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INTRODUCTION OF THE STUDY

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A PROJECT REORT

On

Submitted in partial fulfillment of the requirements for the award of the degree

of

Master of Business Admiistration in Finance From Punjab Technical University, Jalandhar

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Meaning Of Working Capital Management :-

 Working capital means the part of the total assets of the business that change from one form toanother form in the ordinary course of business operations. The word working capital is a made of two words working and capital. The wordworking means day to day operation of the business, whereas the word capital means monetaryvalue of all assets of the business

Working capital may be regarded as the life blood of business. Working capital is of major importance to internal and

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external analysis because of its close relationship with thecurrent day to-day operations of a business. Every business needs funds for two purposes.

1 . L o n g   t e r m2 . S h o r t   t e r m

1. Long term funds are required to create production facilities through purchase of fixed assetssuch as plants, machineries, lands, buildings & etc2. Short term funds are required for the purchase of raw materials, payment of wages, and other day-to-day expenses.It is other wise known as revolving or circulating capitalIt is nothing but the difference between  i.Working Capital = Current Asset – Current

Liability.

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Businesses use capital for construction, renovation, furniture, software, equipment, or machinery.It is also commonly used to purchase inventory, or to make payroll. Capital is also used often by businesses to put a down payment down on a piece of commercial real estate. Working capital isessential for any business to succeed. It is becoming increasingly important to have access tomore working capital when we need it

Concept of Working Capital

Gross Working Capital

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= Total of Current Asset

Net Working Capital= Excess of Current Asset over Current Liability

 

Working capital in terms of five components:

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1. Cash and equivalents:  - This most liquid form of working capital  requires constantsupervision. A good cash budgeting and forecasting system provides answers to key questionssuch as: Is the cash level adequate to meet current expenses as they come due? What is thetiming relationship between cash inflow and outflow? When will peak cash needs occur? Whenand how much bank borrowing will be needed to meet any cash shortfalls? When will repayment be expected and will the cash flow cover it?2. Accounts receivable: -Many businesses extend credit to their customers. If you do, is theamount of accounts receivable

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reasonable relative to sales? How rapidly are receivables beingcollected? Which customers are slow to pay and what should be done about them?3. Inventory: -Inventory is often as much as 50 percent of a firm's current assets, so naturally itrequires continual scrutiny. Is the inventory level reasonable compared with sales and the natureof your business? What's the rate of inventory turnover compared with other companies in your type of business?4. Accounts payable: -Financing by suppliers is common in small business; it is one of themajor sources of funds for entrepreneurs. Is the amount of money owed suppliers

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reasonablerelative to what you purchase? What is your firm's payment policy doing to enhance or detractfrom your credit rating?5. Accrued expenses and taxes payable: -These are obligations of your company at any giventime and represent a future outflow of cash

KINDS OF WORKING CAPITALGross Working CapitalGross working capital refers to the amount of funds invested in current assets that are employedin the

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business process. This is a going concern concept, since it is these aspects that financial Operat ingCycle

managers are concerned with if they are to bring about productivity from other assets. The grossconcept is used here, since one of the principal functions of the finance officer is to provide thecurrent amount of the working capital at the right time in order for the firm to realize the greatestreturn on its investment.Net Working Capital: Net Working Capital concept is different between current assets andcurrent liabilities. This concept is useful to groups interested in determining the amount andnature of the assets that may be used to pay the current liabilities. Moreover, the amount that isleft after these debts are paid may be used to meet future operational needs.

FACTORS DETERMINIG THE WORKING CAPITAL REQUIREMENTSNature Of Business:

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The requirements of working is very limited in public utility undertakingssuch as e lec t r ic i ty , water supply and ra i lways because they offer cash sa le only and supply services not products, and no funds are tied up in inventories and receivables. On the other handthe trading and financial firms requires less investment in fixed assets but have to invest largeamt. of working capital along with fixed investments.Size of the Business:Greater the size of the business, greater is the requirement of workingcapital.

 Production Policy:If the policy is to keep production steady by accumulating inventories it willrequire higher working capital.Length of Production Cycle:The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labor andservice costs before the final product is obtained. So working capital is

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directly proportional tothe length of the manufacturing process.Business Cycle:In period of boom, when the business is prosperous, there is need for larger  amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc.On the contraryin time of depression, the business contracts, sales decline, difficulties arefaced in collection fromdebtor and the firm may have a large amt. of working capital.Rate of Growth of Business:In faster growing concern, we shall require large amt. of workingcapit

 OSWAL WOOLEN MILLS LIMITED (OWM) At owm, even the word “Impossible”  Says“I’m possible.” 

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Oswal Woolen Mills

NAHAR GROUPestablished in 1949 surges ahead to establish it self as areputed industrial conglomerate with a wide ranging portfolio from Worsted Spinning, CottonKnitted, and Cotton Woven Garments, Woollen Hosiery Etc.The group has spinning capacity of 0.4 millions cotton spindles 25000 worsted spindles with turnover of $500 million inclusive of export turnover of $150 million.Out of total production,60% of the production is dedicated to exports and the rest 40% for domestic market. The production facility has been awardedISO 9001:2000.

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Today OWM is the flagship company of the glorious Nahar Empire and a proud owner of widelyloved Super Brand in Knitwear, Monte Carlo and Recognized Super Brand Canterbury. Thecompany boasts of a product portfolio that is truly large and varied. They include diverse typesof Woollen, Acrylic and Synthetic Blended Yarns, Lambs Wool Yarn, Woollen Viscose &Acrylic Tops, Textile Fabric, Woollen Knitwear, Hosiery & Cotton Garments.The markets of NAHAR GROUPare cries crossed allover the globe withmajor clientele inAustralia, New Zealand, Europe, Middle East, Africa, Russia and Asia

. The objective is

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 meeting the buyer’s expectations with consistent quality backed by R & D divisions equippedwith latest equipment, Cream of highly qualified technocrats and adhering to timely schedules

FEATURES OF NAHAR GROUP1 . T o t a l   n o   o f   u n i t s   9 .

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2.Group turnover is Rs 53814.35 in a current year .

3.Export market: U.S.A, United Kingdom, Germany, Russia, Japan, Australia, NewZealand, Holland ,Thailand, Hong Kong Singapore Taiwan, South Africa, Canada,Egypt, Israel and Bangladesh

4.No Strike/accident situation and near zero staff turnover.

5.Important brand names are”MONTE CARLO” and CANTERBURRY” OWM were the proud recipient of the “BEST exhibited Products”award from the international woolSecretariat for these two glamour’s brands.

6.Product Protfolio: Spinning, knitting,fabricsprocessing,hosierygarments.knitware,sugar,infrastructure development and information technology

7.COTTON COUNTY is there emerging ready to wear a Bran

Nahar competitiors of owm

 WOOLEN PRODUCTS 

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The textile and the apparel industry is highly competitive. No single company dominates theindustry.OWM seek to compete in the domestic and export markets on the basis of the price ,range, quality of their products, delivery times and customer services capacities.In the woolen hosiery garments range ,which is sold under brand ”MONTE CARLO” they donot have any significant competition and enjoy brand loyalty from their customers.MAJOR COMPETITORS IN PULLOVERS AND CARDIGANS✔CASABLANCA✔PRINGE(SCOTLAND)COMPETITORS OF WOOLEN/BIENDED WORSTED YARN BUISNESS•VARDHMAN TEXTILES LIMITED•JAYSHREE TEXTILES LIMITED•MALWA COTTON MILLS LIMITED COTTON GARMENT:As regards their branded woven garments primarily cotton shirts and trousers, they are newentrant in already high competitive market, and they face competition from many establisheddomestic as well as international brands. However, the woven cotton textile industry ishighly competitive and no single company dominates the industry. They seek to compete inthe domestic market on the basis of price, range, and quality of our products, brand name andour delivery timesCOMPETITORS OF THEIR DENIM FABRIC•ARVIND MILLS LIMITED•AARVEE DENIMS LIMITED•RAYMOND LIMITED

FINANCIAL INDEBTEDNESSSet forth below is a brief summary of major borrowings of our company, as on September 30,2006 together with a brief description of certain significant terms of relevant financingagreements’

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LENDER •ICICI BANK LIMITED•STATE BANK OF PATIALA•CENTRAL BANK OF INDIA•ALLAHABAD BANK •PUNJAB AND SIND BAN

trengths of the company•

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(Farsightedness of the chairman MR. JAWAHAR Lal Oswal)•Extensive Experience of our Promoters•Many persons are working here for more than 50 yrs. This show commitment of employees towards their org.

 •Strong dealer network, mutual relations with them.•Good training programs by OWM for their employees.•Member of wool mark and ISO 9002•Automated machines of latest technology•Exclusive designs, good texture and fabrics.•Premium range of pullovers manufactured by them which no other co. produces.•Laboratories for testing the quality of the product.•Exports rising every year.•

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Imported tarn from ITALY for premium range.•The landed Properties in Gurgaon and Chennai.•Quality Standards.•Cost controlWeakness of the company•Faulty departmentation•Risks relating to the price volatility in the import of wool.•We face risk in relation to outsourcing of cotton segments of Monte Carlo.•We are dependent upon foreign producers for greasy wool.•Greasy wool have a material adverse effect on our operations.•Depend on third parties for significant elements of our sales and distribution efforts.•Operations are subject to a variety of environmental laws and regulations including thosecovering hazardous materials.

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•The success of our business is substantially dependent on retaining the services of our Key management.•Personnel and attracting talented professionals .The loss of the services of any these persons may adversely affect our business and results of operations•We have high working capital requirements.•If the number of multi brand outlets and national chain stores continue to increase or consolidate , our business could be negatively affectedOPPURTUNITESWith booming retail sector and big players like WALMART, BHARTI entering into that field,OWM is also stepping ahead with a mission of opening up of 150 retail outlets all over Indiaunder the brand name MONTE CARLO.•Fabrication for various companies likes NIKE,MARKS AND SPENCER.etc•Manufacturing of Kids garments

 THREATS•

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Mushrooming and upcoming of small hosieries in LudhianaSeasonal demand for their major products i.e. pullovers

OBJECTIVES OF THE STUDYWorking Capi ta l i s synonymous wi th cur ren t a sse t s . There i s no den ia l about the fac t tha tworking capital is one of the main important tools in the hands of the company for the successfuloperations of the business. It is imperative for the finance manager to properly assess the futurerequirements of working capital in the company. Keeping in view this objective in mind, thecompany assigned this challenging project of estimating the future needs of working capital of the company. The project itself speaks for the importance of the study.Following of the main objectives of the study:-

 •

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To analyze the various components of working capital.•To study the working capital structure of the company.•To analyze the operating cycle of the companyTo fu l f i l l these en t i re ob jec t ives in my resea rch i t i s e ssen t i a l to look a f t e r the s t a tement  presenting the view of working capital

RESEARCH METHODOLOGY

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RESEARCHResearch in common parlance refers to a search for knowledge. One can also define research as ascientific and systematic search for pertinent information on a specific topic. Research is anacademic activity as such the term should be used in a technical sense. Research refers to:Defining and redefining problemFormulating hypothesis or suggested solutionsCollecting, organizing and evaluating data

 Making deductions and reaching conclusionsAt last carefully testing the conclusions to determine whether they fit the formulatinghypothesis.

Scope of StudyS c o p e   o f   r e s e a r c h   i s   o n l y   r e s t r i c t e d   t o  t h e   p o p u l a t i o n   o f  

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OSWAL WOOLLEN MILLS lehalI .RESEARCH PROCESS

Research process consists of series of action or steps necessary to effectively carry out research.These steps are to be followed in the same sequence. These steps are as follows:Specifying research objectivePreparing a list of needed informationDesigning the data collection projectSelect a sample sizeOrganizing and carrying data and reporting the findings.Research DesignThe research design is a pattern or an outline of the research project’s working, it is a statementof only the essential elements study, those that provide the basic guidelines for the details of the project. Further a research design is an arrangement of conditions for collection and analysis of da ta in tha t a im to combine re levance to resea rch purpose wi th economy in p rocedure . I t constitutes the blueprint for collection, measurement and analysis of data. Research

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design standsf o r a d v a n c e p l a n n i n g o f t h e m e t h o d s t o b e o p t e d f o r c o l l e c t i n g t h e r e l e v a n t d a t a a n d t h e techniques to be used in their analysis, keeping in view of the objectives of their research.The present study, being conducted, followed aDescriptive Design. I t p roduces a p ic tu re o f    phenomenon in which dec i s ion maker i s in t rus ted . As the da ta would be responses f rom asample containing a large number of sources. Design of descriptive studies includes the natureand source of the data, the nature of expected results and the analytical method.The conceptual structure within which this research is conducted descriptive and exploratory innature as it brings forward the results concerning the set objectives, though facts, findings andenquiries, moreover it describes the state of affairs that exists at present

Sources of data

PRIMARY DATA:

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Depending upon the nature of the problem, primary data can be collected through variousmethods. In this study, personal interviews with senior officials of different departments of corporate office, with OSWAL WOOLLEN MILLS LIMITED and various members of financeand accounts department of the company.SECONDARY DATA:The secondary data are those data which have already been collected by someone else and whichhave already been passed through statistics process. I got published data as maintained bycompany like company manuals, annual reports balance sheets etc.Data collected through websites also

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LIMITATION OF THE STU DY

1.The limitation of the study was that the data given was not correct, due to some technical problems in their E.R.P. system. So it needed to be checked twice or thrice. Also due totime constraint financial constraints was not able to study some more aspects of it.2.Analysis is only a means and not ends in itself. The analyst has to make interpretationand draw his own calculation.3 .Ca lcu la t ions  a re  d i f f i cu l t   to do .4.The finance department doesn’t the proper and required information

ESULTS AND FINDINGS

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➢There i s l ack o f educa ted workers work ing in s to res . Techniques used fo r inven torymanagement are not so good.➢The stock turnover ratio of the company is decreasing➢For managing cash, cash budget is prepared periodically by accounts department.

 ➢The working capital of the company increased in the past years periodically.➢Stock conversion period of the company is increasing which shows the inefficiency of  stock management.➢Gross period of the operating cycle of the company has increased➢Sales, Net profit and EPS of the company are showing an upward trend.➢Gross Profit of the company has decreased in 2008 due to increase in manufacturingexpenses.

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➢ Ne t p rof i t r a t io i s dec reas ing dur ing the pe r iod 2010 to 2011 which may be due to increase in cost of goods sold.➢Debt – equity ratio is almost satisfactory during all the years from the year 2007 to theyear 2011.➢Working capital turnover ratio is increasing year by year which shows improvement inthe efficient utilization of working capital by the managemen

SUGGESTIONS•

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OWM should finance a major portion of its requirement of working capital short termsources of finance as they are cheaper than the long term sources .It is financing a part of its working capital from long term sources of finance as it is cleared from the fixed assetsto total long term fund ratio.•The Company is not adopting proper inventory systems like A.B.C analysis, V.E.Danalysis etc. This inventory system can make the inventory management more resultoriented .Since ,inventory covers the major portion of OWM’S current assets; it should be given prime attention.

 •The company should do proper Cost-to-Benefit analysis before purchasing the rawmaterial i.e. wool for following months in the light of its storage cost, current prices,estimated future prices, further demand etc. along with the opportunity cost of holdingsuch inventory.•The short term liquidity of the firm is not satisfactory as it is clear from the quick ratio.The company should immediate steps towards its improvements.•The surplus funds of the unit should be invested in some short marketable securities ,rather than providing it to its

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subsidiary free of cost, to improve profitability along withthe liquidity.•The company should reduce its production cycle to decrease its working capitalrequirements. As OWM does its production on the job basis , it should not be difficult for the company to reduce this

cONCLUSION

oWM has op ted fo r a modera te overa l l work ing cap i t a l po l i cy . Th i s sugges t s tha t i t i s r i sk  averse . I t wants a reasonab le p rof i t wi th a reasonab le amount o f r i sk . I f i t goes in fo r anaggressive policy the profits generates could be high but accompanies with the high level of  profits will come high level of risks, which they feel is not appropriate. Since with this policy the profit is being generated are substantially high a change in the working capital policy is notcalled for.

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 On ana lyz ing the opera t ing cyc le i t has been found tha t opera t ing cyc le has inc reased byapproximately 48% as that of previous year. The operating cycle can be reduced to a greater  degree by trying to get a reduction in the raw material conversion period.Since OWM produces only therefore the inventory requirement for the following months can beaccurately forecasted. Since, the raw material i.e. cotton and wool are a seasonal crop, it should be stored for following months by analyzing the benefit of storing it, the storage cost associatedwith, wool prices, its availability and also further requirements of the company as per its order.Every month if forecast is made accordingly and order is placed, it would help in bringing downthe time

required in the raw material storage period.

BIBLIOGRAPHYBooks:•

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K h a n   M . Y .   a n d   J a i n   P . K . ,   F i n a n c i a l  m a n a g e m e n t ,   T a t a   M c - G r a w   H i l l   ( P ) Limited, New Delhi•Sharma Gupta, Management Accounting, Kalyani Publishers✔REFERANCES•MR R.M SOOD (FINANCE CONTROLLER)

 •MR R.C KAUSHAL(ACCOUNT MANAGER)Website•www.google.com•www.ask.com•www.wikipedia.com•www.owmnahar.com•www.owmnahar.in