working capital management dcm textile
TRANSCRIPT
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TRANING PROJECT ON WORKING CAPTIAL MANAGEMENT
PRESENTED BY:- SUMITROLL NO. 14104024MBA FINANCE
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ABOUT COMPANY NETWORK OF DCM TEXTILES SWOT ANALYSIS OF DCM TEXTILES OBJECTIVES OF THE STUDY WORKING CAPITAL MANAGEMENT FACTORS INFLUENCING WORKING CAPITAL
REQUIREMENTS EVALUATION OF WORKING CAPITAL MANAGEMENT RATION ANALYSIS CONCLUSIONS
CONTENT
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Delhi Cloth Mill The DCM group was founded by Lt. Lala Shri Ram in the year 1889 with
the establishment of Delhi Cloth Mill (DCM) which specialized in Textiles.
DCM Textiles, a unit of DCM Ltd. started its production in 1991 The name of the company was changed in 1994 to Delhi Commerce and
Manufacturing Company (DCM) to reflect the group’s diverse business activities covering the areas of:
Cotton Textiles Silk Textiles Woollen Textiles Readymade Garments Hand-crafted Textiles
ABOUT COMPANY
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Type: Public Founded: 1889 Registered office : New Delhi and listed at BSE and NSE Industry : Manufacturer & Exporter Products : 100% cotton carded and combed yarns spindle capacity: 1,15,000 Employs: more than 1500 Annual turnover : INR 5s00 cr. (2014-15) Website: [email protected] www.dcmtextile.co.in
PROFILE OF DCM TEXTILES
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The company is exporting to major World-markets including China, Colombia, Peru, Dominican Republic, Spain, Portugal, Hong Kong, South Korea, Bangladesh, Venezuela, Egypt, Bulgaria, Italy, Sir Lanka, Mauritius, Vietnam, Singapore and Ukraine.
In India, DCM Textiles has presence in all the major Hosiery & Weaving markets like Delhi, Panipat, Ludhiana, Ahmadabad, Ichalkaranjli & Bhilwara.
The raw material can be purchased from various stats like; Haryana, Punjab , Rajasthan, Gujarat, M.P, Maharashtra and A.P
NETWORK OF DCM TEXTILES
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InternalAnalysis
ExternalAnalysis
SWOT ANALYSIS OF DCM TEXTILES
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STRENGTHS:-
• Availability of manpower.• High quality product.• Low price high quality.
WEAKNESS
• Heavy transport charges.• Poor customer care/service• Transaction cost• Bad working conditions
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OPPORTUNITIES:-
• Technological up gradation.• Foreign market expansion.• Online ordering process.• Product expansion.• Market expansion. THREATS:-
• Entry of competitors• Product substitution• Dissatisfied customers
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To study the sources and uses of the working capital.
To study the liquidity position through various working capital related ratios.
To study the working capital components such as receivables accounts, Cash management, Inventory management.
To make suggestions based on the finding of the study.
OBJECTIVES OF THE STUDY
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Working capital means the funds (i.e.; capital) available and used for day to day operations (i.e.; working) of an enterprise. It consists broadly of that portion of assets of a business which are used in or related to its current operations. It refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence.
In Accounting:
WORKING CAPITAL MANAGEMENT
working capital =Current assets - Current liabilities
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To Maximize Profit Of The Firm. To Help In Timely Payment Of Bills. To Maintain Sufficient Current Assets. To Ensure Adequate Liquidity Of The Firms. It Protects The Solvency Of The Firm. To Discharge Current Liabilities. To Increase The Value Of The Firm. To Minimize The Risk Of Business.
OBJECTIVES OF WORKING CAPITAL MANAGEMENT
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To Purchase Raw Materials, Spare Parts And Other Component.
To Meet Over Head Expenses. To Hold Finished And Spare Parts etc. To Pay Selling & Distribution Expenses.
THE NEED FOR THE WORKING CAPITAL
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OPERATING CYCLES OF WORKING CAPITAL
Finished goods
Work-in-progress
Accounts receivable
Raw materials
SuppliersCash
Wages, salaries, factory overheads
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Net Working Capital:-
Term Net working capital can be define in two way;◦ It is the difference between current assets and current liabilities.◦ Amount left for operational requirement.
Gross Working Capital:-
Gross working capital means the total current assets. And On the basis of time working capital may be classified as:- Permanent working capital Temporary working capital
Classification of working capital
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Nature of business Seasonality of operations Production policy Market conditions Conditions of supply
FACTORS INFLUENCING WORKING CAPITAL REQUIREMENTS
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The working capital management needs attention of all the finance head/ working capital management is important for avoiding unnecessary blockage of fund. Like that liquidity is important at it refer to the short-term financial strength of company.
It is very important to have proper balance in regard to the liquidity of the firm.
Evaluation of working capital
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TABLE 1: CONSTITUENTS OF CURRENT ASSETS AND CURRENT LIABILITIES
PART- A: CURRENT ASSETSInventoriesRaw materials and componentsWork-in-progressFinished goodsOthersTrade debtorsLoan and advancesInvestmentCash and bank balance
PART-B: CURRENT LIABILITIESSundry creditorsTrade advancesBorrowings From Commercial banksOthersProvision
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Description of current assets and current liabilities 2014-15 (Rs.)
Stocks 795,807,291
Trade receivables 692,152,101
Cash & bank balances 53,105,704
Loans and advances 291,626,791
Other current assets 16,683,355
Current liabilities 1,307,725,193
Other Current liabilities 169,783,693
Provisions 7,675,657
Financial Statement Of Last Accounting Year
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YEAR ENDED WORKING CAPITAL
(RS. IN LAKHS)
31STMARCH 2005 1551.41
31STMARCH 2006 2251.10
31STMARCH 2007 4416.50
31STMARCH 2008 8095.09
31ST MARCH 2009 6179.17
31st MARCH 2010 11009.24
31st MARCH 2011 21071.99
31st MARCH 2012 93915.43
31st MARCH 2013 16601.39
31st MARCH 2014 42719.05
31st MARCH 2015 36419.06
WORKING CAPITAL YEAR ENDED
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Particulars
A) Current Assets: -i) Inventories ii) Sundry Debtorsiii) Cash & Bank
Balanceiv) Loans & Advances
V) Other current assets B) Current Liabilities:v) Current Liabilitiesvi) Provisions
Working Capital (A-B)Add: Provision for Contingencies
Net Working Capital Requirement
2010-11 2011-12 2012-13 2013-14 2014-15
1,539,676,299
524,540,343
8,16,190
170,483,304
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686,451,272
314,758,759
10,35,080
95,205,454
27,584,289
823,377,964
410,634,543
18,12,464
131,040,166
25,524,513
915,433,075
589,343,347
31,960,904
215,329,442
93,62,578
795,807,291
692,152,101
53,105,704
291,626,791
16,683,355
2,235,516,136 1,125,034,054 1,392,389,650 1,761,429,346 1849,375,242
11,11,85,084
17,131,893
1,185,267,850
612,642
1,225,303,015
1,072,656 1,327,748,129
6490678
1477,508,886
7,675,657
128,316,977 1,185,880,492 1,226,375,670 1,334,238,807 1,485,184,543
2107,199,159
_
939,154,362
_
166,013,980
_
427,190,539
_
364,190,699
_
2,107,199,159 939,154,362 166,013,980 427,190,539
364,190,699
Table-1
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It is observed that current asset increase in 2012-13 as compare to 2011-12 but in the year 2014-15 it had been increase and the current liabilities has been in a decreasing trend in the year 2011-12 and 2012-13. Current asset increase in 2012-13 and again it increases 2013-14. It shows fluctuation in these years. Working capital of DCM Textile ltd indicates a good position as it shows the increasing trend except 2012-13 that represents the sound position of the company.
TABLE-1
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Particulars Previous year
31.03.2014
Current year
31.03.2015
Effect on working capital
increase Decrease
A) Current Assets: -i) Inventories ii) Sundry Debtorsiii) Cash & Bank
Balanceiv) Loans & Advances v) Other current assets
Total Current Assets:
B) Current Liabilities:vi) Current Liabilities vii) Provisions
Total Current Liabilities:
Working Capital (A-B)
Net Increase Or Decrease
In Working Capital
915,433,075
589,343,347
31,960,904
215,329,4429,362,578
795,807,291
692,152,101
53,105,704
291,626,79116,683,355
-
102,808,754
21,144,800
76,297,3497,320,777
119,625,784
-
-
- -
1,761,429,346 1,849,375,242
1,327,748,129
6,490,678
1,477,508,886
7,675,657
149,760,757
1,184,979
-
-
62,999,840
1,334,238,807 1,485,184,543
427,190,539
427,190,539
364,190,699
364,190,699
Table-2
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Statement of changes in the working capital is prepared to show the changes in the working capital between the two balance sheet dates. This statement is prepared with the help of the current asset and current liabilities derived from the 2 balance sheets
So, An increase in current asset increases working capital A decrease in current assets decreases in working capital An increase in current liabilities decreases working capital. A decrease in current liabilities increase working capital
TABLE-2
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DCM Textiles , Hisar Balance Sheet as at March 31, 2015
Amount in Rs.
Note As at
Mar. 31, 2015
As atMar 31, 2014
EQUITY AND LIABILITIES Shareholders’ funds Share capital 2 - - Reserves and surplus 3 39,731,099 452,546,275 39,731,099 452,546,275 865,107,887 557,133,529 Non-current liabilities Long-term borrowings 4 989,861,145 847,491,770 Deferred tax liabilities (net) 5 - - Other long-term liabilities 6 891,000 891,000 Long-term provisions 7 16,537,309 15,361,160 1,007,289,454 863,743,930 Current liabilities Short-term borrowings 8 1,191,909,611 1,125,029,935 Trade payables 9 115,815,582 76,532,445 Other current liabilities 10 169,783,693 126,185,749 Short-term provisions 11 7,675,657 6,490,678 1,485,184,543 1,334,238,807 3,397,312,983 3,207,662,542
ASSETS Non-current assets Fixed assets Tangible assets 12 1,482,104,164 639,262,313 Intangible assets 12 - - Capital work-in-progress 432,490 625,499,035 1,482,536,654 1,264,761,348 Non-current investments 13 - - Long-term loans and advances 14 65,401,086 181,471,847 Other non-current assets 15 - - 1,547,937,740 1,446,233,195 Current assets Inventories 16 795,807,291 915,433,075 Trade receivables 17 692,152,101 589,343,347 Cash and bank balances 18 53,105,704 31,960,904 Short-term loans and advances 19 291,626,791 215,329,442 Other current assets 20 16,683,355 9,362,578 1,849,375,242 1,761,429,346 3,397,312,983 3,207,662,541
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Liquidity Ratios Solvency/Leveraging Ratios Coverage Ratios Activity/Turnover Ratios Profitability Ratios Investors Ratio
DATA ANALYSIS-INTERPRETATION OF RATIOS.
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Liquidity ratios measure the short-term solvency i.e. the firm’s ability to pay its current dues and also indicate the efficiency with which working capital is being used. Commercial banks and short-term creditors may be basically in the ratios under this group.
i. Current Ratio ii. Liquid ratio or Quick Ratio
LIQUIDITY RATIOS (SHORT-TERM LIQUIDITY)
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Current ratio is a relationship of current assets to current liabilities
Computation:- Current Ratio = Current Assets Current Liabilities
Current Ratio
Current ratio DCM textiles
2014-15 1.21
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Liquid ratio is a relationship of liquid assets with current liabilities. It is fairly stringent measure of liquidity.
A quick ratio of 1:1 is considered standard and ideal, since for every rupee of current liabilities, there is a rupee of quick assets. A decline in the liquid ratio indicates over-trading, which if serious may land the company in difficulties.
COMPUTATION;- Liquid Ratio = Liquid Assets Current Liability
Liquid Ratio
LIQUID Ratio DCM Textiles
2014-15 0.39
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The term solvency implies ability of an enterprise to meet its long term indebtness and thus, solvency ratios convey the long term financial prospects of the company.
The shareholders, debenture holders and other lenders of the long-term finance/term loans may be basically interested in the ratios falling under this group.
SOLVENCY/LEVERAGE RATIO
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The debt-equity ratio is worked out to ascertain soundness of the long term financial policies of the firm. The ratio expresses a relationship between debt (external equities) and the equity (internal equities).
Debt equity ratio =1.08
COMPUTATION
Debt-Equity Ratio = Debt(long-term loans) Equity (shareholder’s funds)
Debt-Equity Ratio
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Profit as compared to the capital employed indicated profitability of the concern. A measure of profitability is the overall measure of efficiency.
The net profit ratio establishes the relationship between net profit and net sales expressed in percentage form.
Net Profit Ratio = 18.10
computation:- Net Profit Ratio= Net Profit After Taxes x 100 Net Sales
PROFITABILITY RATIOS
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Interest coverage ratio: The interest coverage ratio establishes the relationship between PBIT ( profit before interest and tax) and debt interest. Interest Coverage Ratio = 11.5 Computation:-
Interest Coverage Ratio = Net profit before interest and taxes Debt interest
COVERAGE RATIO
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These ratios are calculated on the basis of ‘cost of sale’ or ‘sale’.
Turnover indicates the speed with which capital employed is rotated in the process of doing business.
Activity ratio measures the effectiveness with which a concern uses resources as its disposal.
ACTIVITY (TURNOVER OR PERFORMANCE) RATIOS
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The working Capital turnover indicates the number of times a unit invested in working capital produces sale. In other words, the ratio shows the efficiency in the use of short-term funds for achieving sales.
Working capital Turnover Ratio =1.28
Computation:- Working Capital Turnover Ratio = Net Sales Working Capital
WOKING CAPITAL TURNOVER RATIO
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This ration indicates whether inventory has been efficiently used or not.
This ration indicates the relationship between the cost of goods sold during the year and average stock kept during that year.
Inventory Turnover Ratio =1.74
Computation:- Inventory Turnover Ratio = Cost Of Goods Sold
Average Inventories
Inventory Turnover Ratio
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The study duration (summer in plant) is short. The analysis is limited to just five years of data study (from
year 2011 to year 2015) for financial analysis. Limited interaction with the concerned heads due to their
busy schedule The findings of the study are based on the information
retrieved by the selected unit.
LIMITATION OF STUDY
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After studying the components of working capital management. It s found that the company has a very sound and effective policy and its performance is very good and has managed to make good profit. Company is competing well at the domestic as well as the international level because of its proper management of finance, specially the short term finance known as the working capital.
The company is a matured one and it has contributed well in the countries growth and development and will also continue to perform and contribute to the whole nation.
In conclusion, we can say that the company’s management is an effective one and knows well the management of finance; its working capital management system is very good.
CONCLUSIONS
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