A STUDY ON

WORKING CAPITAL MANAGEMENT

With reference to

IDUPULAPADU COTTON MILLS PVT LTD

A Project report submitted to partial fulfilment of the

requirement for the Award of the Degree of

BACHELOR OF COMMERCE

By

BARLA JYOSHNA

(Regd. No:19AG435)

Under the esteemed guidance Of

DR.J.JAYENDAR MBA, M.Com,M.phli,M.ph.D(PDF)

Assistant Professor

DEPARTMENT OF COMMERCE AND MANAGEMENT

ST. JOSEPH’S COLLEGE FOR WOMEN
(AUTONOMOUS)
VISAKHAPATNAM
(2019-2022)
 ST. JOSEPH’S COLLEGE FOR WOMEN (AUTONOMOUS)
Gnanapuram, Waltair R.S Visakhapatnam
Andhra Pradesh, India
E-MAIL: www.stjosephsvizag.com
CELL:91-891-2558346
………………………………………………………………………………………………………………
………………………………………….

CERTIFICATE

This is to certify that the project work titled “A Study on working capital management’’
on business in “Idulupuladu cotton mills pvt ltd”, Visakhapatnam submitted by BARLA
JYOSHNA to the St. Joseph’s College for Women (Autonomous), Visakhapatnam in
partial fulfilment for award of degree of BACHELOR OF COMMERCE is a record of
bonafide work carried out by her under my guidance and supervision.

Date:

Place: vishakapatnam

DR.J.Jayendar Mrs. DR.N. Jyothi

Project Guide Head of the Department

External Examiner
 DECLARATION

I Undersigned BARLA JYOSHNA, a student of B.Com (computers) here by to declare

that the project entitled study on “WORKING CAPITAL MANAGEMENT”
submitted by me is a bonafide work done by own and has been carried under the
supervision and guidance of DR. J. JAYENDAR ASSISTANT PROFESSOR, of St.
Joseph’s college for women(A).

This work has not been submitted to any other universities for any examination. This
project is a partial fulfilment of the requirement of the award of Bachelor of Commerce.

Place: Visakhapatnam BARLA JYOSHNA

Date: (Regd.No:19AG435)
 ACKNOWLEDGEMENT
It’s a golden opportunity to provide at “Idupulapadu cotton mills pvt ltd ”,
Visakhapatnam for me as an intern to devote my time and effort, knowledge, experience
and many of whom always remain in the background. This project report has helped
my inter personal skills and self-confidence to do my work individually in future.

In the preparation of report, I would like to take responsibility to

acknowledgement the following distinguished personalities who graciously allowed me
to carry out the project work successfully.

I express my heartfelt thanks to Dr. Sr. Shyji principal of our college for her
constant support and encouragement in pursuing this project.

I express my deep sense of gratitude to the head of the department Dr. N. Jyothi
for her continuous support, valuable guidance and encouragement in completion of my
project work.

I would like to take the pleasure of opportunity to express my heart full gratitude
to my guide Dr.J.Jayender who took personal interest and gave valuable suggestions to
conduct the project report in systematic way and for the project documentation of the
project report to the successful end throughout the project.

Finally, I would like to give my sincere thanks to my parents and friends for the
unwavering faith and immense support where I couldn’t have completed this project
without the help and direction.

BARLA JYOSHNA
(Regd.No:19AG435)
 CONTENTS

CHAPTER - 1:

● Introduction
● Need for the Study
● Scope of the Study
● Objective of the Study
● Methodology
● Limitations of the study

CHAPTER-2:

● Industry Profile
● Company Profile

CHAPTER-3:

● Theoretical framework

CHAPTER-4:

● Data Analysis and Interpretation

CHAPTER-5:

● Summary
● Findings
● Suggestions
● Conclusion

BIBLIOGRAPHY
 CHAPTER-1
INTRODUCTION
 INTRODUCTION

Working capital management is concerned with the problems that arise in

attempting to manage the current assets, the current liabilities and the inter relationship
that exists between them. The term current assets refer to those assets which in the
ordinary course of business can be, or will be, converted into cash within one year
without undergoing a diminution in value and without disrupting the operations of firm.
The major current assets are cash, marketable securities, accounts receivable and
inventory. Current liabilities are those liabilities which are intended, at their inception,
to be paid in the ordinary course of business, within a year, out of the current assets or
earning of the concern. The basic current liabilities are account payable, bills payable;
bank overdraft, and outstanding expenses, the goal of working capital management is
to manage the firm’s current assets and liabilities in such way that a satisfactory level
of working capital is maintained.

Definition:

● According to Gene Stenberg “Circulating capital means current assets of a

company that are changed in the ordinary course of business from one form to
another as for example, from cash to inventories, inventories to receivables, into
cash".
● In the words of cubing "working capital is the amount of funds necessary to
cover the operating the enterprise".
 NEED FOR THE STUDY

● Textiles industry plays a major role in the economic life of a nation seventh
five-year plan showed a major emphasis on development of textiles industry in
India. This study enables us to know to what extent theoretical aspects can be
put in practice.
● Working capital gives an idea to the investor as well as the management of any
firm about the functioning of organization. Preparation of separate statement of
working capital gives us an idea about the gross as well as the net working
capital of organization.
● Study of working capital management in the idupulapadu textiles industry gives
out the exact idea of working capital because it is an organization with great
expenses. It is an organization with continuous production i.e. Manufacturing,
Storing, Delivery & Exports imports.
● The products or this organization play an important role in day-to-day life of
every individual, since it enhances the convenience. A huge working capital is
required to meet its expenses. This made me study the working capital
requirement of the organization.
 SCOPE OF THE STUDY

● It is difficult task before an organization to keep an amount as Working

Capital.
● The Working Capital covers the total expenditure which concentrates on
routine organization activities. It reveals the around the performance of day-
to-day activities.
● The amount of working capital can be determined on the length of activities,
the size of the activities, the area of policy and procedure and the volume of an
organization.
 OBJECTIVES OF THE STUDY

● To study the overall performance of Idupulapadu cotton Mills pvt Ltd at

Guntur.
● Sketch the profile of cotton textile industry and idupulapadu cotton mills
pvt ltd.
● To know the current financial position of the Idupulapadu cotton Mills
pvt Ltd.
● To evaluate the short term and long-term solvency position of the
Idupulapadu cotton Mills pvt Ltd.
● To evaluate the management of working capital in the selected unit for
study.
● To know the optimum cash requirement of the Idupulapadu cotton Mills
pvt Ltd.
 METHODOLOGY OF THE STUDY

Methodology, describes the method of achieving objectives through collection of data,

the data collected can be either primary or secondary. The above information is carried
on with the cooperation of management of Idupulapadu cotton Mills PVT LTD.

Primary Data:

Most of the Information is collected from internal interviews & discussion with various
officials in the finance departments and concerned executives & other departments.

Secondary Data:

The information is collected from the financial Working capital and its information
brochures of the organization. The data collected from various years books published
articles & published annual reports of Idupulapadu cotton Mills PVT LTD and other
materials.

Method of Data collection:

The data collected from the company files Working capital and other library books and
other articles from the websites.

Data Analysis:

The analyses used in the study are tabulation of charts & graphs and mathematical tools
for representation and schedule of ratios.
 LIMITATIONS OF THE STUDY

● The study is textile Idupulapadu cotton Mills pvt Ltd at Guntur.

● The study was mainly based on accounting data, which were recorded
at the end of the year and we can not know the problems faced by the
management in day-to-day operations, which are related to working
capital.
● Since this is a case study, all the limitations applicable to a case study
apply to this study also.
● The analysis is based on working capitals which were subject to several
limitations. Therefore, any analyses based on such statements also
suffer from similar limitations.
● The external factors on that effect the financial performance of the
company have not been given much importance.
● Limitations in working capital analysis arise due to difficult in making
comparison and it is always a challenging standard to compare.
CHAPTER-2

INDUSTRY PROFILE

COMPANY PROFILE
 INDUSTRY PROFILE

Cotton is a soft, staple fiber that grows around the seeds of the cotton plant. It is a
natural fiber harvested from the cotton plant. The fiber most often is spun into yarn or
thread and used to make a soft, breathable textile, which is the most widely, used
natural-fiber cloth in clothing today.

Processing of Cotton in India:

In India the raw cotton, also called as Kapas is processed in a multi-stage process
described as below. The Products of processing are

● Yarn.
● Cottonseed Oil.
● Cottonseed Meal.

I. Production of Yarn:

KAPAS TO LINT:

Kapas (also known as raw cotton or seed cotton) is unginned cotton or the white fibrous
substance covering the seed that is obtained from the cotton plant. The 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. Then it runs through cleaning equipment to remove leaf
trash, sticks and other foreign matter. In ginning a roller gin is used to grab the fiber.
The raw fiber, now called lint.

LINT TO BALE:

The lint makes its way through another series of pipes to a press where it is compressed
into bales (lint packaged for market). After baling, the cotton lint is hauled to either
storage yards, textile mills, or shipped to foreign countries.

NOTE: The cotton seed is delivered to a seed storage area from where it is loaded into
trucks and transported to a cottonseed oil mill.
BALE TO LAP:

Here the bales are broken down and a worker feeds the cotton into a machine called a
"breaker" which gets rid of some of the dirt. From here the cotton goes to a "scutcher".
(Operated by a worker also called a scutcher). This machine cleans the cotton of any
remaining dirt and separates the fibers. The cotton emerges in the form of thin "blanket"
called the "lap".

LAP TO CARDING:

Carding is the process of pulling the fibers into parallel alignment to form a thin web.
High speed electronic equipment with wire toothed rollers performs this task. The web
of fibers is eventually condensed into a continuous, untwisted, rope-like strand called a
sliver.

SLIVER TO ROVING:

The silver is then sent to combing machine. Here, the fibers shorter than half-inch and
impurities are removed from the cotton. The sliver is drawn out to a thinner strand and
given a slight twist to improve strength, and then wound on bobbins. This Process is
called Roving.

ROVING TO YARN (SPINNING):

Spinning is the last process in yarn manufacturing. Spinning draws out the short fibres
from the mass of cotton and twists them together into a long. Spinning machines have
a metal spike called a spindle which the thread winds around.

II. Production of Cotton Seed Oil:

Processing of cottonseed in modern mills involves a number of steps. They are as

follows:

The first step is its entry into the shaker room where, through a number of screens and
air equipment, twigs, leaves and other trash are removed.
The cleaned seed is then sent to gin stands where the linters are removed from the seed
(delinted). The linters of the highest grade, referred to as first-cut linters are used in
manufacturing non-chemical products, such as medical supplies, twine, and candle
wicks. The second-cut linters removed in further delinting steps, are incorporated in
chemical products, found in various foods, toiletries, film, and paper.

The delinted seeds now go to the huller. The huller removes the tough seed coat with
a series of knives and shakers. The knives cut the hulls (tough outer shell of the seed)
to loosen them from the kernels (the inside meat of the seed, rich in oil) and shakers
separate the hulls and kernels.

The kernels are now ready for oil extraction. They pass through flaking rollers made of
heavy cast iron, spinning at high speeds. This presses the meats into thin flakes. These
flakes then travel to a cooker where they are Cooked at 170 degrees F to reduce their
moisture levels. The prepared meats are conveyed to the extractor and washed with
hexane (organic solvent that dissolves out the oil) removing up to 98% of the oil.

Crude cottonseed oil requires further processing before it may be used for food. The
first step in this process is refining. With the scientific use of heat, sodium hydroxide
and a centrifuge (equipment used to separate substances through spinning action), the
dark colored crude oil is transformed into a transparent, Yellow oil. This clear oil may
then be bleached with special bleaching clay to produce transparent, amber colored oil.

The refined cotton seed oil has several advantages other than edible oils. It contains
mere advantage over other edible oils. It contains a large percentage of Poly
Unsaturated Fatty Acids (PUFA) which maintain cholesterol in the blood at a healthy
level.

The quality of cotton oil depends on the weather prevailing during the time that cotton
stands in the fields after coming to maturity. Hence quality of oil varies from place to
place and season to season. The quality of oil is high in dry seasons and low when the
seed is exposed to wet weather in the fields or handled or stored with high moisture.
Further cotton seed cooking oil has a long span of life due to the presence of vitamin E.

III. Production of Cottonseed Meal/Cake/Kapaskhalli :

Kapaskhalli (cottonseed extraction/meal) is a byproduct of the cottonseed industry.

Cottonseed is a by-product of the cotton plant, which is primarily grown for its fiber.
Although cotton has been grown for its fiber for several thousand years, the use of
cottonseed on a commercial scale is of relatively recent origin.

Cottonseed was a raw agricultural product, which was once largely wasted. Now it is
being converted into food for people; feed for livestock; fertilizer and mulch for plants;
fiber for furniture padding; and cellulose for a wide range of products from explosives
to computer chip boards.

The figure showing the products obtained from processing the raw cotton:

Source: The Cotton Corporation of India Ltd.

Cotton Varieties in India:

● Bengal Deshi mainly produced in the states of Punjab, Haryana, and Rajasthan.
● Jayadhar mainly produced in the state of Karnataka.
● Bunny (or) Brahma is mainly produced in the states of Maharashtra, Madhya
Pradesh, Andhra Pradesh, and Karnataka.
● Suvin is another variety produced in the state of Tamil Nadu.
● H-4 (or) MECH1 is mainly produced in the states of Maharashtra, Madhya
Pradesh, and Andhra Pradesh.
Role of Cotton Industry in Indian Economy:

Over the years, country has achieved significant quantitative increase in cotton
production. Till 1970s, country used to import massive quantities of cotton in the range
of 8.00 to 9.00 lakh bales per annum. However, after Government launched special
schemes like intensive cotton production programmes through successive five-year
plans, that cotton production received the necessary impetus through increase in area
and sowing of Hybrid varieties around mid 70s.

Since then country has become self-sufficient in cotton production barring few years in
the late 90s and early 20s when large quantities of cotton had to be imported due to
lower crop production and increasing cotton requirements of the domestic textile
industry.

Cotton production Areas in India:

India is an important grower of cotton on a global scale. It ranks third in global cotton
production after the United States and China; with 9.50 million hectares grown each
year, India accounts for approximately 21% of the world's total cotton area and 13% of
global cotton production. The Cotton producing areas in India are spread throughout
the country. But the major cotton producing states which account for more than 95% of
the area under and output are:

● Punjab
● Haryana.
● Rajasthan.
● Maharastra.
● Gujarat.
● Madhya Pradesh.
● Andhra Pradesh.
● Tamil Nadu.
● Karnataka.

Of the nine cotton producing States in India, average yields are highest in Punjab where
most of the cotton area is irrigated.
Contribution of Cotton industry for Textile Industry:

Cotton is the most important raw material for India's Rs. 1, 50, 000crores textile
industry, which accounts for nearly 20% of the total national industrial production. The
cotton Industry is the backbone of our textile industry, accounting for 70% of total fiber
consumption in textile sector. It also accounts for more than 30% of exports, making it
India's largest net foreign exchange industry. India earns foreign exchange to the tune
of $10-12 billion annually from exports of cotton yarn, thread, fabrics, apparel and
made-ups.

The cotton Industry provides employment to over 15 million people. And the area under
cotton cultivation in India (9.5 million ha) is the highest in the world, i.e., 25% of the
world area.

Steps taken by the Cotton Producers in India:

Now-a-days the Indian Cotton producers are continuously working to up-grade the
quality and increase the cotton production to cope up with the increased global demand
for cotton textiles and to meet the needs of the 39 million spindles capacity of the
domestic textile industry which presently consumes about 12-14 million bales annually.

In India, cotton yields increased significantly in the 1980’s and through the first half of
1980’s but since 1996 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. Besides low yield, Indian cotton also suffers from
inconsistent quality in terms of length, micronaire and strength.

Policy of Government of India towards Cotton Industry:

The Cotton production policies in India historically have been oriented toward
promoting and supporting the textile industry. The Government of India announces a
minimum support price for each variety of seed cotton (kappas) based on
recommendations from the Commission for Agricultural Costs and Prices. The
Government of India is also providing subsidies to the production inputs of the cotton
in the areas of fertilizer, power, etc…
Markets for Indian Cotton:

● The three major groups in the cotton market are

● Private traders,
● State-level cooperatives,
● The Cotton Corporation of India Limited.
Exports of Cotton:

The main market for Indian cotton export is China. The other markets also include
Taiwan, Thailand and Turkey. In July 2001, the union government removed all curbs
on cotton exports. As a result of these, now the exporters are not required to obtain any
certificate from the Textile Commissioner on the registration, allocation, quality and
quantity of export. India exported around 25 per cent cotton during 2014-15 and it is
estimated nearly 62 per cent exported to China.

During the year 2015-16 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 S-6, H-4 and Bunny, which had resulted in
sustained cotton exports, which are estimated at 55.00 lakh bales

The Cotton Advisory Board estimated an 18-20 percent increase in cotton exports to 65
lakh bales for Oct 2007- Sep 2008, as against its Aug 2007 estimate of 58 lakh bales.

Imports of Cotton:

Despite good domestic crops, India is importing cotton because of quality problems or
low world prices particularly for processing into exportable products like yarns and
fabrics.

India imported just 721,000 bales of cotton in 2003-04. The imports rose to 1,217,000
lakh bales in 2004-05, 4,700,000 lakh bales in 2005-06 and the anticipated imports for
the year 2006-07 are 550,000 lakh bales.

For the year 2006-07 the cotton imports into the country had once again remained
limited mainly to Extra Long staple cottons, like as previous year, which were in short
supply at around 6 lakh bales inclusive of import of around 2 lakh bales of long staple
varieties contracted by mills during April-May 2007.
Role of Cotton seed oil in Indian Economy:

The global production of cottonseed oil in the recent years has been at around 4-4.5
million tons. Around 2 lakh tons are traded globally every year. The major seed
producers, viz., China, India, United States, and Pakistan are the major producers of
oil. United States (60000 tons) is the major exporter of cottonseed oil, while Canada is
the major importer.

Cottonseed is a traditional oilseed of India. In India the average production of cotton

oil is around 4 lakh tons a year. It is estimated that, if scientific processing is carried
out the oil production can be increased by another 4 lakh tons.

In India, the oil recovery from cottonseed is around 11%. Gujarat is the major consumer
of cottonseed oil in the country. It is also used for the manufacture of vanaspati. The
price of cottonseed oil is generally dependent on the price behavior of other
domestically produced oils, more particularly groundnut oil.

India used to import around 30000 tons of crude cottonseed oil, before palm and soyoil
became the only imports of the country. Currently, the country does not import
cottonseed oil.

Role of cottonseed meal in Indian Economy:

India produces around 2 million tons of cottonseed meal a year. However, in India
mainly undecorticated meal is largely produced. Several associations are promoting the
production of decorticated cake in India and the production of this is expected to
increase in the country.

India used to be a major exporter of cottonseed extraction around two decades ago.
However, the demand for other oil meals like soymeal has lowered the cottonseed
demand globally. In addition, the low availability of decorticated meal in India has also
been a major reason for the fall in exports.

The major importers of Indian cottonseed meal (undecorticated) used to be Thailand.

India in 2002-03 exported only 50 tons of decorticated cottonseed meal. In 2003-04,
too there have been no significant exports. India does not import cottonseed meal.
The Organizations dealing with the promotion of Cotton Industry in India:

The organizations that try to promote the quantity and quality of Cotton in India are

The Cotton corporation of India Ltd

Cotton Advisory Board

Cotton Association of India

Central Institute of Cotton Research

1.The Cotton Corporation of India Limited:

● The Cotton Corporation of India Ltd. was established on 31st July
1970 as a Government Company registered under the Companies
Act 1956. In the initial period of setting up, as an Agency in Public
Sector, Corporation was charged with the responsibility of equitable
distribution of cotton among the different constituents of the
industry and to serve as a vehicle for the canalisation of imports of
cotton.
● With the changing cotton scenario, the role and functions of the
Corporation were also reviewed and revised from time to time. As
per the Policy directives from the Ministry of Textiles, Government
of India in 1985, the Corporation is nominated as the Nodal Agency
of Government of India, for undertaking Price Support Operations,
whenever the prices of kapas (seed cotton) touch the support level.
● The Cotton Corporation of India Ltd. Operations covers all the
cotton growing states in the country comprising of:
● Punjab, Haryana and Rajasthan in Northern Zone.
● Gujarat, Maharashtra and Madhya Pradesh in Central Zone.
● Andhra Pradesh, Karnataka & Tamil Nadu in Southern Zone.
1.Cotton Advisory Board :

The Cotton Advisory Board is a representative body of Government/ Growers/

Industries/ Traders. It advises the Government generally on matters pertaining to
production, consumption and marketing of cotton, and also provides a forum for
 liaison among the cotton textile mill industry, the cotton growers, the cotton trade
and the Government. It functions under the Chairmanship of Textile Commissioner
with Deputy Textile Commissioner as a Member Secretary

III. The Cotton Association of India:

The Cotton Association of India also called as the East India Cotton Association (EICA)
was declared as the statutory body by the Bombay Cotton Contract Act on 28th
December, 1922. Its purpose is to

Provide and maintain suitable buildings or rooms or a Cotton Exchange in the city of
Bombay or elsewhere in India.

Provide forms of contracts and regulate the marketing, etc. of the contracts.

Fix and adopt standards or classifications of cotton.

Adjust by arbitration or otherwise controversies between Persons engaged in the cotton

trade.

Acquire, preserve or disseminate useful information connected with the cotton interests.

IV. Central Institute of Cotton Research:

With a view to develop a Centre of excellence for carrying out long term research on
fundamental problems limiting cotton production the Indian Council of Agricultural
Research has established the Central Institute for Cotton Research at Nagpur in April,
1976. CICR was simultaneously established at Coimbatore to cater to the needs of
southern cotton zone. CICR was established at

Sirsa in the year 1985, to cater to the needs of northern irrigated cotton zone. All the
three research farms are well equipped with tractors and other farm implements and
efforts are underway to initiate further developmental work in all the farms.

The Vision of the CICR is to improve production and quality of Indian Cotton with
reduced cost to make cotton production cost effective and competitive in the national
and global market. The Mission of CICR is to develop economically viable and eco-
friendly production and protection technologies for enhancing quality cotton
production by 2-3% every year on a sustainable basis for the next twelve years (till
2020).
The Current Scenario of Cotton Industry (2020-21):

The cotton production in the country has been increasing continuously since last
three years and the same has further gone up by around 11% during cotton season 2020-
21 at a record level of 270 lakh bales as against 244 lakh bales during 2019-20.Gujarat
has turned into a largest cotton producing State with a record production-level of 93
lakh bales constituting around 34% of the country’s total production.

The area under cotton cultivation during 2019-20 has also gone up by around 6% at
91.58 lakh hectares as against 86.77 lakh hectares during 2019-20.

With wide usage of hybrid seeds throughout the country as well as changed mindset of
cotton farmers for adoption of better and improved farm practices, the average
productivity of cotton has crossed 503 kgs per hectare as against 478 kgs during the
previous year. 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.

Due to expectation of bumper crop, the mill demand in the beginning of the season was
subdued which put pressure on the cotton prices right

From the beginning of the season and has resulted into fall in cotton prices between
October 2020 & January 2021. Cotton prices reached its peak level by end-March 2021
and there was some correction in cotton prices in April and May 2020. However, on
the whole, cotton prices remained better by almost Rs.1000 per candy in almost all
varieties as compared to previous year.

Future of Cotton Industry in India:

The Cotton Advisory Board (CAB) has estimated the cotton crop at 310 lakh bales for
the current season 2020-21. This is a historic high and represents an 11% jump over
last year's crop estimate of 280 lakh bales. The increase in cotton production area is
also expected to increase to 95.30 lakh hectares for the season 2020-21 against 91.42
lakh hectares for the season 2019-20.

Cotton Advisory Board expects exports to be higher at 65 lakh bales as against 55 lakh
bales in 2019-20. Imports in 2020-21 are projected at 6.50 lakh bales as compared to
5.50 lakh bales in 2019-20, because mills have to rely on foreign growths to spin some
finer counts of yarn.

It is also estimated that the cotton industry is going to provide 12 million new jobs
mainly for the semi-skilled and unskilled labour.

Future Challenges for the Indian Cotton Industry:

The challenges that are going to face by the cotton producers in India for the season
2020-2021 are:

Rupee appreciation:

The increase in the value of the rupee gives only smaller import orders to the cotton
producers.

Cheaper Imports:

The appreciated rupee value makes the cotton imports cheaper when compared to past.
So this aspect is also required to consider by the cotton producers.

Low quality:

The Quality of cotton is also far from satisfactory considering the presence of a
large number of contaminants. So the cotton producers are also required to take care in
this aspect.

COMPANY PROFILE

Idupulapadu Cotton mills was established in 2000 with 13,000 spindles with the
expansion of 10,000 spindles every year, it is now equipped with 60,000 spindles
capacity and have the capacity to produce 20 tons of ring spun, 6 tons of open and 4
tons of ring doubling and to yarns 100% cotton yarns per day.
 ● The mill has a complete range of Lakshmi Trumac Machinery from blow room
to spinning departments with Muratec and savio auto corners.
● All the blow lines are connected to the cards with the chute system, which in
turn is connected with automatic waste collection system.
● The company has a strong clientele based at different regions of Andhra
Pradesh, Gujarat, Karnataka, Maharashtra, Rajasthan and TamilNadu.
MISSION

To manufacture a high- quality yarn thereby withstanding high level of

competitiveness.

Developing a long -term relationships with our customers and suppliers.

To use latest technological strategies during production thereby forming an innovative

approach.

To provide a safe, fulfilling and rewarding work environment for our employees.

Serving and supporting the communities in which we operate.

POLICY:

Quality is integral to everything at Idupulapadu. We adopt a holistic

quality assurance, system and in integrated system which covers the entire production
process. All lots are tested before giving to the mixing with high send machinery.

We believe quality is a continual process. With a focus clearly on delivering

quality products and services, we integrate to constantly innovate and excel. As a result
our clients are assured of top notch quality that is consistent across our product range.

VALUE:

By a clear comprehension of the market dynamics and the assimilation of the

cutting edge technology we assure the highest standards are met at all times.

The company initially started with Agricultural procedure basis. The company
will procure cotton kappas from farmers as well as traders from various market places
in and around AP. Indirectly it is helpful to farmers and small traders.
Now the company is doing cotton spinning with a spindle capacity of 65,000 here at
about 2000 No. of workers and 250 No’s of staff engaged in the industry. The main
motive of the company is to provide more jobs for the poor and middle class people.

The company is supplying its products in various states like Tamilnadu,

Karnataka, Maharashtra, Gujarat, Bombay,and Rajasthan.

There are product of yarn is useful for weaving industry. The company is providing
indirectly jobs in the textile industry.

FOREIGN CURRENCY:

● The company is also doing some exports directly and indirectly by doing
exports. The company is earning foreign currency.
● The main motive is to provide jobs and giving support price to farmers
and earn foreign currency.
● The company has successfully completed erection of 65000 spindles and
it is going to textile industry by putting weaving unit by using the
spinning product of yarn. If the company established weaving unit there
is a possibility of more jobs in the industry like weaving, dying,
garments etc.
BUSINESS EXPERIENCE OF J.M.D:

The joint managing director of the company is Mr.K.Brahmanaidu S/o. K. SubbaRao

managing director & Chairman. He is qualified in B.Tech (Textile) 1 st Class. He joined in the
company in May 2005 as a Director. Later he was appointed as Joint Managing Director.

He was well trained in Spinning now he is looking weaving. Now he is in

Coimbatore he had taken some sizing & weaving units in and around Coimbatore.
With in a 2 months period under his supervision 1, 00,000mtrs of grey cloth produced
and sold with a good quality and rate.

MAJOR CUSTOMERS OF THE COMPANY:

1) Paramount Textiles Mills Pvt. Ltd - Madurai

2) Siva Sankari Mills - coimbatore

3) PEC Ltd - Delhi

 4) Indus Fila Pvt. Ltd - Bangalore

5) Alok Industries - Silvassa

6) R.M. MohiteTextilies - Kolhapur

7) Sachin Textiles - Lehalkaranji

8) Kayaar Exports - Tiruchengode.

9) GTN industries - Hyderabad

10) GTN Enterprises - Kochin

11) PrathibhaSyntex - Ahmedabad

12) Mandhana Weaving House - Tarapur

13) Bombay Royan Fashions - Sangli

Cotton Manufactured Product Range:

Our major counts range from 40s to 60s 100% combed cotton yarns. We
manufacture carded counts from 30’s to 40’s cotton yarns. Adding to these counts we
have the setup of doubling of yarns in TFO and RING DOUBLING Conditioning of
yarns can be done with yarn conditioning machine available in packing department.

Production Capacity:

Ring spun yarns 20 tons

Open and spinning 6 tons

TFO 2 tons

Ring Doubling 2 tons

Contamination Removal:

25% of the production is from in house processed material which is free from
contamination.

The total bales are opened manually and maximum care is taken to remove the
contamination.

People are educated with the type of contamination effects in further process.
Their effectiveness is monitored meticulously by measuring the contamination level
in the final yarn. The contamination controllers in the blow room help us to alarm the
contamination level in the material.

Adequate care is taken for material in handling in order to avoid

contamination during the process.

All the auto corners are equipped with siro cleaners to remove the residual
contamination in the yarn.

Ginning Division:

Selection of raw materials is the important criterion in order to produce high quality
yarn. Moreover the cotton is selected personally by the managing director or the
director of the ginning mill.

An Idupulapadu Cotton mill has been equipped with modern ginning facilities.
The important features are:

● The ginning factory is equipped with automatic machinery.

● The cotton pre-cleaner eliminates the cotton bolls and unopened cotton
in the feed material.
● The seeds are collected through the seed conveyer and are dumped in separate
area.
● The cotton lint is connected to chute system which connects to the trash
separator and the lint cleaner.
● The lint cleaner eliminates the UNginned cotton, if any, and reduces the short
fiber content in the ginned cotton fiber.
● The entire chute system is designed in such a way that there shouldn’t be any
harsh effect on the cotton fibers.
 ● The lint is sent to be baleing to preserve the cotton properties for later use.
● Zero handling (human interference) of cotton in the ginning process after the
feed.
ENVIRONMENTAL PROTECTION AND SAFETY – A TOP PRIORTY:

We believe that environmental protection requires attitude, action and right

application of technology. The group is an eco-friendly entity whose concern is
preservation of life and environment. The division does not release any toxic wastes
and pollutants. And across every unit of the group, humidity, moisture and temperature
are constantly monitored to ensure top most safety.

The very fact that we have made wearing of masks mandatory for
the personnel bear’s amp witness to our commitment to industrial safety. The
environmental protection commitment of the company firmly believes that when we
use the bounties of mother earth, we have to give back an environment that is
conductive to healthy living.

TEXTILE DIVISION:

The division unit was equipped with modern imported machinery. Presently we are
running with 48 brand new looms.We have sucker wrapping and sizing. Total plant
planned for 98 looms. In phased manner we are expanding the looms capacity.

STATEMENT OF ACCOUNTING POLICIES:

GENERAL:

The financial statements are prepared on historical cost convention and

in accordance with generally accepted accounting practices.

FIXED ASSETS:

Fixed assets are stated at historical cost less accumulated depreciation.

INVESTMENTS:

Long term investment is stated at cost and income thereon accounted for
an accrual. Provision towards decline in the value of long term investments is made
only when such decline id other than temporary.

Depreciation:
 ● Deprecation is a written off in accordance with the provisions of
schedule XIV OF the companies act 1956 as follows:
● Under straights-line method in respect of the assets of Spinning, power
and Textile divisions.
● Under written down value method on the assets of all other divisions of
the company.

Inventories:

Valuation of inventories is made as follows

Raw material and finished goods at cost or net realizable value whichever is
lower.

Work-in-progress at cost inclusive of direct production over heads.

Stores and spares at cost.

Electronic power at net releasable value.

Taxes on income:

A current tax is determined as per the provisions of income tax act 1961 in
respect of taxable income for the year ended.

Differed tax liability is recognized, subject to the consideration of

prudence on timing differences, being the difference between taxable incomesand
accounting that originate in one period and are capable of reversal in one or more
subsequent periods.

SEGEMENT REPORTING:

The accounting policies adopted for segment reporting are in line with the
accounting policies of the company with the following additional policies for segment
report. Inter-segment revenue has been accounted for based on the market related
prices.

RETIREMENT BENEFITS:
 The company makes regular monthly contribution to provident fund which are
deposited with the government and group term insurance is routed through L.I.C, and
are charged against the revenue. The company has taken group gradually scheme with
life insurance corporation of India. The premium on policy and the difference between
the amounts of gratuity paid on retirement and recovered from the life insurance
corporation of India debited to profit and loss account. Leave encashment is accounted
as and when the employees claimed and paid.

PROPOSED DIVIDEND:

Provision is made in the account for the dividend payable (including of all tax thereon)
by the company as recommended by the board of directors, pending approval of the
shareholders at the annual general meeting.

FOREIGN CURRENCY TRANSACTIONS:

● Import of material /capital equipment is accounted at the rates at which

actual payments are effected
● The profit/loss arising out of foreign exchange transactions on sales of
goods are accounted on actual realization 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
 CHAPTER-3

THEORITICAL FRAMEWORK

MEANING OF WORKING CAPITAL

Working capital may be regarded as the life blood of a business. The term Working
capital refers to the capital required for day to day operations of a business enterprise.
It is represented by excess of current assets over current liabilities. It is essential that a
certain proportion of funds be kept invested in the form of different current assets like
inventories, receivables, cash & marketable securities. Managing current assets require
more attention the managing plant & equipment expenditure. To large investments in
current assets affect the firm profitability. On the other hand too little investment cans
also the expensive. All this indicates that proper assets of working capital requirements.
It is must for running the business efficiently and profitability, technical working capital
management is an integral part of the financial management. The financial manager
must determine the optimum level of working capital funds also the optimum
composition of current assets and current liabilities. It has been found that largest
portion of a finance managers time is utilized in the management of working capital.

Requirement of working capital depends up on the operating cycle of the firm

operating cycle of a concern begins with the acquisition of raw material and stops with
the collection of receivables.

● Conversion of cash into raw materials.

● Conversion of raw material into work progress.
● Conversion of work in progress into finished stock.
● Conversion of finished goods into accounts receivables.
● Conversion of accounts receivables into cash.

Definition:

“Working capital refers to a firm’s investment in Short term Assets, Cash, Short
Term Securities, Accounts Receivables and Inventories.”

_ Weston and Brisk

Working capital is “Descriptive of that capital which is not fixed, but the more common
use of the capital is to consider it as the difference between the book value of the current
assets and the current liabilities.”

_ Hog land

SIGNIFCANCE OF WORKING CAPITAL:

The importance of working capital is reflected in the fact that financial manager spends
a great deal of time in managing activities relating to current liabilities as follows :

● Arranging short term financing.

● Negotiating favorable credit terms.
● Controlling the movements of cash.
● Administering accounts receivable.
● Monitoring investment in inventories.
Decisions concerning the above areas play an important role in maximizing over all of
the time. Once decision concerning these areas is reached the level of working capital
is also determined “residual from the decision just name” for example, if a firm has
large accumulation of finished goods inventory, it may have to provide more liberal
credit terms or show laxity in credit terms or show laxity in credit collection.

Similarly, if a company is facing liquidity crunch, it much have to offer

generous discounts.

FACTORS INFLUENCING WORKING CAPITAL

REQUIREMENTS

The working capital needs of the firm are influencing by numerous factors. The
important once are.

Nature of the business:

Generally trading in financial companies needs to carry large amounts of working

capital where as public utilities need small amount. Manufacturing concerns stand a
between these two categories.

Manufacturing process:

The longer the production cycle time, the larger is the inventory in forms of semi-
finished goods. Hence higher working capital is needed.

Terms of purchasing and sales:

An organization making purchase on credit basis and sales on cash basis will require
relatively less working capital.
Transportation bottle-necks/conditions of supply:

The inventory of raw material sores and spares depend on the condition of supply. If
the supply is prompt and adequate, the firm can manage with small inventory. How
ever, if supply were UN predictable and scantily, then the firm to ensue continuity of
production would have to acquire stocks as and when they are available and carry large
inventory an average.

Availability of shopping space in case of imported item effect time taken in

supply, transpiration from the far these concern of the country, increasing the length of
operating cycle there by including.

Profits levels:

A company carrying huge amount of profit can add to the working capital pool a large
quantum of funds. However, companies should guard against the temptation of
expanding beyond necessity and increase in over head. Generally it is seen that
companies with high profit level become easy in management of funds and usually
mismanagement by blocking funds excessively in stocks or debtors.

Tax levels and planning:

Income tax laws provide for payment of advance tax in installments excise and sales
tax are payable at time of dispatch of goods from the factory premises and the point of
sales respectively. Any working capital management must make adequate and finely
provision for the same as all of them involve cash outlays.

WORKING CAPITAL POLICY

● The important issues in formulating working capital policy are

● What is the appropriate amount of current assets for the firm to carry both in
total and for cash specific account?
● How should current accounts be financed?

CLASSIFICATION OF WORKING CAPITAL:

Working capital may be classified into two ways.

● On the basis of concept

 ● On the basis of time
● On the basis of concept, working capital is classified as gross and net
working capital as discussed earlier. This classification is important
from the point of view of the financial manager.
● On the basis of time working capital may be classified as:
Permanent (or) fixed working capital:

Business activity does not end after the realization of cash from customer for a
company, the process is continuous and hence the need for a regular supply of working
capital. To carry on the busyness, certain minimum level of working capital is necessary
on a continuous and uninterrupted basis for all practical purpose, these requirements
has to be met permanently as with other fixed assets. This required is referred as a
“permanent of fixed working capital”.

Temporary (or) variable working capital:

Any amount over and above the permanent level of working capital is known a
temporary, fluctuations or variable working capital. This type of working capital is
needed to meet fluctuation is demand is up on charges in production and sales as result
of seasonal charges.

IMPORTANCE OF ADEQUACY OF WORKING CAPITAL:

Working capital is the life blood and nerve centre of business. Just as circulation of
blood is essential in the human body for maintaining life working capital is very
essential to maintain the smooth running of a business. No business can run successfully
with out and adequate amount of working capital. The main advantage of maintaining
adequate amount of working capital is as follows.

1. Solvency of the business:

Adequate working capital helps on maintains solvency of the business by providing
uninterrupted flow of production.

2. Good will:
Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining good will.

3. Easy loans:
A concern having adequate working capital high solvency and good credit standing can
arrange loans from banks and others on easy favorable terms.

4. Cash discounts:
Adequate working capital also enables a firm to avail cash discounts on the purchases
and hence it reduces it costs.

5. Regularly supply of raw materials:

Sufficient working capital ensures regular supply of raw material and continuous
production.

6. Regular payment of salaries, wages and other day to day commitments:

A company which has working capital can make regular payment of salaries, wages
and other day-to-day commitments which raises the moral of its employees, increase
their efficiency reduces wastage and costs and enhances production and profits.

7. Exploitation of favorable market conditions:

Only concernswith working capital can exploit favorable market condition such
purchasing. It requirements in bulk when the prices are lower and by holding it
inventories for higher prices.

8. Ability to face crisis:

Adequate working capital enables the firm to face business crisis in emergencies such
as depression because during cash periods, generally, there is much pressure on
working capital.

9. Quick and regular return on investments:

Every investor wants a quick and regular return on his investment. Sufficient working
capital enables a concern to pay quick and regular dividends to its investors, as they
may not be much pressure to plough back profile.

NEED FOR WORKING CAPITAL MANAGEMENT:

1. For the purpose of raw material

2. To pay wages and salaries.
 3. To incurred day-to-day expenses and over heads costs, such as fuel, power and
office expenses etc.,
4. To meet the selling costs as packing advertisement and distribution.
5. To provide credit facilities to the customer.
6. To maintain inventories of raw materials. Work-in-progress. Stores, spares and
finished goods.
CONCEPT OF WORKING CAPITAL:

● There are two concepts of working capital:

● Gross working capital.
● Net working capital.

Gross working capital:

Firms investments in current assets. Current assets are the assets which can be
converted into cash with in an accounting year and include cash short term securities,
debtors, bills receivable, and stock.

Net working capital:

It refers to a difference between the current assets and current liabilities. Current are
those claims of out siders which are expected to nature for payment with in an
accounting year and include creditors, B/P and outstanding expenses. Net working
capital is positive or negative. Working capital will arise when current assets and
exceed, current liabilities, net working capital occurs when current liabilities are in
excess of current assets.

SOURCES OF WORKING CAPITAL REQUIREMETS:

The source of working capital requirements is classified into two types they are fixed
source and variable source they are as follows:

Fixed Source:

● Shares.
 ● Debentures
● Public Deposits
● Plaguing back of profits.
● Loans from financial institutions.
Variable Source:

● Commercial banks
● Indigenous bankers
● Trade creditors
● Installment credit
● Advances
● Accounts receivable - credit/ factoring
● Accrued expenses
Composition of Working Capital:

Working Capital includes Current Liabilities and Assets.

Current Assets and Inventories

a) Raw Materials

b) Work-in-progress

c) Finished Goods

d) Stores and Spares

e) Miscellaneous goods

Receivables:

● Trade Debtors.
● Loans and Advances
● Other Debtors Balance
Marketable Securities:

● Government Securities.
 ● Semi Government Securities.
● Shares, Debentures etc.,
Cash & Bank Balances:

● Cash in hand.
● Cash at Banks.
● Cash in transit.
Sundry Creditors:

● Interest Occurred on loans

● Advances received from Customers.
● Short Term Loans from Bank.
● Trade dues and other Liabilities.
● Securities and other Deposits.
● Deposits from Public etc.,
● Current Provisions for:
● Taxation
● Dividends
● Bonus
● Contingencies.

Goals of Working Capital:

1. Minimization of Risk:

The selection of its source of financing payables and other Short -Term
Liabilities may involve relatively low costs. The firm must ensure that these near terms
obligations do not become excessive compared to the Current Assets on hand to pay
them. The matching of assets and liabilities among current accounts is a task of
minimizing the risk of being unable to pay bills and other obligations.

2. Contribute to Maximizing Firms Value:

 The firm holds Working Capital for the same purpose as if holds any other assets
that are to maximize the present value of common stock and value of the firm. It should
not hold idle Current Assets any more than, it should gave idle fixed assets. The
Investment of excess cash, minimizing of inventories speedy collection of receivables
and elimination of unnecessary and costly short term financing all contributes to
maximize the value of the firm.

3. Estimation of Working Capital Requirements:

In order to determine the amount of Working Capital needed by a firm a number

of factors, such as Production policy, Nature of business, Length of manufacturing
process, Credit Policy, Rapidity of turnover, seasonal fluctuations etc., is to be
considered buy the Finance Manager. A brief expansion about each of these factors
has already discussed above. Besides this, Finance Manager can apply any one of the
following techniques, for assessing the Working Capital requirements of a firm.
Requirements of Working Capital determine mainly in 2 ways:

Percentage of Sales Method,

Working capital cycle Method (or) Operating Cycle Method.

i) Percentage of Sales Method:

It is a traditional and simple method of determining the level of Working Capital

and its components. In this method Working Capital is determined as a percentage of
forecasted sales. It is determined on the basis of past experience. If over the year the
relationship between Sales and Working Capital is found to be stable, then this
relationship may be taken as a base for determining the Working Capital for future.
This method is simple easy and useful in the forecasting of Working Capital. The basic
draw back of this method is the assumption of linear relationship between Sales and
Working Capital.

ii) Operating Cycle Method:

It begins with the acquisition of Raw Materials and Stops with the collection of
receivables. It divided into 4 stages:

● Raw Material Stage,

● Work-in-progress,
 ● Finished Goods Inventory,
● Receivables collection.

Duration of the Working Capital can be put as follows:

O=R+W+F+D–C i.e.

O = duration of operating cycle,

R = Raw materials and stores storage period,

W = Work-in-progress period,

F = Finished stocks,

D = Debtors collection period,

C = Creditors payment period.

Average Work-in-progress Inventory

W = ---------------------------------------------------------

Average Cost of Production per day

Average Finished Stock Inventory

F= -----------------------------------------------------

Average Cost of goods sold per day

Average Book Debts

D = -------------------------------------------------
 Average Credit Sales per day

Average Trade Creditors

C = -----------------------------------------------------

Average Credit Purchases per day

Number of operating days in a cycle is dividing 365 days. The total operating
expenditure in the year, when divided by the No. of operating cycles in a year will give
the average amount of Working Capital requirements.

INVENTORY MANAGEMENT

INTRODUCTION:

Inventories constitute the most significant part of Current Assets of a large

majority of companies in India. On an average inventories are approximately 60% of
Current Assets in Public Limited Companies in India, because of the large size of
inventories maintained by firms, a considerable amount of funds is required to be
committed to them. It is therefore, absolutely imperative to manage inventories
efficiency of effectively in order to a viol unnecessary investment.

Nature of Investment:

Inventories are stock of the product a company is manufacturing for sale and
components that makeup the product. The various forms in which inventories exist in
manufacturing cover are:

Raw Materials:

These are basic inputs that are converted into finished product through the
manufacturing process Raw Materials Inventories are those units which have been
purchased and stored for future productions.
Work – in – process:

Inventories are semi manufactured products. They represent products that need more
work before they become finished products for sale.

Finished Goods:

Inventories are those completely manufactured products which are ready for sale.
Stocks of Raw Materials and Work-in-process facilitate production which stock of
Finished Goods is required for smooth marketing operations.

Need to Hold Inventory:

Maintaining Inventories involves tying up of the company’s funds and incurrence of

storage and handling costs.

Transactions Motive: Emphasis the need to maintain inventories to facilitate smooth

Production and Sales Operations

Precautionary Motive: Necessities holding of inventories to guard against the risk of

unpredictable changes in demand and supply forces and other factors.

Speculative Motive: It influences the decision to increase or reduce inventory levels

to take advantage of price fluctuations.

OBJECTIVE OF INVENTORY MANAGEMENT:

● In the context of Inventory Management the firms if faced with the problems of
meeting two conflicting needs.
● To maintain a large size of Inventories of Raw Material and Work-in-progress
for efficient and smooth production and of Finished Goods for uninterrupted
Sales Operations.
● To maintain a minimum Investment in inventories to maximize probability.

Inventory Management Techniques:

● A system for effective Inventory Management involves three subsystems
namely E. O. Q., Re-order point, Stock level.
i) Economic Order Quantity (E.O.Q):
 E.O.Q. is that size ordered which minimize the total cost of ordering plus
inventory carrying plus incurring shortage and is calculated as for the following model:

2 AO
E.O.Q. = Economic Order Quantity C

A = Required Quantity

O = Ordering Cost

C = Carrying Cost

There are two basic questions to Inventory Management:

What should be the size of the order,

At what level should.

Re-order level :

At re-order point the level of stock is equal to the average expected consumption
of the item during the lead time. The ideas being that bill the time the purchase order
materialize. There is sufficient stock to meet the demand while determining the re-
order point. It is necessary to add an extra buffer stock or safety stock to the expected
average consumption during the lead time to act as a protection against a possible stock
out.

Safety Stock:

The term safety stock refers to extra inventory held as protection against the
possibility of a stock out. A large inventory of safety stock means higher inventory
carrying costs.

The factors that influence safety stocks are Lead time:

● Consumption rate,
● Stock out costs,
● Nature of the item,
● Risk of obsolescence or deterioration storage space,
● Category of items.
Two important aspects of inventory management from the financial point of view are:

● Pricing of Raw Material issued,

● Valuation of Inventory.
Pricing of Raw Material Issues:

When issues are made out various lots purchased at varying prices, the problem
arises are as to which of the receipt prices should be adopted for valuing the material
requisitions. The various methods used for this purpose as discussed below:

1. FIFO Method:

FIFO is called ‘First In First Out’ Method. This principle is that issues are priced in
the order of the purchase lots. The prices of the earliest consignment are taken and
when that consignment is exhausted the price of the next consignment is adopted and
soon.

2.LIFO Method:

LIFO is called ‘Last In First Out’ method. . In this method pricing of issues is made
in the reverse order of purchase i.e., by adopting the price of the latest available
consignment

.3. Weighted Average Method:

In this method the quantity of each lot of receipt is taken into account for calculating
the current price of issue. The aggregate of the products of the quantity and price of
each lot divided by the total quantity of all the quantity and price of each lot divided by
the quantity of all the lots determines the unit price.

4. Standard Price Method:

In this method the price of issues is predetermined for a stated period taking into
account al the factors affecting price such as anticipated market tends, transportation
charges and normal quantity of purchase standard prices are determined for each
material and material requisitions are priced at standards irrespective of the actual
Purchase Price.
Valuation of Inventories:

Valuation of Raw Material Inventories depends on the cost of acquiring raw material
and the pricing of raw material issued for production. The valuation of Work-in-
progress and Finished Goods inventory depends on the method used for pricing
materials and the manner in which fixed manufacturing overheads, costs are treated
direct costing absorption costing.

Executives in production, purchase and marketing departments take

decisions relating to inventories. Purchasing and Production Executives shape Raw
Material Policies; Work-in-process inventory is influenced by the decision of
production executives. Production and Marketing executives evolve finished goods
inventory Policy. As inventory management has important financial implications the
Finance Manager has the responsibility to ensure that inventories are properly
maintained and controlled.

A B C Analysis:

Analysis is a rational approach for determining the degree of control that should be
exercised on each item of an inventory. It reveals the items that contribute most to cost
gives deeper cost perspective to management.

The method consists of determining the product cost and consumption

of each item, arranging the resulting consumption value in descending order of
magnitude and determining percentage of the inventory that is responsible for a given
percentage of the total costs such an analysis reveals that a small percentage of items
(about 10%) is responsible for a very large percentage (about 70%) of the total value of
the order of 5% or so is contributed by the bulk of the items in the inventory.

Obviously ‘A’ Class items should be subject to strict management control.

These may either be subjected to a continuous review or a periodic review with short
review cycle. The ‘C’ Class items require little attention and may be subjected to
periodic review, period of the order of one year. The control of ‘B’ Class items should
be between the controls exercised for ‘A’ and ‘C’ Class.
 120

100

80

60

40

20

0 20 40 60 80 100 120

Just in Time Concept:

In this system the customers pull their requirements from the shop floor as against the
conventional method of pushing the product to the market. In the just-in-time system
the advanced stage of production draws the right amount of inventory from the
proceeding stage to sustain activity.

In this process production activity is planned up to the actual demand rather a

predetermined schedule, since the cycle time for production of various models are given
only to the final assembly point of mixed production line. This process is repeated at
each stage, right down to raw material or up to subcontracted items.

Advantages of this system – eliminates the wastage arising from the following
areas, over production, waiting time in the assembly process, Transportation, bottle
necks, Excess inventories, Increased process timings, Low labor utilization, Generation
of scrap and rework.

INVENTORY TURNOVER

To formulate for calculating the Inventory Ratios are given below:

Total Cost of Raw Material issued for Production during the year

Raw Material = -------------------------------------------------------------------------

 Total Cost of Average Inventory of Raw Material

Total Value of Products Completed during the year

Work-in-process = -------------------------------------------------------------

Average Work-in-progress

Cost of Goods Sold during the year

Finished Goods = --------------------------------------------------------------

Average Inventory of Finished Goods at Cost

Higher Inventory turnover ratio indicates a higher efficiency of control and usage.

RECEIVABLE MANAGEMENT

The term receivables are defined as debt owed to the firm by customers arising from
sale of goods or services in the ordinary course of business. When the firm sells its
products or services and does not receive cash for it immediately, the firm is said to
have granted trade credit to customers, creating receivable or book debts, which would
be collected in near future. Trade credit is the most prominent force to stimulate Sales
and an essential part of the competitive business world. It is considered as a marketing
tool, which acts as a bridge for the movement of goods through production and
distribution stages finally. The receivables arising out of credit have ‘3’ dimensions.

1. It embraces an element of risk which needs to be assessed cash transaction

covering immediate payment in exchange for goods or services, it is totally risk
less.
2. It is based on economic value. The economic value in goods posses to the buyer
currently in return for an equivalent economic value expected from time later.
3. It implies futurity. The payment for value received arises at a future date.
Credit Policy:

A firm’s investment is accounts receivable depends on:

● The volume of Credit Sales,

● The Collection Period.

a) The volume of Credit Sales:

● In a function of the firm total sales and the percentage of credit sales to total
sales. Total sales depend on market size, firms market share, product quality,
intensity of competition, economic conditions etc.
● There is one way in which the Financial Manager can affect the volume of
Credit Sales and collection period and consequently investment in Accounts
Receivables.
Factors affecting Accounts Receivables Management:

The important aspects of credit policy should be identified before establishing an

optimum credit policy.

The important decision variables are:

● Credit Terms,
● Credit Standards,
● Collection Procedure.

Credit Terms:

Credit Terms specify duration of credit and terms of payment by customers. Investment
in accounts receivable will be high of customers are allowed extended time period for
making payments.

Credit Standards:
Credit standards are criteria to decide the types of customers to whom goods could be
sold on credit. If a firm has move slow-paying customers, its investment in accounts
receivable will increase.

b) Credit Collection Procedure:

The collection policies of an enterprise are the procedures pursed to collect account
receivables, when they are due. This is considered to be final stage in the selling
process; collection policy is needed because all customers do not pay the bills of an
enterprise in time. For proper regulation of receivables, the management of business
enterprise also formulates well established collection policies and procedures. The over
all policy of an enterprise is determined by the combination of collection, procedures it
follows. To the end different types of collection procedures which are considered
typical may be employed. As an account becomes more and more overdue, the
collection effort becomes more personal and stricter.

● Letters
● Telephone Bills
● Personal Visits
● Using Collection agencies and
● Initiating Legal Action.
Regularity in the collection o efforts in turn, will depend up on the fulfillment of two
pre-requisites:

● The development of suitable collection system.

● The establishment o congenial collection follow-up system.
● The collection systems may differ from enterprise to enterprise. A
congenial collection follow up system can be established by adopting
ledger plan or card tickler system. The ledger plan of collection follow-
up depends up on the ledger records of creditors.
● The card tickler system is made up of a card for each delinquent field
according to dates. The cards contain the amount terms, due date of past
due accounts and collection action takes so far in detail of late, the use
of computers has also come in vogue for routine purpose of credit
management.
CASH MANAGEMENT

INTRODUCTION

Cash is the important Current Asset for the operations of the business. Cash is the basic
input needed to keep the business running on a continuous basis. It is also the ultimate
output expected to be realized by selling the service or product manufactured by the
firm. The firms should keep sufficient cash neither more nor less. Cash shortage will
disrupt the firms manufacturing operations. Thus a major function of the Financial
Manager is to maintain a sound cash position.

Facts of Cash Management:

● Cash Management is concerned with Managing of:

● Cash flows into and out of the firm,
● Cash flows with in the firm and
● Cash balances held by the firm at a point of time by financing deficit or
investing surplus cash.
Cash Management assumes than other Current Assets because cash is the most
significant and the least productive asset that a firm holds. However, cash is
unproductive, unlike fixed assets or inventories; it does not produce goods for sale.
Therefore, the aim of Cash Management is to maintain adequate control over cash
position to keep the firm sufficiently liquid and to use excess cash in some profitable
way.

Facts of Strategic Cash Management:

Cash Planning: Cash inflows and outflows should be planned to project cash surplus
or deficit for each period of the planning period. Cash budget should be prepared for
this purpose.
Managing the Cash Flows: The flow of cash should be properly managed. The cash
inflows and should be accelerated while as far as possible. The cash outflows should
be decelerated.

Optimum Cash Level: The firm should decide about the appropriate level of cash
balances. The cost of excess cash and danger of cash deficiency should be matched to
determine the optimum level of Cash Balance.

Investing Surplus Cash: The surplus cash balances should be properly invested to earn
profits. The firm should decide about the division of such cash balance between
alternative short term investment opportunities such as bank deposits, marketable
securities or inter corporate lending.

Cash Planning:

Cash Planning is a technique to plan and control the use of cash. It helps to anticipate
the future cash flows and needs of the firm and reduces the possibility of idle cash
balances and cash deficits.

Cash planning protects the financial conditions of the firm by developing a projected
cash statement from a forecast of expected cash inflows and outflows for a given period.
The forecasts may be based on the present operations or the anticipated future
operating. Cash plans are very crucial in developing the over all operating plans of the
firm.

DEFINITION OF OPERATING CYCLE:-

The time lag between the purchase of raw materials and the collection of cash for sales
is referred to as the operating cycle for the company. The time lag between the payment
for raw materials purchases and the collection of cash from sales is referred to as the
cash cycle

OPERATING CYCLE OF WORKING CAPITAL MANAGEMENT

Operating Cycle
It refers to the time duration required to convert sales after the conversion of resources
into inventories, into cash. This cycle involves 3 phases.

Acquisition of resources:-
It refers from such as raw material, labour, power and fuel etc.

Manufacture of the product:-

It includes conversion of raw material into work in progress into finished goods.

Sale of the product:-

It refers from either for cash or on credit sales create accounts receivable for collection

CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE
YEAR 2016-2017

PARTICULARS 2016 2017 INCREASE DECREASE

CURRENT ASSETS

147804870
Inventories 5 1772111733 294063028 -

Sundry debtors 359515935 761666862 402150927 -

Cash&bank balance 36051293 15233307 - 20817986

 Loans & advances 401335081 475503187 74168106 -

227495101
Total C.A (A) 4 3024515089 - -

CURRENT
LIABILITIES

103576914
Borrowings 3 989783844 - 45985299

payables 518731732 744727054 225995322

Other liabilities 329022003 521888337 192866334 -

Provisions 66600000 0 -

195012287
Total C.L (B) 8 2256399235 - -

Working capital(A-B) 324828136 768115854 -

Increase 443287718 - - 1163827132

Total 768115854 768115854 1189243717 1189243717

INTERPRETATION

This statement shows that there has been an increase in the working capital of
Rs.443287718in the year 2016 when compared to 2017. This increase was due to the
significant increase in current assets. This increase is good for the company as it
increases the company’s liquidity position.
STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE
YEAR 2017-2018

PARTICULARS 2017 2018 INCREASE DECREASE

CURRENT ASSETS

Inventories 123914061 1478048705 238908094 -

1

Sundry debtors 316131971 359515935 43383964 -

 Cash&bank balance 10306136 36051293 25745157 -

Loans & advances 385886969 401335081 15448112 -

Total C.A (A) 195146568 2274951014 - --

7

CURRENTLIABILITIES

BORROWINGS 114118059 1035769143 105411456

9

TRADEPAYABLES 367297834 518731732 - 151433898

Other liabilities 436178823 329022003 - 107156820

Provisions 67700000 66600000 - 1100000

Total C.L (B) 201235725 1950122878 323485327 365102174

6

Working capital (A-B) 60891569 324828136 -

Increase 263936567 - 41616847 -

Total 324828136 324828136 365102174 365102174

INTERPRETATION

This statement shows that there has been an increase in the working capital of
Rs.263936567 in the year 2017 when compared to 2018. This increase was due to the
significant increase in current assets. This increase is good for the company as it
increases the company’s liquidity position

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE

YEAR 2018-2019

PARTICULARS 2018 2019 INCREASE DECREASE

CURRENT ASSETS
 Inventories 980568851 1239140611 258571760 -

Sundry debtors 345962660 316131971 - 29830689

Cash & bank balance 5085126 10306136 - 14778990

Loans & advances 63527426 385886969 122359543 -

Total C.A (A) 1615144063 1951465687 - -

CURRENT LIABILITIES

Other liabilities 333601185 436178823 102577638 -

Provisions 82000000 67700000 14300000 -

BORROWING 1085224341 1141180599 55956258 -

PAYABLES 182489889 367297834 184807945

Total C.L (B) 1683315415 2012357256 508573144 44609679

Working capital (A-B) 68171352 60891569

Increase 7279783 - 463963465

Total 68171352 68171352 508573144 508573144

INTERPRETATION

This statement shows that there has been an decrease in the working
capital of Rs.7279783 in the year 2018 when compared to 2019. This decrease was
due to the significant increase in current liabilities. .

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THEYEAR 2019-2020

 PARTICULARS 2019 2020 INCREASE DECREASE

CURRENT ASSETS

Inventories 189901350 280530263 90628913 -

Sundry debtors 131609613 128834859 - 2774754

Cash & bank balance 16363539 29983368 13619829 -

Loans & advances 145953725 150200572 4256847 -

Total C.A (A) 483828227 589549062 - -

CURRENT LIABILITIES

Other liabilities 138456303 159091419 - 20635116

Provisions 36962000 56374000 - 19412000

Total C.L (B) 175418303 215465419 - -

Working capital(A-B) 308409924 374083643 - -

Increase 65673719 - - 65673719

Total 374083643 374083643 108495589 108495589

INTERPRETATION

This statement shows that there has been an increase in the working capital of
Rs.65673719 in the year 2019 when compared to 2020. This increase was due to the
significant increase in current assets. This increase is good for the company as it increases
the company’s liquidity position.

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEA 2019-2020

 PARTICULARS 2019 2020 INCREASE DECREASE

CURRENT ASSETS

Inventories 280530263 142921350 - 137608913

Sundry debtors 128834859 102346940 - 26487919

Cash & bank balance 29983368 22061226 - 7922142

Loans & advances 150200572 151372159 1171587 -

Total C.A (A) 589549062 418701675 - -

CURRENT LIABILITIES

Other liabilities 159091419 124638390 34453029 -

Provisions 56374000 59349000 - 2975000

Total C.L (B) 215465419 183987390 - -

Working capital (A-B) 374083643 234714285 - -

Decrease - 139369358 139369358 -

Total 374083643 374083643 174993974 174993974

INTERPRETATION

This statement shows that there has been a Decrease in the working
capital of Rs.139369358 in the year 2019 when compared to 2020. The current asset
was decreased. So improve the current assets.
 STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR
2020-2021

PARTICURS 2020 2021 INCREASE DECREASE

CURRENT ASSETS

Inventories 142921350 557378168 414456818 -

Sundry debtors 102346940 137267096 34920156 -

Cash & bank balance 22061226 113415399 91351173 -

Loans & advances 151372159 228274762 76902603 -

Total C.A (A) 418701675 1036332425 - -

CURRENT LIABILITIES

Other liabilities 124638390 63855185 60783205 -

Provisions 59349000 61912000 - 2563000

Total C.L (B) 183987390 125767185 - -

Working capital (A-B) 234714285 910565240 - -

Increase 675850955 - - 675850955

Total 910565240 910565240 678413955 678413955

INTERPRETATION

This statement shows that there has been an increase in the working
capital of Rs.675850955 in the year 2020 when compared to 2021. This increase was
due to the significant increase in current assets. This increase is good for the
company as it increases the company’s liquidity position.
 YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO

2016-2017 589549062 215465419 2.74

2017-2018 418701675 183987390 2.28

2018-2019 1036332425 125767185 8.24

2019-2020 1718536428 540108220 3.18

2020-2021 1951465687 2012357256 0.97

GRAPH

9
8
7
6
5
4
3
2
1
0
2016-17 2017-18 2018-19 2019-20 2020-21

Series1

INTERPRETATION:
 The above table shows the Current Ratio of IDUPULAPADU COTTON MILL
Company for the successful five years i.e., 2016-2017, 2017-2018, 2018-2019, 2019-
2020, and 2020-2021.

From the above it is understood that the Current Ratio of the

company in the year 2016-2017, is 2.74, 2017-2018, it was decreased 2.28, 2018-
2019, it has increased to 8.24 and in the next year 2019-2020, has decreased 3.18. In
the year 2020-2021, it has decreased to 0.97.

YEAR LIQUID ASSETS CURRENT LIABILITIES RATIO

2016-2017 309018799 215465419 1.43

2017-2018 275780325 183987390 1.50

2018-2019 478954257 125767185 3.81

2019-2020 737967577 540108220 1.367

2020-2021 712325076 2431170418 0.29

 GRAPH

0
2016-17 2017-18 2018-19 2019-20 2020-21

Series1

INTERPRETATION:

The above table shows the Liquid Ratio of IDUPULAPADU COTTON MILL
Company for the successful five years i.e., 2016-2017, 2017-2018, 2018-2019, 2019-
2020, and 2020-2021.

From the above it is understood that the Liquid Ratio of the company in the
year 2016-2017, is 1.43, 2017-2018, it was decreased 1.50, 2018-2019, it has
increased to 3.81 and in the next year 2019-2020, has decreased 1.36. In the year
2020-2021, it has decreased to 0.29.
 NET WORKING
YEAR NET SALES RATIO
CAPITAL

2016-2017 1342763421 374083643 3.59

2017-2018 1355360694 234714285 5.69

2018-2019 1463998945 910565240 1.60

2019-2020 2243257215 1178428208 1.90

2020-2021 3368065245 60891569 1.80

GRAPH

0
2016-17 2017-18 2018-19 2019-20 2020-21

Series1
 INTERPRETATION:

The above table shows the Working Capital Ratio of IDUPULAPADU COTTON
MILL Company for the successful five years i.e., 2016-2017, 2017-2018, 2018-2019,
2019-2020, and 2020-2021.

From the above it is understood that the Liquid Ratio of the company in the
year 2016-2017 is 3.59, 2017-2018 it was increased 5.69, 2018-2019 it has decreased
to 1.60 and in the next year 2019-2020 has increased 1.90. In the year 2020-2021 it
has decreased to 1.80.
 Year 2016 2017 2018 2019 2020 2021

Current Assets 254880951 347833714 483828227 589549062 418701675 1036332425

Current
120337057 130189191 175418303 215465419 183987390 125767185
Liabilities

Net Working
134543894 217644523 308409924 374083643 234714285 910565240
Capital

Fixed Assets
356552241 494254066 505838842 486553512 426506436 686770988

Net Assets
491096135 711898589 814248766 860637155 661220721 1597336228

NWC Ratio 0.27 0.31 0.38 0.43 0.35 0.57

GRAPH

0.6

0.5

0.4

0.3

0.2

0.1

0
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

Series1
INTERPRETATION:

The above table shows the Networking Capital Ratio of IDUPULAPADU

COTTON MILL Company for the successful five years i.e., 2016-2017, 2017-2018,
2018-2019, 2019-2020, and 2020-2021.

From the above it is understood that the Networking Capital Ratio of the
company in the year 2016-2017 is 0.27, 2017-2018 it was increased 0.38, 2018-2019
it has increased to 0.38 and in the next year 2019-2020 has increased 0.38. In the
year 2029-2021 it has decreased to 0.35 and the next year 2021-2022 has decreased
to 0.95

FIXED
YEAR SALES RATIO
ASSETS

2016-2017 1342763421 486553512 2.76

2017-2018 1355360694 426506436 3.18

2018-2019 1463998945 686770988 2.13

2019-2020 2243257215 1718536428 1.31

2020-2021 3368065245 1951465687 1.73

GRAPH
 4

0
2016-17 2017-18 2018-19 2019-20 2020-21

Series1

INTERPRETATION:

The above table shows the Fixed Assets Turnover Ratio of IDUPULAPADU
COTTON MILL Company for the successful five years i.e., 2016-2017, 2017-2018,
2018-2019, 2019-2020, and 2020-2021.

From the above it is understood that the Fixed Assets Turnover Ratio of the
company in the year 2016-2017 is 2.76, 2017-2018 it was increased 3.18, 2018-2019
it has decreased to 2.13 and in the next year 2019-2020 has decreased 1.31. In the
year 2020-2021 it has increased to 1.73.
 YEAR SALES DEBTORS RATIO

2016-2017 1342763421 128834859 10.42

2017-2018 1355360694 102346940 13.24

2018-2019 1463998945 137267096 10.67

2019-2020 2243257215 345962660 6.48

2020-2021 3368065245 316131971 10.65

GRAPH

14

12

10

0
2016-17 2017-18 2018-19 2019-20 2020-21

Series1
INTERPRETATION:

The above table shows the Debtors Turnover Ratio of IDUPULAPADU

COTTON MILL Company for the successful five years i.e., 2016-2017, 2017-2018,
2018-2019, 2019-2020, and 20202-2021.

From the above it is understood that the Debtors Turnover Ratio Turnover
Ratio of the company in the year 2016-2017 is 10.42, 2017-2018 it was increased
13.24, 2018-2019 it has decreased to 10.67 and in the next year 2019-2020 has
decreased 6.48. In the year 2020-2021 has increased to 10.65.
CHAPTER-5

SUMMARY
 SUMMARY
The major purpose of the IDUPULAPADU COTTON MILLS PVT LTD by
considering the annual reports of five years (2016-2021).

Working capital is one of the most difficult financial purpose concepts to

understand for the small business owner. In fact, the term means a lot of different
things to a lot of different people. By definition, working capital is the amount by
which current assets exceeds current liabilities. It involves the relationship between a
firm's short terms assets and short terms liabilities.

Funds needed for short term needs for the purpose like payment and wages
and other day to day expenses are known as working capital. The goal of working
capital and management is to ensure that the firm is able to able to continue its
operation and that it has sufficient cash flow to satisfy both maturing short term debt
and upcoming operational expenses. Working capital is primarily concerned with
inventories management, receivable management, cash management and payable
management. The study involved few personal interactions with the financial
employees of the company and through observation methods. Company annual
reports were being evaluated and working capital and management was being
analyzed from it. Cotton Industry has been playing an important role in the economic
development of various countries. Almost all the developed countries and a majority
of developing countries emerged as service economics. USA was the economy to
become a service company.

Idupulapadu cotton Mills pvt Ltd, whose working capital management has
been studied in the project has been providing services for over 15 years, with its
branches in Guntur, Chennai are provides amazing services to all its customers.
 FINDINGS

● The percentage of increasing current assets is more than the increasing

percentage in current liabilities. It tells that the firm maintaining a good
working capital and having the good liquidity position.

● It is observed that firm the statement of changes in working capital will

be increased mainly due to increase in inventory, debtors and cash and
advances.

● The quick ratio low in 2017-2018, 2018-2019. Because a high increase

in current liabilities.

● In 2019-2020 the working capital turnover ratio is high; it indicates the

efficiency of the company. But the following years 2017-2018 and
2018-2019 and 2019-2020 and 2020-2021 the working capital turnover
ratio will be reduced. So this lower working capital turnover ratio
indicates the inefficiency of the management for utilization of the
working capital.

● It is observed that the net working capital has been fluctuating because
of the fluctuations in elements of the networking capital, and it has
declined in the current year.

● The company maintained good fixed assets turnover ratio in all of the
years it has the highest fixed turnover ratio in the year 2019-2020.
 ● From the debtors turnover ratio it is observed that debtors are
collecting rapidly. Though this we can say it is in a satisfactory position.

SUGGESTIONS

● As the study observed the current assets position was increased all the five
years it is suggested to the company to maintain proper current assets for
better short term fund management.

● The fixed assets turnover ratio is in a satisfactory position it is suggested to the

company to improve the fixed assets turnover ratio for effective utilization of
the fixed assets.

● The company should reduce the operating expenses to increase the

profitability of the firm.

● The working capital turnover ratio is in satisfactory position. It is suggested to

the company to improve the ratio.

● The debtor’s turnover ratio is in a satisfactory position. It is suggested to

maintain the same levels.

● The study observes that the current assets and current liabilities has been
increased observation period it is suggested to the company to take necessary
steps for maintaining proper balance in between current assets and current
liabilities.
 CONCLUSION

● After 33Sdays Of My Sincere Work At Idupulapadu Cotton Mills Private

Limited Is Financial Average.

● In Handling of the Financial Statements Professionalism May Be

Encourage.

● The Company’s Overall Position Is Satisfactory.

● During My Project Work I Ha Got Good Experience Regarding The

Idupulapadu Cotton Mills Private Limited.
 BIBLIOGRAPHY

BOOKS :

I.M.Pandey Financial Management

Prasanna Financial Management

G.Prasad Accounts for Managers

Annual Reports

Websites :

www.icmtex.com

www.google.com