INDIAN INSTITUTE OF PLANNING AND MANAGEMENT

SUMMER INTERNSHIP REPORT ON

[Type the document title]

Submitted By: Bharat Kumar Chourasia

SS

ACKNOWLEDGEMENT

If the words are considered as the science of gratitude, then let these words convey the same Firstly, I would like to express my profound gratitude to Mr. D.L.YAJNIK (Executive President) for giving me an opportunity to work on this project & acting as a torch bearer. His ideas & suggestions were commendable & acted as foundations for my project. Also I would like to thank Mr. S.K. Pokhana, (Vice President Finance) for giving me exposure to different fields of Finance & for treating me like a part of Training & Development Team. I would like to thank my company mentor Mr. Arun Singh, ( Manager- Operations), Deepak Spinners Limited, for his inspiring belief that we can achieve whatever we set out to do in life & for introducing me to the world of Training & Development Ostentatious use of words would not suffice his dexterous supervision.

And last but not the least, my heart feels gratitude to those unseen hands that has guided me throughout the project and helped me in its completion.

TABLE OF CONTENTS

Chapter 1-Textile Industry Introduction Chapter 2- Company Profile Chapter 3- Vision & Mission Chapter 4- Methodology Chapter 5- Objective of Study Chapter 6- Data Analysis & Interpretation Chapter 7- Findings Chapter 8- Limitations Chapter9- Recommendations Chapter10- Knowledge Apart Annexure Bibliography

Chapter 1 Textile Industry - Introduction

India synthetic fiber industry is the new addendum to the ever-growing Indian Textile Industry. Unlike the other sectors of Indian Textile Industry, the India synthetic fiber industry is an organized sector. The main products of the India synthetic fiber industry include man-made fiber and yarn. These man-made fiber and yarn mainly constitutes textile of cellulose and non-cellulose origin. The cellulose fiber or yarn industry is under the administrative control of the Ministry of Textiles while non-cellulose industry is under the control of Ministry of Chemicals and Fertilizers (Department of Chemicals and Petro Chemicals). The Indian synthetic fiber industry plays a vital role in the Indian Textile industry. This industry accounts for about 2.79 billion kg i.e. 44%, of man-made fiber or yarn industry. Industrial output of India synthetic fiber industry during 2009-10 amounted to 844.65 million kg. The product of this industry includes polyester staple fiber, acrylic staple fiber and polypropylene staple fiber. The import of India synthetic fiber industry showed a mixed trend over the last five years and its import doubled to 154.54 million kg during 2009-10. Further, the export of India synthetic fiber industry had grown by 50% during the same period. The main products of the Indian synthetic fiber industry are as follows y y y y y y y y y y

Geo-textiles Webbing for seat belts Sanitary Napkins Incontinence diapers/baby diapers Health care disposables (caps, masks, gowns, beddings etc.) Soft luggage material Poly-olefin Woven sacks Hoardings and signages Shade fabrics Sports footwear

y y y y y y y y y y y y y y y

Non-woven glass mat for battery separator Velcro Computer ribbons Airbags Fiber fill Stuffed Toys Filters Zip fasteners Balloon fabric and Parachute fabric Fire Retardant fabric Ballistic protective clothing Surgical dressings Food-grade jute bags. Spun bond non-woven Taffeta cloth

The synthetic fiber industry of India during this short period has shown tremendous business potential. This industry has grown stupendously over the last decade and half and it recorded highest growth rate amongst all sectors of Indian textile industry. The Textile Industry occupies a vital place in the Indian economy and contributes substantially to its exports earnings. Textiles exports represent nearly 30 per cent of the country's total exports. It has a high weight age of over 20 per cent in the National production. It provides direct employment to over 15 million persons in the mill, power loom and handloom sectors. India is the world s second largest producer of textiles after China. It is the world s third largest producer of cottonafter China and the USA-and the second largest cotton consumer after China. The textile industry in India is one of the oldest manufacturing sectors in the country and is currently its largest. The Textile industry occupies an important place in the Economy of the country because of its contribution to the industrial output, employment generation and foreign exchange earnings. The textile industry encompasses a range of industrial units, which use a wide variety of natural and synthetic fibers to produce fabrics. The textile industry can be broadly classified into two categories, the organized mill sector and the unorganized mill sector. Considering the significance and

contribution of textile sector in national economy, initiative and efforts are being made to take urgent and adequate steps to attract investment and encourage wide spread development and growth in this sector.

Chapter 2 COMPANY PROFILE

Deepak Spinners Limited is an India-based company. The Company is engaged in manufacture and sale of yarn. The Company's product includes yarn of synthetic fiber. The Company has two manufacturing plants, one in Madhya Pradesh and other in Himachal Pradesh. DSL Hydro watt Limited is the subsidiary of the Company. As of March 31, 2010, the Company had an installed capacity of 57,408 spindles. During the year ending March 31, 2010, the Company had a production of 17,497,202 kilograms In its constant effort towards building trust among its audience, the Group works strongly on the principles of integrity, dedication, resourcefulness and commitment. A wide array of skills and substantial depth of experience has not only led the Group to maintain its leadership in its traditional businesses but has also resulted in gradually gaining market in its relatively nascent forays.

Chapter 3 Vision & Mission

Innovating Enjoyment with That Extra Flavor. Enduring value. Enhancing appeal. Enriching life. By adding that extra flavor. We are constantly innovating to offer products & services, which are distinctive, differentiating and not the ordinary.  To sustain in the tea production.

 To become a reputed name for quality products in Textile Industry.

 To set new benchmarks in the sectors we operate.

.E s t i m a t i on

o f o u r p r oj e c t s a t P a g ra Di s t . Gu n a (M . P. ) .

PROJECTS

PROJECT COST (Investment) Rs.17crore

TECHNICAL COLLABORATION

SET UP DURATION

Manufacturing facilities for

(Indigenous)

12 months

yarn at PAGRA (District Guna) M.P.

(1991)

Rs.73Crores (2011)

Expansion Plan (manufacturing unit) Biomass Based Power Plant 3 MW (generating electricity) Biomass Based Power Plant 6 MW Expansion Plan (generating electricity)

Rs.53Crores (2011)

(Indigenous)

18 months

Rs.19Crores (2003)

Government of Madhya Pradesh

12 months

Rs.42Crores (2011)

(Indigenous)

12 months

The facilities at all our plants are ISO 9001 certified.

y y y y

Present in all 28 states Manufacturing sites at M.P, Chandigarh, H.P. 16 DEPOTS across India 17 C&S Agents across India

Besides a widespread national reach, we are proud to have established an enviable market for our brands at leading International markets - with dedicated agents to serve markets at Syria, Brazil, Singapore, Turkey, Bangladesh, South Africa, Nigeria, Argentina and Middle West Asian Countries.

Effectively backing this wide reach is an efficient logistics and supply chain management-which continuously strives to establish a productive synergy amongst various suppliers all over the world as well as timely delivery of raw materials and finished products across various outlets. The initiative is further supported by an extensive ERP implementation across all our manufacturing bases as well as key depots-thus helping us to constantly monitor & adapt to changing market parameters almost with real-time effectiveness. These systems are continuously updated-so that we can give enjoyment to the customer, the way he wants it! For us, innovation & enjoyment begins at our work place! We believe in grooming each of our team member to be the Messenger of Joy. And to help him spread enjoyment all across, DSL has implemented a well-thought Leadership Model-which brings transparency, collective wisdom, performance orientation & minimum response time. DSL group is a function-driven lean organization. Not only are the team members given exposure to intra-functional & inter-functional tasks, they are equipped with world-class training & continuous development programs-which all go a long way in laying strong foundation of a dynamic & vibrant organization. Today, DSL is a family of around 3000 innovators-each contributing in their own significant way to make the world a happier place to live in & enjoy living! Through DSL's unique products and offerings.

Chapter 4

Methodology

PROCESS OF YARN PRODUCTION

1.) Blending of any combination of fibers. 2.) Blending Process 3.) Blender Mixing 4.) MBO line 5.) Carding 6.) Draw frame 7.) Speed frame 8.) Ring frame 9.) Auto Conner a.) Single product b.) Double product

10.) Packing

OPERATIONABILITY OF THE PAGARA PLANT

LINE 1

LINE 2

LINE 3

LINE 3

Blender-1 Line MBO-1 (fiber)

Blender-1 Line MBO-1 (fiber)

Blender-1 Line MBO-1 (fiber)

Blender-1 Line MBO-1 (fiber)

Card -8

Card -8

Card -8

Card -8

(card sliver)

(card sliver)

(card sliver)

(card sliver)

Single delivery -2 Double delivery -2

Single delivery -2 Double delivery -2

Single delivery -2 Double delivery -2

Single delivery -2 Double delivery -2

Speed Frame - Speed Frame - Speed Frame 2 (S.F. Roving) 2 (S.F. Roving) -2 (S.F. Roving)

Speed Frame -2 (S.F. Roving)

Ring Frame-16 (yarn) (480 spindles)

Ring Frame-16 (yarn) (480 spindles)

Ring Frame-16 (yarn) (480 spindles)

Auto Conner

Single Yarn

Double Yarn

Packing

Cheesing

Two for one (T.F.O)

Steaming

Packing

Chapter 5 OBJECTIVE OF STUDY

1. To assess the amount needed in day to day working of the business. 2. For finding the sources of short term finance used by the company. 3. Assess the financial position of the company through Ratio analysis. 4. To assess the Current assets and Current liabilities of the company 5. To find the holding levels of various Current Assets and Current Liabilities. 6. To find the Debt coverage utilization.

Chapter 6

DATA ANALYSIS AND INTERPRETATION

WORKING CAPITAL MANAGEMENT

DEFINING WORKING CAPITAL The term working capital refers to the amount of capital, which is readily available to an organization i.e. working capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities). Current Assets are resources, which are in cash or will soon be converted into cash in the ordinary course of business. Current Liabilities are commitments, which will soon require cash settlement in the ordinary course of business. Thus: WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES In a departments Statement of Financial Position, these components Of working capital are reported under the following headings:

Current Assets y y y Inventory Debtors and Receivables Liquid Assets (cash and bank deposits)

Current Liabilities

y y y

Bank Overdraft Creditors and Payables Other Short Term Liabilities

The Importance of Good Working Capital Management Working capital constitutes part of the Crowns investment in a department. Associated with this is an opportunity cost to the Crown. (Money invested in one area may cost opportunities for investment in other areas.) If a department is operating with more working capital than is necessary, this over-investment represents an unnecessary cost to the Crown. From a departments point of view, excess working capital means operating inefficiencies.

Approaches to Working Capital Management The objective of working capital management is to maintain the Optimum balance of each of the working capital components. This Includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible, thereby Maximizing the interest earned. However, such cash may more appropriately be invested in other assets or in reducing other Liabilities.

Working capital management takes place on two levels: y Ratio analysis can be used to monitor overall trends in working Capital and to identify areas requiring closer management The individual components of working capital can be effectively Managed by using various techniques and strategies

When considering these techniques and strategies, departments need to recognize that each department has a unique mix of working capital

components. The emphasis that needs to be placed on each component varies according to department. For example, some departments have significant inventory levels; others have little if any inventory.

Furthermore, working capital management is not an end in itself. It is an integral part of the departments overall management. The needs of efficient working capital management must be considered in relation to other aspects of the departments financial and non-financial performance.

Working Capital Management (Debt vs. Equity)

Working capital is the money you will need to keep your business going until you can cover your operating costs out of revenue. As a small business owner, it will be wise to have enough working capital on hand to cover items such as the following during the first few months that you are in business: Replacing inventory and raw materials: you will need to fund the purchase of inventory out of working capital until you start to see cash from sales, which could take months. Paying employees: even the most loyal worker wants to get paid on time, regardless of how much or how little cash your firm earns during its first months. Paying yourself: unless you have made other arrangements, you will need to withdraw some money to support yourself. Debt payments: if you have borrowed money to get started, you probably have to begin repaying it right away. Missing your first loan payments will not do your credit rating any good.

An emergency fund: you need some cash on hand to cover unforeseen shortfalls that may result from any number of factors such as delays in getting your space ready, a slow paying client, or slow business.

Debt vs. Equity Assessments

It is essential that you assess the relative merits of each form of funding for your specific business. DEBT Take on Creditors Low Expected Return Smaller Funding Amounts Periodic Payments Maturity Date More Restrictions Partners/Creditors Whoever provides your firm with funding will, to some degree, become part of your management team? An equity partner will have direct input into decision making while a lender does not have this access. Company returns Equity partners will likely expect your venture to generate after-tax annual profits of 35 to 45 percent on the equity they invested. Creditors are only concerned with your ability to generate pre-tax cash flow to cover periodic interest expenses on the debt. Funding amount Equity partners can provide your firm with more up-front capital to allow you to fund all the projects necessary to achieve your growth objective. EQUITY Take on Partners High Expected Return Larger Funding Amount No Short-Term Payments Open-Ended " Exit" Date Less Restrictions

What a lender can fund is based solely on your ability to make loan installments, and that will likely be quite small early on in the life of your business.

Payments Equity does not get "paid back" each month or each quarter--it represents partners in the firm. But lenders will expect loan repayment to begin the month after you close escrow on the loan.

Maturity Equity partners have no guarantees on when they may get their funds plus a (hefty) return out of your business. It could be after an acquisition, a subsequent round of funding or the IPO. Creditors, however, are removed from the balance sheet at a set date upon the final payment on the loan. Restrictions Both funding types can require contractual terms that limit your use of funds and the types of policies implemented, but lenders often have much more restrictive loan provisions than do equity investors. ADVANTAGES OF USING DEBT Debt is not an ownership interest in the business. Creditors generally do not have voting power. DISADVANTAGES OF USING DEBT Unpaid debt is a liability of the business. If it is not paid then the creditors can legally claim the assets of the firm. This action can result in liquidation or reorganization. Your business must earn at least enough money to cover for the interest expense, otherwise you may not be able to pay you interest which may lead to default (financial

The payment of interest on debt is considered a cost of doing business and is fully tax deductible.

distress). The creditors will only be concerned that the business will be able to generate cash flow to cover interest expenses.

ADVANTAGES OF USING EQUITY Unlike obligation of debt, your business will not have any contractual obligation to pay for equity dividend. Equity financing also allows your business to obtain funds without incurring debt, or without having to repay a specific amount of money at a particular time.

DISADVANTAGES OF USING EQUITY Equity is an ownership of the business. So an equity partner will have a direct say about your business.

You must examine each of these trade-offs in detail before deciding which is best for your firm. Then you can establish a set of funding priorities to guide you in your negotiations with potential equity or debt funding sources. Working capital has a direct impact on cash flow in a business. Since cash flow is the name of the game for all business owners, a good understanding of working capital is imperative to make any venture successful.

THE OPERATING CYCLE AND WORKING CAPITAL NEEDS.

The working capital requirement of a firm depends to a great extent upon the operating cycle of the firm. The operating cycle may be defined as the time duration starting from the procurement of goods or raw materials and ending with the sales realization. The length and nature of the operating cycle may differ from one firm to another depending upon the size and the nature of the firm.

Operating cycle period The length of time duration of the operating cycle of any firm can be defined as the sum of inventory conversion period and the receivable conversion period.

y Inventory conversion period (ICP): it is the time required for the conversion of raw materials into finished goods sales. In a manufacturing firm inventory conversion period consists of raw material conversion period, work-in-progress conversion period and finished goods conversion period. The Raw material conversion period generally refers to the period for which the raw material is generally kept in stores before it is issued to the production department y Work-in-progress conversion period refers to the period for which the raw materials remain in the production process before it is taken out as a finished unit. y Finished goods conversion period refers to the period for which the goods remain in stores before being sold to the customers.

y Receivables conversion period receivable conversion period: it is the time required to convert the credit sales into cash realization. It refers to the period between the occurrence of credit sales and collection of debtors.

The total inventory conversion period and receivable conversion period is also known as total operating cycle period (TOCP). The firm might be getting some credit facilities from the supplier of raw materials, wage earners etc this period for which the payments to these parties are deferred or delayed is known as deferral period

WORKING CAPITAL CYCLE

FACTORS DETERMINING WORKING CAPITAL REQUIREMENT.

The working capital needed at one point of time may not be good enough for some other situation. The determination of working capital requirement is a continuous process and must be undertaken on a regular basis in the light of changing situations. Following are some of the factors which are relevant in determining of working capital needs of the firm:

y Basic Nature of Business: The working capital requirement is closely related to the nature of the business of the firm. In case of retail shop or trading firm, the amount of working capital required is small enough. Most of the transactions are undertaken in cash and the length of the operating cycle is generally small. For e.g. like in public utilities like railways, electricity where the payment for the service is immediate i.e. on cash basis, the need of working capital is low. y Business Cycle Fluctuations: Different phases of business cycle i.e. boom recession, Recovery etc also affects the working capital requirement. In case of boom conditions, inflationary pressure appears and business activities expand. As a result, the overall need for cash, inventories etc increases resulting in more and more funds blocked in these current assists. In case of recession period however, there is usually dullness in business activities and there will be an opposite effect on the level of working capital requirement.

y Seasonal operations: If a firm is operating in goods and services having seasonal fluctuations in demand, then the working capital Requirement will also fluctuate with every change .During the rainy season, there is demand for umbrellas and rain-coats, thus in order to meet the rising demand during the season, the working capital would be more whereas if there is consistent production of umbrellas throughout the year then the working capital would be comparatively lower. y Market Competitiveness: The market competitiveness has an important bearing on the working capital needs of a firm. In view of the competitive conditions prevailing the market, the firm may have to offer liberal credit terms to the customers resulting in higher debtors. It may also have to maintain a higher stock of inventory to produce finished

goods ,otherwise due to shortage there are chances of loosing out the customer to a competitors, thus more would be the requirement of working capital on the other hand a monopolistic firm may not require larger working capital

y Credit policy: The credit policy means the totality of terms and conditions on which goods are sold and purchased. A firm has to interact with two types of credit policies at a time. One, the credit policy of the supplier of raw materials, goods, etc and two the credit policy relating to credit which it extends to its customers. y Supply conditions: the time taken by a supplier of raw materials, goods etc. After placing an order also determines the working capital requirement. If goods are received as soon as or in a short period after placing an order, then the purchaser will not like to maintain a high level of inventory of that good, otherwise, larger inventories should be kept e.g. in case of imported goods.

If you....... Collect receivables (debtors) faster Collect receivables (debtors) slower Get better credit (in terms of duration or amount) from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower

Then...... You release cash from the cycle Your receivables soak up cash You increase your cash resources

You free up cash

You consume more cash

NEED FOR ADEQUATE WORKING CAPITAL

The need and importance of adequate working capital for day to day operations can hardly be underestimated. Every firm must maintain a sound working capital position otherwise its business activities may be adversely affected .Excess and deficit of working capital, both are bad for any organization

The repercussions of excess working capital are as follows: 1. Unnecessary accumulation of inventories resulting in waste, theft, damage etc. 2. Delays in collection of receivables resulting in more liberal credit terms to customers than warranted by the market conditions. 3. Adverse influence on the performance of the management. On the other hand, inadequate working capital situation when the firm Does not have sufficient working capital to support its operations. 4. The fixed assets may not be optimally utilized. 5. Firms growth may stagnate. 6. Interruptions in production schedule may occur ultimately resulting in lowering of the profit of the firm. 7. The firm may not be able to take benefit of an opportunity.. 8. Firms goodwill in the market is affected if it is not in a position to meet its liabilities on time. The working capital management. As such does not end with estimating and forecasting the working capital requirements but also include the financing of this requirement, it would be prudent to bifurcate total working capital into permanent working capital and temporary working capital. Arranging funds from long-term sources such as debt and equity should finance the permanent working capital, which is required irrespective of the fluctuations in sales level. However, the temporary working capital requirement should be financed from short-term sources of finance.

VARIOUS METHODS USED BY THE COMPANY TO FINANCE ITS WORKING CAPITAL REQUIREMENT

1. Overdraft:
In this case, the borrowing firm which already has a current account with the bank is allowed to withdraw more (up to a specified limit) over and above the balance in the current account. The firm is not required to seek approval of the bank authority every time it is overdrawing, but a onetime approval may work for a particular period. The firm has to pay interest at a specified rate only for the period during which the amount per period for maintaining the over draft limit even if no amount has been over drawn. 2. Cash credit: Under the cash credit, a loan limit is sanctioned by the bank and the borrowing fund can withdraw any amount any time, within that limit. The interest is charged at the specified rate on the amount withdrawn and for the relevant period. RBI has laid down that a firm has to maintain a margin of 25% and cash credit limit may be sanctioned only up to 75% of the cash-purchased inventories and book debts. Here the cash credit is given against the hypothecation of goods or security of book debts. 3. Bills purchased and bills discounting: If the holder of the bill that is the seller wants the money before maturity date of the bill, he can get the bill discounted by the bank which will pay the amount after charging some discount. The discount depends upon the amount of the bill, the maturity period and the prime lending rate prevailing at that time 4. Letter of credit: A letter of credit is issued by a bank and signifies its commitment to honor the payment terms of the underlying transaction if the seller delivers the goods as stipulated in the contract. A letter of credit could be issued either for domestic transaction or for international trade. However, its usage is generally in the context

of transactions between parties of different countries. The usage of Letter of Credit in foreign trade has arisen because of the characteristics of foreign trade such as long time gap between dispatch of goods and realization of proceeds and lower level of comfort about the counter party. As a result of this, the banker of the exporting party generally insists on a letter of credit from the counterpartys banker in order to verify the authenticity of the transactions and the buyers credentials. The payment in case of these transactions would subsequently be conducted directly between the banks. 5. Letter of guarantee A letter of guarantee is issued by a banker to a third party indicating that the bank would meet the financial consequences (to a specified amount) in the event of failure of its client in adhering to the terms of the contract with the third party. Letters of guarantee are primarily of the following nature a. Performance Guarantees: The bank guarantees to make good the penalty in the event of failure of its client to meet the requisite performance obligations. This is generally provided on behalf of clients undertaking execution of contracts, etc b. Financial Guarantees: The bank here guarantees to make good any default by its client in honoring commitments made in a financial transaction.

Chapter 7

FINDINGS

DATA AVAILABLE FOR ASSESSMENT OF WORKING CAPITAL REQUIREMENT FOR THE PLANT AT PAGARA, DIST. GUNA (M.P) YEAR 2010-2011 PRODUCTION (IN TONS) RAW MATERIAL COST PER TON LABOUR COST PER TON MANUFACTURING OVERHEADS ADMINISTRATIVE OVERHEAD PER TON SELLING AND DISTRIBUTUION OVERHEAD PER TON 8326 105560 4780 13220 7862 5632

INVENTORY & RECEIVABLES HOLDING LEVELS

AS ON 31ST MARCH 2O10 Raw material Finished goods Debtors Creditors 7 Days 7 Days 8 Days 30 Days

DEEPAK SPINNERS LTD. Pagara, Dist. Guna (M.P) WORKING CAPITAL REQUIREMENT FOR THE PERIOD ENDING 31ST MARCH 2010 PARTICULARS DETAILS (IN RS.) AMOUNT (IN RS.)

A. CURRENT ASSETS RAW MATERIALS 8659 * 105560 * 7/365 17529692.70

FINISHED GOODS 8326 * 123560 * 7/365

19729654.60

DEBTORS 8326 * 137054 * 8/365 * 20/100

5002133.00

TOTAL OF CURRENT ASSETS ---(A)

42261480.30

B. CURRENT LIABILITIES CREDITORS 8659.04 * 25/100 *105560 * 30/365

18781813.60

TOTAL OF CURRENT LIABILITIES ---(B) WORKING CAPITAL REQ. (A B)

18781813.60

23479666.70

ANALYSIS OF WORKING CAPITAL THROUGH VORIOUS RELATED RATIOS:

Financial Ratio Analysis Financial ratio analysis calculates and compares various ratios of amounts and balances taken from the financial statements. The main purposes of working capital ratio analysis are: y y to indicate working capital management performance; and To assist in identifying areas requiring closer management.

Three key points need to be taken into account when analyzing financial ratios: y The results are based on highly summarized information. Consequently, situations which require control might not be apparent, or situations which do not warrant significant effort might be unnecessarily highlighted. Different departments face very different situations. Comparisons between them, or with global "ideal" ratio values, can be misleading; Ratio analysis is somewhat one-sided; favorable results mean little, whereas unfavorable results are usually significant.

However, financial ratio analysis is valuable because it raises questions and indicates directions for more detailed investigation.

The following ratios are of interest to those managing working capital: 1. Working Capital Ratio 2. Working Capital Turnover Ratio 3. Liquid Interval Measure Ratios 4. Stock Turnover Ratio 5. Debtors` Turnover Ratio 6. Debt Collection Period 7. Creditors Ratio

1. Working Capital Ratio

Current Assets divided by Current Liabilities The working capital ratio (or current ratio) attempts to measure the level of liquidity, that is, the level of safety provided by the excess of current assets over current liabilities. The "quick ratio" a derivative, excludes inventories from the current assets, considering only those assets most swiftly realizable. There are also other possible refinements. There is no particular benchmark value or range that can be recommended as suitable for all government departments. However, if a department tracks its own working capital ratio over a period of time, the trends-the way in which the liquidity is changing-will become apparent.

CURRENT ASSETS INVENTORIES SUNDRY DEBTORS CASH AND BANK BALANCES LOANS & ADVANCES OTHER CURRENT ASSETS TOTAL CURRENT LIABILITIES SUNDRY CREDITORS PROVISIONS 241598751.83 12082461.73 276900567.73 181223423.23 13114221.58 216642871.09 35573731.89 723454815.52

TOTAL

253681213.56

WORKING CAPITAL RATIO CURRENT ASSETS / CURRENT LIABILITIES = 723454815.52 / 253681213.56 2.8518 CONCLUSION Working Capital Ratio of the company is 2.8518 & ideal ratio is 2:1 which means that company is having an ideal condition and company is able to pay its current liabilities and companys short term financial position is sound. QUICK RATIO = LIQUID ASSETS / CURRENT LIABILITIES

LIQUID ASSETS = CURRENT ASSETS (INVENTORIES + PREPAID EXPENSES) CURRENT ASSETS = 723454815.52 INVENTORIES = 276900567.73 PREPAID EXPENSES = 216642871.89 LIQUID ASSETS = 723454815.52 (276900567.73 + 216642871.89) = 229911375.90 QUICK RATIO = 229911375.90/ 253681213.56 0.9063 CONCLUSION Ideal quick ratio should be 1:1 and company is having very low liquid ratio which shows a very weak short term financial position. And this ratio is low because of holding of large inventories.

2. WORKING CAPITAL TURNOVER RATIO

NET SALES DIVIDED BY NET WORKING CAPITAL Working Capital Turnover Ratio establishes a ratio between net sales and working capital. The ratio measures the efficiency of utilization of working capital. This ratio indicates the number of times the utilization working capital in the process of doing business. The higher is the ratio, the lower would be the investment in working capital and the greater are the profits. However, a very high ratio indicates a sign of over trading and puts the fir in financial difficulties. A low ratio indicates that the working capital has not been used efficiently. WORKING CAPITAL TURNOVER RATIO NET SALES = 2091212800.10 WORKING CAPITAL = CURREN ASSETS CURRENT LIABILITIES CURRENT ASSETS = 723454815.52

CURRENT LAIBILITIES = 253681213.56 WORKING CAPITAL = 723454815.52 - 253681213.56 = 469773601.96 WORKING CAPITAL TURNOVER RATIO NET SALES / NET WORKING CAPITAL =2091212800.10 / 469773601.96

4.451533 TIMES
y

CONCLUSION A high working capital ratio isn't always a good thing, it

could indicate that they have too much inventory or they are not investing their excess cash.

3. Liquid Interval Measure Liquid Assets divided by Average Operating Expenses This is another measure of liquidity. It looks at the number of days that liquid assets (for example, inventory) could service daily operating expenses (including salaries).
LIQUID INTERVAL MEASURE = LIQUID ASSETS / AVERAGE OPERATING EXPENSES LIQUID ASSETS = 229911375.90 OPERATING EXPENSES RAW MATERIAL CONSUMED MANUFACTURING EXPENSES PERSONAL EXPENSES GENERAL & ADMINISTRATION 1618743210.50 184783829.81 131440751.29 104528501.95

SELLING & DISTRIBUTION TOTAL

44080201.05 2083576494.60

AVERAGE OPERATING EXPENSES =2083576494.60 / 365 = 5708429

LIQUID INTERVAL MEASURE = 229911375.90 / 5708429 =41 days

4. STOCK TURNOVER RATIO Cost of Goods Sold divided by Average Stock Level This ratio applies only to finished goods. It indicates the speed with which inventory is sold-or, to look at it from the other angle, how long inventory items remain on the shelves. It can be used for the inventory balance as a whole, for classes of inventory, or for individual inventory items. The figure produced by the stock turnover ratio is not important in itself, but the trend over time is a good indicator of the validity of changes in inventory policies. In general, a higher turnover ratio indicates that a lower level of investment is required to serve the department. Most departments do not hold significant inventories of finished goods, so this ratio will have only limited relevance

COST OF GOODS SOLD OPENING STOCK RAW MATERIAL CONSUMED MANUFACTURING EXPENSES CLOSING STOCK TOTAL COST OF GOODS SOLD

289051231.80
1618743210.50 184783829.81 (276912321.19)

1815665952.23

AVERAGE STOCK = (OPENING STOCK + CLOSING STOCK) / 2 = (289051231.80 + 276912321.19) / 2

= 282981777

RATIO

= COST OF GOODS SOLD / AVERAGE STOCK = 1815665952.23 / 282981777 7 Times

5. DEBTORS TURNOVER RATIO

Debtors turnover ratio indicates the relation between sales and average accounts receivables of the year. This ratio is also known as Debtors Velocity. This ratio indicates the efficiency of the concern to amount due from debtors. It determines the efficiency with which the trade debtors managed. Higher the ratio, better it is as it proves that the debts are being collected quickly. And this ratio will also affect the working capital needs of the company.

Formula: DEBTORS TURNOVER RATIO= NET CREDIT SALES / AVERAGE DEBTORS NET CREDIT SALES = 20% of Total Sales 20% of 2091212800.10 = 418242560 AVERAGE DEBTORS = OPENING DEBTORS & B/R + CLOSING DEBTORS & B/R Opening Debtors = 169001521.23 Closing Debtors = 181223423.23 Average Debtors = (169001521.23 + 181223423.23) / 2 = 175112473.23 RATIO = 418242560 / 175112473.23 3 Times

6. DEBT COLLECTION PERIOD

Debt collection period is the period over which the debt collected on an average basis. It indicates the rapidity and slowness with which the debt collected from debtors. This ratio indicates how quickly and efficiently the debt is collected. The shorter the period the better it is and longer the period more the bad debts. Although no standard period is prescribed anywhere, it depends on the industry. DEBT COLLECTION PERIOD = 12 MONTHS / DEBTORS TURNOVER RATIO = 12 / 3 = 4 MONTHS

7. CREDITORS TURNOVER RATIO

Creditors turnover ratio indicates the relation between credit purchase and average accounts payables of the year. This ratio indicates the efficiency of the concern to amount due to Creditors. It determines the efficiency with which the Creditors managed. Higher the ratio, better it is and vice versa. And this ratio will also affect the working capital needs of the company. CREDITORS TURNOVER RATIO = NET CREDIT PURCHASE / AVERAGE ACCOUNT PAYABLES Net Credit Purchase = 241598751.83 Opening Payables = NIL Closing Payables = NIL Average payables = (Opening payables + Closing payables) / 2 = NIL NOTE: - As, the company dont show any payables in the balance sheet, therefore this ratio cannot be calculated.

CONCLUSION AND RECOMMENDATIONS CONCLUSION