A STUDY ON WORKING CAPITAL

(With reference to BRANDIX.)

A project report submitted to J.N.T. University (GV) in fulfillment of the
requirements for the award of the degree of
Master of Business Administration
Submitted by
MASAPU USHESH
Regd.No: 226C1E0048
Under the guidance of

Dr. Trinadha Rao Challa MBA-NET, M.Com-SET, Ph.D.

Assistant Professor

MIRACLE SCHOOL OF MANAGEMENT

MIRACLE EDUCATIONAL SOCIETY GROUP OF INSTITUTIONS
(Approved by AICTE & Affiliated to JNTU, GUARAJADA
VIZAINAGARAM) BHOGAPURAM,VIZIANAGARAM
2022-24
 DECLARATION

I hereby declare that this project work entitled “A study on WORKING

CAPITAL in BRANDIX” submitted by me to the J.N.T. University, gurajada Vizianagaram
in partial fulfillment for the award of Degree of MBA is entirely based on my own study is
being submitted for the first time and it has not been submitted to any other university or
institution for any degree or diploma.

Place: Bhogapuram Signature of the candidate

Date: MASAPU USHESH
 MIRACLE EDUCATIONAL SOCIETY GROUP OFINSTITUTIONS
(Approved by AICTE & Affiliated to JNTU, GURAJADA
VIZAINAGARAM)BHOGAPURAM, VIZIANAGARAM
MIRACLE SCHOOL OF MANAGEMENT

CERTIFICATE

This is to certify the project report titled “A study on WORKING CAPITAL IN

BRANDIX.” is being submitted MASAPU USHESH in partial fulfillment for the award of
the degree of M.B.A has been carried out by his under my guidance and supervision.

Dr.B. Venkata Rao Dr. Trinadha Rao Challa

Head of the department (Project guide)

External Examiner
 ACKNOWLEDGEMENTS

Apart from the efforts of me, the success of this project depends largely on the
encouragement and guidelines of many others. I take this opportunity to express my gratitudeto
the concerned that have been instrumental in the successful completion of this project.

I wish to convey my sincere regards to our beloved Principal Dr. A. Arjun Rao Garu
for his inspiration, timely help in the official clearances and valuable suggestions throughout my
course.
I wish to convey my sincere regards to our beloved DEAN Sir Dr. SreenivasBeheharaFor
his inspiration, timely help in the official clearances and valuable suggestions throughoutMy
course.
I am also thankful to our Head of the Department Dr. B. Venkat Rao and all other faculty
members who helped me directly and indirectly for the successful completion of my project
work.
I extended my heartfelt gratitude to my project guide Dr.M. JAGADISH, for her
consistent encouragement, benevolent criticism, inseparable suggestions which were the main
reasons tobring the work to present shape
I wish to express my deep gratitude to the management of BRANDIX. for giving
me the opportunity to do the project on “WORKING CAPITAL” for the partial fulfillment of
Master of Business Administration.
Finally, I would like to express my deep sense of gratitude to my beloved parents and
my family members for their love and blessings to complete the project successfully.

(MASAPU USHESH)
 CONENTS
SR PG
TITLES OF THE CHAPTERS
NO. NO.

CHAPTER 1
INTRODUCTION
NEED OF THE STUDY
1. OBJECTIVES OF THE STUDY 1-7
METHODOLOGY
LIMITATION OF THE STUDY
FRAMEWORK OF STUDY
CHAPTER 2
2. INDUSTRY PROFILE 8-35
COMPANY PROFILE

CHAPTER 3
3. THEORETICAL FRAMEWORK OF THE 36-53
STUDY

CHAPTER 4
4. 54-80
INTERPRETATION OF THE STUDY

CHAPTER 5
SUMMARY
FINDINGS
5. 81-86
SUGGESTION
CONCLUSION
BIBLIOGRAPHY

ANNEXURE
 CHAPTER-1
 INTRODUCTION OF THE STUDY
 NEED FOR STUDY
 OBJECTIVES OF STUDY
 METHODOLOGY
 LIMITATIONS OF THE STUDY

1
 INTRODUCTION
Working capital management takes care of the problems that arise during
the management of current assets, current liabilities and interrelationship that exist
between them. Thus it is also known as current asset management and current
liabilities from an integral part in the balance sheet of the firm.

Working capital is an integral of overall corporate management, the finance

corporate management the finance manager has to carry out the finance function is the
face of risk cannot be predicated with certainty.

Finance is one of the basic foundations of all kinds of economic activities.

Financial management is one integral part of overall management. It is not a totally
independent area it is concerned with the acquisition, financing and management of
assets with some overall goal in mind. Financial management is important because it
has an impact on all the activities of financial management. The basic objective of
financial management is to maintain the liquid assets and maximization of the
profitability of the firm. Efficient management of every businesses enterprise is
closely linked with efficient management of the finance. Maintenance of liquid assets
means that the firm has adequate cash in hand to meet its obligations at all times. A
business firm is a profit seeking organization; Profit maximization is also well
consideration to be an important objective of financial management.

Financial management is mainly concerned with the proper management of

finance function. Risk: cost and control considerations are properly balanced in a
given situation and there is optimum utilization of funds. Financial management
emerged as a distinct field of study at the turn of 20th century.

Financial management as an integral part of overall management is not totally

independent area. It draws heavily on related disciplines and various field of study is
Such as economics, accounting, marketing, production and quantitative methods. It
helps in profit planning, capital spending, measuring costs. Controlling inventory,
accounts receivable, etc. it is essentially helps in optimizing the financial from a given
input of funds.
2
 A study of financial management with particular reference to the working
capital management in any sector is a challenging task and endeavour in this direction
is to analyze the working capital balances management, receivables and inventory
management. Working capital is the amount required to meet day-to-day operation at
the organization. An absence of this makes the functioning of the organization blind.
A proper study on working capital management results in prevention of
mismanagement and misutilization of funds.

Funds are required for two basic reasons in any organization. First, funds are
needed for the creation of productive, capital and purchase fixed assets. Secondary to
finance a part for the day-to-day running of business which in other words is the
working capital.

3
 NEED FOR THE STUDY

Working Capital are those funds, which are required for day-to-day operations
of the firm. It can be said that Working capital is the basic necessity of any
organization. It is that money without which the functioning of any industry becomes
blind. The further development of organization is difficult.

Working Capital gives an idea to the stakeholders as well as the management

of any firm about the functioning of it. Preparation of a separate statement of Working
Capital gives us an idea about the Gross as well as the Net Working Capital of the
concerned firm of organization. By this statement one can know or plan about the
day-to-day expenses that the firm meets. Therefore if is compared with the blood
circulation in a body without which the body cannot function. With this we can know
the significance of Working Capital in any firm. Working Capital is the difference
between the current assets and current liabilities.

Working Capital must also be adequate (i.e.,) not too much and not too low.
An optimum level of it is to be maintained. Maintenance of optimum level of
Working Capital is a good sign for the progress of the organization.

The study of Working Capital Management in BAIC gives out the exact idea
of Working Capital because it is an organization with huge production and also
requires huge funds to meet its day-to-day expenses. To find out the optimal level of
inventory and other current assets for the operations of the firm. Hence the present
study working capital management was taken up in this company.

4
 OBJECTIVES OF THE STUDY

1. To study about an over view of capital management. with reference to

Visakhapatnam
2. To study about the working capital management of Brandix Apparel India
City in particular. with reference to Visakhapatnam
3. To study about the changes in working capital position during the study
period. with reference to Visakhapatnam
4. To study the working capital through ratios. with reference to
Visakhapatnam
5. To offer appropriate suggestions where ever necessary. with reference to
Visakhapatnam

5
 METHODOLOGY OF THE STUDY

The data for the study has been collected from two sources:

1. Primary data
2. Secondary data

Primary Data

This project is based on primary data collected through personal interview with
various head’s of Account Department, and other concerned staff members of finance
department. But primary data collection had limitations such as confidentiality of
information The primary data is that data which is collected fresh or first hand, and
for first time which is original in nature. Primary data can collect through personal
interview, questionnaire etc. to support the secondary data.

Secondary Data

The entire study is based on secondary data collected from the Annual Report during
the years between 2018-2019 and 2022-2023 supported by various text books and
internet sites. The secondary data are those which have already collected and
stored. Secondary data easily get those secondary data from records,
journals, annual reports of the company etc. Secondary data also made available
through trade magazines, balance -sheets, books of Brandix Apparel India City in
particular. Visakhapatnam. The basic objective of financial management is to
maximize shareholder’s wealth. For this it is necessary to generate sufficient
profits. The extent to it, which the profit can be earned, largely depends on the
magnitude of sales. However sales do not convert into cash instantly. There is
invariable the time gap between the sales of goods and receipts of cash. There is,
therefore, a need for working capital in the form of Current Assets to deal with the
problem arising. Out of the lack of immediate realization of cash again goods sold.

6
Therefore, sufficient working capital is necessary to sustain sales activity.
Working capital is needed for the following purpose:

LIMITATIONS OF THE STUDY

Following limitations were encountered while preparing this project:

1. The study has completed by taking with the help Company’s Annual reports;

2. Due to the details available therein we could able to draw an report, BAIC art

from the verification of the present running data as the Company is busy with

3rd Quarter end Results which are in Progress.

3. The study is based on Six years annual reports i.e., from 2018-2019 to 2022-

2023. Conclusions and recommendations are based on those years.

4. The trend of last five year may help the Company to take preventive measures

but the funds flow and working capital will already been effected.

5. As the Data of the Other Competitors is not available in their web site unlike,

it is not possible to compare the details.

7
CHAPTER-II
INDUSTRY PROFILE
AND
COMPANY PROFILE

8
 INDUSTRY PROFILE

The Indian textile industry has a significant presence in the economy as well as
in the international textile economy. It is contribution to the Indian economy that
manifested in terms of its contribution to the industrial production, employment
generation and foreign exchange earnings. It contributes 20 per cent of industrial
production, 9 per cent of excise collections, and 18 per cent of employment in the
industrial sector, nearly 20 per cent to the country’s total export earning and 4 per cent
to the Gross Domestic Product.

Textile industry plays a significant role in the growth of Indian economy and it
is an important component of global trade. Textile industry accounts for about one
third of India's total export earnings. It is regarded as the second largest industry of
India and is the largest foreign export earner, accounting for 35 per cent of the gross
export earnings in trade. During 1992-93 and 2021-22, textile exports recorded an
increase at a compound annual growth rate of 14.01 per cent. Handloom and cotton
are the two most significant sectors in textile industry. These two sectors together
contribute the major portion of total textile export in India.
Textile industry generally includes manufacturers, wholesalers, suppliers, and
exporters of cotton textiles, handloom, woollen textiles etc. This industry has the
potentiality of generating a large number of employment opportunities. About thirty
five million people are already engaged with this sector. In human history, past and
present can never ignore the importance of textile in a civilization decisively affecting
its destinies, effectively changing its social scenario. A brief but thoroughly
researched feature on Indian textile culture.

History of Textile industry

India has been well known for her textile goods since very ancient times. The
traditional textile industry of India was virtually decayed during the colonial regime.
However, the modern textile industry took birth in India in the early nineteenth
century when the first textile mill in the country was established at fort gloater near
9
Calcutta in 1818. The cotton textile industry, however, made its real beginning in
Bombay, in 1850s. The first cotton textile mill of Bombay was established in 1854 by
a Paris cotton merchant then engaged in overseas and internal trade. Indeed, the vast
majority of the early mills were the handiwork of Parsi merchants engaged in yarn
and cloth trade at home and Chinese and African markets.
The first cotton mill in Ahmedabad, which was eventually to emerge as a rival
centre to Bombay, was established in 1861. The spread of the textile industry to
Ahmedabad was largely due to the Gujarati trading class.
The cotton textile industry made rapid progress in the second half of the
nineteenth century and by the end of the century there were 178 cotton textile mills,
but during the year 1900 the cotton textile industry was in bad state due to the great
famine and a number of mills of Bombay and Ahmedabad were to be closed down for
long periods.
The two world wars and the Swadeshi movement provided great stimulus to
the Indian cotton textile industry. However, during the period 1922 to 1937 the
industry was in doldrums and during this period a number of the Bombay mills
changed hands. The Second World War, during which textile import from Japan
completely stopped, however, brought about an unprecedented growth of this
industry. The number of mills increased from 178 with 4.05 lakh looms in 1901 to
249 mills with 13.35 lakh looms in 1921 and further to 396 mills with over 20 lakh
looms in 1941. By 1945 there were 417 mills employing 5.10 lakh workers.
The cotton textile industry is rightly described as a Swadeshi industry because
it was developed with indigenous entrepreneurship and capital and in the pre-
independence era the Swadeshi movement stimulated demand for Indian textile in the
country.
The partition of the country at the time of independence affected the cotton
textile industry also. The Indian union got 409 out of the 423 textiles mills of the
undivided India. 14 mills and 22 per cent of the land under cotton cultivation went to
Pakistan. Some mills were closed down for some time. For a number of years since
independence, Indian mills had to import cotton from Pakistan and other countries.
After independence, the cotton textile industry made rapid strides under the Plans.
Between 1951 and 1982 the total number of spindles doubled from 11 million to 22
million. It increased further to well over 26 million by 1989-90.

10
Current Position of Textile Industry In India:

Textile constitutes the single largest industry in India. The segment of the
industry during the year 2000-01 has been positive. The production of cotton declined
from 156 lakh bales in 1999-2000 to 1.40 lakh bales during 2000-01. Production of
man-made fibre increased from 835 million kgs in 1999-2000 to 904 million kgs
during the year 2000-01 registering a growth of 8.26per cent. The production of spun
yarn increased to 3160 million kgs during 2000-01 from 3046 million kgs during
1999-2000 registering a growth of 3.7per cent. The production of man-made filament
yarn registered a growth of 2.91per cent during the year 1999-2000 increasing from
894 million kgs to 920 million kgs. The production of fabric registered a growth of
2.7per cent during the year 1999-2000 increasing from 39,208 million sq mtrs to
40,256 million sq mtrs. The production of mill sector declined by 2.6 per cent while
production of handloom, power loom and hosiery sector increased by 2 per cent, 2.7
per cent and 5.1 per cent respectively. The exports of textiles and garments increased
from Rs. 455048 million to Rs. 552424 million, registering a growth of 21per cent.
Growth in the textile industry in the year 2003-2004 was Rs. 1609 billion. And during
2004-05 production of fabrics touched a peak of 45,378 million square meters. In the
year 2005-06 up to November, production of fabrics registered a further growth of 9
per cent over the corresponding period of the previous year.

Structure Of Indian Textile Industry:

The textile sector in India is one of the worlds largest. The textile industry
today is divided into five segments:
Various Categories
Indian textile industry can be divided into several segments, some of which can be
listed as below:
 Cotton Textiles
 Silk Textiles
 Woolen Textiles

11
  Readymade Garments
 Hand-crafted Textiles

All segments have their own place but even today cotton textiles continue to
dominate with 73per cent share. The structure of cotton textile industry is very
complex with co-existence of oldest technologies of hand spinning and hand weaving
with the most sophisticated automatic spindles and loom. The structure of the textile
industry is extremely complex with the modern, sophisticated and highly mechanized
mill sector on the one hand and hand spinning and hand weaving on the other in
between falls the decentralized small scale power loom sector
Unlike other major textile-producing countries, India’s textile industry is comprised
mostly of small-scale, non integrated spinning, weaving, finishing, and apparel-
making enterprises. This unique industry structure is primarily a legacy of
government policies that have promoted labor-intensive, small-scale operations and
discriminated against larger scale firms:
Composite Mills:
Relatively large-scale mills that integrate spinning, weaving and, sometimes,
fabric finishing are common in other major textile-producing countries. In India,
however, these types of mills now account for about only 3 per cent of output in the
textile sector. About 276 composite mills are now operating in India, most owned by
the public sector and many deemed financially sick. In 2003-2004 composite mills
that produced 1434 msq mts of cloth. Most of these mills are located in Gujarat and
Maharashtra.
Spinning:
Spinning is the process of converting cotton or manmade fibre into yarn to be
used for weaving and knitting. This mills chiefly located in North India. Spinning
sector is technology intensive and productivity is affected by the quality of cotton and
the cleaning process used during ginning. Largely due to deregulation beginning in
the mid-1980s, spinning is the most consolidated and technically efficient sector in
India’s textile industry. Average plant size remains small, however, and technology
outdated, relative to other major producers. In 2002/03, India’s spinning sector
consisted of about 1,146 small-scale independent firms and 1,599 larger scale
independent units

12
Weaving and Knitting
The weaving and knits sector lies at the heart of the industry. In 2004-05, of
the total production from the weaving sector, about 46 per cent was cotton cloth, 41
per cent was 100per cent non-cotton including khadi, wool and silk and 13 per cent
was blended cloth. Three distinctive technologies are used in the sector handlooms,
power looms and knitting machines. Weaving and knitting converts cotton, manmade,
or blended yarns into woven or knitted fabrics. India’s weaving and knitting sector
remains highly fragmented, small-scale, and labor-intensive. This sector consists of
about 3.9 million handlooms, 380,000 power loom enter-prises that operate about 1.7
million looms, and just 137,000 looms in the various composite mills. Power looms
are small firms, with an average loom capacity of four to five owned by independent
entrepreneurs or weavers. Modern shuttle less looms account for less than one per
cent of loom capacity.

Fabric Finishing:
Fabric finishing (also referred to as processing), which includes dyeing,
printing, and other cloth preparation prior to the manufacture of clothing, is also
dominated by a large number of independent, small-scale enterprises. Overall, about
2,300 processors are operating in India, including about 2,100 independent units and
200 units that are integrated with spinning, weaving, or knitting units.
Clothing:
Apparel is produced by about 77,000 small-scale units classified as domestic
manufacturers, manufacturer exporters, and fabricators (subcontractors).

Current Facts on India Textile Industry

 India retained its position as world’s second highest cotton producer.

 Acreage under cotton reduced about 1per cent during 2008-09.
 The productivity of cotton which was growing up over the years has decreased
in 2008-09.
 Substantial increase of Minimum Support Prices (MSPs).

13
  Cotton exports couldn't pick up owing to disparity in domestic and
international cotton prices.
 Imports of cotton were limited to shortage in supply of Extra Long staple
cottons.

India’s Major Competitors in the World

To understand India’s position among other textile producing the industry

contributes 9 per cent of GDP and 35 per cent of foreign exchange earnings, India’s
share in global exports is only 3 per cent compared to Chinas 13.75 per cent. In
addition to China, other developing countries are emerging as serious competitive
threats to India. Looking at export shares, Korea (6 per cent) and Taiwan (5.5 per
cent) are ahead of India, while Turkey (2.9 per cent) has already caught up and others
like Thailand (2.3 per cent) and Indonesia (2 per cent) are not much further behind.
The reason for this development is the fact that India lags behind these countries in
investment levels, technology, quality and logistics. If India were competitive in some
key segments it could serve as a basis for building a modern industry, but there is no
evidence of such signs, except to some extent in the spinning industry.

Textile Industry Trends in the Global Economy:

Textile production and consumption is an increasingly global affair as

production continues to shift to developing countries. Developing countries have seen
an explosion in the growth of their textile exports, and for many countries textiles are
a significant portion of their total exports. In response to increasing competition from
low-value imports from developing countries, industry leaders in developed countries
have made significant capital investments in order to increase productivity and move
into advanced market sectors.
There are several trade agreements in place that impact world textile trade.
The African Growth and Opportunities Act, Andean Trade Preference Act, and Trade
Promotion Act are each designed to liberalize textile trade and provide equal market
access to both developing and developed countries. Despite the potential economic
and social benefits, the effectiveness of these trade policies is limited by special
interest politics in the developed world. The presence of a political economy in

14
developed countries can affect both the formation of and the adherence to
international trade agreements; industry leaders can still appeal to the World Trade
Organization or their Trade Representative to protect domestic industry.

Textile Industry Development in the Global Market:

In order to achieve economic growth and development, policy makers first
encourage the formation and growth of domestic industry. Through labor force
mobilization and capital development, a country shifts its basic factors of production
from primary products, such as localized agricultural goods, to industry. In recent
years, the World Trade Organization and other multilateral institutions have
emphasized the importance of allowing developing nations to enter the world market
in order to achieve economic growth and development. Recognizing the power of
international markets, policy makers develop an export strategy based on their
comparative advantages in order to compete in an increasingly global economy.

Textile manufacturing is primarily a labor-intensive industry; because

emerging economies have a surplus of unskilled labor, the creation of a textile
industry in a developing country is both feasible and attractive from an economic
growth perspective. Many countries view the creation of a domestic textile industry as
“an initial rung on the ladder of industrialization.

Industry Growth in Developing Economies

The textile industry is now “clearly a global enterprise” production shifted to
countries with a comparative advantage in labour-intensive manufacturing, and
products are shipped all over the world for consumption. Across a variety of
countries, we see that developing nations are claiming an increasing share of the
global textile market. From the mid-1960s to 1998, “the developing countries’ share
of world textile exports grew from 15 per cent to 50 per cent and total exports of
textiles and clothing by developing countries as a group reached $213 billion in
1998”. Textiles compose a large portion of many developing countries’ total exports.

The textile and apparel industries also compose a substantial part of Latin
American manufacturing exports. Although the region only captures about 3 per cent

15
of the world textile trade market, exports have grown by an average of 24 per cent
over the last two decades. Latin American producers face stiff competition from the
East Asian countries: nearly half of the producers of synthetic and blended textiles
closed in São Paulo, Brazil because of the intense penetration of imports from South
Korea and China. China, South Korea, and Taiwan in particular saw their collective
export volume grow from US$42.4 million in 1963 to US$3315.2 million in 1984.

Industry Trends in the Developed World

The textile industry in developed countries has often found itself unable to
compete with low-value goods made with cheap labor in developing nations. As a
result, textile industry jobs continue to move out of industrial countries and into
developing countries. The textile and apparel industry has lost 700,000 jobs since
NAFTA’s implementation in January 1994; North Carolina alone lost 124,700 jobs.
Textile output has fallen 22.2 per cent since 1994, and apparel output has declined
more than 14 per cent.
However, the focus of production shifted into advanced market sectors and the
industry has maintained profitability by making sizeable capital investments in
computer and mechanization technology. Between 1975 and 1985, U.S. textile mills
reinvested 80 to 85 per cent of their retained earnings, spending $1.4 billion per year
on new plant facilities and equipment. Between 1984 and 1986 this figure rose to $1.6
billion per year. Firms invested in computer-controlled systems and robotics in order
to improve productivity while cutting labour costs employs a “five minute rule. If the
product requires more than five minutes of labour, production is shifted overseas. As
a result, domestic production concentrates on specialty fabrics, which continue to
succeed in the domestic and overseas markets. However, even in the specialty fabrics
divisions, the fabric is produced domestically and then shipped to China to cut and
sew the fabric into finished products.

Textile Trade Policies

The nature of global textile production and consumption patterns threatens

domestic workers in industrial nations. As a result, developed nations have succeeded
16
in limiting market access to countries with a comparative advantage in production by
employing quotas, tariffs, and other barriers to trade. Developing countries have also
taken steps to protect their domestic market from other developing and developed
countries: “developing nations want the growing textile and apparel markets within
their countries for themselves”.
In 1984, tariffs in developing countries averaged from 25 to 75 per cent; Brazil
imposed tariffs of up to 205 per cent. Bolivia, Egypt, and Afghanistan outright ban
certain imports; furthermore, developing countries with the largest exports also tend
to have the highest tariffs to ensure their domestic industry will not be threatened.
Protectionist policies directly impact exporters in developing countries
because they are crowded out of the global market. “Each job saved in a developed
country by tariffs and quotas is estimated to cost about 35 jobs in developing
countries.” In addition, quotas and tariffs cause a direct welfare loss of around $24
billion per year and lost export revenues of $40 billion. These figures can only begin
to demonstrate the need to remove trade restrictions. Again, developing countries
stand to gain substantially from removal of their own barriers.

Multi fibre Arrangement and the Agreement on Textiles and Clothing:

The Multifibre Arrangement (MFA) was instituted in the WTO in 1974 to

“achieve the expansion of trade, the reduction of barriers to such trade, and the
progressive liberalization of world trade in textile products. While the MFA appears
to be ideologically supportive of expanding free trade in the textile industry, it was
mostly used to protect developed countries from low-value imports from developing
nations. Therefore, the WTO adopted the Agreement on Textiles and Clothing in
1995. The ATC takes place in four stages designed to gradually integrate the textile
industry to GATT rules. 16 per cent of textile products will be traded according to
GATT rules by the end of 1997, 33 per cent by year-end of 2001, 51 per cent by year-
end of 2004, and 100 per cent starting in 2005. These figures are substantially higher
than what is set forth in the MFA. MFA contains a mandatory provision to increase
the number of imports not subject to quotas by 6 per cent a year.
The International Monetary Fund estimated in 1984 that removing MFA
quotas and tariffs from textile goods could substantially increase exports from

17
developing countries to developed nations: an 82per cent increase is possible from
developing nations to countries that participate in the Organization for Economic
Cooperation and Development (OECD) alone. The ATC is set to expire in 2005,
when 100% of textile trade will comply with GATT rules. However, most countries
back-loaded the products excluded from protectionist policies many of the products
excluded early in the process were not restricted in the first place nor are they most
sensitive to import competition.

Political Economy Considerations:

While economists and politicians generally agree that sustainable
development, economic growth, and the reduction of poverty are worthy goals for
developing nations, it is more difficult in practice to implement policies that achieve
these goals. Textile manufacturers in developed economies have traditionally
influenced the country. Powerful industries have proven their ability to influence
policy makers to implement protectionist policies, as demonstrated with the recent
steel tariff increases. As long as interest group politics dominate policy making, we
can expect that government policy will serve the needs of industry, not consumers.
The WTO regulations aspire to reduce the possibility that individual governments act
in a way that hurts free trade.

Development of Textile Industry:

Early Textile Production:
Textile structures derive from two sources, ancient handicrafts and modern
scientific invention. The earliest were nets, produced from one thread and employing
a single repeated movement to form loops, and basketry, the interlacing of flexible
reeds, cane, or other suitable materials. The production of net, also called limited
thread work, has been practiced by many peoples, particularly in Africa and Peru.
Examples of prehistoric textiles are extremely rare because of the perish ability of
fabrics. Weaving apparently preceded spinning of yarn; woven fabrics probably
originated from basket weaving. Cotton, silk, wool, and flax fibers were used as
textile materials in ancient Egypt; cotton was used in India by 3000 bce; and silk
production is mentioned in Chinese chronicles dating to about the same period. The

18
history of spinning technology will be touched on below in the section Production of
yarn: Spinning and that of weaving technology in the section Production of fabric.

Early Fabrics:
Many fabrics produced by the simple early weaving procedures are of striking
beauty and sophistication. Design and art forms are of great interest, and the range of
patterns and colours is wide, with patterns produced in different parts of the world
showing distinctive local features. Yarns and cloth were dyed and printed from very
early times. Specimens of dyed fabrics have been found in Roman ruins of the 2nd
century and there is evidence of production of printed textiles in India during the 4th
century. Textiles found in Egypt also indicate a highly developed weaving craft by the
4th century with many tapestries made from linen and wool. Persian textiles of very
ancient origin include materials ranging from simple fabrics to luxurious carpets and
tapestries.
Textiles in the middle Ages:
By the early Middle Ages certain Turkish tribes were skilled in the
manufacture of carpets, felted cloths, towels, and rugs. In Mughal India (16th–18th
century), and perhaps earlier, the fine muslins produced at Dhaka in Bengal were
sometimes printed or painted. Despite the Muslim prohibition against representation
of living things, richly patterned fabrics were made in Islamic lands. In Sicily after the
Arab conquest in 827, beautiful fabrics were produced in the palace workshops at
Palermo. About 1130, skilled weavers who came to Palermo from Greece and Turkey
produced elaborate fabrics of silk interlaced with gold.
Following the conquest of Sicily in 1266 by the French, the weavers fled to
Italy; many settled in Lucca, which soon became well known for silk fabrics with
patterns employing imaginative floral forms. In 1315 the Florentines captured Lucca,
taking the Sicilian weavers to Florence, a centre for fine woven woollens’ from about
1100 and also believed to be producing velvet at this time. A high degree of artistic
and technical skill was developed, with 16,000 workers employed in the silk industry
and 30,000 in the wool industry at the close of the 15th century. By the middle of the

19
16th century a prosperous industry in velvets and brocades was also established in
Genoa and Venice.
Effects of the Industrial Revolution:

The textile industry, although highly developed as a craft, remained essentially

a industry until the 18th century. The advantages of cooperative operations were
realized much earlier, and numbers of workers occasionally operated together under
one roof, with one such group operating a mill in Zürich in 1568 and another in
Derby, Eng., in 1717. Factory organization became most advanced in the north of
England, and the Industrial Revolution, at its height between 1760 and 1815, greatly
accelerated the growth of the mill system.
John Kay’s flying shuttle, invented in 1733, increased the speed of the
weaving operation, and its success created pressure for more rapid spinning of yarn to
feed the faster looms. Mechanical spinners produced in 1769 and 1779 by Sir Richard
Arkwright and Samuel Crompton encouraged development of mechanized processes
of carding and combing wool for the spinning machines. Soon after the turn of the
century the first power loom was developed. The replacement of water power by
steam increased the speed of power-driven machinery, and the factory system became
firmly established, first in England, later in Europe and the United States.
From the 19th century to the present throughout the 19th century a succession
of improvements in textile machinery steadily increased the volume of production,
lowering prices of finished cloth and garments. The trend continued in the 20th
century. Japanese textile manufacturing.
Textile Industries of France and Germany:
French manufacture of woven silks began in 1480. Others were brought to
weave silk in Lyon, eventually the centre of European silk manufacture. Until 1589
most of the elaborate fabrics in France were of Italian origin, but in that year Henry
IV founded the royal carpet and tapestry factory at Savonnières. By the time of Louis
XIII (1610–43), French patterned fabrics showed a distinctive style based on
symmetrical ornamental forms, lacelike in effect, perhaps derived from the highly
regarded early Italian laces. French textiles continued to advance in style and
technique, and under Louis XVI (1774–93) design was refined, with Classical
elements intermingled with the earlier floral patterns. The outbreak of the French

20
Revolution in the 1790s interrupted the work of the weavers of Lyon, but the industry
soon recovered.
Textile Manufacture in England:
English textiles of the 13th and 14th centuries were mainly of linen and wool,
and the trade was influenced by Flemish fullers and dyers. Silk was being woven in
London and Norwich in 1455, and in 1564 Queen Elizabeth. The most important
group of refugees, some 3,500, lived in Spite, a London settlement that became the
chief centre for fine silk damasks and brocades. These weavers produced silk fabrics
of high quality and were known for their subtle use of fancy weaves and textures.
Norwich was also famous for figured shawls of silk or wool.
United States:
The United States followed the British lead, using stolen blueprints and
illegally immigrating engineers. Samuel Slater (1768-1835) of Rhode Island pulled
American cotton-spinning technology by constructing carding, drawing, and roving
machinery, and by determining the operating and gearing ratios necessary to use
water power. By 1850 the American had built their own industrial revolutions around
textiles, and use of abundant water power in New England.
Asia:
Textile industry in Asia argues that between 1400 and 1800, South Asian
textile production adapted to economic and cultural cycles and was never displaced by
cheaper or higher-quality foreign imports, coming mainly from India. The example of
Bandjarmasin, an important Borneo port, demonstrates the dynamic between
upstream and downstream communities in a changing economy, the role of the arrival
of Islam in the islands of Southeast Asia, and the interplay of international trade and
the local textile industry. The growing European presence in the region was only one
factor in the developments during this period.
China:
In 1890 the first cotton textile factory was established in China, marking the
beginning of textile modernization in China. For the period 1890-1937 China was
unable to maintain control over the industry, which for the most part was controlled
by foreign investors. This was due in part to China's lack of capital and managerial
knowledge and techniques, which were supplied by such countries as Japan and Great
Britain. However, the industry greatly expanded during this period and had vast

21
influence on the Chinese economy. The new factory system resulted in a move from
small-scale family production to mass production. Since the textile industry was the
largest in China and employed one-fourth of the labor force, it had repercussions on
the traditional society. The textile industry also formed the basis for labor movements
and collective bargaining and strikes.

Exports And Imports Of Textile Industry:

India textile industry is one of the leading in the world. Currently it is

estimated to be around US$ 52 billion and is also projected to be around US$ 115
billion by the year 2018. The current domestic market of textile in India is expected to
be increased to US$ 60 billion by 2012 from the current US$ 34.6 billion. The textile
export of the country was around US$ 19.14 billion in 2016-17, which saw a stiff rise
to reach US$ 22.13 in 2017-18. The share of exports is also expected to increase from
4per cent to 7per cent within 2020. Following are area, production and productivity of
cotton in India during the last six decades.
Strengths
 Vast textile production capacity
 Large pool of skilled and cheap work force
 Entrepreneurial skills
 Efficient multi-fiber raw material manufacturing capacity
 Large domestic market
 Enormous export potential
 Flexible textile manufacturing systems

Weaknesses
 Increased global competition in the post 2005 trade regime under WTO
 Imports of cheap textiles from other Asian neighbors
 Use of outdated manufacturing technology
 Poor supply chain management
 Huge unorganized and decentralized sector
 High production cost with respect to other Asian competitors

22
India's export to Malaysia:

Malaysia imports various types of textile products from India to meet the
requirements of raw materials for its emerging garment industry. Malaysia's total
textile imports are estimated to exceed US$ 1.5 billion annually. Malaysia's major
importing products include woven man-made fiber fabrics, apparel accessories, textile
yarn, knitted and crocheted fabrics, and women’s apparel.

India's export to Malaysia:

23
 Year Area in lakh Production in lakh bales of 170 Yield kgs per
hectares kgs hectare
2009-2010 56.48 30.62 92
2011-2011 76.78 56.41 124
2011-2012 76.05 47.63 106
2012-2013 78.24 78.60 170
2013-2014 74.39 117.00 267
2014-2015 85.76 140.00 278
2015-2016 87.30 158.00 308
2016-2017 76.67 136.00 302
2017-2018 76.30 179.00 399
2018-2019 87.86 243.00 470
2019-2020 86.77 244.00 478
2020-2021 91.44 280.00 521
2021-2022 94.39 315.00 567
2022-2023 93.73 290.00 526

India's export to Australia:

Australia is considered as one of the most open textile markets in the world.
Major textile imports include apparels and made-ups under chapter 62, 61 and 63,
specifically polyester-cotton and polyester-viscose types. Bulk of cotton and hand-
made fibers are also imported from countries like India

24
 year
Quantity (in lakh bales of 170 kgs.) Value (` /Crores)

2011-2011 0.30 56.42

2011-2012 4.13 497.93
2012-2013 7.87 772.64
2013-2014 22.01 1967.92
2014-2015 22.13 2029.18
2015-2016 25.26 2150.01
2016-2017 17.67 1789.92
2017-2018 7.21 880.10
2018-2019 12.17 1338.04
2019-2020 5.00 695.77
2020-2021 5.53 752.29
2021-2022 6.50 986.33
2022-2023 7.00 N.A.

Indian exports of textiles to EU (European Union):

EU overpowered USA as becoming the largest market for textiles and clothing
in the world. Asia pre dominates the EU market in both clothing and textiles, with
30per cent (US $ 30 bn) and 17 per cent (US $ 8 bn) share, respectively. India is one
of the leading suppliers of textile products to the EU market and ranked fourth, ahead

25
of other textile exporters like Mexico, Bangladesh and Turkey, with a market share of
5.2per cent (US $ 0.45 bn).

Year Quantity (in lakh bales of 170 kgs) Value (in `/Crores)

2009-2010 16.82 1655.00

2011-2011 3.50 313.62

2011-2012 1.01 86.72

2012-2013 0.65 52.15

2013-2014 0.60 51.43

2014-2015 0.50 44.40

2015-2016 0.83 66.31

2016-2017 12.11 1089.15

2017-2018 9.14 657.34

2018-2019 47.00 3951.35

2019-2020 58.00 5267.08

2020-2021 85.00 8365.98

2021-2022 50.00 N.A.

26
Current trend Industry sources reveal that India's textile exports are likely to fall short
by over 16per cent from the expected target. This is happening because of an increase
in value of money and slowing down of investment. Witnessing a negative growth in
exports, specifically in segments like garments. Garments accounts for about half of
the overall textile exports by India. Implementing the projected investment of Rs. 1,
94,000 crore in the 11th Five Year Plan (2021-22). Source from Business Standard
reveals that the Indian government is expected to export around 20 per cent more raw
cotton than before. Indian textile exports to USA and China are growing rapidly.
China and India are speedily becoming the two biggest textile players in the world.

27
 COMPANY PROFILE

Brandix Apparel India City (BAIC) is conceptualized and managed by

Brandix, Sri Lanka’s largest apparel exporter. It offers a host of attractive financial
and operational incentives for investors and procedural ease for facilitating
investment. It’s offering a unique one-stop shop, with end-to-end apparel solutions;
BAIC is a first of its kind in the world. It is a veritable ‘Paradise’ for the global
apparel industry.

It’s based on a breakthrough ‘Fiber-to-Store’ concept; it will house world-

class apparel chain partners, from fashion design to manufacturing all underdone roof,
offering seamless integration and unmatched value.

BAIC is spanning across 1000-acres, it’s is located in the bustling city of

Visakhapatnam, in the State of Andhra Pradesh, India. It provides the platform to
unlock the massive synergies that India offer as a textile destination.

About BAIC:

Brandix Apparel India City has developed an ecologically sustainable site that
features green infrastructure and sustainable designs. BIAC’s integrated green
infrastructure and efficient engineering designs ensure that the final construction
maximizes eco-industrial balance and meet sustainability business objectives.

Brandix Apparel India City as a business group has been recognized and
lauded in Sri Lanka for its commitment to employees and the community. Brandix has
extended the same gesture to BIAC and its operations in Atchutapuram, Andhra
Pradesh, India. Its community projects in Atchutapuram are dedicated to supporting
community service projects that focus on water, health, sanitation, community
empowerment and education.

Brandix Apparel India:

Brandix Apparel India, the Indian manufacturing arm of Brandix Lanka Ltd,
commenced commercial production for export at BAIC in July 2008. It has

28
systematically increased its local workforce, and today has a combined strength of
3300 associates, majority women from neighboring villages, with world-class apparel
being exported to top customers in US and Europe.
The facility is located in Brandix Apparel India City (BAIC) SEZ being a
revolutionary development in the apparel industry; a unique, integrated apparel supply
chain city, managed by Brandix Lanka Ltd. BAIC spread over 1000 acres in the port
city of Visakhapatnam (or Vizag for short) in the eastern state of Andhra Pradesh, it
brings alive an avant-garde 'Fiber to Store' concept. BAIC will bring together world
class apparel chain partners from the design table to consumer brands in flawless
integration.
Conceived and nurtured by Brandix, Sri Lanka's largest apparel exporter,
BAIC highlights India's phenomenal synergies in the world of textiles. To leverage
India's immense potential for economies of scale and other robust business
fundamentals in its fast growing economy, Brandix brings 30 years of industry
expertise and invites other world class experts to join its value chain to enjoy assured
mutual benefits of investment.
It is initially located in PENDURTHI -VISAKHAPATNAM on August 2006.In
January 2007 a production centre was opened at DUVVADA,VISAKHAPATNAM.
In July 2008 BRANDIX APPAREL INDIA (P) LTD is opened in BRANDIX
APPAREL INDIA CITY, as a manufacturing unit (wholesale) located at APSEZ
ANDHRA PRADESH SPECIAL ECONOMIC ZONE), Pudimadaka Road,
Atchutapuram, and Visakhapatnam.

2.2.2 Brandix Vision:

The vision of the company is to be the inspired solution for branded clothing.
Brandix is supported by over 20 manufacturing facilities in Sri Lanka and
strategically located international sourcing offices.

Competencies Of Brandix:

Brandix strong competencies in product development, manufacturing and

marketing, are complimented by their most significant advantage in textiles. They
make their own fabric, threads, buttons and hangers.They also provide customers with
R&D, washing, dyeing, finishing, and quality control services. Their group-wide
initiatives is to achieve manufacturing and supply chain excellence, close

29
collaboration with their suppliers, and sales offices at the customer's doorstep all
guarantee fast and flexible solutions from the source to stores.

2.2.4 Milestones Of Brandix:

2001 Joint venture with Colombia Clothing Co Ltd

2002 Formed Brandix Lanka Ltd; "Brandix" - a new name, a new identity
View Logo Formation Video

2003 Strategic acquisition of Mast Industries' equity interests in our joint -

ventures Merger with the Jewelex Group. Restructure of Brandix Group
into Apparel, Textile and Accessories sectors

2004 Hanger’s joint venture formed A&E Brandix Hangers

2005 Established the Brandix Centre of Inspiration,

Established the Automated Denim Plant

Established Brandix Active wear Ltd

MOU signed with Government of India for Brandix Apparel City, India.

2006 Brandix India Apparel City: launch of first manufacturing unit.

Garment Dyeing Joint-Venture: Stevenson’s Lanka.

Brandix Green Textile Processing Park, Horana signed MOU with

Government of Sri Lanka.

2007 Brandix was ranked as the country's largest apparel exporter for 2006-07
by the Export Development Board, Sri Lanka.

2008 Brandix was once again ranked as the country's largest apparel exporter
for 2007-08 by the Export Development Board, Sri Lanka.

The newly converted Brandix Eco Centre in Seeduwa was ceremonially

inaugurated in April.

30
 The Brandix Casual wear plant in Seeduwa achieved a global first in
August when it received the Platinum rating under the Leadership in
Energy and Environmental Design (LEED) Green Building Rating
System of the US Green Building Council (USGBC).

2009 Brandix Lanka was rated Platinum in the Corporate Accountability

Rating Survey.

The Brandix Green Project was judged as the National Winner for Sri
Lanka at the Energy Globe Awards 2008 presented by the Energy Globe
Foundation.

Brandix Lanka Limited won the Corporate Social Responsibility Award

presented by the YPO-WPO Social Enterprise Network, USA.

Textured Jersey launched the in-region fleece programme for Victoria's

Secret PINK.

Brandix was commended by the United Nations Global Compact as an

example of good CSR practice and compliance with the principles of the
UNGC.

The Ceylon Chamber of Commerce recognized Brandix to be among the

Top 10 Best Corporate Citizens for the year 2009

2010 The "Brandix Active wear" Company name was transformed to "Brandix
Essentials" in order to reflect the change in product focuses,
specialization and future business direction.

31
BOARD OF DIRECTORS:

Chairman- Desamanya Ken Balendra:

Ken Balendra joined the Board of Directors of Brandix Lanka Limited as its
Non-Executive Chairman in 2001, following one of Sri Lanka's most distinguished
and respected active business careers. During an illustrious professional life, he
served as chairman of several key institutions in Sri Lanka - John Keells Holdings
Limited, Bank of Ceylon, the Securities and Exchange Commission, the Insurance
Board of Sri Lanka and the Ceylon Chamber of Commerce.

Chief Executive Officer- Ashroff Omar:

Ashroff Omar, Chief Executive Officer of Brandix Lanka Ltd, is a leading

industrialist and a prominent figure in the apparel industry. The Brandix Group is the
single largest apparel exporter in Sri Lanka and is positioned as a leading apparel
solutions provider to many of the world's super brands.

Director-Aslam Omar:

Aslam Omar joined the business in 1984, and within a year began to
successfully manage and develop a growing number of subsidiaries under the
emerging Brandix Group. He was instrumental in forming alliances with Tyco A&E
(USA), American & Efird Inc. (USA) and T&S Buttons (Hong Kong) leading to
successful joint ventures, namely Brandix Hangers, American and Efird Lanka and
Bangladesh and T&S Buttons respectively. These companies have premium standings
as trim suppliers to the apparel industry.

Director -Feroz Omar:

Feroz Omar began his career as Managing Executive of MKC Industries,

which was the Group's maiden foray into the manufacture of knitted lingerie. As
Brandix grew, logical integration required a fabric processing mill, which he fulfilled
by converting a Greenfield site into Brandix Textiles - a leader in fabric
manufacturing today, with a customer base that spans the region. In addition, he is
currently responsible for Ocean Lanka and Quenby Lanka Prints, both of which he
helped form, along with Brandix Casual wear Denim. The Brandix Apparel India City
project also falls under his purview.

Director -Ajit Johnpillai:

32
 Ajit Johnpillai is the Director in charge of Brandix Casual wear; Brandix
Finishing and Comfort wear Limited. He is a former Financial Controller/Director of
Smiths DIY Group Limited in New Zealand, a US$ 50 million group that traded in
hardware, builder's supplies, and sports goods. Prior to this, he served as an Audit
Manager with Ernst & Young, in Bermuda and New Zealand.

Director -Udena Wickremasooriya:

Udena Wickremasooriya is the Director in charge of Brandix Intimate Apparel

and Brandix Essentials. He brings to Brandix extensive experience in the apparel
industry with focus on strategy, business turnaround and building strong performance
cultures and teams, both locally and internationally. Prior to joining the apparel
industry, Mr. Wickremasooriya worked in the FMCG Industry with Unilever Ceylon
Ltd and the Banking industry with NDB and held managerial positions in Supply
Chain, Operations, Finance, IT and Human Resources. He holds an MBA from the
University of Sri Jayewardenepura, Sri Lanka and is a Fellow of the Chartered
Institute of Management Accountants, UK.

Director -Trevine Jayasekara:

Trevine Jayasekara is the Group Finance Director of Brandix Lanka Limited

and is responsible for the overall finance function of the group, as well as related
support functions. As the former Group Finance Director of Aitkin Spence & Co., he
held similar responsibilities. Other positions Mr. Jayasekara held at Aitkin Spence
include Director Management Board, where he was responsible for finance, planning
and IT for their entire group, and Director Corporate Finance, where he spearheaded
project evaluation, long-term planning and treasury management.

ACHIEVEMENTS

LEED Certification:

Brandix is proud to receive the recent global recognition for its Eco Centre in
Seeduwa for Brandix Casualwear. The plant received Platinum rating in August 2008
under the Leadership in Energy and Environmental Design (LEED) Green Building
Rating System of the US Green Building Council (USGBC).

33
WRAP (Worldwide Responsible Apparel Production

WRAP (Worldwide Responsible Apparel Production) is the most recognized

compliance standard in the United States for the apparel industry. It is an independent,
non-profit organization that endorses the certification of lawful, humane and ethical
manufacturing of apparel throughout the world.

Brandix has been accredited the SA 8000 Social Accountability standards

established by New York based Social Accountability International (SAI). The
organization promotes the global improvement of human rights for workers by
collaborating with a range of organizations including companies, trade unions and
governments.

FAIR TRADE:

Brandix Textiles (BTL) accomplished another national first when its plant in
Makandura received its Fair Trade certification from the Institute for Market ecology
(IMO) of Switzerland. The company is Sri Lanka's largest woven fabric processor and
the award is an important development for it and the country. Another Brandix Group
company, Brandix Casual wear, Giritale, has also received this certification while
Quenby Lanka Prints is in the process of obtaining it.

OE100 (Organic Exchange):

The OE 100 certification from Organic Exchange (OE) is a set of industry

compliance standards for the global organic cotton textile industry. Within the
Brandix Group, seven companies have received this certificate and one, Quenby
Prints Lanka, is in the process of obtaining this important award. The Organic
Exchange is a non-profit organisation that promotes the global organic cotton industry
and its members include many top international retailers who have added organic
cotton products into their offerings.

ISO 9001: The ISO 9001 certification is part of a suite of a system of quality
management standards stipulated by the international Organisation for
Standardization (ISO). Currently, Brandix Intimates, Katunayake, is ISO 9001
certified.

34
ISO 14001:The ISO 9001 certification is part of a family that covers environmental
management standards developed by the International Organisation for
Standardization (ISO).

OHSAS 18001 (Occupational Health & Safety Assessment Series):

The OHSAS 18000 is an international occupational health and safety

management system specification which seeks to promote various improvements in
the working environment. Within the Brandix Group, Brandix Casual wear, Seeduwa,
has been accredited with this internationally renowned standard.

Brandix Organization Culture:

The Brandix Way of Life is their culture and permeates there whole
organization. The Brandix corporate 'personality' is determined by three overlapping
areas: values, work culture and social responsibility. Their way of working is all about
accepting and embracing their values, and acting with social responsibility. It's also
about a young and dynamic entity which supports its personalities to blossom in a
vibrant environment.
The Brandix culture not only aligns associates with corporate goals, it moulds their
philosophy of work and therefore life. As well as encouraging associates to becoming
customer-focused, incorporating speed, flexibility, innovation and passion into their
work allows them to think more productively and perform for results.
Brandix culture of internal appreciation and recognition includes the Kaizen
awards for innovative thinking, merit awards for work and attendance, 'I value you'
cards and gifts. The 'Pat on the back' initiative promotes instant appreciation of
behavior and performance among colleagues. Their new programme GLOW (Great
Lift off Work) enables social interaction and the annual Brandix Nite celebrates
outstanding executive team and individual performance.
2.2.7 Location:
The Brandix Apparel City is located near ATCHUTAPURAM Mandal which
is 45 kms from the Visakhapatnam Airport and from the city it is located at a distance
of 47 kms, which is 50 kms away from the Visakhapatnam Port. This apparel city is
very near to Bay of Bengal which makes the transportation process convenient
through sea.

35
 CHAPTER-III
THEORETICAL FRAMEWORK OF THE
STUDY

36
 THEORETICAL FRAME WORK

Working capital is the life and blood of the business. It signifies the funds to
be kept in reserves for day to day operations. Working Capital Management of the
short term survival is a prerequisite to long term succession aspects of the working
capital management. The trade-off between profitability and risk.
There is a conflict between profitability and liquidity. If a firm does not have
adequate working capital i.e.., it does not invest sufficient funds in current obligation
and thus invites the risk of the bankruptcy. If the current assets are too large, the
profitability is adversely affected. The key strategies and considerations in ensuring a
trade off between profitability and liquidity is one of the major dimensions of the
Working Capital Management.
Working capital management concerned with the problems that arise in better
relationship that exists between them. Here this in ordinary course of business can be
turned in to cash within one year without disrupting to operations firm. The securities,
account receivables and inventory are current liabili of working capital is to manage
firm’s current assets and current liabilities in such a way that a satisfactory level of
Working Capital is maintained.

Introduction:

Decisions relating to working capital and the short term financing are referred
to as Working Capital management. This involves managing the relationship between
a firm’s short term assets and its long term liabilities. The goal of Working capital
management is to ensure that the firm is able to continue its operations and that it has
sufficient cash flow to satisfy both maturing short term debts and upcoming operation
expenses. By definition, Working Capital Management entails short term decisions
generally relating to the next one year period which are “reversible”.
One measure of cash flow is provided by the cash conversion cycle. The net
number of days forms the outlay of cash for raw material to receiving payments from
the customers. As a management tool, this metric makes explicit the inter-relatedness
of decisions relating to inventory, accounts receivable and payable, and cash because
this number effectively corresponds to the time that the firm’s cash is tied up in
37
operations and unavailable for other activities, management generally aims at a low
net count.

Need For Working Capital Management:

The need for the working capital arises from the presence of operating cycle or
cash cycle. The flow of cash, inventory, account receivable and bank and cash is
called the operating cycle.
It consists of three phases. They are as follows.
1. Conversion of cash into inventory
2. Conversion of inventory into receivables
3. Conversion of receivables into cash

Operating cycle can be clearly represented as follows

Cash --------- Inventory ----------  Receivables

Importance:
Establishment of any industry requires funds, which are invested in acquisition
of assets and in meeting out its liabilities. Assets and liabilities of any company can be
classified on the basis of duration in to assets fixed and current assets long liabilities
and short term.
Assets are nothing but possession owned by firm which are capable of being
expenses in monitory terms whether tangible like land and buildings, stock etc. of
intangible further benefits uses these fixed assets are those assets which are permanent
in nature and hold for the use in business activities and not for sale. Examples of fixed
assets are land, missionary, building etc. Current assets of the company which in one
on a king period, usually a year examples of current assets are cash, short term
investments, sundry debtors or account receivables. Stock, loans and advances.
Liabilities are economic obligations of the company to pay cash provide goods
or services to outsiders. Including share holders liabilities may be long term or current
long term liabilities are those which are repayable over a period greater than the
accounting period like share capital, debentures, long term loans etc. Current
liabilities on the other hand to be paid within a period of one year like sundry
creditors, bills payable, outstanding expenses, short term loans etc.,

38
The Management Of Fixed Assets And Current Assets Differ In Three Important
Ways:
1.In managing fixed assets the three factors is very important that is why
discounting compounding play a very important role in any capital budgeting
decision. But because the time frames of current assets are only of money it is
less significant in the management of current assets.
2.The liquidity position of firm dependent on the investment in current assets then
more than better where as the role of fixed as far as liquidity is concerned
reliable.
3.Any short run immediate need of the company whether it be used for cash or
adjustments to fluctuation in sales can be made only through adjustments. The
level of the various components of the current assets. The calls for efficient
management of current assets which form part of management of working
capital.
Sources Of Working Capital:
The working capital requirements should be met both from long-term as well
as short-term sources of funds.

SOURCES OF WORKING CAPITAL

Permanent/Long-term Temporary/Short-term

Shares Commercial Banks

Debentures Indigenous
Bankers
Public Deposits Trade Credits

Ploughing back of profit Instalment credit

Long form financial Institutions Advances
1. Permanent/Long-term working capital:

39
Permanent working capital should be financial in such a way that the enterprise may
have its uninterrupted use for sufficiently longer periods.
The sources of long-term working capital are:
1. Shares: A company can issue various type of shares as equity shares,
preference shares and deferred shares. Equity shares do not have any fixed
commitment, preference shares have a fixed rate and deferred shares cannot be issued
by a public company.
2. Debentures: Debenture holders are to be paid a fixed rate of interest. The
debentures may be of various kinds such as simple, naked or unsecured debentures,
secured or mortgaged debentures, redeemable, irredeemable debentures, convertible,
non-convertible debentures. Interests on debentures have to be paid on certain
predetermined intervals at fixed rate and also debentures get priority on repayment at
the time of liquidation.
3. Public Deposits: Public deposits are the fixed deposits accepted by a business
enterprise directly from the public. Public deposits have advantages such as very
simple and convenient source of finance, taxation benefits, trading on equity,
inexpensive source of finance but non-banking concerns cannot borrow by way public
deposits more than 25% of its paid up capital and free reserves.
4. Ploughing Back of Profits: This means the reinvestment by a concern of its
surplus earnings in its business. This method has a number of advantages as it is the
cheats, no need to keep securities; it ensures stable dividend policy and gains
confidence of the public. But excessive report may lead to monopolies, over
capitalization and speculation, etc.
5. Long from Financial Institutions: Financial institution such as commercial
Bank, life insurance corporation (LIC), Industrial Financial Corporation of India
(IFCI), Industrial Development Bank of India (IDBI) etc provide short-term, medium-
term and long-term loans. Interest is charged at a fixed rate and repayment should be
done by way of instalments.

2. Temporary/short-term working capital: Some amount of working capital may be

required to meet the seasonal demands and rise in prices, strikes etc. this proportion of
working capital given rise to temporary or variable working capital.

40
The sources of short-term working capital are:
a). Commercial banks: The major portion of working capital loans are provided by
commercial banks through a wide variety of loans tailored to meet the specific
requirements of a concern.
The different forms for providing loans and advances are:
 Loans
 Cash credits
 Overdrafts
 Purchasing and Discounting of bills

b) Indigenous Bankers: Private money-lenders and other country bankers used to be

only source of finance prior to the establishment of commercial banks. But even today
some business sources have to depend upon indigenous bankers for obtaining loans to
meet their working capital requirements.

c) Trade Credits: Trade credit arrangements of a concern with its suppliers an

important source of short-term finance. The main advantages of this source are; it is
very convenient method of finance, flexible but this method charges high prices and
loss of cash discount.

d) Instalment Credit: This is another method by which the assets are purchased and
the possession of goods is taken immediately but the payment is made in instalments
over a predetermined period of time.

e) Advances: Some business houses get advances from their customers and agents
against orders and this source of finance for them and it is also a cheer source.

Concepts Of Working Capital:

There are two concepts of working capital

1) Gross working capital

2) Net working capital

41
1) Gross working capital:
In broad sense, the term working capital refers to the gross working capital
and represents the amounts of funds invested in current assets. Thus, gross working
capital is the capital invested in the total current assets of the enterprise. Current
assets are those in which the ordinary course of business can be converted into cash,
within a short period, normally one accounting year. The gross working capital is
financial or going concern concept. Gross concepts suitable for the company form of
organizations. It is also known as current capital or circulating capital.
The gross working capital is sometimes preferred to the net concepts of
working capital for the following reasons:
i. The enterprise can provide correct amount of working capital at the right time.
ii.Every management is more interested in the total current assets with which it
has to operate than the sources from where it is made available.
iii. The gross concept takes into consideration the fact that every increase in the
funds of the enterprise would increase its working capital.
Net working Capital:
In narrow sense, the term
Working capital = Current Assets – Current Liabilities
Net working capital may be positive or negative. When the current assets exceed the
current liabilities, the working capital is positive and the negative working capital
results when the current liabilities are more than current assets. Current liabilities are
those liabilities, which are intended to be paid in the ordinary course of business
within a short period of normally one accounting year, out of the current assets or the
income of the business within a short period of normally one accounting year, out of
the current assets or the income of the business. The net working capital concept,
however, is also important for the following incidence.
1. It is a qualitative concept which indicates firm’s ability to meet its
operating expenses and short terms liabilities.
2. It indicates the margin of production available to the short term
creditor’s i.e.., about excess of current assets over current liabilities.
3. It is an indicator of the financial soundness of an enterprise

42
 4. It indicates and suggests the need for financing and the part of the
working capital requirements out of permanent sources of funds.

The net concepts are suitable for proprietary form of organization such as sole trader
or partnership firm.

Classification Of Working Capital:

Working capital may be classified in two ways:

1. ON THE BASIS OF CONCEPT:

Working capital

Gross Working Capital NetWorkingcapital

2. ON THE BASIS OF TIME:

Working capital

Permanent or Fixed Temporary or Variable

Regular Reserve Seasonal

Special

1. On the basis of concept:

On the basis of concept, working capital is classified as gross working capital
and net working capital. The classification is important from the view of the financial
manager’s.

2. On the basis of time:

On the basis of time, working capital may be classified as

 Permanent working capital

43
  Temporary working capital

Permanent Working capital:

This refers to the minimum amount of investment in all current assets, which
required at a time to carry out minimum level of business activities. In other words, it
represents the current assets required on continuing basis over the entire year. Tendon
committee has referred to this type of working capital as “core current assets”.
The following are the characteristics of this type of working capital:
1. Amount of permanent working capital remains in the business in one form
or another. This is particularly important from the point of view of financing.
The suppliers of such working capital should not expect its return during the
lifetime of firm.
2. It also grows with size of the business. In other words, greater the size of
the business, greater is the amount of such working capital and vice-versa.
Permanent working capital is permanently needed for the business and therefore
it should be financed out of long-term funds. This is the reason why the current
ratio has to be substantially more than

Temporary working capital:

The amount of such working capital keeps on fluctuating from time to time on
the basis of business activities. In other words, it represents additional current assets
required at different times during the operating year.
Suppliers of temporary working capital can expect its return during off season
when the firm does not require it. Hence, temporary working capital is generally
financed from short-term sources of finance such as bank credit.

Regular working capital:

Regular working capital is the amount required to ensure circulation of current
Assets from cash to inventory from inventory to receivables, from receivables to cash
so on.
Reserve working capital:

44
It is excess amount over the requirements for regular purpose which may be arise at
the constant periods such as strikes, lockouts, raise in prices, depreciation etc.

Seasonal working capital:

The capital required for the seasonal needs is known as seasonal working capital.
Special working capital:
The capital required to these special needs, is the special working capital.
Special working capital required to meet the special exigencies such as launching of
extensive marketing companies, research and development etc.

Factors Influencing Working Capital Requirements:

The working capital needs of a firm are influenced by numerous factors. They are:
1. Nature of business
2. Working capital cycle
3. Seasonality of operations
4. Production policy
5. Market conditions
6. Conditions of supply

1. Nature of business:
The working capital requirement of firm is closely relating to the nature of its
business. A service firm, like an electricity undertaking, which has a short operating
cycle and which sells predominantly on cash basis, has a modest working capital
requirement.

2. Working capital cycle:

The speed with which the working capital completes one cycle determines the
requirements of working capital longer the period of the cycle; larger is the
requirement of working capital.

3. Seasonality of operations:
Firms that have marked seasonality in their operation usually have highly
fluctuating working capital requirements. For example: firm manufacturing ceiling

45
fans. The sale of ceiling fans reaches a peak during the summer months and drops
sharply during the winter period. The need of working capital of such a firm is likely
to increase considerably in summer months and decrease significantly during the
winter period. On the other hand, a firm manufacturing a product like lamps, which
have fairly even sales round the year, tends to have stable working capital needs.

4. Production policy:
A firm marked by pronounced seasonal fluctuations in its sales may pursue a
production policy, which may reduce the sharp variations in working capital
requirements. For example: a manufacturer of ceiling fans way maintain steady
production throughout the year than intensifying the production activity during a peak
business seasons such a production activity during a peak business season may
dampen the fluctuation in working capital requirement.

5. Marketing conditions:
The degree of competition in the market place has an important bearing on
working capital needs when competition is high; a larger inventory of finished goods
is required to promptly serve customers who may not be inclined to wait because
other manufacturers are ready to meet their needs. If the market is strong and
competition is weak, a firm can manage with a smaller inventory of finished goods
because customers can be served with some delay.

6. Conditions of supply:
The inventory of raw materials, spares and stores depends on the conditions of
supply. If the supply is prompt and adequate, the firm can manage with small
inventory. However if the supply is unpredictable and scant, then the firm ensures
continuity of production, would have to acquire stocks as and when they are available
and carry larger inventory on a average. A similar policy may have to be followed
when the raw material is available only seasonally and production operations are
carried out round the year

Objectives Of Working Capital:

There are five bold objectives of the management of working capital.

46
 1. Maintenance of working capital at appropriate levels.
2. Availability of ample funds as and when they are needed.
3. Regular payment of salary, wages and other day to day commitment.
4. Exploitation of favorable condition.
5. Quick and regular return on investment

Study Of Working Capital Management:

The management of working capital management has been studied under the three
following heads.
1. Management of cash balances
2. Management accounts receivables, Management of inventory

1. Management Of Account Receivables:

Receivables result from credit sales. A concern is required to allow credit sales
in order to expand its sales volume. It is not always possible to sell goods on cash
basis only.
Meaning Of Receivables:
Receivables represents amount owed to the firm as a result of sale of goods or
services in the ordinary course of business. These are claims of the firm against its
customers and from trade receivables or book debts. The receivables are carried for
the customers. The period of credit and extent of receivables depends upon the credit
policy followed by the firm.

Policies From Managing Receivables:

The credit policy of any firm should be estimated in such a way that the
benefits likely to accrue from it. The credit policy should incorporate the following.

3.11 Credit Standards:

The term credit standards represent the basic criteria for the extension of credit to any
customer. This is done with the help of factors such as credit rating, credit references
and various financial ratios. The levels of sales and the amount of account are fairly
liberal as compared to sales under the restructure to tight credit standards.
The credit standards of any firm are usually determined by 5 ace’s namely

47
1. Capacity:
It refers to ability of the specific customer to manage the required sales of business.

2. Collateral:
It refers to the security in firms of assets owned by customers, which can be
offered by the customer to secure the amount of credit extended to him.
3. Capital:
It refers to financial soundness of customer’s i.e.., capacity to raise the required
funds.

4. Condition:
It refers to the impact of economic environment of the country or the firm or
special circumstances offered by Government or local agencies, which may affect the
customer’s profitability to meet obligations.

5. Credit Terms:
This refers to stipulations under which the goods are sold on credit i.e.., terms
and conditions of trade relating to repayment. The components are:

a. Cash Discount:
It refers to that amount of discount, which is gives to customers on paying off
his debts within the stipulated period. Attractive cash discounts terms help in
reduction of reduction of average collection period and in turn reduce amount of
investment in receivables.

CASH MANAGEMENT:
Cash is the important current assets for the operations of the business. Cash is
the basic input needed to keep the business running on a continues basis ; it also the
ultimate output expected to be realized by selling the services are product
manufactured by the firm should keep sufficient cash, neither more nor less. Cash
shortage will simply remain idle, without contributing anything towards the firm’s
profitability. Thus, a major function of the financial manager is to maintain cash
position.

48
 Cash is the money, which a firm can disburse immediately without any
restriction. The term includes coins, currency and cheques held by the firm’s, and
because in its accounts. Some ties bear cash items, such as marketable securities or
bank time deposits, are also included in cash. The basic characteristics of near cash
assets are that they can readily be converted in to cash. Generally, when a firm has
excess cash, it invests it in marketable securities. This kind of investments contributes
some profit to the firm.
Objectives Of Cash Management:
There are two basic objectives of cash management. They are
1. To meet the cash disbursement needs as per the payment schedule.
2. To meet the amount of funds help up as cash balance.

The basic objective of cash management is to meet all payments obligations in time.
This enquires the maintenance of sufficient cash funds help up as cash balance. The
first two BAIC poaches are mathematical and are outside our scope. Therefore, we
look at only cash budget.

INVENTORY MANAGEMENT:
Inventory Meaning:
The term inventory refers to the stock pile of the product a firm is offering for
sale and the components that make up the product. In other words, inventory is
composed of assets that will be sold in future in the normal course of business
operations. The assets which firms store as inventory in anticipation of need are:
1. Raw materials
2. Work in process
3. Finished goods
4. Stores and Spares Inventory
5. Pipe line inventory (Goods in transit to warehouses)
Purpose Of Inventory:
1. For smooth flow of goods throughout the production process.
2. To protect against stock outs.(demand & supply changes)
3. To take advantage of order cycles.
4. To hedge against price fluctuations.

49
 5. To meet customer demand and ensure customer satisfaction.
Evils Of Inventory:
1. Non value added costs
2. Opportunity costs
3. It deteriorates, obsoletes etc.

About inventory management:

It is concerned with keeping enough product on hand to avoid running out
while at the same time maintaining a small enough inventory balance to allow for a
reasonable return on investment. Proper inventory management is essential to the
financial health of the corporation; being out of stock forces customers to turn to
competitors or results in a loss of sales. Excessive level of inventory, however, results
in large inventory carrying costs, including the cost of the capital tied up in inventory.
The aspect of management of inventory is especially important in respect to the fact
that in country like India, the capital block in terms of inventory is about 50% of the
current assets. It is therefore, absolutely imperative to manage efficiently and
effectively in order to avoid unnecessary investment. Although to maintain low
inventory may prove to be profitable but to maintain very low inventory may prove
risky on the contrary.
This aspect of management if tackled in a proper way may prove to be a boon
its effective and efficient management would result in the maintaining of optimum
level of inventory. At this level the profitability of the organisation will not be
jeopardised at the cost of inventory.
Objectives Of Inventory Management:
The two main reasons behind all this are, firstly, to maintain a inventory big
enough that the production and sales operation are carried on without any hindrance
and secondly, to minimize the investment in inventory, in order to maximize the
profits. Both, excessive as well as inadequate inventory level is not good. They are the
two danger points that a company should try to avoid and should always try to
maintain optimum level of inventory. The excessive investment in the inventory has
the following drawbacks:
1. Unnecessary tie up of firm’s fund and loss of profit.
2. Excessive carrying cost.

50
 3. The risk of liquidity.
Requirements For Effective Inventory Mangement:
1. A system to keep track of inventory on hand and on order.
2. A reliable forecast of demand
3. Knowledge of Lead times and Lead time variability and a classification
system.
4. Reasonable estimates of inventory costs (holding, ordering costs etc).

Cost of holding inventory:

1. Inventory cost
2. Carrying cost
3. Ordering cost
4. Costs of running cost
5. Stock out cost
6. Ordering, shipping and receiving cost.

ABC Analysis:
It is an inventory application of the Pareto principal which states that there are
a “critical few and trivial man.” Idea is to establish inventory policies that focus
resources on the few critical inventory parts and not on many trivial ones. In this
technique, the items of inventory are classified according to value of usage. The
higher value items have lower safety stocks, because the cost of production is very
high in respect of higher value items. The lower value items carry higher safety
stocks.
ABC analysis is exercised as follows:

 A ITEMS: very tight control and accurate records

 B ITEMS: less tightly controlled and good records
 C ITEMS: simplest controls possible and minimal records

The ABC analysis provides a mechanism for identifying items that will have a
significant impact on overall inventory cost, while also providing a mechanism for
identifying different categories of stock that will require different management and
controls.

51
The ABC analysis suggests that inventories of an organization are not of equal
value. Thus, the inventory is grouped into three categories (A, B, and C) in order of
their estimated importance.

'A' items are very important for an organization. Because of the high value of
these ‘A’ items, frequent value analysis is required. In addition to that, an
organization needs to choose an appropriate order pattern to avoid excess
capacity.
'B' items are important, but of course less important, than ‘A’ items and more
important than ‘C’ items. Therefore ‘B’ items are intergroup items.
'C' items are marginally important.

Valuation Of Inventory:
When finished goods are sold, the firm must assign a cost of goods sold. The
cost of goods sold appears on the income statement as an expense for the period and
the balance sheet inventory account is reduced by a like amount.
Four methods can be used to value the cost of goods sold:
1. Specific identification
2. First-in-first out (FIFO)
3. Last-in last out (LIFO)
4. Weighted average.

1. Specific identification:
Under specific identification a unique cost is attached to each item in
inventory. Then when an item is sold the inventory value is reduced by that specific
amount. This method is only when the items are high cost and move relatively slowly,
such as would be the case for an automobile dealer.

2. First-in-first out (FIFO):

In the “FIFO” method the units sold during a given period are assumed to be
the first units. That was placed in inventory. As a result, the cost of goods sold is
based on the cost of the order. Inventory items and the remaining inventory consist of
the newer goods.

3. Last-in last out (LIFO):

52
 “LIFO” is the opposite of “FIFO” the cost of goods is based on the last units
placed in inventory while the remaining inventory consists of the first goods placed in
inventory.
4. Weighted average:

The weighted average method involved the computation of the weighted

average. Units cost of goods available for sale. From inventory, and this average cost
is then applied to the goods sold to determine the cost of goods sold.

Others Topics In Inventory Management:

1. Inventory control system
2.Just-in-time inventory
3.Out-sourcing
1. Inventory Control System:
Inventory control system runs the gamut from very simple to extremely
complex, depending on the firm and the nature of its inventory.
Computerized Systems:
Large companies employ computerized inventory control system. The
computer starts with an inventory count in memory as with drawls are made they are
recorded by the computer, and the inventory balance is revised.
2. Just-in-time inventory:
A relatively new approach to inventory control called just-in-time is being used
by more and more firms throughout the world. Toyota, which pioneered the concepts,
provides a good example. Just-in-time system are also being adopted by smaller firms
in fact, some production experts say that small, companies are better positioned than
large ones to use just-in-time methods.
3. Out-sourcing:
Another important development related to inventory is out-sourcing which is the
practice of purchasing components rather than making them in house. It would be
increasing its use of out-sourcing is often combined with just-in-time systems to
reduce inventory levels.

53
CHAPTER-IV
DATA ANALYSIS
AND
INTERPRETATION

54
 DATA AND INTERPRETATION
Table No: 5.1
WORKING CAPITAL PERIODS FOR FIVE YEARS FROM THE YEAR 2018-2023
Rs In lakhs

YEAR
Item of Working Capital
2018-19 2019-20 2020-21 2021-22 2022-23
CURRENT ASSETS(A)
Inventory 6837.43 8048.63 10931.01 13052.73 15349.65

Debtors 1693.59 2159.10 3673.97 4802.13 6025.74

Cash & Bank Balances 517.63 918.37 603.14 412.01 310.44
Loans & Advances 3145.07 2893.23 2214.32 1719.29 1215.87
Total 12193.72 14019.33 17422.44 19986.16 22901.70
CURRENT
LIABILITIES(B)

Current Liabilities and

7170.82 9747.87 8145.11 12973.07 15397.16
Provisions

NETWORKING
5022.90 4271.46 9277.33 7013.09 7504.54
CAPITAL(A-B)
INCREASE OR
DECREASE 3760.45 751.44 5005.87 2264.24 491.45
INWORKING CAPITAL

55
 Figure No: 5.1
WORKING CAPITAL

90000
80000
70000
60000
50000
40000 YEAR 2022-23
30000
20000 YEAR 2021-22
10000
YEAR 2020-21
0
YEAR 2019-20
YEAR 2018-19

Interpretation:
From the above table, it can be observed that, in the year 2018-19 the
Net working capital was Rs. 3760.45 lakhs. It has decreased to Rs 751.44 lakhs in
2019-19 that means the profits decreased in the cash, debtors and bank balance has
decreased in 2020-21. In 2021-22, it has increased to Rs.2882.38 lakhs it indicates
inventory, loans and advances have decreased but the debtors, cash and bank balance
increased. In 2021-22, the Net working capital has decreased inventory, cash and
bank balances, loans and advances decreased. In 2022-23, the working capital
decreased to Rs.491.95 lakhs. It clearly indicates inventory, cash and bank balance
has increased and debtors have also decreased. The liabilities and provisions
decreased so the working capital has also decreased.
Table No: 5.2
STATEMENT (2018-2019) SHOWING CHANGES IN WORKING CAPITAL

Year Working Capital

Item of Working Capital
2018 2019 Increase Decrease
CURRENT ASSETS(A)
Inventory 6248.99 6837.43 588.44

56
 Debtors 1678.21 1693.59 15.38
Cash & Bank Balances 403.27 517.63 114.36
Loans & Advances 2943.97 3145.07 201.10
Total 11274.44 12193.72 919.28
CURRENT
LIABILITIES(B)
Current Liabilities and
10031.43 7170.82 2860.61
Provisions
NETWORKING
1243.01 5022.90 3779.89
CAPITAL(A-B)

DECREASEINWORKING
3760.45
CAPITAL

Total 1303.38 1303.38 2860.61 2860.61

FIGURE NO: 5.2

WORKING CAPITAL FOR THE YEAR 2018-2019

57
 2018 2019

Interpretation:
From the table No. 4.4 during the year 2018-19, the current assets have been
increased from Rs. 10456.98 Lakhs to Rs.12193.72 lakhs. This has occurred due to
the increase in inventory by Rs.588.44 lakhs and sundry debtors by Rs.15.38 lakhs
and also cash and bank balance has increased by Rs.114.36 lakhs and loans and
advances also increase by Rs.201.10 lakhs.

The above financial position is good in terms of short run that is liquidity but
solvency is problem as in the long run the company is not maintaining enough
inventories. Further the creditors have decreased by Rs.2860.61 lakhs which is a clear
indication of solvency problems in long run.

TABLE NO: 5.3

STATEMENT 2019-2020) SHOWING CHANGES IN WORKING CAPITAL

58
 Rs In lakhs
Year Working Capital
Item of Working Capital
2019 2020 Increase Decrease

CURRENT ASSETS

Inventory 6837.43 8048.63 1211.20

Debtors 693.59 2159.10 465.51

Cash & Bank Balances 517.63 918.37 400.74

Loans & Advances 3145.07 2893.23 251.84

Total 12193.72 14019.33 2077.45 251.84

CURRENT LIABILITIES
Current Liabilities and
7170.82 9747.87 2577.05
Provisions(B)
WORKING CAPITAL (A-
5022.90 4271.46 751.44
B)
DECREASE IN
751.44
WORKING CAPITAL
Total 5022.90 5022.90 499.60 499.60

Figure No: 5.3

59
 WORKING CAPITAL FOR THE YEAR 2019-2020

2019 2020

Interpretation:
From the above table 4.3 during the year 2019-20 the current assets has
increased from Rs 12193.72 lakhs to Rs 14019.33 lakhs. This has occurred due to the
increase in inventory by Rs 1211.20 lakhs sundry debtors by Rs 465.51 lakhs, cash
and bank balance by Rs 400.74 and loans and advances also decreased by Rs 251.84
lakhs.
The above financial position is good in terms of short run i.e., liquidity but
solvency is problem as in the long run the company is not maintaining enough
inventory. Further the creditors have increased by Rs 2577.05 lakhs which is a clear
indication of solvency problems in long run.

60
 Table No: 5.4
STATEMENT (2020-2021) SHOWING CHANGES IN WORKING CAPITAL
Rs In lakhs
Year Working Capital
Item of Working Capital
2020 2021 Increase Decrease
CURRENT ASSETS
Inventory 8048.63 10931.01 2882.38
Debtors 2159.10 3673.97 1514.87
Cash & Bank Balances 918.37 603.14 315.23
Loans & Advances 2893.23 2214.32 678.91
Total 14019.33 17422.44 4397.25 994.14
CURRENT LIABILITIES
Current Liabilities and
9747.87 8145.11 1602.76
Prov (B)
WORKING CAPITAL (A-
4271.46 9277.33 5005.87
B)
INCREASING IN
5005.87
WORKING CAPITAL
Total 4271.46 4271.46 608.62 608.62

61
 Figure No: 5.4
WORKING CAPITAL FOR THE YEAR 2020-2021

2020 2021

Interpretation:
From the table No. 4.4 represents changes in working capital during the year
2020-21, the current assets have increased from Rs 14019.33 lakhs to Rs 17422.44
lakhs. This has occurred due to increase in inventory by Rs 2882.38 lakhs and
increase in sundry debtors by Rs 1514.87 lakhs similarly cash & bank balance
decreased by Rs 315.23 lakhs and loans & advances by Rs 678.91 lakhs.
It shows that the inventory and debtors of current assets have increased the
working capital. Here liability has decreased during the year 2018-19. It indicates the
working capital has increased.

62
 Table No: 5.5
STATEMENT (2021-2022) SHOWING CHANGES IN WORKING CAPITAL
Rs.In lakhs
Year Working Capital
Item of Working Capital
2021 2022 Increase Decrease
CURRENT ASSETS
Inventory 10931.01 13052.73 2121.72
Debtors 3673.97 4802.13 1128.16
Cash & Bank Balances 603.14 412.01 191.13
Loans & Advances 2214.32 1719.29 495.03
Total 17422.44 19986.16 3249.88 686.16
CURRENT LIABILITIES
Current Liabilities and
8145.11 12973.07 4827.96
Provisions (B)
WORKING CAPITAL (A-B) 9277.33 7013.09 2264.24
INCREASE IN WORKING
2264.24
CAPITAL
9277.33 9277.33
Total 1578.08 1578.08

63
 Figure No: 5.5
WORKING CAPITAL FOR THE YEAR 2021-2022

2021 2022
Interpretation:
During the year 2021-22 the current assets has increased from Rs 17422.44
lakhs to Rs 19986.16 lakhs. There was increase in inventory by Rs 2121.72 lakhs and
increase in sundry debtors by Rs 1128.16 lakhs. Decrease in cash and bank balance by
Rs 191.13 and loans and advances also decrease by Rs 495.03 lakhs.
The above financial position is good in terms of short run that is liquidity but
solvency is problem as in the long run the company is not maintaining enough
inventories. Further the creditors have increased by Rs 4827.96 lakhs which is a clear
indication of solvency problems in long run.

64
 Table No: 5.6
STATEMENT (2022-2023) SHOWING CHANGES IN WORKIN CAPITAL
Rs.In lakhs
Year Working Capital
Item of Working Capital
2022 2023 Increase Decrease

CURRENT ASSETS

Inventory 13052.73 15349.65 2296.92

Debtors 4802.13 6025.74 1223.61

Cash & Bank Balances 412.01 310.44 101.57

Loans & Advances 1719.29 1215.87 503.42

Total 19986.16 22901.70 3520.53 604.99

CURRENT LIABILITIES

Current Liabilities and

12973.07 15397.16 2424.09
Prov (B)
WORKING CAPITAL
7013.09 7504.54 491.45
(A-B)
DECREASEIN WC 491.45
Total 7013.09 7013.09 604.99 604.99

65
 Figure No: 5.6
WORKING CAPITAL FOR THE YEAR 2022-2023

2022 2023

Interpretation:
During the year 2022-23 the current assets has increased from Rs 19986.16
lakhs to Rs 22901.70 lakhs. There was an increase in inventory by Rs 2296.92 lakhs
and sundry debtors by Rs 1223.61 lakhs. Similarly in cash and bank balance by Rs
101.57 lakhs and loans and advances also decreased by Rs 503.42 lakhs.
The above financial position is good in terms of short run that is liquidity but
solvency is problem as in the long run the company is not maintaining enough
inventories. Further the creditors have increased by Rs 2424.09 lakhs which is a clear
indication of solvency problems in long run.

66
 RATIO ANALYSIS
Several ratios, calculated from the accounting data, can be grouped into
various classes according to financial activity or function to be evaluated. As stated
earlier, the parties interested in financial analysis are short-term and long-term
creditors, owners and management. Short-term creditors` main interest is in the
liquidity position or the short-term solvency of the firm. Long-term creditors`, on the
other hand, are more interested in the long-term solvency and profitability of the firm
1. Current Ratio:
Current ratio may be defined as the relationship between current assets and
current liabilities. This ratio, also known as working capital ratio, is a measure of
general liquidity and is most widely used to make the analysis of a short-term
financial position or liquidity of a firm.
Current ratio indicates the backing available to current liabilities in the form of
current assets. In other words, higher current ratio indicates that there are sufficient
assets available with the organization, which can be converted in the form of cash. A
current ratio of 2:1 is supposed to be standard and ideal.
Current Ratio = Current Assets / Current Liabilities
Current Assets – Cash on hand, Cash at bank, Debtors, Inventory, Bills receivables,
Short term investments & Securities and Prepaid expenses
Current Liabilities – Creditors, Bills payable, Outstanding expenses, Bank overdraft
(Short term Profits)
Table No: 5.7
Current Ratio
Current Assets Current Liabilities Ratio
Years
(Rs in Lakhs) (Rs in Lakhs) (In times)
2018-2019 12193.72 7170.82 1.70
2019-2020 14019.33 9747.87 1.43
2020-2021 17422.44 8145.11 2.13
2021-2022 19986.16 12973.07 1.54
2022-2023 22901.70 15397.11 1.48

67
(Source Annual Reports of BAIC)

FIGURE NO: 5.7

CURRENT RATIO

40000
35000
30000
25000 Ratio (In times)
20000
Current Liabilities (Rs in
15000 Lakhs)
10000 Current Assets (Rs in
5000 Lakhs)
0

Interpretation:
From the above table, it can be observed that the current ratio between the current
assets and current liabilities for the year 2018-19 is 1.70 when compared to 2019-
2020 current ratio (1.43) is lower than the previous year. In the year 2020-21 the
current ratio is 2.13 whereas in 2021-22 the current ratio is 1.54. Finally the current
ratio in the year 2022-23 is 1.48 compared to 2018-19 and there was decrease in the
ratio.
The ratio is mainly used to give an idea of the company‘s ability to pay back
its short- term liabilities (debt and payables) with its short-term assets (cash,
inventory, receivables). The higher the current ratio, the more capable the company is
of paying its obligations. A ratio in each year suggests that the company would be
able to pay off its obligations if they came due at that point, but the company has
shown constant decreasing trend in its financial health in subsequent years, Since low
current ratio does not necessarily mean that the firm will go bankrupt, but it is
definitely is not a good sign. Short term creditors prefer a high current ratio since it
reduces their risk.

68
2. Quick Ratio:
Quick Ratio is also called acid-test ratio, establishes the relationship between

quick, or liquid assets and current liabilities. As asset is liquid it can be converted into

cash immediately or reasonably soon without a loss of value. The quick ratio is found

out by dividing quick assets by current liabilities.

Quick Ratio = Quick Assets / Current Liabilities

Quick Assets = Current Assets – (Stock + Prepaid expenses)

Table No: 5.8

Quick Ratio

Quick Assets Current Liabilities Ratio

Years
(Rs in Lakhs) (Rs in Lakhs) (In times)

2018-2019 16488.07 7170.82 2.29

2019-2020 17481.32 9747.87 1.79

2020-2021 18541.95 8145.11 2.27

2021-2022 19793.19 12973.07 1.52

2022-2023 20184.86 15397.11 1.31

(Source Annual Reports of BAIC)

69
 FIGURE NO: 5.8
QUICK RATIO

40000
35000

30000

25000 Ratio (In times)

20000
Current Liabilities (Rs in
15000 Lakhs)

10000 Quick Assets (Rs in Lakhs)

5000

Interpretation:
From the above table, it can be observed that the quick ratio has decreased
from 2.29 to 1.79 when compared to the 2018-19.Quick ratio is has increased from
1.79 to 2.27 during the year 2020-21. And in the year 2022-23 the quick ratio has
decreased to 1.31.
It indicates that, the conventionally quick ratio of 1:1 is considered to
be favourably satisfactory .It signifies that every one rupee of current liabilities the
firm has one rupee of quick assets to meet its current claims .Thus it indicates that the
quick ratio of company is not satisfactory and the company does not have enough
quick assets to meet its day to day financial obligations prudently. It also represents
that liquidity position of the company is not very satisfactory during the given years.

70
3. Inventory / Stock Turnover Ratio:
Inventory turnover ratio is the ratio of goods sold to average inventory. It is an
activity or efficiency ratio and it measures how many times per period, a business
sells and replaces its inventory again.
A high inventory turnover ratio indicates that maximum sales turnover is
achieved with the minimum investment in inventory. As such as a general rule, high
inventory turnover ratio is desirable.
Formula:
Inventory turnover ratio = cost of goods sold
Average inventory

TABLE NO: 5.9

INVENTORY / STOCK TURN OVER RATIO

Cost of goods sold Average Inventory Ratio

Years
(Rs in Lakhs) (Rs in Lakhs) (In Times)

2018-2019 24463.91 6543.21 3.73

2019-2020
27357.08 10861.74 2.51

2020-2021 36086.11 13514.13 2.67

2021-2022 49706.97 17457.37 2.87

2022-2023
68447.38 20727.55 3.30

(Source Annual Reports of BAIC)

71
 FIGURE NO: 5.9
INVENTORY / STOCK TURNOVER RATIO

90000
80000

70000

60000

50000

40000

30000

20000

10000

0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

Interpretation:
From the above table the stock turnover ratio from 2018-19 is at decreasing
stage 3.73to2.87 and it has increased in 2021 by reaching to 3.30. Overall from 2022-
2023 it has decreased from 3.73 to 3.30. The ratio explains how many times stock
turns in one year. If the ratio is more the pertaining cycle rotation also more.
Company is selling their stock frequently. Which means, the company is holding low
inventory, where too low inventory turnover ratio results in loss of business
opportunities, which means the company experienced fluctuations in holding
inventory because of proportion changes in average inventory more than the change in
cost of sales.
Every firm has to maintain a considerable level of inventory, so as to able
to meet the requirements of the business. But the level of inventory should neither be
too high nor too low. The inventory turnover ratio measures the velocity of
conversion of stock in to sales.

72
4. Debtors Turnover Ratio:
It indicates the velocity of debt collection of a firm. In simple words it
indicates the number of times average debtors are turned over during a year.
Debtor’s turnover ratio or accounts receivable turnover ratio indicates the
velocity of debt collection of a firm. In simple words it indicates the number of times
average debtors are turned over during a year. The effect of a liberal credit policy may
result in tying up substantial funds of a firm in the form of trade debtors. Trade
debtors are expected to be converted into cash within a short period of time and are
included in current assets. Hence, the liquidity position of concern to pay its short
term obligations in time depends upon the quality of its trade debtors.

Credit sales
Debtors turnover ratio = ------------------------
Average Amount Receivables

TABLE NO: 5.10

DEBTORS TURN OVER RATIO

Sales Average Debtors Ratio

Years
(Rs in Lakhs) (Rs in Lakhs) (In Times)

2018-2019
24463.91 1685.908 14.50

2019-2020 27357.08 1926.34 14.20

2020-2021 36086.11 2916.53 12.37

2021-2022
49706.97 4238.05 11.72

2022-2023
68447.38 5413.93 12.64

(Source Annual Reports of BAIC)

73
 Figure No: 4
5.10
Debtors Turn Over Ratio

80000
70000
60000
50000
40000 Ratio (In Times)
30000 Average Debtors (Rs in Lakhs)
20000 Sales (Rs in Lakhs)
10000
0

Interpretation:
From the above table, it is observed that turnover ratio has decreased from
14.5 to 11.72 from the years 2018 to 2023, which reveals the number of times the
average debtors is collected during given accounting period. In the financial year
2020-21 the ratio increased drastically to 12.64 due to rapid decline in debtors. The
company has been adopting conservative credit policy and possessing small
percentage of credit sales on total sales in every year. This is the main reason behind
high debtor turnover ratio.
It indicates that low debtor turnover results inefficient management of debtors
by which debtors are not satisfactory over the period as they are not maintained same
over the period and it has been fluctuating greatly.

74
5. Inventory Holding Period:
It may also be interest to see average time taken for clearing the stocks. The
can be possible by calculating inventory conversion period. The period is calculated
by dividing the number of says by inventory turnover. The formula as:

Inventory Holding Period= No. of Working days/Inventory Turnover Ratio

Table No: 5.11

Inventory Holding Period

Inventory turnover Ratio

Years No. Working days
ratio (In Times)

2018-2019
365 3.73 97.85

2019-2020
365 2.51 145.41

2020-2021
365 2.67 136.70

2021-2022
365 2.87 127.17

2022-2023
365 3.30 110.60

(Source Annual Reports of BAIC)

75
 Figure No: 4.11
Inventory Holding Period

600

500

400
Ratio (In Times)
300 Inventory turnover ratio
No. Working days
200

100

0
2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

Interpretation:
From the above table inventory holding period, in the year 2018-19 is 97.85
which means the company holding inventory is too low, where too low inventory
turnover ratio results in loss of business opportunities. and in the year 2019-20 the
ratio drastically increased to 145.47 due to decrease in cost of goods sold followed by
average inventory and in the year 2021-22 the holding period decreased to136.70 due
to increase in cost of goods sold followed by slow decrease in average inventory
decreased to 127.17 and in the financial year 2023 the period further decreased to
110.60 due to increase in cost of goods sold and decrease in average inventory. Thus
it indicates the company is maintaining an acceptable level of inventory to meet the
requirements of business.

76
6. Debtors holding period:
The average collection period ratio represents the number of days which a
firm has to wait before its receivables are converted into cash. It measures the quality
of debtors. Generally, the shorter the average collection period the better is the quality
of the debtors as a short collection period implies quick payment by debtors.

Debtors holding period = No. of working days/ Debtor’s Turnover ratio

Table No: 5.12

Debtors holding period

Debtors turnover Ratio

Years No. Working days
ratio (In Times)

2018-2019
365 14.50 25.17

2019-2020
365 14.20 25.70

2020-2021
365 12.37 29.50

2021-2022
365 11.72 31.14

2022-2023
365 12.64 28.87

(Source Annual Reports of BAIC)

77
 Figure No: 5.12
Debtors Holding Period

410

400

390

380
Ratio (In Times)
370 Debtors turnover ratio

360 No. Working days

350

340

Interpretation:
From the above table debtors holding period, in the year 2018-19 is 25.17
which means the company holding debtor is too low and in the year 2019-20 the
holding period drastically increased to 25.70 due to decrease total sales followed by
average debtor and in the year 2020-21 the holding period increased to29.50 due to
decrease in total sales followed by slow increase in average. and in the year 2021-22
holding period increased to 31.14 and in the financial year 2023 the period further
decreased to 28.87 due to increase in total sales and decrease in average debtor.

78
Working Capital Turnover Ratio:
Working capital turnover ratio indicates the velocity of the utilization of net
working capital. This ratio indicates the number of times the working capital is
turned over in the course of a year. This ratio measures the efficiency with which the
working capital is being used by a firm. A higher ratio indicates efficient utilization
of working capital and low ratio indicates otherwise. But a very high working capital
turnover ratio is not a good situation for any firm and hence care must be taken while
interpreting the ratio. Making of comparative and Trend Analysis can at best use this
ratio for different firms in the same industry and for various periods. This can be
calculated as follows:
Sales
Working Capital Turnover Ratio =
Net Working Capital

Net Working Capital = Current Assets - Current Liabilities

Table No: 5.13

Working Capital Turnover Ratio

Ratio
Years Sales Working Capital
(In Times)

2018-2019
24463.91 5022.90 4.87

2019-2020
27357.08 42711.46 6.40

2020-2021
36086.11 9277.33 3.88

2021-2022
49706.97 70133.09 7,08

2022-2023
68447.38 7504.54 9.12

(Source Annual Reports of BAIC)

79
 Figure No: 5.13

Working Capital Turnover Ratio

2022-2023

760000
540000
320000
10000
49706.97 70133.09 7,08
36086.11 9277.33 3.88
2022-2023
27357.08 42711.46 6.4
24463.91 5022.9 4.87
(In Times)
Sales Working Ratio
Capital

Interpretation:
From the above table working capital turnover Ratio was 4.87 in the
financial year 2018 and in the year 2019 it is increased to 6.40 due to increase in
working capital and decrease in cost of goods sold and in the year 2020 the ratio
decreased to 3.88 due to increase in cost of goods sold followed by slow pace growth
in working capital and in the year 2021 the ratio drastically increased to 7.08 due to
increase in cost of goods sold followed by rapid decline in working capital and in the
financial year 2023 the ratio further increased to 9.12 due to further increase in cost of
goods sold and decrease in working capital .Thus it indicates that the company is
utilizing its working capital

80
CHAPTER-V
SUMMARY
FINDINGS
SUGGESTIONS
CONCLUSION
BIBLIOGRAPHY

81
 SUMMARY
Working capital management is one of the most important aspects of financial
management. Working capital management is concerned with the problems that rise
in attempting to manage the current assets, and current liabilities and the relationship
between them. It also refer to management of short term financing, negotiating
favourable credit terms, controlling the movement of cash; administration account
receivable and monitoring the investments in inventories. The interaction between
current assets and current liabilities is therefore, the ma in theme of theory of working
capital management.
Net working capital can be positive or negative. A positive net working capital
will arise when current assets exceed the current liabilities. A negative net working
capital occurs when current liabilities exceed the current assets. In 2018-19 there is
inadequate working capital which can threaten the short term solvency of the firm. In
2018-19, 2020 net working capital is positive. The happened because of efficient
management of current assets through cash mobilization.
The company is maintaining working capital in positive track even when the
liabilities are huge it managed well in mid financial years. The company management
has played there role in continuing the working capital lifecycle. The company is
playing good in collection receivables and it has the capacity to convert receivables
into cash. The company must do much to be perfect in the par of current assets. It has
been observed that the current ratio has been decreased during the year 2018-19 to
2022-23. This shows that the firm is able to meet its short term obligations in time.

82
 FINDINGS
The following are the findings of the study:
1. During all the periods under observation there is increase in working capital.
Such a rise in working capital decreases the Return on Investment of the
organization.
2. The company is playing good in collection receivables and it has the capacity
to convert receivables into cash. The company must do much better to be
perfect in the part of current assets.
3. The financial position as expressed by the ratios is fine in many aspects.
4. The average investment in working capital requirement is considerably
decreased during the period of study.
5. The firm current ratio is not satisfied in all the five years to standard current
ratio of 2:1
6. The quick ratio is showing decreasing trend from last two years i.e., 2018 and
2019, it is not below to the standard ratio of 1:1
7. Inventory turnover ratio in the last four years is showing fluctuations year by
year.
8. The debtors’ turnover ratio has decreased drastically from the year 2018
continuously due to increase in sales and increase in debtors which results
efficiency.
9. The net working capital turnover ratio during the study period it’s increased it
is indication of liquidity it means its shows the company in ability meet it
current obligation.
10. The working capital turnover ratio has been increased from year to year. It
indicates good position. It observed that Earnings per Share is increased from
2012-19 to 2022-23.

83
 SUGGESTIONS
The following are the suggestions of the study:
1. The company should try to reduce the price of their products when ever
required to make stock clearance. Thus there is a need to improve stock
turnover ratio to improve up on operating cycle.
2. To improve the long term stability the rate of growth and profitability, it
is necessary to induce cost reduction techniques. This will again help in
reducing the investment in inventory and working capital.
3. While making additions to the fixed assets the company must make sure
that it doesn’t become over capitalization.
4. After the liberation, Indian textile industry is facing competition from
foreign investors in textile industry. BAIC has to develop proper
strategy to face this competition.
5. The firm has to take measures to control its inventory a high inventory
leads to unnecessary blockage of funds which results in company
inefficiency in managing stock.
6. The low ratio indicates inefficient management and utilization of fixed
assets. So, the company should make necessary efforts for efficiency in
work.
7. The company has to concentrate on the credit policy provided to the
debtors which will increase the debtor’s collection and reduce bad debts.
8. The firm should improve its current assets to meet its short term
obligations.
9. The firm should improve its liquidity assets, so as to maintain the
standard quick ratio 1:1.
10. The company should decrease its operating expenditures in order to
increase its profits.

84
 CONCLUSION
The study on the working capital management of Brandix Apparel India Pvt Ltd.was
taken with a view to explore the scope for improvement of working capital
management:
 Working capital position is good, but then there is always some scope
improvement and growth
 The due consideration to analysis, findings and suggestions the company can
achieve further success in terms of increasing sales and profitability.
 As with the minute changes that has been occurred in the ratios there can also
be covered with slow increases in the sales
 The study find out the company has higher current liabilities. So it is better to
reduce the liabilities portion
 The study find out company have got negative working capital past two years
 The company can take a challenge with its competitive and high spirit to face
the market.

85
 BIBLIOGRAPHY

Textbook References:

Name of the Book Author

Financial Management I.M.Pandey

Financial Management S.C.Kuchal

Managerial Accounting Shashi Sharma and Gupta

Web Site References:

WWW.BRANDIXAPPARELCITY.COM

WWW.BRANDIX.COM

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