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PROJECT - REPORT

WORKING CAPITAL MANAGEMENT

BHIWANI TEXTILE MILL

(UNIT OF GRASIM INDUSTRY).

Submitted towards the partial fulfillment of the requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by External Guide

VAISH COLLEG OF ENGINEERING , ROHTAK

ACKNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful completion of any task would be, but incomplete without mentioning the people who made it possible, whose constant guidance encouraging crowned my effort with success.

I would like to begin with a special note of gratitude and heartfelt thanks to ………………………….., who gave me the opportunity to complete my summer project at Bhiwani Textile Mill ,Bhiwani (Haryana), A unit of GRASIM INDUSTRY.

I am extremely grateful to the GENERAL MANAGER …………………. for his constant encouragement and valuable suggestions throughout my summer training and project for his cooperation extended to me.

I am extremely indebted to him for sharing his valuable time, comments and encouraging suggestions which guided and inspired me throughout the preparation of the project.

I express my special thanks to …………………….. for giving me their valuable opinions time to time.

At last but not the least, I am very thankful to all the staff members of Finance department also.

DECLARATION

I …………, student of M.B.A. III Semester of VAISH COLLEGE OF ENGINEERING (Affiliated to M.D University) hereby declare that the Summer Training Report on “WORKING CAPITAL MANAGEMENT” of BHIWANI TEXTILE MILL (GRASIM INDUSTRY) Is my original work and has not been submitted by any other person.

I also declare that I have done my work sincerely and accurately even then if any mistake or error had kept in it, I request the readers to point out these errors and guide me to remove these errors in future.

Presentation Incharge Signature of the Candidate

PREFACE

Practical work experience is the integral part of individual learning. An individual who is learning managerial concepts has to undergo this practical experience for being a future executive.

Master of Business Administration is a two-year programme that inserts management knowledge in an individual to make that individual completely professional for which practical experience is must.

BHIWANI TEXTILE MILL (GRASIM INDUSTRY). is the market leader in Textile industry. BTM offered me a project on Working Capital Management to understand the current position through dates provided by them.

TABLE OF CONTENTS

Introduction

Research Methodology

Grasim Industry Ltd

An Overview of Grasim Industry
Characterstics of Grasim Industry
Mission
Values
Management Structure
Main Products of Grasim Industry
Main units of Grasim Industry

Bhiwani Textile Mill

About the Mill
Strategy & Philosopy of Company
Objective
SWOT Analysis of BTM
Organisation structure of finance
What can we do
What you can expect

WORKING CAPITAL AT A GLANCE

THEORTICAL ASPECTS OF WORKING CAPITAL MANAGEMANT

WORKING CAPITAL MANAGEMENT
RECEIVABLES MANAGEMENT
INVENTROY MANAGEMENT
CASH MANAGEMENT

ANALYSIS OF WORKING CAPITAL MANAGEMENT

COMPARATIVE P&L ACCOUNT
TREND ANALYSIS
CASH FLOW ANALYSES
RATIO ANALYSIS

FINDINGS AND CONCLUSIONS
LIMITATIONS
BIBLIOGRAPHY

GRASIM INDUSTRIES : AN INTRODUCTION

Grasim was incorporated on 25 August1947, exactly 10 days after India achieved independence. Grasim is more than an Industrial enterprise. It is the symbol of INDIA’S surge for economic and industrial liberation. Grasim is world largest producer of viscose staple fiber and edible oil and textile production.

The organization BHIWANI TEXTILE MILLS is a unit of Grasim Industrial Ltd. It’s Head Office at NAGDA (M.P.) and working office at Bhiwani . This mill is under dynamic leadership of ………………………………..

This mill was under the inspiring leadership of Chief Operative Officer …………………. along with modernization has successfully diversified its production to synthetic blended fabric, which is modern trend , enjoy a very good reputation in India as in modern trend . It got ISO 9002 for its quality and at present undertaking W.C.M. (World Class Manufacturing) in the organization.

The company attained a consolidated revenue of Rs. 9410 crores , up by 20% and a net profit of Rs. 1012 crores before diminution , mirroring a 33% surge.

2004-05 was a historic year for the company, as in this year company acquired a controlling stake in Ultra Tech cement ltd , the erstwhile cement business of Larsen & Toubro ltd(L&T). An all around growth with higher production, sales & realization marked all its major businesses.

To become self sufficient in pulp , company has set up Greenfield pulp plants globally and with the expansion of Brownfield plants(copper business) its capacity stands doubled.

RESEARCH METHODOLOGY

When we talk of research methodology, we not only talk of the research methods but also the comparison of the logic behind the methods, we used in this context of our research study and explain why we are using a particular method or technique and why using the others. Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done systematically. In this, we study the various steps that are generally adopted by researcher in studying his research problem along with the logic behind them.

“The present study is based upon the case study method of research to investigate procedures at micro level”.

As the study is analyzing probing in nature, thus, entirely based on the secondary data gathered through the annual reports of the industry. Therefore it provides a historical perspective of decisions.

RESEARCH

Research refers to search for knowledge. Research is an original contribution to the existing stock of knowledge making for its advancement. It is the pursuit of truth with the help of study, observation, comparison and experiment. In short, the search for knowledge through objective and systematic method of finding solution of the problem is research. The advance learner’s dictionary of current English gives the meaning of research “a careful investigation or inquiry especially through search for new facts in any branch of knowledge”.

RESEARCH METHODS

Research methods may be understood as those methods/techniques that are used for conduction of research. All those methods which are used by the researcher during the course of studying his research problem, are termed as research methods . Keeping in view, the research methods can be put into following three groups:

In the first group we include those methods which are concerned with the collection of data. These methods will be used where the data already available are sufficient to arrive at the required solution.
The second group consists of those statistical techniques which are used to establish relationships between the data and the unknown.
The third group consists of those methods which are used to evaluate the accuracy of the obtained results.

COLLECTION OF DATA

There are several ways of collecting the appropriate data which differ considerably in context of money, cost, time and other sources at the disposable of the researcher.

There are two types of data:

Primary data
Secondary data

Primary data

Primary data are those which are collected afresh and for the first time, and thus happen to be original in character. In case of descriptive research, researcher performs survey whether sample survey or census survey, thus we obtain primary data either through

Observation
Direct communication with respondent
Personal interview

Secondary data

Secondary data are those which have already been collected by someone else and have already been passed through statistical process.

In this project report, both types of data have been used. Mainly, secondary data is used such as annual reports of last two years of Grasim industries.

OVERVIEW OF GRASIM INDUSTRY

Established in 1947, Grasim Industries Ltd. Has displayed remarkable business acumen to grow both vertically and horizontally. Grasim has tapped opportunities as a result of its dynamic approach to emerge as a leading industrial giant of our country.

Today, it is more than an industrial enterprise, it is a symbol of India’s search for economic and industrial liberalization.

The group of operates in the core sectors of iron, petroleum, fertilizers, cement, chemicals and textiles. With a turnover of approximately of Rs. 6247.10 crore, the group enjoys a pioneer status in numerous industrial disciplines such as viscose staple fibre, rayon grade pulp, caustic soda, textiles, cement and sponge iron.

It try to a faster a simple corporate philosophy, that is to achieve perfection and excellence in all spheres. Its tradition is that of innovation, dynamism and experiments.

Research and Development plays a vital role in its vertical and horizontal integration programmes. It perfectly compliments its goals of leadership, quality and growth – its aim to be best. Grasim has a strong presence in fabrics, synthetic yarns, worsted yarn and is well known for its branded suiting Grasim and Graviera, made from different blends of polyester and viscose. Its textile plants are located at Bhiwani in Haryana and Malanpur in Madhya Pradesh. Fabric operations are centralised at Bhiwani with a processing capacity of 17 million meters a year, while the Malanpur unit manufactures worsted dyed yarn spun from 100 per cent merino wool along with polyester and other blends.

The Grasim brand has differentiated itself as 'the power of fashion' with several innovative fabrics such as, Uncrushables, Ice Touch, Purista and Clean Fab, Aquasoft and E-Stretch. Grasim's strong nation wide retail network includes 110 exclusive showrooms as well as another 200 wholesalers and 12,000 multi-brand outlets through which it reaches its customers.

Grasim Industries Limited, a flagship company of the Aditya Birla Group, ranks among India's largest private sector companies, with a turnover of Rs. 6247.10 crore for FY 2005, with Grasim Textiles having a turnover of Rs. 250.00 crore.

Its premium brands, the 'Grasim' and 'Graviera' range of fabrics, have distinctively positioned themselves as 'the power of fashion'.

Grasim has a strong presence in fabrics, synthetic yarns, worsted yarn and is well known for its branded suiting Grasim and Graviera, made from different blends of polyester and viscose. Fabric operations are centralized at Bhiwani with a processing capacity of 17 million metres a year.

The Grasim brand has differentiated itself as 'the power of fashion' with several innovative fabrics such as, Uncrushables, Ice Touch, Freedom, Venetia, Purista, Clean Fab, and Aquasoft. Grasim’s strong nation wide retail network includes 60 exclusive showrooms as well as another 200 wholesalers and 12,000 multi-brand outlets through which it reaches its customers.

CHARACTERISTICS OF GRASIM INDUSTRIES

1. This is one of the ten largest private sector companies in the country.

2. It has a solid financial base.

3. A group of units producing various products.

4. The company is the domestic market leader & amongst the top two

producers in the world.

Accent is on accelerated growth and in each of its major businesses its

emphasis is on scaling up capacities and services.(Greenfield and Brownfield)

India's largest and lowest-cost aluminium producer
Largest producer of white cement in India.
Fastest-growing copper company in Asia
World leader in viscose staple fibre
Leading private sector mutual fund and insurance company
Successful forays into software and BPO
World's largest single-location palm oil refinery
World's third largest producer of insulators

MISSION OF GRASIM

1) Education for all: to secure them a brighter future.

2) Sustainable Livelihood: through training and education for skill development.

3) Health care and Hygienic living conditions.

4) Family Welfare

5) Restoring self esteem of the physically handicapped

6) Empowerment of Women

7) Community Development: holistic development of the community including infrastructure

8) Espousal of social causes

VALUES

People contribute when they relate to an organization and they relate, when they understand the organization . People understand an organization through its values, by experiencing the culture that values create and by using the systems and processes that values define . In large organizations , such share understanding can not be created through leadership of individuals alone, it requires leadership of principles , of beliefs , of conviction.

Integrity
Commitment
Passion
Seamlessness
Speed

These together constitute what we call our “Values”.

Integrity :- Acting and taking decisions in a manner that these are fair, honest, following the highest standards of professionalism and are also perceived to be so. Integrity for us means not only financial and intellectual integrity, but in all other forms as are commonly understood.

Commitment :- On the foundation of integrity, doing whatever it takes to deliver values to all stakeholders. In the process, taking ownership for our own decisions and actions , those of our team and that part of the organization that we are responsible for.

Passion :- A missionary zeal arising out of emotional engagement with the organization that makes work joyful and inspires each one to give his or her best.

Seamlessness :- Thinking and working together across functional silos, hierarchies,businesses and geographies.

Speed :- Responding to internal and external customers with a sense of urgency.

Management Team Of Grasim Industry

Board of Directors

Mr. Kumar Mangalam Birla, Chairman
Mrs. Rajashree Birla
Mr. M. L. Apte
Mr. B. V. Bhargava
Mr. R. C. Bhargava
Mr. Y. P. Gupta
Mr. Cyril Shroff
Mr. S. G. Subhrahmanyan
Mr. Shailendra K. Jain (Whole-time Director)
Mr. D. D. Rathi (Whole-time Director)
Mr. S. B. Mathur

Business Heads

Mr. Shailendra K. Jain, viscose staple fibre

Mr. Saurabh Misra, cement
Mr. Ravi Kastia, sponge iron
Mr. S. K. Saboo, textiles, spinning
Mr. Vikram Rao, textiles, fabrics
Mr. K. K. Maheshwari, chemicals

Whole-time Director and Chief Financial Officer

Mr. D. D. Rathi

Company Secretary

Mr. Ashok Malu

MAIN PRODUCTS OF GRASIM

1. Viscose staple fibre

2. Rayon grade pulp

3. Cement

4. Textiles

5. Sponge Iron

6. Chemicals

1.Viscose staple fibre:-
The Aditya Birla Group is the world's largest producer of VSF, commanding a 24 per cent global market share. The company meets over 98 per cent of India's domestic VSF requirements .

2.Cement:-
The Aditya Birla Group is the 11th largest cement producer in the world and the seventh largest in Asia .

3.Sponge iron:-
It is the largest merchant producer of sponge iron in India.

4.Chemicals:-
Grasim has India's second largest caustic soda unit .

5.Textiles:-
Its premium brands, the 'Grasim' and 'Graviera' range of fabrics, have distinctively positioned themselves as 'the power of fashion'.

All of Grasim's units have earned ISO 9002 and 14001 certifications.
Product quality, innovation and eco-friendliness are a hallmark of all the company's divisions .

PREMIUM BRANDS OF GRASIM SUITING

UNCRUSHABLES

PURISTA

CLEANFAB

ICETOUCH

FINESSE

E-STRETCH

FREEDOM

GRASIM SUITING AND GRAVIERA SUITINGS

ICETOUCH
One of the most successful innovations of Grasim in the past couple of years is ‘ICE TOUCH’. Ice Touch is a pioneer and continues to hold its preeminent position in moisture management based products in India. This product is well accepted all over India continues to be the market leader.

This product is based on Japanese technology. Grasim have collaborated to and innovated its use on Polyester Viscose blended fabrics to adapt this product to the Indian conditions and the Indian consumer.

The unique properties of ‘ICE TOUCH’ are its instantaneous absorption of water, spreading of the same over a large surface area and its quick evaporation. When you sweat the liquid is quickly absorbed by the fabric and evaporated. When this liquid evaporates it takes heat from the inside of the fabric and thereby giving the wearer a very cool feeling.

Ice Touch is a specially engineered product produced from selected fabric constructions using innovative processing routines along with the aforesaid technology to get a wonderful handle and feel coupled with the above properties. Ice Touch provides cotton like comfort and PV like drape and wears properties.

In short ICE TOUCH is a unique range of fabrics possessing excellent handle, feel and drape along with extraordinary moisture absorption and evaporation giving a very cool and icy feeling.

CLEANFAB:-
CLEAN FAB is one of the most recent in-house innovations of Grasim Industries. This is a functional Polyester Viscose blended fabric in which for the first time dust free and soil free concept has been introduced. This fabric is ideally suited for the dusty atmosphere and environment prevalent in most parts of the country for most of the year.

Generally soiling and soil release is a serious problem when hydrophobic fibres (like polyester) are blended with cellulosic fibres (like cotton , viscose etc.) since these hydrophobic fibres attract soil to a greater extent and release the soil less readily during laundering.

In short CLENFAB is the ultimate product in terms of giving good comfort along with the soil prevention and easy soil release properties.

UNCRUSHABLES:-
Uncrushables is a low crush fabric, first winter poly-wool fabric with anti-wrinkling quality to be launched in the industry.

While no fabric is ever 100% wrinkle free, Uncrushables is far superior to other competitive products with better crease recovery. The fabric is easy to wash and care of. Meant for the hard and rugged life indoors or outdoors, it is available in 15 colors.

FINESSE:– Fine Fabric for Fine People
One of the most comfortable trousers made out of fine yarn. The fabric has a finer count which lends itself to luxurious feel and handle. It is ideal for night wear, party wear and outdoors.

Finesse is very easy to maintain and can be washed easily and carries a very elegant shape and drape all day long.

The fabric provides greater comfort like cotton and comes in some of the most exotic colors blue, black, beige, limestone, graphite and grey.

MAIN UNITS OF GRASIM INDUSTRIES

Viscose Staple Fibre Nagda(M.P.)

Rayon Grade Pulp Mavoor(Kerela)

Hariar Poly Fibres Karnataka

Rayon Grade Caustic Soda Nagda (M.P.)

Vikram Cement Jawad (M.P.)

Vikram Iron &Steel (Sponge Iron) Maharashtra

Grasim cement Raipur (M.P.)

Graviera & Grasim Suiting Bhiwani (Hry.)

Elegent Spinners Bhiwani (Hry.)

Vikram Ispat Raigarh (M.P.)

Aditya Cement Shambhupura

Birla Telecom Ltd. & Birla Communication Ltd. Mumbai

Ultra Tech Cement South Hydrabad

BHIWANI TEXTILES MILLS

The erstwhile Punjab cotton Mills at Bhiwani in Haryana was taken over by Grasim Industries 1964.Subsiquently, its product mix was changed from cotton to polyester/ viscose suiting. Today with a capacity of over 40,000 spindles and over 160 looms, Bhiwani Textile Mills (BTM) caters to a large market in India. Its brand- Graviera

Suiting- is well-received in Middle East, South East Asia,Cyprus, latin America and Mauritius as well. The first to introduce Synthetic Denims and Polyester Jute Suiting, the Unit intends to diversify into fancy yarn spinning and blended design suiting using fibres like silk, cotton , flax and jute. A leader in Yarn and fabric - right from its inception- BTM's brands include ,Adonis, and Sumo.

Bhiwani Textiles Mill is equipped with

1. World Class spindles.

2. Dornier Looms( Gremany) and Sluzer Looms ( Switzerland ).

3.Computerised matching systems and sophisticated jet- dyeing machines in its Processing Unit.

4. Computer Aided Design packages in its Fabric Developmnt Section.

BTM promotes the mega fashion event " Graviera Mr. India"- the winner of this event participates in the spublicised event, it has provided a boost to the image of the company's products.

5. It has Italian machinery for making perching and dying the cloth.

BTM also promotes the mega fashion event “GRASIM MR. INDIA”- the winner of this event participates in the publicized event, it has provided a boost to the image of the company’s products.

ORGANISATION STRUCTURE OF BTM

STRATEGIES OF BTM

Strategies are key to achieve objective. Every company must have a set strategies through which it achieves its objective. B .T.M. has also its well defined strategies which is Implemented in all the three levels . The strategies are :-

World Class Manufacturing
Birla Management Centre
Quality Circles
5-S ( a house keeping practice )
Total Quality Management (TQM)
Participative Management

WORLD CLASS MANUFACTURING(WCM)

In order to delight customers, employees, stakeholders and to become a

Successful competitor in global market, Aditya Birla Group has evolved and

promoted this top rank methodology of W.C.M. to sustain excellence in

company wise performance. This is multidimensional viz. waste elimination,

5-S, JIT, TPM System & Cash Flows.

2. BMC (Birla Management Centre)

Philosophy behind its logo: The philosophy of BMC is beautifully captured

in its symbol.

The logo has been designee to reflect concept of group dynamics and group Synergy, six symbolic person, one is dark blue and five is light blue denote one group, all fusing their energies and knowledge to form a strong nucleus.

3.Quality Circles

Quality is match word of the unit. It is not imposed by checks and counters

Checks. It is a part of total manufacturing system. Quality is first parameter.

Again in order to maintain a superior quality of the product various

Management practices and being carries out by top management. Quality

Circles meetings have been formed by the top management with a view to

Increase the involvement and responsibility in their individual work areas.

After completion of the Project, award by way of recognition are given to all

The quality cirles team members.

4.5-S (a house-keeping management)

Good quality management producers can prosper only in clean and serene

Atmosphere an so the top management at BTM have implemented the 5-S

Technique (related to the wok environment):

Seiri Sorting out unnecessary items.
Seiton Systematizing necessary items.
Seison Sweeping of work place and machines.
Seiketsu Sanitizing.
Shitsuke Self disciplining.

5.TQM(TOTAL QUALITY MANAGEMENT)

Today’s executive view the task of improving product and service quality as

Their top priority. Most customers, whether they are internal or external will

No longer accept average quality performance. If company wants to stay in

They have no choice but to adopt TQM.

Because of this strong quality consciousness of BTM ,in 1994 Graviera was awarded the prestigious ISO 9002 so certification. Each process from buying the

Fibre to the finished fabric monitored by the computerized machines, highly observant workers and technicians.

OBJECTIVES OF THE COMPANY

Objectives establish the goals and the aims of the business and determine the shape of future events. Objectives are the way of achieving motives for profit of social service.

Main objectives of Bhiwani Textile Mills as in its Memorandum of Association are:

Increasing productivity of work force
To introduce new products and create new markets
Customers service and customer satisfaction
Improving work culture among the employees
Capitalizing on company strength and use of corporate assets
Continuous innovation
To provide a growth rate of about 10% p.a.
Improve the advertising effectiveness
To ensure that a large proportion of its sales is directed towards the sectors and urban sectors

SWOT ANALYSIS OF BTM

Strengths of BTM

1. BTM is a composite firm in Haryana.

2. BTM is a financially sound firm.

3. Working environment is peacefully (Union is strength principle is followed)

4. Facilities given to employees & employers on time and upto date.

5. Product quality is given equally to all (Wholesaler, Retailers)

Weaknesses of BTM

1. Basic salary structure is not up to date some manipulations are needed

2. Not sufficient facilities are given employers & employees

Opportunities for BTM

1. Given chance to Grasim to make & sale its product providing them manpower, machine , money , market , material

2. In near future they will start readymade garments

Threats to BTM

1. BTM face threats from its competitors like Vimal , ocm , Siyaram , Raymonds

2. BTM face in overseas market like Phillipines , Malaysia , Canada , Mexico , America

WHAT CAN WE DO

Sampling
Seeding
Perfecting a new product
Trade and / or Consumer Research
Launch of new products
Co-Branding
Joint Promotion
Sharing Distribution

WHAT CAN YOU EXPACT

Under this our partners can expect / avail of the following support services from

Birla Viscose.

a. Yarn Logistic support: A good quality viscose or viscose blended yarn can

be made available from a good spinning mill with in time.

b. Technical support: Viscose based processing support through manuals is

available on a case-to-case basis. Physical demonstration at select process

houses is also carried out for the benefit of the knitters and pocessers.

c. Design and Development support: We have an application development

center at TIT & S; Bhiwani, where we keep on developing new product

and concepts.

d. Marketing Support: To tie up spinners/ knitters/showcase.

WORKING CAPITAL AT A GLANCE

INTRODUCTION
TYPES
FEATURES
DETERMINANTS
COMPONENTS
WORKING CAPITAL CYCLE

INTRODUCTION

A successful sales program is necessary for earning profits by any business enterprise. Sales don’t convert into cash instantly. There is a time lag between the sale of goods and receipt of cash.

Therefore, there is 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 against goods sold. Therefore sufficient working capital is necessary to sustain sales activity.

Defination of Working Capital:-

According to C.W. Gestenbergh-

“Working capital is ordinarily defined as the excess of the current assets over current liabilities”.

According to Lawrence. J. Gitmen

“The most common defination of working capital is the difference of the firm’s current assets and current liabilities.”

Defination of working capital management:-

“Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.” -From WWW.STUDYFINANCE.COM

Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These require managing the current assets - generally cash and cash equivalents, inventories and debtors. There are also a variety of short term financing options which are considered.

Cash management – identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs
Inventory management - identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials and hence increases cash flow; see Just In Time (JIT) and Economic order quantity (EOQ).
Debtors management - identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances.
Short term financing - inventory is ideally financed by credit granted by the supplier; dependent on the cash conversion cycle, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

TYPES

Working capital can be classified either on the basis of concept or on the basis of periodicity of its requirement.

1) ON THE BASIS OF CONCEPT

On the basis of concept working capital is of 2 types.

A) Gross working capital - Gross working capital is represented by the total Current assets.

Gross working capital = Total current assets

B) Net working capital - Net working capital is the excess of current assets over current liabilities.

Net working capital = Current assets – Current liabilities

2) ON THE BASIS OF REQUIREMENT

On the basis of requirement working capital is also of 2 types.

A) Permanent working capital - It is that amount of investment which should always be there in the fixes or minimum current assets like inventory, accounts receivables or cash balance etc. to carry out business smoothly. Such an amount cant be reduced if the firms wants to carry on business operations without interruption.

B) Variable working capital - The excess the amount of working capital over permanent working capital is known as variable working capital. It may also be subdivided into two parts.

Seasonal working capital - Such capital is required to meet out the seasonal demands of busy periods occurring at stated intervals.

Special working capital - Such capital is required to meet out the extra-ordinary needs for contingencies. Events like strike, fire, unexpected competition, rising price tendencies, or initiating a big advertisement campaign require such capital.

FEATURES

Working capital is regarded as the excess of current assets over current liabilities.

Working capital indicates circular flow of funds in the day-to-day activities of business. That’s why it is also called circulating capital.

Working capital represents the minimum amount of investment in raw materials, work-in progress, finished goods, stores and spares, accounts receivables and cash balance.

DETERMINANTS

Nature of business – The effect of the general nature of the business on working capital requirements can’t be exaggerated. Rail, roads and other public utility services have large fixes investment so they have the lower requirements of current assets. Industrial and manufacturing enterprises, on the other hand, generally require a large amount of working capital.
Production policies – if the production is evenly spread over the entire year, working capital requirements are greater, because the inventories will be unnecessarily accumulated during of season period. But if the production schedule favours a varying production plan as per the seasonal requirements, working capital is required to a greater extent during a specified season only. The production policies are affected by so many factors availability of raw materials, labour, stocking facility etc & therefore, whatever the productions policies are, the firm has to arrange its working capital requirements accordingly.
Proportion of the cost of raw materials to total cost - In those industries where cost of proportion is a large proportion of total cost of the goods produced, reqirements of working capital will be comparatively large.
Length of period of manufacturing – The time which elapses between the commencement and end of the manufacturing process has an important bearing upon the requirements of working capital. The manufacturing cycle may be shorter for certain concerns & longer for others- it depends on the type of the product to be manufactured, work to be done through machine labour & hand labour, degree of rationalization of manufacturing procedures through times, motion & fatigue studies etc.

Terms of purchase - If suppliers allow continuous credit, payment can be postponed for some time and can be made out of the sale proceeds of the goods produced. In such a case, the requirements of working capital will be reduced.
Dynamic Attitudes – As a company grows, it is logical to expect the large amount of working capital will be required.
Business cycles – Requirement of working capital also varies with the business. When the price level is up due to boom conditions, the inflationary conditions create demand for more working capital. During depression also a heavy amount of working capital is needed due to the inventories being locked unsold and book debts uncollected.
Requirement of cash - The working capital requirements of a company are also influenced by the amount of cash required by it for various purposes. The greater the requirement of cash, the higher will be the working capital needs of the company.
Dividend policy of concern – If the management follows a conservative dividend policy the needs of working capital can be met with the retained earnings. The relationship between dividend policy and working capital is well established and mostly companies declare dividend after a careful study of their cash requirements

10) Other Factors - Other factors, which affect the requirement of working capital, are lack of co-operation in production and distribution policies, transport and communication facilities, the fiscal and tariff policies of the government etc.

COMPONENTS

Main components of working capital are as follows:

Cash – Cash is the most liquid and important component of working capital. Holding cash involves cash in the sense that the present worth of cash held for a year is less than the value of cash on today. During inflationary situations as exist today the cost of holding includes the deterioration in the value of the cash due to inflation. Cash, therefore, results in enhanced liquidity, but lower profitability. Despite in the cost involved it is pertinent to hold cash because it facilitates the attainment of some important motives.

Marketable Securities – Though marketable securities provides a such lower yield that the firm’s operation assets. They serve two useful functions. Firstly, they act as a substitute for cash, and secondly, are used as temporary investment. Where these securities are held in lieu of the cash balance, they act as a substitute for transactional or precautionary balances. Normally, these aren’t used as speculative balances, but only as a guard against the possible shortage of bank credit.

Marketable securities (as temporary investment) may be held for one of the following reasons:

Seasonal or cyclical operations
To meet known financial requirements. Construction of an additional plant.
Immediately after the sale of long-term securities.

Account Receivable - Though accounts receivable are a vital investment of any business organization, little analytical work as been done to determine credit policies. Maintaining account receivable has its cost implications in that the firm’s monetary resources are tied up. This is of greater significance in the inflationary economy, because of the depreciation in the value of money. Basically, this is a two-step account. When goods are shipped, inventories are reduced and accounts receivable is created. When payment is made, this account is reduced and the cash level increases. Accounts receivables are, therefore a function of the volume of credit sales and the average length of time between sales and collections.

Inventory – Inventories represent a substantial amount of a firm’s current assets. Management of inventories should be efficiently carried out so that this investment doesn’t become too large, as it would result in blocked capital which could put to productive use elsewhere. On the other hand, having too small an inventory could result in loss of sale or loss of customer goodwill. An optimum level of inventory should therefore be maintained.

WORKING CAPITAL CYCLE

Working capital cycle indicates the length of time between a firm’s paying for materials entering into stock and receiving the cash from sale of finished goods. In a manufacturing firm, the duration of time required to complete the sequence of events is called operating cycle.

In case of a manufacturing company, the operating cycle is the length of time necessary to complete the following cycle of events: -

Conversion of cash into raw materials
Conversion of raw materials into work-in-progress
Conversion of work-in-progress into finished goods
Conversion of finished goods into accounts receivable
Conversion of accounts receivable into cash

The above operating cycle is repeated again & again over the period depending upon the nature of the business & type of product etc. the duration of the operating cycle for the purpose of estimating working capital is equal to the sum of duration allowed by the suppliers.

Working capital cycle can be expressed as: R+W+F+D-C

Where R=Raw Material Storage Period = Avg. Stock of Raw Material / Avg. Cost of Production per day

W=Work in Progress Holding Period = Avg. Work in Progress Inventory /Avg. Cost of Production per day

F=Finished Goods Storage Period = Avg. Stock of Finished Goods / Avg. Cost of Goods Sold per day

D=Debtors Collection Period = Avg. Book Debts/ Avg. Credit Sales per day

C=Credit Period Availed = Avg. Trade Creditors/Avg. Credit Purchases per day

OPERATING CYCLE OF MANUFACTURING BUSINESS

REALIZATION Accounts SALES

Receivables

Cash Finished Goods

PURCHASES PRODUCTION

PRODUCTION PROCESS

Raw Materials Work-in-Process

PROCESS

THEORTICAL ASPECTS OF WORKING CAPITAL MANAGEMANT

WORKING CAPITAL MANAGEMENT

NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is three dimensional in nature-

1) It is concerned with the formulation of policies with regard to profitability, liquidity and risk.

2) It is concerned with the decisions about the composition and level of current assets.

3) It is concerned with the decisions about the composition and level of current liabilities.

GOAL OF WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them.

The term current assets refer to those assets which is the ordinary course of business can be converted into cash within one year. Major current assets are cash, marketable securities, accounts receivable and inventory.

Current liabilities are those liabilities, which are intended, at their inception, to be paid in the ordinary course of business within a year, out of the current assets or earnings of the concern. Current liabilities are accounts payable, bills payable, bank overdraft, and outstanding expenses.Working capital is that portion of firm’s assets which is financed by long-term funds.

Interaction between current assets and current liabilities is the main theme

of the theory of working capital management.

Goal of working capital management is to manage the firm’s current assets and liabilities in such a way so that a satisfactory level of working capital is maintained.

The second important segment of working capital management is deciding the optimum level of investment in various current assets. There are three important current assets cash, accounts receivables and inventory

RECEIVABLES MANAGEMENT

INTRODUCTION

The term receivable is defined as “debt owed to the firm by customers arising from sale of goods or services in the ordinary course of business”. When a firm makes an ordinary sale of goods or services and doesn’t receive payment, the firm grants trade credit accounts receivable, which could be collected in the future.

Receivables Management is also called trade credit management.

OBJECTIVE

The objective of receivables management is “to promote sales and profits until that point is reached where the return on investment in further funding receivables is less than the cost of funds raised to finance that additional credit”.

BENEFITS

Investments in receivables involve both benefits and costs. The extension of trade credit has a major impact on sales, costs and profitability. Other things being equal, a relatively liberal policy and, therefore, higher investments in receivables, will produce larger sales. However, costs will be higher with liberal policies than with more stringent measures.

Therefore, accounts receivables management should aim at a trade-off between profit (benefit) and risk (cost).

CREDIT POLICY

The credit policy of a firm provides the framework to determine:

Credit standards
Credit terms
Credit Analysis

Credit Standard

The term credit standards represent the basic criteria for the extension of credit to those customers to whom goods could be sold on credit. If a firm has more slow-paying customers, its investment in accounts receivables will increase. The firm will also be exposed to higher risk of default.

Credit Terms

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

Credit Analysis

Credit analysis and investigation is an aspect of credit policies of a firm. Two basic steps are involved in the credit investigation process:

Obtaining credit information
Analysis of credit information

It is on the basis of credit analysis that the decisions to grant credit to a customers as well as the quantum of credit would be taken.

INVENTORY MANAGEMENT

INTRODUCTION

Inventories constitute the principal item in the working capital of the majority of trading and industrial companies. In inventory we include raw materials, finished goods, work-in-progress, supplies and other accessories. To maintain the continuity in the operations of business enterprises, a minimum stock of inventory is required.

Management of inventory is designed to regulate the volume of investment in goods on hand and the types of goods carried in stock to meet the needs of production and sales while at the same time, the investment in them is to be kept at a reasonable level.

CONCEPT

The inventory management” is used in two ways- Unit Control and Value Control. Production and purchase officials use this word in term of unit control whereas in accounting this word is used in term of value control .Investment in inventory is one the largest asset item of business enterprises particularly those engaged in manufacturing.

The proper management and control of the capital invested in the inventory should be the prime responsibility of accounting department because resources invested in inventory aren’t earning a return for the company. Rather, on the other hand, they are costing the firm money both in terms of capital costs being incurred and loss of opportunity income that is being foregone.

OBJECTIVES

The basic managerial objectives of inventory control are two-

1) The avoidance of over-investment or under-investment in inventories.

2) To provide the right quantity of standard raw material to the production department at the right time.

TECHNIQUES OF INVENTORY CONTROL

The Selective Inventory Control or ABC System of Control
Maximum Stock Limit
Minimum Stock Limit
Re-ordering Level
Economic Order Quantity

ABC System of Control

The various inventory items are, according to this system, categorized into three classes-

The item included in-group involve the largest investment. Therefore, inventory control should be the most rigorous and intensive and the most sophisticated inventory control techniques should be applied to these items. The C group consists of items of inventory which involve relatively small investments although the numbers of items is fairly large. These items deserve minimum attention. The B group stands midway. It deserves less attention than A but more than C. It can be controlled by employing less sophisticated techniques.

Maximum Stock Limit

This represents the quantity if inventory above which it should not be allowed to be kept. The following formula may be applied to calculate the maximum stock-

Maximum Stock = Reorder Level – Minimum Consumption during Minimum Lead Time + Lot Size.

Minimum Stock Limit

imum This represents the quantity below which stock should not be allowed to fall. The main purpose of this level is to ensure that production isn’t held up due to storage of any material.

Minimum Stock Limit = Re-order Level – Normal storage during Lead Time

Re- Ordering Level

It is the point at which if stock of the material in store reaches, the storekeeper should initiate the purchase requisition for fresh supplies of the material. This level is fixed somewhere between the maximum and minimum levels in such a way that the difference of quantity of the material between the reordering level and the minimum level will be sufficient to meet requirements of production upto the time of fresh supply of the material.

The reorder point = Lead time in days * Average daily usage of inventory

Economic Order Quantity

It is the quantity of inventory, which can be reasonably ordered at a time and purchased economically. It is also known as Standard Order Quantity or Economic Lot Size. By definition “Economic Order Quantity is that size or order at which the total cost of ordering and holding are the minimum.

In determining the economic order quantity the problem is one to set a balance between two opposing costs, namely, namely ordering costs and carrying costs. The ordering costs are basically the costs of getting an item into the firm’s inventory.

Carrying costs, sometimes also known as holding costs are the costs of possessing the materials. These costs are combined known as “Associated Costs”.

Hence, the management tries to reconcile them and this reconciliation point is economic order quantity.

OBJECTIVES OF THE STUDY

To study the various proportions of working capital of Grasim industries.

To find out different ratios related with working capital.

To check the impact of cash flows on working capital of Grasim industries.

To know the current trend of Assets and Liabilities.

METHODS OF WORKING CAPITAL ANALYSIS

There are so many methods for analysis of financial statements but BHIWANI TEXTILE MILL used the following techniques:-

Comparative size statements
Trend analysis
Cash flow statement
Ratio analysis

A detail description of these methods is as follows:-

COMPARATIVE SIZE STATEMENTS:-

When two or more than two years figures are compared to each other than we called comparative size statements in order to estimate the future progress of the business,it is necessary to look the past performance of the company.These statements show the absolute figures and also show the change from one year to another .

Benefits of this method to the BTM:-

To indicate the trends,these statements show the change in production, sales, and expenses.
To make the data simple and more understandable.

TREND ANALYSIS:-

To analyse many years financial statements BTM uses this method.This indicates the direction on movement over the long time and help in the financial statements.

Procedure for calculating trends:-

Previous year is taken as a base year.
Figures of the base year are taken 100.
Trend % are calculated in relation to base year.

Benefits :-

It is beneficial to find out the long run changes .
It is helpful in future forecasting.

CASH FLOW STATEMENT:-

Cash flow statements are the statements of changes in the financial position prepared on the basis of funds defined in cash or cash equivalents. In short cash flow statement summaries the cash inflows and outflows of the firm during a particular period of time.

Benefits for the BTM:-

To prepare the cash budget.
To compare the cash budgets .
To show the position of the cash and cash equivalents.

RATIO ANALYSIS:-

Ratio analysis is the process of the determining and presenting the relationship of the items and group of items in the statements .According to Batty j. management

accounting “Ratio can assists management in its basics functions of forecasting ,planning,coordination,control and communication”.

Benefits of ratio analysis to BTM:-

Helpful in analysis of financial statements.
Helpful in comparitive study.
Helpful in locating the weak spots of the BTM.
Helpful in forecasting.
Estimate about the trend of the business.
Fixation of ideal standards.
Effective control.
Study of financial soundness.

Types of ratio:-

Liquidity ratio: They indicates the firms ability to meet its current obligation out of current resources.

Current ratio:- Current assets / Current liabilities
Quick ratio:- Liquid assets / Current liabilities

Liquid assets =Current assets – Stock -Prepaid expenses

Leverage or Capital structure ratio: This ratio discloses the firms ability to meet the interest costs regularly and long term solvency of the firm.

Debt equity ratio:- Long term loans / Shareholders funds or net

Worth

Debt to total fund ratio:- Long terms loans/ share holder funds

+long term loan

Proprietary ratio:- Shareholders fund/ shareholders fund+long

term loan

Activity ratio or Turnover ratio:- They indicate the rapidity with which the resources available to the concern are being used to produce sales.

Stock turnover ratio:- Cost of good sold/Average stock

( cost of good sold= Net sales/ Gross profit,

Average stock=Opening stock+closing stock/2)

Debtors turnover ratio:- Net credit sales/ Average debtors

+Average B/R

Average collection period:- Debtors+B/R /Credit sales perday

( Credit sales per day=Net credit sales of the year/365)

Creditors Turnover Ratio:- Net credit purchases/ Average

Creditors + Average B/P

Average Payment Period :- Creditors + B/P/ Credit purchase

Per day

Fixed Assets Turnover ratio:- Cost of goods sold/Net fixed

Assets

( Net Fixed Assets = Fixed Assets – depreciation)

Working Capital Turnover Ratio:- Cost of goods sold/

Working Capital

(working capital= current assets – current liability)

Profitability Ratios or Income ratios:- The main objective of every business concern is to earn profits. A business must be able to earn adequate profit in relation to the risk and capital invested in it.

Gross profit ratio:- Gross profit / Net Sales * 100

(Net sales= Sales – Sales return)

Net profit Ratio:- Net profit / Net sales * 100

(Operating Net Profit= operating net profit/ Net Sales *100 or operating Net profit= gross profit – operating expenses)

Operating Ratio :- Cost of goods sold + Operating expenses/

Net Sales * 100

(Cost of goods sold = Net Sales – Gross profit ,

Operating expenses = office & administration expenses + Selling

& distribution expenses + discount + bad debts + interest on short

term loans)

Earning per share(E.P.S.) :- Net Profit – dividend on preference share / No. of equity shares
Dividend per share(D.P.S.) :- Dividend paid to equity share

Holders / No. of equity shares *100.

Dividend Payout ratio(D.P.) :- D.P.S. / E.P.S. *100

RATIO ANALYSIS FOR GRASIM INDUSTRY

Current ratio

2006

C.R.=1321.22/969.15=1.36

2007

C.R=1517.69/1266.86=1.20

Comment:

As compared to previous year, current ratio has decreased in current year because of increase in current liabilities.

Quick ratio

2006

Q.R.=570.49/969.15=0.59

2007

Q.R.=693.55/1266.86=0.55

Comment:

As compared to previous year, quick ratio has slightly decreased in current year.

DEBT EQUITY RATIO:-

2006

D.E.R = 1979.67/4982.08

= 0.40

2007

D.E.R = 2951.56/6230.04

= 0.47

Interest coverage ratio

2006

I.C.R.=1201.90/103.38=11.67 times

2007

I.C.R.=2189.26/111.84=19.57 times

Comment:

Interest coverage ratio is increasing as compared to previous year. This indicates that the firm will be able to pay the interest on long term loans regularly.

Fixed assets turnover ratio

2006

F.A.T.R.=5159/3004.63=1.72 times

2007

F.A.T.R.=6097/3390.44=1.80 times

Comment:

This ratio reveals how efficiently the fixed assets are being utilized. As compared to previous year, this ratio is increasing which indicates that there is better utilization of fixed assets.
DEBT TO TOTAL FUND RATIO:-

2006

D.T.F.R. =1979.67/6961.75

= 0.28 or 28.0%

2007

D.T.F.R.= 2951.56/9181.60

= .32 or32.0%

PROPRIETARY RATIO:-

2006

P.R.= 4982.08/6961.75

= 0.71 or 71.0%

2007

P.R.= 6230.04/9181.60

= 0.67 or 67.0%

Capital turnover ratio

2006

C.T.R.=5159/3356.70=1.54 times

2007

C.T.R.=6097/3641.27=1.67 times

Comment:

This ratio reveals how efficiently capital employed is being used. As compared to previous year, this ratio is increasing which indicates that there is better use of capital employed.

Working capital turnover ratio

2006

W.C.T.R.=5159/352.07=14.65 times

2007

W.C.T.R.=6097/250.83=24.3 times

Comment:

This ratio reveals how efficiently working capital has been utilized in making sales. As compared to previous year, this ratio is increasing which indicates the efficient use of working capital.

Stock turnover ratio

2006

S.T.R.=5159/715=7.22 times

2007

S.T.R.=6097/784.44=7.77 times

Comment:

This ratio indicates whether stock has been efficiently used or not. As compared to previous year, there is a slight increase in this ratio

GROSS PROFIT RATIO:-

2006

G.P.R.= 1494/6621*100

= 22.56%

2007

G.P.R.=2507/8604*100

= 29.14%

NET PROFIT RATIO:-

2006

N.P.R.=1202/6621*100

= 18.15%

2007

N.P.R.=2189/8604*100

= 25.44%

OPERATING NET PROFIT RATIO:-

2006

O.N.P.R.= 1590.9/6621*100

= 24.02%

2007

O.N.P.R.=2619/8604*100

= 30.44%

EARNING PER SHARE:-

2006

E.P.S.= 8630000000/91808510

= RS. 94

2007

E.P.S.= 15360000000/91428571

= RS.168

DIVIDEND PER SHARE:-

2006

D.P.S.=1836176200/91808510

= RS.20

2007

D.P.S.=2514285703/91428571

=RS.27.5

DIVIDEND PAYOUT RATIO:-

2006

D.P.R.=20/94*100

= 22.0%

2007

D.P.R.=27.5/168*100

=17.0%

Proportion of various sources of working capital in percentage:

Current assests, loans and advances:

Interest accured on investments

2006

1.46/2026.76*100=0.07%

2007

0.70/2342.39*100=0.02%

Inventories

2006

750.73/2026.76*100=37.04%

2007

824.14/2342.39*100=35.18%

Sundry debtors

2006

413.45/2026.76*100=20.39%

2007

576.48/2342.39*100=24.64%

Cash and bank balances

2006

155.58/2026.76*100=7.67%

2007

116.38/2342.39*100=4.96%

Loans and advances

2006

705.54/2026.76*100=34.83%

2007

824.69/2342.39*100=35.20%

Current liabilities and provisions:

Current liabilities

2006

969.15/1273.37*100=76.10%

2007

1266/1450.06*100=87.36%

Provisions

2006

304.22/1273.37*100=23.90%

2007

183.20/1450.06*100=12.63%

COMPARATIVE P&L ACCOUNT

(For the year 2006-07)

(Rs. in Crores)


	FY07	FY06	%change
Net turnover	14,095.2	10,224.0	38
Other income	317.7	267.9	19
Total expenditure	10,122.8	8,155.3	24
Operating profit(PBIDT)	4,290.1	2336.6	84
Interest	228.6	218.3	5
Depreciation	610.0	563.1	8
Exceptional Items	-	4.1	-
Profit before tax	3,451.5	1,559.3	121
Total tax expenses	1,092.1	402.7	171
Net Profit after Total Tax	2,359.4	1,156.6	104
Minority share	391.9	116.0	238
Net profit	1,967.5	1,040.6	89

Trend Analysis

(For liability side of 2006-07)

(Rs. in Crores)

Particulars		2007	2006	Base Trend %	Current Trend %
Current Liability
Liability		1,266.86	969.15	100	130.73
Provisions		183.20	304.22	100	60.21
Total(A)		1,450.06	1,273.37	100	113.87

Fixed Liability
Share Capital		91.69	91.69	100	100
Reserves & surplus		6,138.35	4,890.39	100	125.5
Loans		2,951.56	1,979.67	100	149.09
Def. Tax liability		582.55	584.38	100	99.68
Total(B)		9,764.15	7,546.13	100	129.39

Total liability(A+B)	11,214.21		8,819.50	100	127.15

TREND ANALYSIS

(For assets side of 2006-07)

(Rs. in Crores)

Particulars	2007	2006	Base Trend %	Current Trend %
Fixed Assets
Fixed Assets	4,582.79	3,298.27	100	138.94
Fixed assets held for disposable	14.33	12.76	100	112.30
Investments	4,274.70	3,481.71	100	122.79
Total(A)	8,871.82	6,792.74	100	130.60

Current Assets
Stock	824.14	750.73	100	109.77
Interest Accrued	.70	1.46	100	47.94
Debtors	576.48	413.45	100	139.43
Cash	116.38	155.58	100	74.80
Loans	824.69	705.54	100	116.88
Total(B)	2,342.39	2,026.76	100	115.59

Total Assets(A+B)	11,214.21	8,819.50	100	127.15

CASH FLOW ANALYSIS

(For 2006-07)

(Rs in Crores)

	FY07	FY06
SOURCES OF CASH
Cash from operations(net of taxes)	1816.0	1077.1
Increase in debts	947.6	--
Non operating cash flow	114.0	67.1
Decrease in cash and cash equivalent	39.2	--
Decrease in working capital	--	205.2
	2916.8	1349.4
Uses of cash
Net increase in investments	647.1	549.2
Net capital expenditure	1598.2	399.5
Decrease in debts	--	53.3
Increase in working capital	83.3	--
Interest	109.4	112.7
Dividend	478.8	165.8
Increase in cash and cash equivalent	--	68.9
	2916.8	1349.4

Cash flow from operating activities	2007	(Rs. In Crores) 2006
Net Profit Before Tax	2189.26	1201.90
Depreciation	317.91	291.64
Interest Expenses	111.84	103.38
Interest Income	(31.84)	(29.48)
Dividend Income	(81.43)	(38.04)
Profit/loss on sale of fixed Assets(Net)	(4.62)	3.99
Profit on sale of Long Term Investments (Net)	(2.70)	(62.57)
Profit on sale of Current Investments(Net)	(49.41)	(7.27)
Operating profit before working capital changes	2449.01	1330.06
Trade and other receivables	(314.56)	(116.66)
Inventories	(73.41)	(72.41)
Assets Held for Disposal	(1.57)	0.97
Trade Payables	306.17	159.70
Cash generated from Operations	2365.64	1668.74
Direct Taxes Paid (Net)	(632.97)	(380.42)
Net Cash from operating activities	1732.67	1288.32
Cash flow from investing activities
Purchase of fixed assets	326.4	410.5
Sale of fixed assets	(354.13)	(388.73)
Purchase of Investments	(150.11)	(173.66)
Sale of Investments	(128.19)	(91.57)
Investments/Advances in Joint Ventures, Subsidiaries & others	(16.77)	(11.75)

CASH FLOW STATEMENT

(For year 2006-07)

Interest received	(322.8)	(255.21)
Net Cash from / (used in) investing activities	(301.75)	(231.24)
Cash flow from financing activities	19.71	5.65
Proceeds from borrowings	(75.41)	(792.83)
Repayments of borrowings	666.13	53.64
Interest paid	(1294.15)	24.74
Dividends paid	3.37	1.79
Corporate dividend tax	74.29	55.28
Dividend received	39.37	86.32
Net cash from / (used in) financing activities	(868.44)	(796.65)
net increase/decrease in cash & cash equivalent	(140.78)	117.37
At Beginning of year	227.48	110.11
At end of year	86.7	227.48
Dividend received(Net)

(PROFIT & LOSS A/C)

(For 2006-07)

(Rs. in Crores)

	2007	2006
INCOME
Gross sales Less: Excise duty	9,607.97 986.29	7,638.41 985.80
Net sales	8,603.59	6,652.61
Interest & dividend Income	113.27	67.53
Other income	168.49	152.41
Increase/Decrease in stock	(16.44)	(43.48)
	8,868.91	6,829.07
EXPENDITURE
Raw material consumed	2,219.32	1,822.69
Manufacturing expenses	1,744.33	1,580.34
Purchases of finished &other products	321.16	240.15
Payments to &provisions for employees	459.40	407.64
Selling, distribution, administration &other expenses	1,505.69	1,181.33
Interest	111.84	103.38
Depreciation	317.91	291.64
	6,679.65	5,627.17
Profit before tax and exceptional items	2,189.26	1,201.90
Surplus on pre-payment of sales tax loan	-	4.13
Write back of provision for diminution	37.10	-
Profit before tax	2,226.36	1,206.03
Provision for current tax	(692.38)	(369.82)
Deferred tax	1.83	27.00
Profit after tax	1,535.81	863.21
Debenture redemption reserve no longer required	38.56	8.62
Investment allowance reserve no longer required	0.05	0.25
Balance brought forward from previous year	878.37	815.35
Profit available for appropriation	2,452.79	1,687.43
Appropriations:
Interim dividend	252.10	-
Proposed dividend	-	183.35
Corporate dividend tax	35.36	25.41
General reserve	1200.00	600.00
Balance carried to balance sheet	965.33	878.37
	2,452.79	1,687.43

BALANCE SHEET

(For year 2006-07)

(Rs Crore) SOURCES OF FUNDS SHARE HOLDERS FUND	FY (2006-07)	FY (2005-06)
share capital	91.69	91.69
Reserves and Surplus	6,138.35	4,890.39
Loan funds
Secured Loans	2,291.00	1,386.12
Unsecured Loans	660.56	593.55
	2,951.56	1,979.67
Deferred tax liabilities	582.55	584.38
TOTAL	9,764.15	7,546.13
APPLICATIONS OF FUNDS
Fixed assets
Gross Block	6,770.97	6,114.12
Less: Depreciation	3,380.53	3,109.49
Net Block	3,390.44	3,004.63
Capital Work-in-Progress	1,192.35	293.64
	4,582.79	3,298.27
Fixed Assets held for disposal	14.33	12.76
Investments	4,274.70	3,481.71
Current assets, loans & advances
Interest accrued on Investments	0.70	1.46
Inventories	824.14	750.73
Sundry Debtors	576.48	413.45
Cash and Bank Balances	116.38	155.58
Loans and Advances	824.69	705.54
	2,342.39	2,026.76
Less: Current liabilities & provisions
Liabilities	1,266.86	969.15
Provisions	183.20	304.22
	1,450.06	1,273.37
Net Current Assets	892.33	753.39
TOTAL	9,764.15	7,546.13

CONCLUSIONS

In 2007 there is increase in current assets by 24% than 2006 and there is increase in current liability by 17%, because of greater increase in current assets than in current liabilities, the position of Working capital has improved.
The % of Fixed Assets has come down in 2007 from 2006.
As per current ratio firm is able to pay its current liability.
Quick ratio presents a better test of short term financial position, which shows better working capital position of firm.
Debt equity ratio and debt to total fund ratio presents protection to long term lenders and shows sufficient working capital in the firm.
G.P. and N.P. have increased from previous year.
Cash flow statement indicates outflow of cash in comparison to past year.
Due to better long term and short term financial condition firm’s working capital position is better than that of previous year.

LIMITATIONS

Based on financial statements these statements suffer from certain limitations.
Affected by window dressing.
Company provides only secondary data, so certain type of bias is in study.
Unsuitable for forecasting.

BIBLIOGRAPHY

Financial Management

By M.Y. Khan & P.K. Jain

Financial Management

By D. K. Goyal

Annual Reports of Grasim Industries Ltd.

2005-06

2006-07

www.birlagroup.com
www.birlaviscose.com
www.adityabirla.com/our_sectors/index.htm
www.fiber2fashion.com/grasim/contact.asp

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