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PROJECT - REPORT
On
WORKING CAPITAL MANAGEMENT
At
BHIWANI TEXTILE MILL (UNIT OF GRASIM INDUSTRY).
Submitted towards the partial fulfillment of the requirement for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted by External GuideRAJNI KATARIA Mr. SURESH SARAFMBA (2006-08) (FINANCE MANAGER)
VAISH COLLEG OF ENGINEERING , ROHTAK
ACKNOWLEDGEMENT
The satisfaction and euphoria that accompany the successful completion
of any task would be, but incomplete without mentioning the people who made it
possible, whose constant guidance encouraging crowned my effort with success.
I would like to begin with a special note of gratitude and heartfelt
thanks to Mr. SURESH SARAF,(FINANCE MANAGER), who gave me the
opportunity to complete my summer project at Bhiwani Textile Mill ,Bhiwani
(Haryana), A unit of GRASIM INDUSTRY.
I am extremely grateful to the GENERAL MANAGER
MR.S.K.SHARMA for his constant encouragement and valuable suggestions
throughout my summer training and project for his cooperation extended to me.
I am extremely indebted to him for sharing his valuable time,
comments and encouraging suggestions which guided and inspired me
throughout the preparation of the project.
I express my special thanks to Mr. LALIT DUTT (HR Manager)for
giving me their valuable opinions time to time.
At last but not the least, I am very thankful to all the staff members of
Finance department also.
DECLARATION
I RAJNI, student of M.B.A. III Semester of VAISH COLLEGE OF
ENGINEERING (Affiliated to M.D University) hereby declare that the Summer
Training Report on “WORKING CAPITAL MANAGEMENT” of BHIWANI
TEXTILE MILL (GRASIM INDUSTRY) Is my original work and has not been
submitted by any other person.
I also declare that I have done my work sincerely and accurately even
then if any mistake or error had kept in it, I request the readers to point out these errors
and guide me to remove these errors in future.
Presentation Incharge Signature of the Candidate
PREFACE
Practical work experience is the integral part of individual learning. An individual who
is learning managerial concepts has to undergo this practical experience for being a
future executive.
Master of Business Administration is a two-year programme that inserts
management knowledge in an individual to make that individual completely
professional for which practical experience is must.
BHIWANI TEXTILE MILL (GRASIM INDUSTRY). is the market
leader in Textile industry. BTM offered me a project on Working Capital Management
to understand the current position through dates provided by them.
TABLE OF CONTENTS
Introduction
Research Methodology
Grasim Industry Ltd
An Overview of Grasim Industry
Characterstics of Grasim Industry
Mission
Values
Management Structure
Main Products of Grasim Industry
Main units of Grasim Industry
Bhiwani Textile Mill
About the Mill
Strategy & Philosopy of Company
Objective
SWOT Analysis of BTM
Organisation structure of finance
What can we do
What you can expect
WORKING CAPITAL AT A GLANCE
THEORTICAL ASPECTS OF WORKING CAPITAL MANAGEMANT
WORKING CAPITAL MANAGEMENT
RECEIVABLES MANAGEMENT
INVENTROY MANAGEMENT
CASH MANAGEMENT
ANALYSIS OF WORKING CAPITAL MANAGEMENT
COMPARATIVE P&L ACCOUNT
TREND ANALYSIS
CASH FLOW ANALYSES
RATIO ANALYSIS
FINDINGS AND CONCLUSIONS
LIMITATIONS
BIBLIOGRAPHY
GRASIM INDUSTRIES : AN INTRODUCTION
Grasim was incorporated on 25 August1947, exactly 10 days after India achieved
independence. Grasim is more than an Industrial enterprise. It is the symbol of
INDIA’S surge for economic and industrial liberation. Grasim is world largest
producer of viscose staple fiber and edible oil and textile production.
The organization BHIWANI TEXTILE MILLS is a unit of Grasim Industrial Ltd.
It’s Head Office at NAGDA (M.P.) and working office at Bhiwani . This mill is under
dynamic leadership of Mr. KUMAR MANAGLAM BIRLA.
This mill was under the inspiring leadership of Chief Operative Officer Mr. S.
Krishnamurthy along with modernization has successfully diversified its production to
synthetic blended fabric , which is modern trend , enjoy a very good reputation in
India as in modern trend . It got ISO 9002 for its quality and at present undertaking
W.C.M. (World Class Manufacturing) in the organization.
The company attained a consolidated revenue of Rs. 9410 crores , up by 20% and a net
profit of Rs. 1012 crores before diminution , mirroring a 33% surge.
2004-05 was a historic year for the company, as in this year company acquired a
controlling stake in Ultra Tech cement ltd , the erstwhile cement business of Larsen
& Toubro ltd(L&T). An all around growth with higher production, sales & realization
marked all its major businesses.
To become self sufficient in pulp , company has set up Greenfield pulp plants
globally and with the expansion of Brownfield plants(copper business) its capacity
stands doubled.
RESEARCH METHODOLOGY
When we talk of research methodology, we not only talk of the research methods but
also the comparison of the logic behind the methods, we used in this context of our
research study and explain why we are using a particular method or technique and why
using the others. Research methodology is a way to systematically solve the research
problem. It may be understood as a science of studying how research is done
systematically. In this, we study the various steps that are generally adopted by
researcher in studying his research problem along with the logic behind them.
“The present study is based upon the case study method of research to investigate
procedures at micro level”.
As the study is analyzing probing in nature, thus, entirely based on the secondary data
gathered through the annual reports of the industry. Therefore it provides a historical
perspective of decisions.
RESEARCH
Research refers to search for knowledge. Research is an original contribution to the
existing stock of knowledge making for its advancement. It is the pursuit of truth with
the help of study, observation, comparison and experiment. In short, the search for
knowledge through objective and systematic method of finding solution of the problem
is research. The advance learner’s dictionary of current English gives the meaning of
research “a careful investigation or inquiry especially through search for new facts in
any branch of knowledge”.
RESEARCH METHODS
Research methods may be understood as those methods/techniques that are used for
conduction of research. All those methods which are used by the researcher during the
course of studying his research problem, are termed as research methods . Keeping in
view, the research methods can be put into following three groups:
In the first group we include those methods which are concerned with the
collection of data. These methods will be used where the data already
available are sufficient to arrive at the required solution.
The second group consists of those statistical techniques which are used
to establish relationships between the data and the unknown.
The third group consists of those methods which are used to evaluate the
accuracy of the obtained results.
COLLECTION OF DATA
There are several ways of collecting the appropriate data which differ considerably in
context of money, cost, time and other sources at the disposable of the researcher.
There are two types of data:
Primary data
Secondary data
Primary data
Primary data are those which are collected afresh and for the first time, and thus
happen to be original in character. In case of descriptive research, researcher performs
survey whether sample survey or census survey, thus we obtain primary data either
through
Observation
Direct communication with respondent
Personal interview
Secondary data
Secondary data are those which have already been collected by someone else and have
already been passed through statistical process.
In this project report, both types of data have been used. Mainly, secondary data is
used such as annual reports of last two years of Grasim industries.
OVERVIEW OF GRASIM INDUSTRY
Established in 1947, Grasim Industries Ltd. Has displayed remarkable business
acumen to grow both vertically and horizontally. Grasim has tapped opportunities as a
result of its dynamic approach to emerge as a leading industrial giant of our country.
Today, it is more than an industrial enterprise, it is a symbol of India’s search for
economic and industrial liberalization.
The group of operates in the core sectors of iron, petroleum, fertilizers, cement,
chemicals and textiles. With a turnover of approximately of Rs. 6247.10 crore, the
group enjoys a pioneer status in numerous industrial disciplines such as viscose staple
fibre, rayon grade pulp, caustic soda, textiles, cement and sponge iron.
It try to a faster a simple corporate philosophy, that is to achieve perfection and
excellence in all spheres. Its tradition is that of innovation, dynamism and experiments.
Research and Development plays a vital role in its vertical and horizontal integration
programmes. It perfectly compliments its goals of leadership, quality and growth – its
aim to be best. Grasim has a strong presence in fabrics, synthetic yarns, worsted yarn
and is well known for its branded suiting Grasim and Graviera, made from different
blends of polyester and viscose. Its textile plants are located at Bhiwani in Haryana and
Malanpur in Madhya Pradesh. Fabric operations are centralised at Bhiwani with a
processing capacity of 17 million meters a year, while the Malanpur unit manufactures
worsted dyed yarn spun from 100 per cent merino wool along with polyester and other
blends.
The Grasim brand has differentiated itself as 'the power of fashion' with several
innovative fabrics such as, Uncrushables, Ice Touch, Purista and Clean Fab, Aquasoft
and E-Stretch. Grasim's strong nation wide retail network includes 110 exclusive
showrooms as well as another 200 wholesalers and 12,000 multi-brand outlets through
which it reaches its customers.
Grasim Industries Limited, a flagship company of the Aditya Birla Group, ranks
among India's largest private sector companies, with a turnover of Rs. 6247.10 crore
for FY 2005, with Grasim Textiles having a turnover of Rs. 250.00 crore.
Its premium brands, the 'Grasim' and 'Graviera' range of fabrics, have distinctively
positioned themselves as 'the power of fashion'.
Grasim has a strong presence in fabrics, synthetic yarns, worsted yarn and is well
known for its branded suiting Grasim and Graviera, made from different blends of
polyester and viscose. Fabric operations are centralized at Bhiwani with a processing
capacity of 17 million metres a year.
The Grasim brand has differentiated itself as 'the power of fashion' with several
innovative fabrics such as, Uncrushables, Ice Touch, Freedom, Venetia, Purista, Clean
Fab, and Aquasoft. Grasim’s strong nation wide retail network includes 60 exclusive
showrooms as well as another 200 wholesalers and 12,000 multi-brand outlets through
which it reaches its customers.
CHARACTERISTICS OF GRASIM INDUSTRIES
1. This is one of the ten largest private sector companies in the country.
2. It has a solid financial base.
3. A group of units producing various products.
4. The company is the domestic market leader & amongst the top two
producers in the world.
5. Accent is on accelerated growth and in each of its major businesses its
emphasis is on scaling up capacities and services.(Greenfield and
Brownfield)
6. India's largest and lowest-cost aluminium producer
7. Largest producer of white cement in India.
8. Fastest-growing copper company in Asia
9. World leader in viscose staple fibre
10. Leading private sector mutual fund and insurance company
11. Successful forays into software and BPO
12. World's largest single-location palm oil refinery
13. World's third largest producer of insulators
MISSION OF GRASIM
1) Education for all: to secure them a brighter future.
2) Sustainable Livelihood: through training and education for skill
development.
3) Health care and Hygienic living conditions.
4) Family Welfare
5) Restoring self esteem of the physically handicapped
6) Empowerment of Women
7) Community Development: holistic development of the community
including infrastructure
8) Espousal of social causes
VALUES
People contribute when they relate to an organization and they relate, when
they understand the organization . People understand an organization through
its values, by experiencing the culture that values create and by using the
systems and processes that values define . In large organizations , such share
understanding can not be created through leadership of individuals alone, it
requires leadership of principles , of beliefs , of conviction.
Integrity
Commitment
Passion
Seamlessness
Speed
These together constitute what we call our “Values”.
Integrity :- Acting and taking decisions in a manner that these are fair,
honest, following the highest standards of professionalism and are also
perceived to be so. Integrity for us means not only financial and intellectual
integrity, but in all other forms as are commonly understood.
Commitment :- On the foundation of integrity, doing whatever it takes to
deliver values to all stakeholders. In the process, taking ownership for our
own decisions and actions , those of our team and that part of the
organization that we are responsible for.
Passion :- A missionary zeal arising out of emotional engagement with the
organization that makes work joyful and inspires each one to give his or her
best.
Seamlessness :- Thinking and working together across functional silos,
hierarchies,businesses and geographies.
Speed :- Responding to internal and external customers with a sense of
urgency.
Management Team Of Grasim Industry
Board of Directors
Mr. Kumar Mangalam Birla, Chairman
Mrs. Rajashree Birla
Mr. M. L. Apte
Mr. B. V. Bhargava
Mr. R. C. Bhargava
Mr. Y. P. Gupta
Mr. Cyril Shroff
Mr. S. G. Subhrahmanyan
Mr. Shailendra K. Jain (Whole-time Director)
Mr. D. D. Rathi (Whole-time Director)
Mr. S. B. Mathur
Business Heads
Mr. Shailendra K. Jain, viscose staple fibre
Mr. Saurabh Misra, cement
Mr. Ravi Kastia, sponge iron
Mr. S. K. Saboo, textiles, spinning
Mr. Vikram Rao, textiles, fabrics
Mr. K. K. Maheshwari, chemicals
Whole-time Director and Chief Financial Officer
Mr. D. D. Rathi
Company Secretary
Mr. Ashok Malu
MAIN PRODUCTS OF GRASIM
1. Viscose staple fibre
2. Rayon grade pulp
3. Cement
4. Textiles
5. Sponge Iron
6. Chemicals
1.Viscose staple fibre :-
The Aditya Birla Group is the world's largest producer of VSF, commanding a 24 per
cent global market share. The company meets over 98 per cent of India's domestic
VSF requirements .
2.Cement:-
The Aditya Birla Group is the 11th largest cement producer in the world and the
seventh largest in Asia .
3.Sponge iron:-
It is the largest merchant producer of sponge iron in India.
4.Chemicals :-
Grasim has India's second largest caustic soda unit .
5.Textiles:-
Its premium brands, the 'Grasim' and 'Graviera' range of fabrics, have distinctively
positioned themselves as 'the power of fashion'.
All of Grasim's units have earned ISO 9002 and 14001 certifications.
Product quality, innovation and eco-friendliness are a hallmark of all the company's
divisions .
PREMIUM BRANDS OF GRASIM SUITING
UNCRUSHABLES PURISTA
CLEANFAB
ICETOUCH
FINESSE E-STRETCH
FREEDOM
GRASIM SUITING AND GRAVIERA SUITINGS
ICETOUCH
One of the most successful innovations of Grasim in the past couple of years is ‘ICE
TOUCH’. Ice Touch is a pioneer and continues to hold its preeminent position in
moisture management based products in India. This product is well accepted all over
India continues to be the market leader.
This product is based on Japanese technology. Grasim have collaborated to and
innovated its use on Polyester Viscose blended fabrics to adapt this product to the
Indian conditions and the Indian consumer.
The unique properties of ‘ICE TOUCH’ are its instantaneous absorption of water,
spreading of the same over a large surface area and its quick evaporation. When you
sweat the liquid is quickly absorbed by the fabric and evaporated. When this liquid
evaporates it takes heat from the inside of the fabric and thereby giving the wearer a
very cool feeling.
Ice Touch is a specially engineered product produced from selected fabric
constructions using innovative processing routines along with the aforesaid technology
to get a wonderful handle and feel coupled with the above properties. Ice Touch
provides cotton like comfort and PV like drape and wears properties.
In short ICE TOUCH is a unique range of fabrics possessing excellent handle, feel and
drape along with extraordinary moisture absorption and evaporation giving a very cool
and icy feeling.
CLEANFAB:-
CLEAN FAB is one of the most recent in-house innovations of Grasim Industries. This
is a functional Polyester Viscose blended fabric in which for the first time dust free and
soil free concept has been introduced. This fabric is ideally suited for the dusty
atmosphere and environment prevalent in most parts of the country for most of the
year.
Generally soiling and soil release is a serious problem when hydrophobic fibres (like
polyester) are blended with cellulosic fibres (like cotton , viscose etc.) since these
hydrophobic fibres attract soil to a greater extent and release the soil less readily
during laundering.
In short CLENFAB is the ultimate product in terms of giving good comfort along with
the soil prevention and easy soil release properties.
UNCRUSHABLES:-
Uncrushables is a low crush fabric, first winter poly-wool fabric with anti-wrinkling
quality to be launched in the industry.
While no fabric is ever 100% wrinkle free, Uncrushables is far superior to other
competitive products with better crease recovery. The fabric is easy to wash and care
of. Meant for the hard and rugged life indoors or outdoors, it is available in 15 colors.
FINESSE:– Fine Fabric for Fine People
One of the most comfortable trousers made out of fine yarn. The fabric has a finer
count which lends itself to luxurious feel and handle. It is ideal for night wear, party
wear and outdoors.
Finesse is very easy to maintain and can be washed easily and carries a very elegant
shape and drape all day long.
The fabric provides greater comfort like cotton and comes in some of the most exotic
colors blue, black, beige, limestone, graphite and grey.
MAIN UNITS OF GRASIM INDUSTRIES
Viscose Staple Fibre Nagda(M.P.)
Rayon Grade Pulp Mavoor(Kerela)
Hariar Poly Fibres Karnataka
Rayon Grade Caustic Soda Nagda (M.P.)
Vikram Cement Jawad (M.P.)
Vikram Iron &Steel (Sponge Iron) Maharashtra
Grasim cement Raipur (M.P.)
Graviera & Grasim Suiting Bhiwani (Hry.)
Elegent Spinners Bhiwani (Hry.)
Vikram Ispat Raigarh (M.P.)
Aditya Cement Shambhupura
Birla Telecom Ltd. & Birla Communication Ltd. Mumbai
Ultra Tech Cement South Hydrabad
BHIWANI TEXTILES MILLS
The erstwhile Punjab cotton Mills at Bhiwani in Haryana was taken over by Grasim
Industries 1964.Subsiquently, its product mix was changed from cotton to polyester/
viscose suiting. Today with a capacity of over 40,000 spindles and over 160 looms,
Bhiwani Textile Mills (BTM) caters to a large market in India. Its brand- Graviera
Suiting- is well-received in Middle East, South East Asia,Cyprus, latin America and
Mauritius as well. The first to introduce Synthetic Denims and Polyester Jute Suiting,
the Unit intends to diversify into fancy yarn spinning and blended design suiting
using fibres like silk, cotton , flax and jute. A leader in Yarn and fabric - right from
its inception- BTM's brands include ,Adonis, and Sumo.
Bhiwani Textiles Mill is equipped with
1. World Class spindles.
2. Dornier Looms( Gremany) and Sluzer Looms ( Switzerland ).
3.Computerised matching systems and sophisticated jet- dyeing machines in its
Processing Unit.
4. Computer Aided Design packages in its Fabric Developmnt Section.
BTM promotes the mega fashion event " Graviera Mr. India"- the winner of this
event participates in the spublicised event, it has provided a boost to the image of the
company's products.
5. It has Italian machinery for making perching and dying the cloth.
BTM also promotes the mega fashion event “GRASIM MR. INDIA”- the winner of
this event participates in the publicized event, it has provided a boost to the image of
the company’s products.
ORGANISATION STRUCTURE OF BTM
Unit headS Krishnamurthy
President
Head - finance & comm.A P Lohia
Vice President
I/c-FinanceS K Sharma
Gm
Head - MIS & Commercial
Vacant
Manager Singh Officer
R K Sharma Senior officer
Finance I/c
Shiva Kumar Senior
manager
S S Gupta Asst officer
S K Sharma Senior officer
V S Poonia Officer
R K Luharika Senior Officer
R K Singhal Officer
H R BahalOfficer
Legal Comp I/c Sanjay
Acharyya Dy Mgr
Sec Support P C Verghese
Sec Support K V Santosh Steno
Sales Accounting I/c M L
Himmatramka Dgm
S SharmaOfficer
S L guptaOfficer
Rajesh Sahal
Asst Officer
M L Mahansar
iaofficer
B K SharmaWcm Coordinator
Sushil JainAsst
Officer
In Charge MIS Ajay Popli
Senior Officer
Section In Charge
MIS O P Khedle
Sr. Officer
V K MalaniSr. officer
N acharyaAsst officer
Accounts I/c B L Bagla Manager
Insurance Suresh AgarwalDeputy Manager
Finance I/c Suresh Saraf
Manager
P L Jain Officer
U N DubeyOfficer
STRATEGIES OF BTM
Strategies are key to achieve objective. Every company must have a set strategies
through which it achieves its objective. B .T.M. has also its well defined strategies
which is Implemented in all the three levels . The strategies are :-
World Class Manufacturing
Birla Management Centre
Quality Circles
5-S ( a house keeping practice )
Total Quality Management (TQM)
Participative Management
1. WORLD CLASS MANUFACTURING(WCM)
In order to delight customers, employees, stakeholders and to become a
Successful competitor in global market, Aditya Birla Group has evolved and
promoted this top rank methodology of W.C.M. to sustain excellence in
company wise performance. This is multidimensional viz. waste elimination,
5-S, JIT, TPM System & Cash Flows.
2. BMC (Birla Management Centre)
Philosophy behind its logo: The philosophy of BMC is beautifully captured
in its symbol.
The logo has been designee to reflect concept of group dynamics and group
Synergy, six symbolic person, one is dark blue and five is light blue denote
one group, all fusing their energies and knowledge to form a strong nucleus.
3.Quality Circles
Quality is match word of the unit. It is not imposed by checks and counters
Checks. It is a part of total manufacturing system. Quality is first parameter.
Again in order to maintain a superior quality of the product various
Management practices and being carries out by top management. Quality
Circles meetings have been formed by the top management with a view to
Increase the involvement and responsibility in their individual work areas.
After completion of the Project, award by way of recognition are given to all
The quality cirles team members.
4.5-S (a house-keeping management)
Good quality management producers can prosper only in clean and serene
Atmosphere an so the top management at BTM have implemented the 5-S
Technique (related to the wok environment):
Seiri Sorting out unnecessary items.
Seiton Systematizing necessary items.
Seison Sweeping of work place and machines.
Seiketsu Sanitizing.
Shitsuke Self disciplining.
5.TQM(TOTAL QUALITY MANAGEMENT)
Today’s executive view the task of improving product and service quality as
Their top priority. Most customers, whether they are internal or external will
No longer accept average quality performance. If company wants to stay in
They have no choice but to adopt TQM.
Because of this strong quality consciousness of BTM ,in 1994 Graviera was
awarded the prestigious ISO 9002 so certification. Each process from buying the
Fibre to the finished fabric monitored by the computerized machines, highly
observant workers and technicians.
OBJECTIVES OF THE COMPANY
Objectives establish the goals and the aims of the business and determine the shape of
future events. Objectives are the way of achieving motives for profit of social service.
Main objectives of Bhiwani Textile Mills as in its Memorandum of Association are:
Increasing productivity of work force
To introduce new products and create new markets
Customers service and customer satisfaction
Improving work culture among the employees
Capitalizing on company strength and use of corporate assets
Continuous innovation
To provide a growth rate of about 10% p.a.
Improve the advertising effectiveness
To ensure that a large proportion of its sales is directed towards the sectors and
urban sectors
SWOT ANALYSIS OF BTM
Strengths of BTM
1. BTM is a composite firm in Haryana.
2. BTM is a financially sound firm.
3. Working environment is peacefully (Union is strength principle
is followed)
4. Facilities given to employees & employers on time and upto date.
5. Product quality is given equally to all (Wholesaler, Retailers)
Weaknesses of BTM
1. Basic salary structure is not up to date some manipulations are needed
2. Not sufficient facilities are given employers & employees
.
Opportunities for BTM
1. Given chance to Grasim to make & sale its product providing them manpower,
machine , money , market , material
2. In near future they will start readymade garments
Threats to BTM
1. BTM face threats from its competitors like Vimal , ocm , Siyaram , Raymonds
2. BTM face in overseas market like Phillipines , Malaysia , Canada , Mexico ,
America
WHAT CAN WE DO
a) Sampling
b) Seeding
c) Perfecting a new product
d) Trade and / or Consumer Research
e) Launch of new products
f) Co-Branding
g) Joint Promotion
h) Sharing Distribution
WHAT CAN YOU EXPACT
Under this our partners can expect / avail of the following support services from
Birla Viscose.
a. Yarn Logistic support: A good quality viscose or viscose blended yarn can
be made available from a good spinning mill with in time.
b. Technical support: Viscose based processing support through manuals is
available on a case-to-case basis. Physical demonstration at select process
houses is also carried out for the benefit of the knitters and pocessers.
c. Design and Development support: We have an application development
center at TIT & S; Bhiwani, where we keep on developing new product
and concepts.
d. Marketing Support: To tie up spinners/ knitters/showcase.
WORKING CAPITAL AT A GLANCE
INTRODUCTION
TYPES
FEATURES
DETERMINANTS
COMPONENTS
WORKING CAPITAL CYCLE
INTRODUCTION
A successful sales program is necessary for earning profits by any
business enterprise. Sales don’t convert into cash instantly. There is a time lag between
the sale of goods and receipt of cash.
Therefore, there is a need for working capital in the form of current assets
to deal with the problem arising out of the lack of immediate realization of cash against
goods sold. Therefore sufficient working capital is necessary to sustain sales activity.
Defination of Working Capital:-
According to C.W. Gestenbergh-
“Working capital is ordinarily defined as the excess of the current assets over
current liabilities”.
According to Lawrence. J. Gitmen
“The most common defination of working capital is the difference of the
firm’s current assets and current liabilities.”
Defination of working capital management:-
“Working capital management involves the relationship between a firm's short-term
assets and its short-term liabilities. The goal of working capital management is to
ensure that a firm is able to continue its operations and that it has sufficient ability
to satisfy both maturing short-term debt and upcoming operational expenses. The
management of working capital involves managing inventories, accounts receivable
and payable, and cash.” -From WWW.STUDYFINANCE.COM
Management of working capital
Guided by the above criteria, management will use a combination of policies and
techniques for the management of working capital. These require managing the current
assets - generally cash and cash equivalents, inventories and debtors. There are also a
variety of short term financing options which are considered.
Cash management – identify the cash balance which allows for the business to
meet day to day expenses, but reduces cash holding costs
Inventory management - identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials and hence
increases cash flow; see Just In Time (JIT) and Economic order quantity (EOQ).
Debtors management - identify the appropriate credit policy, i.e. credit terms
which will attract customers, such that any impact on cash flows and the cash
conversion cycle will be offset by increased revenue and hence Return on
Capital (or vice versa); see Discounts and allowances.
Short term financing - inventory is ideally financed by credit granted by the
supplier; dependent on the cash conversion cycle, it may be necessary to utilize
a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".
TYPES
Working capital can be classified either on the basis of concept or on
the basis of periodicity of its requirement.
1) ON THE BASIS OF CONCEPT
On the basis of concept working capital is of 2 types.
A) Gross working capital - Gross working capital is represented by the total Current
assets.
Gross working capital = Total current assets
B) Net working capital - Net working capital is the excess of current assets over
current liabilities.
Net working capital = Current assets – Current liabilities
2) ON THE BASIS OF REQUIREMENT
On the basis of requirement working capital is also of 2 types.
A) Permanent working capital - It is that amount of investment which should
always be there in the fixes or minimum current assets like inventory, accounts
receivables or cash balance etc. to carry out business smoothly. Such an amount
cant be reduced if the firms wants to carry on business operations without
interruption.
B) Variable working capital - The excess the amount of working capital over
permanent working capital is known as variable working capital. It may also be
subdivided into two parts.
a) Seasonal working capital - Such capital is required to meet out the
seasonal demands of busy periods occurring at stated intervals.
b) Special working capital - Such capital is required to meet out the extra-
ordinary needs for contingencies. Events like strike, fire, unexpected
competition, rising price tendencies, or initiating a big advertisement
campaign require such capital.
FEATURES
1) Working capital is regarded as the excess of current assets over current liabilities.
2) Working capital indicates circular flow of funds in the day-to-day activities of
business. That’s why it is also called circulating capital.
3) Working capital represents the minimum amount of investment in raw materials,
work-in progress, finished goods, stores and spares, accounts receivables and cash
balance.
DETERMINANTS
1) Nature of business – The effect of the general nature of the business on working
capital requirements can’t be exaggerated. Rail, roads and other public utility
services have large fixes investment so they have the lower requirements of
current assets. Industrial and manufacturing enterprises, on the other hand,
generally require a large amount of working capital.
2) Production policies – if the production is evenly spread over the entire year,
working capital requirements are greater, because the inventories will be
unnecessarily accumulated during of season period. But if the production
schedule favours a varying production plan as per the seasonal requirements,
working capital is required to a greater extent during a specified season only. The
production policies are affected by so many factors availability of raw materials,
labour, stocking facility etc & therefore, whatever the productions policies are,
the firm has to arrange its working capital requirements accordingly.
3) Proportion of the cost of raw materials to total cost - In those industries where
cost of proportion is a large proportion of total cost of the goods produced,
reqirements of working capital will be comparatively large.
4) Length of period of manufacturing – The time which elapses between the
commencement and end of the manufacturing process has an important bearing
upon the requirements of working capital. The manufacturing cycle may be
shorter for certain concerns & longer for others- it depends on the type of the
product to be manufactured, work to be done through machine labour & hand
labour, degree of rationalization of manufacturing procedures through times,
motion & fatigue studies etc.
5) Terms of purchase - If suppliers allow continuous credit, payment can be
postponed for some time and can be made out of the sale proceeds of the goods
produced. In such a case, the requirements of working capital will be reduced.
6) Dynamic Attitudes – As a company grows, it is logical to expect the large
amount of working capital will be required.
7) Business cycles – Requirement of working capital also varies with the business.
When the price level is up due to boom conditions, the inflationary conditions
create demand for more working capital. During depression also a heavy amount
of working capital is needed due to the inventories being locked unsold and book
debts uncollected.
8) Requirement of cash - The working capital requirements of a company are also
influenced by the amount of cash required by it for various purposes. The greater
the requirement of cash, the higher will be the working capital needs of the
company.
9) Dividend policy of concern – If the management follows a conservative dividend
policy the needs of working capital can be met with the retained earnings. The
relationship between dividend policy and working capital is well established and
mostly companies declare dividend after a careful study of their cash
requirements
10) Other Factors - Other factors, which affect the requirement of working capital,
are lack of co-operation in production and distribution policies, transport and
communication facilities, the fiscal and tariff policies of the government etc.
COMPONENTS
Main components of working capital are as follows:
1) Cash – Cash is the most liquid and important component of working capital.
Holding cash involves cash in the sense that the present worth of cash held for a
year is less than the value of cash on today. During inflationary situations as exist
today the cost of holding includes the deterioration in the value of the cash due to
inflation. Cash, therefore, results in enhanced liquidity, but lower profitability.
Despite in the cost involved it is pertinent to hold cash because it facilitates the
attainment of some important motives.
2) Marketable Securities – Though marketable securities provides a such lower
yield that the firm’s operation assets. They serve two useful functions. Firstly,
they act as a substitute for cash, and secondly, are used as temporary investment.
Where these securities are held in lieu of the cash balance, they act as a substitute
for transactional or precautionary balances. Normally, these aren’t used as
speculative balances, but only as a guard against the possible shortage of bank
credit.
Marketable securities (as temporary investment) may be held for one of the
following reasons:
Seasonal or cyclical operations
To meet known financial requirements. Construction of an additional
plant.
Immediately after the sale of long-term securities.
3) Account Receivable - Though accounts receivable are a vital investment of any
business organization, little analytical work as been done to determine credit
policies. Maintaining account receivable has its cost implications in that the
firm’s monetary resources are tied up. This is of greater significance in the
inflationary economy, because of the depreciation in the value of money.
Basically, this is a two-step account. When goods are shipped, inventories are
reduced and accounts receivable is created. When payment is made, this account
is reduced and the cash level increases. Accounts receivables are, therefore a
function of the volume of credit sales and the average length of time between
sales and collections.
4) Inventory – Inventories represent a substantial amount of a firm’s current assets.
Management of inventories should be efficiently carried out so that this
investment doesn’t become too large, as it would result in blocked capital which
could put to productive use elsewhere. On the other hand, having too small an
inventory could result in loss of sale or loss of customer goodwill. An optimum
level of inventory should therefore be maintained.
WORKING CAPITAL CYCLE
Working capital cycle indicates the length of time between a firm’s
paying for materials entering into stock and receiving the cash from sale of finished
goods. In a manufacturing firm, the duration of time required to complete the sequence
of events is called operating cycle.
In case of a manufacturing company, the operating cycle is the length of
time necessary to complete the following cycle of events: -
1) Conversion of cash into raw materials
2) Conversion of raw materials into work-in-progress
3) Conversion of work-in-progress into finished goods
4) Conversion of finished goods into accounts receivable
5) Conversion of accounts receivable into cash
The above operating cycle is repeated again & again over the period depending upon
the nature of the business & type of product etc. the duration of the operating cycle for
the purpose of estimating working capital is equal to the sum of duration allowed by
the suppliers.
Working capital cycle can be expressed as: R+W+F+D-C
Where R=Raw Material Storage Period = Avg. Stock of Raw
Material / Avg. Cost of Production per day
W=Work in Progress Holding Period = Avg. Work in Progress
Inventory /Avg. Cost of Production per day
F=Finished Goods Storage Period = Avg. Stock of Finished
Goods / Avg. Cost of Goods Sold per day
D=Debtors Collection Period = Avg. Book Debts/
Avg. Credit Sales per day
C=Credit Period Availed = Avg. Trade Creditors/Avg.
Credit Purchases per day
OPERATING CYCLE OF MANUFACTURING BUSINESS
REALIZATION Accounts SALES
Receivables
Cash Finished Goods
PURCHASES PRODUCTION PRODUCTION PROCESS
Raw Materials Work-in-Process PROCESS
THEORTICAL ASPECTS OF WORKING CAPITAL MANAGEMANT
WORKING CAPITAL MANAGEMENT
NATURE OF WORKING CAPITAL MANAGEMENT
Composition of
Level of Current
Liabilities
Working capital management is three dimensional in nature-
1) It is concerned with the formulation of policies with regard to profitability, liquidity and risk.
2) It is concerned with the decisions about the composition and level of current assets.
3) It is concerned with the decisions about the composition and level of current liabilities.
GOAL OF WORKING CAPITAL MANAGEMENT
Composition of Level
of Current Assets
Policies regarding to Profitability
Liquidity and Risk
Working capital management is concerned with the problems that arise in
attempting to manage the current assets, the current liabilities and the interrelationship
that exists between them.
The term current assets refer to those assets which is the ordinary course
of business can be converted into cash within one year. Major current assets are cash,
marketable securities, accounts receivable and inventory.
Current liabilities are those liabilities, which are intended, at their
inception, to be paid in the ordinary course of business within a year, out of the current
assets or earnings of the concern. Current liabilities are accounts payable, bills payable,
bank overdraft, and outstanding expenses.Working capital is that portion of firm’s
assets which is financed by long-term funds.
Interaction between current assets and current liabilities is the main theme
of the theory of working capital management.
Goal of working capital management is to manage the firm’s current assets and
liabilities in such a way so that a satisfactory level of working capital is
maintained.
The second important segment of working capital management is deciding the
optimum level of investment in various current assets. There are three important
current assets cash, accounts receivables and inventory
RECEIVABLES MANAGEMENT
INTRODUCTION
The term receivable is defined as “debt owed to the firm by customers
arising from sale of goods or services in the ordinary course of business”. When a firm
makes an ordinary sale of goods or services and doesn’t receive payment, the firm
grants trade credit accounts receivable, which could be collected in the future.
Receivables Management is also called trade credit management.
OBJECTIVE
The objective of receivables management is “to promote sales and
profits until that point is reached where the return on investment in further funding
receivables is less than the cost of funds raised to finance that additional credit”.
BENEFITS
Investments in receivables involve both benefits and costs. The extension
of trade credit has a major impact on sales, costs and profitability. Other things being
equal, a relatively liberal policy and, therefore, higher investments in receivables, will
produce larger sales. However, costs will be higher with liberal policies than with more
stringent measures.
Therefore, accounts receivables management should aim at a trade-off
between profit (benefit) and risk (cost).
CREDIT POLICY
The credit policy of a firm provides the framework to determine:
1) Credit standards
2) Credit terms
3) Credit Analysis
Credit Standard
The term credit standards represent the basic criteria for the extension of
credit to those customers to whom goods could be sold on credit. If a firm has more
slow-paying customers, its investment in accounts receivables will increase. The firm
will also be exposed to higher risk of default.
Credit Terms
Credit terms specify duration of credit and terms of payment by
customers. Investment in accounts receivables will be high if customers are allowed
extended time period for making payments.
Credit Analysis
Credit analysis and investigation is an aspect of credit policies of a firm.
Two basic steps are involved in the credit investigation process:
A. Obtaining credit information
B. Analysis of credit information
It is on the basis of credit analysis that the decisions to grant credit to a
customers as well as the quantum of credit would be taken.
INVENTORY MANAGEMENT
INTRODUCTION
Inventories constitute the principal item in the working capital of the
majority of trading and industrial companies. In inventory we include raw
materials, finished goods, work-in-progress, supplies and other accessories. To
maintain the continuity in the operations of business enterprises, a minimum stock
of inventory is required.
Management of inventory is designed to regulate the volume of investment in
goods on hand and the types of goods carried in stock to meet the needs of production
and sales while at the same time, the investment in them is to be kept at a reasonable
level.
CONCEPT
The inventory management” is used in two ways- Unit Control and Value
Control. Production and purchase officials use this word in term of unit control
whereas in accounting this word is used in term of value control .Investment in
inventory is one the largest asset item of business enterprises particularly those
engaged in manufacturing.
The proper management and control of the capital invested in the
inventory should be the prime responsibility of accounting department because
resources invested in inventory aren’t earning a return for the company. Rather, on the
other hand, they are costing the firm money both in terms of capital costs being
incurred and loss of opportunity income that is being foregone.
OBJECTIVES
The basic managerial objectives of inventory control are two-
1) The avoidance of over-investment or under-investment in inventories.
2) To provide the right quantity of standard raw material to the production department
at the right time.
TECHNIQUES OF INVENTORY CONTROL
1) The Selective Inventory Control or ABC System of Control
2) Maximum Stock Limit
3) Minimum Stock Limit
4) Re-ordering Level
5) Economic Order Quantity
ABC System of Control
The various inventory items are, according to this system, categorized into three
classes-
I. AII. B
III. C
The item included in-group involve the largest investment. Therefore,
inventory control should be the most rigorous and intensive and the most
sophisticated inventory control techniques should be applied to these items. The C
group consists of items of inventory which involve relatively small investments
although the numbers of items is fairly large. These items deserve minimum
attention. The B group stands midway. It deserves less attention than A but more
than C. It can be controlled by employing less sophisticated techniques.
Maximum Stock Limit
This represents the quantity if inventory above which it should not be allowed to be
kept. The following formula may be applied to calculate the maximum stock-
Maximum Stock = Reorder Level – Minimum Consumption during
Minimum Lead Time + Lot Size.
Minimum Stock Limit
This represents the quantity below which stock should not be allowed to fall.
The main purpose of this level is to ensure that production isn’t held up due to
storage of any material.
Minimum Stock Limit = Re-order Level – Normal storage during Lead Time
Re- Ordering Level
It is the point at which if stock of the material in store reaches, the
storekeeper should initiate the purchase requisition for fresh supplies of the material.
This level is fixed somewhere between the maximum and minimum levels in such a
way that the difference of quantity of the material between the reordering level and the
minimum level will be sufficient to meet requirements of production upto the time of
fresh supply of the material.
The reorder point = Lead time in days * Average daily usage of inventory
Economic Order Quantity
It is the quantity of inventory, which can be reasonably ordered at a time
and purchased economically. It is also known as Standard Order Quantity or Economic
Lot Size. By definition “Economic Order Quantity is that size or order at which the
total cost of ordering and holding are the minimum.
In determining the economic order quantity the problem is one to set a
balance between two opposing costs, namely, namely ordering costs and carrying
costs. The ordering costs are basically the costs of getting an item into the firm’s
inventory.
Carrying costs, sometimes also known as holding costs are the costs of
possessing the materials. These costs are combined known as “Associated Costs”.
Hence, the management tries to reconcile them and this reconciliation
point is economic order quantity.
OBJECTIVES OF THE STUDY
To study the various proportions of working capital of Grasim industries.
To find out different ratios related with working capital.
To check the impact of cash flows on working capital of Grasim industries.
To know the current trend of Assets and Liabilities.
METHODS OF WORKING CAPITAL ANALYSIS
There are so many methods for analysis of financial statements but BHIWANI
TEXTILE MILL used the following techniques:-
Comparative size statements
Trend analysis
Cash flow statement
Ratio analysis
A detail description of these methods is as follows:-
COMPARATIVE SIZE STATEMENTS:-
When two or more than two years figures are compared to each other than we called
comparative size statements in order to estimate the future progress of the business,it is
necessary to look the past performance of the company.These statements show the
absolute figures and also show the change from one year to another .
Benefits of this method to the BTM:-
To indicate the trends,these statements show the change in production, sales, and
expenses.
To make the data simple and more understandable.
TREND ANALYSIS:-
To analyse many years financial statements BTM uses this method.This indicates the
direction on movement over the long time and help in the financial statements.
Procedure for calculating trends:-
1. Previous year is taken as a base year.
2. Figures of the base year are taken 100.
3. Trend % are calculated in relation to base year.
Benefits :-
It is beneficial to find out the long run changes .
It is helpful in future forecasting.
CASH FLOW STATEMENT:-
Cash flow statements are the statements of changes in the financial position prepared
on the basis of funds defined in cash or cash equivalents. In short cash flow statement
summaries the cash inflows and outflows of the firm during a particular period of time.
Benefits for the BTM:-
To prepare the cash budget.
To compare the cash budgets .
To show the position of the cash and cash equivalents.
RATIO ANALYSIS:-
Ratio analysis is the process of the determining and presenting the relationship of the
items and group of items in the statements .According to Batty j. management
accounting “Ratio can assists management in its basics functions of
forecasting ,planning,coordination,control and communication”.
Benefits of ratio analysis to BTM:-
1. Helpful in analysis of financial statements.
2. Helpful in comparitive study.
3. Helpful in locating the weak spots of the BTM.
4. Helpful in forecasting.
5. Estimate about the trend of the business.
6. Fixation of ideal standards.
7. Effective control.
8. Study of financial soundness.
Types of ratio:-
Liquidity ratio: They indicates the firms ability to meet its current obligation
out of current resources.
Current ratio:- Current assets / Current liabilities
Quick ratio:- Liquid assets / Current liabilities
Liquid assets =Current assets – Stock -Prepaid expenses
Leverage or Capital structure ratio: This ratio discloses the firms ability to
meet the interest costs regularly and long term solvency of the firm.
Debt equity ratio:- Long term loans / Shareholders funds or net
Worth
Debt to total fund ratio:- Long terms loans/ share holder funds
+long term loan
Proprietary ratio:- Shareholders fund/ shareholders fund+long
term loan
Activity ratio or Turnover ratio:- They indicate the rapidity with which the
resources available to the concern are being used to produce sales.
Stock turnover ratio:- Cost of good sold/Average stock
( cost of good sold= Net sales/ Gross profit,
Average stock=Opening stock+closing stock/2)
Debtors turnover ratio:- Net credit sales/ Average debtors
+Average B/R
Average collection period:- Debtors+B/R /Credit sales perday
( Credit sales per day=Net credit sales of the year/365)
Creditors Turnover Ratio:- Net credit purchases/ Average
Creditors + Average B/P
Average Payment Period :- Creditors + B/P/ Credit purchase
Per day
Fixed Assets Turnover ratio:- Cost of goods sold/Net fixed
Assets
( Net Fixed Assets = Fixed Assets – depreciation)
Working Capital Turnover Ratio:- Cost of goods sold/
Working Capital
(working capital= current assets – current liability)
Profitability Ratios or Income ratios:- The main objective of every business
concern is to earn profits. A business must be able to earn adequate profit in
relation to the risk and capital invested in it.
Gross profit ratio:- Gross profit / Net Sales * 100
(Net sales= Sales – Sales return)
Net profit Ratio:- Net profit / Net sales * 100
(Operating Net Profit= operating net profit/ Net Sales *100 or
operating Net profit= gross profit – operating expenses)
Operating Ratio :- Cost of goods sold + Operating expenses/
Net Sales * 100
(Cost of goods sold = Net Sales – Gross profit ,
Operating expenses = office & administration expenses + Selling
& distribution expenses + discount + bad debts + interest on short
term loans)
Earning per share(E.P.S.) :- Net Profit – dividend on preference
share / No. of equity shares
Dividend per share(D.P.S.) :- Dividend paid to equity share
Holders / No. of equity shares *100.
Dividend Payout ratio(D.P.) :- D.P.S. / E.P.S. *100
RATIO ANALYSIS FOR GRASIM INDUSTRY
Current ratio2006
C.R.=1321.22/969.15=1.362007
C.R=1517.69/1266.86=1.20
Comment:As compared to previous year, current ratio has decreased in current year
because of increase in current liabilities.
Quick ratio2006
Q.R.=570.49/969.15=0.592007
Q.R.=693.55/1266.86=0.55
Comment:As compared to previous year, quick ratio has slightly decreased in
current year.
DEBT EQUITY RATIO:-
2006
D.E.R = 1979.67/4982.08
= 0.40
2007
D.E.R = 2951.56/6230.04
= 0.47
Interest coverage ratio2006
I.C.R.=1201.90/103.38=11.67 times2007
I.C.R.=2189.26/111.84=19.57 times
Comment:Interest coverage ratio is increasing as compared to previous year. This
indicates that the firm will be able to pay the interest on long term loans regularly.
Fixed assets turnover ratio2006
F.A.T.R.=5159/3004.63=1.72 times2007
F.A.T.R.=6097/3390.44=1.80 times
Comment: This ratio reveals how efficiently the fixed assets are being utilized. As
compared to previous year, this ratio is increasing which indicates that there is better utilization of fixed assets.
DEBT TO TOTAL FUND RATIO:-2006
D.T.F.R. =1979.67/6961.75
= 0.28 or 28.0%
2007
D.T.F.R.= 2951.56/9181.60
= .32 or32.0%
PROPRIETARY RATIO:-
2006
P.R.= 4982.08/6961.75
= 0.71 or 71.0%
2007
P.R.= 6230.04/9181.60
= 0.67 or 67.0%
Capital turnover ratio2006
C.T.R.=5159/3356.70=1.54 times2007
C.T.R.=6097/3641.27=1.67 times
Comment:This ratio reveals how efficiently capital employed is being used. As
compared to previous year, this ratio is increasing which indicates that there is better use of capital employed.
Working capital turnover ratio2006
W.C.T.R.=5159/352.07=14.65 times2007
W.C.T.R.=6097/250.83=24.3 times
Comment:This ratio reveals how efficiently working capital has been utilized in
making sales. As compared to previous year, this ratio is increasing which indicates the efficient use of working capital.
Stock turnover ratio2006
S.T.R.=5159/715=7.22 times2007
S.T.R.=6097/784.44=7.77 times
Comment:This ratio indicates whether stock has been efficiently used or not. As compared
to previous year, there is a slight increase in this ratio
GROSS PROFIT RATIO:-
2006
G.P.R.= 1494/6621*100
= 22.56%
2007
G.P.R.=2507/8604*100
= 29.14%
NET PROFIT RATIO:-
2006
N.P.R.=1202/6621*100
= 18.15%
2007
N.P.R.=2189/8604*100
= 25.44%
OPERATING NET PROFIT RATIO:-
2006
O.N.P.R.= 1590.9/6621*100
= 24.02%
2007
O.N.P.R.=2619/8604*100
= 30.44%
EARNING PER SHARE:-
2006
E.P.S.= 8630000000/91808510
= RS. 94
2007
E.P.S.= 15360000000/91428571
= RS.168
DIVIDEND PER SHARE:-
2006
D.P.S.=1836176200/91808510
= RS.20
2007
D.P.S.=2514285703/91428571
=RS.27.5
DIVIDEND PAYOUT RATIO:-
2006
D.P.R.=20/94*100
= 22.0%
2007
D.P.R.=27.5/168*100
=17.0%
Proportion of various sources of working capital in percentage:
Current assests, loans and advances:
Interest accured on investments2006
1.46/2026.76*100=0.07%2007
0.70/2342.39*100=0.02%
Inventories2006
750.73/2026.76*100=37.04%2007
824.14/2342.39*100=35.18%
Sundry debtors2006
413.45/2026.76*100=20.39%2007
576.48/2342.39*100=24.64%
Cash and bank balances2006
155.58/2026.76*100=7.67%2007
116.38/2342.39*100=4.96%
Loans and advances2006
705.54/2026.76*100=34.83%2007
824.69/2342.39*100=35.20%
Current liabilities and provisions:
Current liabilities2006
969.15/1273.37*100=76.10%2007
1266/1450.06*100=87.36%
Provisions2006
304.22/1273.37*100=23.90%2007
183.20/1450.06*100=12.63%
COMPARATIVE P&L ACCOUNT (For the year 2006-07)
(Rs. in Crores)
FY07 FY06 %changeNet turnover 14,095.2 10,224.0 38Other income 317.7 267.9 19
Total expenditure 10,122.8 8,155.3 24Operating profit(PBIDT)
4,290.1 2336.6 84
Interest 228.6 218.3 5Depreciation 610.0 563.1 8Exceptional Items - 4.1 -
Profit before tax 3,451.5 1,559.3 121
Total tax expenses 1,092.1 402.7 171Net Profit after Total Tax
2,359.4 1,156.6 104
Minority share 391.9 116.0 238Net profit 1,967.5 1,040.6 89
Trend Analysis(For liability side of 2006-07)
(Rs. in Crores)Particulars 2007 2006 Base
Trend %Current Trend %
Current Liability
Liability 1,266.86 969.15 100 130.73
Provisions 183.20 304.22 100 60.21Total(A) 1,450.06 1,273.37 100 113.87
Fixed LiabilityShare Capital 91.69 91.69 100 100
Reserves & surplus 6,138.35 4,890.39 100 125.5
Loans 2,951.56 1,979.67 100 149.09
Def. Tax liability 582.55 584.38 100 99.68Total(B) 9,764.15 7,546.13 100 129.39
Total liability(A+B) 11,214.21 8,819.50 100 127.15
TREND ANALYSIS(For assets side of 2006-07)
(Rs. in Crores)Particulars 2007 2006 Base
Trend %Current Trend %
Fixed Assets
Fixed Assets 4,582.79 3,298.27 100 138.94Fixed assets held for disposable
14.33 12.76 100 112.30
Investments 4,274.70 3,481.71 100 122.79Total(A) 8,871.82 6,792.74 100 130.60
Current AssetsStock 824.14 750.73 100 109.77Interest Accrued .70 1.46 100 47.94Debtors 576.48 413.45 100 139.43Cash 116.38 155.58 100 74.80Loans 824.69 705.54 100 116.88Total(B) 2,342.39 2,026.76 100 115.59
Total Assets(A+B) 11,214.21 8,819.50 100 127.15
CASH FLOW ANALYSIS (For 2006-07) (Rs in Crores)
FY07 FY06SOURCES OF CASHCash from operations(net of taxes) 1816.0 1077.1Increase in debts 947.6 --Non operating cash flow 114.0 67.1Decrease in cash and cash equivalent 39.2 --Decrease in working capital -- 205.2
2916.8 1349.4Uses of cashNet increase in investments 647.1 549.2Net capital expenditure 1598.2 399.5Decrease in debts -- 53.3Increase in working capital 83.3 --Interest 109.4 112.7Dividend 478.8 165.8Increase in cash and cash equivalent -- 68.9
2916.8 1349.4
CASH FLOW STATEMENT (For year 2006-07)
Cash flow from operating activities 2007
(Rs. In Crores)
2006Net Profit Before Tax 2189.26 1201.90Depreciation 317.91 291.64Interest Expenses 111.84 103.38Interest Income (31.84) (29.48)Dividend Income (81.43) (38.04)Profit/loss on sale of fixed Assets(Net)
(4.62) 3.99
Profit on sale of Long Term Investments (Net)
(2.70) (62.57)
Profit on sale of Current Investments(Net)
(49.41) (7.27)
Operating profit before working capital changes
2449.01 1330.06
Trade and other receivables
(314.56) (116.66)
Inventories (73.41) (72.41)Assets Held for Disposal (1.57) 0.97Trade Payables 306.17 159.70Cash generated from Operations
2365.64 1668.74
Direct Taxes Paid (Net) (632.97) (380.42)Net Cash from operating activities
1732.67 1288.32
Cash flow from investing activitiesPurchase of fixed assets 326.4 410.5Sale of fixed assets (354.13) (388.73)Purchase of Investments (150.11) (173.66)Sale of Investments (128.19) (91.57)Investments/Advances in Joint Ventures, Subsidiaries & others
(16.77) (11.75)
Interest received (322.8) (255.21)Net Cash from / (used in) investing activities
(301.75) (231.24)
Cash flow from financing activities
19.71 5.65
Proceeds from borrowings
(75.41) (792.83)
Repayments of borrowings
666.13 53.64
Interest paid (1294.15) 24.74Dividends paid 3.37 1.79Corporate dividend tax 74.29 55.28Dividend received 39.37 86.32Net cash from / (used in) financing activities
(868.44) (796.65)
net increase/decrease in cash & cash equivalent
(140.78) 117.37
At Beginning of year 227.48 110.11At end of year 86.7 227.48Dividend received(Net)
(PROFIT & LOSS A/C) (For 2006-07)
(Rs. in Crores)2007 2006
INCOMEGross salesLess: Excise duty
9,607.97986.29
7,638.41985.80
Net sales 8,603.59 6,652.61Interest & dividend Income
113.27 67.53
Other income 168.49 152.41Increase/Decrease in stock
(16.44) (43.48)
8,868.91 6,829.07EXPENDITURERaw material consumed 2,219.32 1,822.69Manufacturing expenses 1,744.33 1,580.34Purchases of finished &other products
321.16 240.15
Payments to &provisions for employees
459.40 407.64
Selling, distribution, administration &other expenses
1,505.69 1,181.33
Interest 111.84 103.38Depreciation 317.91 291.64
6,679.65 5,627.17Profit before tax and exceptional items
2,189.26 1,201.90
Surplus on pre-payment of sales tax loan
- 4.13
Write back of provision 37.10 -
for diminution Profit before tax 2,226.36 1,206.03Provision for current tax (692.38) (369.82)Deferred tax 1.83 27.00Profit after tax 1,535.81 863.21Debenture redemption reserve no longer required
38.56 8.62
Investment allowance reserve no longer required
0.05 0.25
Balance brought forward from previous year 878.37 815.35
Profit available for appropriation
2,452.79 1,687.43
Appropriations:
Interim dividend 252.10 -Proposed dividend - 183.35Corporate dividend tax 35.36 25.41General reserve 1200.00 600.00Balance carried to balance sheet
965.33 878.37
2,452.79 1,687.43
BALANCE SHEET (For year 2006-07)
(Rs Crore)SOURCES OF FUNDSSHARE HOLDERS FUND
FY (2006-07) FY (2005-06)
share capital 91.69 91.69Reserves and Surplus 6,138.35 4,890.39Loan fundsSecured Loans 2,291.00 1,386.12Unsecured Loans 660.56 593.55
2,951.56 1,979.67Deferred tax liabilities 582.55 584.38TOTAL 9,764.15 7,546.13APPLICATIONS OF FUNDSFixed assetsGross Block 6,770.97 6,114.12Less: Depreciation 3,380.53 3,109.49Net Block 3,390.44 3,004.63Capital Work-in-Progress 1,192.35 293.64
4,582.79 3,298.27Fixed Assets held for disposal
14.33 12.76
Investments 4,274.70 3,481.71Current assets, loans & advancesInterest accrued on Investments
0.70 1.46
Inventories 824.14 750.73Sundry Debtors 576.48 413.45Cash and Bank Balances 116.38 155.58Loans and Advances 824.69 705.54
2,342.39 2,026.76Less:
Current liabilities & provisionsLiabilities 1,266.86 969.15Provisions 183.20 304.22
1,450.06 1,273.37Net Current Assets 892.33 753.39TOTAL 9,764.15 7,546.13
CONCLUSIONS
In 2007 there is increase in current assets by 24% than 2006 and there is
increase in current liability by 17%, because of greater increase in current
assets than in current liabilities, the position of Working capital has
improved.
The % of Fixed Assets has come down in 2007 from 2006. As per current ratio firm is able to pay its current liability. Quick ratio presents a better test of short term financial position,
which shows better working capital position of firm. Debt equity ratio and debt to total fund ratio presents protection to
long term lenders and shows sufficient working capital in the firm. G.P. and N.P. have increased from previous year. Cash flow statement indicates outflow of cash in comparison to past
year. Due to better long term and short term financial condition firm’s
working capital position is better than that of previous year.
LIMITATIONS
Based on financial statements these statements suffer from certain limitations.
Affected by window dressing.
Company provides only secondary data, so certain type of bias is in study.
Unsuitable for forecasting.
BIBLIOGRAPHY
Financial Management
By M.Y. Khan & P.K. Jain
Financial Management
By D. K. Goyal
Annual Reports of Grasim Industries Ltd.
2005-06
2006-07
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