INTRODUCTION Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. The term current assets refer to those assets which in the ordinary course of business can be, or will be converted into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. The major current assets are cash marketable securities, accounts receivable and inventory. Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank overdraft, and outstanding expenses. The goal working capital management is to manage the firm’s current assets and liabilities in such a way that as satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. The interaction between current assets and current liabilities, the main theme of the theory of working management. Page 1
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
INTRODUCTION
Working capital management is concerned with the problems that arise in attempting
to manage the current assets, the current liabilities and the interrelationship that exists
between them. The term current assets refer to those assets which in the ordinary course of
business can be, or will be converted into cash within one year without undergoing a
diminution in value and without disrupting the operations of the firm. The major current
assets are cash marketable securities, accounts receivable and inventory. Current liabilities
are those liabilities which are intended, at their inception, to be paid in the ordinary course of
business, within a year, out of the current assets or earnings of the concern.
The basic current liabilities are accounts payable, bills payable, bank overdraft, and
outstanding expenses. The goal working capital management is to manage the firm’s current
assets and liabilities in such a way that as satisfactory level of working capital is maintained.
This is so because if the firm cannot maintain a satisfactory level of working capital, it is
likely to become insolvent and may even be forced into bankruptcy. The interaction between
current assets and current liabilities, the main theme of the theory of working management.
The important of working capital management is reflected in the fact that financial
managers spend a great deal of time in managing current assets and current liabilities. The
success and efficiency of business enterprise depends largely on its ability to manage its
working capital Even in a well-established business operation, needs careful attention for
effective management of working capital. Arranging short-term financing, negotiating
favorable credit terms, controlling the movement of cash, administering accounts receivable
and monitoring the investment in inventories consume a great deal of time of financial
managers. Working capital is the amount of funds necessary to cover the cost of operating the
enterprise. It refers to that firm’s capital which is required for financing short-term or current
assets such as cash, marketable securities, debtors and inventories.
Page 1
Concepts of Working Capital
There are two concepts of working capital.
* Gross working capital
*Net working capital
The term gross working capital is referred to total current assets. The net working capital is
again defined in two ways.
*Net working capital is the difference between current Assets and current liabilities.
*Net working capital is that portion of current assets, which is financial with long-
term funds.
Need For Working Capital
The need for working capital or current assets cannot be overemphasized. The
objective of financial decision making to maximize the shareholders wealth. It is necessary
to generate sufficient profits. A successful sales programmer is, in other words, necessary for
earning profits by any business enterprise.
However, sales do not convert into cash instantly, there is invariably a time-lag
between the sale of goods and the receipt of cash, therefore, a need for working capital in the
form current assets to deal with the problem arising out of the lack of immediate realization
of cash against goods sold. Therefore, sufficient working capital is necessary to sustain
activity.
Net Working Capital and its Implications.
Net Working Capital is commonly defined as the difference between current assets
and current liabilities. The theoretical justifications for the use of net working capital to
measure liquidity is based on the premise that the greater the margin by which the current
assets covers the short-term obligations. The more is ability to pay obligations when they
become due for payment. NWC is necessary the cash outflows and inflows do not co-inside
the non-synchronous nature of cash flows makes NWC necessary. It is very difficult to
predict cash inflows. The more the cash inflows the less Net Working Capital will require.
Page 2
Trade Off Between Profitability And Risk
In evaluating a firm’s Net Working Capital position and important consideration is the
trade-off between profitability and risk. The term profitability used in this context is
measured by profits after expenses. The term risk is defined as the probability that a firm will
become technically insolvent so that it will not be able to meet its obligations when they
become due for payment.
Net working capital is used for measuring the risk of becoming technically insolvent.
It is assumed that the greater the amount of NWC, the less risk-prone the firm is or the
greater the NWC the more liquid is the firm and therefore, the less likely it is to become
technically insolvent Conversely, lower levels of NWC and liquidity are associated with
increasing levels of risk. The inter relationship between risk, liquidity and NWC is such that
if the NWC or liquidity increases the firm’s risk decreases.
Trade Off
To get higher profits the firm has to face high risk. Otherwise the more the profit, the
more the risk the firm to face. The trade-off between these variables is that the regardless of
how the firm increases its profitability through the manipulation of working capital, the
consequence is a corresponding increase in risk as measured by the level of Net Working
Capital.
Permanent and Temporary Working Capital
It is necessary for any business enterprise to maintain a minimum level of working
capital to carry on its business on a continuous and uninterrupted basis. For all practical
purpose, this requirement has to be met permanently as with other fixed assets. This
requirement is referred to as permanent or Fixed Working Capital.
Any amount over and above the permanent level of working capital needed to meet
fluctuating or variable working capital. The position of the required working capital is needed
to meet fluctuations in demand consequent upon changes in production and sales as a result
of seasonal changes.
Page 3
Changes in Working Capital
The changes in the level of Working capital occur for the following three basic
reasons:
*Changes in level of sales/operating expenses.
* Changes in policy.
* Changes in technology.
Changes In Sales And Operating Expenses.
The first factor causing a change in working capital requirement is a change in the
sales and operating expenses. The changes in the factor may be a long run trend of Change.
For instance the price of raw material may be constantly rising necessitating. The holding of
large inventory secondly the cyclical changes in the Economy leading to ups and downs in
business activity influence the level of working capital, both permanent and temporary and
thirdly the source of change is seasonality in sales activity.
Seasonality peaks and troughs can be said to be the main source of variation, in the
level of temporary working capital. The change in sales and operating expenses may be
either in the form of increase or decrease. An increase in volume of sales is bound to be
accompanied by higher-level Cash Inventory and Receivables. The decline in sales has
exactly the opposite effect a decline in the need for working capital. Similarly a change in
operating expenses rise or fall has a similar effect on the levels of working capital.
Policy Changes
The second major cause of changes in the level of Working Capital is because of
Policy changes initiated by the management. The firm has a wide choice in the matter of
current assets policy. The term current assets- policy may be defined as the relationship
between the current assets and sales volume. The firms, which follow a conservative policy
in this respect having a very high level of Current assets in relation to sales may be
deliberately, opt for a less conservation policy and vice-versa. These conscious managerial
decisions certainly have in impact on the level of working Capital.
Page 4
OBJECTIVES OF THE STUDYThe present study is intended to analyze the practice of Working Capital management
in Sri Dhana Lakshmi Cotton & Rice Mills Pvt. Ltd. The efficiency of the Working Capital
Management is determined by the efficient administration on its various components.
Following are the main objectives of the present study.
To present a theoretical framework of working capital Management.
To present a profiles of Cotton Industry & Sri Dhana Lakshmi Cotton &
Rice Mills Pvt. Ltd.
To analyze and evaluate the working capital performance of Sri Dhana Lakshmi
Cotton & Rice Mills Pvt. Ltd.
To analyze the financial soudness and performance of Sri Dhana Lakshmi Cotton &
Rice Mills Pvt. Ltd through Ratios.
To study the financial ability position of Sri Dhana Lakshmi Cotton & Rice Mills Pvt.
Ltd.
To provide Findings & Suggestions and Conclusion of the study.
Page 5
METHODOLOGY ADOPTEDMethodology is a systematic process of collecting information in order to analyzes
and verifies a phenomenon The Study carried with the co-operation of the management who
permitted to carry on the study and provided the requisite data is collected from the following
sources.
Primary data
Secondary data
Primary Data
As for the study, primary data is gathered through a series of detailed discussions with
managers, workers and executives of the company. Continuous interaction with the
employees during the study helped me to arrive at certain conclusions about the study, sum of
the information has been verified or supplemented with personal observation conducting
personal interviews with concerned officers of finance department of Sri Dhana Lakshmi
Cotton & Rice Mills Pvt. Ltd.
Secondary Data
The present study is mostly depend on secondary data resources. The secondary data
needed for the study was collection of required data from annual records of the company,
returns and internal records, reference from Textbooks and journals of financial management
and websites also be used.
SIGNIFICANCE OF THE STUDY The study is significant help to the following groups:
The present study focused on various aspects of working capital of SRI
DHANALAKSHMI COTTON&RICE MILLS(P)LIMITED and help the organization
to make improvements in the operation of working
These study useful to the academicians and schedule to make for insights in to the
various aspects of the working capital management in the other similar organizations
This study helps to know the present trends in the working capital management in
others industries
The present study is also useful to policy makers to make necessary changes in the
policies relating to working capital management.
LAMITATIONS OF THE STUDY
Page 6
Every study will have its own limitations, the present study is also carried out with the
following limitations.
1. The study is conducted on a 5 year period (2002-03to2006-07) with the assumptions
mentioned above ad hence the accuracy of results may deviate.
2. Entire study is based on the financial statements of Sri Dhana Lakshmi Cotton & Rice
Mills Pvt. Ltd.
3. The study is restricted to only on company of the Sri Dhana Lakshmi Cotton & Rice
Mills Pvt. Ltd hence the implications cannot be extended to other companies.
4. The opinion of the managers of the organization were taken into consideration, hence
there is a chance for personal bias.
5. Time and cost factors are another limitation.
6. Analysis of the financial health is conducted with the help of working capital analysis
only.
INDUSTRY PROFILE
Page 7
Cotton:- Cotton is a Natural vegetable fiber of great economic importance as a raw material for
cloth. Its wide spread use is largely due to the ease with which its fiber are spun in to yarn.
Cotton’s strength, absorbency, and capacity to be washed and dyed also make it adoptable to
a considerable variety of textile products. Cotton it’s fashionable, natural and versatile.
HistoryThe oldest cotton fibers and boil fragments, dated from around 5000 B.C. were
discovered in Mexico. In 5000 B.C., the Greek historian Herodotus reported of a pant that
“bore fleece” cotton has been worn in India Egypt forever 5000 years. Cotton was grown by
Native Americans as early as 1500. In English in the 1700s. It was against the law to import
or manufacture fabric made of cotton since to grow lots of cotton, but processing was
difficult. It was not until the 1700s that the cotton industry flourished in the United States.
It was then Slater, an Englishmen, built the first American Cotton Mill. These mills’
converted cotton fibers into yarn and cloth in 1793 Eli Whitney developed the cotton gin,
which mechanically separates the seed from the lint fiber.
Whitney named his machine a “gin, ‘short for me word ‘engine’ technology has
improved over the past centuries making cotton growth and production much more efficient.
Cotton Plant Cotton is produced by small trees and shrubs which bear botanical name
‘GOSSIPIER’ One or two week after showing shoots appear and 50 to 80 days later
flowering begins. First buds are formed. After three weeks blossoms appear after
blossoming the petals fall offend the offspring or the boll develops.
The bolls divided by partition into 3-5 sections contain seeds. Fiber grows on the
seeds. The plant has certainly been grown and used in India for at least 5000 years and
probably for much longer. Cotton was also by the ancient Chinese, Egyptians, and North and
South Americans.
In early spring seeds are planted one to three in seed, by mechanical planters, seed
beds. Plants are irrigated fertilized and weeded, as needed, during the 25 week growing
Page 8
cycle. The first true leaves appear after two to four weeks with the bud, also known as a
‘square’ appearing about five seven weeks after planting. The white blossoms become
pollinated, turn light pink and then wither at that are harvested.
The cotton bolls open naturally over time and defoliant chemical is applied by
grounder air to ensure top quality. This helps the leaves dry and fall off and any remaining
closed bolls to open. A mechanical cotton harvester moves through the field picking the
cotton, which then packed into truck load sized ‘modules’ and taken to the gin. The gin
separated the cotton fibers from the seeds. Cleaning equipment removes twigs and other
debris. The fiber, now called lint, is packed into 500 pound bales and then transported to
textile mills.
The cotton is carded roomed, making all of the fibers run parallel, and then spun in to
thread. Some whole cotton seed is fed to cattle. Some seed is future processed. The fine
“linter” fibers are removed and the seed is pressed and cooked, producing cotton seed oil ad
meal.
VarietyThere are five main varieties grown throughout the world Egyptian, American pima,
Sea island, Asiatic and upland. The most permanent types of cotton grown in California are
upland, whose fiber lengths are 13/16” to 11/4” in length, and American pima, whose fiber
lengths are 15/16’ TO 11/2” Seventeen states in the nation produce cotton with over 14
million acres of cotton planted annually.
The figure showing the products obtained from processing the raw cotton.
Seed Cotton
↓
Ginnery ← Cotton Seed ←Cotton Fiber
↓ ↓
Oil Mill Cotton Spinner
↓ ↓
Cotton Seed Oil Cotton Yarn
Source : The cotton Corporation of India Ltd.
Types of Cotton
Page 9
India grows all the four major types of cotton – G. arbor turn, G. hirsute, G
herbaceous, and barb dense the first hybrid in the cotton crop was developed in India, in
Surat, by dry C.T Patel (H4 intra hirsute in 1970)- more than 200 varieties and hybrids were
evolved in the subsequent five decades.
Hybrids occupy around 45% of cotton crop in India, as in 1998. Important landmarks
in the Indian cotton history include the development and release of native hybrids like G cot
DH37, G cot DH 9, DDH 2 and drought tolerant straights varieties like SRT 1, Renuka, LRA
5166, Anjali and Rajat.
Cultivation
Successful cultivation of cotton requires alone growing season, plenty of sunshine and
water during the period growth, and dry weather for harvest. It cultivated in countries with
hot climate as India, china. USA, Pakistan Cotton producing areas in India are spread thought
out the country, Panjab, Hariyana, Maharastra, Andhra Pradesh, Tamilnadu and Karnataka
are the major cotton producing states, Cotton is shown around May & June and harvested
around September, to December.
In different parts of the country a number of methods, chemical and mechanical, have
been used to control weeds and grass, including intensive spraying of herbicide before and
after planting. The cultivating rotary heo, and flame cultivator are also used to destroy
weeds.
Cotton Insects and Diseases
In addition to the flowers the underside of each leaf of the cotton plant contains a
small cuplike structure holding nectar. These deposits and the succulent stem make the plant
attractive to a variety of insect pests. Chief among these is the boll weevil. The use of early
maturing strains of cotton plus the application of several comical and control methods have
greatly reduce losses from boll weevil, infestation the boll worm the pink larva of a small
moth is beloved to have been a native of India but is now parasitic on cotton all over the
world. Quarantine, fumigation of seed, and destruction of trash removed from the cotton in
ginning are control measures boll-worm tobacco budworm also is one of the most damaging .
Army worm trips, lygus, and red spider are among other scientific pests.
Processing
Page 10
Raw cotton kappa’s which is picked from fields contains seed. To separate the seed
from raw cotton it is taken to machine called gins. Where seed is separated from kappas. The
kappa’s with seeds so generated is called lint. It is in loose form the cotton above lint is
pressed and packed in bal form in hydraulic/pneumatic press and taken to mills.
Uses Like lumber, cotton comes in many varieties and qualities, each suitable for different
purposes. The long lint fibers are used for many things, most of which begin with a thread,
yarn or cotton fabric, as linters, are removed from the seed and are used as stuffing for
furniture and components of linoleum, plastics and insulation.
Commodity ValveCotton is a leading cash crop nationally, ranking just behind corn, soybeans, wheat
and hay, In 2004, California’s crop value was over $796million. Additionally, the 2004 value
of cotton seed was nearly $131 million.
Marketing In determining the value of cotton samples are drawn from random bale and evaluated
according to staple, grade, and character, Staple refers to fiber length. Fiber length can be
classified in to three grades i.e. 1. Short Staple, 2. Medium Staple, 3 Long Staple, Grader
refers to color, brightness, and amount of foreign matter. Color groping indicates the degree
of whiteness. Charter refers to the diameter, strength, body, maturity, uniformity, and
smoothness of the fiber.
Cotton SeedOnce a waste – disposal problem for gains, cotton seed is a valuable by product. The
seed goes to oil mills, where it is deleted of its linters in an operation similar to ginning. The
bare seed is then cracked and the kernel removed. The meal that remains after the oil has
been extracted is high in protein. Linters are used for padding in furniture and automobiles,
for absorbent cotton swabs, and for miniature of many cellulose products such as rayon,
plastics, lacquers and smokeless power for munitions. The hulls, or husks, are used as feed
for cattle Kernels, of meats, provide cotton seed oil. The cake and meal are used for feed and
flower, Foots, the sediment left by cotton seed oil refining, provides fatly acids for industrial
products. Also in India cotton seed is directly expelled and cotton seed cake containing oil
up to 6% is directly uses as a cattle feed.
Page 11
ProductsCotton is still a principal raw material for the world’s textile industry, but its
dominant position has been seriously eroded by synthetic fiber. Increased global production,
emergence of synthetic as an alternative to cotton textile and improved productivity are
mainly contributing for world supply. World demand for cotton continued to be erotic, and
some group lobbied for increased price-supports, but and up word trend began in the 1980s.
World production of cotton in the early 1990s stood at 18.9 million metric tons annually. The
leading producers include China, India, USA, Pakistan, and turkey Cotton textiles commend
a significant share in exports from India. It accounts for nearly 22% of the total exports.
Top Producing CountriesThe majority of the cotton is produced in the cotton belt of the United States, ranging
along the southern part of the nation from California to Florida and Virginia. In the 2004, cotton was produced in 13 California countries from as for north as glen country ands far south as imperial country, Major production areas Fresno, kings and Merced countries.
TABLE:3.1Production and Consumption Details of Cotton
Year Production (in lakh bales) Consumption (in lakh bales)
We are doing plan satin, percale, micro Keck’s and Dobby design’s sort Details:
40* 40, 132*72, 63*plain
60*60,175*58/2, 120* plain satin
60*80,175*72/3*,
80*100,205*95/4, 120”plain satin
100*100,225*95/4,120” plain satin
We are making sheet sets (Bed Lenin’s) in 600 TC in plan satin as well as stripe satin and
Dobby Designs.
LICENSE : Industry Secretariat for Industrial Assistance
New Delhi.
PROCESS : 48 Looms
INSTALLED CAPACITY : 48 Looms
Power Division
The future is a limitless expanse of challenges waiting for the stronger to step in and
conquer. Only those with all the answers will emergency victorious. In the wake of fast
depleting fuel resources and an increasing drive for self-reliance, SRI DHANALAKSHMI
GROUP realizes the alarming global concern. To reach the goal of self-reliance, the
progressive, dynamic and growth oriented group has naturally moved into the core sector-
power. A mere 40 kms away from the company’s factories at Ganapavaram.
The power project will not only serve as a major boost to the company but will meet
the ever growing captive consumption needs. To SRI DHANALAKSMI, reliability is an
Page 27
acronym missionary self-confidence. Reason why SRI DHANALAKSHMI is fully geared to
meet any emerging power need. SRI DHANALAKSHMI is harnessing its technology
resources and internet strengths to gain the competitive edge. SRI DHANALAKSHMI is
standing shoulder to shoulder with all those corporate bigwigs who lead the industry in self-
reliance.
Production
6M;W. Mini Hyde Power Stations (3Stations of 2 M.W. each)
Other Services
SRI SADINENI CHAOWDARAIAH, The founder, is a man of core values and a deep
rooted willingness to reach out to the deprived and less fortunate. A philanthropist by virtue
he is blessed with a helping hand. He has launched diverse community development
programmers in educational, healthcare and communication areas. He has helped translate
many dreams into glorious realities. He has commitment lies SRI SADINENI
CHOWDARAIAH EDUCATIONAL TRUST.
He has set up many schools and colleges in and around Chilakaluripet. He started the
professionally oriented “ SRI SADINENI CHOWDARAIH SCIENCE & ARTS COLLEGE”.
Affiliated to Acharya Nagarjuna University at Maddirala village to impart high quality
education.
This college is special in the sense that it offers a range of vocational and specialized
courses which are aimed at self- employment for youth.
The Navodaya Vidyalaya in Maddirala Village, Guntur, has been constructed on 30
acres of prime land donated by him. The site is adjacent to his Degree College which
is run by Ministry of Human Resources, Government of India.
SRI SADINENI CHOWDARAIAH Residential Public School, Chilakaluripet,
affiliated to CBSE, has so far accomplished 12 outstanding batches of students who
have secured 100% 1st class.
He has donated 2acre of land at Chilakaluripet towards the construction of a Health &
Recreation Club
A new Junior College is being built near the power project at Muppalla.
BOARD OF DIRECTORS
SRI. N.RAGHAVA RAO. B.E.- CHAIRMAN & MD
Page 28
SRI. P. RAGHAVA REDDY. B.E. Electronics – DIRECTOR
SRI. M. LINGAIAH. M.sc – DIRICTOR
SRI. S. HANUMANTH RAO. B.Com – DIRECTOR
SRI. CA PV. NARAYANA ACA., ACS – DIRECTOR & SECRETARY.
Bankers
UNION BANK OF INDIA, LAKSHMIPURAM, GUNTUR.
STATE BANK OF INDIA, COMMERICAL, GUNTUR
Auditors M/S. MASTANAIAH
CHARTED ACCOUNTANT
GUNTUR.
Registered Office & Factory GANAPAVARAM
VIA. CHILAKALURIPETA,
GUNTUR DISTRICT,
ANDHRA PRADESH,
PIN-522 619.
Hydel Power Plant A. MUPPALLA,
EPURU MANDAL,
GUNTUR DISTRICT,
ANDHRA PRADESH,
PIN – 522 661J.
Textile Division
BOPPUDI VILLAGE,
CHILAKALURIPETA MANDAL,
Page 29
GUNTUR DISTRICT,
PIN-522 616.
Statement Of Accounting Policies General The accountings are prepared on historical cost convention and in accordance with
normally accepted Accounting Principles.
Fixed Assets Fixed assets are stated at cost less accumulated depreciation. Cost of acquisition of
fixed assets is inclusive of directly attributable cost of bringing the assets to their working
condition for the intended use and interest on borrowings till the date of commissioning of the
assets, CENVATIVAT credit availed, if any, on fixed assets is not included in the cost of such
fixed assets capitalized.
Depreciation Depreciation is a written off in accordance with the provisions of schedule XIV of the
companies Act 1956 as follows.
Under straight line method in respect of the assets of spinning power and textile
divisions.
Under Written down Value method on the assets of all other divisions of the company.
InventoriesValuation of inventories is made as follows:
Raw-Material and Finished goods at cost or net realizable value whichever is lower.
Work-in-Progress at cost inclusive of direct production overheads.
Stores and spares at cost.
Electronic power at net releasable value
Excise Duty
Page 30
Liability on finished goods is accounted for as and when goods are cleared from
factory and there is no liability on closing stock of finished goods at the year end.
Sales
Sales are exclusive of sales tax collections due to implementation of A.P. VAT Act
2005.
Taxes On Income
Current taxes is determined as per the provisions of income Tax Act 1961 in
respect of taxable income for the year ended 31st March, 2007. Differed tax liability is
recognized, subject to the consideration of timing differences, being the difference
between the taxable income and accounting income the originate in one period and are
capable of reversal in one or more subsequent periods. In case of power division
which eligible for tax Holiday. Deferred Tax Asset / liabilities for timing differences
which reverse after the Tax Holiday period are recognized.
Segment Reporting
The accounting policies adopted for segment reporting are in line with the
accounting policies of the company with the following additional policies for segment
reporting. Inter-segment Revenue has been accounted for based on the market related
prices. Revenue and Expenses other than interest have been identified to segments on
the basis of their relationship to the operating activities of the segment. Revenue and
expense which related to the enterprise as a whole and are not allocable to segments on
a reasonable basis have been included under “Unallocated” head.
Retirement Benefits
The Company makes regular monthly contribution to provident fund which are
deposited with the Government and Group term Insurances is routed through L.I.C. and are
charged against the revenue. The company has taken Group Gradually (Cash Accumulation)
scheme with L.I.C. of India.
32
Page 31
The premium on policy and the difference between the amount of gratuity paid on
retirement and recovered from the Life Insurance Corporation of India debited to profit and
Loss Account. Leave encashment is accounted as and when the employees claimed and paid.
Proposed Dividend
Provision is made in the account for the dividend payable (Including of all tax thereon)
by the company as recommended by the Board of Directors, Pending approval of the
shareholders at the annual General Meeting.
Foreign Currency Transactions
Import of material /capital Equipment is accounted at the rates at which actual
payments are effected.
The profit/Loss arising out of foreign Exchange transactions on sale of goods are
accounted on actual realization basis.
Foreign Currency loans covered by forward contracts are stated at the forward
contracts rates while those not covered are calculated at year end rate.
Impairment Of Assets
At the date of each balance sheet the company evaluates internally. Indications of the
impairment if any, to carrying amount of its fixed and other assets. No impairment loss has
been recognized.
Contingent Liabilities
Contingent Liabilities are not recognized in the accounts, but are disclosed after a
careful evaluation of the concerned facts and legal issues involved.
Foreign Exchange Earning And Outgo
The company has earned foreign exchange of Rs.725.72 lacs of its finished goods and
Rs.1493.16 lacs by export through merchant /trade house of its finished goods, company has
spent Rs. 58.95 lacs of foreign exchange towards import of raw- material, Rs.4.18 lacs
towards import of components & spare parts, Rs. 1166.37 lacs towards import of capital
goods including advance paid, Rs. 5.02 lacs towards interest on foreign currency loan and Rs.
11.90 lacs towards freight, commission & travelling.
Page 32
TABLE : 3.3
Raw Material & Finished Goods
Raw Material Finished Goods
Cotton Division 1) Cotton Kappas 1) Cotton Lint
2) Cotton Seed
Oil Division 1) Cotton Seed
2) Sunflower Seed
3) Soyabeen seed
4) Rice Bran
5) Other seeds
1) Cotton Linters
2) Edible Refined Oil
3) Hulls
4) Extractions
Rice Division 1) Paddy 1) Rice
2) Bran
Spinning Division 1) Cotton Lint 1) Cotton Yarn
Page 33
TABLE: 3.4
Commercial Performance (Rs in Lakhs)
Year Sales Turnover Domestic Sales Exports
2006-07 1962483183 1740594875 221888308
2007-08 2381902558 2069233437 312669121
2008-09 2468612971 2148553325 320059646
2009-10 2902363337 2401603522 500759815
2010-11 3238442122 2685363414 553078708
0
500000000
1000000000
1500000000
2000000000
2500000000
3000000000
3500000000
2006-07 2007-08 2008-09 2009-10 2010-11
Sales Turnover
Domestic Sales
Exports
ACHIEVEMENTS & AWARDS
1987-89:
1989- Best Exporter Award from Govt. of AP.
Page 34
1988-89 Stood first in India in scientific processing of cotton seed.
1988-99- Stood first in India in domestic sales of cotton seed Extraction.
1989-90:
1989-90- Stood first in India in scientific processing of cotton seed.
1989-90- Stood first in India in domestic sales of cotton seed Extraction.
1989-90- Stood first in India in Export sales of cotton seed Extraction.
1990-91:
1990-91-Stood first in India in scientific processing of cotton seed.
1990-91-Stood first in India in domestic sales of cotton seed Extraction.
1990-91-Stood first in India in Export sales of cotton seed Extraction.
1991-92:
1991-92- Stood first in India in scientific processing of cotton seed.
1991-92- Stood first in India in domestic sales of cotton seed Extraction.
1992-93:
1992-93- Stood first in India in scientific processing of cotton seed.
1992-93- Stood first in India in domestic sales of cotton seed Extraction.
1993-94:
1992-93- Stood first in India in scientific processing of cotton seed.
1992-93- Stood first in India in domestic sales of cotton seed Extraction.
1994-95:
1994-95- Stood first in India in scientific processing of cotton seed.
1994-95- Stood first in India in domestic sales of cotton seed Extraction.
Page 35
1995-96:
1995-96- Stood first in India in scientific processing of cotton seed.
1995-96- Stood first in India in domestic sales of cotton seed Extraction.
1996-97:
1996-97- Stood first in India in scientific processing of cotton seed.
1996-97- Stood first in India in domestic sales of cotton seed Extraction.
1997-98:
1997-98- Stood first in India in scientific processing of cotton seed.
1997-98- Stood first in India in domestic sales of cotton seed Extraction.
1998-99:
1998-99- Stood first in India in scientific processing of cotton seed.
1998-99- Stood first in India in domestic sales of cotton seed Extraction.
1999-00:
1999-00- Stood first in India in scientific processing of cotton seed.
1999-00- Stood first in India in domestic sales of cotton seed Extraction.
2000-01:
2000-01- Stood first in India in scientific processing of cotton seed.
2000-01- Stood first in India in domestic sales of cotton seed Extraction.
2001-02:
2001-02- Stood first in India in scientific processing of cotton seed.
2001-02- Stood first in India in domestic sales of cotton seed Extraction.
2002-03:
2002-03- Stood first in India in scientific processing of cotton seed.
2002-03- Stood first in India in domestic sales of cotton seed Extraction.
→2003-04:
2003-04- Stood first in India in scientific processing of cotton seed.
Page 36
2003-04- Stood first in India in domestic sales of cotton seed Extraction.
2004-05:
2004-05- Stood first in India in scientific processing of cotton seed.
2004-05- Stood first in India in domestic sales of cotton seed Extraction.
2005-06:
2005-06- Stood first in India in scientific processing of cotton seed.
2005-06- Stood first in India in domestic sales of cotton seed Extraction.
2006-07:
2006-07- Stood first in India in scientific processing of cotton seed.
2006-07- Stood first in India in domestic sales of cotton seed Extraction.
2008-09:
2008-09- Stood first in India in scientific processing of cotton seed.
2008-09- Stood first in India in domestic sales of cotton seed Extraction.
2009-10
2009-10- Stood first in India in scientific processing of cotton seed.
2009-10- Stood first in India in domestic sales of cotton seed Extraction.
2010-11
2010-11- Stood first in India in scientific processing of cotton seed.
2010-11- Stood first in India in domestic sales of cotton seed Extraction.
Man Power In Dhanalakshmi Group
Oil Division 300
Spinning Division 250
Textile Division 100
Rice Division 30
Power Division 46
Page 37
Director’s Responsibility Statement
Pursuant to section 21(2AA) of the Companies Act. 1956, your directors state that:
In the opinion of the board of Director’s is the preparation of the Annual Accounts,
the applicable Accounting Standards has been followed and there were no material
departures there from.
The benefit of encashment of leave is given to the employees of the company during
their service and while retired, through there is no defined
Retirement benefit scheme in this regard. Employees can Ancash the accumulated
leave while in service which is accounted as and when claimed and paid. Hence in the
opinion of the Board of Directors the applicable Accounting standards have been
followed.
The Directors have selected such accounting policies and applied them consistently
and made judgment and estimate that are reasonable and prudent so as to give a true
and fair view of the state of affairs of company at the end of the financial year and of
the profit/loss of the company for that period.
The directors have taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act for safeguard the
assets of the company and for preventing and detecting fraud and other irregularities.
The directors have prepared the annual accounts on a going Concern basis.
Acknowledgement
The Directors wish to place on record their appreciation for the sincere co-operation
extended by various departments of central and state Government. Industries development
bank of in India Limited, ICICI Bank Ltd. Union bank of India, State Bank of India, Export
import bank of India, Auditors, Suppliers and Customers of the company. For and on behalf
of the Board.
N. Raghava Rao, Chairman & M.D.
P. Raghava Reddy, Director,
Page 38
P.V. Narayana, Director & Secretary.
Notice To Shareholders Notice is hereby given that the Twenty Ninth Annual General meeting of the
members of the company will be held at the Registered Office of the company at Ganapavaram on Friday, the 28th September, 2010 at 3-00 p.m. to transact the following business
Ordinary Business To receive, consider and adopt the Audited Balance Sheet as at 31st March, 2007 and
the profit and loss Account for the year ended 31st March 2010 and the report of Directors
and Auditors thereon.
To appoint Directors in the place of Sri. P. Raghava Reddy who retires on the data of
Annual General Meeting and to re-appoint him if thought fit.
To appoint Directors in the place of CA. P.V. Narayana who retires on the date of
Annual General Meeting and to re-appoint him if thought fit.
To appoint Directors in the place of Sri. S. Hanumanth Rao who retires on the data of
Annual General Meeting and to re-appoint him if thought fit.
To appoint Directors in the place of Sri. M. Lingaiah who retires on the data of
Annual General Meeting and to re-appoint him if thought fit.
To declare a dividend.
To appoint Auditors to hold office from the conclusion of this meeting until the
conclusion of the next Annual General Meeting and to fix their remuneration.
By order of the Board
N. Raghava Rao
Chairman & Managing Director
Notes
Every member who is entitled to attend and vote may appoint a proxy to attend and
vote instead of himself and the proxy need not be a member. The proxies should, however, be
deposited at the Registered Office of the Company not later than 48 hours before the
commencement of the meeting.
Future Outlook
Operations on consolidated basis continue to pose healthy trends. However, changes
in the industrial trends are bound to influence spinning operations. Company has acquired 48
Page 39
looms under first phase of project implementation for textile division. Textile operations have
come out of teething problem but have to reach estimated levels in operations and profits.
This shall take some more time in view of dip in dollar valuation and decline in exports.
Thus, company has to grapple with an industrial scenario that calls for alert and
caution.
Oil division is showing immense potential to reach higher levels in all spheres of
operations.
Power division shall perform well in the current year also.
In view of this, we are hopeful of improved performance in 2010-11 despite the
From the Working Capital changes statement it reveals the working capital
performance of Sri Dhana Lakshmi Cotton and Rice Mills (P) Ltd in the year 2010.
There is significant in Current assets and Current liabilities.
The important changes in Currents assets are, Inventories have been increased by Rs
11,27,82,610, Debtors decreased by Rs.1,33,83,046, Cash & Bank balances increased
by Rs 6,67,028, Loans & Advances are increased by Rs. 1,03,94,688 and other current
assets are decreased by Rs.3,78,060 when compared with the year 2009.
The important changes in Currents liabilities are, Sundry creditors have been
decreased by Rs.62,03,472, Advances on Sales decreased by Rs. 2,78,472, and
Provisions are decreased by Rs.14,50,428 compared with the previous year 2009.
During the year 2007 the working capitals shows increasing trend. Due to the reason
that there is an increase in Current assets when compared with previous year 2009.
TABLE :4,4
Statement showing changes in Working Capital during the period
Page 64
2009-2010 2010-2011
Particulars
2009-2010
(Rs)
2010-2011
(Rs)
Changes in Working Capital
Increase Decrease
Current Assets (A)
a) Inventories 736503190 1056523566 320120376 -
b) Sundry Debtors 307466109 2600593905 - 46872204
c) Cash & Bank
balance
9681460 12090701 2409241 -
d) Loans &
Advances
75032917 126588017 51555100 -
e) Other Current
Assets
166224 279340 113116 -
Total Current
Assets
1128849900 1456075519 - -
Current Liabilities
(B)
a) Sundry Creditor 105167525 148232876 - 43065351
b) Provisions 1142919 12224723 - 785804
c) Advances
Received Against
Sales
7741343 6279309 1462034 -
Total Current
Liabilities
124347787 166736908 - -
Working Capital
(A-B)
1004502113 1289338611 - -
Increase in
Working Capital
284836498 - - 284836498
1289338611 1289338611 375559857 375559857
TABLE :4,4
Statement showing changes in Working Capital during the period 2010-2011
Page 65
Particulars
2009-2010
(Rs)
2010-2011
(Rs)
Changes in Working Capital
Increase Decrease
Current Assets (A)
a) Inventories 47,48,32,825 63,84,19,859 16,35,87,034
b) Sundry Debtors 14,73,79,463 20,59,73,689 5,85,94,226
c) Cash & Bank
balance 1,67,09,980 2,20,57,637 53,47,957
d) Loans &
Advances
5,40,82,521 6,05,52,682 64,70,312
e) Other Current
Assets
3,78,183 4,24,994 46,811
Total Current
Assets
69,33,82,521 92,74,28,861
Current Liabilities
(B)
a) Sundry Creditor 9,29,69,440 12,13,82,531 2,84,13,091
b) Provisions 10,23,58,861 13,11,39,985 2,84,81,124
c) Advances
Received Against
Sales
28,82,723 25,32,022 3,50,701
Total Current
Liabilities
10,52,41,584 25,32,022
Working Capital
(A-B)
47,18,23,208 59,10,23,660
Increase in
Working Capital
11,92,00,452 67,23,74,323
11,92,00,452 23,43,97,041 23,43,97,041
RATIO ANALYSIS Ratio analysis is a powerful tool of financial analysis. A ration is defined as “the
relationship between two or more things” In financial analysis a ratio is used as a benchmark
Page 66
for evaluating the financial position and; performance of a firm. The relationship between to
accounting figures expressed mathematically is known as a financial ratio. Ratio helps to
summaries large quantities of financial data and to make qualitative judgment about the
firm’s financial performance.
Advantages Of Ratio Analysis
Ratio analysis simplifies the understanding of financial statements.
Ratios bring out the inter relationship among various financial figures and bring to
light their financial significance. Ratio analysis is a device to analysis and interpret
the financial health of the enterprise.
Ratios contribute significantly towards effective planning and forecasting A study of a
trend in the past works as a helpful guide for the future.
Ratios facilities inter firms and intra firm comparison, thereby bringing out the
strengths, weaknesses, efficiency of the firms and their department of a standard
costing system and budgetary control.
Ratios cater to the particular information person, depending upon his interest in the
business for which ratios are to be calculated. A creditor may be interested in liquidity
ratios, while an investor may want to study profitability ratios.
Use And Significance Of Ratio Analysis:
The ratio analysis is one of the most powerful tools of financial analysis. It is used as a
device to analysis and interpret the financial health of enterprise. The use of rations is not
confined to financial managers only. The supplier of goods on credit, banks financial
institutions, investors and management all make use of ratio analysis as a tool in evaluating
the financial position and performance of a firm for granting credit, providing loans or
making investments in the firm. The following are some of the uses:
1. Managerial uses which include decision making, financial forecasting, co- ordination etc.
2. Utility to shareholder/investors
3. Utility to creditors
Page 67
4. Utility to employed
5. Utility to government
Guideliness Or Prcaution For Use of Ratios
The calculation of ratios may not be a difficult task but their use is not easy. Following
guidelines or factors may be kept in mind while interpreting various ratios:
1. Accuracy of financial statements
2. Objective on purpose of analysis
3. Selection of ratios
4. Use of standards
5. Caliber of the analysis.
Standards Of Comparison
The ratio analysis involve comparison for a useful interpretation of the financial
statements. A single ratio in it self does not indicate favorable or unfavorable condition. It
should be compared with some standard. Standard of compared comparison may consist of :
Past Ratios, i.e. ratios calculated from past financial statements of the same firm;
Competitor’s ratios, i.e.., rations of some selected firms, especially the most
progressive and successful competitor, at the same point of time, most progressive
and successful competitor, at the same point of time.
Industry Ratios, i.e. ratios of the industry to which the firm belongs; and
Project Ratios, i, e, ratios developed using projected or preformed, financial
statements of the same firm.
TYPES OF RATIOS
Page 68
Several ratios. Calculated from the accounting data, can be grouped in to various classes
according to financial activity or function to be evaluated. As stated earlier, the parties
interested in financial analysis are short-and long-term creditors, owners and managements.
Short-time creditor’s main interest is in the liquidity position or the short term solvency of the
firm.
Management is interested in evaluating every aspect of the firm’s performance. They
have to protect the interests of all parties and see that the firm gross profitability, in view of
the requirements of the various users of ratios, we may classify them in to the following
important categories.
Liquidity Ratios.
Leverage Ratios.
Activity Ratios.
Profitability Ratios.
Liquidity ratios measure the firm’s ability to meet current obligations.
Leverage Ratios show the proportion of debt and equity in financing the firm’s assets.
Activity Ratios reflect the firm’s efficiency in utilizing its assets, and
Profitability Ratios measure overall performance and effectiveness of the firm.
LIQUIDITY RATIOS:
Liquidity Ratios measure the firms ability to meet its current obligations. We analysis the
liquidity needs by the preparation of cash budgets, cash and funds flow statements, but we
can calculate liquidity ratios, by establishing a relationship between cash and other current
Page 69
assets to current obligations, provide a quick measure of liquidity. A firm should ensure that
it does not suffer from the lack of liquidity and that it does not have excess liquidity. There
should be a proper balance between high liquidity and lack of liquidity. To measure the
liquidity of a firm, the following rations are calculated.
*Current Ratio
* Quick Ratio
*Cash Ratio
*Net Working Capital Ratio
CURRENT RATIO:
The current ratio is the ratio of total current assets to total current liabilities. It is
calculated by dividing current assets by current liabilities.
The current assets of a firm, represent those assets which, can be converted into cash
within a short period of time, normally not exceeding one year and include cash and bank,
marketable securities, inventory, debtors, bills receivable and prepaid expenses. The current
liabilities defined as liabilities which are short-term maturing obligations to be met, as
originally contemplated, within a year, consist of trade creditors, bills payable, bank credit,
provision for taxation, outstanding expenses.
Current Ration = Current Assets
Current Liabilities
TABLE:4.5
STATEMENT OF CURRENT RATIO FOR FIVE YEARS 2004-08
Page 70
Year Current Assets Current Liabilities Ratio
2006-07 693382521 102358861 6.77
2007-08 927428861 131535985 7.05
2008-09 856981023 120843915 7.09
2009-10 1128849900 124347787 9.07
2010-11 1456075529 166736908 8.73
CHART : 4.5
TITLE OF THE CHART: CURRENT RATIO
0
200000000
400000000
600000000
800000000
1000000000
1200000000
1400000000
1600000000
1 2 3 4 5 6
Year
Current Assets
Current Liabilities
Ratio
INTERPRETATION :
Page 71
The Current Ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd in the year
2006-07 recorded as 3.06, it has increased in the year 2007-08 to 5.17, further
decreased to 4.02 in the year 2008-09.
In the year 2006-07 the ratio has increased to 5.42 and at 2010-11 the ratio of the
company is again increased to 6.77.
A current ratio of 2:1 is considered satisfactory. The current ratio of the company is
recorded maximum as 6.77 in the year 2010-11 the reason for is due to increase in
current assets especially in Inventory and decrease in current liabilities especially in
Sundry Creditors.
The current ratio of the company is recorded minimum as 3.06 in the year 2006-07
because of there is an increase in Current liabilities especially in Sundry Creditors.
The over all trend of the ration is in increasing pattern throughout the study period
except in the year 2008-09 and the firm will able to meet its current obligations in
full. Thus, the firm with the higher current ratio has better liquidity solvency.
QUICK /ACID-TEST RATIO:
Page 72
Quick ratio establishes a relationship between quick or liquid assets and current
liabilities. It refers to current assets, which can be converted into cash immediately without
diminution of value. Include in this category of current assets are cash and bank short-term
marketable securities and debtors. Thus the current assets, which are, exclude inventory. The
exclusion of inventory is based on the reasoning that it is not easily convertible into cash. The
quick ratio is found out by dividing quick assets by current liabilities.
Quick Ratio = Current Assets – Inventories.
Current Liabilities
TABLE:4.6
STATEMENT OF CURRENT RATIO FOR FIVE YEARS 2007-11
Year Quick Assets Current Liabilities Ratio
2006-07 218549696 102358861 2.14
2007-08 289009002 131535985 2.19
2008-09 260707727 120843915 2.15
2009-10 392346710 124347787 3.15
2010-11 409551963 166736908 2.45
CHART : 4.6
TITLE OF THE CHART: CURRENT RATIO
Page 73
0
50000000
100000000
150000000
200000000
250000000
300000000
350000000
400000000
450000000
1 2 3 4 5 6
Year Quick Assets
Current Liabilities
Ratio
INTERPRETATION :
The Quick Ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd in the year
2006-07 recorded as 1.19, it has increased in the year 2007-08 to 1.77, further
decreased to 1.50 in the year 2008-09.
In the year 2009-10 the ratio has increased to 2.03 and at 2010-11 the ratio of the
company is again increased to 2.14.
Quick ratio of 1:1 is considered satisfactory. The current ratio of the company is
recorded maximum as 2.14 in the year 2010-11 the reason for is due to increase in
current assets especially in Inventory and decrease in current liabilities especially in
Sundry Creditors.
The quick ratio of the company is recorded minimum as 1.19 in the year 2006-07
because of there is an increase in Current liabilities especially in Sundry Creditors.
The quick ratio of Sri Dhana Laksmi Cotton & Rice Mills (P) Ltd is more than
standard norm in all years of study period. The over all trend of the ratio is in
increasing pattern except in the year 2008-09. Thus, the firm can easily meet all
current claims and the firm’s short-term financial positions is satisfactory.
CASH RATION OR ABSOLUTE LIQUID RATIO:
Page 74
Cash ratio is a ratio of cash held by a firm to current liabilities. SDC & R MILLS (P)
LTD is maintaining almost an average cash of around 0.03 for the past six accounting
periods. This is because as mentioned earlier cash holding is kept at minimum except for
some petty cash needs. The cash ratio of SDC & R MILLS (P) LTD, for the last five
accounting period is given below in the table. The cash ration is calculate by dividing cash
and bank balance by current liabilities.
Cash Ratio = Cash + Bank Balance
Current Liabilities.
TABLE:4.7
STATEMENT OF CURRENT RATIO FOR FIVE YEARS 2007-11
Year Cash & Bank Current Liabilities Ratio
2006-07 16079680 102358861 0.16
2007-08 220057637 131535985 0.16
2008-09 17001772 120843915 0.14
2009-10 9681460 124347787 0.07
2010-11 12090701 166736908 0.07
CHART : 4.7
TITLE OF THE CHART: CASH RATIO
Page 75
0
50000000
100000000
150000000
200000000
250000000
1 2 3 4 5 6
Year Cash & Bank
Current Liabilities
Ratio
INTERPRETATION :
The Cash Ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd in the year 2006-
07 recorded as 0.08, it has increased in the year 2007-08 to 0.12, further decreased to
0.11 in the year 2008-09.
In the year 2009-10 the ratio has increased to 0.16 and at 2010-11 the ratio of the
company is again increased to 0.06.
The Cash ratio of the company is recorded maximum as 0.06 in the years 2009-10
and 2010-11, the reason for is due to increase in Cash and Bank balances and decrease
in Current liabilities especially in especially in sundry creditors.
The Cash ratio of the company is recorded minimum as 0.08 in the year 2006-07
because of there is an increase in Current liabilities especially in Sundry Creditors and
decrease in Cash and Bank balances.
The over all trend of the ratio is in increasing pattern under the period of study, except
in the year 2008-09. Thus, the firm maintains high cash ratio.
ACTIVITY RATIOS:
Page 76
Activity ratios are concerned with measuring the efficiency in asset management. The
efficiency with which the assets are used would be reflected in the speed and rapidity with
which assets are converted into sales.
INVENTORY TURNOVER RATIO:
This ratio indicates the number of times inventory is replaced during the year. It
means the relationship between the Sales and Closing inventory. It is calculated by dividing
the Sales by the Closing inventory.
Inventory Turnover Ratio = Sales /Closing Inventory
TABLE:4.8
STATEMENT OF INVENTORY TURNOVER RATIO FOR THE
FIVE YEARS 2007-11
Year Sales Closing Inventory Ratio
2006-07 1962483183 474832825 4.13
2007-08 2381902558 638419859 3.73
2008-09 2468612971 596273296 4.14
2009-10 2902363337 736563190 3.94
2010-11 3238442122 1056523566 3.06
CHART : 4.8
TITLE OF THE CHART: INVENTORY TURNOVER RATIO
Page 77
0
500000000
1000000000
1500000000
2000000000
2500000000
3000000000
3500000000
2006-07 2007-08 2008-09 2009-10 2010-11
Sales Closing Inventory
Ratio
INTERPRETATION :
The Inventory turnover Ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd in
the year 2006-07 recorded as 5.69, it has increased in the year 2007-08to 4.69, further
decreased to 4.52 in the year 2005-06.
In the year 2009-10 the ratio has increased to 4.85 and at 2010-11 the ratio of the
company is again increased to 4.13.
The Inventory turnover ratio of the company is recorded maximum as 5.69 in the
years 2006-07, the reason for is due to increase in Sales.
The Inventory turnover ratio of the company is recorded minimum as 4.13 in the year
2010-11 because of excessive Inventory.
The over all trend of the ratio is in decreasing pattern under the period of study,
except in the year 2009-10. In general, a high inventory turnover ratio is better than a
low ratio, it implies good inventory management, but the firm’s inventory
management is not favorable because of low inventory turnover ratio.
RECEIVABLE TURN OVER RATIO:
This ratio shows how quickly receivables or debtors are converted into cash. In
other words, the debtors turnover ratio is a test of the liquidity of the debtors of a firm.
Page 78
The liquidity of a firm’s receivables can be examined in two ways receivables
turnover, (ii) average collection period.
The Debtors Turnover shows the relationship between sales and debtors of a firm.
It can be calculated by dividing Sales by Debtors and Bills receivable.
Receivables Turnover Ratio = Sales /Debtors.
TABLE:4.9
STATEMENT OF RECEIVABLES TURNOVER RATIO FOR THE
FIVE YEARS 2007-11
Year Sales Debtors + Bills
receivable Ratio
2006-07 1962483183 147379463 13.31
2007-08 2381902558 205973689 11.56
2008-09 2468612971 137534380 17.94
2009-10 2902363337 307466109 9.4
2010-11 3238442122 260593905 12.43
CHART : 4.9
TITLE OF THE CHART: RECEIVABLE TURN OVER RATIO
Page 79
0
500000000
1000000000
1500000000
2000000000
2500000000
3000000000
3500000000
Year 2006-07
2007-08
2008-09
2009-10
2010-11
INTERPRETATION :
The Debtors turnover Ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd in the
year 2006-07 recorded as 11.71, it has increased in the year 2007-08 to 12.33, further
decreased to 10.34 in the year 2008-09.
During the year 2009-10 the ratio has increased to 13.09 and at 2010-11 the ratio of
the company is again increased to 13.31.
The Debtors turnover ratio of the company is recorded maximum as 13.31 in the years
2010-11, the reason for is due to increase in Sales.
The Debtors turnover ratio of the company is recorded minimum as 10.34 in the year
2008-09 because of there is an decrease in Sales.
The over all trend of the ratio is in increasing pattern during the study period except in
the year 2007-08. The debtors turnover ratio is a test of the liquidity of the debtors of a
firm. Thus, the firm Maintains higher turnover ratio is the better trade credit management
and the better liquidity of debtors.
AVERAGE COLLECTION PERIOD:
This ratio is used for measuring the liquidity of a firm’s debtors is the average
collection period. This is, in fact, interrelated with, and dependent upon the receivable
turnover ratio, since it indicates the speed of their collections. The shorter average
Page 80
collection period, the better the quality of debtors, since a short collection period
implies the prompt by debtors. The average collection period should be compared
against the firm’s credit terms and policy to judge its credit and collection efficiency.
Average Collection Period = No. of Days in a year
Debtors turnover
TABLE:4.10
STATEMENT OF AVERAGE COLLECTION PERIOD FOR THE
FIVE YEARS 2007-11
Year No. of Days in a year DebtorsTurnover Ratio
Collection period
2006-07 365 13.31 31
2007-08 365 11.56 30
2008-09 365 17.94 35
2009-10 365 9.4 28
2010-11 365 12.43 27
CHART : 4.10
STATEMENT OF AVERAGE COLLECTION PERIOD
Page 81
0
50
100
150
200
250
300
350
400
2006-07
2007-08
2008-09
2009-10
2010-11
No. of Days in a year Debtors
Collection period
INTERPRETATION :
The Debtors collection period of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd in
the year 2006-07 recorded as 31 days; it has decreased in the year 2007-08 to 30
days, further decreased to 35 days in the year 2008-09.
In the year 2009-10the collection period has decreased to 28 days and at 2010-11 the
collection period of the company is again increased to 27 days.
The Debtors collection period of the company is recorded maximum as 35 in the years
2008-09, the reason for is due to increase in Debtors.
The Debtors collection period of the company is recorded minimum as 35 in the year
2008-09 because of there is an decrease in Sales.
The Debtors collection period of the company is recorded minimum as 27 days in the
year 2010-11 because of less Credit Sales.
The over all trend of the collection period of Sri Dhana Lakshmi Cotton & Rice Mills
(P) Ltd is in decreasing pattern through the study period, except in the year 2005-06.
In general, high turnover ratio and short collection period is preferable. Thus, the
company maintains adequate collection effort and better trade credit management.
WORKING CAPITAL TURN OVER RATIO:
Page 82
It measures the efficiency of the employment of working capital. Generally higher
the turnover, greater is the efficiency and large the sale of profits. Working capital
turnover Ratio can be calculated with the help of the following formula.
Working Capital Turnover Ratio = Sales
Net Working Capital
TABLE:4.11
STATEMENT OF WORKING CAPITAL TURN OVER FOR THE
FIVE YEARS 2007-11
Year Sales Net Working Capital Ratio
2006-07 1962483183 591023660 3.32
2007-08 2381902558 795892876 2.99
2008-09 2468612971 736137108 3.35
2009-10 2902363337 1004502113 2.89
2010-11 3238442122 1289338621 2.51
CHART : 4.11
Page 83
TITLE OF THE CHART : WORKING CAPITAL TURNOVER RATIO
0
500000000
1000000000
1500000000
2000000000
2500000000
3000000000
3500000000
2006-07 2007-08 2008-09 2009-10 2010-11
Sales
Net Working Capital
Ratio
INTERPRETATION :
The Working capital turnover ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P)
Ltd in the year 2006-07 recorded as 5.17: it has decreased in the year 2007-08 to 3.82,
further decreased to 3.77 in the year 2008-09.
In the year 2009-10 the collection period has decreased to 3.72 and at 2010-11 the
collection period of the company is again increased to 3.32.
The Working capital turnover ratio of the company is recorded maximum as 3.32 in
the years 2010-11, because of less efficiency employed of Working capital.
The over all trend of the ratio of the company is in decreasing pattern, Generally
higher the turnover ratio indicates efficiency of firm, but the firm maintains less
efficiency employed of working capital. It is not favorable to the company.
87
PAYABELS TURN OVER RATIO:
Page 84
It is a ratio between credit purchases and the average amount of creditors
outstanding during the year. It indicates the number of times management is able to
convert accounts payable into purchases. It is calculated with the help of the following
formula.
Creditors Turnover Ratio = Credit Purchases
Average Creditors
TABLE:4.12
STATEMENT OF CREDITORS TURNOVER FOR THE
FIVE YEARS 2007-011
Year Purchases Average Creditors Ratio
2006-07 1314624594 96071176 13.68
2007-08 1667871201 107373986 15.53
2008-09 1668305586 115294676 14.56
2009-10 2123031960 106989174 19.84
2010-11 2318120416 126700200 18.30
CHART : 4.12
TITLE OF THE CHART : CREDITORS TURNOVER RATIO
Page 85
0
500000000
1000000000
1500000000
2000000000
2500000000
2006-07 2007-08 2008-09 2009-10 2010-11
Purchases Average Creditors
Ratio
INTERPRETATION :
The Creditors turnover ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd in
the year 2006-07 recorded as 10.12: it has decreased in the year 2007-08 to 7.50
further decreased to 9.93 in the year 2005-06.
In the year 2009-10 the ratio has decreased to 9.57 and at 2010-11 the collection
period of the company is again increased to 13.40.
The Creditors turnover ratio of the company is recorded maximum as 13.40 in the
years 2010-11, the reason for is due to increase in Credit Purchases.
The Creditors turnover ratio of the company is recorded minimum as 7.50 in the year
2007-08 because of decrease in Credit Purchases.
The over all trend of the ratio of the company is fluctuating through out the period of
study. A low turnover ratio reflects liberal credit terms granted by suppliers, while a high
ratio shows that accounts are to be settled rapidly. Thus, the firm’s payable management is
not favorable.
Leverage Ratios:
Page 86
The long-term solvency of a firm can be examined by using leverage or capital structure
ratios. The long-term creditors would judge the soundness of a firm on the basis of the long-
term financial strength measured in terms of its ability to pay the interest regularly a swell as
replay the installment of the principal on due dates or in one lump sum at the time to
maturity.
Debt- Equity Ratio:
This ratio indicates the relationship between borrowed funds and owner’s capital is a
popular measure of the long-term financial solvency of a firm. This relationship is shown by
the debt-equity ratios.
Debt Equity Ratio = Long – term debt
Shareholder’s equity
TABLE:4.13
STATEMENT OF DEBT-EQUITY RATIO FOR THE
FIVE YEARS 2007-11
Year Long –term Debt Shareholders’ Equity Ratio
2006-07 614427853 810886431 0.75
2007-08 610897582 942896023 0.65
2008-09 624365431 1016825186 0.61
2009-10 568958988 1191237728 0.47
2010-11 750415556 1485879189 0.50
CHART : 4.13
TITLE OF THE CHART : DEBT-EQUITY RATIO
Page 87
0
200000000
400000000
600000000
800000000
1000000000
1200000000
1400000000
1600000000
1 2 3 4 5 6
Year Long –term Debt
Shareholders’ Equity
Ratio
INTERPRETATION :
The Debt-Equity ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd in the year
2006-07 recorded as 0.88; it has decreased in the year 2007-08 to 0.79, further
increased to 0.80 in the year 2008-09
In the year 2009-10 the ratio has decreased to 0.69 and at 2010-11 the ratio of the
company is increased to 0.75.
The Debt-Equity ratio of the company is recorded maximum as 0.88 in the year’s
2006-07 , the reason for is due to decrease in Shareholder’s funds.
The Debt-Equity ratio of the company is recorded minimum as 0.69 in the year 2009-
10 because of there is an increase in Shareholder’s funds.
The over all trend of the ratio of the company is in fluctuation pattern means one year
increase and one year decrease. It has important implications from the viewpoint of
the creditors. Thus, the company maintains low ratio, therefore a safety margin to the
creditors and it is able to meet the creditors claim.
Profitability Ratios:
Page 88
The management of the firm is naturally eager to measure its operating efficiency.
Similarly, the owners invest their funds in the expectation of reasonable returns. The
operating efficiency of a firm and its ability to ensure adequate returns to its shareholders
depends ultimately on the profits earned by it. The profitability of a firm can be measured by
its profitability ratios.
Net Profit Ratio: This ratio is based on the premise that a firm should earn sufficient profit on each rupee
of sales. The Net profit is indicative of management’s ability to operate the business with
sufficient success not only to recover from revenues of the period, the cost of merchandise or
service, the expensed of operating the business and the cost of the borrowed funds, but also to
leave a margin of reasonable compensation to the owners for providing their capital at risk.
Net profit ration Ratio = Earnings after interest and taxes
Sales
TABLE:4.14
STATEMENT OF NET PROFIT RATIO FOR THE
FIVE YEARS 2007-11
Year Earnings after tax Sales Ratio
2006-07 163200297 1962483183 0.083
2007-08 138679655 2381902558 0.058
2008-09 78414753 2468612971 0.031
2010-11 301325421 3238442122 0.093
Page 89
CHART : 4.14
TITLE OF THE CHART : NET PROFIT RATIO
0
500000000
1000000000
1500000000
2000000000
2500000000
3000000000
3500000000
1 2 3 4 5 6 7 8 9 10 11
Year Earnings after tax
Sales
Ratio
INTERPRETATION :
The Net profit ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd in the year 2006-07 recorded as 0.018; it has decreased in the year 2007-08 to 0.021, further increased to 0.061 in the year 2008-09.
In the year 2009-10 the ratio has decreased to 0.092 and at 2010-11 the ration of the company is increased to 0.083.
The Net profit ratio of the company is recorded maximum as 0.092 in the years 2009-10, the reason for is due to increase in Earnings after taxes.
The Net profit ratio of the company is minimum as 0.018 in the year 2006-07 the reason for is due to less Earnings after taxes.
The over all trend of the ratio of the company is in increasing pattern through the study period. Generally a high net profit margin would ensure adequate return to the owners. Thus, the company enables to withstand adverse economic conditions when selling price is declining, because the company maintains optimal Net profit ratio.
Page 90
FINDINGS
The following are the findings after a detailed study detailed study about Working Capital
From the study is its observed that the Net Working capital position of Sri Dhana
Lakshmi Cotton & Rice Mills (P) Ltd. is gradually increasing throughout the study
period 2006-07 due to increasing in Current assets.
The study result reveals that the Current Ratio is more than the standard norm i.e. 2:1
throughout the period of study 2006-10.Because of Current assets are more than the
Current liabilities.
From the study it is found that the Quick ration Sri Dhana Lakshmi Cotton &Rice
Mills (P) Ltd. shows increasing trend due to increase in Quick assets during the period
of study 2006-10.
The study result reveals that the Cash ratio of Sri Dhana Lakshmi Cotton & Mills (P)
Ltd increasing gradually throughout the study period of 2006-10. Because of there is
an increase in Sales.
The study result indicated that the Debtors turnover ratio shows increasing trend
through the study period, except in the year 2010-11 due to the reason that there is a
decrease in Sales.
Page 91
The study result indicates that the Debtors turnover ratio shows increasing trend
throughout the study period, except in the year 2007-08 due to the reason that there is
a decrease in Sales.
The study result reveals that the Debtors average collection period of Sri Dhana
Lakshmi Cotton & Rice Mills (P) Ltd is falling down year by year Under the period of
study except in the year 2004-05 due to increase in Debtors.
From the study it is observed that the Working capital turnover ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd has been decreasing gradually throughout the study period of 2003-07 due to less efficiency employed of Working capital.
From the study it is found that the Creditors turnover ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd is under fluctuating throughout the study period 2003-07 due to fluctuations in Creditors.
The study result reveals that the Long-term debt of Sri Dhana Lakshmi Cotton & Rice Mills (P0 Ltd is less than the Shareholder’s Equity because of increasing in Net worth year to year throughout the study period.
From the study it is observed that the Net profit ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd is increasing trend throughout the study period 2007-11. Because of increasing in Earnings after taxes.
Page 92
SUGGESITONS
Based on the study it is suggested to maintain same levels of Quick ration for the up coming years also to meet all current claims of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd. From the study it is found that the Net Working Capital of Sri Dhana Lakshmi Cotton &Rice Mills (P) Ltd has been increasing year to year. It is suggested to the company to maintain the same levels in future also to make the profits.
As the study findings it is observed that the Current ratio is more than the standard norm. So, it is suggested to the company to maintain the same in the near future also to meet its current obligations in full.
As the study findings it is found that the company cash and bank balanced are increasing gradually year to year. Hence it is suggested to maintain the same in future also to meet the liquidity operations.
From the study it is found that the Inventory turnover ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd is in decreasing trend. So, it is suggested to the company to maintain optimum inventory levels for to meet the stock requirements.
As the study findings it is found that the Debtors turnover ratio is satisfactory. Hence it is suggested to maintain the same levels in future also for better liquidity of Debtors.
Based on the study it is suggested that to maintain same collection period of debtors for better trade credit management in future also.
From the study it is found the working capital turnover ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd was decreasing year to year. So, it is suggested to the company to improve it and make more sales by utilization of working capital.
Based on the study the company payables management is fluctuating. So, it is suggested to make necessary actions to improve the payable management for better trade credit management with Creditors.
From the study it is found that the Debt-Equity ratio of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd. shows that the total debt is less than the total share holder’s funds. Hence it is suggested to maintain the same proportion in future also to make better financial soundness of the company.
Page 93
As the study findings it is found that the Net profit ratio of Sri Dhana Lakshmi Cotton &Rice Mills (P)Ltd. shows increasing trend. Hence it is suggested to maintain the same ratio in near future also for ensure adequate returns to the owners.
From the entire study it reveals that the short-term financial ability and long-term solvency of Sri Dhana Lakshmi Cotton & Rice Mills (P) Ltd is under satisfactory position. Hence it is suggested to the company to maintain the same position in future also to meet its all financial obligations.
Page 94
CONCLUSION
By observing the study it may conclude that, the present study has been
conducted to analyze and evaluate the working capital position of Sri Dhana
Lakshmi Cotton & Rice Mills (P) Ltd through Working capital changes
statements and Ratios.
The liquidity position of the company is under satisfactory condition.
Thus, the company is in a position which can satisfy the current obligations.
There is some fluctuations in Turnover Ratios. The profitability of the firm
increasing significantly throughout the study period of 2003-07 and the long-
term solvency of the firm is under satisfactory position.
The recommendations and suggestions given if adopted will improve the
position of the company substantial and optimal profitability coupled with better
service and satisfactions for the investors may be achieved.
Page 95
SRI DHANA LAKSHMI COTTON & RICE MILLS PRIVATE LIMITED BALANCE SHEET AS 31st MARCH 2006
PARTICULARS AMOUNT (Rs)
1.
II.
Sources of Funds:
1. Share holders’ Funds: Capital Reserve & Surplus