MBA Programme

INTRODUCTION
INTRODUCTION TO FINANCIAL MANAGEMENT
Finance in the modern business world is regarded as life blood of a business
enterprise; finance function has become so important that it has give birth to financial
management as a separate subject. So this subject is acquiring universal applicability.
Financial management is that managerial activity, which is concerned with the planning
and controlling of the firm's financial resources, as a separate activity of recent origin it
was a branch of its own, and it draws heavily on economics for its theoretical
concepts.
Financial management is broadly concerned with the acquisition and use of
funds by a business firm. It deals with
. !ow large should the firm be and how fast should it grow"
#. $hat should be the composition of the firm's avels"
%. $hat should be the mi& of the firm's financing"
'. !ow should the firm analysis, plan and control its financial affairs"
$hile the first three questions e&press ()ra Solomon's conception of financial
management as discussed in his clerical wor*. +,he theory of financial
management+ the forth one represents an addition that is very relevant in the light of
the responsibilities shouldered by finance managers in practice.
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Key activities of financial management
,he three broad activities of financial management
Financial analysis, planning and control.
-anagement of the firm's asset structure.
Management of the fim!s financial st"ct"e
Financial Analysis# $lanning An% Contol
Finance analysis, planning and control are concerned with
.ssessing the finance performance and conciliation of the firm.
Forecasting and planning the finance future of the firm.
(stimating the financing needs of the firm.
Instituting appropriate systems and control to ensure that the actions of the firm.
,he modern thin*ing in financial management accords a far greater importance to
management in decision ma*ing and formulation of policy. Financial management
occupies *ey position in top management and plays a dynamic role in solving comple&
management problems. ,hey are now responsible for snapping the fortunes of the
enterprise and are involved in allocation of capital.
Nat"e of financial management
Financial management is that managerial activity which is concerned with
the planning and controlling of the financial resources. ,hough it was a branch of
economics t i l l /01, as a separate activity or discipline it is of recent origin still, it
has no unique body of *nowledge of its own and draws heavily on economics for its
theoretical concept even today. Financial management is that managerial activity
which is concerned with the planning and controlling of the firms financial
resources.
2usiness finance may further sub divided into various categories personal
finance, partner ship finance and corporate or company finance as separate activity
it is of recent origin. ,he finance in the modern world is the life of the business economy.
$e can't imagine a business without finance because it is actual point of all business
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activities. Finance function has not unique body it is part of economics,
accounting mar*eting, product and quantitative methods.
Management Of The Fim!s Asset &t"ct"e Involves
-anagement of the firm's asset structure involves
. 3etermining the capital budget.
#. -anaging the liquid resources.
%. (stablishing the credit policy.
'. 4ontrolling the level of inventories
Management of the fim!s financial st"ct"e
-anagement ofthe firm's financial structure involves
. (stablishing the debt5equity ratio or financial leverage.
#. 3etermining the divided policy.
%. 4hoosing the specific instruments of financing.
'. 6egotiating and developing relationship with various suppliers of
capital.
&co'e of financial management
,he approach the scope and functions of financial management is vided, for
purpose of e&position into two broad categories
. ,he traditional approach.
#. ,he modern approach.
The ta%itional a''oach
,he traditional approach of the scope of the financial management efers to its
subject matter. ,he scope of the finance function was treated by the traditional approach in the
narrow sense of procurement of funds by corporate enterprise to meet their financing needs.
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. ,he institutional agreement in the form of financial institution
which comprise the organi)ation of the capital mar*et.
#. ,he financial instruments through which funds are raised from the
capital mar*ets and the related aspects of practices and the
procedural aspects of capital.
%. ,he legal and accounting relationships between a firm and its sources of
funds.
,he coverage of corporations, finance was therefore conceived to ascribe the
rapidly evolving comple& of capital mar*ets institutions istruments and practices.
,he first argument against the traditional approach was based on its nphasis on
issues relating to the procedural of iimds by corporate iterprises. ,he second
ground of criticism of the traditional treatment as that the focus was on financing of
corporate enterprises.
,he traditional treatment was found to have a lacuna to the e&tent that the focus
was on term financing. ,he limitation of the traditional approach was more
fundamental it did not consider the important dimension of allocation of capital
Mo%en A''oach
,he modern approach views the term financial management in a broad sense
and provides a conceptual analytical frame wor* for financial decision ma*ing.
.ccording to it the finance function covers both acquisitions of fund as well as their
allocation, the main concern of financial management is the efficient and wise
allocation of funds to various as an defined in a broad sense, and it is viewed as
an integral part of overall management.
Financial management in the modern sense of the term can be bro*en down
into three major decisions as function of finance.
. ,he investment decision.
#. ,he financing decision.
%. ,he dividend policy decision.
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Investment Decision
,he investment decision relates to the selection of quest in which mds will be
invested by a firm. ,he assets are of two types they are
. 7ong .term assets and
#. Short term assets 8or9 current assets.
,he assets selection decision of a firm is of two types. ,he first itegory of
assets is popularly *nown as +capita: budgeting+ .nd the second category of assets is
*nown as 'wor*ing capital management+
Ca'ital ("%geting
,he capital budgeting is the oldest and most crucial decision of relates to
allocation of capital and involves the decision to commit funds to long term assets
which would yield benefits in future. ,he measurement of the worth of the
investment proposals is a major element in the capital budgeting decision.
Further benefits are difficult to measure and can't be predicted with
certainty. So the second element of the capital budgeting decision is the
analysis of ris* and uncertaint y. ,he investment proposals should therefore be
evaluated in terms of both e&pected return and ris* associated with the return. ,he
total assets and their composition.
. ,he business rise completion f the firm.
#. 4oncept and measurement of cost of capital
)o*ing ca'ital management
$or*ing capital management is concerned of current assets. ,he financial
manager has a duty to manage the current assets affects firm's profitability liquidity
and ris*. ;ne aspect of wor*ing capital management is the trade of
profitability and ris*. ,here is a conflict between profitability and liquidity. If
firm doesn' t have adequate wor*ing capital it may become liquidity.
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If the current assets are too large, the profitability is adversely af fected.
,hus a proper trade off must be achieved between profitability id liquidity in order
to ensure that neither in sufficient unnecessary finds invested in current assets. ,he
financial managers should develop <und techniques of managing current assets. !e
should estimates firm's wor*ing capital needs and ma*e sure that funds would be made
available hen needed.
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Financial %ecision
,he second important function to be performed by the financial manager. !e must
decide when where and how to acquire funds to meet e firm's needs. ,he financial
manager is concerned with determining e financing mi& can capital structure for his
firm. ;nce the financial manager is able to determine the best combination of debts
and equity he must raise the appropriate amount through best available sources.
Divi%en% %ecision
3ividend decision is the third major financial decision the financial manager
must the firm should distribute all profits 8or9 retain then 8or9 distribute a portion and
retain the balance, the optimum dividend policy s one which ma&imi)es the mar*et
value of the firm's dividends policy, he manager must determined the optimum
dividend payout ratio. Finding the firm's appropriate role in the efforts they solve these
problems demanding on increasing the proportion of these items of financial
manager.
O+,ectives of financial management
Financial management is concerned with procurement and use of funds it' s
main aim is to use business funds in such a way that the firm's value earning are
ma&imi)ed. ,here are various alternatives available for sine business funds. (ach
alternative course has valuated in detail. ,he decisions will have to ta*e in to
consideration the commercial strategy of the business. Financial management
provides a frame wor* for selecting a course of action and deciding available
commercial strategy. ,he -ain objective of a business is to ma&imi)e the owner's
economic welfare.
,he objectives can be achieved by
. =rofit ma&imi)ation.
#. $ealth ma&imi)ation
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$ofit ma-imi.ation
,he main objectives of any business enterprise is ma&imi)ation of profits. (ach
company raises its finance by way of issue shares to public. Investors purchase these
shares in the hoe of getting ma&imum profits from the company as dividend. It is
possible only where the company's goal to earn +profit+ can beyond in two senses
. .s a owner5oriented concept
#. ;perational concept
.s owner5oriented concept it refers to the amount and share of national
income which is paid to the owners of business i.e., those who supply capita>. It
is an operational concept and signifies economic efficiency.
!igher profits are the parameters of its efficiency on all fronts that is
production, sales and management. . few replace the concept of profit
ma&imi)ation to safe5guard the economic interest of persons who directly or
indirectly connected with the company that is share holders, creditors and employees
the all such interested parties must get the ma&imum return for their contributions.
',hat this is possible only when the company earns higher profits or sufficient
profits to discharge its obligations to them. ,herefore, the goal of ma&imi)ation of
profits said to be the best criteria of the decision ma*ing.
,hus the retinal behind ma&imi)ation of profits is simple because profits are
the test of economic efficiency. It is a measuring rod by which the economic
performance of the company can be judged
. =rofits lead to efficient allocation of resources
#. It ensures ma&imum social welfare
Goal of /ealth ma-imi.ation
,his is also *nown as +value ma&imi)ation+ of +6et present worth ma&imi)ation+
wealth ma&imi)ation is universally accepted as an appropriate operational decision
criteria for financial decision ma*ing. ,he value of an asset should be viewed in
terms of benefits it can produce. ,he worth of a course of action can similarly
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be judged in terms of the value of the benefits it produces less the cost of underta*ing
it.
,he wealth ma&imi)ation objective is consistent with the objectives of
ma&imi)ation of owner's economic welfare that is their welfare the wealth of
owners of company is reflected by the mar*et value of company shares. ,hus
the fundamental principal of the company is to ma&imi)e the value of its share on
the basis of day to day fluctuations of the mar*et price.
In order to li*e the mar*et price of its shares over the short run at the e&pense
or me long run by temporarily diverting source If its funds some other accounts or by
the cutting some of its e&penditure to the cutting at the cost of future profits. ,his does
not reflect the worth of ie share because it will result in the fall of the share price in the
mar*et i the long run. It is therefore the goal of the financial management to ensure its
share holders that the value of their shares will be ma&imi)e in le long run. ,he
performance of the company can be evaluated by the value of its shares0
Im'otance of financial management
Financial management is of greater importance in the present corporate
would it is a science of money. $hich permits the authorities to go further. ,he
significance of financial management can be summari)ed as
. It assists in the assessment of financial needs of industry large or small and
indicates the internal and e&ternal resources for meeting them.
#. It assesses the efficient and effectiveness of the financial initiation in
mobili)ing individual or corporate savings. It also prescribes various
means for such mobili)ing of saving into desirable investment channels.
%. It assists the management while investing funds in profitable projects by
analy)ing the viability of that project through capital budgeting techniques.
C"ltivation
Successful cultivation of cotton requires a long frost5free period, plenty of
sunshine, and a moderate rainfall, usually from ?11 to i#11mm 8#' to '/
inches9. Soils usually need to be fairly heavy, although the level of nutrients does
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not need to be e&ceptional. In general, these conditions are met within the seasonally
dry tropics and subtropics in the 6orthern and Southern hemispheres, but a large
proportion of the cotton grown today is cultivated in areas wilh less rainfall that obtain
the water from irrigation.
=roduction of the crop for a given year usually starts soon after harvesting the
preceding autumn. =lanting time in spring in the 6orthern hemisphere varies from the
beginning of February to the beginning of @une. ,he area of the Anited States *nown
as the South =lains is the largest contiguous cotton5growing region in the world. It is
heavily dependent on irrigation water drawn from the ;gallala .quifer.
4otton is a thirsty crop, and as water resources get tighter around the
world, economies that rely on it face difficulties and conflict, as well as potential
environmental problems. For e&ample, cotton has led to desertification in areas of
A)be*istan, where it is a major e&port. In the days of the Soviet Anion, the .ral
Sea was tapped for agricultural irrigation, largely of cotton, and now salivation is
widespread.
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Ca'ital +"%geting
42 is a long term investment made by the organi)ation in different projects and it
helps the firm in evaluating the projects under ta*en by different techniques..ccording to
)eston an% (igham 142 involves the entire process of planning e&penditures whose
returns are e&pected to e&tend beyond one year.
,he 42 decisions include replacement, e&pansion, diversification research and
development and miscellaneous proposals.
Feat"e Of Ca'ital ("%geting
,he important features, which distinguish capital budgeting decision in other day5
today decision, are 4apital budgeting decision involves the e&change of current funds for
the benefit to be achieved in future. ,he futures benefits are e&pected and are to be
reali)ed over a series of years. ,he funds are invested in non5fle&ible long5term funds.
,hey have a long term and significant effect on the profitability of the concern. ,hey
involve huge funds. ,hey are irreversible decisions. ,hey are strategic decision associated
with high degree of ris*.
Im'otance of Ca'ital ("%geting
,he importance of capital budgeting can be understood from the fact that an
unsound investment decision may prove to be fatal to the very e&istence of the
organi)ation.
,he importance of capital budgeting arises mainly due to the followingB
20 Lage investment3
4apital budgeting decision, generally involves large investment of funds. 2ut the
funds available with the firm are scarce and the demand for funds for e&ceeds resources.
!ence, it is very important for a firm to plan and control its capital e&penditure.
#. Long tem commitment of f"n%s3
4apital e&penditure involves not only large amount of funds but also funds for
long5term or a permanent basis. ,he long5term commitment of funds increases the
financial ris* involved in the investment decision.
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40 Ievesi+le nat"e3
,he capital e&penditure decisions are of irreversible nature. ;nce, the decision for
acquiring a permanent asset is ta*en, it becomes very difficult to impose of these assets
without incurring heavy losses.
50 Long tem effect on 'ofita+ility3
4apital budgeting decision has a long term and significant effect on the profitability of a
concern. 6ot only the present earnings of the firm are affected by the investment in capital assets
but also the future growth and profitability of the firm depends up to the investment decision
ta*en today. 4apital budgeting decision has utmost has importance to avoid over or under
investment in fi&ed assets.
60 Diffeence of investment %ecision3
,he long5term investment decision are difficult to be ta*en because uncertainties
of future and higher degree of ris*.
70 Notional Im'otance3
Investment decision though ta*en by individual concern is of national importance
because it determines employment, economic activities and economic growth.
Kin%s Of Ca'ital ("%geting
(very capital budgeting decision is a specific decision in the situation, for a given
firm and with given parameters and therefore, almost infinite number of types or forms of
capital budgeting decision may occur. Some projects affect other projects of the firm is
considering and analy)ing. ,he project may also be classified as revenue generating or
cost reducing projects can be categori)ed as follows.
20 Fom the 'oint of vie/ of fim8s e-istenceB
,he capital budgeting decision may be ta*en by a newly incorporated firm or by an
already e&isting firm.
Ne/ FimB . newly incorporated firm may be required to ta*e different decision such
as selection of a plant to be installed, capacity utili)ation at initial stages, to set up or not
simultaneously the ancillary unity etc.
E-isting Fim3 . firm which already e&ists may be required to ta*e various decisions
from time to time meet the challenge of competition or changing environment. ,hese
decisions may beB
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Re'lacements an% Mo%eni.ation DecisionB
,his is a common type of a capital budgeting decision. .ll types of plant and
machineries eventually require replacement. If the e&isting plant is to be replaced because
of the economic life of the plant is over, then the decisions may be *nown as a
replacement decision. !owever, if an e&isting plant is to be replaced because it has
become technologically outdated 8though the economic life may not be over9 the decision
any be *nown as a modernization decision. In case of a replacement decision, the
objective is to restore the same or higher capacity, whereas in case of moderni)ation
decision, the objectives are to increase the efficiency andCor cost reduction. In general, the
replacement decision and the moderni)ation decision are also *nown as cost reduction
decisions.
E-'ansionB
Sometimes, the firm may be interested in increasing the Installed production capacity so
as to increase the mar*et share. In such a case, the finance manager is required to evaluate
the e&pansion program in terms of marginal costs and marginal benefits.
9i: DivesificationB
Sometimes, the firm may be interested to diversify into new product lines, new mar*ets;
production of spares parts etc. in such a case, the finance manager is required to evaluate
not only the marginal cost and benefits, but also the effect of diversification on the
e&isting mar*et share and profitability. 2oth the e&pansion and diversification decisions
may be also be *nown as revenue increasing decisions.
,he capital budgeting may also be classified from the point of view of the decision
situation as followsB
In%e'en%ent 'o,ect Decision3
,his is a fundamental decision in 4apital 2udgeting. It also called as accept Creject
criterion. If the project is accepted, the firm invests in it. In general all these proposals,
which yield a rate of return greater than a certain required rate of return on cost of
capital, are accepted and the rest are rejected. 2y applying this criterion all independent
projects with one in such a way that the acceptance of one precludes the possibility of
acceptance of another. Ander the accept5reject decision all independent projects that
satisfy the minimum investment criterion should be implemented.
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9ii: M"t"ally E-cl"sive $o,ects Decision3
-utually (&clusive project are those, which compete with other projects in such a
way that the acceptance of one will e&clude the acceptance of the other projects. ,he
alternatively are mutually e&clusive and only one may be chosen. Suppose a company is
intending to buy a new machine. ,here are three competing brands, each with a different
initial investment adopting costs. ,he three machines represent mutually e&clusive
alternatives as only one of these can be selected. It may be noted here that the mutually
e&clusive projects decisions are not independent of the accept5reject decisions.
9iii: Ca'ital Rationing Decision3
In a situation where the firm has unlimited funds all independent investment
proposals yielding return greater than some pre5determined levels are accepted. !owever
this situation does not prevail in most of the business firms in actual practice. ,hey have a
fi&ed capital budget.
. large number of investment proposals compete for these limited funds, the firm
must therefore ration them. ,he firm allocates funds to projects in a manner that it
ma&imi)es long run returns; this rationing refers to a situation in which a firm has more
acceptance investment than it can finance. It is concerned with the selection of a group of
investment proposals acceptable.
Ander the accept5reject decision capital rationing employees ran*ing of the
acceptable investment projects. ,he project can be ran*ed on the basis of a predetermined
criterion such as the rate of return. ,he project is ran*ed in the descending order of the
rate of return.
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$o+lems An% Diffic"lties In Ca'ital ("%geting
,he problems in 4apital budgeting decision may be as followsB
F"t"e "ncetainty3
4apital budgeting decision involves long5term commitments. !owever there is lot
of uncertainty in the long term. Ancertainty may be with reference to cost of the project,
future e&pected returns, future competition, legal provisions, political situation etc.
Time Element3
,he implication of a 4apital 2udgeting decision are scattered over a long period.
,he cost and benefit of a decision may occur at different points of time. ,he cost of
project is incurred immediately. !owever the investment is recovered over a number of
years. ,he future benefits have to be adjusted to ma*e them comparable with the cost.
7onger the time period involved, greater would be the uncertainty.
Diffic"lty in ;"antification of im'act3
,he finance manager may face difficulties in measuring the cost and benefits of
projects in quantitative terms. For e&ample, the new products proposed to be launched by
a firm may result in increase or decrease in sales of other products already being sold by
the same firm. It is very difficult to ascertain the e&tent of impact as the sales of other
products may also be influenced by factor other than the launch of the new products.
Ass"m'tion in ca'ital +"%geting3
,he capital budgeting decision process is a multi5faceted and analytical process. .
number of assumptions are required to be made. ,hese assumptions constitute a general
set of condition within which the financial aspects of different proposals are to be
evaluated. Some of these assumptions areB
. Cetainty )ith Res'ect To Cost an% (enefits3
It is very difficult to estimate the cost and benefits of a proposal beyond #5% years
in future. !owever, for a capital budgeting decision, it is assumed that the estimate of cost
and benefits are reasonably accurate and certain.
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#. $ofit MotiveB
.nother assumption is that the capital budgeting decisions are ta*en with a
primary motive of increasing the profit of the firm. 6o other motive or goal influences the
decision of the finance manager.
%. No Ca'ital Rationing3
,he capital 2udgeting decisions in the present chapter assume that there is no
scarcity of capital. It assumes that a proposal will be accepted or rejected in the strength
of its merits alone. ,he proposal will not be considered in combination with other
proposals to the ma&imum utili)ation of available funds.
Ca'ital ("%geting $ocess
4apital budgeting is comple& process as it involves decision relating to the
Investment of current funds for the benefit for the benefit to be achieved in Future and the
future are always uncertain. !owever, the following procedure may be adopted in the
process of 4apital 2udgeting.
I%entification of investment 'o'osals3
,he capital budgeting process begins with the identification of investment
=roposals. ,he proposal about potential investment opportunities may originate either
from top management or from any officer of the organi)ation. ,he departmental head
analysis various proposals in the light of the corporate strategies and submits the suitable
proposals to the capital e&penditure planning.
&ceening 'o'osals3
,he e&penditure planning committee screens the various proposals received from
different departments. ,he committee reviews these proposals from various angles to
ensure that these are in accordance with the corporate strategies or selection criterion of
the firm and also do not lead departmental imbalances.
Eval"ation of <aio"s 'o'osals3
,he ne&t step in the capital budgeting process is to various proposals. ,he method,
which may be used for this purpose such as, paybac* period method, rate of return
method, 6.=.D and I.E.E etc.
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Fi-ing 'ioities3
.fter evaluating various proposals, the unprofitable uneconomical proposal may
be rejected and it may not be possible for the firm to invest immediately in all the
acceptable proposals due to limitation of funds. ,herefore, it essential to ran* the
projectCproposals after considering urgency, ris* and profitability involved in there.
Final a''oval an% 'e'aation of ca'ital e-'en%it"e +"%get
=roposals meeting the evaluation and other criteria are approved to be included in
the capital e&penditure budget. ,he e&penditure budget lays down the amount of
estimated e&penditure to be incurred on fi&ed assets during the budget period.
Im'lementing 'o'osals
=reparation of a capital e&penditure budget and incorporation of a particular
=roposal in the budget doesnFt itself authori)e to go ahead with the implementation of the
project. . request for the authority to spend the amount should be made to the capital
(&penditure committee, which reviews the profitability of the project in the changed
circumstances. Eesponsibilities should be assigned while implementing the project in
order to avoid unnecessary delays and cost overruns. 6etwor* technique li*es =(E, and
4=- can be applied to control and monitor the implementation of the projects.
$efomance Revie/
,he last stage in the process of capital budgeting is the evaluation of the
performance of the project. ,he evaluation is made by comparing actual and budget
e&penditures and also by comparing actual anticipated returns. ,he unfavorable variances,
if any should be loo*ed in to and the causes of the same be identified so that corrective
action may be ta*en in future.
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Metho%s o techni;"es of ca'ital +"%geting
,here are many methods for the evaluating the profitability of investment
proposals the various commodity used methods are
,echniques ;f 4apital 2udgeting

Ta%itional Metho%s Time A%,"ste% Metho%s
. =ay 2ac* =eriod . 6et =resent Dalue method
#. .ccounting Eate of Eeturn #. Internal Eate of Eeturn method
%. =rofitability Inde& method
Ta%itional metho%s3
=aybac* period method 8=.2.=9
.ccounting Eate of Eeturn -ethod 8..E.E9
Time a%,"ste% o %isco"nte% techni;"e3
8I9 6et =resent Dalue method 86.=.D9
8II9 Internal Eate of Eeturn method 8I.E.E9
8III9 =rofitability Inde& method 8=.I9
$ay (ac* $eio% Metho%
,he pay bac* come times called as payout or pay off period method represents the
period in which total investment in permanent assets pay bac* itself. ,his method is based
on the principle that every capital e&penditure pays itself bac* within a certain period out
of the additional earnings generated from the capital assets.
Decision "le
. project is accepted if its paybac* period is less than period specific decision
rule. . project is accepted if its paybac* period is less than the period specified by the
management and vice5versa.
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Initial 4ash ;utflow
=ay 2ac* =eriod G 5555555555555555555555555555
.nnual 4ash Inflows
A%vantagesB
Simple to understand and easy to calculate.
It saves in cost; it requires lesser time and labour as compared to other methods
of capital budgeting.
In this method, as a project with a shorter paybac* period is preferred to the one
having a longer pay bac* period, it reduces the loss through obsolescence.
3ue to its short5 time approach, this method is particularly suited to a firm which
has shortage of cash or whose liquidity position is not good.
Disa%vantages3
It does not ta*e into account the cash inflows earned after the paybac* period and
hence the true profitability of the project cannot be correctly assessed.
,his method ignores the time value of the money and does not consider the
magnitude and timing of cash inflows.
It does not ta*e into account the cost of capital, which is very important in ma*ing
sound investment decision.
It is difficult to determine the minimum acceptable paybac* period, which is
subjective decision.
It treats each assets individual in isolation with other assets, which is not feasible
in real practice.
Acco"nting Rate Of Ret"n Metho%3
,his method ta*es into account the earnings from the investment over the whole
life. It is *nown as average rate of return method because under this method the concept
of accounting profit 86= after ta& and depreciation9 is used rather than cash inflows.
.ccording to this method, various projects are ran*ed in order of the rate of earnings or
rate of return.
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3ecision rule3
,he project with higher rate of return is selected and vice5versa.
,he return on investment method can be in several ways, as
Ander this method average profit after ta& and depreciation is calculated and then it is
divided by the total capital out lay.

.verage .nnual profits 8after dep.H ta&9
.verage rate of return G 55555555555555555555555555555555555555555 5555 & 11
.verage Investment
A%vantages3
It is very simple to understand and easy to calculate.
It uses the entire earnings of a project in calculating rate of return and hence gives
a true view of profitability.
.s this method is based upon accounting profit, it can be readily calculated from
the financial data.
Disa%vantages3
It ignores the time value of money.
It does not ta*e in to account the cash flows, which are more important than the
accounting profits.
It ignores the period in which the profit are earned as a #1I rate of return in # J
years is considered to be better than /Irate of return in # years.
,his method cannot be applied to a situation where investment in project is to be
made in parts.
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Net $esent <al"e Metho%3
,he 6=D method is a modern method of evaluating investment proposals. ,his
method ta*es in to consideration the time value of money and attempts to calculate the
return on investments by introducing time element. ,he net present values of all inflows
and outflows of cash during the entire life of the project is determined separately for each
year by discounting these flows with firms cost of capital or predetermined rate. ,he steps
in this method are
9 3etermine an appropriate rate of interest *nown as cut off rate.
#9 4ompute the present value of cash inflows at the above Kdetermined discount rate.
%9 4ompute the present value of cash inflows at the predetermined rate.
'9 4alculate the 6=D of the project by subtracting the present value of cash
outflows.
Decision "le
.ccept the project if the 6=D of the projects 1 or positive that is present value of cash
inflows should be equal to or greater than the present value of cash outflows.
A%vantages3
It recogni)es the time value of money and is suitable to apply in a situation with
uniform cash outflows and uneven cash inflows.
It ta*es in to account the earnings over the entire life of the project and gives the
true view if the profitability of the investment
,a*es in to consideration the objective of ma&imum profitability.
Disa%vantages3
-ore difficult to understand and operate.
It may not give good results while comparing projects with unequal investment of
funds.
It is not easy to determine an appropriate discount rate.
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MBA Programme
Intenal Rate Of Ret"n Metho%
,he internal rate of return method is also a modern technique of capital budgeting
that ta*es in to account the time value of money. It is also *nown as time5 adjusted rate of
return or trial and error yield method. Ander this method the cash flows of a project are
discounted at a suitable rate by hit and trial method, which equates the net present value
so calculated to the amount of the investment. ,he internal rate of return can be defined as
Lthat rate of discount at which the present value of cash inflows is equal to the present
value of cash outflow.
Decision R"le3
.ccept the proposal having the higher rate of return and vice versa. If
IEE<M, accept project. MGcost of capital. If IEENM, reject project.
Detemination Of I
a9 $hen annual cash flows are equal over the life of the asset.
Initial ;utlay
F.4,;E G 55555555555555555555555555555555 & 11
.nnual 4ash inflow
b9 $hen the annual cash flows are unequal over the life of the assetB
=D of cash inflows at lower rate K =D of cash out flows
IEE G 7EO 555555555555555555555555555555555555555555555555555555555 8hr5lr9
=D of cash inflows at lower rate 5 =D of cash inflows at higher rate
,he steps are involved here areB
. =repare the cash flows table using assumed discount rate to discount the net cash
flows to the present value.
#. Find out the 6=D, H if the 6=D is positive, apply higher rate of discount.
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%. if the higher discount rate still gives a positive 6=D increases the discount rate
further. Antil the 6=D becomes )ero.
'. if the 6=D is negative, at a higher rate, 6=D lies between these two rates.
A%vantages3
it ta*es into account, the time value of money and can be applied in situation with
even and even cash flows.
It considers the profitability of the projects for its entire economic life.
,he determination of cost of capital is not a pre5requisite for the use of this
method.
It provide for uniform ran*ing of proposals due to the percentage rate of return.
,his method is also compatible with the objective of ma&imum profitability.
Disa%vantages3
It is difficult to understand and operate.
,he results of 6=D and IEE methods my differ when the projects under
evaluation differ in their si)e, life and timings of cash flows.
,his method is based on the assumption that the earnings are reinvested at the IEE
for the remaining life of the project, which is not a justified assumption0
$ofita+ility in%e-metho% o +enefit cost atio metho%3
It is also a time5adjusted method of evaluating the investment proposals. =I also
called benefit cost ratio or desirability factor is the relationship between present value of
cash inflows and the present values of cash outflows. ,hus
=D of cash inflows
=rofitability inde& G 55555555555555555555555555555
=D of cash outflows
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6=D
6et profitability inde& G 555555555555555555555555555
Initial ;utlay
.dvantagesB
Anli*e net present value, the profitability inde& method is used to ran* the
projects even when the costs of the projects differ significantly.
It recogni)es the time value of money and is suitable to applied in a situation with
uniform cash outflow and uneven cash inflows.
It ta*es into account the earnings over the entire life of the project and gives the
true view of the profitability of the investment. ,a*es into consideration the
objectives of ma&imum profitability.
3isadvantagesB
-ore difficult to understand and operate.
It may not give good results while comparing projects with unequal investment
funds.
It is not easy to determine and appropriate discount rate.
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MBA Programme
INDU&TR= $ROFILE
Te-tile In%"sty3
,he te&tile industry occupies a unique place in our 4ountry .;ne of
the earliest to come into e&istence in India, it accounts or 'I of the total Industrial
production, contributes to nearly %1I of the total e&ports and is the second largest
employment generator after agriculture.
India contributes to about #PI share in the world trade of cotton yarn.
India, the worldFs third5largest producer of cotton and the second5 7argest producer of
cotton yarns and te&tiles, is poised to play an increasingly important role in global cotton
and te&tile mar*ets as a result of domestic and multilateral policy reform.
Indian te&tile industry contributes about ## I to the world spindle age
and about ?I to the world rotor capacity installed .India has second highest spindle age in
the world after 4hina with an installed capacity of %/.?1 million spindles. Indian te&tile
industry has the highest loom age 8including handlooms9 in the world and contributes
about ?I of the world loom age. It contributes about #I to the world production of
te&tile fibers and yarns. India is one of the largest consumers of cotton in the world,
ran*ing second ne&t to 4hina in production of cotton yarn and fabrics and first in installed
spinning and weaving capacity.
,e&tile industry is providing one of the most basic needs of people and the holds
importance; maintaining sustained growth for improving quality of life. It has a unique
position as a self5reliant industry, from the production of raw materials to the delivery of
finished products, with substantial value5addition at each stage of processing; it is a major
4ontribution to the country's economy.
Its vast potential for creation of employment opportunities in the
agricultural, industrial, organi)ed and decentrali)ed sectors H rural and urban areas,
particularly for women and the disadvantaged is 6oteworthy.
.lthough the development of te&tile sector was earlier ta*ing place in terms
of general policies, in recognition of the importance of this sector, for the first time a
separate =olicy Statement was made in 0/P in regard to development of te&tile sector.
,he te&tile policy of #111 aims at achieving the target of te&tile and apparel e&ports of
AS Q P1 billion by #11 of which the share of garments will be AS Q #P billion. ,he main
mar*ets for Indian te&tiles and apparels are AS., A.(, AM, Rermany, France, Italy,
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MBA Programme
Eussia, 4anada, 2angladesh, and @apan.
,he main objective of the te&tile policy #111 is to provide cloth of
acceptable quality at reasonable prices for the vast -ajority of the =opulation of the
country, to increasingly contribute to the provision of sustainable employment and the
economic growth of the nation; and to compete with confidence for an increasing share of
the global mar*et vast pool of s*illed manpower; entrepreneurship; fle&ibility in
production process; and long e&perience with ASC(A 8(uropean Anion9.
.t the same time, there are constraints relating to fragmented industry,
constraints of processing, quality of cotton, concerns over power cost, labour reforms and
other infrastructural constraints and bottlenec*s. (.g., cost of power was Es./ per garment
in India whereas in 4hina it was only Es.# per garment.
Further, for the benefit of e&porters, there should be a state5owned cargo shipping
mechanism. Several initiatives have already been ta*en by the government to overcome
some of these concerns including rationali)ation of fiscal duties; technology up gradation
through the ,echnology Ap gradation Fund Scheme 8,AFS9; setting up of .pparel =ar*s;
and liberali)ation of restrictive regulatory practices.
C"ent scenaio3
3eveloping countries with both te&tile and clothing capacity may be able to
prosper in the new competitive environment after the te&tile quota regime of quantitative
import restrictions under the multi5fiber arrangement 8-F.9 came to an end on st
@anuary, #11P under the $orld ,rade ;rgani)ation 8$,;9 .greement on ,e&tiles and
4lothing.
,he mood in the Indian te&tile industry given the phase out of the quota regime of
the multi5fiber arrangement 8-F.9 is upbeat with new statement lowing in and increased
orders for the industry as a result of which capacities are fully boo*ed up to .pril #11P.
.s a result of various initiatives ta*en by the government, there has been new
investment of Es.P1, 111 crores in the te&tile industry in the last five years. 6ine te&tile
majors invested Es.#, ?11 crores and plan to invest another Es.?, '11 crores. Further,
India's cotton production increased by PSI over the last five years; and % million
additional spindles and %1,111 shuttles5less looms were installed. ,he industry e&pects
investment of Es., '1,111 crores in this sector in the post5-F. phase. . Dision #11
for te&tiles formulated by the government after intensive interaction with the industry
and (&port =romotion 4ouncils to capitali)e on the upbeat mood aims to increase
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India's share in world's te&tile trade from the current 'I to /I by #11 and to achieve
e&port value of AS Q P1 billion by #11 Dision #11 for te&tiles envisages growth in
Indian te&tile economy from the current AS Q %S billion to Q /P billion by #11; reaction
of # million new jobs in the te&tile sector; and moderni)ation and consolidation for
creating a globally competitive te&tile industry.
,here will be opportunities as well as challenges for the Indian te&tile industry in
the post5-F. era. 2ut India has natural advantages which can be capitali)ed on strong
raw material base 5 cotton, man5made fibers, jute, sil*; large production capacity
8spinning 5 #I of world capacity and weaving 5 %%I of world capacity but of low
technology9;
Investment in In%ian Te-tile In%"sty3
,he scenario of investment in the Indian te&tile industry started to change after the
inception of the special L,e&tile =ac*ageT during the #11%5#11' budgets. ,he
recommendations made in the budget included the reforms that are required to be made in
the fiscal policy of the Indian te&tile Industry for attracting investment in this industry.
,he policy matters associated with restructuring of debt for financial viability of this
industrial sector are also being addressed in this budget. . fund was set up in accordance
with the recommendations of the aforesaid budget with an initial principal amount of
Es.%111 crores. ,his fund was meant for restructuring of the te&tile sector.
Factos es'onsi+le fo /ooing the investos in In%ian te-tile in%"sty3
. ,he si)e of the te&tile along with apparel mar*et in India is quite big.
#. =erformance of this industry has been consistent right from the start of the new
millennium.
%. .vailability of the s*illed labor in India is comparatively cheap in relation to the
same in other parts of the world.
'. ,he policies related to the Foreign 3irect Investment in India are comparatively
lenient and are transparent in nature among all the developing countries.
P. ,here is no limit on foreign direct investment in the te&tile industry and hence
11I direct investment can be done by the foreign capitalists in the Indian te&tile
industry.
?. Foreign Investments done in the Indian ,e&tile Industry through the automatic
route offers a hassle5free way of investing. ,hese investments are not required to
be approved by the government or the ape& ban* of India, E2I. ,he foreign
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investors are only required to ma*e a notification to the regional office of the ape&
ban* only after receiving the receipt of the remittance. ,his notification is required
to be done within thirty days from the date of receiving remittance.
S. ,he ministry concerned with the development of te&tile Industry in India has
formed a special cell for attracting F3I in this sector.
O+,ectives of this s'ecial cell fo /ooing FDI ae3
. ,his cell helps the willing foreign companies to find out viable partners meant for
floating a joint venture company in order to produce te&tile products.
#. F3I special cell acts as the mediator between the foreign investor and the different
organi)ations for setting up the te&tile industry. ,he speciali)ed helps that are
given by this cell involve advisory support along with assistance.
%. .t the time of operation of the te&tile industry set by the foreign investor certain
problems may crop up. ,hese problems are sorted out by the F3I cell.
'. F3I cell monitors as well as maintains the data related with the total production of
the te&tile sector. ,hey also collect the stratified data of production by both
domestic industry as well as the industry set up by the foreign investor. It has been
found out that the percentage share of the te&tile industry in the total foreign
investment done was .1#I.. major development has occurred in the te&tile
industry when 2lac*stone, an investment management company of AS. has
bought P1.I sta*e of the domestic apparel manufacturing company called
Ro*aldas (&ports. ,he deal was sealed at the price of Es #SP per share. .fter the
completion of the sta*e transfer the promoters of the Ro*aldas (&ports, the
!indujas, were left with a share amounting to #1I.
P. .s a part of domestic te&tile sector e&pansion, the companies of Indian origin are
also not far behind in ma*ing investments. .rvind -ills 7imited is e&panding its
production as well as capacity base through the construction of two new industrial
set ups in 2angalore and .hmadabad. .nother te&tile company of India name
super =inning mills is also acquiring two sic* units of -adurai for enhancing their
production capacity for meeting the needs generated by the AS. mar*et. $orld
largest terry towel producing company called $els pun India 7td. Is setting up a
te&tiles plant in the state of Rujarat at the initial capital of AS ##1 million"
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GRO)T> OF INDIAN TE?TILE INDU&TR=3
Rrowth along with the investment of an industry depends heavily on the economic
health of the country. Indian economy grew rapidly during the fiscal year #11S5#11/
posting a growth rate of 0.'I p.a. 6ot only this, India has been performing significantly
in the last three years where its average yearly rate of growth has been estimated to be
/I. ,he fruits of economic growth have tric*led down to people of the state which can be
evidenced from the rising per capital income of India. Statistics reveal that during #11#5
#11/ 8up to -arch #11/9 the per capital income of India has increased by ?# I and has
reached the level of Es #P,SS/ or ASQ P/.%S per annum.
;ne of the most beneficial classes of this economic growth saga has been the
middle income section of the society. ,he total strength of this class in absolute terms has
been found out to be #? million which is e&pected to rise to %P million by #11. ,he
major demand that is being generated is by a new class of people from the booming I,5
2=; sector who are still at their prime age and are outwardly fashion savvy. ,his has
generated huge demand for fashionable dresses which has consequently led to the
emergence of some world class Indian designers with their latest fashion apparels.
=ropensity of consumption 8after e&cluding all spending on essential items li*e
housing, health, education, etc.9 by the average Indian people has increased at the rate of
PI to a total amount of ASQ #0 billion in the year #11P. .t this time, the organi)ed
retail sector has been able to tap a mar*et of around ASQ /.# billion which is projected to
increase to ASQ #P billion by #11.
,e&tile industry is one of the major contributors to the total output of the act growing
Indian industrial sector which is at present revolving around 'I. ,e&tile sector's
contribution to R3= of India is also significant which currently amounts to 'I. It has
been found out that Indian te&tile industry s one of the major sources of foreign e&change
earnings for India and contributes around ?5SI.From the above discussion it is quite
clear to us that the mar*et si)e of India is growing at a very high pace. ,hat is why the
foreign investors are floc*ing to India for investment purposes in order to get hold of a
chun* of this e&panding pie. $ith increasing demand for the products of Indian ,e&tile
Industry, new players are jumping in the league to get a slice of the profitable pie and the
already e&isting te&tile mills are raising their capacity for increasing their supply. !ence,
the e&pansion process of the domestic industry is also not far behind. ,hus, it can be said
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that the whole Indian economy is on a growing trend which has its obvious impact on
every possible sector including the Indian Industry. Indian ,e&tile Industry is going
through a major change in its outloo* after the e&piry of -ulti5Fiber .greement.
-ulti Fiber .greement was introduced in the year 0S' as a short term measure
directed towards providing a limited time period to the developed countries for adjusting
their te&tile industries in accordance with that of the developing countries. ,he te&tile
industries are characteri)ed by their labor intensive nature of commodity production.
.vailability of surplus labor is abundant in the developing countries. ,hese countries have
comparative advantage in the production of te&tile related products and hence are able to
supply goods at a very low price. ,he basic idea behind this policy was to eradicate all
sorts of quota system from the apparel and te&tile industry all over the world so that a
level playing field could be established.
6ow, this era after -F. is being loo*ed upon by the e&perts as a means through
which the Indian te&tile and apparel industry is going to grow a much faster pace and
would consequently be able to leave a mar* on the whole world. Integration of this Indian
industry with that of the whole world started from the last period of 0/1s. Ap to #11S5
#11/ where the final financial year represents the projected figure. ,he figure above
shows total produce of Indian ,e&tile Industry in fabric sector along with the produce in
all the sub sectors under it. ,his highlights the fact that the total production of fabricated
products by the Indian ,e&tile Industry between the period #11'5#11P and #11?5#11S
increased at a moderate rate from '0S% million square meters to 'P%S/ million square
meters. 2ut after the -F. period 8i.e. after 1.1.#11S9, the same has increased from
'P%S/ million sq. mts to P'#?1 million sq. mts between the period #11?5#11S and #11/5
#110. !ence it is evident that the percentage increase in the fabric te&tile product during
the period #11?5#11Sand #11/5#110 has seen a rise of around ?.%SI whereas it was
only S.PI during #11'5#11P and #11?5#11S.
National Te-tile $olicy3
. ,he 6ational ,e&tile =olicy was formulated *eeping in mind the following
objectivesB
#. 3evelopment of the te&tile sector in India in order to nurture and maintain its
position in the global arena as the leading and e&porter of clothing.
%. -aintenance of a leading position in the domestic mar*et by doing away with
import penetration.
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'. Injecting competitive spirit by the liberali)ation of stringent controls.
P. (ncouraging Foreign 3irect Investment as well as research and development in
this sector.
?. Stressing on the diversification of production and its up gradation ta*ing into
consideration the environmental concerns.
S. 3evelopment of a firm multi5fiber base along with the s*ill of the weavers and the
craftsmen.
&"ch goals ae set to meet the follo/ing tagets3
. ,he si)e of te&tile and apparel e&ports must reach a level of AS P1 billion by the
year #11.
#. ,he ,echnology up gradation Fund Scheme should be implemented in a strict
manner.
%. ,he garments industry should be removed from the list of the small scale industry
sector.
'. ,he handloom industry should be boosted and encouraged to enter into foreign
ventures so as to compete globally. ,he 6ational ,e&tile =olicy has also
formulated rules pertaining to certain specific sectors. Some of the most important
items in the agenda happen to be the availability and productivity along with the
quality of the raw materials. Special care is also ta*en to curb the fluctuating price
of raw materials. Steps have also been ta*en to raise sil* to the international
standard preamble.
P. ,o comprehend the purpose of te&tile industry that is to provide one the most
basic needs of the people and promote its sustained growth to improve the quality
of life.
?. ,o ac*nowledge te&tile industry as a self5reliant industry, from producing raw
materials to delivery of finished products; and its major contribution to the
economy of the country.
S. ,o understand its immense potentiality for creating employment opportunities in
significant sectors li*e agriculture, industry, organi)ed sector, decentrali)ed sector,
urban areas and rural areas, specifically for women and deprived. Eecogni)e the
,e&tile =olicy of 0/P, which boosted the annual growth rate of cloth production
by S.%I, e&port of te&tile by %.%#I and per capita availability of fabrics by
%.?I.
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MBA Programme
/. ,o analy)e the issues and problems of te&tile industry and the guidelines provided
by the e&pert committee set up for this specific purpose.
0. ,o give a different specification to the objectives and thrust areas of te&tile
industry.
1. ,o produce good quality cloth for fulfilling the demands of the people with
reasonable prices.
. ,o maintain a competitive global mar*et.
Th"st aeas3
Govenment of In%ia is tying to 'omote te-tile in%"sty +y giving em'hasis on
seveal aeas of te-tile# /hich ae as +elo/B
. Innovative mar*eting strategies
#. 3iversification of product
%. (nhancement of te&tile oriented technology
'. Uuality awareness
P. Intensifying raw materials
?. Rrowth of productivity
S. Increase in e&ports
/. Financing arrangements
0. 4reating employment opportunities
1. !uman Eesource 3evelopment
Rovernment of India has set some targets to intensify and promote te&tile industry. ,o
materiali)e these targets, efforts are being made, which are as followsB
. ,e&tile and apparel e&ports will reach the AS Q P1 billion mar* by #11
#. .ll manufacturing segments of te&tile industry will come under ,AFS
8,echnology Ap gradation Fund Scheme9
%. Increase the quality and productivity of cotton. ,he target is to increase P1I
productivity and maintain the quality to international standards.
'. (stablish the ,echnology -ission on jute with an objective to increase cotton
productivity of the country.
P. (ncourage private organi)ation to provide financial support for the te&tile industry
?. =romote private sectors for establishing a world class te&tile industry
S. (ncourage handloom industry for producing value added items
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/. (ncourage private sectors to set up a world class te&tile industry comprising
various te&tile processing units in different parts of India
0. Eegenerate functions of the ,E. 8,e&tile Eesearch .ssociations9 to stress on
research wor*s government policy on cotton and manmade fiber.
Othe th"st aeas3
Infomation technology3
=lays a significant role behind the development of te&tile industry in India. I,
8Information ,echnology9 can promote to establish a sound commercial networ* for the
te&tile industry to prosper.
>"man Reso"ce Develo'ment3
(ffective utili)ation of human resource can strengthen this te&tile industry to
a large e&tent. Rovernment of India has adopted some effective policies to properly
utili)e the manpower of the country in favor of the te&tile industry.
Financing aangement3
Rovernment of India is also trying to encourage talented Indian designers and
technologists to wor* for Indian te&tile industry and accordingly government is setting up
venture capital fund in collaboration with financial establishments.
Acts3
Some of the major acts relating to te&tile industry include
a9 4entral Sil* 2oard .ct, 0'/
b9 ,he ,e&tiles 4ommittee .ct, 0?%
c9 ,he !andlooms .ct, 0/P
d9 4otton 4ontrol ;rder, 0/?
,he ,e&tile Anderta*ings .ct, 00P Rovernment of India is earnestly trying to
provide all the relevant facilities for the te&tile industry to utili)e its full potential and
achieve the target. ,he te&tile industry is presently e&periencing an average annual
growth rate of 051I and is e&pected to grow at a rate of ?I in value, which will
eventually reach the target of AS Q P billion by #1#.
Cotton3
4otton is a soft, staple fiber that grows around the seeds of the cotton plant. It is a
natural fiber harvested from the cotton plant. ,he fiber most often is spun into yarn or
thread and used to ma*e a soft, breathable te&tile, which is the most widely, used natural5
fiber cloth in clothing today.
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MBA Programme
$ocessing of Cotton in In%ia3
In India the raw cotton, also called as Mapa is processed in a multi5stage process
described as below. ,he =roducts of processing are
I. Varn.
II. 4ottonseed ;il.
III. 4ottonseed -eal.
I0 $o%"ction of =an3
20 Ka'a to lintB Mapa 8also *nown as raw cotton or seed cotton9 is unpinned
cotton or the white fibrous substance covering the seed that is obtained from the
cotton plant. ,he first step in the process is, the cotton is vacuumed into tubes that
carry it to a dryer to reduce moisture and improve the fiber quality. ,hen it runs
through cleaning equipment to remove leaf trash, stic*s and other foreign matter.
In ginning a roller gin is used to grab the fiber. ,he raw fiber, now called lint.
@0 Lint to +aleB ,he lint ma*es its way through another series of pipes to a press
where it is compressed into bales 8lint pac*aged for mar*et9. .fter baling, the
cotton lint is hauled to either storage yards, te&tile mills, or shipped to foreign
countries.
40 6oteB ,he cotton seed is delivered to a seed storage area from where it is loaded
into truc*s and transported to a cottonseed oil mill.
50 (ale to la'B !ere the bales are bro*en down and a wor*er feeds the cotton into
a machine called a +brea*er+ which gets rid of some of the dirt. From here the
cotton goes to a +scutcher+. 8;perated by a wor*er also called a scutcher9.
60 La' to Ca%ing3 4arding is the process of pulling the fibers into parallel
alignment to form a thin web. !igh speed electronic equipment with wire toothed
rollers performs this tas*. ,he web of fibers is eventually condensed into a
continuous, untwisted, rope5li*e strand called a sliver.
70 &ilve to RovingB ,he silver is then sent to combing machine. !ere, the fibers
shorter than half5inch and impurities are removed from the cotton. ,he sliver is
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MBA Programme
drawn out to a thinner strand and given a slight twist to improve strength, and then
wound on bobbins. ,his =rocess is called Eoving.
A0 Roving to =an3 8S=I66I6R9B Spinning is the last process in yarn
manufacturing. Spinning draws out the short fibers from the mass of cotton and
twists them together into a long. Spinning machines have a metal spi*e called a
spindle which the thread winds around.
II0 $o%"ction of Cotton &ee% Oil3
=rocessing of cottonseed in modern mills involves a number of steps. ,hey are as
followsB
20 ,he first step is its entry into the sha*er room where, through a number of screens
and air equipment, twigs, leaves and other trash are removed.
@0 ,he cleaned seed is then sent to gin stands where the linters are removed from the
seed 8delimited9. ,he linters of the highest grade, referred to as first5cut linters are
used in manufacturing non5chemical products, such as medical supplies, twine, and
candle wic*s. ,he second5cut linters removed in further delimiting steps, are
incorporated in chemical products, found in various foods, toiletries, film, and
paper.
40 ,he delimited seeds now go to the huller. ,he huller removes the tough seed coat
with a series of *nives and sha*ers. ,he *nives cut the hulls 8tough outer shell of
the seed9 to loosen them from the *ernels 8the inside meat of the seed, rich in oil9
and sha*ers separate the hulls and *ernels.
50 ,he *ernels are now ready for oil e&traction. ,hey pass through fla*ing rollers made
of heavy cast iron, spinning at high speeds. ,his presses the meats into thin fla*es.
60 Mapas*halli 8cottonseed e&tractionCmeal9 is a byproduct of the cottonseed industry.
Role of Cotton In%"sty in In%ian Economy3
;ver the years, country has achieved significant quantitative increase in cotton
production. ,ill 0S1s, country used to import massive quantities of cotton in the range of
/.11 to 0.11 la*shs bales per annum. !owever, after Rovernment launched special
schemes li*e intensive cotton production programmers through successive five5year plans
that cotton production received the necessary impetus through increase in area and
sowing of !ybrid varieties around mid S1s. Since then country has become self5sufficient
in cotton production barring few years in the late 01s and early #1s when large quantities
35 ECE
MBA Programme
of cotton had to be imported due to lower crop production and increasing cotton
requirements of the domestic te&tile industry.
Cotton 'o%"ction Aeas in In%ia3
India is an important grower of cotton on a global scale. It ran*s third in
global cotton production after the Anited States and 4hina; with 0.P1 million hectares
grown each year, India accounts for appro&imately #I of the world's total cotton area
and %I of global cotton production. ,he 4otton producing areas in India are spread
throughout the country. 2ut the major cotton producing states which account for more
than 0PI of the area under and output areB
. =unjab.
#. !aryana.
%. Eajasthan.
'. -aharashtra.
P. Rujarat.
?. -adhya =radesh.
S. .ndhra =radesh.
/. ,amil 6adu.
0. Marnata*a.
;f the nine cotton producing States in India, average yields are highest in =unjab
where most of the cotton area is irrigated 2ut the yields of cotton in India are low, with an
average yield of P1% *gCha compared to the world average of S%' *gCha. ,he problem is
also compounded by higher production costs and poor quality in terms of varietals purity
and trash content.
!owever the 4otton plays an important role in the 6ational economy providing large
employment in the farm, mar*eting and processing sectors. 4otton te&tiles along with
other te&tiles also contribute about C%rd of the Indian e&ports.
&te's ta*en +y the Cotton $o%"ces in In%ia3
6ow5a5days the Indian 4otton producers are continuously wor*ing to up5
grade the quality and increase the cotton production to cope up with the increased global
demand for cotton te&tiles and to meet the needs of the %0 million spindles capacity of the
domestic te&tile industry which presently consumes about #5' million bales annually.
36 ECE
MBA Programme
In India, cotton yields increased significantly in the 0/1Fs and through the
first half of 0/1Fs but since 00? there is no increase in yield. In the past, the increase in
cost of production of cotton was partially offset by increase in yield but now with
stagnant yield the cost of production is raising. 2esides low yield, Indian cotton also
suffers from inconsistent quality in terms of length, microware and strength.
$olicy of Govenment of In%ia to/a%s Cotton In%"sty
,he 4otton production policies in India historically have been oriented
toward promoting and supporting the te&tile industry.
,he Rovernment of India announces a minimum support price for each
variety of seed cotton 8*apas9 based on recommendations from the 4ommission for
.gricultural 4osts and =rices. ,he Rovernment of India is also providing subsidies to the
production inputs of the cotton in the areas of fertili)er, power, etcW
Ma*ets fo In%ian Cotton3
,he three major groups in the cotton mar*et are
=rivate traders,
State5level cooperatives,
,he 4otton 4orporation of India 7imited.
;f these three groups, private traders handle more than S1 percent of
cottonseed and lint, followed by cooperatives and the 44I.
,he 4otton 4orporation of India 7td. for the year #11/510 had purchased
?1.%1 la*hs quintals of *apas equivalent to .SS la*hs bales valuing Es.#/.S1 crores in
.ndhra =radesh, -aharashtra, -adhya =radesh, ;rissa and Marnata*a. 2eside these the
4orporation had also carried out commercial operations and purchased #.S la*hs bales
valuing Es.#/P./# crores in the year #11/510 as compared to around .11 la*hs bales
valuing Es.1/./ crores during the previous year 8i.e. for the year #11?51S9.
E-'ots of Cotton3
,he main mar*et for Indian cotton e&port is 4hina. ,he other mar*ets also
include ,aiwan, ,hailand and ,ur*ey. In @uly #11, the union government removed all
curbs on cotton e&ports. .s a result of these, now the e&porters are not required to obtain
any certificate from the ,e&tile 4ommissioner on the registration, allocation, quality and
37 ECE
MBA Programme
quantity of e&port. India e&ported around #P per cent cotton during #11/510 and it is
estimated nearly ?# per cent e&ported to 4hina.
3uring the year #11/510 the prices of Indian cotton in early part of the season
being lower than the international prices, had been attractive to foreign buyers and there
was good demand for Indian cotton, especially S5?, !5' and 2unny, which had resulted in
sustained cotton e&ports, which are estimated at PP.11 la*hs bales ,he 4otton .dvisory
2oard estimated an /5#1 percent increase in cotton e&ports to ?P la*hs bales for ;ct
#1105 Sep #11, as against its .ug #110 estimate of P/ la*hs bales.
Im'ots of Cotton3
3espite good domestic crops, India is importing cotton because of quality
problems or low world prices particularly for processing into e&portable products li*e
yarns and fabrics. ,he imports rose to ,#S,111 la*hs bales in #11P51?, ',S11,111 la*hs
bales in #11?51S and the anticipated imports for the year #11S51/ are PP1,111 la*hs bales.
For the year #11S51/ the cotton imports into the country had once again remained limited
mainly to (&tra 7ong staple cottons, li*e as previous year, which were in short supply at
around ? la*hs bales inclusive of import of around # la*hs bales of long staple varieties
contracted by mills during .pril5-ay #110.
F"t"e Challenges fo the In%ian Cotton In%"sty
,he challenges that are going to face by the cotton producers in India for the season
#11051 areB
R"'ee a''eciation3 ,he increase in the value of the rupee gives only smaller
import orders to the cotton producers.
Chea'e Im'ots3 ,he appreciated rupee value ma*es the cotton imports cheaper
when compared to past. So this aspect is also required to consider by the cotton
producers.
Lo/ ;"ality3 ,he Uuality of cotton is also far from satisfactory considering the
presence of a large number of contaminants. So the cotton producers are also
required to ta*e care in this aspect.
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MBA Programme
COM$AN= $ROFILE
Mrishnamurthy Spinning -ills =rivate 7imited 8MS-=79was incorporated in
#11?51S and is engaged in the manufacturing of grey cotton yarn. ,he promoters of
MS-=7, -r. D. Mrishnamurthyand -r. D.S. Subba Eao, have more than three decades of
e&perience in cotton ginning and trading. MS-=7 has a spinning mill in Runtur district of
.ndhra =radesh with an installed capacity of #,%?1 spindles and started commercial
production of yarn in ;ctober #11S. =resent the -anaging director of -.D.E =hani
Mrishna with 1,111 spindles with the e&pansion of P,111 spindles every year, it is now
equipped with %P,111 spindles capacity and have the capacity to produce 1 tons of ring
spun, % tons of open and # tons of ring doubling and to yarns 11I cotton yarns per day.
,he mill has a complete range of 7a*shmi ,rumac -achinery from blow room to
spinning departments with -uratec and savio auto corners.
.ll the blow lines are connected to the cards with the chute system, which in turn
is connected with automatic waste collection system.
,he company has a strong clientele based at different regions of .ndhra =radesh,
Rujarat, Marnata*a, -aharashtra, Eajasthan and ,amil6adu.
In modern fashion technology, the demand for perfection begins right at the birth of the
raw material, permeates through every single process, till the highly discerning customer
dons the finished garment. It is this %eman% fo 'efection that has spurred the growth of
an organi)ation and its corporate philosophy.
,hose who can furnish clients with the +est ;"ality# com'etitive 'ice# an%
e-cellent c"stome sevices and 'om't %elivey can only survive in the mar*et.
Mrishnamurthy Spinning -ills =rivate 7imited ta*es immense pride in perceiving its role
as the comprehensive architect of every single yarn that its produces.
MI&&ION
,o use latest technological strategies during production thereby forming an
innovative approach.
,o provide a safe, fulfilling and rewarding wor* environment for our employees.
3eveloping a long term relationships with our customers and suppliers.
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MBA Programme
Serving and supporting the communities in which we operate.
,o manufacture a high quality yarn thereby withstanding high level of
competitiveness.
<I&ION
,he company has a vision to e&cel in all fields of te&tile industry and agriculture
produce basis.
$e will be intensely customer focused and will offer products and services which
provide the best value for our customers.
O(BECTI<E&
,he company attains by meeting its objectives in a timely and efficient manner.
4onstantly maintaining and improving up on the quality of yarn.
=urchase of high grade raw5material.
Investments in modern technology.
=ractice high level of customer service while equally e&ceeding on employee
welfare measures.
$RODUCT&
$e believe that quality products are not only by promises but also by proven
results. 3evelopment of new te&tile products is done through 5 Innovation in defining
production processes of higher quality and ma*ing available modern technologies and
professionals with the highest level of competence.
The follo/ing a%vantages /hich have al/ays +een o" "ltimate goals3 C
!igh (fficiency
,he -ost 4ompetitive H Eeasonable =rice
=roducts Uuality Ruarantee
=rompt H Superior Service
=unctual 3elivery
20 Cotton fa+ics
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MBA Programme
$e are happy to acquaint ourselves as one of the salient cotton
fabric manufacturers in India. ;ur cotton fabrics include organic cotton fabrics and
white cotton fabrics. $e use pure and good quality yarn for ma*ing the fabric. ;ur
fabric provides immense comfort to the users. It gives soothing effect to the body and
will be the right choice in the hot and sweaty summers. ;ur cotton fabrics are light in
weight in comparison to its thic*ness. ;ur cotton fabric is easily washable and its
significant feature is its durability. $e ensure our customers to provide good quality
cotton fabric on time and that too at moderate prices.
@0 Cotton yan
$e provide the best quality cotton yan that includes organic cotton yarn
and cotton blended yarn. 4otton yarn is produced from genuine quality fiber, which is
obtained from the seed hair of the cotton plant. ;ur cotton yarn is used to manufacture
genuine quality cotton fabrics. ,he significant feature of our cotton yarn is its high tensile
strength and its superior quality. ;ur cotton yarn is used by various industries for
manufacturing the best quality garments. $e are widely *nown as one of the prominent
cotton yarn suppliers from India.
&)OT ANAL=&I&
&TRENGT>&
.bundant Eaw -aterial availability that helps industry to control costs and
reduces the lead5time across the operation.
.vailability of 7ow 4ost and S*illed -anpower provides competitive advantage
to industry.
.vailability of large varieties of cotton fiber and has a fast growing synthetic fiber
industry.
Rood brand equity.
-any persons are wor*ing here. ,his shows commitment of employees towards of
the organi)ation.
7aboratory for testing the quality of the product.
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MBA Programme
Strong and intellectual management.
)EAKNE&&E&
Industry is highly dependent on 4otton.
7ower =roductivity in various segments.
7ac* of ,echnological 3evelopment that affect the productivity and other
activities in whole value chain.
Anfavorable labor 7aws.
7ac* of ,rade -embership, which restrict to tap other potential mar*et.
7ac*ing to generate (conomies of Scale.
O$$ORTUNITIE&
,he company can offers a wide range of career opportunities and is too *een to
employ a wor* force of innovative people who can wor* together and add value to
our vision.
,he company to help the employees reach the career objectives in line with their
personal goals.
T>REAT&
4ontinuous Uuality Improvement is need of the hour as there are different demand
patterns all over the world.
Reographical 3isadvantages.
,o balance the demand and supply.
,o ma*e balance between price and quality.
Increase in minimum wage rates.
International labor and (nvironmental 7aw.

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MBA Programme
KRI&>NAMURT>= &$INNING MILL& $RI<ATE LIMITED
(OARD OF DIRECTOR&
NAME (OARD OF DIRECTOR&
-.D.E.=hani *rishna -anaging 3irector
2.2abu Eao Reneral -anager
=atan @affar Mhan 3irector
San*ati Siva =ravathi 3irector
REGI&TERED OFFICE D FACTOR=
Survey 6o #%1
Rt Eoad
,himmapuram
(dlapadu
Runtur 83.,9
.ndhra =radesh
P## #%%.
AUDITOR&
-XS Amamaheswararao H 4o.
4harted .ccountants
Runtur
.ndhra =radesh
P## 11#
(ANKER&
43 ECE
MBA Programme
Indian 2an*
6aa) 4entre
Runtur
<ALUE
2y a clear comprehension of the mar*et dynamics and the assimilation of the
cutting edge technology we assure the highest standards are met at all times.
,he company initially started with .gricultural procedure basis. ,he company will
procure cotton *appas from farmers as well as traders from various mar*et places in and
around .=. Indirectly it is helpful to farmers and small traders.n 6ow the company is
doing cotton spinning with a spindle capacity of '1,111 here at about 111 6o. of
wor*ers and P1 6oFs of staff engaged in the industry. ,he main motive of the company is
to provide more jobs for the poor and middle class people.
,he company is supplying its products in various states li*e ,amilnadu,
Marnata*a, -aharashtra, Rujarat, 2ombay, and Eajasthan. ,here are product of yarn is
useful for weaving industry. ,he company is providing indirectly jobs in the te&tile
industry.
EUALIT=
,he company has a long reputation of quality performance and innovation.
Uuality of final product is determined with quality of raw material. In MS-=7 we ta*e
meticulous care in the selection of cotton. ;ur dedicated committee and involved cotton
selectors at different station headed by the e&perienced supervisors, spares no pain in the
selection of *apas or Eaw cotton available in the mar*et.
,here are quality chec*s at every stage of manufacturing starting from Eaw
4otton. .fter each lot of fabric is cut, 11I cut parts inspection is conducted to ensure
that only good quality pieces move to the stitching units. ,o ensure that the garments are
pac*ed as per the requirements of our valued customers, we can even trac* and chec*,
which case the garment, has been pac*ed in.
&$INNING $ROCE&& AND TEC>NOLOG=

44 ECE
MBA Programme
-IYI6R
27;$ E;;-
4.E3I6R
F;E 4;-2(S V.E6 F;E 4.E3(3 V.E6
SI7D(E 7.==(EC EI22I;6
7.==(E
4;-2(E
3E.$I6R I
3E.$I6R II
SI-=7(Y
S=I66I6R
4;6( $I63I6R E((7I6R

4;6( =.4MI6R 2A637( 2.77I6R
45 ECE
MBA Programme
Spinning process is shown in the flow chart given below. 4otton which is in the form
of bales is fed to blow room followed by the various operations li*e carding and combing
depends up on the requirement. ,he final yarn of required specifications are met through
these operations and winded.
Mi-ing
4otton based is opened and those from different varieties are mi&ed together
according to the formula formulated by the technical authorities in order to get the desired
yarn parameters.
(lo/ Room
,he cotton mi& is then fed in to the blow room where the clearing of the cotton
is carried out, in order to remove the trash and other foreign materials. -ajor part of the
impurities is nearly PI of the input, and is removed as waste, a part of which goes
invisible waste. ,he output in this stage is in the form of laps.
Ca%ing
,he laps are fed in to cards, where the ne&t important stage of cleaning as cotton
and removal of short fibers ta*es place. ;nly ?1 to ?PI of the trash will be cleaned in
blow room. 4arding only will clean balance amount of trash. ,he output in this stage
is in the form of silvers.
Com+es
,he most sophisticated department, which is very important for anybody who
wants to e&port these yarns. ,his department refines the silvers and strength and other
good quality parameters. ,he output in this stage is combed silvers.
Da/ fames
4ombined silver are fed in to draw frame which paraly)e the fiber in the silver
as well as evenness the quality of the silver by mi&ing the silver from the different cans
and producing a even quality silver. ,he output in this stage is simple& bobbins.
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MBA Programme
Ring frames
,he simple& bobbins are creeled to the ring frame spindles where the speed is very high
by giving the twist, yarn is produced. ,he output is in the form of cops.
&im'le-
,he objects in this stage are drafting too silver in to roving and twisting the
roving and to wind the roving on bobbins.
&'inning
,he object of spinning is further drafting the roving in to yarn as per required
count. ,o import twisting yarn for getting straight thread. ,his is the final stage in
manufacturing of yarn. ,he finishing section includes cone winding, cone pac*aging,
reeling, bundling and labeling not only producing yarn but is to be pac*ed in different
shapes as required by the buyer.
Cone /in%ing
,he spinning cops are creeled in to the cone winding and the yarn is wound on
the drums and the yarn in LconesT is produced which is the final product. In this stage the
output itself is the final output and it is in the form of yarn.
Cone 'ac*aging
P1 cones are put in each bag. 4one bags are ready for dispatch. .fter pac*aging
and bundling of the product, the mill can print the specifications of the product from
which it is sending and to the party to be received also placed. ,he company has obtained
no objection certificate from pollution control.
47 ECE
MBA Programme
Man 'o/e e;"iement
,he importance of personnel function is increasing day by day. It is the human
factor that can mould the organi)ation as we wish. .ny resource cannot yield effectively
unless it is efficiently managed by the human resource. ,hat is why some management
scientists li*e to autonomy says personnel management is the management of human
resources.
,he behavioral approach of management studies emphasi)ed the dominant role
of human factor in an organi)ation. .ny function in an organi)ation say planning,
organi)ing, staffing, directing, and controlling can be carried out effectively with the
strong based personnel. ,ill recently the personnel function has not been recogni)ed
properly. 2ut almost all the organi)ations have recogni)ed its importance and saved the
way for the flourishment of personnel function which in turn flourishes the future for the
organi)ation.
In India also the public sector and private sector have identified the
importance of personnel function and are giving proper recognition to this function in the
organi)ation. !uman resource development is the latest coined term in this prospect. It
aim at developing the overall efficiency of the personnel in all aspects. ,he main
objective of human resource development program is the optimum utili)ation of human
resources in an organi)ation.
,he government of India has created a separate ministry under a senior cabinet
minister to loo* after the utili)ation of human resource. ,he business environment is
becoming a source. !uman resource is treated as one of the scarce resources effectively.
It canFt with stand in the mar*et. ,o utili)e all other resources efficiently, first the human
resource should be optimally utili)ed.
,he term personnel management is called by different name. in certain public
enterprises of India, it is *nown as L=ersonnel .dministrationT while in other it is *nown
as L7abor -anagement 8or9 Industry Eelations 8or9 -anpower -anagementT. In essence
of personnel management is concerned with the proper use of human factor in business.
=ersonnel management aims at getting the best out of the people by winning and
maintaining their whole hearted collaboration. =ersonnel administration does not e&ist for
any such primary purpose as ma*ing condition easier 8or9 improving the lot of wor*ers.
48 ECE
MBA Programme
,his is one of the means through best regarded as one of the ordinary social responsibility
of administration.
,he broad objectives of personnel program are twoB
. ,o improve the service rendered by the enterprise to society through building
better employee morale, which leads to efficient individuals and group
performance.
#. ,o establish in the minds of those associated with the enterprise5 employee, share
holder, creditor, customer and the public at the large. ,he fact is the enterprise that
is rendering best service at which and it is capable and distributing. ,he benefits
derived there from fairly in the light of the relative contributions of each to the
success of enterprises.
Technology
,he plant and machinery required for the spinning mill process for
manufacturing yarn of different counts are blow room machinery, metal detection system,
spar* diversion system, carding machines, card accessories, draw frame8 finisher and
brea*er9 speed frame, combers, ring frame, electrical infrastructure, yarn testing
instruments, humidification and waste collection system and automatic cone winding
machine etc.
Ma*et
,he world cotton cultivation area and cotton production are estimated at around
%15% million hectares and #1 million tons respectively. ,he biggest cultivators of cotton
are .merica, India, 4hina, (gypt, =a*istan, Sudan and (astern (urope. India is the third
largest producers of cotton after AS. and 4hina. AS. has a considerable share in world
e&ports.
India and 4hina both fall short of their domestic requirement and are net
importers. .ndhra =radesh is %
rd
largest state in India which grows cotton. .mong the
consumers 4hina leads the way being followed by India, =a*istan, AS. and ,ur*ey.
Indian ,e&tile Industry contributes 'I to the R3= of the country; it contributes 'I to
Industrial =roduction, 0I of e&cise collections, /I of employment in industrial sector,
and has ? I share in countryFs e&port. ,e&tile industry provides employment to %P
million people in India.
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MBA Programme
Diectos Res'onsi+ility &tatement "n%e &ection @2A 9@aa: Of the Com'anies Act#
2F670
9 In the preparation of the annual accounts, all the applicable accounting standards had
been followed e&cept as5P, employee benefits in the form of gratuity are accounted
on cash basis.
#9 ,he directors had selected such accounting policies and applied them consistently and
made judgments and estimates that are reasonable and prudent so as to give a true and
fair view of the state of affairs of the company at the end of the financial year and of
the profit of the company for that period.
%9 ,he 3irectors had ta*en proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this act for safeguarding the
assets of the company and for preventing and detecting fraud other irregularities.
'9 ,he 3irectors had prepared the annual accounts on a going concern basis.
Com'anies 9Disclos"e of $atic"las in the Re'ot of (oa% of Diectos: R"les#
2FGG0
Statement 4ontaining =articulars =ursuant ,o the 4ompanies, 3isclosure of =articulars in
the Eeport of 2oard of 3irectors9 Eules, 0//. .nd forming part of directorsF report.
Em'loyee +enefits3
I. Short term employee benefits are accounted on accrual basis.
II. Eetirement benefits in the form of defined contributions are accounted on
the basis of contribution paid or payable.
III. Eetirement benefits in the form of defined benefits are accounted on cash
basis.
("siness E-'eience of M0D3
,he -anaging director of the company is -r. -.D.E.phani *rishna managing
director H 4hairman. !e is qualified in 2.com 8,e&tile9
st
4lass. !e joined in the
company in -ay #11P as a 3irector.
!e was well trained in Spinning now he is loo*ing weaving. 6ow he is in
4oimbatore he had ta*en some si)ing H weaving units in and around 4oimbatore. $ithin
a % months period under his supervision P1,111 mtrs of grey cloth produced and sold with
a good quality and rate.
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MBA Programme
A"%ito8s Re'ot To Kishnam"thy &'inning Mills $ivate
Limite%3
.s required by the companies 8auditorFs report 9 amendment order, #11' issued by
the central government of India in terms of sub5section ##S of the companies
act,0P?, we enclose in the anne&ure a statements on the matters specified in
paragraphs ' and P of the said order.
$e have obtained all the information and e&planations, which to the best of our
*nowledge an belief were necessary for the purposes of our audit
In the preparation of the annual accounts, all the applicable accounting standards
had been followed e&cept as5P, employee benefits short term employee benefits
H provident fund are accounted
;n accrual basis. !owever, the provision for retirement benefits in the
form of gratuity is accounted on cash basis.
;n the basis of written representations received from the directors as on %
st
march #110 and ta*en on record by the board of directors, we report that none of
the directors is disqualified as on %
st
march #110 from being appointed as a
director in terms of clause 8g9 of sub5section #S' of the companies act, 0P?.
In our opinion and to the best of information and according to the e&planations
given to us, they said accounts give the information required by the companies
act, 0P?, in the manner so required and give a true and fair view in conformity
with the accounting principles generally accepted in India B
.. In the case of the balance sheet, of the state of affairs of the company as at
%
st
march #110,
2. In the case of the profit and loss account, of the loss for the year ended on
that date, and
4. In the case of the cash flow statement, of the cash flows for the year ended
on that date.
51 ECE
MBA Programme
Anne-"e To A"%ito8s Re'ot Of Kishnam"thy &'inning Mills
$ivate Limite%03
.ccording to the information and e&planations given to us, we are of the opinion
that the company has no transactions that need to be entered into the register
maintained under section %1 of the companies act, 0P?.
In our opinion, the company has an internal audit system commensurate with the
si)e and nature of its business.
,here are no accumulated losses of the company. ,he company has not incurred
any cash loss during the current year and there are no accumulated losses as on
%51%5#110.
In our opinion and according to the information and e&planations given to us, the
company has not defaulted in repayment of dues to a financial institution, ban* or
debenture holders.
,he company has not granted loans and advances on the basis of security by way
of pledge of shares, debentures and other securities.
In our opinion, the company is not a chit fund or a nidhi benefit fundXsociety.
,he company has not given any guarantees for loans ta*en by others from ban*s
or financial intuitions.
In our opinion, the terms loans have been applied for the purpose for they were a
raised.
,he company has not issued any monies by public issues.
.ccording to the information and e&ploitations given to us, no fraud on or by the
company has been noticed or reported during the course of our audit.
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Ma,o C"stomes of the Com'any
=rathibha Synta& 5 .hmadabad
-andhana $eaving !ouse 5 ,arapur
2ombay Eoyan Fashions 5 Sangli
Mayaar (&ports 5 ,iruchengode.
R,6 industries 5 !yderabad
E.-. -ohite ,e&tiles 5 Molhapur
Sachin ,e&tiles 5 7ehal*aranji
R,6 (nterprises 5 4ochin
FOREIGN CURRENC= TRAN&ACTION&3
Import of material Ccapital equipment is accounted at the rates at which
actual payments are affected.
,he profitCloss arising out of foreign e&change transactions on sales of
goods are accounted on actual reali)ation basis.
Foreign currency loans covered by forward contracts are stated at the
forward contracts rates while those not covered are calculated at year end
rate.
EN<IRONMENTAL $ROTECTION AND &AFET= H A TO$
$RIORT=3
$e believe that environmental protection requires attitude, action and right
application of technology. ,he group is an eco5friendly entity whose concern is
preservation of life and environment. ,he division does not release any to&ic wastes and
pollutants. .nd across every unit of the group, humidity, moisture and temperature are
constantly monitored to ensure top most safety.
53 ECE
MBA Programme
(I(LIOGRA$>=
. Financial -anagement 5 I.- . =andey
#. Financial of Financial
-anagements 5 @ames 4. Dan horne
%. Financial management 5 Mhan H jain
)e+sites
www.krishnamurh!mi""s .#om
54 ECE