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A STUDY ON WORKING CAPITAL MANAGEMENT
A Project Report
Submitted
By
Jay Maharana
Reg. No. 12241E0015
To
The Department of Management Studies,
Gokaraju Rangaraju Institute of Engineering and Technology,
in partial fulfilment of the requirements for the award of
the Degree of Master of Business Administration
Under the Guidance of
Y. Gayathri
Associate Professor
Department of Management Studies
GOKARAJU RANGARAJUINSTITUTE OF ENGINEERING AND TECHNOLOGY
(An Autonomous Institution, Affiliated to JNTUH, Hyderabad)
KUKATPALLY, BACHUPALLY, HYDERABAD
2014

DECLARATION
I do hereby declare that this Project Report titled “A STUDY ON WORKING
CAPITAL MANAGEMENT”, submitted to the Department of Management Studies,
Gokaraju Rangaraju Institute of Engineering and Technology, Hyderabad, is a
bonafide work undertaken by me and it is not submitted either in full or in part to
any other University or Institution for the award of any degree / diploma /
certificate or published any time before.
Jay Maharana
12241E0015
Hyderabad

CERTIFICATE
This is to certify that the Project Report titled “A STUDY ON WORKING
CAPITAL MANAGEMENT”, submitted by Mr. Jay Maharana, to the Department of
Management Studies, Gokaraju Rangaraju Institute of Engineering and
Technology, Hyderabad, in partial fulfillment of the conditions for the award of
the Degree of Master of Business Administration, was carried out by him under
my guidance. This has not been submitted, either in full or part, to any other
University or Institution for the award of any degree/diploma/certificate.
Mrs. Y.Gayathri Mr. Dr. YRK Prasad
Associate Professor Professor & HOD
Internal Guide Department of Management Studies
Department of Management Studies GRIET
GRIET

ACKNOWLEDGEMENTS
To express my gratitude to all those who supported me during the stages of my life
climaxing in my Project Work is very difficult in this limited space. However, I would like to
take this opportunity to express my sincere thanks to all of them.
First, I would like to express my immense gratitude towards our institution Gokaraju
Rangaraju Institute of Engineering and Technology, Hyderabad, which created a great platform
to fulfil my most cherished goal of pursuing MBA.
I place on record the inestimable help and support extended to me by my project guide
Sri/Smt./Dr./Prof.Mrs.Y.Gayathri.
I extend my profound thanks and deep sense of gratitude to the authorities of Imperial
Garments for giving me an opportunity to undertake this project work in their esteemed
organization. I would like to express my deep sense of gratitude to Mrs.R.L.S Krishnaveni
(Head-Hr) and S.K Daga (DGM-Accounts) and the other staff of the organisation.
I would like to place on record my heartfelt thanks to Director P. S. Raju; Principal
Dr.Jandyla N. Murthy; and Professor Dr. K. V. S. Raju; Gokaraju Rangaraju Institute of
Engineering and Technology, Hyderabad for lending me unconditional support and
encouragement.
My special thanks to Professor and Head, Department of Management Studies Dr. Y.
Rama Krishna Prasad; Professor and Project Coordinator Dr. P. B. Apparao; Associate Professor
and Project Co-Coordinator Mrs.Y.Gayathri and other distinguished faculty members of the
Department of Management Studies for their generous guidance and support. I also acknowledge
the help and cooperation of the librarian and non-teaching staff of Gokaraju Rangaraju Institute
of Engineering and Technology, Hyderabad and others for their constant support and ready help.
Finally, I thank the friends, family members and the Almighty for their cooperation,
kindness and mercy.
Jay Maharana
12241E0015

CONTENTS
CHAPTER Page no
1. INTRODUCTION
1.1 Introduction 1
1.2 Need for the study 4
1.3 Objectives 5
1.4 Scope and significance of study 5
1.5 Limitations of the study 6
1.6 Research methodology 6
2. INDUSTRY &
COMPANY PROFILE
2.1 Industry profile 9
2.2 Company profile 16
3. LITERATURE REVIEW
3.1 Subjective literature review/
Theoretical perspective
21
3.2 Research review literature 41
4. DATA ANALYSIS &
INTERPRETATION
4.1 Data analysis and Interpretation 58
5. FINDINGS & SUGGESTIONS
5.1 Findings 88
5.2 Suggestions 89
6. CONCLUSION 90
7. BIBILIOGRAPHY 93
ANNEXURE-I Balance Sheet 95
ANNEXURE-II Profit & Loss 101

S.No Name Of Tables Page no
1. Exports of Textile & Clothing 12
2. Company Overview 18
3. Current ratio 59
4. Quick ratio 61
5. Absolute liquid ratio 62
6. Inventory turnover ratio 64
7. Debtors turnover ratio 66
8. Creditors turnover ratio 67
9. Working capital turnover ratio 69
10. Days inventory outstanding 72
11. Days sales outstanding 74
12. Days payable outstanding 76
13. Cash conversion cycle –[CCC] 78
14. Changes in working capital (2012-13 to 2013-14) 79

S.No Name Of Figures Page no
1. Organisation structure 19
2. Types of working capital 22
3. Permanent & Temporary working capital 25
4. Balanced working capital position 32
5. Operating cycle 34
6. Current ratio 59
7. Quick ratio 61
8. Absolute liquid ratio 63
9. Inventory turnover ratio 65
10. Debtors turnover ratio 66
11. Creditors turnover ratio 68
12. Working capital turnover ratio 69
13. Days inventory outstanding 73
14. Days sales outstanding 75
15. Days payable outstanding 77

1.1 INTRODUCTION
1.1.1 WORKING CAPITAL
Fixed capital is that part of which is required for the purpose of fixed assets like Land and
Building, Plant and Machinery etc. the fixed capital provides the basic means for the business to
earn its return... But by themselves, these fixed assets would not produce anything. For instance,
to operate the machines, we require men, materials, power, tools, accessories etc. these factors
involves expenses. In addition, we have to maintain certain current assets like stocks, stores,
equipments, etc. All these require enough resources to keep the wheels of the business in motion.
Therefore in addition to the amount of fixed capital every business – whether new or growing
requires working capital. Working capital is that portion of a business concern’s total capital
which is employed in term of operations. Without working capital, fixed capital would be idle
and ineffectual.
A number of definitions have been formulated: perhaps the most widely acceptable would be:
“WORKING CAPITAL represents the excess of CURRENT ASSETS over CURRENT
LIABILITIES”.
The same be designated in the following equation:
WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES
Funds thus invested in current assets keep revolving fast and are being constantly converted in to
cash and this cash flows out again in exchange for other current assets. Thus it is known as
revolving or circulating capital or short term capital.

1.1.2. WORKING CAPITAL MANAGEMENT
Working capital management is refers to the management of current assets as well as current
liabilities. The major thrust, of course, is on the management of current assets. This is
understandable because current liabilities arise in the context of current assets. Working capital
management is a significant fact of financial management. Its importance stems from two
reasons:
 Investment in current assets represents a substantial portion of total investment.
 Investment in current assets and the level of current liabilities have to be geared quickly
to changes in sale. To be sure, fixed asset investment and long-term financing are also
responsive to variation in sales. However, this relationship is not as close and direct as it
is in the case of working capital.
The importance of working capital management is reflected in the fact that financial
management spends a great deal of time in managing current assets and current liabilities.
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.
The problem of working capital management is one of the “best” utilization of a scarce resource.
Thus the job of efficient working capital management is a formidable one, since it depends upon
several variables such as character of the business, the lengths of the merchandising cycle,
rapidity of turnover, scale of operations, volume and terms of purchase & sales and seasonal and
other variations.

1.2. NEED FOR THE STUDY
Manufacturing Industry is one of the major public sectors in India. This industry plays a major
role in the economic development of a nation. From the first five year itself the Government of
India has emphasized on the Manufacturing Industry. This industry is considered as the core
industry in every economy of the world. Working capital gives an idea to the investor as well as
the management of any firm about the functioning of the organization. Preparation of a separate
statement of working capital gives us an idea about the gross as well as the net working capital of
the statement. One can know or plan about the day-to-day expenses. Working capital is the
difference between the current assets and the current liabilities. This working capital must also
be adequate (i.e.,) not too high, neither too low. An optimum level of working capital is a good
significance for the progress of the organization. This study of working capital management
would give me the insight about the level of working capital required in this organization. A
study of working capital management in GTN Engineering (India) Limited – [Unit: Imperial
Garments] gives out the exact idea of working capital because it is an organization with huge
requirement of working capital. This is life blood without which the organization may not be
able to perform its responsibilities.

1.3. OBJECTIVES:
 To study & understand the working capital concepts, components in general &
particularly in Imperial Garments.
 To examine and understand the current assets & current liabilities position of the Imperial
Garments.
 To evaluate the present working capital position of Imperial Garments.
 To analyze & interpret the working capital requirements in lieu (receivable management,
inventory management & cash management) of Imperial Garments.
 To suggest better working capital structure.
1.4. SCOPE OF THE STUDY
Working capital is quite essential for the working of any business. For a good manufacturing
company, some basic capital for producing the goods is required before it starts selling them. It
has to take care of production expenses, administration expenses as well as selling expenses.
Moreover, since business is usually done on credit, there is a time lag between the date of sale
and date of receipt of revenues, which can be as high as 90 days at times. Considering all these, it
is essential that a company has sufficient capital to keep it going before it coverts its purchases
into goods and then finally into cash. Each and every study has its own scope. This project
intends to study the working capital position of the Imperial Garments. This study helps to
identify the areas that could be improved. Further suggestions were quoted which the company
could use it in the future program enhancing better utilization of all resources.

1.5. LIMITATIONS OF THE STUDY:
 The period covered under this study is five years.
 The analysis is based on secondary data like annual reports and company’s balance sheet.
 Executives are not ready to part with the information beyond a limit.
 As the study was short span of 10 weeks and due to lack of time other areas could not be
well focused.
1.6. RESEARCH METHODOLOGY
Research is the systematic process of collecting and analyzing data in order to increase our
understanding of the phenomenon about which we are concerned or interested. It is the in depth
search for knowledge. It is a careful investigation or inquiry especially through search for new
facts in any branch of knowledge. The study exhibits exploratory research. The interpretation of
data is done based on ratio and percentage.
1.6.1. RESEARCH DESIGN
Research Design is the strategy for the study and the plan by which the strategy is to be carried
out. It is the set of decisions that make up the master plan specifying the methods and procedures
for the collection, measurement and analysis of data. The sample of study is five years annual
report of Imperial Garments a unit of GTN Engineering India Limited.

1.6.2. DATA COLLECTION
SOURCES OF DATA
Primary Data Secondary Data
 PRIMARY
Primary data has been obtained through personal discussions with Finance manager and
senior officials of the organization.
 SECONDARY
Secondary data’s has been obtained from published reports like the annual reports of the
company, balance sheets, and profit and loss account, booklets, records such as files,
reports maintained by the company. Mainly the annual report consists of two parts;
 Profit and Loss Account
 Balance Sheet
Profit and loss account reveals the income and expenditure of the company. Balance
Sheet reveals the financial position of the organization. Those two statements are
prepared by the highly qualified and experts with the help of available information or
data.
1.6.3 TOOLS USED FOR ANALYSIS:
 Ratio Analysis
 Operating Cycle Analysis
 Schedule of changes in working capital

1.6.4. STATISTICAL TOOLS USED FOR DATA ANALYSIS:
The various statistical tools used for data analysis is as follows:
 Tables
 Bar-chart
 Graphs

CHAPTER – II
INDUSTRY & COMPANY PROFILE

2.1 INDUSTRY PROFILE
2.1.1 INDIAN TEXTILE INDUSTRY
Indian Textile Industry is one of the leading textile industries in the world. Though it was
predominantly unorganized industry even a few years back, but the scenario started changing
after the economic liberalization of Indian economy in 1991. The opening up of economy gave
the much-needed thrust to the Indian textile industry, which has now successfully become one of
the largest in the world.
Indian textile industry largely depends upon textile manufacturing and export. It also plays a
major role in the economy of the country. India earns about 27% of its total foreign exchange
through textile exports.
Indian textile industry can be divided into several segments, some of which can be listed below:
 Cotton Textiles
 Silk Textiles
 Woolen Textiles
 Readymade Garments
 Hand-crafted Textiles
 Jute and Coir

2.1.2. Current scenario:
The Indian Textiles industry has an overwhelming presence in the economic life of the country.
Apart from providing one of the basic necessities of life, the textile industry also plays a vital
role through its contribution to industrial output, employment generation, and the export earnings
of the country.
The report of the Working Group constituted by the planning Commission on boosting India’s
manufacturing exports during 12th
Five year Plan (2012-2017), envisages India’s exports of
Textiles and Clothing at US$64.42 billion by the end of March, 2017.
The sector contributes about 14% to industrial production, 4% to the gross domestic product
(GDP), and 17% to the country’s export earnings. It provides direct employment to over 40
million people. The textile sector is the second largest provider of employment to agriculture.
Thus, the growth and all round development of this industry has a direct bearing on improvement
of the economy of the nation.
India has the potential to increase its textile and apparel share in the world trade from the current
level 4.5% to 8% and reach US$80 billion by 2020.
2.1.3. Export Scenario:
The targets for textile exports for 2012-13 initially set at USD 38 billion have been revised
upwards to US$39.60 billion, following the Foreign Trade Policy Annual Supplement in June,
2012.
In the global exports of Textiles, India ranked as the third largest exporter, trailing EU-27 and
China, as per WTO data – 2012 (latest). In the global market exports of clothing, India ranked as

fifth largest exporter as per WTO data – 2012 (latest), trailing Bangladesh, Hong Kong, EU-27
and China.
The latest available data released by WTO secretariat, the values of top ten exporters of textiles
& clothing in the world in calendar year 2012 are given below:-
(US$ billion)
Textiles (2012) Clothing (2012)
Rank Name of the
Company
Value
% of
world
share
Rank Name of the
Company
Value
% of
world
share
1 China 94 32.2 1 China 154 37.3
2 EU-27 77 26.1 2 EU-27 116 28.2
3 India 15 5.1 3 Hong Kong, China 25
4 United States 14 4.7 4 Bangladesh 20 4.8
5 RP Korea 12 4.2 5 India 14 3.5
6 Hong Kong, China 11 6 Turkey 14 3.4
7 Taipei, Chinese 11 3.8 7 Viet Nam 13 3.2
8 Turkey 11 3.7 8 Indonesia 8 2
9 Pakistan 9 3.1 9 United States 5 1.3
10 Japan 8 2.7 10 Mexico 5 1.1
World total 294 World total 412
Source: International trade statistics 2012, WTO Secretariat

2.1.4. GROWTH
Indian textile and garment makers target 15-20% growth in FY’14
The textile and garment makers of India are eyeing 15-20% growth in exports this year as the
Textiles Minister K Sambasiva Rao has assured full support to the industry and the Indian
Government is planning to implement some new measures to boost exports.
All the segments of the textiles value chain are doing well at present both in the domestic and
global markets. This year, the country textile and garment industry may witness an increase of
15-20% in exports which could go up further if some of the measures already being
contemplated by Union Government get implemented without any delay.
According to the chairman of Apparel Export Promotion Council (AEPC), Indian apparel
exports touched Euro 0.9 billion in June 2013-14 with an increase of 12.13% against the
corresponding month of last financial year.
The flow of expansion of orders in India is expected to fetch additional Euro 2.19 billion
business in the country because world-renowned chain stores and international brands have
preferred expanding their sourcing of the merchandise from India. As a result, factory compliant
manufacturing in India has surged with new and unprecedented export orders in the current
season.
In 2012-13, India’s garment exports dipped by around 5% year-on-year to Euro 9.41 billion,
mainly owing reduced demand in the US and EU, which together account for more than 60% of
India’s total garment exports.

2.1.5. GOVERNMENT INITIATIVES:
The Government has allowed 100% Foreign Direct Investment (FDI) in textiles under the
automatic route. In order to make textile processing units more environment-friendly and
globally competitive, the Cabinet Committee on Economic Affairs (CCEA) has approved an
Integrated Processing Development Scheme (IPDS) with an investment of Rs 500 crore.
 Welfare Schemes: The Government has offered health insurance coverage and life
insurance coverage to 161.10 million weavers and ancillary workers under the Handloom
Weavers Comprehensive Welfare Scheme, while 733,000 artisans were provided health
coverage under the Rajiv Gandhi Shilpi Swasthya Bima Yojna.
 E-Marketing: The Central Cottage Industries Corporation of India (CCIC), and the
Handicrafts and Handlooms Export Corporation of India (HHEC) have developed a
number of e-marketing platforms to simplify marketing issues. Also, a number of
marketing initiatives have been taken up to promote niche handloom and handicraft
products with the help of 600 events all over the country.
 Skill Development: As per the 12th
Five Year Plan, the Integrated Skill Development
Scheme (ISDS) aims to train over 2,675,000 people within the next 5 years (this would
cover over 270,000 people during the first two years and the rest during the remaining
three years). This scheme would cover all sub sectors of the textile sector such as Textiles
and Apparel; Handicrafts; Handlooms; Jute; and Sericulture.
 Credit Linkage: As per the Credit Guarantee program. Over 25,000 Artisans Credit
Cards have been supplied to artisans and 16.50 million additional applications for issuing
up credit cards have been forwarded to banks for further consideration with regards to the
Credit Linkage scheme.

 Financial package for waiver of overdue: The Government of India has announced a
package of US$ 604.56 million to waive of overdue loans in the handloom sector. This
also includes the waiver of overdue loans and interest till 31st
March,2010, for loans
disbursed to handloom sector. This is expected to benefit at least 300,000 handloom
weavers of the industry and 15,000 cooperative societies.
 Textile Parks: The Indian Government has given approval to 40 new Textiles Parks to
be set up and this would be expected over a period of 36 months. The new Textiles Parks
would leverage employment to 40,000 textile workers. The product mix in these parks
would include apparels and garments parks, hosiery parks, silk parks, processing parks,
technical textiles including medical textiles, carpet and power loom parks.
2.1.6. TECHNICAL TEXTILE SEGMENT
The current market size of technical textile in India is estimated to be around USD 6.83 billion.
The overall technical textile industry in India is expected to grow at the rate of 11% year on year
and reach a market size of USD 11.36 billion by the year 2012-13. The scheme for Growth and
Development of Technical Textiles aims to promote indigenous manufacture of technical textile
to leverage global opportunities and cater to the domestic demand.
Further, the government is set to launch USD 44.21 million missions for promotion of technical
textiles. While the Finance Ministry has cleared setting up of four new research centers for the
industry, which include products like mosquito and fishing nets, shoe laces and medical gloves.
The global technical industry is estimated at USD 127 billion and its size in India is pegged at
USD 11 billon.

2.2. PROFILE OF THE GROUP:
Imperial Garment is a unit of GTN Engineering (India) Ltd and a part of GTN Group company,
which is in business for last over 5 decades. The Group is mainly engaged in Cotton Yarn
manufacture and Export with value added products i.e. Grey yarn, Compact yarn and Gassed
Yarn etc., with a capacity of 83,496 spindles, 23,826 Doubling spindles. In addition, Group has
Knitting Unit with capacity of 5.80 tones per day and Yarn Processing Unit with capacity of 10
Metric Tones per day. All these activities are carried out in GTN Industries Limited, a listed
company. The Group is also engaged in Fabric Processing, Garment manufacturing and
Engineering Components. The Group is fully equipped with vertical integrated manufacturing
facilities from yarn to knitted garments.

2.2.1. COMPANY PROFILE:
Imperial Garment was set up to manufacture 27 Lakhs Knitted Garments per annum. This unit
was set up at a project cost of Rs. 2050 Lakhs and funded by Exim Bank and Punjab National
Bank. The commercial production was commenced from 01-03-2007.
In the next years immediately after commercial production, the Unit has faced tremendous
pressure due to global recession and financial turmoil emanated from US and European Market
since the Unit is mainly engaged in Exports. This trend has been continuing till date. Recently
the Export Market has shown the demand revival and it may take another one year to come back
on tracks.
The company has its manufacturing facility near Patancheru, in Medak District. In addition, the
company has also established a knitted socks manufacturing facility in Patancheru. The company
counts leading brands such as Truworths, Nike, Marks and Spencer among its foreign clients
while the Indian clients include Colorplus and ITC among others. The group has also floated a
home grown brand (COTSTYLE – manufactured by IGL but retailed by Cotstyle Apparels
Private Limited) which is sold across 1000 retail outlets in India.
Mission:
“To be a world class, vertically Integrated yarns, Fabrics, & Apparels Company.”
Vision:
“Facilitate state of the art infrastructure, human resource along with sound process technology
offering Fibre thru Fashion solutions to meet and exceed discerning client’s expectations world
over.”

Name of the company Imperial Garments
a Unit of GTN Engineering (India) Limited.
Year of establishment 01-03-2007
Director
Mr. M.K. Patodia
Mrs. Anjana Patodia
Type of company Manufacturing
Area of operation Manufacturing of Garments
Nature of business Stitching of Garments
Export places US, EUROPE, SOUTH AFRICA
No. of departments 7
Number of employees 400
Number of working days 303
Production capacity 27 Lacks Knitted Garments
Storage capacity 10 Lacks Garments

2.2.2. ORGANISATION STRUCTURE:
ACCOUNTS
CEO
I.T MARKETING OPERATIONS HRFABRIC
Head
Manager
Head
DGM
Manager
Head GM Head Sr.
GM
PURCHASE
Head
Manager
Head GM
Officer Merchants Merchandiser
Head HR
Sr.
Merchandiser
Production
Mgr
Worker
Section In
charge
Supervisor
Officer Executives
Executives
Trainee
HR
BOARD OF
DIRECTORS

CHAPTER – III
LITERATURE REVIEW

3.1. SUBJECTIVE LITERATURE:
3.1.1. Nature of Working Capital
Working Capital Management is concerned with the problems that arise in attempting to manage
the Current Assets, the Current Liabilities and the inter-relationship that exists between them.
The term Current Assets refers 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 Receivables 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 the earnings of the concern
.The basic Current Liabilities are Accounts Payable, Bills Payable, Bank Overdraft and
outstanding expense. The goal of Working Capital Management is to manage the firm's Assets
and Liabilities in such a way that a 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 Current Assets should be large enough to cover its current liabilities in order to ensure a
reasonable margin of safety. Each of the current assets must be managed efficiently in order to
maintain the liquidity of the firm while not keeping too high a level of any one of them. Each of
the short term sources of financing must be continuously managed to ensure that they are
obtained and used in the best possible way. The interaction between current assets and current
liabilities is, therefore, the main theme of the theory of management of working capital.

3.1.2. TYPES OF WORKING CAPITAL
Working Capital
On the basis of concept On the basis of Time
Temporary/
fluctuating working
capital
Gross working
capital
Net working
capital Permanent / fixed
working capital
Initial working
capital
Regular working
capital
Seasonal working
capital
Special working
capital

GROSS WORKING CAPITAL:
It is the total of all current assets. Gross working capital requires that a firm have adequate
investment in current assets and proper management of theses asset. It should be neither
excessive nor inadequate asset. If there are surplus funds they should be immediately invested,
and if the funds become low and the requirement is greater the financial manager should be able
to get the required finance so that the commitments of the firm can be made short notice.
NET WORKING CAPITAL:
It is the difference between current asset and current liabilities. When current asset are higher
than current liability NWC will be positive, but if current liabilities exceed current assets NWC
will be negative.NWC explain the management of financing of working capital through the
financing of long-term and short term funds.
NWC= Current Assets – Current Liabilities
CA= cash + marketable securities + accounting receivables + notes and Bills Receivables +
Inventories
CL = Accounts Payable + Notes and Bills + Outstanding Expenses + Short Term Loans.
Permanent / Fixed Working Capital
Permanent or fixed working capital is minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has
to maintain a minimum level of raw material, work- in-process, finished goods and cash balance.
This minimum level of current assets is called permanent or fixed working capital as this part of

working is permanently blocked in current assets. As the business grow the requirements of
working capital also increases due to increase in current assets.
a) Initial working capital: At its inception and during the formative period of its operations a
company must have enough cash fund to meet its obligations. The need for initial working
capital is for every company to consolidate its position.
b) Regular working capital: Regular working capital refers to the minimum amount of liquid
capital required to keep up the circulation of the capital from the cash inventories to accounts
receivable and from account receivables to back again cash. It consists of adequate cash balance
on hand and at bank, adequate stock of raw materials and finished goods and amount of
receivables
Temporary / Fluctuating Working Capital
Temporary / Fluctuating working capital is the working capital needed to meet seasonal as well
as unforeseen requirements. It may be divided into two types.
a) Seasonal working capital b) Special working capital
Its requirement is not continuous it is normally finance through short term sources, like
overdraft, cash credit and other short term liabilities. Temporary working capital is further
classified into:
A) Seasonal working capital: requirement of working capital is based on particular seasons ex;
winter, summer or festival seasons etc during these seasons there will be additional demand for
the products. To meet out such demand firm has to make additional arrangement of working
capital.

B) Special working capital: requirement of such working capital is necessitated to meet
demands of special occasion’s ex. Occasion of world cup cricket, Olympics, kumba mela,
elections. During these special occasions demand for goods and service will increase. To meet
such special demand firm has to make temporary arrangement of working capital.

3.1.3. Determinants of Working Capital
Requirements Of working capital depend upon various factors such as nature of business, size of
business, the flow of business activities. However, small organization relatively needs lesser
working capital than the big business organization. Following are the factors which affect the
working capital of a firm:
1. Nature of Business
Working capital requirement depends upon the nature of business carried by the firm. Normally,
manufacturing industries and trading organizations need more working capital than in the service
business organizations. A service sector does not require any amount of stock of goods. In
service enterprises, there are less credit transactions. But in the manufacturing or trading firm,
credit sales and advance related transactions are in large amount. So, they need more working
capital.
2. Size of business operations/scale of operations
The size of business has also an important impact on its working capital needs. Size of a business
unit may be measured in terms of a scale of operation. Bigger the size of business unit, the larger
will be the amount of working capital required as because the larger business units are required
to maintain huge inventories and also spend more in carrying out the business operations
smoothly. A business unit carrying on activities on a small scale needs less working capital.
3. Business Fluctuations:
Most business experience cyclical and seasonal fluctuations in demand for their goods and
services. These fluctuations affect the business with respect to working capital because during

the time of boom, due to an increase in business activity the amount of working capital
requirement increases and the reverse is true in the case of recession. Financial arrangement for
seasonal working capital requirements are to be made in advance
4. Credit Period
Credit period allowed to customers is also one of the major factors which influence the
requirement of working capital. Longer credit period requires more investment in debtors and
hence more working capital is needed. But, the firm which allows less credit period to customers
needs less working capital.
5. Seasonal Requirement
In certain business, raw material is not available throughout the year. Such business
organizations have to buy raw material in bulk during the season to ensure an uninterrupted flow
and process them during the entire year. Thus, a huge amount is blocked in the form of raw
material inventories which gives rise to more working capital requirements.
6. Growth and expansion:
As a company grows, the working capital requirements will be more. It is very difficult to
determine the relationship between the volume of business of a company and the increase in its
working capital. The composition of working capital in a growing company also shifts with
economic circumstances and corporate practices. Other things being equal, growing industries
require more working capital than those that are static.

7. Changes in Price Level
Change in price level also affects the working capital requirements. Generally, the rise in price
will require the firm to maintain large amount of working capital as more funds will be required
to maintain the sale level of current assets.
8. Dividend Policy
The dividend policy of the firm is an important determinant of working capital. The need for
working capital can be met with the retained earnings. If a firm retains more profit and
distributes lower amount of dividend, it needs less working capital.
9. Access to Money Market
If a firm has good access to capital market, it can raise loan from bank and financial institutions.
It results in minimization of need of working capital.
10. Working Capital Cycle
When the working capital cycle of a firm is long, it will require larger amount of working
capital. But, if working capital cycle is short, it will need less working capital.
11. Operating Efficiency
The operating efficiency of a firm also affects the firm's need of working capital. The operating
efficiency of the firm results in optimum utilization of assets. The optimum utilization of assets
in turn results in more fund release for working capital.

3.1.4. MANAGEMENT OF INVENTORY
Inventories constitute the most significant part of current assets of a large majority of companies
in India. On an average, inventories are approximately 70% of current assets in public limited
companies in India.
Because of the large size of inventories maintained by firms, a considerable amount of funds is
required to be committed to them. It is, therefore very necessary to manage inventories
efficiently and effectively in order to avoid unnecessary investments. A firm neglecting the
management of inventories will be jeopardizing its long run profitability and may fail ultimately.
The purpose of inventory management is to ensure availability of materials in sufficient quantity
as and when required and also to minimize investment in inventories at considerable degrees,
without any adverse effect on production and sales, by using simple inventory planning and
control techniques.
NEED TO HOLD INVENTORIES:
1. Transaction Motive:
This motive lays emphasis on maintaining of inventories in order to maintain a smooth and
unobstructed supply of materials for the sales and production operations.
2. Precautionary Motive:
This motive emphasizes on the stocking goods in order to guard against the uncertainties of
future i.e. unpredictable changes in the forces of demand, supply and other forces.

3. Speculative Motive:
This motive influences the decisions regarding the increase or decrease in the level of inventory
in order to take advantage of price fluctuations.
3.1.5. MANAGEMENT OF CASH
Cash is the important current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis, it is also the ultimate output expected
to be realized by selling the service or product manufactured by the firm.
The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s
operations while excessive cash will simply remain idle, without contributing anything towards
the firm’s profitability. Thus a major function of the Financial Manager is to maintain a sound
cash position.
Cash is the money which a firm can disburse immediately without any restriction. The term cash
includes currency and cheques held by the firm and balances in its bank accounts. Sometimes
near cash items, such as marketable securities or bank time deposits are also included in cash.
Generally when a firm has excess cash, it invests in marketable securities. This kind of
investment contributes some profit to the firm.
NEED TO HOLD CASH
The firm’s need to hold cash may be attributed to following three motives:-
1. Transaction Motive: The transaction motive requires a firm to hold cash to conduct
its business in the ordinary course. The firm needs cash primarily to make payments for
purchases, wages and salaries, other operating expenses, taxes, dividends, etc.

2. Precautionary Motive: A firm is required to keep cash for meeting various
contingencies. Though cash inflows and outflows are anticipated but there may be variations in
these estimates. For example a debtor who pays after 7 days may inform of his inability to pay,
on the other hand a supplier who used to give credit for 15 days may not have the stock to supply
or he may not be in opposition to give credit at present.
3. Speculative Motive: The speculative motive relates to the holding of cash for
investing in profit making opportunities as and when they arise.
The opportunities to make profit changes, the firm will hold cash. When it is expected that
interest rates will rise and security price will fall.
3.1.6. MANAGEMENT OF RECEIVABLE:
A sound managerial control requires proper management of liquid assets and inventory. These
assets are a part of working capital of the business. An efficient use of financial resources is
necessary to avoid financial distress. Receivables result from credit sales. A concern is required
to allow credit sales in order to expand its sales volume. It is not always possible to sell goods on
cash basis only. Sometimes other concern in that line might have established a practice of selling
goods on credit basis. Under these circumstances, it is not possible to avoid credit sales without
adversely affecting sales. The increase in sales is also essential to increases profitability. After a
certain level of sales the increase in sales will not proportionately increase production costs. The
increase in sales will bring in more profits. Thus, receivables constitute a significant portion of
current assets of a firm. But for investment in receivables, a firm has to insure certain costs.
Further, there is a risk of bad debts also. It is therefore, very necessary to have a proper control
and management of receivables.

Needs to hold:
Receivables management is the process of making decisions relating to investment in trade
debtors. Certain investments in receivables are necessary to increase the sales and the profits of a
firm. But at the same time investment in this asset involves cost consideration also. Further, there
is always a risk of bad debts too.
Thus, the objective of receivable management is to take a sound decision as regards investments
in debtors. In the words of Bolton, S.E., the need of receivables management is “to promote sales
and profits until that point is reached where the return of investment in further funding of
receivables is less than the cost of funds raised to finance that additional credit.”
3.1.7. Balanced Working Capital Position
Balanced Working Capital Position The firm should maintain good working capital, both
inadequate and excessive working capital are dangerous for the firm’s well-being as they could
impair the firm’s profitability due to production interruptions and inefficiencies and sales
disruptions.

Excessive working capital leads to
 It results in unnecessary accumulation of inventories thereby increases the chances of
inventory mishandling, waste, theft and losses
 It is an indication of defective credit policy and slack in collection period. Consequently,
higher incidence of bad debts results, which adversely affects profits
 Negligent excessive working capital makes management negligent which degenerates
into managerial inefficiency
 Tendencies of accumulating inventories tend to make speculative profits grow. This may
tend to make dividend policy liberal and difficult to cope with in future, when the firm is
unable to make speculative profits
Inadequate working capital leads to
 It stagnates growth. It becomes difficult for the firm to undertake profitable projects for
the firm to undertake profitable projects for non-availability of working capital funds
 It becomes difficult to implement operating plans and achieve the firm’s profit target
 Operating inefficiencies creep in when it becomes difficult even to meet day-today
commitments
 Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the
firm’s profitability would deteriorate
 Paucity of working capital funds render the firm unable to avail attractive credit
opportunities etc.
 The firm loses its reputation when it is not in a position to honour its short-term
obligations. As a result, the firm faces tight credit terms.

3.1.8. Operating Cycle
The length of time involved in the conversion of cash into raw materials, raw materials into
work- in-progress, work –in-progress into finished goods, finished goods into debtors ,debtors
into cash again the operating cycle or working capital cycle.
Fig (v) Operating cycle of a manufacturing firm
Sales
Raw
Materials
Cash
Work in
Progress
Debtors
Finished
Goods

The operating cycle of a manufacturing company involves three phases:
1. Acquisition of resources
2. Manufacture of the product
3. Sale of the product
Gross operating cycle (GOC) = Inventory conversion period (ICP) + Debtors conversion period
(DCP) ICP= Raw material conversion period (RMCP) + Work-in progress conversion period
(WIPCP) + Finished good conversion period (FGCP)
Inventory conversion period (ICP)
Inventory conversion period gives the length of time inventory is held between purchase and
sale.
It is calculated as:
Inventory
= x 365
Cost of sales
In some cases, a more detailed breakdown of inventory may be required. Inventory holding
periods can be calculated for each type of inventory: raw materials, work-in-progress and
finished goods.
Raw Material Conversion Period
It is the average time taken to convert material into work-in progress. It depends on raw material
consumption per day and raw material inventory.

Calculated as:
Raw Material inventory
= x 365
Material usage
Work-In-Progress Conversion Period
It is the average time taken to complete semi-finished work or work-in-progress. It is the length
of time goods spend in production.
Calculated as:
Work-in-progress inventory held
= x 365
Production cost
Finished Goods Conversion Period
It is the average time taken to sell the finished goods. It is the length of time finished goods are
held between completion or purchase and sale.
Calculated as:
Finished goods inventory held
= x 365
Cost of goods sold

For all inventory period ratios, a low ratio is usually seen as a sign of good working capital
management.
Generally, it is very expensive to hold inventory and thus minimum inventory holding usually
points to good practice.
Debtors (Receivables) Conversion Period
It is the average time taken time to convert debtors into cash.
Calculated as
Trade receivables
= x 365
Credit sales
Generally shorter credit periods are seen as financially sensible but the length will also depend
upon the nature of the business.
Creditors (Payables) Deferral Period (CDP)
CDP is the average time taken by the firm in paying its suppliers.
Calculated as
Trade payables
= x 365
Credit purchases
Generally, increasing payables days suggests advantage is being taken of available credit but
there are risks:

 losing supplier goodwill
 losing prompt payment discounts
 Suppliers increasing the price to compensate
3.1.9. SOURCES OF WORKING CAPITAL
Financing Working Capital
Working capital or current assets are those assets, which unlike fixed assets change their forms
rapidly. Due to this nature, they need to be financed through short-term funds. Short-term funds
are also called current liabilities. The following are the major sources of raising short-term funds:
1. Supplier’s Credit
At times, business gets raw material on credit from the suppliers. The cost of raw material is paid
after some time, i.e. upon completion of the credit period. Thus, without having an outflow of
cash the business is in a position to use raw material and continue the activities. The credit given
by the suppliers of raw materials is for a short period and is considered current liabilities. These
funds should be used for creating current assets like stock of raw material, work in process,
finished goods, etc.
2. Bank Loan for Working Capital
This is a major source for raising short-term funds. Banks extend loans to businesses to help
them create necessary current assets so as to achieve the required business level. The loans are
available for creating the following current assets:

 Stock of Raw Materials
 Stock of Work in Process
 Stock of Finished Goods
 Debtors
Banks give short-term loans against these assets, keeping some security margin. The advances
given by banks against current assets are short-term in nature and banks have the right to ask for
immediate repayment if they consider doing so. Thus bank loans for creation of current assets are
also current liabilities.
3. Promoter’s Fund
It is advisable to finance a portion of current assets from the promoter’s funds. They are long-
term funds and, therefore do not require immediate repayment. These funds increase the liquidity
of the business.
Issues in Working Capital Management
Working capital management refers to the administration of all components of working capital –
Cash, Marketable securities, Debtors, Stock, and Creditors. The financial manager must
determine the levels and composition of current assets. He must see that right sources are tapped
to finance current assets, and that current liabilities are paid in time. There are many aspects of
working capital management, which make it an important function of a finance manager:
 Time- Working Capital Management requires much of the financial manager’s time
 Investment- Working capital represents a large portion of the total investment in assets

 Criticality- Working Capital Management has a great significance for all firms but it is
very critical for small firms
 Growth- The need for working capital is directly related to the firm’s growth
Empirical observations show that financial managers have to spend much of their time to the
daily internal operations, relating to current assets and current liabilities of the firms. As the
largest portion of the financial manager’s valuable time is devoted to working capital problems,
it is necessary to manage working capital in the best possible way to get the maximum benefit.
Working Capital Management is critical for all firms, especially for small firms. A small firm
may not have much investment in fixed assets, but it has to investment in current assets. Small
firms in India face a severe problem of collecting their debts. Further, the role of current
liabilities in financing current assets is far more significant in case of small firms, as, unlike large
firms they face difficulties in raising finances.
There is a direct relationship between a firm’s growth and its working capital needs. As the sales
grow, the firm needs to invest more in inventories and debtors. These needs become very
frequent and fast when the sales grow continuously. The finance manager should be aware of
such needs and finance them quickly. Continuous growth in sales may also require additional
investment in fixed assets. It may, thus, we concluded that all precautions should be taken for the
effective and efficient management of working capital. The finance manager should pay
particular attention to the levels of current assets and the financing of current assets. To decide
the levels and financing of current assets, the risk return implications must be evaluated.

3.2. RESEARCH LITERATURE REVIEW
TITLE: WORKING CAPITAL STRUCTURE AND LIQUIDITY ANALYSIS OF
INDIAN TEXTILES INDUSTRY
AUTHOR: Pratibha Jain and Kshitija Chaugule
VOLUME: Vol. IV Issue III March 2014 e-ISSN: 2231-248X, p-ISSN: 2319-2194
PUBLISH: VSRD International Journal of Business and Management Research,
ABSTRACT
Working capital management is important part in firm’s financial management decision. An
optimal working capital management is expected to contribute positively to the creation of firm
value. To reach optimal working capital management firm manager should control the tradeoff
between profitability and liquidity accurately. Improper management of Working capital, that is,
too much or too low working capital may suffer firms, so an optimum level of working capital is
the key to a smooth inflow of profit. In this paper we investigate the Working capital structure,
working capital turnover position and liquidity analysis with the help of different ratios. We used
sample of five textile companies of India for the period 2009-2013. From our study we found
that Bombay Dyeing reflected good working capital structure and liquidity position while JCT
had good working capital turnover.
OBJECTIVES
 To analyze working capital structure of Textile industries of India.
 To evaluate the liquidity position of Textile industries of India.

 To assess the working Capital turnover position of Textile industries of India.
METHODOLOGY
The present study was conducted among five commercial textile companies. The companies
taken for the study purpose are: Arvind Mills, Bombay Dyeing, Raymond, Grasim and JCT
textile. The data is taken for the year 2009-2013. Accounting technique of ratio analysis and
statistical technique of averages, ANOVA and graphs were used. Present study is based on
financial statements of company, which is secondary data. Other secondary data and information
has been gathered from internet journals, textbooks, publications etc.
CONCLUSION
The study revealed that of all the current assets across the industry, inventories formed the
highest percentage, followed by loans and advances and trade receivables whereas cash and bank
balance formed very negligible part. However inventories formed highest part in case of all the
companies. From above analysis we found that Bombay Dyeing reflected good working capital
structure and liquidity position while JCT had good working capital turnover. Grasim Industry
had negative working capital Turnover ratio which is not good sign for long term growth and
sustainability.

TITLE: Working Capital Management and Profitability:
A Study of Selected Cement Industry in India
AUTHOR: M. John Jacob
VOLUME: Volume-3, Issue-7, August-2013 ISSN 2230-7850
PUBLISH: Indian Streams Research Journal
ABSTRACT
This study aims to examine the working capital management and profitability: a study of selected
cement industry in India. Working capital is defined as a major issue in financial decision-
making given that it is being a part of savings in asset which calls for appropriate financing
investment. The source of financial and economic data of the selected companies is based on the
NSE (national stock exchange). Five companies are randomly selected from all listed companies
in the NSE, but financial companies are excluded while drawing the sample. The time dimension
of panel data runs yearly from 2011 to 2012. The findings confirm that correlation between long-
term debt and other independent variables has been checked. The results shows that longer the
current assets, operating profit, liquidity and interest coverage ratio is negative relationship with
LTD (long term debt) and other three components of working capital management have a
positive relationship LTD. Accordingly, the findings of our results indicate that debt used by the
firm are negatively associated with firm's profitability. Results show that companies could make
a low debt ratio tend to have a shorter period to keep their inventory. Company will use the
internal finance may earn the high profitability.

OBJECTIVES
 To determine the nature and extent of the relationship between working capital
management and profitability.
 To explore the joint impact of different components of working capital management on
profitability
Sample size:
Sample of 5 Indian cement companies were taken over a period of 1 year (april2011-march
2012).
CONCLUSION
From the present study, we investigated working capital management on firm's profitability
using a sample of Indian cement companies Deloof (2003) as it concluded the same result for the
Belgian's firm. The results shows that longer the current assets, operating profit, liquidity and
interest coverage ratio is negative relationship with LTD (long term debt) and other three
components of working capital management have a positive relationship LTD. accordingly, the
findings of our results indicate that debt used by the firm are negatively associated with firm's
profitability. Results show that companies that have a low debt ratio tend to a shorter period to
keep over their inventory. Company will use the internal finance may earn the high profitability.

TITLE: A Study on Working Capital Management through Ratio analysis.
AUTHOR: Srinivas K T
VOLUME: VOL NO.2, ISSUE NO.12 ISSN 2277-1166
PUBLISH: National Monthly refereed Journal of Research in Commerce & Management
ABSTRACT
Working capital is nerve system of any business. Without proper working capital management
company cannot achieve its objectives and not possible to maintain financial soundness. So in
this perspective present study is undertaken to study working capital management through ratio
analysis at Karnataka Power Corporation limited. From the present study it is found that
company financial position was seeing to be sound because the company tries to increase its
production and also net profit.
OBJECTIVES OF THE STUDY
 To understand the concept of working capital and its importance
 To determine the amount of the working capital employed by KPCL
 To analyze the working capital management financial performance of the KPCL
 To offer suggestions based on findings of the study
Data Methodology
The collected data is analyses through ratio analysis and only important tables are used for data
discussion as per research need and which are taken for data analysis. To achieve the aforesaid

objectives data is gathered from secondary sources, like annual reports, journals, and related
other research papers.
FINDINGS OF THE STUDY
 Quick ratio is also higher than the standard of 1:1, which shows that the company has
good liquid position.
 Current ratio trend shows that the ratio is above the standards of 2:1. Based on this data,
liquid position of the company shall be considered as satisfactory.
 Creditors Turnover ratio and average payment period shows that the company is prompt
in its payments as and when due.
 The increasing trend in working capital turnover ratio indicates that low investment in
working capital relation to sales is required for the company.
 Increasing trend in total assets turnover ratio shows the off sales generated by the total
assets. The trend shows that the assets of the company are efficiently utilized to generate
sales.
 The Cash Turnover ratios of the company from past four years, i.e., 2008 – 2011, was
very low compared to current year, And there is a high growth in the cash turnover ratio
in the current year. But the company has to take some important measures to stabilize its
resources.
CONCLUSION
From the study it was also concluded that though the company’s earnings was increasing every
year, the company’s funds are not properly utilized. Therefore KPCL should try to improve its
financial positions in the coming years. At last it can be conclude that company financial position
was seeing to be sound because the company tries to increase its production and also net profit.

TITLE: MANAGEMENT OF INVENTORIES IN TEXTILE INDUSTRY:
A CROSS COUNTRY RESEARCH REVIEW
AUTHOR: Dr. Mohammad Shafi
VOLUME: VOl.2, NO.7, 2014
PUBLISH: SINGAPOREAN Journal Of business Economics, And Management Studies
ABSTRACT:
Inventory constitutes a major component of working capital. To a large extent, the success and
failure of a business depends upon its inventory management performance. The basic objective
of inventory management is to optimize the size of inventory in a firm so that smooth
performance of production and sales function may be possible at minimum cost. Galloping
inventories in recent years, the credit squeeze and the resultant general paucity of funds have
attracted the attention of planning elite on this crucial problem of inventories. Mismanagement of
inventories and absence of control systems have resulted in deplorable performance for some of
the industries in developing economies. Though, an abundance of literature, methods, models
and computer analysis have evolved from time to time and are highly availed of in the realms of
industrial settings with greater pay-off of quality, precision and non-blockade of working capital.
The paper is aimed to study how inventories in textile sector are managed across the globe. An
attempt will be made to summarize and present the theories, techniques and important concepts
of inventory management especially in textile sector. As Textile industries have been playing an
important role for the socio-economic development of any country. The paper will attempt to
unravel the research findings on management of Inventories in textile industry across the world.

Studying inventory management becomes all the more important in view of the fact that it is the
largest employer with a total workforce of 35 million. Moreover, the share of textiles in total
exports was 11.04 % during 2010. India is the world’s 2nd largest producer of textiles and
garments after China.
Objectives
 To make an in-depth research and literature review of inventory management systems
with special reference to Textile Industry.
 To examine the Inventory management systems presently prevalent in the textile industry
and to examine the weakness, if any.
Conclusion:
While going through the available literature it was found that almost each country that has a
growing textile sector is trying to tackle with the problem of deciding the efficient Inventory
level. Many researchers have shown interest in the field of inventory management and have
come up with beautiful work. As the field of inventory management is not very old, so many
aspects are yet believed to be explored. The textile sector is again a growing sector which gained
its importance in recent past. Not much amount of work has been done on this area of managing
inventories in Textile sector. So it leaves an ample scope for this study.

TITLE: Effects of Working Capital Management and Liquidity:
Evidence from the Cement Industry of Bangladesh
AUTHOR: SAYEDA TAHMINA QUAYYUM
VOLUME: Volume–VI, Number-01, January-June, 2011
PUBLISH: Journal of Business and Technology (Dhaka)
ABSTRACT:
This paper is an attempt to investigate the effects of working capital management efficiency as
well as maintaining liquidity on the profitability of corporations. For this purpose, corporations
enlisted with the cement industry of Dhaka Stock Exchange have been selected and the analysis
covers a time period from year 2005 to 2009. The purpose of this paper is to establish a
relationship which is statistically significant, the other purpose is to help explain the necessity of
firms optimizing their level of working capital management and maintaining enough liquidity as
it affects the profitability. The result of this study clearly shows significant level of relationship
between the profitability indices and various liquidity indices as well as working capital
components.
Data Collection
For the purpose of this study, secondary data have been collected and the data collected were
from listed firms in the Dhaka Stock Exchange. The reason for choosing this source is primarily
due to the better reliability of the financial statements. Due to time constraint, only cement
industry has been selected for the said research. The industry consists of five companies, due to
unavailability of one company all years secondary data, four companies were taken as sample;
this covers 80% of the population. The outliers had been adjusted to get better reliable result. The

duration covered in this study was from year 2005 to year 2009 for this analysis. Finally the
financial statements were obtained from the Dhaka Stock Exchange Library.
METHODOLOGY
The methodology of this study is to find out the dependency of profitability ratios over many
other working capital components and liquidity positions. To cover the liquidity position, few
cash position ratios have been considered along with traditional liquidity ratios. And for the
purpose of the analysis, regression has been conducted.
CONCLUSIONS AND RECOMMENDATIONS
This study finds a negative relationship between cash conversion cycle and profitability of the
Firm. This complies with the finding of Shin and Soenen (1998) and Lazaridis and Tryfonidis
(2006) and many others. This study extends the earlier said studies in the sense that this study
shows a strong positive relationship of profitability with the firms’ cash holding position along
with other indicators. And it also recommends that the firms should forecast their sales and hold
cash enough as according to their projected sales level, so that they be able to take advantage of
the bargaining position while making purchases and thus reduce cost. It is very clear that the
efficient management of working capital and liquidity has a positive effect on the firms’
profitability. So this study clearly asserts that, firms in the cement industry in Bangladesh have
enough scope to enhance their profitability by handling their working capital in more efficient
ways. Especially, the inventory turnover if handled efficiently can produce a significant positive
impact on profitability of the firm. Thus this study finds enough evidences that a firm is likely to
enjoy better profitability if the firm manages its working capital with better efficiency and
focuses on cash position with more care.

TITLE: Working Capital Management and Profitability: A Study on Textiles Industry
AUTHOR: Mohammad Morshedur Rahman
VOLUME: ASA University Review, Vol. 5 No. 1, January–June, 2011
Abstract
Textiles Industry plays a vital role in the socio-economic development of Bangladesh. But the
profitability of this industry is not satisfactory. This study is designed to show the Profitability
and Working Capital position of Textiles Industries, correlation between them and whether the
profitability is affected by Working Capital Management. Ratio Analysis, Correlation Matrix and
Regression Analysis have been used to show Profitability, Working Capital position, correlation
between them and the impact of Working Capital on Profitability respectively. For the source of
data the author mainly relied on Annual Reports and official records as well as primary data
collected through questionnaire. It is observed from the study that profitability and Working
Capital Management position of the Textiles Industry are not satisfactory. The study reveals that
correlation exists between Working Capital Management and Profitability. The study also brings
to fore that Working Capital Management has a positive impact on Profitability.
Objectives of the study
The major objective of the present study is to examine and evaluate the correlation between
Working Capital Management and Profitability in textile industry over a period of three years
from 2006-2008. The specific objectives of the study are as follows
 To examine the profitability position of the selected textiles industries.

 To examine the management of cash, inventory and accounts receivable of selected
textiles industries
 To assess the current liability positions and the efficiency with which the overall working
capital is being managed.
 To assess the relationship between working capital management and profitability.
 To suggest some measures for improvement in working capital management.
Methodology of the study
Data were obtained from a sample of 9 Textiles in Bangladesh. Moreover, the size of the
Textiles, availability of information, and year of establishment were also considered for selecting
the sample Textiles. The study covered a period of three years from 2005-06 to 2007-08. This
study was based on both primary and secondary data. The primary data were collected through
questionnaire survey with an object to know the real practices of working capital management in
Textiles of Bangladesh. The questionnaire was divided into four parts in accordance with the
major dimension of working capital management: Working Capital Management, Cash
Management, Inventory Management, Accounts Receivable Management and others. The
questionnaire had 41 questions, which were open and close ended in nature. Secondary time
series data were taken to see the profitability and the link between profitability and working
capital management. For that the published annual reports of the selected Textiles Mills Limited
for the study period were considered. Moreover extensive literature survey was done by
searching different libraries. The collected data were analyzed and interpreted with the help of
different financial ratios, statistical tools like Mean, Standard Deviation (S.D.), and Correlation
Coefficient etc. With the help of SPSS, Correlation Matrix and Regression analysis were also
forced out for analysis.

Findings
From the questionnaire indicate that the sample textiles have been inefficient in managing cash,
accounts receivable, inventories and accounts payables. The liquidity position of the selected
textiles is not satisfactory due to poor turnover of Current Assets, Inventory, Debtors and Cash
Balances. The collection of receivables is not good due to inefficient credit and collection policy.
The textiles should be cautious in formulating working capital policy.
Conclusion
Considering the coefficients and their significance level, it can be concluded that in Textiles
Industry, the nature of working capital policy (CA to Sales), financing of working capital (CL to
TA), inventory holding period (Inventory Turnover in Days), Accounts Receivable Collection
Period (Accounts Receivable Turnover in Days), Accounts Payable Period ( Accounts Payable
Turnover in Days), and Cash Conversion Cycle in Days play an important role in determining
textiles’ overall profitability Return on Total Assets (ROTA).
Correlation matrix: - positive co-relation between working capital efficiency & profitability
ratio of selected textile with some exceptions, where correlation is negative.
Profitability ratios: - the performance of selected textile under study period is not satisfactory.
Working capital ratios: - the working capital position is also not satisfactory.
Regression & Correlation analysis: - concluded that the poor management of working capital
is one of the important causes for poor performance or poor profitability position of the selected
textiles under study period.

TITLE: The Study of Working Capital Management as a Financial Strategy
(A Case Study of Nestle Nigeria PLC)
AUTHOR: OWOLABI, Sunday Ajao & ALAYEMI, Sunday Adebayo
VOLUME: Vol. 2 No. 4 [01-08] ISSN: 2047-2528
PUBLISH: Asian Journal of Business and Management Sciences
ABSTRACT
Working capital management as a financial strategy has its effects on liquidity as well as
profitability of the firm. In this study Nestle Nigeria Plc. was selected for a period of five years
from 2004-2009.The effect of different variables of working capital management including
current ratio and collection days on Gross profit movement co-efficient was used for analysis.
The results showed that there is a negative correlation (-0.67) between current ratio and
profitability. This means that as current ratio reduces, profitability of the firm will increase. On
the other hand the collection days was regressed against ROCE, this showed that there is
negative correlation between (0.43) collection days and ROCE. This indicates that as collection
days are reduced there will be increase in profitability. The firm should be aggressive in the
management of its working capital to improve profitability.
Objective of the study
The objective of this study is to carry out empirical investigation whether it is better to be
aggressive or conservative in formulating strategies for working capital management.

Methodology, sources of data and sampling design
The study employed the use of secondary data which is collected from the Report and Accounts
of Nestle Nig. Plc from 2005-2009 as published according to the regulation of the Companies
and Allied Matters Decree 1990 and other regulatory bodies. The collected data from this source
have been compiled and used with due care as per the requirement of the study. The choice of
secondary data is informed because data from such a source is free from bias, accurate and
provides opportunity for replication. The sampling method adopted for this study is purposeful
sampling.
Summary, recommendation and conclusion
The study investigated working capital management as a financial strategy for Nestle Nigeria plc
from 2005-2009. The relationship between working capital and profit before tax was examined
through regression model between working capital and profit before tax. It was discovered that
there is a negative relationship between working capital and profit before tax. The relationship
between collection days and turnover was also tested by regressing collection days against
turnover. It was discovered that there is a positive relationship between collection days and
turnover. The company must improve upon her working capital which is the life blood of any
organization. The poor management of working capital is reflected in poor current ratio of 0.99
against the industrial average of 2:1.

TITLE: “The relationship between working capital management and profitability
Of listed companies in the Athens Stock Exchange”
AUTHOR: Dr Ioannis Lazaridis MSc Dimitrios Tryfonidis
Online available at http://ssrn.com/abstract=931591
ABSTRACT
In this paper we investigate the relationship of corporate profitability and working capital
management. We used a sample of 131 companies listed in the Athens Stock Exchange (ASE)
for the period of 2001-2004. The purpose of this paper is to establish a relationship that is
statistical significant between profitability, the cash conversion cycle and its components for
listed firms in the ASE. The results of our research showed that there is statistical significance
between profitability, measured through gross operating profit, and the cash conversion cycle.
Moreover managers can create profits for their companies by handling correctly the cash
conversion cycle and keeping each different component (accounts receivables, accounts
payables, inventory) to an optimum level.

CHAPTER – IV
DATA ANALYSIS & INTERPRETATION

4.1. Analysis of Data
Liquidity Ratio:
Liquidity ratios measure the ability of a firm to meet its obligations. Liquidity of any business
organization is directly related with working capital or current assets and current liabilities of
that organization. In other words, one of the main objectives of working capital management is
keeping sound liquidity position.

Current Ratio:
The current ratio of company is a quick way to look at its current assets and current liabilities. It
is most widely used to make the analysis of short term financial position or liquidity of a firm.
Calculated as:
Current assets
=
Current Liabilities
CURRENT RATIO
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Current Assets 1139.71 1936.45 1540 1487.24 1585.59
Current Liabilities 458.06 2234.4 1907.76 2090.87 2270.23
Current Ratio 2.48 0.87 0.81 0.71 0.70
0.5
1
1.5
2
2.5
3
2009-10 2010-11 2011-12 2012-13 2013-14
2.48
0.87 0.81 0.71 0.70
VALUES
YEAR
Current Ratio
CurrentRatio

Interpretation:
 As we know the ideal current ratio for any firm is 2:1. During the year 2009-10 the
current ratio is 2.48. This depicts that company’s liquidity position is good.
 The current ratio of company decreased consistently from 2010-11 due to increase in
current liabilities.
 It shows that company isn’t running efficiently & can’t cover its current debt properly.
Quick Ratio:
The quick ratio measures a company’s ability to meet its short-term obligations with its most
liquid assets. The quick ratio is more conservative than the current ratio because it excludes
inventories from current assets. Inventories generally take time to be converted into cash, and if
they have to be sold quickly, the company may have to accept a lower price than book value of
these inventories.
Calculated as:
Quick assets
=
Current Liabilities
Quick assets = Current assets - Inventory

Interpretation:
 The Quick ratio of a company 0.84 in the year 2009-10, which it was fairly near the ideal
value of 1.1
 During the year 2012-13 the value of quick ratio has fallen to 0.17. As most of the current
assets are inventories.
 Quick ratio has been shown upward to 0.28 in the year 2013-14, which is positive sign
for company.
0.05
0.25
0.45
0.65
0.85
1.05
2009-10 2010-11 2011-12 2012-13 2013-14
0.84
0.24 0.25
0.17
0.28
Figure
YEAR
Quick Ratio
Quick Ratio
QUICK RATIO
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Quick Assets 383.08 555.37 481.74 364.27 636.87
Quick Ratio 0.84 0.24 0.25 0.17 0.28

ABSOLUTE LIQUID RATIO:
Even though debtors and bills receivables are considered as more liquid then inventories, it
cannot be converted in to cash immediately or in time. Therefore while calculation of absolute
liquid ratio only the absolute liquid assets as like cash in hand cash at bank, short term
marketable securities are taken in to consideration to measure the ability of the company in
meeting short term financial obligation.
Calculated as:
Absolute Liquid assets
=
Current Liabilities
ABSOLUTE LIQUID RATIO
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Absolute Liquid asset 26.07 15.87 58.82 18.98 158.65
Absolute Liquid Ratio 0.056 0.007 0.031 0.009 0.072

Interpretation:
 The Absolute liquid ratio during the year 2010-11 is found to be 0.007, which is below
the normal standard of 1:2 or 0.5:1.
 This is due to less cash and bank balance of the organization in comparison of current
liabilities.
 During the year 2013-14 the ratio has been shown upward and it’s 0.072 approx (7%)
which is good sign for Imperial Garments.
0.001
0.031
0.061
0.091
2009-10 2010-11 2011-12 2012-13 2013-14
0.056
0.007
0.031
0.009
0.072
VALUES
YEAR
ABSOLUTE LIQUID RATIO
Absolute liquid ratio

Inventory Turnover Ratio:
This ratio is important because total turnover depends on two main components of performance.
The first component is stock purchasing. If larger amounts of inventory are purchased during the
year, the company will have to sell greater amounts of inventory to improve its turnover. If the
company can't sell these greater amounts of inventory, it will incur storage costs and other
holding costs.
The second component is sales. Sales have to match inventory purchases otherwise the inventory
will not turn effectively. That's why the purchasing and sales departments must be in tune with
each other.
Calculated as:
COGS
=
Average Inventory
COGS = Opening stock + purchases + manufacturing expenses – closing stock
INVENTORY TURNOVER RATIO
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
COGS 1685.8 3286.03 2680.98 2116.05 3188.7
Average Inventory 311.56 463.04 600.79 571.68 461.2
Inventory Turnover Ratio 5.41 7.1 4.5 3.7 6.3

Interpretation:
 Higher the ratio more profitability the business would be. The ratio is joining the ability
of management with which it can move the stock.
 Inventory turnover ratio is highest in the year 2010-11 is 6.6 as compare to the other year.
 During the year 2012-13 the ratio is 3.7 but it increased 6.3 in the year 2013-14 which the
company can take positive sign.
Debtors Turnover Ratio:
This ratio shows the proportion of sales to average receivables. It shows the efficiency of
collection policy of the firm. It is also called account receivable turnover ratio. The receivables
turnover ratio is an activity ratio.
2
4
6
8
10
2009-10 2010-11 2011-12 2012-13 2013-14
5.8
6.6
4.5
3.7
6.3
VALUES
YEAR
Inventory Turnover Ratio
Inventory Turnover Ratio

Calculated as:
Sales
=
Debtors
DEBTORS TURNOVER RATIO
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Sales 2681.28 3777.15 4577.6 3318.67 4787.07
Debtors 144.79 360.52 253.19 162.01 211.04
Debtors Turnover Ratio 18.5 10.5 18.08 20.48 22.7
0
5
10
15
20
25
2009-10 2010-11 2011-12 2012-13 2013-14
18.5
10.5
18.08
20.48
22.7
VALUES
YEAR
Debtors Turnover Ratio
Debtors Turnover Ratio

Interpretation:
 In the year 2010-11 the ratio is 10.5 and then it consistently increasing which is not good
sign for company.
 It indicates weak collection policy of the firm
 During the year 2013-14 the ratio is 22.7 but in the previous years it was 20.48 so some
improvement is needed.
Creditors Turnover Ratio
A short-term liquidity measure used to quantify the rate at which a company pays off its
suppliers. The ratio indicates the velocity with which the creditors are turned over in relation to
purchases. It is also called account payable turnover ratio.
Calculated as:
Purchases
=
Creditors
CREDITORS TURNOVER RATIO
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Purchases 1247.03 2480.41 2289.34 1628.55 2081.90
Creditors 358.9 889.85 544.1 691.04 537.48
Creditors Turnover Ratio 3.5 2.8 4.2 2.4 3.9

Interpretation:
 Higher ratio of creditor turnover forces the company to check that payment is made with
in credit period properly or not.
 In the year 2011-12 the ratio is 4.2 which is higher than the previous year 2010-11.
 During the year 2013-14 the creditor’s turnover ratio is 3.9 as compare to 2012-13.
Working Capital Turnover Ratio:
A company uses working capital (current assets - current liabilities) to fund operations and
purchase inventory. These operations and inventory are then converted into sales revenue for the
company. The working capital turnover ratio is used to analyze the relationship between the
money used to fund operations and the sales generated from these operations.
0.2
1.2
2.2
3.2
4.2
5.2
2009-10 2010-11 2011-12 2012-13 2013-14
3.5
2.8
4.2
2.4
3.9
VALUES
YEAR

Calculated as:
Sales
=
N.W.C
-14
-10
-6
-2
2
6
3.93
-12.6 -12.4
-5.5
-7.1
Working Capital Turnover Ratio
2009-10
2010-11
2011-12
2012-13
2013-14
WORKING CAPITAL TURNOVER RATIO
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Sales 2681.28 3777.15 4577.6 3318.67 4787.07
Current Assets 1139.71 1936.45 1540 1487.24 1585.57
Net Working Capital 681.65 -297.95 -367.79 -603.63 -684.66
Working Capital Turnover Ratio 3.93 -12.6 -12.4 -5.5 -7.1

Interpretation:
 During the year 2009-10, the w.c turnover ratio has reached its peak value of 3.93 for the
company indicating an improved in working capital performance.
 Net working capital has decreased to negative consistency from 2010-11 due to increase
in current liabilities.
 Working capital turnover ratio values says that in the year 2009-10, the company earned
a good 3.93 sales revenue for every 1 spent on operations, and in the year 2013-14 it
was making mere -7.1 in sales revenue on every 1 spent on operations during the year.

4.1.2. Cash Conversion Cycle:
The cash conversion cycle (CCC or Operating Cycle) is the length of time between a firm's
purchase of inventory and the receipt of cash from accounts receivable. It is the time required for
a business to turn purchases into cash receipts from customers. CCC represents the number of
days a firm's cash remains tied up within the operations of the business. A cash flow analysis
using CCC also reveals in, an overall manner, how efficiently the company is managing its
working capital.
The cash conversion cycle is also referred to as the cash cycle, asset conversion cycle or net
operating cycle.
The cycle is composed of three main working capital components: Days Inventory Outstanding
(DIO), Days sales outstanding (DSO) and Days Payable Outstanding (DPO). The Cash
Conversion Cycle (CCC) is equal to the time it takes to sell inventory and collect receivables less
the time it takes to pay the company's payables:
Cash Conversion Cycle (CCC) = DIO + DSO – DPO
A short cycle allows a business to quickly acquire cash that can be used for additional purchases
or debt repayment. The lower the cash conversion cycle, the more healthy a company generally
is. Businesses attempt to shorten the cash conversion cycle by speeding up payments from
customers and slowing down payments to suppliers. CCC can even be negative; for instance, if
the company has a strong market position and can dictate purchasing terms to suppliers (i.e. can
postpone its payments).

Days Inventory Outstanding:
This ratio is also known as Days Inventory Outstanding. It tells how many days it takes to sell
the entire inventory. It measures the length of time on average between the acquisition and sale
of merchandise.
Calculated as:
Average Inventory
= x 365
COGS
Inventory Conversion Period
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Average Inventory 311.56 463.04 600.79 571.68 461.2
COGS 1819.03 3055.56 2680.98 2116.05 2888.44
Days/Year 365 365 365 365 365
DIO 62 55 82 99 58

Interpretation:
 The ICP has decreased to 55 days during the year 2010-11.
 The ICP has touched a peak of 99 days during the year 2012-13 as work in progress has
increased considerably.
 During the year 2013-14 ICP decreased to 58 days. This downtrend in ICP observed in
the year 2013-14 due to increase in sales.
30
50
70
90
110
2009-10 2010-11 2011-12 2012-13 2013-14
62
55
82
99
58
DAYS
YEAR
Inventory Conversion Period
DIO

Days Sales Outstanding:
This ratio also known as Days sales outstanding (DSO), shows how quickly a company converts
accounts receivable into cash. Account receivables count all customer credit obligations. While
cash-sales have a DSO of zero people do use credit extended by the company.
Calculated as:
Trade receivable
= x 365
Sales
Receivables Collection Period
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Accounts Receivables 144.79 360.52 253.19 162.01 211.04
Sales 2681.28 3777.15 4577.6 3318.67 4787.07
Days/Year 365 365 365 365 365
DSO 20 35 20 18 16

Interpretation:
 Receivable collection period has increased to 35 days during the year 2010-2011.
 The company could bring down the RCP to 16 days during 2013-14, thanks to sales
revenue during the year.
 This downtrend should be encouraged for higher profitability.
 The company was success in decreasing the RCP which represent sound collection policy
of the company.
10
15
20
25
30
35
40
2009-10 2010-11 2011-12 2012-13 2013-14
20
35
20
18
16
DAYS
YEAR
Days Sales Outstanding
DSO

Days Payable Outstanding:
This ratio is also known as Days Payable Outstanding. It tells how quickly a company is paying
its bills, how often their payables turn over during the year. If this can be maximized the
company holds onto cash longer.
Calculated as:
Trade Payables
= x 365
Purchases
PAYABLE DEFERRAL PERIOD
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Accounts Payable 358.9 889.85 544.1 691.04 537.48
Purchases 1247.03 2480.41 2289.34 1628.55 2081.90
Days/Year 365 365 365 365 365
DPO 105 131 87 155 94

Interpretation:
 The payable deferrals period has decreased to 94 days in 2013-14 form 155 days over
2012-13.
 The firm should aim to increase the payable deferrals period to the maximum extent
possible.
 It shows that reduction in the payment period is responsible for the credit worthiness of
the company.
20
70
120
170
2009-10 2010-11 2011-12 2012-13 2013-14
105
131
87
155
94
DAYS
YEAR
Days Payable Outstanding
DPO

Interpretation:
 During the year 2009-10 the CCC shows negative sign of -23. It may indicate that the
company is not paying creditors until customers pay.
 In the year 2010-11 the CCC is increased to -41 as from previous year’s figure, as the
days payable outstanding is increased to 131 days.
 There was a positive sign of cash conversion cycle which is 15 during the year 2011-12
this depicts that it taking more time to generate cash as compared to time required to
make payments.
 During the year 2013-14 the CCC shows negative sign of -20, as the payable deferral
period has decreased to 94 days from previous year’s figure of 155 days.
Cash Conversion Cycle
YEAR 2009-10 2010-11 2011-12 2012-13 2013-14
Sales 2681.28 3777.15 4577.6 3318.67 4787.07
COGS 1819.03 3055.56 2680.98 2116.05 2888.44
Inventories 756.63 1381.08 1058.26 1122.97 948.7
Accounts Receivables 144.79 360.52 253.19 162.01 211.04
Accounts Payables 358.9 889.85 544.1 691.04 537.48
Days/year 365 365 365 365 365
Inventory Conversion Period 62 55 82 99 58
Receivable Collection Period 20 35 20 18 16
Payable Deferral Period 105 131 87 155 94
Cash Conversion Cycle [CCC] -23 -41 15 -38 -20

4.1.3. SCHEDULE OF CHANGES IN WORKING CAPITAL
STATEMENT OF CHANGES IN WORKING CAPITAL
Effect on working capital
PARTICULARS
Amount[Lakhs]
2012-13
Amount[Lakhs]
2013-14 Increase Decrease
CURRENT ASSETS:
Inventories 1122.97 948.70 174.27
Trade Receivables 162.01 211.04 49.03
Cash & Cash equivalents 18.98 158.65 139.67
Short-term Loans & advances 43.92 45.02 1.1
Other current assets 139.34 222.16 82.82
Total C.A 1487.22 1585.57
CURRENT LIABILITIES:
Short term borrowings 1116.62 1387.72 271.1
Trade Payables 691.04 537.48 153.53
Other current Liabilities 230.84 287.49 56.65
Short term provisions 52.36 57.54 5.18
Total C.L 2090.8 2270.23
N.W.C= TCA-TCL -603.58 -684.66
Net decrease in working
capital 81.02 81.02
-684.66 -684.66 507.2 507.2

By going through the statement of changes in working capital the following results can be made:
 The total current assets of the year 2013-14 are increased to 1585.57 from a previous
year’s figure. 1487.22 with a percentage increase of 6.6%
 During the year 2012-13 the major portion of current assets goes to inventory 1122.97
which is 75.5%
 There is a tremendous increase in cash & cash equivalents 158.65 as compared to
previous year.
 The short term borrowings has shown increase to 1387.72 with a percentage increase of
24.2%
 As per the analysis, it is observed that, the ratio of increase of working capital is
drastically reduced than the previous years and the decrease sign of working capital is -
81.02 (2013-14) which has impacted the study increase of working capital & negatively
affected the profitability of the organization.
 It is found that the current liabilities figure is increased from the previous year. As a
result of which there is a net decrease (negative figure) in working capital during the year
2013-14.
 Some more emphasis can be given on current assets to increase its figure and to decrease
current liabilities figure as a result of which the figure of working capital can be
increased.

PARTICULARS
Amount[Lakhs]
2011-2012
Amount[Lakhs]
CURRENT ASSETS:
Inventories 1058.26 1122.97 64.71
Other current assets 139.34 139.4
Total C.A 1539.97 1487.22
Trade Payables 544.1 691.04 146.94
Total C.L 1907.76 2090.8
N.W.C= TCA-TCL -367.79 -603.58
capital 235.79 235.79
-603.58 -603.58 695.96 695.96

 The total current assets of the year 2012-13 is decreased to 1487.22 from a previous
year’s figure of 1539.97
 The total value of stores and spare is increased from the previous year’s figure.
 The cash and bank balances of the company have a decrease of 18.98 from the previous
year’s figure. Similarly the figure for loans and advances is also decreased to 43.92 from
the previous year’s figure of 169.9
 The other current assets like receivables are increased during the year 2012-13
 Due to decrease in the figure of cash & bank balances, loans & advances etc. there is a
clear sign of decrease in working capital
 It is found that the current assets figure is decreased from previous year’s figure &
current liabilities figure is increased from the previous year. As a result of which there is
a net decrease (negative figure) in working capital during the year 2012-13

PARTICULARS
Amount[Lakhs]
2010-2011
Amount[Lakhs]
CURRENT ASSETS:
Inventories 1315.49 1058.26 257.23
Short-term Loans &
advances 178.68 169.9 8.98
Other current assets
Total C.A 1796.56 1539.97
Trade Payables 802.32 544.1 258.22
Total C.L 2135.89 1907.76
N.W.C= TCA-TCL -339.33 -367.79
capital 28.46 28.46
-367.79 -367.79 376.56 376.56

 The total current assets of the year 2011-12 is decreased to 1539.97 from a previous
 During the year 2011-12 the cash & bank balances of the company have a increase of
43.08 which is amounted to 58.82
 The total current liabilities of the year 2011-12 are decreased to 1907.76 from a
previous year’s figure of 2135.89, but it is exceeded over current assets.
 As per the analysis, it is observed that, the ratio of increase of working capital is
drastically reduced than the previous years and the decrease sign of working capital is -
28.46 (2010-11) which has impacted the study increase of working capital & negatively
affected the profitability of the organization.

PARTICULARS
Amount[Lakhs]
2009-10
Amount[Lakhs]
CURRENT ASSETS:
Inventories 756.63 1381.07 624.45
Other current assets 140.88 143.72 2.84
Total C.A 1139.7 1992.61
Trade Payables 457.30 1788.09 1330.79
Provisions 0.76 0.86 0.1
Total C.L 458.06 1788.95
N.W.C= TCA-TCL 681.64 203.66
Net increase in working capital 477.98 477.98
681.64 681.64 1341.09 1341.09

 The total current assets of the year 2010-11 is increased to 1936.45 from a previous
 The major portion of total current assets goes to inventory and debtors during the year
2010-11.
 The cash and bank balances of the company have a decrease of 15.87 from the previous
year’s figure.
 The total current liabilities of the year 2010-11 are increased to 1788.95 from a
previous year’s figure of 458.06
 The current assets are excess over current liabilities.

CHAPTER – V
FINDINGS & SUGGESTIONS

5.1. FINDINGS
 The current ratio of the company is not satisfactory, the reason behind such that the
current liabilities exceed current assets. The standard current ratio in the year 2011-
12, 2012-13, 2013-14 situations is worst. It is not a good sign for the company.
 The Quick ratio of company is below standard of 1:1, this depicts that company relies
too much on inventories to pay its short-term liabilities.
 The company quickly converting DSO into cash, i.e. there is no problem. Thus, it
should be encouraged for higher profitability.
 The company has very low amount of cash, it can create problems in the future
payments of current liabilities.
 The Cash Conversion Cycle shows negative sign. It may indicate that the company is
not paying creditors until customers pay.
 The sales revenue has shown upward trend, it is a positive sign to sustain in the long-
run.
 The company has not a sufficient amount of working capital during the study period.
As company is showing decreasing trend of working capital, which shows that
company, kept its obligation for long time and less cash in hand to pay off its
obligations.
 The current liabilities have been increasing at an exponential rate during the years
analyzed, an effort should be made to keep the current liabilities under check and to
improve the levels of current assets.
 Working capital turnover ratio was negative. It slope downward and it was -12.6, -
12.4, -5.5, and -7.1 in 2010-11, 2011-12, 2012-13, 2013-14 respectively.

5.2. SUGGESTIONS
On the basis of data analysis on working capital management in Imperial garments, the following
suggestions arrived.
 In order to increase current ratio, current assets should be increased. If we looked into
detailed schedule of current assets then we can find out that major portion of current
assets is due to inventories.
 The company should aim to increase Days payable outstanding to the maximum extent
possible.
 Management should have an eye on quick ratio. It should be looked at with extreme care
& also implies that current assets are highly dependent on inventory.
 The company should try to maintain an optimum level of working capital in order to
improve upon the workings of the company.
 The company should try to reduce current liabilities, and should make an arrangement of
receivables and cash.
 The company should reduce inventory periods and try to delay payables because it will
provide them opportunities to invest in different profitable areas thus increasing the
firms’ profitability.
 The cash conversion cycle and its components can be used as indicators of performance
of the administration.
By adapting better management practices, the company may attain a sound financial position in
future and able to manage its working capital efficiently.

6. CONCLUSION
The study on working capital management conducted in GTN Engineering (India) LTD [unit-
Imperial garments] to analyze the working capital position of the company. The working capital
management contributes much in the overall management of the organization affairs, efficiency
of organization operations depends upon how it manages is short term business dealings.
Imperial garments didn’t manage the liquidity position of the company. But during this study the
situation of liquidity position was alarming due to increase in total current liabilities and decrease
in total current assets which led to decrease the net working capital of the company.
The unit has a large amount of man power, which it can aim to utilize in the best possible
manner. As the unit is not deprived of skilled labour, it should always aim to increasing the
profits of the firm.
There is an imbalance behavior of current assets and current liabilities of the company by which
the total working capital fluctuates every financial year. On the other hand, from the working
capital ratios it is clear that the working capital position is not satisfactory.

BIBILIOGRAPHY
Text Books
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2. Prasanna Chandra; “Financial Management Theory and Practice 7/e”, Tata McGraw-Hill
Publishing Company Ltd., New Delhi, 2008,
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Dimensions, Management Review, Narsee Monjee Institute of Management Studies
(NMIMS), Mumbai, pg 28-38
6. Lyroudi, K., & Lazaridis, Y. (2000). The cash conversion cycle and liquidity analysis of
food industry in Greece. Electronic version EFMA 2000 Athens from http:/ ssm.com/
Paper 236175.
7. Narashimha, M. S., & Murty, L. S. (2001). "Emerging manufacturing industry: A
financial Perspective", management reveiw.June, Page 105-112.
8. Lorenzo Preve, Virginia Sarria-Allende (2010), Working Capital Management, Financial
Management Association Survey and Synthesis Series, Oxford University Press.
9. Kaplan Schweser CFA 2013 Level 1 Study Notes, Book 3

GTN ENGINEERING (INDIA) LIMITED – (UNIT: IMPERIAL GARMENTS)
BALANCE SHEET AS AT 31st MARCH, 2014
NOTE 31st
March, 2014
( in Lacks)
31st
March, 2013
( in Lacks)
I. HEAD OFFICE FUNDS AND LIABILITIES
Head office Balance - Inter Unit Balances 1 534.39 386.17
Reserves and Surplus 2 (690.09) (583.82)
Non-Current Liabilities
Long Term Borrowings 3 303.01 555.02
Current Liabilities
Short term borrowings 4 1387.72 1134.73
Trade Payables 5 537.48 691.04
Other current Liabilities 6 287.49 212.73
Short term provisions 7 57.54 52.36
TOTAL 2417.57 2448.25
II. ASSETS
Non-Current Assets
Fixed Assets: 8
Tangible Assets 814.76 936.44
In Tangible Assets 1.27 1.52
Capital Work-in-Progress - 0.74
Long Term Loans and Advances 9 15.92 22.3
Current Assets
Inventories 10 948.7 1122.97
Trade Receivables 11 211.04 162.01
Cash & Cash Equivalents 12 158.65 18.98
Short-term Loans & Advances 13 45.02 43.92
Other Current Assets 14 222.16 139.34
TOTAL 2417.57 2448.25

NOTE
31st
March, 2013
( in Lacks)
I. HEAD OFFICE FUNDS AND LIABILITIES
Head office Balance - Inter Unit Balances 1 197.64
Long Term Borrowings 2 555.02
Current Liabilities
Short term borrowings 3 1116.62
Trade Payables 4 691.04
Other current Liabilities 5 230.84
Short term provisions 6 52.36
TOTAL 2448.25
II. ASSETS
Non-Current Assets
Fixed Assets: 7
Tangible Assets 936.44
In Tangible Assets 1.52
Capital Work-in-Progress 0.74
Long Term Loans and Advances 8 22.3
Current Assets
Inventories 9 1122.97
Trade Receivables 10 162.01
Cash & Cash Equivalents 11 18.98
Short-term Loans & Advances 12 43.92
Other Current Assets 13 139.34
TOTAL 2448.25

IMPERIAL GARMENTS LIMITED
NOTE
31st
March, 2012
( in Lacks)
31st
March, 2011
( in Lacks)
I. EQUITY AND LIABILITIES
Shareholder's Funds
Share Capital 1 2120.6 1920.6
Reserves and Surplus 2 (1355.6) (1249.7)
Long Term Borrowings 3 705.04 1040.57
Long Term Provisions 4 43.49 35.24
Current Liabilities
Short term borrowings 5 851.44 898.24
Trade Payables 6 680.02 889.85
Other current Liabilities 7 492.99 442
Short term provisions 8 27.76 4.31
TOTAL 3565.76 3981.08
II. ASSETS
Non-Current Assets
Fixed Assets: 9
Tangible Assets 1270.33 1460.01
Deferred Tax Assets 10 562.19 528.43
Long Term Loans and Advances 11 23.84 56.19
Current Assets
Inventories 12 1134.03 1381.08
Trade Receivables 13 329.64 360.53
Cash & Cash Equivalents 14 74.23 15.87
Short-term Loans & Advances 15 171.5 178.97
TOTAL 3565.76 3981.08

NOTE
31st
March, 2011
( in Lacks)
31st
March, 2010
( in Lacks)
SOURCES OF FUNDS
Shareholder's Funds
Loan Funds
Secured Loans 2 1895.96 1812.34
Unsecured Loans 3 234.57 351.51
TOTAL 4051.14 3584.46
APPLICATION OF FUNDS
Fixed Assets 4
Gross Block 2179.10 2117.3
Less: Depreciation 719.08 527.66
Net Block 1460.01 1589.64
Add: Capital work in Progress - 2.16
1460.01 1591.80
Deferred Tax Asset (Net) 528.42 394.93
Current Assets, Loans & Advances
Inventories 1381.07 756.63
Sundry Debtors 360.52 144.78
Cash & Bank Balances 15.87 26.07
Other Current Assets 143.72 140.88
Loans & Advances 91.43 212.23
1992.63 1139.73
Less: Current Liabilities & Provisions 6
Current Liabilities 1178.79 457.3
Provisions 0.86 0.76
1179.66 458.06
Net Current Assets 812.97 681.67
Profit & Loss Account 1249.73 916.05
TOTAL 4051.14 3584.46

NOTE
31st
March, 2010
( in Lacks)
31st
March, 2009
( in Lacks)
SOURCES OF FUNDS
Shareholder's Funds
Loan Funds
Secured Loans 2 1812.34 1882.12
Unsecured Loans 3 351.51 173.62
TOTAL 3584.46 3276.35
APPLICATION OF FUNDS
Fixed Assets 4
Gross Block 2117.3 2106.16
Less: Depreciation 527.66 344.14
Net Block 1589.64 1762.01
Add: Capital work in Progress 2.16 2.16
1591.80 1764.18
Deferred Tax Asset (Net) 394.93 261.13
Current Assets, Loans & Advances
Inventories 756.63 700.02
Sundry Debtors 144.78 146.33
Cash & Bank Balances 26.07 13.34
Loans & Advances 212.23 252.04
1139.73 1111.75
Less: Current Liabilities & Provisions 6
Current Liabilities 457.3 465.81
Provisions 0.76 0.77
458.06 465.58
Net Current Assets 681.67 645.16
Profit & Loss Account 916.05 605.87
TOTAL 3584.46 3276.35

STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31ST MARCH, 2014
Note
31st
March, 2014
( in Lacks)
31st
March, 2013
( in Lacks)
I. REVENUE FROM OPERATIONS 15
Revenue from Operations (Net) 4787.07 3318.67
II. OTHER INCOME 16 122.29 11.90
III. TOTAL REVENUE (I+II) 4799.36 3330.58
IV. EXPENSES:
Cost of Materials Consumed 17 2636.14 2064.33
Changes In Inventories of Finished Goods 18 187.18 33.79
Employee Benefits Expense 19 756.75 691.32
Finance Costs 20 282.12 295.94
Depreciation 136.32 171.97
Other Expenses 21 907.09 657.03
TOTAL EXPENSES 4905.62 3914.41
V. PROFIT/(LOSS) BEFORE TAX (III-IV) (106.26) (583.82)

Note
31st
March, 2013
( in Lacks)
I. REVENUE FROM OPERATIONS 14
Less: Excise Duty 3435.11
Revenue from Operations (Net) 116.43
3318.67
II. OTHER INCOME 15 11.9
III. TOTAL REVENUE (I+II) 3330.58
IV. EXPENSES:
Cost of Materials Consumed 16 2064.33
Changes In Inventories of Finished Goods 17 33.79
Employee Benefits Expense 18 691.32
Finance Costs 19 295.94
Depreciation 171.97
Other Expenses 20 657.03
TOTAL EXPENSES 3914.41
V. PROFIT/(LOSS) BEFORE TAX (III-IV) (583.82)

NOTE
31st
March, 2012
( in Lacks)
31st
March, 2011
( in Lacks)
I. REVENUE FROM OPERATIONS
Sales(Gross) 4959.29 3636.48
Less: Excise Duty 375.09 33.95
Sales(Net) 4584.2 3602.53
Sale of Services 42.99 19.38
Other Operating revenue 141.64 155.25
16 4768.83 3777.16
II.OTHER INCOME 17 5.01 11.88
III.TOTAL REVENUE (I+II) 4773.84 3789.04
IV.EXPENSES
Cost of Materials Consumed 18 2706.68 2490.49
Purchases of Stock-in-Trade 19 206.24
Changes In Inventories of Finished Goods 20 (77.08) (266.73)
Employee Benefits Expense 21 789.93 713.95
Finance Costs 22 296.66 258.15
Depreciation and Amortization Expense 192.81 191.43
TOTAL EXPENSES 4913.45 4256.21
V.PROFIT/(LOSS) BEFORE TAX (III-IV) (139.61) (467.17)
VI.TAX EXPENSE
Deferred Tax 33.76 133.49
VII.PROFIT/(LOSS) FOR THE YEAR (105.85) (333.68)
VIII. Earnings per equity share of face value
of 10 each. Basic & Diluted (in ) (0.94) (2.98)

PROFIT AND LOSS FOR THE YEAR ENDED 31ST MARCH, 2011
Note
31st
March, 2011
( in Lacks)
31st
March, 2010
( in Lacks)
INCOME
Sales 7 3777.15 2681.28
Other Income 8 11.88 0.95
Increase/ (Decrease) in stocks 9 266.72 36.25
TOTAL 4055.76 2718.48
Cost of Material 10 2145.60 1224.47
Personnel Expenses 11 713.94 593.25
Manufacturing Expenses 12 841.87 608.25
Sales& Distribution Expenses 13 173.40 190.2
Interest Charges 14 228.88 212.18
TOTAL 4522.06 3161.52
LOSS BEFORE TAX (466.30) (443.03)
Provision For Taxation
Wealth Tax 0.86 0.76
Deferred Tax (133.49) (133.8)
Taxation of earlier years - 0.18
LOSS AFTER TAX (333.67) (310.18)
Surplus/ (Deficit) brought forward from
previous year (916.05) (605.87)
Surplus/ (Deficit) carries to Balance Sheet (1249.73) (916.05)
Basic & Diluted EPS ( ) 16 (2.98) (3.02)

PROFIT AND LOSS FOR THE YEAR ENDED 31ST MARCH, 2010
Note
31st
March, 2010
( in Lacks)
31st
March, 2009
( in Lacks)
INCOME
Sales 7 2681.28 2238.65
Other Income 8 0.95 6.13
Increase/ (Decrease) in stocks 9 36.25 169.47
TOTAL 2718.48 2414.25
Cost of Material 10 1224.47 1184.44
Personnel Expenses 11 593.25 501.4
Manufacturing Expenses 12 608.25 450.6
Sales& Distribution Expenses 13 190.2 166.72
Interest Charges 14 212.18 153.52
Loss/ (Gain) on Forex Fluctuations 15.33 195.33
TOTAL 3161.52 2966.01
LOSS BEFORE TAX (443.03) (551.75)
Provision For Taxation
Fringe Benefit Tax 4.1
Wealth Tax 0.76 0.21
Deferred Tax (133.8) (162.69)
Taxation of earlier years 0.18 0.2
LOSS AFTER TAX (310.18) (393.4)
Surplus/ (Deficit) brought forward from
previous year (605.87) (212.46)
Surplus/ (Deficit) carries to Balance Sheet (916.05) (605.87)
Basic & Diluted EPS ( ) 16 (3.02) (4.47)

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