Winter Project 2012 Repaired)

A

Winter Project Report

On

“COMPARISON OF WORKING CAPITAL”

Submitted By,

“Nilima Kadiwala” (72)

Under the Guidance of,

“Mrs. Radha Vyas”

In the Partial Fulfillment of the Requirement of the Subject

In Third Year (SEM - VI) BBA Programme.

Submitted to,

Navnirman Institute of Management,

(NIM-BBA college), Bharthana, Surat

Affiliated To,

Veer Narmad South Gujarat University

Surat.

Academic Year 2011-2012

DECLARATION

I, the undersigned Nilima Kadiwala student of BBA hereby declare that the project work, Presented in this report on “A study on comparison of working capital of two companies” is my own work & submitted by me to “Navnirman Institute of Management” towards the partial fulfillment of the BBA programme.

This project is entirely outcome of my own efforts & the report prepared there is based on the knowledge & the work done by me in the company during the project work.

Further declare that to the best of my knowledge to any other university or institute for any examination, this report is not submitted by anyone else. This report is my original work & not borrowed or copied from others. If it is found so, I will be responsible for that.

Date:

Place: KADIWALA NILIMA

Acknowledgement

I would take the opportunity to express the feeling of great pleasure towards South Gujarat University for keeping winter project as part of T.Y.BBA programme.

It is great opportunity to say thank to them of great esteemed “AASTHA CREATION” and “ SHIVAM CORPORATION” firstly I believe that the full credit of having completed this project should to the faculty member & incharge principal MR.NARENDRA JADAV of my collage NAVNIRMAN INSTITUDE OF MANAGEMENT. My guide Mrs. RADHA VYAS has guided me and provided a great support on time to time for successfully completion of my project.

I would like to thank Mr. AMOL PATIL and VIKAS KOHLI to permit me to undergo the project in their company.

I also felt great pleasure to the whole staff of the company for giving me such a remanding knowledge and information which helps me in satisfactory completion of my project.

KADIWALA NILIMA

INDEX

Chapter No

Particulars Page No.

1 Industry overview1.1 Embroidery industry in India.1.2 Embroidery industry in Gujarat.1.3 Embroidery industry in Surat.

2 Company profile2.1 Aastha Creation2.2 Shivam Corporation

3 Research Methodology3.1 Selection of problems3.2 Introduction of research method3.3 Data collection designs3.4 Importance of the study3.5 Limitations of the study3.6 Scope of the study

4 Theoretical framework4.1 An introduction of working capital management4.2 Concept of working capital4.3 Types of working capital4.4 Factors considering while estimating working capital4.5 Estimating working capital4.6 Features of working capital4.7 Source of working capital finance4.8 Determinants of working capital4.9 Components of working capital4.10 Advantages of working capital4.11 Disadvantages of working capital

5 Analysis and finding5.1 Statement of working capital of Aastha creation5.2 Statement of working capital of Shivam Corporation5.3 Data analysis and interpretation5.3. Ratio analysis of Aastha Creation5.3.2 Ratio analysis of Shivam Corporation5.4 Comparison of ratio analysis with interpretation of Aastha &

Shivam5.5 Summary of ratio Aastha & Shivam5.6 Findings

6 Conclusion Bibliography Annexure

Map of Aastha Creation in Surat.

(Fig 1.1 company map)

Map of Shivam Corporation in Surat.

(Fig 1.2 company map)

1.1 Embroidery industry in India

● Overview of the Embroidery Industry and Indian scenario

Embroidery is one of the oldest and most popular forms of surface ornamentation of fabrics and garments, and India is among the top suppliers of embroidered fabrics and garments worldwide. The sector is now getting more organized, with large player’s entry. Demand for garments embellished with embroideries with sequins and crystals are quite strong in the international market, as also in India.

However, while embroidery is used in a whole lot of products internationally, the market is still an unexplored one in India. "India is still an unexplored market for embroideries. Traditionally, embroidery is used for ornamentation of apparel, products such as furnishings, lingerie, have not used much of embroidery. This form of embellishment is only now getting popular in menswear. Studies have shown that embroidery consumption per person in the country is Rs 8/- per annum. This makes clear the huge potential of embroidery in the country, which is still to be tapped."

The size of the Indian embroidery market is slated to be around Rs 800-900 corer per annum. Realizing the huge potential of embroidery, some large players have entered the sector. Embroidery, till a decade ago, was largely in the unorganized sector, with very small units, typically with 2 and 4 embroidery machines.

Today, Organized Player’s account for 60 % of the market. "The domestic embroidery manufacturing is almost totally unorganized, with very small units situated in various parts of the country. This is more a cottage industry. Most of the exporters in this segment do not have their own manufacturing facilities, but get the orders job worked from such small units."

According to Mr.V.Elangovan, SNQC, orders of garments with embroidery are more than that with prints in ladies and girls apparels. Embroidery is preferred over prints because of eco-friendly characteristics (print use PVC). Garments with sequins and crochet laces (of Indian looks) are well received by foreign customers and now such works are being done in sleepwear too.

Surat and Mumbai are the major embroidery centres in the country, and Bareilly, Moradabad, etc is known for beadwork. "It is not easy to operate in the domestic market, as competition is from these very small units. Moreover, the orders in the domestic market are for very small lots and very large varieties, making it suitable to the small units according to him, "India's strength lies in designing. Vietnam is our competitor, and we are hearing that China too is coming up, but India is an important source of embroideries for the world."

● Inputs for the embroidery sector

Any improvement in the prospects of textile and garments industry thus, has a significant impact on the growth of the EFL segment Threads, the most important component for this sector, are easily available in the country. Demand for Embroidery thread in the country is growing at a rate of around seven per cent per annum. And most of the major thread manufacturers are expanding capacities. "Threads are easily available in the country, but there is scope for improvement in quality.

Realizing the need for quality embroidery yarns, Indian Rayon has ventured into the manufacturing of viscose embroidery yarns. Consumption of embroidery yarns in the country stands at around 11,000 tons per annum, of which viscose accounts for a major share. Moreover, around 3,500 multi-head computerized embroidery machines are being installed in Surat, around 1,500 such machines are getting installed in Mumbai, and a similar number each in Tirupur, Bangalore, Coimbatore, Ludhiana.

All these units will require high quality embroidery yarns. While viscose yarns are the most widely used in embroidery, cotton, polyester and metallic yarns are also used. However, a large part of the production of these threads takes place in the unorganized sector; with units have a capacity to manufacture 5 tones to 60 tons of embroidery thread per annum.

As for the machinery, the industry has to import embroidery machines from Germany, Japan, Taiwan, and China. "This is a very price sensitive market, and the industry is finding out that Chinese machines are just as good. For those who require 6-12 head embroidery systems, these machines are working well, both for domestic and export production."

The Embroidery and Fashion Laces (EFL) segment derives its demand from the readymade garment segment of the textile industry. Embroidered fabrics and laces can be classified as a niche segment of fashion accessories. Fashion accessories used by garment and other manufacturers include Crochet laces, Torchon laces, Rachel laces, fancy buttons, elastic tapes etc. It is observed to have a positive correlation to the readymade garments sector. .

● KEY INDUSTRY- REGULATIONS AND POLICIES

Over the past five years, the Indian government has removed many of the barriers hindering various sectors growth. But to fulfill the potential of the country’s apparel industry, the government needs to eliminate the remaining restrictions that perpetuate the lack of scale and poor operational and organizational performance of local manufacturers which discourage investment, particularly foreign direct investment.

Regulations still protect small-scale garment industry in a number of ways. While the production of ready-made garments is no longer reserved for small-scale manufacturers, a few product markets, such as hosiery, still are dominated by small scale manufacturer. In addition, Indian manufacturers often choose to set up several small plants, instead of a single big one, to take advantage of labor laws. As a result, Indian apparel/garment making units typically have less number of machines than its counterparts in other countries. In order to encourage up gradation of textile sector and to give a fillip to exports of textile products, some of the important initiatives taken by the Government of India are as follows:

● Announcement of New Textile Policy

One of the main objectives of the New Textile Policy announced in November 2000 (National Textile Policy, 2000) is to facilitate the textile industry to attain and sustain a pre-eminent global standing in the manufacture and export of clothing. The policy endeavors to achieve the target of textile and apparel exports from the present level to US$ 50 billion by 2010, of which the share of garments will be US$ 25 billion. Subsequent to the announcement of NTP 2000, woven segment of readymade garment sector has been de-reserved from SSI.

1.2 Embroidery industry in Gujarat

● Embroidery in Gujarat

Gujarat’s contemporary indigenous dress is a cultural manifestation that has evolved over centuries and has remained a principal mark of identity and social cohesion. While dress is indicative of social difference, it is also one of the first indicators of identity that disappears in the process of cultural assimilation and racial mingling.

● Kutch's World Renowned Work

The best pick up point for ethnic embroidery in Gujarat is Kutch, which was once a part of the trade route between Central Asia and the Far East. Given Gujarat’s coastline and numerous harbors’, it exposed the land to the outside world. Some of the best and oldest textiles were created in Gujarat and they were in great demand in other parts of Asia. Old Kutchis still recount romantic tales of caravans laden with silk, pearls, carpets, etc. traversing the Rann to reach the port cities. Influences and impact of the outside world had its effect on embroidery as well as in all desert and semi-desert regions, life here is varied, there is little to celebrate but for the women of Kutch who weave a magical world of color and celebrate everyday life. Elements and traces of Baluch or Sindhi embroidery merging with those of the Kutch are well established. Marco Polo, writing about Gujarat, says “They also work here beautiful mats in red and blue leather, exquisitely inlaid with figures of bird and beasts and skillfully embroidered with gold and silver wire. They are marvelously beautiful things; they are used by the Saracens to sleep upon.”

● Diverse Variety of Embroidery

Embroidery, in Gujarat, is akin to ritual decoration and can be found everywhere. Toran is the most common embroidered doorway decoration with hanging flaps, which is supposed to ventilate good luck. Pachhitpatis (embroidered frieze) are hanged from the corners as a welcome symbol to the visitors. Chaklas (embroidered square pieces) are used as furniture covers while Bhitiya is the impressive wall hanging.Abhala (mirror inset embroidery) has now become a part of the ethnic chic fashion world, where small mirror discs are fixed with closely worked silken thread. Usually the mirror work is done on a dark background with motifs like flowers, creepers, petals, etc. The motifs are inspired by daily life; ancient belief and rituals but they vary from place to place and are passed down over the centuries from mother to daughter.

● Embroidery- An Inherit Talent

It is not an unusual site in Kutch to find young girls, their mother and even grandmother sitting together to create the best of cholis (bodices), gaghras (skirts), odhnis (shawls), bed spreads, bags, wall hanging and a variety of ornamental pieces for home decor. Until recently long hours were spent to create the best in embroidery for personal use but today things are a bit organized and slightly speedier in order to cater to the needs of the tourists as well. At a very early age the girls acquire the embroidery skills, honed by generations and with pride and patience they prepare their own wedding garments.

These exclusively created embroidered works are sent to the in-laws for closer examination, which is one of the important criteria for deciding matrimonial alliances.

● Distinctive Style of Needlework

Each community in Kutch has its own distinctive style of needlework. Geometric patterns of Sauf embroidery by the Sodha community appear to be the earliest extension of Iranian Baluchistan influence. The time consuming needlework involves stitches on the base by counting every single thread that imparts a uniform balanced look as if the design was woven on cloth. Sodha Rajputs, who migrated from Pakistan during the 1971 Indo-Pak war, are scattered around the village of Sumerasar and border area of Banaskantha.

●The Ancient- Ari Embroidery

Ari Embroidery is equally old and famous for its heavy work. Prepared with the help of an awl it represents a cobbler’s stitch, which requires considerable skill and practice. The sharper and finer the hook of the awl, the more refined the quality of the embroidery. This is done in silk or locally made satin called Gajji or on a silky satin fabric Atlash. The royal ladies of Kutch who were fascinated by the Persian motifs like peacock and flowers patronized Ari embroidery. The garments under the spell of Ari embroidery are usually dotted with bootis (motifs), which round off with big sized ones known as Nadir Shahi booti.

● Rabari Embroidery

Rabari Embroidery is the most prominent work and widely available. The women of this community wear black skirts with creative edges embroidered and so are their profusely decorated veils with tie and dye patterns. A Rabari bridegroom’s embroidered longcoat is worth a look. Even children wear heavily embroidered salwars and shirts. The Kutchi Rabaris make use of mirrors of various shapes and sizes and therefore their works have a variety though they stick to minute chain stitches.

The finest embroidery with most intricate patterns created by the needle comes from Mutwa and Jat communities. The Mutwas, living in Banni, excel in all styles of embroidery and they work out the tiny mirrors with ease. Fine handspun cotton and quality silk is used in red, white, golden yellow, blue and black to develop patterns and booties interspersed with bird and animal motifs. The Jats, who migrated from Baluchistan, are experts in inserting the smallest of the mirrors with utmost perfection, amidst pleasing colours and design that are usually geometric patterns. The Jats are confined to Dhordo, border villages of Sherwa and Savada. Few of the Jat families also dwell at Naranpar: (17kms from Bhuj en route to Kera).

The ladies from Lohana community in Banni create fantasy with silk thread thickly piled in deep orange, golden yellow, dark red and bright black. The bootis are inset with mirrors, making use of chain stitch, buttonhole stitch, etc.

1.3 Embroidery industry in Surat

Surat, distinctly known for diamonds and textiles, has been able to carve a niche in the embroidery industry as well during the past few years. However, the sector is shrinking day by day on the back of global meltdown.

Handmade as well as computerized embroidery work from Surat has been attracting thousands of international shoppers to this town.

Current global scenario has put an adverse effect on the embroidery industry of this region as well. In the last three months, production has dropped down by more than 35 percent. Of late more than 35,000 labourers’ have already been laid off from this sector.

In Surat, there are around 50,000 embroidery machine units and around 1, 00,000 embroidery skilled workers are working in shifts. As orders have been decreased embroidery companies have stopped night shifts and few have reduced working hours.

“Workers working in night shift are given option to work in day shift and are been adjusted within units. Only in unavoidable circumstance where factories have been closed, the workers have lost their jobs. Job cut are much hyped,” stated Mr. Devkishan Manghani, Acting General Secretary of Federation of Surat Textile Traders Association

The overall ready fabric industry in India is worth Rs300 billion, while exports contribute about Rs8 billion and embroidery forms a major part of the ready fabric industry. Earlier, the traders used to export embroidered fabrics to countries like the UAE, USA and Great Britain.

Observing this huge potential, enterprises in Surat imported embroidery machines from China worth Rs0.4 million to Rs10 million. However, most units have not been able to recover the invested amount, as textile exports fell since October and according to forecast will dip further in the coming fiscal.

“Exporters are facing difficult time. To sell their ready goods they are now turning to domestic market which is creating problem for us as now there are now eating up our market share. Domestic market demand is already limited for embroidery cloths and now we are sharing it with exporters. This recession will continue for longer period and that is a matter of concern for us,” showing his apprehension Mr. Chavatia stated.

The Union Textile Ministry had targeted 20 percent growth in the current fiscal and Embroidery industry that depends on the textiles, is hoping for speedy survival.

2.1 COMPANY PROFILE OF AASTHA CREATION

2.2 COMPANY PROFILE OF SHIVAM CORPORATION

AASTHA CREATION

Name of the firm : “Aastha Creation”

Address : 108, Shivkrupa Society, near chosath Jogni Temple

U.M.Road, Surat

Year of establishment : July 2008

Type of firm :

Type of job : Embroidery & designing

Competitors : Shivam Corporation,

Shivkrupa Creation

Distribution Area : Surat

Suppliers : Sidhant Creation

Banks : Indian Overseas Bank

ICICI BANK

2.1 HISTORY:

We are a 4 year old company, incorporated in the year 2008 under leadership of the ambitious and pragmatic Mr. Amol Patil - Aastha Creation. We offer proven expertise in designer sarees. Being a pioneer in the designer sarees manufacturing domain, our company has risen to the status of a market leader by consolidating our position in the last 3 years

From a modest beginning of a family business of jackard, we ventured in to designer sarees in thus forming an Aastha Creation. We have wide range of designer and bridal sarees.

Our candid commitment to continual improvement and innovation in our products has led us to a colossal expansion. Aastha is renowned for its exceptional productivity, cost effectiveness as well as tranquil operation. We are determining to maintain the faith entrusted by our valued customers owing to our impeccable performance and outstanding customer services. A highly dedicated team of experts and concurrent management practice is having been instrumental to this process of transition.

2.2 Corporate Governance:

At Aastha we are not just concerned about doing business, but also on how we manage our business process to create a positive impact on society. The Aastha group strives for excellence in our corporate governance practices. We continually evaluate our process & implement procedures designed to maintain strong & ethical governance & operation standards. In doing so, we strive to manage the Aastha group according to the highest principles of responsibility & integrity.

2.3 Company’s vision

To become the world's best integrated textile solutions enterprise with leadership position across products and markets, exceeding customer & stakeholder expectation.

2.4 Company’s mission

They will:•Offer innovative, customized and value added services to our customers•Actively explore potential markets & products•Optimize use of all resources•Maximize people development initiatives•Become a process driven organization•Be a knowledge leader and an innovator in our businesses•Exceed compliances and global quality standards

2.5 Achievements of the company

The company’s activity and product are highly estimated by the designers and experts of fashion.

It captures the national market like Delhi, Kolkata and Varanasi.

SHIVAM CORPORATION

Name of the firm : Shivam Corporation

Address : 17 SK-2 Industries, opp. Bhatia Complex, U.M. Road Surat.

Year of establishment: April 2007

Type of firm :

Type of job : Embroidery

Competitors : Aastha Creation,

Shivkrupa Creation

Distribution Area : Surat

Suppliers : Sidhant Creation

Banks : Bank of Baroda

2.1 HISTORY

The Birth of Shivam Corporation in the year 2007. Mr. Vikas Kohli launches his mission of making designer and bridal sarees. With growing popularity of Shivam corporation’s product Mr. Vikas Kohli expands his operation by mass production of sarees.

The need to develop patterns and quality checks for mass production of sarees leads to establishment of fashion designer and supervisors.

Shivam’s custom work stands out against the competition. They understand customers and customer’s needs. When it comes to offering quality and craftsmanship.

2.2 Quality:

Shivam corporation strives to enhance customer satisfaction by manufacturing products of excellent quality, with focus on customer requirements and quick delivery. We continually improve our Quality Management system and Customer Satisfaction index to develop latest technologies to increase and maintain our production quality as well as customer satisfaction.

2.3 Company’s Vision

The Shivam Corporation Vision is to become the most efficient and effective business entity in each of its respective business markets regardless of the geographic location.

2.4 Company’s Mission

United efforts to anticipate and satisfied customer needs by providing excellent service continuously for achieving leading position.

2.5 Achievements of the company

Best in production performance

Excellence in variety of designs.

3.1 selections of problems

3.2 Introduction of research method

3.3 Data collection design

3.4 Importance of study

3.5 Limitation of study

3.6 Scope of study

3.1 Selection of problems

The p rob l em fo rmu la t i on i s t he f i r s t s t ep t o a succe s s fu l r e sea r ch p roce s s . The w in t e r p ro j ec t unde r t aken t he p rob l em o f ana lyz ing t he” work ing cap i t a l managemen t” o f t he Company’s and to find out the ratio analysis of companies. 

3.2 Introduction of research method

Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying now research is done systematically. In that various steps, those are generally adopted by a researcher in studying his problem along with the logic behind them.It is important for research to know not only the research method but also know methodology. The procedures by which researchers go about their work of describing, explaining and predicting phenomenon are called methodology. Methods comprise the procedures used for generating, collecting and evaluating data. All this means that it is necessary for the researcher to design his methodology for his problem as the same may differ from problem to problem.

Research Technique : descriptive

Data collection technique: secondary

Sampling size : Two Embroidery Company

Area of research : Aastha creation, Shivam Corporation

3.3 Data collection design:

Methods of data collection:

1) Primary Data: - Primary data are those, which are collected for the first time, and they are original in character.Primary data gives higher accuracy and facts which is very helpful for any research and its findings.For primary data, I personally meet owner Mr. Amol Patil and other staff members for the collection of required information.

2) Secondary Data: - the secondary data are those, which are already collected by someone for some purpose and are available for the present study. So was collected from the company’s annual report and other financial statement, website and other such sources

3.4 Importance of Study

Studying business allows you to understand strategy, marketing, finance, accounting, and managing people. By having an understanding of how these things work may find that you are better equipped to work in some jobs. Even if you don't end up specifically working in one of those areas it will help you to understand what other people are working on. It also gives you credibility.

3.5 Limitations of the study

Following limitations were encountered while preparing this project:

1) Limited data:-This project has completed with annual reports; it just constitutes one part of data collection i.e. secondary. There were limitations for primary data collection because of confidentiality.

2) Limited period:-This project is based on five year annual reports. Conclusions and recommendations are based on such limited data. The trend of last five year may or may not reflect the real working capital position of the company

3) Limited area:-Also it was difficult to collect the data regarding the competitors and their financial information.

3.6 Scope of the study

The scope of the study is identified after and during the study is conducted. The study of working capital is based on tools like trend Analysis, Ratio Analysis, working capital leverage, operating cycle etc. Further the study is based on last5 years Annual Reports of Jain Irrigation Systems Ltd. And even factors like competitors analysis, industry analysis were not considered while preparing this project.

4.1) An introduction of working capital management

4.2) Concept of working capital

4.3) Types of working capital

4.4) Factors considering while estimating working capital

4.5) Estimating working capital

4.6) Features of working capital

4.7) Source of working capital finance

4.8) Determinants of working capital

4.9) Components of working capital

4.10) Advantages of working capital

4.11) Disadvantages of working capital

4.1 An introduction of working capital management

Working capital management is concerned with the problems arise in attempting to manage the current assets, the current liabilities and the interrelationship that exist between them. The term current assets refers to those assets which in ordinary course of business can be, or, will be, turned in to cash within one year without undergoing a diminution in value and without disrupting the operation of the firm. The major current assets are cash, marketable securities, account receivable and inventory. Current liabilities warehouse liabilities which intended at their inception to be paid in ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic current liabilities are account payable, bill payable, bank over-draft, and outstanding expenses. The goal of working capital management is to manage the firm’s current assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The current should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety.

4.2 CONCEPTS OF WORKING CAPITAL:

Working Capital, in the simple words, means the capital invested in the current assets. However it has been variously defined as : “ W o r k i n g C a p i t a l m e a n s t h e c u r r e n t a s s e t s o f a c o m p a n y t h a t a r e changed in the ordinary course of business from one form to another, as f o r e x a m p l e , f r o m c a s h t o i n v e n t o r i e s , i n v e n t o r i e s t o r e c e i v a b l e s , receivables into cash.” 

“Working Capital is descriptive of that capital which is not fixed. But the more common use of working capital is to consider it as the difference between the book value of the current assets and current liabilities.”

 Thus , t he r e a r e two d i f f e r en t op in ions abou t t he mean ing o f t he t e rm working capital.

( 1 )Acco rd ing t o one s choo l o f t hough t , work ing cap i t a l r ep re sen t s a l l cu r r en t a s se t s o f t he Company . They be l i eve t ha t work ing cap i t a l represents those assets, which change their form during the process of production.Working Capital = Total Current Assets

(2)According to the other school of thought, working capital is the excess of current assets over current liabilities.Working Capital = Current Assets – Current Liabilities

Cur ren t a s se t s i nc lude ca sh , a ccoun t s r e ce ivab l e , no t e s r e ce ivab l e , advances on contracts, inventories etc. Current liabilities include accounts payable, notes payable, accrued expenses, temporary loans etc. Under  t h i s concep t an a t t emp t i s made t o measu re ne t work ing cap i t a l o f t he Company. To avoid the confusion involved in the interpretation of working capital, the total current assets are described asGross working capital, wh i l e t he excess of total current assets over total current liabilities are described as net working capital.

Thus, there are two concepts of working capital: 1.Gross Working Capital i.e. Total Current assets2.Net Working Capital i.e. Current assets – Current liabilities Gross working capital concept focuses attention on two aspects of current assets management: Working Capital Management – An Analysis

a. What is the optimum level of investment in current assets?

b. How should current assets be financed?

N e t w o r k i n g c a p i t a l i s a q u a l i t a t i v e c o n c e p t . I t i n d i c a t e s t h e l i q u i d i t y position of the firm and suggests the extent to which the working capital needs may be financed by permanent sources of funds. It indicates how much current assets are covered by current liabilities. The net working capital concept also covers the question of judicious mix of long-term and short-term funds for financing the current assets. Both gross and net working capital concepts are equally important for the efficient management of working capital.

4.3) Type of working capital

The operating cycle creates the need for current assets (working capital).However the need does not come to an end after the cycle is completed to explain this continuing need of current assets a destination should be drawn between permanent and temporary working capital.

1) Permanent working capital:The need for current assets arises, as already observed, because of the cash cycle. To carry on business certain minimum level of working capital is necessary on continues and uninterrupted basis. For all practical purpose, this requirement will have to be met permanent as with other fixed assets. This requirement refers to as permanent or fixed working capital.

2) Temporary working capital:

Any amount over and above the permanent level of working capital is temporary, fluctuating or variable, working capital. This portion of the required working capital is needed to meet

fluctuation in demand consequent upon changes in production and sales as result of seasonal changes.

4.4 FACTORS CONSIDERING WHILE ESTIMATING WORKING CAPITAL

Working capital needs of a firm are influenced by numerous factors. The important ones are

i) Nature of business: The working capital requirement of a firm is closely related to the nature of business. A service firm , like electricity undertaking or a transport corporation which has a short operating cycle and which sells predominantly on cash basis , has a modest working capital requirement . On the other hand , manufacturing concern like a machine tools unit , which has a long operating cycle and which sells largely on credit has a very substantial working capital requirement .

ii) Seasonality of Operation: Firms which have marked seasonality in their operations usually have highly fluctuating working capital requirement. For example, consider a firm manufacturing air conditioners. The sale of air conditioners reaches the peak during summer months and drops sharply during winter season. The working capital need of such a firm is likely to increase considerably in summer months and decrease significantly during winter period. On the other hand , a firm manufacturing consumer goods like soaps , oil , tooth pastes etc. which have fairly even sale round the year , tends to have a stable working capital need .

iii) Production Policy: A firm marked by pronounced seasonal fluctuation in its sale may pursue a production policy which may reduce the sharp variations in working capital requirements. For example a manufacturer of air conditioners may maintain steady production throughout the year rather than intensify the production activity during the peak business season. Such decision may dampen the fluctuations in working capital requirements.

iv) Market Conditions: When competition is keen, larger inventory of finished goods is required to promptly serve the customers who may not be inclined to wait because other manufacturers are ready to meet their needs. Further generous credit terms may have to be offered to attract customers in highly competitive market. Thus, working capital needs tend to be high because of greater investment in finished goods inventory and accounts receivable.If the market is strong and competition is weak, a firm can manage with smaller inventory of finished goods because customers can be served with delay. Further in such situation the firm can insist on cash payment and avoid lock up of funds in accounts receivables - it can even ask for advance payment, partial or total.

v) Conditions of Supply: The inventory of raw material, spares and stores depends on the conditions of supply. If supply is prompt and adequate, the firm can manage with small inventories. However if the supply is unpredictable and scant then the firm , to ensure continuity of production , would have to acquire stocks as and when they are available and carry large inventories on an average . A similar policy may have to be followed when the raw material is available only seasonally and production operations are carried out round the year.

4.5 FEATURES OF WORKING CAPITAL

The features of working capital distinguishing it from the fixed capital are as follows:

(1) Short term Needs: Working capital is used to acquire current assets which get converted into cash in a short period. In this respect it differs from fixed capital which represents funds locked in long term assets. The duration of the working capital depends on the length of production process, the time that elapses in the sale and the waiting period of the cash receipt.

(2) Circular Movement: Working capital is constantly converted into cash which again turns into working capital. This process of conversion goes on continuously. The cash is used to purchase current assets and when the goods are produced and sold out; those current assets are transformed into cash. Thus it moves in a circular away. That is why working capital is also described as circulating capital.

(3) An Element of Permanency: Though working capital is a short term capital, it is required always and forever. As stated before, working capital is necessary to continue the productive activity of the enterprise. Hence so long as production continues, the enterprise will constantly remain in need of working capital. The working capital that is required permanently is called permanent or regular working capital.

(4) An Element of Fluctuation: Though the requirement of working capital is felt permanently, its requirement fluctuates more widely than that of fixed capital. The requirement of working capital varies directly with the level of production. It varies with the variation of the purchase and sale policy; price level and the level of demand also. The portion of working capital that changes with production, sale, price etc. is called variable working capital.

(5) Liquidity: Working capital is more liquid than fixed capital. If need arises, working capital can be converted into cash within a short period and without much loss. A company in need of cash can get it through the conversion of its working capital by insisting on quick recovery of its

bills receivable and by expediting sales of its product. It is due to this trait of working capital that the companies with a larger amount of working capital feel more secure.'

(6) Less Risky: Funds invested in fixed assets get locked up for a long period of time and can not be recovered easily. There is also a danger of fixed assets like machinery getting obsolete due to technological innovations. Hence investment in fixed capital is comparatively more risky. As against this, investment in current assets is less risky as it is a short term investment. Working capital involves more of physical risk only, and that too is limited. Working capital involves financial or economic risk to a much less extent because the variations of product prices are less severe generally. Moreover, working capital gets converted into cash again and again; therefore, it is free from the risk arising out of technological changes.

(7) Special Accounting System not needed: Since fixed capital is invested in long term assets, it becomes necessary to adopt various systems of estimating depreciation. On the other hand working capital is invested in short term assets which last for one year only. Hence it is not necessary to adopt special accounting system for them.

4.6 SOURCES OF WORKING CAPITAL FINANCE

Sources of working Capital Finance

1) Trade credit2) Bank Finance3) Letter of credit

1) Trade creditTrade credit refers to the credit that a customer gets from suppliers of goods in the normal course of business. The buying firms do not have to pay cash immediately for the purchase made. This deferral of payments is a short term financing called trade credit. It is major source of financing for firm. Particularly small firms are heavily depend on trade credit as a source of finance since they find it difficult to raised funds from banks or other sources in the capital market. Trade credit is mostly an informal arrangement, and it granted on an open account basis. A supplier sends goods to the buyers accept, and thus, in effect, agrees to pay the amount due as per sales terms in the invoice. Trade credit may take the form of bills payable. Credit terms refer to the condition under which the supplier sells on credit to the buyer, and the buyer required repaying the credit. Trade credit is the spontaneous source of the financing. As the volume of the firms purchase increase trade credit also expand. It appears to be cost free since it does not involve explicit interest charges, but in practice, it involves implicit cost. The cost of credit may be transferred to the buyer via the increased price of goods supplied by him.

3) Bank finance for working capital

Banks are main institutional source of working capital finance in India. After trade credit, bank credit is the most important source of financing working capital in India. A bank considers a firms sales and production plane and desirable levels of current assets in determining its working capital requirements. The amount approved by bank for the firms working capital is called credit limit. Credit limit is the maximum funds which a firm can obtain from the banking system. In practice banks do not lend 100% credit limit; they deduct margin money.Forms of bank finance:-

1) Term Loan2) Overdraft3) Cash credit4) Purchase or discounting of bills

1) Term Loan: In this case, the entire amount of assistance is disbursed at one time only, either in cash or the company’s account. The loan may be paid repaid in installments will charged on outstanding balance.

2) Overdraft: In this case, the company is allowed to withdraw in excess of the balance standing in its Bank account. However, a fixed limit is stipulated by the Bank beyond which the company will not able to overdraw the account. Legally, overdraft is a demand assistance given by the bank i.e. bank can ask repayment at any point of time.

3) Cash credit: In practice, the operations in cash credit facility are similar to those of those of overdraft facility except the fact that the company need not have a formal current account. Here also a fixed limit is stipulated beyond which the company is not able to withdraw the amount.

4) Bills purchased / discounted: This form of assistance is comparatively of recent origin. This facility enables the company to get the immediate payment against the credit bills / invoice raised by the company. The banks hold the bills as a security till the payment is made by the customer. The entire amount of bill is not paid to the company. The company gets only the present worth of amount of bill from of discount charges. On maturity, bank collects the full amount of bill from the customer.

4) Letter of credit:

In this case the exporter and the importer are unknown to each other. Under these circumstances, exporter is worried about getting the payment from the importer and importer is worried as to whether he will get goods or not. In this case, the importer applies to his bank in his country to open a letter of credit in favor of the exporter whereby the importers bank undertakes to pay the

exporter or accept the bills or draft drawn by the exporter on the exporter fulfilling the terms and conditions specified in the letter of credit.Banks have been certain norms in granting working capital finance to companies. These norms have been greatly influenced by the recommendation of various committees appointed by the Reserve Bank of India from time to time. The norms of working capital finance followed by bank since mid-70were mainly based on the recommendations of the Tondan committee. The Chore committee made further recommendations to strengthen the procedure and norms for working capital finance by banks.

4.7 Determinants of working capital

The amount of working capital is depends upon a following factors

1) Nature of business:

Some businesses are such, due to their very nature, that their requirement of fixed capital is more rather than working capital. These businesses sell services and not the commodities and that too on cash basis. As such, no founds are blocked in piling inventories and also no funds are blocked in receivables. E.g. public utility services like railways, infrastructure oriented project etc. there requirement of working capital is less? On the other hand, there are some businesses like trading activity, where requirement of fixed capital is less but more money is blocked in inventories and debtors.

2) Length of production cycle:

In some business like machine tools industry, the time gap between the acquisition of raw material till the end of final production of finished products itself is quite high. As such amount may be blocked either in raw material or work in progress or finished goods or even in debtors. Naturally there need of working capital is high.

3) Size and growth of business:

In very small company the working capital requirement is quit high due to high overhead, higher buying and selling cost etc. as such medium size business positively has edge over the small companies. But if the business start growing after certain limit, the working capital requirements may adversely affect by the increasing size.

4) Business/ Trade cycle:

If the company is the operating in the time of boom, the working capital requirement may be more as the company may like to buy more raw material, may increase the production and sales to take the benefit of favorable market, due to increase in the sales, there may more and more amount of funds blocked in stock and debtors etc. similarly in the case of depressions also, working capital may be high as the sales terms of value and quantity may be reducing, there may be unnecessary piling up of stack without getting sold, the receivable may not be recovered in time etc.

5) Terms of purchase and sales:

Some time due to competition or custom, it may be necessary for the company to extend more and more credit to customers, as result which more and more amount is locked up in debtors or bills receivables which increase the working capital requirement. On the other hand, in the case of purchase, if the credit is offered by suppliers of goods and services, a part of working capital requirement may be financed by them, but it is necessary to purchase on cash basis, the working capital requirement will be higher.

6) Profitability:

The profitability of the business may be vary in each and every individual case, which is in turn its depend on numerous factors, but high profitability will positively reduce the strain on working capital requirement of the company, because the profits to the extent that they earned in cash may be used to meet the working capital requirement of the company.

7) Operating efficiency:

 If the business is carried on more efficiently, it can operate in profits which may reduce the strain on working capital; it may ensure proper utilization of existing resources by eliminating the waste and improved coordination.

4.8 COMPONENTS OF WORKING CAPITAL

Cash

Cash is probably the least productive asset you can have. Not only does it not earn anything, it actually loses purchasing power as a consequence of inflation. So why do firms hold cash? The three Keynesian motives for holding cash balances are

Transactions motive – to conduct day-to-day business of paying for purchases, labor, etc.

Precautionary motive – to cover unexpected expenditures. If the delivery truck breaks down, it must be repaired or replaced if you want to stay in business.

Speculative motive – unusually good opportunities occasionally arise. If you have the money available, you can take advantage of these opportunities.

While cash is necessary to cover the transactions motive, the precautionary and speculative motives can be covered with the near money (or near cash) of marketable securities.

In order to maximize your cash balances, you can do one of two things; either accelerate the inflow of funds (ask for an advance on your salary) or delay the outflow of funds (postpone paying the phone bill until next month). But why would we want to maximize our cash holdings if it is the least productive asset? Because idle cash, either sitting in a checking account or tied-up in accounts receivable is extremely costly.

For example, suppose we have a client who owes us payment of $1,000,000 that is due. The opportunity cost of not collecting is the interest we could earn on the money.

$1,000,000 Receivable due

5% Treasury bill rate

$ 50,000 Annual interest

$50,000/365 days = $137 per day

Can you invest money for one day? Absolutely. In fact, for a large enough amount of money, someone will meet you at the bank on Sunday in order to accept your deposit.

This also illustrates the concept of “float”. Bank float is the period of time between when a check is written to pay an obligation and when the funds are actually deducted from your checking account. Within a city, it is common practice to have a local check clearing system where banks meet each day to exchange checks written on one another’s accounts. When the

Bank where a check is deposited is in a different city from the bank on which the check is drawn, the deposited check first goes to the regional Federal Reserve Bank, (Dallas in the case of Texas), and is then forwarded to the issuing bank. This adds a day or two to the float period. If the check is drawn on a bank account in another Federal Reserve District, then another day or so is added as the local Fed must forward the check to the Fed in the issuing bank’s district which then forwards the check to the bank. Exxon used to pay suppliers west of the Mississippi river with checks written on a small bank in North Carolina, while suppliers east of the Mississippi were paid with checks on a small bank in Arizona. One day’s worth of float to the U.S. government is worth over $1 billion (which is one reason government employees now get paid on the first of the following month rather than the last day of the month).

Most of us have probably played the float on at least one occasion (and probably gotten caught!) It should be noted, however, that using float to cover up a deficit (i.e., hot check) is illegal.

Another means of extending the float is through the use of drafts. A draft is like a check, but must be returned to the issuer for verification prior being deposited. This, again, adds 2-3 days to the float period. Insurance companies are most noted for using drafts within the U.S. The types of draft that insurance companies use are known as sight drafts since they are paid upon presentation. Time drafts are those which are payable upon a specific future date. Time drafts are an important financing instrument in international trade and will be discussed later.

While bank float and drafts delay the outflow of funds, cash balances can also be increased by speeding up the inflow of funds. The primary means of accomplishing this is through the use of a lock-box system. A lock-box is a post office box in a local city where payments from customers in the area are sent. The lock-box is cleared daily and the checks are deposited in a local bank and then wired to the company’s main bank account. Referred to as concentration banking, it cuts 2-3 days off of the time it takes the checks to cross several states and allows funds to be concentrated in one bank for investment in short-term securities. The larger amount of funds that can be invested yields higher interest rates and lower transactions costs.

The local bank will offer the lock-box system if a local office is not available or does not want to devote the personnel to tend to the system. Banks, however, charge for the services that they provide through either a direct service charge, or by requiring that a minimum compensating balance be maintained. A compensating balance is one that does not pay any interest. The minimum balance can be either an absolute minimum or an average minimum.

Marketable Securities

Marketable securities are a way of holding cash but with the attribute of earning interest. Market securities have three characteristics:

1. Short-term maturity (less than one year, or “money market instruments”2. High marketability3. Virtually no risk of default

Several types of marketable securities exist, the major ones being

U.S. Treasury billsTreasury bills are auctioned every Monday by the government. Most have maturities of 91 or 181 days, although some 9-month (270 days) and 12-month (360 days) bills are sold. The t-bills, generally with a face value of $10,000 each, are sold at a discount to the highest bidders. The difference between the amount paid and the face value at maturity represents the interest that is earned.

Anticipation notesAnticipation notes are issued by municipalities and school districts. Since their revenues come from tax sources, the notes are “in anticipation” of future tax receipts.

Commercial paperCommercial paper is the promissory notes of a major national firms. Most of the firms that issue commercial paper sell it directly to investors (insurance companies, money market funds, pension funds) although sometimes it will be sold through investment bankers. Commercial paper is a substitute for bank debt, but at a rate of interest that is one-fourth to on-half of a percent higher than t-bills (currently about 4.3%) but significantly less than what banks would charge (prime is currently about 8.5%).

Bankers AcceptancesA banker’s acceptance is a time draft that evolves from international export/import financing. An exporter is paid by a time draft issued by a foreign bank. Since the draft is not payable until some future date (1-3 months, typically) the company that receives it will often sell it to its local bank at a discount. The local bank bundles the discounted drafts (bankers acceptances) and then resells them in the money markets.

●Accounts Receivable

Accounts receivable are generated when a firm offers credit to its customers. The first thing that needs to be addressed when establishing a credit policy is to set the standards by which a firm is judged in determining whether or not credit will be extended. There is what’s known as the 5 Cs of credit:

1. Character – the willingness of the borrower to repay the obligation2. Capacity – the capability of the borrower to earn the money to repay the obligation3. Capital – sufficient assets available to support operations (as opposed to a firm that is

undercapitalized). Sometimes capital is interpreted to mean equity capital; i.e., to make sure the owners of the firm have sufficient money at stake to give them proper incentive to repay the loan and not let the company go bankrupt.

4. Collateral – assets to support the loan which can be liquidated if default occurs5. Conditions – current and future anticipated conditions of the firm and the industry.

Once the credit standards have been set, the terms of credit need to be established. When must the customer pay? If they pay early, will they receive a discount? If they pay late, do they get charged a penalty?

While the whole purpose of extending credit is to increase sales and, thus, gross profits, the expected increase in gross profits must be compared with the costs associated with extending credit to customers. These costs include

The time value of money tied up in accounts receivable Bad debts that occur Credit checks (to minimize bad debts) Collection costs Discounts for early payment (reduces revenues) Clerical costs associated with maintaining a credit department

Competitors will respond very quickly to a change in price. How many times have we seen the claims that “We will meet or beat any advertised price”? A change in credit policy, on the other hand, is a more subtle means of competing for customers and one that the competition will not necessarily respond to. In fact, many firms base their business on easy credit. How many times have we seen the advertisements where they tell us “Good credit? Bad credit? No credit? We don’t care!” Of course, these firms will have larger bad debt expenses and larger financing costs, etc. Obviously, they will also need to have higher prices (higher gross profit margins) in order to cover these costs.

Inventories

Inventories (raw materials, work-in-process, finished goods) make up a large portion of most firm’s current assets, and for many, total assets. As such, the extent to which a firm efficiently manages its inventories can have a large influence on its profitability. Thus, keeping abreast of inventory policy is critical to the profitability (and value) of the firm.

Several factors influence the amount of inventory that a firm maintains. The most important of these include

Level of sales – typically, the more sales a firm has, the more inventory it holds

Length of time and technical nature of the production process – The longer it takes to produce finished goods inventories from raw materials, the larger the amount of finished goods that a firm will typically hold (a safety stock). Also, if the production process is highly technical, requiring that retooling be performed prior to each production run in order to assure that production is meeting specifications, larger amounts of inventory will be produced with each production run in order to minimize the set-up costs associated with retooling.

Durability vs. Perish ability – If an inventory item is highly perishable, such as fresh vegetables, a small amount will be held. Similarly, fashions of clothes and car styles are “perishable” and will result in smaller inventories than durable goods such as tools and hardware.

Costs – Cost of holding inventories as well as costs of obtaining inventories will influence inventory sizes.

Inventory costs can be broken down into three major categories:

A. Ordering Costs1. Fixed costs – stocking, clerical2. Shipping costs – often fixed3. Missed quantity discounts – an opportunity cost

B. Carrying Costs1. Time value of money tied-up in inventories2. Warehousing costs3. Insurance4. Handling5. Obsolescence, breakage, “shrinkage”

C. Stock-out Costs1. Lost sales2. Loss of goodwill3. Special shipping costs

Ideally, we want to balance these costs against each other so that our total costs are minimized.

Short-term Financing

Trade Credit

The major source of short-term financing for firms is that of trade credit. While it is an account payable on our balance sheet, it is an account receivable on the balance sheet of our supplier.

The terms of credit can vary quite a bit:

1. Cash on Delivery (i.e., no credit)2. Net amount due within a certain period of time3. Net amount with a discount if paid within a certain period of time, net amount within

another period.

For example, 2/10 net 30 means that if you pay within the first ten days, you can deduct 2% from the bill; otherwise the full amount of the bill is due within 30 days. Discounts are offered by suppliers to keep their A/R balances down and minimize the funds that are tied-up.

Not taking the discount can be a very expensive means of financing. For example, suppose we do not pay within the first ten days. Then, if we pay on the thirtieth day, we have paid 2% (approximately) for an additional twenty days’ use of the funds (the first ten days were free anyway). Since there are 18 twenty-day periods in a year, this is approximately

2% * 18 = 36%

Actually, the cost is a little higher since we are paying 2% on top of the 98% we would otherwise have to pay:

Of course, if you miss payment by day 10 for taking the discount, don’t pay the full amount of day 11 or you have paid

2%*360 = 720%

Do banks charge 36% interest on loans? Not in Texas or most states. It is a violation of the usury laws. Then why do many companies forego the discounts if the cost is so high? It is the only source of funding that they can get. To reduce the effective cost, firms will often stretch payment out past the due date. Of course, this subjects the firm to risk of its credit being completely cut off by the supplier and possibly damages the credit reputation since other suppliers will often request references before extending credit themselves.

Some firms will offer post-dated billing, typically in a seasonal industry. For example, if a manufacturer’s primary sales are to retailers for the Christmas season they may encourage retailers to order in June and July rather than waiting until September. The encouragement is that if an order is placed in June or July, the manufacturer will not bill them until September and even then regular credit terms will apply. The advantage here is that it allows the manufacturer to smooth out sale and thus production. The manufacturer can then save on overtime with employees as well as not incur many of the carrying costs associated with holding the inventories since the retailer takes possession and ownership earlier.

Commercial Banks

The second major source of short-term financing for firms is commercial banks. A firm wants to establish a close relationship with its bank and obtain a line of credit. In order to get a credit line, you will want to show them your income statements, balance sheets, financial ratios, etc. The bank will then allow a certain amount of credit with a set rate of interest (usually prime plus). This can be renegotiated every year. In fact, commercial banks’ bread and butter is their business accounts and they are very competitive with one another in trying to attract corporate clients. The amount of the credit line is typically tied to the amount of accounts receivable that the firm has and sometimes to the amount of inventories that it holds.

Another type of credit line is referred to as a revolving line of credit. With a revolving line of credit, the bank provides a written agreement guaranteeing loans up to a certain amount. The firm will pay a normal rate of interest on the amounts of funds that it borrows plus a commitment fee of one-half to one percent on any unborrowed funds. Unlike a regular line of credit which can be changed, a revolving line of credit guarantees that the bank will always make the amount available if needed. Additionally, a revolving line of credit will often be extended jointly by several banks when the amounts used are larger than a single bank can (or wants to) handle alone.

4.9 Advantages of working capital:

• It helps the business concern in maintaining the goodwill.• It can arrange loans from banks and others on easy and favorable terms.• It enables a concern to face business crisis in emergencies such as depression.• It creates an environment of security, confidence, and overall efficiency in a business.• It helps in maintaining solvency of the business.

4.10 Disadvantages of working capital:

• Rate of return on investments also fall with the shortage of working capital.• Excess working capital may result into over all inefficiency in organization.• Excess working capital means idle funds which earn no profits.• Inadequate working capital cannot pay its short term liabilities in time.

5.1) statement of working capital of Aastha creation5.2) statement of working capital of Shivam corporation5.3) Data analysis and interpretation

5.3.1) ratio analysis of Aastha creation

5.3.2) ) ratio analysis of Shivam creation

5.4) Comparison of ratio analysis with interpretation of Aastha & Shivam

5.5) Summary of ratio Aastha & Shivam

5.6) findings

5.1 Statement of working capital of Aastha Creation

Particular 2009 2010 2011Current assets

1) Cash Balance 2.54 2.32 2.962) Stock 4.80 4.40 5.593) Debtors 8.60 7.88 10.034) Bils recievable 1.30 1.19 1.52A) Gross W/C 17.24 15.79 20.1

Current liability1) Creditors 5.58 5.11 6.502) Bills payable 1.11 1.01 0.13B) Total current

liability6.69 6.13 6.64

W/C (A-B) 10.55 9.66 13.46

5.2 Statement of working capital of Shivam Corporation

Particular 2009 2010 2011Current assets

1) Closing stock 1.35 1.2375 1.5752) Debtors 1.368 1.254 1.596A) Gross W/C 2.718 2.4915 3.171

Current liability1) Creditors 1.8 1.65 2.1B) Total 1.8 1.65 2.1

W/C (A-B) 0.92 0.84 1.071

5.3 Data analysis and interpretation

The sydy on working capital Management of yhe Aastha & Shivam company. so we need to anakyze the financial soundless of the industry. The only tool used in this study was can be classified in 3 category.

1) Profitability2) Turnover3) solvency

Following ratio only calculated in this study:

1) Debt-equity ratio2) Earning per share3) Asset turnover ratio4) Working Capital5) Working capital turnover ratio6) Debtors turnover ratio7) Debtors turnover period8) Inventory turnover ratio9) Inventory turnover period10) Cash position ratio

Profit & Loss account of the Aastha for the last 3 years:

schedule As at 31/3/2009

As at 31/3/2010

As at 31/3/2011

Opening stock 3289200 3015100 38374003Purchase 11532000 10571000 13454000Wages & salaries 750000 687500 875000Carriage inward 240000 220000 280000Total Rs.(B) 15811200 14493600 18446400Gross profit c/d 6594000 6044500 7693000

By sales 17610000 16142500 20545000By closing stock 4795200 4395600 5594400Total Rs.(A) 22405200 20538100 26139400

Insurance 210000 192500 245000Commission 240000 220000 280000Interest 210000 192500 245000Rent & Taxes 765000 701250 892500Trade Exp. 72000 66000 84000Stationary 147000 134750 171500Provision For doubtful debt.

452400 414700 527800

Loss on sale of Furniture

10200 9350 11900

Depreciation on furniture

36000 33000 42000

Total Rs.(D) 2142600 1964050 2499700

Nett Profit 4703400 4311450 5487300

By Gross Profit b/d 6594000 6044500 7693000Discount 12000 11000 14000CommissionConsignmentBusiness 240000 220000 280000Total Rs. (C) 6846000 6275500 7987000

Balance sheet of the Aastha for the last 3 years:

Liabilities 2009 2010 2011

Capital 10061400 9222950 11738300Consignor’s Balance

720000 660000 840000

Creditors for goods

5577000 5112250 6506500

Creditors for stationary

18000 16500 21000

Bills payable 1110000 1017500 1295000

Total Rs. 17486400 16029200 20400800

Assets

Furniture 253800 232650 296100Debtors 8595600 7879300 10028200Bills receivable 1302000 1193500 1519000Closing Stock 4795200 4395600 5594400Stock of stationary 4800 4400 5600Cash in hand & Bank

2535000 2323750 2957500

Total Rs. 17486400 16029200 20400800

Profit & Loss account of the Shivam for the last 3 years:

schedule As at 31/3/2009

As at 31/3/2010

As at 31/3/2011

Opening stock 450000 412500 525000Purchase 9300000 8525000 10850000To freight on purchase

120000 110000 140000

Wages 432000 396000 504000Total Rs.(B) 10302000 9443500 12019000To Gross profit t/f P&L A/c

4248000 3894000 4956000

By sales 13200000 12100000 15400000By closing stock 1350000 1237500 1575000Total Rs.(A) 14550000 13337500 16975000

Salaries 840000 770000 980000Postage,telegram & Telephone

72000 66000 84000

Printing & stationary

108000 99000 126000

Miscellinous Exp. 180000 165000 210000Commission sale 330000 302500 385000

Insurance 96000 88000 112000Bed debts 174000 159500 203000Depri . on building 45000 41250 52500Depreciation on M/C

315000 288750 367500

Depreciation on furniture

24000 22000 28000

Total Rs.(D) 2184000 1166000 2548000

Nett Profit 2286000 2095500 2667000

By Gross Profit b/d 4248000 3894000 4956000Discount 90000 82500 105000Interest on investment

72000 66000 84000

By profit on sale of investment

60000 55000 70000

Total Rs. (C) 4470000 4097500 5215000

Balance sheet of the Shivam for the last 3 years:

Liabilities 2009 2010 2011

Capital 6726000 6165500 7847000Outstanding wages 36000 33000 42000Creditors 1800000 1650000 2100000Outstanding commission on sale

60000 55000 70000

Total Rs. 8622000 7903500 10059000

Assets

Building 1755000 1608750 2047500Machinery 2985000 2736250 3482500Furniture 216000 198000 252000Prepaid insurance 48000 44000 56000Bank Balance 900000 825000 1050000Closing stock 1350000 1237500 1575000Debtors 1368000 1254000 1596000Total Rs. 8622000 7903500 10059000