed. If the total assets turnover ratios high it implies that there is high degree of efficiency in assets utilization and vice-versa. Here, the ratio has decreased but quite insignificantly, so this suggests that the company is still in a good shape.

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YEAR RATIOS2006-07 17.442007-08 14.572008-09 14.842009-10 24.582010-11 23.91

INTERPRETATION:in 2009-10 net profit margin is quite high as compare to other years but in 2010-11 it has decreased by 1%.

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WELLSPUN

1. Current Ratio


YEAR RATIOS2006-07 0.96:12007-08 0.89:12008-09 0.88:12009-10 0.89:12010-11 0.85:1

Interpretation:

The current ratio in all the years is less compare to idle ratio which is 2:1.2. Debt -Equity Ratio


YEAR RATIOS2006-07 2.62:12007-08 2.79:12008-09 3.00:12009-10 2.71:12010-11 2.53:1

Interpretation:

If the ratio is more than 2:1, then it is danger signal for long term lenders.

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YEAR RATIOS2006-07 2.132007-08 2.242008-09 2.362009-10 2.042010-11 1.91

Interpretation:

This ratio indicates the ability to pay back the long term borrowings, so the lower the ratio, the better it is. As we see that the debt equity ratio is increasing from 2008-09, this indicates that the company does not have sufficient funds to pay back its debts. The ratio should be ideally less than 1, but then as the ratio has slightly decreased from 2009 to 2010, this indicates that the company’s position has improved to some extent. 4. Inventory Turnover Ratio


YEAR RATIOS2006-07 4.272007-08 4.732008-09 7.042009-10 5.492010-11 4.69

Interpretation:

This ratio establishes relationship between the cost of goods sold and the average amount of inventory carried during that period. This ratio helps to invest minimum in stock.

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YEAR RATIOS2006-07 15.26:12007-08 15.18:12008-09 11.83:12009-10 11.21:12010-11 13:1

Interpretation:

The ratio measures how rapidly receivables are collected. Here decreasing ratio indicates that the ability to quickly collect debts is reducing and that debts are not being collected rapidly. In the current year it has quite reduced as compare to other years.



YEAR RATIOS2006-07 0.52:12007-08 0.59:12008-09 0.61:12009-10 0.80:12010-11 0.84:1

Interpretation:

The main objectives of the total assets turnover ratio are to measure how efficiency assets are employed. Here the ratio has quite increased from other years which is not good for the firm.

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YEAR RATIOS2006-07 5.502007-08 2.062008-09 2.262009-10 6.222010-11 -4.90

INTERPRETATION:

In the current year the company is making loss which is not at all satisfactory for the firm.

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MAFATLAL

1. Current Ratio


YEAR RATIOS2006-07 0.13:12007-08 0.70:12008-09 0.50:12009-10 0.71:12010-11 2.02:1

Interpretation:

The idle ratio is 2:1in 2010-11 it is quite nearer to it so it is at normal level.2. Debt -Equity Ratio


YEAR RATIOS2006-07 -2007-08 -2008-09 -2009-10 -2010-11 0.30:1

Interpretation:


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YEAR RATIOS2006-07 -2007-08 -2008-09 -2009-10 -2010-11 0.27

Interpretation:

This ratio indicates the ability to pay back the long term borrowings, so the lower the ratio, the better it is. The ratio should be ideally less than 1, but then as the ratio has slightly decreased this indicates that the company’s position has improved to some extent. 4. Inventory Turnover Ratio


YEAR RATIOS2006-07 3.922007-08 25.802008-09 9.132009-10 10.582010-11 27.17

Interpretation:

A high inventory turnover ratio is good from the viewpoint of liquidity. It signifies how inventory sells fast. Here increasing ratio indicates good performance of the company in terms of inventory selling. In 2010-11 it has quite increased as compare to other years which shows higher performance of the company.

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YEAR RATIOS2006-07 2.39:12007-08 7.27:12008-09 2.66:12009-10 2.97:12010-11 12.07:1

Interpretation:

The ratio measures how rapidly receivables are collected. Here decreasing ratio indicates that the ability to quickly collect debts, in the above case the ratio has been increasing as compare to other years.



YEAR RATIOS2006-07 1.41:12007-08 2.35:12008-09 1.62:12009-10 1.39:12010-11 1.38:1

Interpretation:

The main objectives of the total assets turnover ratio are to measure how efficiency assets are employed. In the above ratio it has quite decreased.

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YEAR RATIOS2006-07 -4.352007-08 7.162008-09 62.542009-10 29.642010-11 52.78

INTERPRETATION:


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SURAT TEXTILES

1. Current Ratio


YEAR RATIOS2006-07 1.64:12007-08 1.65:12008-09 2.25:12009-10 1.51:12010-11 2.86:1

Interpretation:

In 2010-11the ratio is 2.86:1 which is quite greater than 2:1 but still company is in normal position.2. Debt -Equity Ratio


YEAR RATIOS2006-07 -2007-08 16.00:12008-09 1.18:12009-10 0.91:12010-11 0.58:1

Interpretation:


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YEAR RATIOS2006-07 -2007-08 152008-09 1.202009-10 0.922010-11 0.59

Interpretation:

This ratio indicates the ability to pay back the long term borrowings, so the lower the ratio, the better it is. The ratio should be ideally less than 1which is shown in 2010-11 i.e 0.59 which has quite improved.4. Inventory Turnover Ratio


YEAR RATIOS2006-07 4.322007-08 8.172008-09 15.382009-10 15.652010-11 6.57

Interpretation:

A high inventory turnover ratio is good from the viewpoint of liquidity. It signifies how inventory sells fast. Here the ratio has been decreasing which is not good for the firm to maintain the minimum inventory.

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YEAR RATIOS2006-07 17.51:12007-08 10.04:12008-09 23.37:12009-10 81.96:12010-11 81.22:1

Interpretation:The higher the turnover or shorter the collection period is credit management of the firm. It implies better liquidity as debtors make prompt payement. In the current year it has quite increased which means the credit is quite more which is not good for the firm.



YEAR RATIOS2006-07 2.09:12007-08 1.89:12008-09 3.08:12009-10 3.98:12010-11 3.34:1

Interpretation:

The main objectives of the total assets turnover ratio are to measure how efficiency assets are employed. If the total assets turnover ratios high it implies that there is high degree of efficiency in assets utilization and vice-versa. In the above case the ratio has increased which shows high degree of efficiency in asset utilization.

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YEAR RATIOS2006-07 -0.412007-08 0.332008-09 3.752009-10 2.972010-11 3.08

INTERPRETATION:

As we compare to last year ratio, this year the net profit ratio has increased this shows that the profitability has increase which is good for company.

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DX