WORKING CAPITAL MANAGEMENT AT SATYAM COTTEX PVT LTD

Submitted in partial fulfillment of the requirement For the award of MASTERS DEGREE IN BUSINESS ADMINISTRATION (Session 2011-2013) Submitted By: NITIN JAIN ROLL NO : 11225

PANIPAT INSTITUTE OF ENGINEERING & TECHNOLOGY

KURUKSHETRAUNIVERSITY, KURUKSHETRA

ACKNOWLEDGEMENT

It is well-established fact that behind every achievement lays an unfathomable sea of gratitude to those who have extended their support and without whom the project would ever have come into existence. I express my gratitude to SATYAM COTTEX PVT LTD, Panipat, for providing me an opportunity to work on this thesis as a part of the curriculum. Also, I express my gratitude to Prof. Dr. Puja Walia Mann (Head of Management Department) and MR. AKHILESH MISHRA (Faculty MBA) on the completion of my project.

NITIN JAIN ROLL NO: 11225

INDEX
CHP. NO. 1.
INTRODUCTION 1 1.1 Industry Profile 1.2 Company Profile 1.3 Introduction To Topic

PARTICULARS

PAGE NO.

2.

LITERATURE REVIEW

64

3.

RESEARCH METHODOLOGY 3.1 Definition 3.2 Objective Of The Study 3.3 Justification Of The Study 3.4 Scope Of The Study 3.5 Research Design 3.6 Data Collection 3.7 Limitations

69

4. 5.

ANALYSIS AND INTERPRETATION

73

CONCLUSION AND SUGGESTIONS 5.1 Findings 5.2 Suggestion 5.3 Conclusion

84

6.
BIBLIOGRAPHY ANNEXURES 86 89

DECLARATION

I, hereby declare that the Summer Training project entitled WORKING CAPITAL MANAGEMENT IN SATYAM COTTEX PVT. LTD. is an original work and the same has not been submitted to any other Institute for the award of any other degree & the information provided in the study is authentic to the best of best of my knowledge.

(NITIN JAIN) ROLL NO : 11225

CHAPTER-1 INTRODUCTION

INTRODUCTION TO TEXTILE INDUTRY

(A)Overview of the Indian textile industry
Indian Textile Industry can essentially be categorized into two segments:-

1. Organized Textile Industry 2. Unorganized Textile Industry Unorganized sector is the dominant part in this industry which mainly utilizes the traditional practices in cloth production and hence is labor intensive in nature. This industry is characterized by the production of clothes either through weaving or spinning with the help of hands. The decentralized nature is considered as another important feature of the unorganized textile industry in India.

Sub-Categorized sectors of the Indian textile Industry

Textile Industry based on fiber produced through man made means or natural cotton In the whole Indian textile industry, this sector has come as the largest producer of textile products. This industry has also proved its potential in employing the maximum number of people in the entire industry which has been calculated to be around a whooping one million workers. As per the latest records (31.01.2007) of Ministry of Textiles, the total number of mills in this particular sector is 1818 in number. The installed capacity of all these mills accumulates to 35.37 million spindles and 0.45 million rotors During the year 2000-2001, the total amount of spun yarn produced was 3160 million kgs. This amount saw an increase of around 400 million kgs within the period of 2000-2001 to 2005-2006. Cloth production has also evidenced a declining trend during 2000-2006 with an absolute decrease of ninety four million square meters. The annual growth rate of total cloth production in the textile industry has been calculated to be around 5.24 % between 2000-2001 to 2005-2006. But stratified result of this industry show that during the above mentioned period, the organized sector of this industry has posted fluctuating results whereas the unorganized one has performed positively with an yearly rate of growth amounting to 5.4%.

Investment In Indian Textile Industry

Investment in Indian Textile Industry The scenario of investment in the Indian textile industry started to change after the inception of the special Textile Package during the 2003-2004 budgets. The recommendations made in the budget included the reforms that are required to be made in the fiscal policy of the Indian textile Industry for attracting investment in this industry. The policy matters associated with restructuring of debt for financial viability of this industrial sector are also being addressed in this budget. A fund was set up in accordance with the recommendations of the aforesaid budget with an initial principal amount of Rs. 3000 crores. This fund was meant for restructuring of the textile sector. Factors responsible for wooing the investors in Indian textile industry:-

The size of the textile along with apparel market in India is quite big. Performance of this industry has been consistent right from the start of the new millennium. Availability of the skilled labor in India is comparatively cheap in relation to the same in other parts of the world. The policies related to the Foreign Direct Investment in India are comparatively lenient and are transparent in nature among all the developing countries. There is no limit on foreign direct investment in the textile industry and hence 100% direct investment can be done by the foreign capitalists in the Indian textile industry. Foreign Investments done in the Indian Textile Industry through the automatic route offers a hassle-free way of investing. These investments are not required to be approved by the government or the apex bank of India, RBI. The foreign investors are only required to make a notification to the regional office of the apex bank only after receiving the receipt of the remittance. This notification is required to be done within thirty days from the date of receiving the remittance. The ministry concerned with the development of Textile Industry in India has formed a special cell for attracting FDI in this sector. Objectives of this special cell for wooing FDI are :-

 This cell helps the willing foreign companies to find out viable partners meant for floating a joint venture company in order to produce textile products. FDI special cell acts as the mediator between the foreign investor and the different organizations for setting up the textile industry. The specialized helps that are given by this cell involve advisory support along with assistance. At the time of operation of the textile industry set by the foreign investor certain problems may crop up. These problems are sorted out by the FDI cell. FDI cell monitors as well as maintains the data related with the total production of the textile sector. They also collect the stratified data of production by both domestic industry as well as the industry set up by the foreign investor. In the financial year 2005-2006, it has been found out that the percentage share of the textile industry in the total foreign investment done was 1.02%. As a part of domestic textile sector expansion, the companies of Indian origin are also not far behind in making investments. Arvind Mills Limited is expanding its production as well as capacity base through the construction of two new industrial set ups in Bangalore and Ahmadabad.

Leading Indian Textile Mills

Some of the leading Textile Mills in India include Adarsh Textile Mills : Manufacturer and exporter of good quality woolen and synthetic blankets. Amritsar Swadeshi Woolen Mills : Pioneer in manufacturing heavy woolen yarn and largest manufacturer of fabric. Aroon Mills : Manufacture of textile auxiliaries Mohan Thread Mills : Manufacturer of high quality embroidery yarn and threads

Market estimation
In 1997, the overall Indian market for the textile machinery was approximated at USD 895 million and was estimated to grow at an average annual growth rate of 6%.

Factors responsible behind the growth of textile machinery in India

Some of the major factors responsible behind the growth of textile machinery sector are:

An immense demand of Indian apparels and textiles in the international market Low custom duties on imported textile machinery Less tight government restrictions on imported goods Major trading partners regarding import of textile machineries include U.S., Germany, Switzerland and U.K. India ranks second in the global textile industry and accounts a major portion to the overall Indian exports. For the sustenance of this growth and to maintain the competence in the international market, the textile mills in India need to be modernized.

(B) Leading Textile mills in India :Some of the major textile mills in India are:

1. Raymond Ltd., Mumbai 2. Grasim Industries Ltd., Nagda 3. DCM Textiles, New Delhi 4. S. Kumars, Kolkata 5. Reliance Industries, Ahmedabad 6. Mafatlal Industries, Mumbai 7. Arvind Mills Ltd., Ahmedabad 8. AshimaSyntex, Ahmedabad 9. NAHAR SPINING, LUDHIANA 10. Hisar Spinning Mills Ltd. 11. Anand Silk Mills, Valsad 12. Titex Silk Mills,Valsad 13. Shree sainath Silk Mills, Valsad 14. Shreeji Trading Company, Surat 15. Garden Silk Mills Ltd., Surat 16. Raj Rayon Ltd., Mumbai 17. The Bombay Dyeing & mfg. Pvt Ltd., Mumbai 18. Shiyaji Silk Mills Ltd, Thane 19. Nirmala Fabrics, Thane

COMPANY PROFILE

NAME OF COMPANY : SATYAM COTTEX PVT.LTD

SATYAM COTTEX PVT. LTD is an industrial conglomerate based at PANIPAT in HARYANA with the group turnover in excess of Rs.20 MILLION . The Satyam cottexpvt ltd is one of the oldest and well recognized businesses in India. The company was incorporated in 1990 by Mr. Sushiljain , The companys present chairman and managing director.The company is one of the pioneers of the organized Indian woollen hosiery industry. The company made a beginning as a manufacturer of hosiery items Which was followed by setting up a worsted woollen spinning plant of 100 spindles in 1990 {today 1000 spindles} to serve as a backward integration of the existing manufacturing activities. The company believes that this worsted woollen spinning in the northern India. Matching ahead in the journey pace with overall industrial development in India the company is now a vertically integrated woollen textile company, having presence in diverse market, with wide range of products including wooollen hosiery and cotton garments. In companys woollen hosiery segment, we start our operations with import of raw greasy wool mostly from U.S.A and company products include various types of specialty yarns, such as, worsted woollen yarn, shody yarn, various types of carpet yarn, fancy yarn, hand knitting and hosiery garments etc. The company manufacture facilities are spread across various locations in and around PANIPAT in HARYANA fully backed by the facilities to provide quality products to our customers.

INTRODUCTION TO TOPIC: WORKING CAPITAL MANAGEMENT

Working Capital is very important factor for every business. Without Working Capital the day-to-day activities of a business cannot run. The reason behind selected this important topic is clear after discussing its need which are as follows:

Every running business needs working capital:

Even a business, which is fully equipped with all types of fixed assets required, is bound to collapse without Adequate supply of raw materials for processing; Cash to pay for wages, power and other costs; Creating a stock of finished goods to feed the market demand regularly; (iv) the ability to grant credit to its customers. All these require working capital. Working capital is thus like the lifeblood of a business. The business will not be able to carry on day-to-day activities without the availability of adequate working capital. . Initially cash is converted into raw materials. Subsequently, with the usage of fixed assets resulting in value additions, the raw materials get converted into work in process and then into finished goods. When sold on credit, the finished goods assume the form of debtors who give the business cash on due date. Thus cash assumes its original form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. This is how various components of current assets keep on changing their forms due to value addition.

They rotate and business operations continue. Thus, the working capital cycle involves rotation of various constituents of the working capital.

WORKING CAPITAL MANAGEMENT

 MEANING AND DEFINITION OF WORKING CAPITAL:

Working capital refers to short-term funds to meet operating expenses. To quote Ramamoorthy, It refers to the funds, which a company must possess to finance its day-to-day operations. It is concerned with the management of the firms current assets and current liabilities. It relates to with the problems that arise in attempting to manage the current assets, current liabilities and their interrelationship that exists between them. If a firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy.

CONCEPT OF WORKING CAPITAL:

There are two concept of working capital: 1) Gross Working Capital Concept 2) Net Working Capital Concept

1) Gross Working Capital Concept: According to this concept, working capital means gross working capital which is the total of all the current assets of a business.

GROSS WORKING CAPITAL = TOTAL CURRENT ASSETS

2) Net Working Capital Concept:

According to this concept, working capital means net working capital, which is the excess of current assets over current liabilities.

NET WORKING CAPITAL=CURRENT ASSETS-CURRENT LIABILITIES

KINDS OF WORKING CAPITAL

CONCEPT BASE

NEED OR TIME BASE

GROSS WORKING CAPITAL OR QUANTITATIVE

NET WORKING CAPITAL OR

PERMANENT OR REGULAR WORKING

TEMPORARY OR VARIABLE WORKING

CAPITAL

PERMANENT WORKING CAPITAL:

QUALITATIVE

CAPITAL

Permanent working capital is the minimum investment kept in the form of inventory of raw materials, work-in-process, finished goods, stores & spares and book debts to facilitate uninterrupted operation in a firm. Though this investment is stable in short run, it certainly varies in long run depending upon the expansion programs undertaken by the firm. It may increase or decrease over a period of time. The minimum level of current assets maintained in a firm is usually known as permanent or regular working capital.

TEMPORARY WORKING CAPITAL:

A firm is required to maintain additional current assets temporarily over and above permanent working capital to satisfy cyclical demands. Any additional working capital apart from permanent

working capital required to support the changing production and sales activities is referred to as temporary or variable working capital. In other words, an amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital. At times, additional working capital is required to meet the unforeseen events like floods, strikes, fire and price hike tendencies and contingencies.

DISTINCTION BETWEEN PERMANENT AND TEMPORARY WORKING CAPITAL:

The difference between permanent and temporary working capital can be shown in following figures:

Temporary or Variable

Working Capital (Rs.) Permanent or Regular

Time

Temporary or Variable

Permanent Or Regular

Working
Capital (Rs.)

Time

Time

The above figure depicts the permanent or regular working capital that is stable

over a period, where as temporary or variable working capital is oscillating, or showing ups and down- some time working capital requirement has increased or decreased. The very first figure will hold good to those firms, where there is no development and have seasonal or cyclic fluctuations. But for the growing firms second figure will be suitable. Over a long period, permanent working capital also changes with the additional funds, required for expression programs.

OBJECTIVES OF WORKING CAPITAL MANAGEMENT:

The objectives of working capital management could be stated as,

i) To ensure optimum investment in current assets. ii) To strike a balance between the twin objectives of liquidity and profitability in the use of funds. iii) To ensure adequate flow of funds for current operations. iv) To speed up the flow of funds or to minimize the stagnation of funds.

FACTORS AFFECTED WORKING CAPITAL:

The working capital needs of a business are influenced by numerous factors. The important ones are discussed in brief as given below:

i. Nature of Enterprise:
The nature and the working capital requirements of an enterprise are interlinked. While a manufacturing industry has a long cycle of operation of the working capital, the same would be short in an enterprise involved in providing services. The amount required also varies as per the nature; an enterprise involved in production would require more working capital than a service sector enterprise.

ii. Manufacturing/Production Policy:

Each enterprise in the manufacturing sector has its own production policy, some follow the policy of uniform production even if the demand varies from time to time, and others may follow the

principle of 'demand-based production' in which production is based on the demand during that particular phase of time. Accordingly, the working capital requirements vary for both of them.

iii. Operations:
The requirement of working capital fluctuates for seasonal business. The working capital needs of such businesses may increase considerably during the busy season and decrease during the slack season. Ice creams and cold drinks have a great demand during summers, while in winters the sales are negligible.

iv. Market Condition:

If there is high competition in the chosen product category, then one shall need to offer sops like credit, immediate delivery of goods etc. for which the working capital requirement will be high. Otherwise, if there is no competition or less competition in the market then the working capital requirements will be low.

v. Availability of Raw Material:

If raw material is readily available then one need not maintain a large stock of the same, thereby reducing the working capital investment in raw material stock. On the other hand, if raw material is not readily available then a large inventory/stock needs to be maintained, thereby calling for substantial investment in the same.

vi. Growth and Expansion:

Growth and expansion in the volume of business results in enhancement of the working capital requirement. As business grows and expands, it needs a larger amount of working capital. Normally, the need for increased working capital funds precedes growth in business activities.

vii. Price Level Changes:

Generally, rising price level requires a higher investment in the working capital. With increasing prices, the same level of current assets needs enhanced investment.

Component of Working Capital Basis of Valuation: Inventory Management:

Inventory includes all types of stocks. For effective working capital management, inventory needs to be managed effectively. The level of inventory should be such that the total cost of ordering and holding inventory is the least. Simultaneously, stock out costs should also be minimized. Business, therefore, should fix the minimum safety stock level; re-order level and ordering quantity so that the inventory cost is reduced and its management become efficient.

Receivables Management:
Every business would prefer selling its produce on cash basis. However, due to factors like trade policies, prevailing marketing conditions, etc., businesses are compelled to sell their goods on credit. In certain circumstances, a business may deliberately extend credit as a strategy of increasing sales. Extending credit means creating a current asset in the form of Debtors or Accounts Receivable. Investment in this type of current assets needs proper and effective management as it gives rise to costs such as: i. Cost of carrying receivable (payment of interest etc.) ii. Cost of bad debt losses

Cash Management:
Cash is the most liquid current asset. It is of vital importance to the daily operations of business. While the proportion of assets held in the form of cash is very small, its efficient management is crucial to the solvency of the business. Therefore, planning cash and controlling its use are very important tasks. Cash budgeting is a useful device for this purpose.

Cash Budget:
Cash budget basically incorporates estimates of future inflows and outflows of cash over a projected short period of time which may usually be a year, a half or a quarter year. Effective cash management is facilitated if the cash budget is further broken down into month, week or even on daily basis.

There are two components of cash budget (i) Cash inflows and (ii) Cash outflows.

The main sources for these flows are given hereunder:

Cash Inflows:
(a) Cash sales (b) Cash received from debtors (c) Cash received from loans, deposits, etc.

Average credit Total amount of receivables = Extended (in days) Average credit sales per day (d) Cash receipt of other revenue income (e) Cash received from sale of investments or assets.

Cash Outflows:
(a) Cash purchases (b) Cash payment to creditors (c) Cash payment for other revenue expenditure

(d) Cash payment for assets creation

(e) Cash payment for withdrawals, taxes (f) Repayment of loans, etc.

DETERMINATION OF REQUIRED WORKING CAPITAL:

Working capital is equal to the current assets minus current liabilities. In other words, working capital consisting two components, such as current assets and current liabilities. Hence, for estimation of working capital, there is a need to follow the following fourstep procedure: Estimation of cash of the various current assets required by the firm. Estimation of spontaneous current liabilities of the firm Compute net working capital by subtracting the estimate current liabilities from current assets

 Add some percentage of net working capital if there is any contingency or safety working capital required, to get the required working capital

MANAGEMENT OF WORKING CAPITAL

Following are the main objectives or aspects of working capital management:

1) To Determine the Adequate or Optimum Quantum of Investment in Working Capital:
As discussed, a firm should maintain adequate or reasonable investment in working capital. Investment in working capital should neither be excessive nor inadequate.

2) To Determine the Composition or Structure of Current Assets:

The financial management is required to determine the composition of current assets. It should decide how much amount should be invested in each individual current assets. For this purpose, it should fix the average amount invested in stock, debtors, marketable securities and the level of cash balance.

3) To Maintain a Proper Balance between Liquidity and Profitability:

While managing working capital, management will have to reconcile two conflicting aspects. The conflicting aspects are liquidity and profitability. If the quantum of working capital is relatively large, it will increase the liquidity but decrease the profitability. The reason is that a considerable amount of firms funds will be tied up in current assets and to the extent this investment is idle, the firm will have to forego profits. On the other hand, if the quantum of working capital is relatively small, it will decrease liquidity but will result in the profitability. This is because the less funds are tied up in idle current assets.

CHAPTER-2 LITERATURE REVIEW

REVIEW OF LITERATURE An overview of working capital management and corporate financing describes that over the past 40 years major theoretical developments have occurred in the areas of longer-term investment and financial decision making. Many of these new concepts and the related techniques are now being employed successfully in industrial practice. By contrast, far less attention has been paid to the area of short-term finance, in particular that of working capital management. Such neglect might be acceptable were working capital considerations of relatively little importance to the firm, but effective working capital management has a crucial role to play in enhancing the profitability and growth of the firm. Indeed, experience shows that inadequate planning and control of working capital is one of the more common causes of business failure. (C.L.,Pike,1984). The Effect of Working Capital Management on Firm Profitability: Evidence from Turkey (2008) describes that the effect of working capital management on firm profitability. In accordance with this aim, to consider statistically significant relationships between firm profitability and the components of cash conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed manufacturing firms for the period of 1998-2007 has been analysed under a multiple regression model. Empirical findings of the study show that accounts receivables period, inventory period and leverage affect firm profitability negatively; while growth (in sales) affects firm profitability positively.(Samiloglu F. &Demirgunes K,2008). Working capital, sometimes called gross working capital, simply refers to the firm's total current assets (the short-term ones), cash, marketable securities, accounts receivable, and inventory. While long-term financial analysis primarily concerns strategic planning, working capital management deals with day-to-day operations. By making sure that production lines do not stop due to lack of raw materials, that inventories do not build up because production continues unchanged when sales dip, that customers pay on time and that enough cash is on hand to make payments when they are due. Obviously without good working capital management, no firm can be efficient and profitable. (Hardcastle J,2007). The working capital in a firm generally arises out of four basic factors like sales volume,technologicalchanges,seasonal , cyclical changes and policies of the firm.Thestrenghth of the firm is dependent on the working capital as discussed earlier but this working capital is inteslf dependent on the level of sales volume of the firm.The firm

requires current assets to support and maintain operational or functional activities.By current assets we mean the assets which can be converted readily into cash say within a year such as receivables,inventories and liquid cash.If the level of sales is stable and towards growth the level of cash,receivables and stock will also be on the high.(Dubey R, 2008).

CHAPTER-3 RESEARCH METHODOLOGY

OUTLINE OF THE STUDY

The management of working capital is very important. It involves the study of day-to-day affairs of the company. The motive behind the study is to develop an understanding about the working capital management in the running business organization and to help the company in developing the efficient working capital management. Therefore, it helps in future planning and control decisions. OBJECTIVES OF THE STUDY The objectives of the study are as follows: To analyze the working capital management of the company. To determine the gross and net operating cycle of the unit. To know the future need of working capital in the running organization. To render recommendations for the effective management of working capital.

RESEARCH METHODOLOGY

The term research refers to the systematic method consisting of enunciating the problem , formulating a hypothesis collecting the data , analyzing the facts and reaching the certain conclusions either in the form of solution towards the concern problem or in certain generalization for some theoretical formulation . Research Methodology is a way to solve systematically the research problem .It may be understood as a science of studying how research is done scientifically. Time Period of the study: The present study was undertaken during Six weeks from 14th June - 26th July. Research Design: Descriptive research procedure is used for describing the recent situations in the organization and analytical research to analyze the results by using research tools.

Descriptive research, also known as statistical research, describes data and characteristics about the population or phenomenon being studied. Descriptive research answers the questions who, what, where, when and how... Although the data description is factual, accurate and systematic, the research cannot describe what caused a situation. Thus, Descriptive research cannot be used to create a causal relationship, where one variable affects another. In other words, descriptive research can be said to have a low requirement for internal validity. In short descriptive research deals with everything that can be counted and studied. But there are always restrictions to that. Your research must have an impact to the lives of the people around you. For example,finding the most frequent disease that affects the children of a town. The reader of the research will know what to do to prevent that disease thus, more people will live a healthy life.

Data Source & Collection Methods: There are two types for collecting data 1. Primary data 2. Secondary data Secondary Data: Secondary data are those which have already been collected by someone else and which have already been passed through the statistical process. The Secondary data consist of reality available compendices already complied statistical statements. Secondary data consists of not only published records and reports but also unpublished records. Here , the analysis on basis of secondary data, which included Balance sheet of company Profit and loss A/C of Satyam Cost sheets, & Trail balance of five years

. Purpose:
The purpose of this paper is to properly analysis of the working capital management of Satyam, over the period 2008-2012. Tools used: The different tools to analyze the working capital management of Satyam Analysis through Working capital ratios Analysis through Schedule change in working capital Analysis through Gross operating cycle & Net operating cycle Analysis through Various components of working capital

CH-4 DATA ANALYSIS AND INTERPRETATION

WORKING CAPITAL ANALYSIS

(1)

Raw Material Conversion Period (RMCP) = Average Raw Material Stock Average Raw Materials consumed during the year

PARTICULARS 2011-12 Average raw 33065118

2011-10 33352213.5

2010-09 20819151

2009-08 13076062.5

2008-07 9471720.12

material stock Raw material 314166.03 213093.45 107464.04 218371.65 121729.46

consumed during the year RMCP 105.25 156.52 193.73 59.88 77.80

250 200 156.52 150 105.25 100 77.8

RMCP

193.73

59.88
50 0 2012 2011 2010 2009 2008

(2)

Work in Progress Conversion Period (WIPCP) = Average stock in progress Average Cost of Production

PARTICULARS 2012 Average stock in 7834151.50 progress Avg. Cost of 190952.86

2011 8313099.5

2010 5586013

2009 4818821.5

2008 3634639.5

211273.02

194248.64

180015.22

136824.55

production WICP 41.03 37.93 28.75 26.77 26.56

45 40 35 30 25 20 15 10 5 0

41.03 37.93

28.75

26.77

26.56
WICP

2012

2011

2010

2009

2008

(3)

Finished Goods Conversion Period (FGCP) = Average finished goods inventory X 360 X 360 Average Cost of goods sold

PARTICULARS 2012 Average finished inventory Cost of goods 1955523.98 sold FGCP
9 8 7 6 5 4 3 2 3.58 7.63

2011 13149905.5

2010 5004497

2009 6396225

2008 5858384.5

14911159 goods

1648540.72

1398222.17

1260173

989215.18

7.63
7.98

7.98

3.58

5.08

5.92

5.92 5.08
FGCP

1
0 2012 2011 2010 2009 2008

(4)

Debtors Conversion Period (DCP) = Days in year company operating Debtors turnover

PARTICULARS Days in

2012

2011 360

2010 360

2009 360

2008 360

year 360

company operating Debtors turnover DCP 21.66 16.62 22.89 15.72 18.41 19.55 15.82 22.76 18.38 19.59

25 20 16.62 15 10 5 0 2012 2011 2010 15.72 19.55

22.76 19.59

DCP

2009

2008

(5)

Credit Conversion Period (CCP) = Days in year company operating Creditors turnover

PARTICULARS Days in

2012

2011 360

2010 360

2009 360

2008 360

year 360

company operating Creditors turnover 27.15 26.02 13.84 39.50 9.11 22.77 15.81 23.30 16.14

Avg. consumption 13.26 period OR CCP

18 16 14 12 10 8 6 4 2 0

15.81 13.26 13.84

16.14

9.11
CCP

2012

2011

2010

2009

2008

1. RATIO ANALYSIS A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory. Current Ratio = Current Assets Current Liabilities

YEAR

CURRENT ASSETS

CURRENT LIABILITIES

CURRENT RATIO

2012 2011 2010 2009 2008

115612673.56 141934492.00 97761075.20 72335450.22 72171734.06

18528617.22 35172584.20 12343214.74 13758132.09 21676428.69

6.24 4.04 7.92 5.26 3.33

9 8 7 6 5 4 3 2 1 0 2012 2011 4.04 6.24

7.92

5.26 3.33 CR

2010

2009

2008

ANALYSIS The current ratio of the Satyam is above the standard and it guarantees the payment of dues in time. The current ratio of the company has been considerably high because they had made over

investment in inventories, which is the main reason for the high ratio of current assets. Inventories are high because of seasonal availability of raw material. The overall position of current ratio for Satyam is satisfactory. The current ratio of dye house has shown a remarkable increment from 3.33 in 2007-08to 5.26 in 2008-09 and then to 7.92 in 2009-10. Initially in 2007-08, the ratio was not satisfactory but it is quite satisfactory for the years after 2011-012and especially for the year 2009-10.

LIQUID RATIO Quick Ratio

Quick or Liquid Assets

Current Liabilities Quick Assets = Current Assets Inventory Prepaid Expenses

YEAR

LIQUID ASSETS

CURRENT LIABILITIES 18528617.22 35172584.20 12343124.74 13758132.09 21676428.69

LIQUID RATIO

2012 2011 2010 2009 2008

71845029.56 74081279.00 56583851.20 50693352.22 45231614.06

3.88 2.11 4.58 3.68 2.09

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

4.58 3.88 3.68

2.11

2.09

LR

2012

2011

2010

2009

2008

Analysis
According to rule of thumb, it should be 1:1. For Satyam, the liquid ratio present a uneven change over the past four years. It was 2.09 in 2007-08 and increased to 4.58 in 2009-10 and then to 2.11 in 2010-11. The decrement in the ratio is not satisfactory, however the ratio 2.11 in 2010-11 is more than the rule of thumb but it should be quite more than the rule of thumb. . WORKING CAPITAL TURNOVER RATIO Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio measures the efficiency with which the working capital is being used by a firm. Working Capital Turnover Ratio = COGS OR Sales Net Working Capital YEAR SALES NET WORKING CAPITAL 97084056.34 106761907.80 85417950.46 453662278.70 50495305.37 WCTR

2012 2011 2010 2009 2008

703988634.61 593474659.66 503359979.46 453662278.70 356117465.20

7.25 5.56 5.89 7.74 7.05

9 8 7 6 5 4 3 2 1 0 2009 2008 2007 2006 2005

WCTR

7.25 5.56 5.89

7.74 7.05

ANALYSIS This ratio indicates the number of times the working capital is turned over in the course of a year. A high working capital ratio indicates the effective utilization of working capital and less working capital ratio indicates less utilization. For Satyam, the ratio is quite same for the past five years. It is 7.05 in 2007-08, 7.74 in years 2008-09 and in2009-10 there was a slight change came over here and the ratio decreased to 5.89. And in the next year in 2010-11 the ratio stand at 5.56 For Satyam, the ratio is increasing once more in the very next year in 2011-12, It shows increment to 7.24. the ratio of the company is satisfactory.

STOCK TURNOVER RATIO This ratio tells the story by which stock is converted into sales. A high stock turnover ratio reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned over or sold during the year. STOCK OR INVENTORY TURNOVER RATIO = COGS OR SALES AVERAGE STOCK YEAR SALES AVERAGE STR or ITR

STOCK 2012 2011 2010 2009 2008

30 25 20 15 12.61 24.75 18.68 16.03
STR

703988634.61 593474659.66 503359979.46 453662278.70 356117465.20

55810428.5 23981268.5 31409661 24291109 18964744.11

12.61 24.75 16.03 18.68 18.78

18.78

10
5 0 2012 2011 2010 2009 2008

ANALYSIS: By analyzing the five-year data it seen, that it is seen that that from the year 2008 to 2009 & 2009 to 2010, it moves on a slow pace means, the ratio is increased in very nominal figures i.e. (.10) times and (2) times, which has been rectified in the year 2011. In 2011 there is a huge increase in inventory due to this ratio the company maintains is very high in 2011 and the company is required to take measures to lower down this ratio as it affects the working capital cycle of company and the flow of cash in the company. In 2012, company take measure to lower down its ratio which is good for company because a low stock turnover ratio reveals undesirable accumulation of obsolete stock.

DEBTORS TURNOVER RATIO: DEBTORS TURNOVER RATIO = CREDIT SALES AVERAGE DEBTORS YEAR CREDIT SALES AVERAGE DEBTORS 32503373 25923481.52 27348823.87 28677098.13 19374123.96 DTR

2012 2011 2010 2009 2008

703988634.61 593474659.66 503359979.46 453662278.70 356117465.20

21.66 22.89 18.41 15.82 18.38

25 20 15

21.66

22.89 18.41 15.82 18.38

10
5 0 2012 2011 2010 2009 2008

DTR

ANALYSIS Generally a low debtors turnover ratio implies that it considered congenial for the business as it implies better cash flow. The ratio indicates the time at which the debts are collected on an average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter collection period which indicates prompt payment made by the customer.

Now by analyzing the five year data it is said that company holds a good position while receivin its money from its debtors. The ratios are in variation trend, which implies that recovery position is good and company should maintain these positions. CREDITORS TURNOVER RATIO: Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. Generally a low creditors turnover ratio implies favorable since the firm enjoys lengthy credit period. CREDITORS TURNOVER RATIO = NET CREDIT PURCHASE AVERAGE CREDITORS YEAR CREDIT PURCHASE 567750535.58 505412322.46 421557817.32 358037616.35 300672597.42 AVERAGE CREDITORS 20914713.21 19426820.02 10672311.95 15724391.01 12906200.48 CTR

2012 2011 2010 2009 2008

27.15 26.02 39.50 22.77 23.30

45 40 35 30 25 20 15 27.15 26.02 22.77 39.5

23.3
CTR

10
5 0 2012 2011 2010 2009 2008

ANALYSIS Actually, this ratio reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. Generally, a low creditors turnover ratio implies favorable since the firm enjoys lengthy credit period. Now by analyzing the three years data it is found that in the year 2010 the ratio was very high which means that its position of creditors that year was not good only in the year 2010, but the other years creditors turnover ratio is in pretty good position. In the all four years it has followed, a decreasing trend, which is very good, sign for the company. Therefore, it is said that company enjoys a very good credit facility from the suppliers.

ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL

PARTICULARS CURRENT ASSETS: Inventories S. debtors Cash & Bank Balances Loans & Advances Total current assets (A) CURRENT LIABILITIES: S. creditors Provisions Security deposits & Retention money Total current liabilities (B) Working capital (A-B) Net increase in working capital

2008-09

2009-10

INCREASE

DECREASE

21642098.00 30359548.69 3407307.32

41177224.00 22158429.16 2297697.88

19535126 8201119.53 1109609.44

16926496.21

32127724.16

15201227.95

72335450.22

97761075.20

11585162.05 2072970.04 100000

9759461.84 2483662.90 100000

1825700.21 410692.86 ----------

13758132.09

12343124.74

58577318.13

85417950.46

36562054.16

9721421.83

26840632.33

26840632.33

85417950.46

85417950.46

36562054.16

36562054.16

PARTICULARS CURRENT ASSETS: Inventories S. debtors Cash & Bank Balances Loans & Advances Total current assets (A) CURRENT LIABILITIES: S. creditors

2010-11

2011-12

INCREASE

DECREASE ANAL YSIS ON

67853213 27508864 3665403.60

43767644 37497882 6891449.29 9989018 3226045.69

24085569

THE BASIS OF SCHED

42907011.40

27455698.27

15451313.13

ULE OF

141934492.00

115612673.56

CHAN GES IN WORK ING CAPIT

29094178.20

12735248.22

16358929.98

AL

Advance from customers Provisions Security deposits & Retention money Total current liabilities (B) Working capital (A-B) Net Decrease in working capital

2439050

722054

1716996

3539356.00 100000.00

4971315.00 100000 -----

1431959 -----

35172584.20

18528617.22

106761907.8

97084056.34

31290989.67

40968841.13

9677851.46

9677851.46

106761907.8

106761907.8

40968841.13

40968841.13

FOR YEARS 2009 AND 2010: As a look on the schedule of changes in working capital for the Satyam over the years 2008-09 and 2009-10, it is found that, among current assets, inventories, loans and advances have shown increment from year 2008-09 to year 2009-10. The sundry debtors and cash & bank balances have decreased in the same years. Among the current liabilities, the sundry creditors and other liabilities have decreased and provisions were increased. Therefore, the overall net working capital has increased. FOR YEARS 2010-11 AND 2011-12: Among the current assets, debtors and cash & bank balances have increased and inventories and loans & advances have shown decrement. The total current assets have increased. Among the current liabilities, sundry creditors and other liabilities have decreased which made a positive effect on networking capital and it increases, on the other hand, the provision increased which not directly but overall made a good effect on company. Therefore, the net working capital has also increased.

ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL INVENTORY ANALYSIS Inventory is total amount of goods and materials. Inventory means stock of three:1. Raw materials 2. Semi finished goods. 3. Finished goods. Position of inventory in Satyam: PARTICULARS Raw material W.I.P Finished goods TOTAL 2012 28833211 5912280 9022153 43767644 2011 37297025 9756023 20800165 67853213 2010 29407402 6270176 5499646 41177224 2009 12230900 4901850 4509348 21642098 2008 13921225 4735793 8283102 26940120

80000000 70000000 60000000 50000000 40000000

30000000
20000000 10000000 0 2012 2011 2010 2009 2008

STOCK

INTERPRETATION: By analyzing the 5 years data it is seen that the inventories are increased/decreased year by year. .The inventories are grown in2011-12 and 2010-11 respectively from previous year in figures it increases up to19535126 in2010 and inyear2011 it increases to 26675989 in comparison of 2010. . A company uses inventory when they have demand in market and Satyam is having a demand in industry market. That is biggest reason for increase in Inventories. From other point of view we can say that the liquidity of firm is blocked in inventories but to stock is very good due to uncertainty of availability of raw material in time.

SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and fall under Current assets. Debtors will arise only when credit sales made. Position of Sundry Debtors in Satyam

PARTICULARS DEBTS O/S FOR A PERIOD OF SIX MONTHS OTHER DEBTS TOTAL

2012 0.00

2011 203547.00

2010 118028.00

2009 85124.00

2008 262290.00

37497882.00 37497882.00

27305317.00 27508864.00

22040401.16 22158429.16

30274424.69 30359548.69

26732357.57 26994647.57

40000000 35000000 30000000 25000000 20000000 15000000 10000000 5000000 0 2012 2011 2010 2009 2008
DEBTORS

INTERPRETATION In the table and figure, it is seen that there are continuous variations in the debtors of Satyam in five (5) successive years. A simple logic is that debtors increase only when sales increase and if sales increases it is good sign for growth. It is seen that in the year 2009-10 the Debtors are at minimum level. Moreover, in next two years in 2011 & 2012 the debtors are continuously increasing. It is a good sign as well as negative also. Company policy of debtors is very good but a risk of bad debts is always present in high debtors. When sales are increasing with a great speed the profit also increases. If company decreases the Debtors, they can use the money in many investment plans. So, this variation is good from the firm prospect

CASH AND BANK BALANCE ANALYSIS

Cash called the liquid asset and vital current assets; it is an important component of Working capital. In a narrow sense, cash includes notes, bank draft, cheque etc. Position of Cash and Bank Balance in Satyam: -

PARTICULARS 2012 Cash & Bank 6891449.29 TOTAL 6891449.29

2011 3665403.60 3665403.60

2010 2297697.88 2297697.88

2009 3407307.32 3407307.32

2008 6617777.19 6617777.19

8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 2012 2011 2010 2009 2008
CASH & BANK

INTERPRETATION If we analyze the above table and chart it is find that it follows an increasing trend. In the year 2008, it had maintained a huge amount of cash and bank balance which has decreases in the year 2009, 2010 and 2011. Although companys cash position in the year2009, 2010 & 2011 was not sound so, this is not a very good sign for company. The analysis shows that the fix deposits of company are rapidly fallen in the year as 42.3% in 08- 09 respectively from year 2008 that is why company is have minimum balance in 2010 in comparison of all. Through analysis, it shows that company is utilizing the fixed cash for exploding the Projects that is good for growth.

LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties, company, employees For a specific period of time and in return they will be liable to make timely repayment of that Amount in addition to interest on that loan. PARTICULARS 2012 LOANS & 27455698.27 ADVANCES TOTAL 27455698.27 2011 42907011.40 42907011.40 2010 32127724.16 32127724.16 2009 16926496.21 16926496.21 2008 11619189.30 11619189.30

50000000 45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000 5000000 0 2012 2011 2010 2009 2008

LOANS &

INTERPRETATION If we analyze the table and the chart it is seen that it follows an increasing trend which is a Good sign for the company. The increase of loans and advances are increases year by year except the year 2012. In the year 2011 there is more than Rs 4 crore given as loan, due to this a lot of amount was blocked. But it used for expansion of business. The increasing pattern shows that company is giving advances for the expansion of plants and Machinery which is good sign for better production. Although companys cash is blocked but This is good that company is doing modernization of plan competitors in market.

CURRENT LIABILITIES ANALYSIS Current liabilities are any liabilities that are incurred by the firm on a short term basis or current Liabilities that has to be paid by the firm within one year.

CREDITORS: PARTICULARS 2012 SUNDRY 12735248.22 CREDITORS TOTAL 12735248.22 2011 29094178.20 29094178.20 2010 9759461.84 9759461.84 2009 11585162.05 11585162.05 2008 19863619.97 19863619.97

30000000 25000000 20000000 15000000 10000000 5000000 0 2012 2011 2010 2009 2008
CREDITORS

INTERPRETATION If we analyze the above table then it is seen that it follow an uneven trend in the sundry creditors and other liabilities. In 2009 it decreased by 75% and in 2010 it further decreased by more then100%. In 09-10 it was increased because of growth in other liabilities. This is done because in the year2011 company purchased a bulk of raw material due to market variations. When company has minimum liabilities it creates a better goodwill in market. High current liabilities indicate that company is using credit facilities by creditors.

PROVISIONS ANALYSIS Position of Other Provisions in Satyam PARTICULARS 2012 PROVISIONS 4971315.00 TOTAL 4971315.00 2011 3539356.00 3539356.00 2010 2483662.90 2483662.90 2009 2072970.04 2072970.04 2008 1812808.72 1812808.72

6000000 5000000 4000000 3000000 2000000 1000000 0 2012 2011 2010 2009 2008
PROVISIONS

INTERPRETATION From the above table it is seen that provision shows a growing trend and the huge amount is being kept in these provisions. Though the profits of the company are increased, income tax is also increased. Therefore, there is a great need of maintaining proper provisions, which is good that company is creating in time. The provisions are increasing as the tax increases. Although company is paying more income tax that is why because company also earning more. This is good sign for Company.

FINDINGS

By conducting the study about working capital management, It is found out that working
capital management of SATYAM is good. SATYAM has sufficient funds to meet its current obligation every time, which is due to sufficient profits and efficient management of SATYAM.

Company is cash rich but as there are expansion and diversification plans , company is not utilizing these funds. For meeting the working capital needs and capacity expansion needs, it has borrowed from banks.

Lack of advertisement can be considered to be a weak point for the Sathe Synthetics. The amount of stock is increasing per year, which is a good sign, as it would help them in the tough competition coming ahead. Firm profitability can be increase by shortening accounts receivables and inventory periods.

CONCLUSION

By concluding the study about the working capital it is find that working capital management of Satyam cottex pvt. ltd. is too good. Satyam cottex pvt ltd. has sufficient funds to meet its current obligation every time which is due to sufficient profits and efficient management of Satyam. Cash management and receivable management are too good because of centralized control on these. Safety measures for inventories are also quiet sufficient in company. Overall the working capital management of satyam cottex pvt ltd is efficient.

SUGGESTIONS

Management should make the proper use of inventory control techniques like fixation of minimum, maximum and ordering levels for all the items for less blockage of money. The company should also adopt proper inventory control like ABC analysis etc. This inventory system can make the inventory management more result oriented. The EOQ should also follow in stores.

The company should train its work force properly, which would enable the company to utilize its resources properly and in the interim help in minimizing wastage, and hence result in the expansion of its market share.

Due to competition, prices are market driven and for earning more margin company should give the more concentration on cost reduction by improving its efficiency. The investments of surplus funds made by the corporate office and the units are not generally involved while taking decisions with regard to structure of investment of surplus funds. The corporate office should involve the units to better ascertain the future requirements of funds and accordingly the investments made in different securities.

The company is losing its overseas customers due to decrease in exports so; the sufficient amount of exports should the maintained. Companys Average debtor collection period of company is 19 days. Therefore, it would be the one of the positive point for company and company should maintain it for future.

RECOMMENDATIONS

The essence of effective working capital management is proper cash flow forecasting. This should take into account the impact of unforeseen events, market cycles, loss of a prime customer and actions by competitors. So, the effect of unforeseen demands of working capital should be factored by company. This was one of its reasons for the variation of its revised working capital projection from the earlier projection. It pays to have contingency plans to tide over unexpected events. While market-leaders can manage uncertainty better, even other companies must have risk-management procedures. These must be based on objective and realistic view of the role of working capital. Addressing the issue of working capital on a corporate-wide basis has certain advantages. Cash generated at one location can well be utilized at another. For this to happen, information access, efficient banking channels, good linkages between production and billing, internal systems to move cash and good treasury practices should be in place. An innovative approach, combining operational and financial skills and an allencompassing view of the companys operations will help in identifying and implementing strategies that generate short-term cash. This can be achieved by having the right set of executives who are responsible for setting targets and performance levels. They could be then held accountable for delivering, encouraged to be enterprising and to act as change agents. Effective dispute management procedures in relation to customers will go along way in freeing up cash otherwise locked in due to disputes. It will also improve customer service and free up time for legitimate activities like sales, order entry and cash collection. Overall, efficiency will increase due to reduced operating costs. Working capital management is an important yardstick to measure a company operational and financial efficiency. This aspect must form part of the strategic and operational thinking. Efforts should constantly be made to improve the working capital position. This will yield greater efficiencies and improve customer satisfaction.

BIBLIOGRAPHY

WEBSITES:-

Lazaridis, Ioannis and Tryfonidis, Dimitrios, Relationship between Working Capital Management
and Profitability of Listed Companies in the Athens Stock Exchange. Journal of Financial Management and Analysis, Vol. 19, No. 1, January-June 2006. Available at SSRN: http://ssrn.com/abstract=931591

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=931591&rec=1&srcab
s=966188

http://www.emeraldinsight.com/Insight/ViewContentServlet?contentType=Article&S.Sename=/
published/emeraldfulltextarticle/pdf/2910030202.pdf

BOOKS AND JOURNALS

Anand, M. 2001. Working Capital performance of corporate India: An empirical survey, Management & Accounting Research, Vol. 4(4), pp. 35-65 Berryman, J. 1983. Small Business Failure and Bankruptcy: A survey of the Literature, European Small Business Journal, 1(4), pp47-59 Bhattacharya, H. 2001. Working Capital Management: Strategies and Techniques, Prentice Hall, New Delhi. Grablowsky, B. J. 1976. Mismanagement of Accounts Receivable by Small Business, Journal of Small Business, 14, pp.23-28 Grablowsky, B. J. 1984. Financial Management of Inventory, Journal of Small Business Management, July, pp. 59-65

Shields, Patricia and Hassan Tajalli. 2006. Intermediate Theory: The Successful Student Scholarship. Journal of Public Affairs Education. Vol. 12, No. 3. Pp. 313-334.

ANNEXURES BALANCE SHEET AS AT

PARTICULARS SOURCES OF FUNDS 2012-11 2010-11 2009-10 2008-09 2007-08

SHARE CAPITAL RESERVE AND SURPLUS LOAN FUNDS SECURED LOANS DEFERED TAX LIABILITY UNSECURED LOANS TOTAL APPLICATION OF FUNDS FIXED ASSETS A: GROSS BLOCK B: less DEPRICIATION C: NET BLOCK D:CURRENT ASSETS INVENTORY SUNDRY DEBTORS CASH IN HAND & BANK LOANS AND ADVANCES E:CURRENT LIABILITIES SUNDRY CREDITORS ADVANCE FROM CUSTOMERS/DLRS PROVISIONS (D-E)NET CURRENT ASSETS MISCELLANEOUS EXPENSES TOTAL

19901000.00 19901000.00 345519604.82 29625127.98

19901000.00 15253853.53

19901000.00 21829192.29

19901000.00 20785949.94

72686105.58 3383097.00 43486673.00

88539002.13 3449412.00 46947616.00

94535519.74 3080483.00 28872233.00

55323395.23 662332.00 15703501.00

54399581.72 --------14408414.70

173976583.65 188462261.36 171643192.52 113419523.77 109495049.61

178453951.93 172240571.18 164888412.68 126570061.76 123370584.96 101561424.62 90540217.62 78663170.62 71729938.62 64380715.62 76892527.31 81700353.56 86225242.06 54840123.14 58989869.34

43767644.00 37497882.00 6891449.29 27455698.27

67853213.00 27508864.00 3665403.60 42907011.40

41177224.00 24338099.04 2297697.88 32127724.16

21642098.00 30359548.69 3407307.32 16926496.21

26940120.00 26994647.57 6617777.19 11619189.30

12735248.22 822054.00 4971315.00 97084056.34 ---------

29094178.20 2539050.00

9759461.84 100000.00

11585162.05 100000.00 2072970.04 58577318.13 2082.50

19863619.97 -------------1812808.72 50495305.37 9874.90

3539356.00 2483662.90 106761907.80 85417950.46 ----------------

173976583.65 188462261.36 171643192.52 113419523.77 10945049.61