A Project Report on WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING MILL LTD, BANHATTI

“WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING MILL LTD, BANHATTI”

Babasabpatilfrepptmba.com


The Banhatti co-operative spinning mill ltd is located at Banhatti in the area of

Basavanagar, District Bagalkot.

To help the person engaged in weaving profession and who are under clutches of

master weavers exploited by vested interest and to bring outlook in the prosperity &

working of the farmer.

The Government sectioned on lease basic 50 acres of land, out of this Mill has got

permission of 18 acres of in forest near Banahatti. The said land is situated on Banhatti

Jamkhandi road & state highway at Bijapur to Belgaum. Expected cost of land after

necessary development and levelling land lying of internal roads and finance did not

exceed Rs.45 lakhs. In 1980-81 the construction of the building was started and it was

completed in 1984. Actual production of the Mill started in March 1984.

The study was conducted in the prestigious organization, which is basically

producing yarn of various counts. The main reason of the study is to fulfill the academic

requirement and at the same time inform an individual about the functioning of the

organization and also to know the working capital of the organisation.

In this study I found out working capital changes and working capital ratio of the

organisation based on that I haven given the suggestion to the organisation. The Mill was

making very good profit at the beginning; it has been incurring loss previously.



METHODOLOGY OF THE STUDY The methodology adopted by me to collect the data can be classified under 2

heads:-

o Primary data

o Secondary data

Primary data: - The data has been collected through questionnaire to all department

managers.

Secondary data: - The project report data is collected through the journals of the

company, magazines, and reference books.

SCOPE OF THE STUDYo The training helps in gaining a practical knowledge of the functional department

of the organisation.

o It helps in knowing the real organisational environment.



o It helps to know how they handle or manage the finance.

o Training helps the individual to have brief idea of an organisation.

LIMITATIONS OF THE STUDY o The study will be restricted only to the Banhatti Co-Operative Spinning Mill Ltd

therefore the results of the study cannot be generalised.

o The study will be restricted only to the workers of the company.

o Analysis of the data collected from the questions will be made on the assumptions

that data provided by the respondents are accurate.

o The study was based on annual report and balance sheet.

o Time period for the study will be restricted only for 60 days.



OBJECTIVES OF THE STUDY

The purpose of doing this project is to know how distribution helping marketing program.

To know the working capital of the mill, source of capital and how they manage it.

To know the working capital ratios of the mill

To know about wage and salary administration.

To find out debtor collection period and creditor payment period

To know the changes in working capital of the mill.

To know the current obligation of the mill



TABLE OF CONTENT

Sl. No. PARTICULARS Page No

1 INTRODUCTION

2 PROFILES

3 BACKGROUND

4 KEY FUNCTIONAL AREAS

5 WORKING CAPITAL MANAGEMENT

6 WORKING CAPITAL RATIO



7 CONCLUSION

8 BIBLIOGRAPHY



In the general scenario where you hear at only a failure in the operative sectors. But

weavers spinning mill at BNT is an exception. The Mill has been doing so well. The

commercial production of cotton yarn of the Banhatti Co-Operative Spinning Mill Ltd is

likely to be commenced during the second week of April 1984 and that a souvenir will be

brought to mark the occasion.

It is needless to say that there is still a need for the creation of such Mill on co-

operative basis to help persons engaged in the profession and who are under clutches of

master of weavers exploited by their interest.

It was established for the need of its 3549 members in JAMKHANDI & MUDHOL

Taluk in the district BAGALKOT. These weavers earlier depend upon the Mills of Salem,

Inchalkaranji for raw-material like yarn & cotton as the supply was inadequate but now it is

Gokak

This Banhatti Co-Operative Spinning Mill Ltd has completed its project and it was

inaugurated by Sri Ramakrishna Hegde, Honourable Chief Minister Govt of Karnataka.

The Agro based Industries are the most famous in order to rise their standard of

living. The spinning Mill is one of them which is helping the cotton growers to raise their

standard of living & to improve their economic condition from centuries together the

cotton growers, one suffering by the middlemen who are purchasing the cotton on throw

way price, but now after commencing of this spinning Mill the cotton growers can get

reasonable price for their production.



Thus was born the idea of starting the spinning Mill of their own. Construction

began in1981 & completed in 1984, Commercial production began in the same year from

March; the Mill has been undertaken manufacturing of hosiery yarn.

The Mill has laboratory & testing equipment to grade cotton yarn. Strict control has

earned its reputation not only in India but also in abroad, in Italy, Bangladesh & West

Germany except to these countries accounted for Rs. 196.52 lakhs in 1988-89. It also

exported the yarn to China & Japan. The Mill has drawn up a modernization plan with an

outlay of Rs 1.45 crores.

The success story of the Mill is further through in relief as the failure of the other

two co-operative Mills in the District of Bagalkot. This Spinning Mill should run

successfully and to help the cotton growers at the same time weavers who are members of

this Mill.

HISTORYIndustrialization plays a major role in all around development of under developed

countries like INDIA. Small scale & cottage industries have assumed great importance in

India from point of view of employment and contribution to national wealth. Small

industry is a big movement in India is handloom sector of textile industry.

The Banhatti Cooperative spinning mill limited was set up in the field of

cooperative and under the Karnataka State cooperative societies act 1959. The mill was

registered in the year 1975 and the actual functioning of the mill was started in the year

1983. The working of the society was extended up to the JAMKHANDI & MUDHOL

Taluk of BAGALKOT.

The Karnataka Govt has provided 50 acres of land for 30 years period to the

society the lease basis. The construction work of the Mill begins in the year 1984. Due to

constructor’s litigation, there was delay in the work. The production of the yarn was

initiated with 15080 spindles.



The Mill purchases raw material i.e., cotton from local market i.e., JAMKHANDI

MUDHOL and GOKAK Taluk. It also purchases cotton of different quality from Saudatti,

Bailhongal, Dharwad & Nargund & Hirekerur. Other than these the Mill also purchases

cotton from Maharashtra, Gujarat & Tamil Nadu states. The Mill has its marketing centres

in Malegoan, Dahlai, Bombay and Inchalkaranji.

The Banhatti Co-Operative Spinning Mill Ltd was registered under Registration

No. JRBG/3254/785 Dated: 03-02-1975 as Handloom weaver’s co-operative society. The

object of the society was to produce yarn & further process like dyeing, sizing, cloth

production & readymade etc. After registration it has taken almost 5 years to get clearance

from Karnataka state Govt. The share capital collection was started since 1980. The

construction of the building started in the year 1982 on 50 acres forest lease land. The

construction of the company & installation of the machinery was completed & commercial

production started on 25080 spindles during the year 1984. The total project cost was

Rs720 lakhs.

The Mill was earning profits since its inception & financial position was very good.

So the Mill re-paid Share Capital of Rs424.40 lakhs to Karnataka state Govt. The Mill

produces cotton yarn from 10 to 140 counts.

OBJECTIVES OF THE

ORGANISATIONThe main purposes of the Banahatti Co-operative Spinning Mill Ltd’s are,

o To improve the economic condition of the members in relation to weaving,

colouring, bleaching, mercerizing, & manufacturing of cloths etc, and

providing in reasonable rate to its members.



o The Mill has the objectives of idea for the expansion programs with

increases in number of spindles and replacing the old machines with new

and highly mechanized machines.

o As the main objective of the Mill is to provide labour welfare facilities so it

has set up own credit society, through which daily requirement of the

workers of the Mill at reasonable rate of interest.

o To help the cotton growers to raise their standard of living.

o For the improvement and the well being of the people of the low income

groups the Mill has encouraged women workers by providing work in them.

o Consumer satisfaction; the Mill always satisfied the needs and wants of its

customers in each and every way like by providing quality products, prompt

and timely deliveries.

o Expanding the markets for its products; it has extended their market in

AndraPradesh, Maharashtra, & Tamil Nadu by continuous efforts of the

promoters.



COMPANY PROFILEName of the organisation: Banhatti cooperative spinning mill ltd, BANAHATTI

Address of the organisation: Banhatti cooperative spinning mill ltd,

BANAHATTI,

Basavanagar, Taluk Jamkhandi, district – Bagalkot.

Name of the chairman: Shri G.D. Bhadrannawar.

Name of managing director: Shri V.B. Kamlapur.

Management control: Board of the director nominated by the government of

Karnataka.

Constitute: Wholly owned by the board of directors

Process know how: This mill is a pioneer in the manufacturing of various

yarn products and there is no need of import any

process know how it is not collaborated with other

company

Proposed products: Cotton yarn in the form of hank and cone, carded

yarn and combed yarn

E-mail: [email protected]

Fax: 08353- 230316

Phone: 08353-230013, 230362, 230237


mailto:[email protected]


A WARDS

The Mill has been awarded by “All India Co-operative Spinning Society” for the

production of good quality yarn in the year 1986-87.

The all India federation of co-operative spinning mill ltd (aifcospin) for profitability

Net profit (1991-92)

For earning net profit on each spindle it received award from “All India Federation

Bombay”.

In the year 1992-1993 it received the Best Performance Award from “Karnataka

State”.

The Small and Medium size Export Council of India; Delhi awarded the society by

“Niryat Ratna” by presenting a gold medal in the year 1995.

Karnataka government for best performance in a co-operative sector spinning mill

(2000-2001)

Karnataka government for best performance in a co-operative sector spinning mill

(2001-2002)



PRODUCT PROFILES

The Mill is producing cotton yarn in the form of Hank & Cone. Hanks are packed

in the bales and cones are packed in the cone bags for the marketing purpose, there are two

types of cone.

1) Kg Cone 2) Baby Cone

Hanks & Cones are further divided in the carded & combed yarn. Carded yarn is

less superior compared to combed yarn. Carded yarn is used for weft combed yarn is used

for warp, the yarn is further divided on the basis of counts one count is equal to 840 yards

of yarn.

There are different types of yarn,

1. Carded Yarn --------------- K

2. Combed Yarn --------------- C

3. Carded Hosiery --------------- KHY

4. Combed Hosiery --------------- CHY

5. High twist Yarn ---------------- HT

6. Export Yarn ---------------- EXP



7. Doubled Yarn ---------------- 2/

8. Open end Yarn ---------------- OE.



DEPARTMENTS OF THE ORGANISATION

Material Department

Store Department

Production Department

Cotton Department

Marketing Department

Human Resource Department

Finance Department

Purchase Department



MATERIAL DEPARTMENT

Proper buying of material, merchandise and procurement of material at the right

time is of great importance in any business. Therefore, keeping views prominence for the

purchase of material in setting up a separate department known as Material Department

While considering Material Department, in this mill material department is held by

three executives who look after the day to day activities and transaction. It is the main duty

of the material executive to forecast the overall material required by the organisation for

the particular year, month and season.

This department at BCSM LTD ensures that material are obtained at right time

with right quantity of right quality , at right place, from right source and at right cost.

The material department at BCSM LTD has been divided into four sections,

Purchasing of raw material

Inventory management

Material handling

Material storing.



It is the responsibility of the material department to ensure the purchasing of

material at right time. Managing Director is directly appointing material in-charge person

in the material department to control the wastage of raw material.

STORE DEPARTMENT Goods should be stored properly so as to protect them from damages, deterioration,

theft, etc. Hence care should be taken to safeguard the material and maintain up to stores

record.

Functions of Store Department

Receipt of goods in to store department

Production and prevention of material

Issue of material to required department

Maintain proper record

Checking the purchase order in respect of quality of material received

Stores department at BCSM

Raw material stores

Finished goods stores

Fuel stores

Packing material stores

Damages goods stores

Stationery stores.



They maintain different method to control the raw material

1. FIFO (first in first out)

2. Simple moving average.

Here store ledger account can be maintained to receive the goods on FIFO basis. The

stores department will request the material department to place an order when there is no

stock of raw material asked by the user department. The material department sends the

copy of purchase order to the stores department and they meet according to the user

specification, and prepare the goods received report.

DOCUMENTS OF STORES DEPARTMENT AT BCSM

Bin card.

Stores ledger.

Goods received report.

GRN (goods received note).

SRIN (stores requisition issue note).

Delivery note.

Purchase indent.



Purchase order

Production department

The production department is the nerves centre of the entire organisation, and the

main objectives of the production department are as follows:

To follow up the daily production schedules as per the plan

To cover up the deviation from the set standard if any.

To maintain close and coordinate relationship with all other key department

To upgrade technical efficiency of the production.



PRODUCTION PROCESS OF THE BCSM

Mixing

Blow room

Carding Bale operator

Draw frame Maxi flow

Combing section Multi Mixer

Speed frame Asta

Ring frame CVT 1

Reeling CVT 2

Winding Dust tex



Cone winding TV 425

Doubling

Packing

Production process

Mixing:

In this process different quality of cotton is mixed in order to reduce the cost of

production and maintaining good quality control. Here mixing can be done as

95% and only 5% of mixed or low quality cotton.

Blow room:

This is the second process of production in which the raw material i.e. cotton is

opened, cleaned and lap is formed. Each lap is of 60 meter length, 17 kg weight.

It is the purification section.

In blow room there are various steps in cleaning the cotton:

Bale opener

Maxi flow

Multi mixer

Asta

CVT 1



CVT 2

Dust Tex

TV 425

Carding:

In this stage the lap is more cleaned and the cleaned cotton is converted in to

slivers look, here also there is 5% waste, so to remove that waste the cotton is

taken to carding department.

Draw Frame:

In draw frame “4” slivers makes it to 1 sliver, 8 slivers is converted into 1 sliver

by which the length of the sliver increases and diameter decreases.

Combing:

Under this stage of combing, 38 slivers are converted to one ribbon roll further

the ribbon are combed to remove the dust. While combing the short fibers are

separated from the ribbon roll and are given less count. The ribbon roll takes the

forms of slivers.

Speed frame:

In this speed frame the slivers are converted into rolling in speed frame there are

3 processes. Those are as follows – Drafting, Twisting and Winding.



Ring Frame:

Here the finished product is yarn that is obtained from rolling, the yarn is

drafted, twisted and winded.

Reeling:

It is the process of reeling the yarn which is further converted in to Hank

HANK=8.333 LENGTH IN YARN

WEIGHT IN GRAMS

Winding:

Here in winding there are two processes.

Hank yarn:

The yarn is winded in hank in three types

Plain hank winding

Cross hank winding

Diamond shaped winding.

Cone winding: In cone winding also the yarn is twisted and winded in clockwise and anti-

clockwise so that yarn will be thick. Each cone will be of 1 kg in weight.



Doubling:

Here the two thin yarns makes one single thin yarn twisted and winded.

Packing:

This is the last process of the production. Here the Hank yarn is packed through

a machine where as long winding is packed in a casual manner.



COTTON DEPARTMENTThis is yet another department of BCSM & it is very specific department which is

leaded by the three important executive who look after all the day to day transaction & also

has the responsibility of providing of cotton bales according to their requirement of the

production.

Purchasing of cotton:

In case of BCSM purchasing of cotton is done with a requirement of production

department. The process is as follows:



Testing of samples

Identifying results of different parameters

Ordering to partier

Testing the raw material and also weighing with compare to first one

Types of purchase:

1. spot purchase

2. Mill purchase.

Spot payments get 1.5% discounts

Mill payment get 70% for 10 days

30% for 30 days

And payments for transportation are done by telegraphic transfer and demand draft.

The purchase of cotton is done by the purchase committee also where committees

organises once in a week % discuss about bales minimum stock presence and exhausting.

Laboratory

Cotton investigator controller tests the quality of the cotton in the laboratory. It is

one of the departments in the spinning mill, which is used for achieving some objectives in

the yarn.



Marketing department



Marking department is headed by marketing in-charge, who sets the programmes

required for the marketing and executes in accordingly to the orders. Marketing manager

receives advice and orders from the designer who sets long term programmes of marketing

Marketing system



1. Local sales

Cotton yarn is sold to local handloom co-operative society’s weaver

member through co-operative society and the payment is collected by

cheque.

2. Marketing agent

Through marketing agent, cotton yarn are sold X-mill delivery basis against

payment by cash/ DD/ Contract cannot be cancelled because contract is

binding on both side i.e. Seller and buyer. Marketing agent is in the area of

INCHALAKARA NJI, SOLAPUR.

3. Consignment

Mill appoints consignment agent. Goods are transferred or dispatch to the

consignment agent with prior intimation by raising stock transfer provision

invoice and on receipt of the goods by consignment agent there after goods

will be sold by agent.

4. Through Mill sales Depots

Sales depots agents are appointed by the mill in Calcutta, Bombay &

mavanathbhanan, goods are dispatched to the sales depot with consultation

of depot agent on the receipt of the goods.

5. Production planning



At present mill is manufacturing 40,s count to 100,s count in single / double

yarn carded/ combed / and hank/ cone yarn mercer iced yarn also.

Production planning is decided on the basis of the demands of the all

marketing centres.

6. Price fixation

Selling price is fixed by the executive committee in the first week of every

month. Sales department collects all the information of the markets and

suggests the rates to the committee; the committee will discuss and fix the

selling price.

7. Major competitors

Gadag Co-Operative Textiles Mill Ltd.

South Indian Popular Mills.

Laxmi Mill.

Premier Mill.

Precaut Mill.

HUMANBabasabpatilfrepptmba.com


RESOURCE DEPARTMENT

The Human Department is primarily concerned with human constitution of an

organisation. It is concerned with the manpower recruitment, training, placement,

remuneration, promotion, retirement, transfer etc, all relating to the human resource or

labour.

The Human resource management or department refers to the systematic

approach to the problem of selecting, training, motivating and retaining human resource in

an organisation.

Human resource management is considered with the planning, organising, directing

and controlling the personnel functions of the organisation.

The Human resource department consist of a deputy manager with deputy

officer who deal regularly with matters of recruitment, training, placement, the two other



officials with guide to the direction of the deputy General Manager who will take planning

and scope of job, description of job, duties, responsibility of each jobs each employed.

HUMAN RESOURCE DEPARTMENT FURTHER AS PROGRAMMES OF :-

o Sponsoring and conducting social activities for the ladies.

o Conducting medical camps for the employees and their departments.

o Conducting seminars sports even for the children of the employee, which is oe of

the appreciable element.

OBJECTIVES OF THE HUMAN RESOURCES DEPARTMENT

o Individual development.

o Desirable working relationship between the employer & employee.

o Effective moulding of human resource as contrasted with physical

resources.

o Proper orientation & introduction of new employee.

o Effective co-ordination of the welfare department & safety department,

which come under human resource department.



MAN POWER PLANNING / MAN POWER AT BCSM

Human resource planning

According to Beach “Man power / HRP is the process for determining and assuring

the organisation will have an adequate number of qualified persons, available at the proper

time, performing jobs which meet the need of the enterprise and which provide satisfaction

to the individual involved”.

According to the Elippo “ a manpower planning can be defined as an appraisal of

an organisation’s ability to perpetuate itself with respect to its management as determined

necessary to provide the executive talent”.

This manpower planning is the process without resources like machines, materials and

motive power etc cannot be put to use.

MANPOWER Present at BCSM

Permanent employees [skilled] --------- 14

Casual employees [semi-skilled] -------- 450

Apprentives / Trainees [unskilled] ------ 136

Need of Manpower at BCSM

o Manpower is needed to expand the business i.e. large numbers of workers are required to

be recruited in expansion of the plant.

o Manpower planning is necessary to the organisation in producing the skilled and qualified

workers & trains them very effectively.

o Manpower planning is necessary for taking steps to mould, change and develop the

strength of existing employees in the organisation.



o Manpower planning is necessary by effective use of manpower & thus reducing the

wastage.

STRENGTH OF THE EMPLOYEES

EXECUTIVES 5

STAFF MEMBERS 55

SUPERVISORS 8 68

WORKERS 600

PERMANENT[skilled] 14

CASUAL[semi-skilled] 450

TRAINEES[unskilled] 136

TOTAL 668

DUTIES OF HR MANAGER

o Conduct the following aptitude test for each worker.

a) Finger dexterity

b) Manual dexterity

c) Eye sight



d) Height & weight

e) Stamina test

o Labour officer should examine a trainee. If it is reported that the workers efficiency

is less in giving production.

o SITRA norms should to apply to the work.

o Organising of the training cell.

o He will supervise the part time teacher’s job.

o Solving the employees family / personnel problem by councelling

o Record of the trainees along with exercise books & the exams results should be

maintained.

o Maintaining good relation with the other departments

o Labour officer should hold the meeting of spinning master, managing director &

training officer at periodical internal to review the training.

o Submission of periodic information of labourers to Managing Director.



RECRUITMENT & SELECTION AT BCSM

Recruitment aims at developing and maintaining adequate supply of the labour

force according to the needs of the organisation.

Recruitment at BCSM, job seekers with need base qualification with experience is

recruited. Here direct recruitment will be adopted. Recruitment can usual be “Contract

Appointment” contract base is adopted even for workers / labourers based on efficiency.

SOURCES OF RECRUITMENT AT BCSM

After the man specification is prepared the job contract confirmed the job rate is

fixed and the recruitment salary range determined it becomes necessary to consider the

sources from where such employees will be forth coming. Basically these resources can be

divided into two.

Internal Sources

Present Permanent Employees

Present Temporary Employees

Retired Employees

Dependents of deceased, disabled, retired & present employees

External Sources

Campus recruitment



Reference to employee exchange

Contract with present employees

Here in BCSM Ltd mainly recruitment & selection are made on the sources that in

internal only by motivating the employees & in the external sources they only go for Door-

to-Door selection & recruitment.

SELECTION PROCESS IN BCSM LTD

1) ASEMBLING PROCESS

2) INTERVIEVING CANDIDATES

3) PLACEMENT

1) ASSEMBLING PROCESS

Assembling the vacancies arise only when the workers are shortage in the

factory. Then the labour officer inform to the Board of Directors on the

request of the labour officer the Board of Directors give right to labour

officer to appoint the needed workers.

2) INTERVIEWING THE CANDIDATES

On the bases of the qualification and experience candidates are called for

interview. In the interview process candidates are asked questions regarding

family background and general questions.

3) PLACEMENT

The selected candidates list will be provided to the Board of Directors for

the signature on their form. And the selected candidates list will be

presented on the Notice Board.



TRAINING

It is the process of imparting the employees’ technical and operating skill and

knowledge. The BCSM has been conducted training programmes by inviting the training

officers from the SITRA [South Indian Textile Research Association] & also it has

appointed managers and officers.

Selected candidates who do not have the required experience shall be given

requisite training in the organisation for a period of one year. This appointment in the

regular scale attached to the post will be made after satisfactory completion of the training.

Especially the SITRA’s training is required for those who directly contact with the

machines for producing good quality of product (Yarn).

TRAINING METHODS USED IN THE BCSM LTD

1) On the job training --- Practical training

2) Off the job training --- Theory training

1) ON THE JOB TRAINING

This on the job training is conducted for those workers who are quite

educated / uneducated and who are directly engaged in the production process. Here

uneducated workers can have practical training or practical work done.

a) Method of work to be adopted by machines

Here in this type of training consist of the one on which method of work can be

adopted for each particular machine i.e. Ring frame machine, cordial machine, reeling

machine, speed frame , cone winding, Autoscore on these machine what are the method

should be adopted about this training will be given for the employee working in the Mill.

b) Work practices to be carried out in the department



In this system the worker should be trained about what type of the work

practices is required in carryout in each department.

2) OFF THE JOB TRAINING

In this type training is given mainly for those who are quite educated i.e.

a) Work method in the department

It consists of the worker trained about using the correct method in each

working process in the different department like production, Material handling, packing,

etc.

b) Importance of productivity, production, quality, waste level

Here work should be trained with the knowing about the importance of

productivity; production, quality and waste level by maintain the right of work.

c) Handling of material: Here workers trained about the careful handling of material.

d) Housekeeping and its importance

e) Do’s and don’ts in department

f) Duties and responsibilities of workers

g) Accidents and safety procedures

h) Identification and their importance

i) Machine knowledge

j) Team work and importance of team work

k) Communication and its importance



WELFARE FACILITIES AT BCSM

The welfare facilities are provided by the Mill is as follows:

1) Quarters for seniors, jobbers, clerks, senior supervisors & officers.

2) Employee’s Co-operative credit societies.

3) Celebration of workers May Day, Ganesh festivals, Conducting sports, & cultural

activities on these occasions.

4) Rest house for workers.

5) Canteen facilities for workers.

6) First aid & Employment State Insurance [ESI] Dispensary.

o For the 3rd shift (night shift) ring frame workers free facility is given i.e. one

tiffin and one tea.

o Incentives:- BCSM provide production incentives & attendance on the basis

of his attendance i.e.

For 22 days of attendance Rs5 incentives

For 24 days of attendance Rs7 incentives

For 26 days of attendance Rs 10 incentives



FINANCE DEPARTMENTAs regarding finance department at Banhatti co-operative spinning mill the account

department is headed by Chief Accountant who is directly below manager heads the

account department. Finance executives and accounts executives who maintains the

accounts of expenditure procurement and expenditure of finance, he prepare annual

financial report and submit to Chief Accountant and who look after day to day financial

needs final accounts of the company.

Chief Accountant also heads Finance department. Below him are executives.

Finance is the corner stone of business every businessman needs accountants attends all

financial transaction of Banhatti co-operative spinning mill ltd.

Finance requirement is mainly due to-

1. Purchase of Raw material[ cotton]

2. Purchase of chemicals

3. Purchase of stationary

4. Traveling expenses & dearness allowance

5. Allotment of salary

6. Repairs & Maintenance

7. Installation of machines & equipments

8. Miscellaneous



Maintenance of Balance on double entry system or Merchandise system

Here all the transactions accrued in the Banhatti co-operative spinning mill with

respective above all financial requirements & other financial item they are maintaining

through Merchandise system or Double entry system they are also prepared.

1. Manufacturing accounts

2. Trading accounts

3. Profit & loss accounts

4. Balance sheet

Accounting system

In accounting system, accounting process can be made by recording of transaction

i.e., transaction are recorded directly in double entry system books or Merchandise system.

After the first phase of accounting work is viz, the analysis & classification &

consolidation of transaction works begin. In the third phase, Trial balance is extracted

position of the business at the end of the accounting period.

Cost Audit has been made for Banhatti co-operative spinning mill. Cost Audit

report should be sent to the Company Law Board before 30 th September every year. Here

product wise cost sheets are prepared to arrived at the pricing decision, export decision etc.

The costing department will allocate the product wise expenses in regard to raw material,

chemical & packing material. The overheads are apportioned in the cost center wise and

later cost unit wise. The margins for products will be ascertained by costing department &

reported to management periodically. “Cost A/c will later on be recorded with final

accounts”.

Costing system



In the process of costing system for the product manufactured like different types of

yarns on count wise i.e. From 14’s counts to 100’s counts in single / double yarn, carded /

combed & Hank / Cone yarn & Mercerised yarns also.

Material Costing

The Raw material is used for the production of the different types of yarn are oils,

fats, chemicals which enable proper determination of value of material consumption. Stores

ledger is maintained in respect of each head of material & material is drawn from stores

through authorized “Material Indents / Indent slip” for the consumption of the raw material

like oil fats 7 chemicals the stores department has maintained “ BIN CARD”

Labour Accounting

The total salaries and wages as per the final accounts for the company as a whole

were identifiable with respect to production department in respect of service department

these are appropriately apportioned among production department in accordance with the

services rendered by these employees & given standard production efficiency.

Over Head Costing

The productions of different types of yarns especially 20’s yarn are exported & to

sell in the market the company [Banhatti co-operative spinning mill] has appointed

different marketing agents. They are in Inchalkaranji, Solapur, Coimbatore & through

different branch / mills sales depots in Bombay, Calcutta, & Mavanathbhavan( UP) . The

Mill appointed same branch in these area that is “m/s LNGS Pvt Ltd Combutor” as depot

agents to look after day to day affairs. The expenses relating to branches have been

allocated among the products requirements / product covered. These expenses have been



taken under the “Selling Overheads” & the same has been apportioned on technical

estimate among production cost center. While arriving at the conversion cost, salaries &

wages, commission to the agents, taxes, sales tax, traveling expenses, administration O/H

& depreciation has been treated as reducing balance.

DEPRECIATION Depreciation in relation to plant and machinery, vehicles and miscellaneous

fixed assets are calculated on reducing Balance method.

Assets %Depreciation

Machinery

Vehicles

Buildings

Others

25%

20%

10%

10%

Financial Sources for the Banhatti co-operative spinning mill

1. Cash credit loan from DCC Bank



2. Deposits from members

3. Own fund

4. Members share capital of 3431 members & Rs 500 for each share

5. Term loan from IDBI

TYPES OF SHARE HOLDERS

The shares are collected by dividing in 6 categories. The Mill started with

authorized capital of 7 crores in the year 1983-84. In the first year the issued & paid up

capital of the Mill was Rs 379.22lakhs. This amount increased gradually in the year 1992-

93 the paid up capital of the Mill was Rs 411.25 lakhs.


Class Name No of members

A Class

B Class

C Class

E Class

F Class

G Class

Weavers

Weaver’s co-op Societies

Agriculture co-op Society

Farmers Individual Members

Businessmen’s & Job Holders

Government Co-op Society

Total

2492

11

72

381

474

3430


The numbers of shareholders were decreased from 1986-87 because the Mill has

restricted the issue of share to non members (non share holder).

PURCHASE DEPARTMENTWhile purchasing cotton first they take for sample and test in laboratory. To purchase

cotton and to make decision every Tuesday, there will be a meeting at least twice in a

month. The cotton which is selected for production the related members of that cotton will

be called for meeting. They purchase the only which is necessary for production.

There are different varieties of cotton they are :-

DCH-32

MCH-4

S-4

BUNNY

S-6

LRA

MLCH-1

AK-235



DH-11

BHARMA

They purchase cotton from different states like

KARNATAKA

ANDHRA PRADESH

MAHARASTRA

MADHYA PRADESH

GUJARATH

TAMIL NADU

RAJASTHAN

The rates are depended on the candy, 1 candy=356kg the candy is converted into

quintal on its related ratio.

If the delivery is made on the spot than the Insurance, transportation charges, and all

other expense is paid by them. If the quality is not as per the sample than per candy will be

decreased or the cotton will be sent back to the related parties.

SOME OF THE NAMES OF THE PARTIES [SUPPLIERS]

M /S Sherya cotton industry—senhva(M.P)

M /S Kissan lal motilal--- Bijapur(Karnataka)

Swastik indurtries--- warangal(A.P)

H.D mallur --- Sangli(Maharastra)

The Maharastra state co-operative cotton growers marketing tradition- Mumbai

East India cotton company—Mumbai

M/S Mahalingeshwar cotton company – Gokak

M/S Mahalakshmi cotton co – Gokak

M/S M.S.Kollar- Gokak

Maheshwary trading company—Ratlum(M.P)



Ramkaran Shrikisan bansar – Harsud(M.P)

Gordwarn jinning udyog—Kiyta(M.P)

M/S Ravi enterprise—Warangal (A.P)

M/S V.S.Bedri pessing factory – Gokak

Panchmukhi traders—Sangli (Maharastra)

Keerti co-operation- Ahmedabad

Ramray Ramnarayan—Beawar(Rajasthan)

Cotton seeds co-operation – Hubli

Cotton seeds enterprise- Sumarpur (Rajasthan)

M/S Mahalingeshwar cotton co. – Adoni(A.P)



Working Capital Meaning

Working Capital is defined as the excess of current assets over current liabilities.

Current assets are those assets, which will be converted into cash within the

current accounting period or within the next near as a result of the ordinary operations of

the business. They are cash or near cash resources. These include:

Cash and Bank balances

Receivables

Inventory



Raw materials stores and

Work – in- progress

Finished goods

Prepaid expenses

Short- term advances

Temporary investments

The value represented by these assets circulates among several items. Cash is used

to buy raw- materials, to pay wages and to meet other manufacturing expenses. Finished

goods are produced. These are held as inventories. When these are sold, accounts

receivables are created. The collection of accounts receivable brings cash into the firm.

The cycle starts again.

Current liabilities are the debts of the firms that have to be paid during the current

accounting period or within a year. These include.

- Creditors for goods purchased

- Outstanding expenses i.e., expenses due but not paid

- Short – term borrowings

- Advances received against sales

- Taxes and dividends payable

- Other liabilities maturing within a year.



Working capital is also known as circulating capital, fluctuating capital and

revolving capital. The magnitude and composition keep on changing continuously in the

course of business.

Circulation of current assets

Objectives of Working Capital Management

The basic objectives of working capital management are as follows

By optimizing the investment in current assets and by reducing the level of current

liabilities, the company can reduce the locking up of funds in working capital

thereby; it can improve the return on capital employed in the business.

The second important objective of working capital management is that the company

should always be in a position to meet its current obligations, which should

properly be supported by the current assets available with the firm. But maintaining

excess funds in working capital means locking of funds without return.


Cash

Inventories

Receivables


The firm should manage its current assets in such a way that the marginal return on

investment in these assets is not less than the cost of capital employed to finance the

current assets.

Gross and Net Working Capital

Generally the working capital has its significance in two perspectives – Gross

working capital and Net working capital’ the term ‘Gross working capital refers to the

firm’s investment in current assets. The term ‘Net working capital’ refers to the excess of

current assets over current liability. These gross working capital and net working capital

are called Balance sheet approach of working capital.

Permanent and Temporary Capital

Considering time as the basis of classification, there are two types of working

capital viz. ‘Permanent’ and ‘Temporary’ permanent working capital represents the assets

required on continuing basis over the entire year, whereas temporary working capital

represent additional assets required at different items during the operation of the year. A

firm will finance its seasonal and current fluctuations in business operations through short

term debt financing. For example, in peak seasons, more raw materials to be purchased,

more manufacturing expenses to be incurred, more fund will be locked in debtor’s balances

etc. In such times excess requirement of working capital would be financed from short-

term financing sources.

Sources of working capital

1) Trade credit

2) Bank credit

Trade credit

Trade credit refers to credit extended to the supplier of the goods and service in the

normal course of transaction /business/sales of the firm. According to the trade practices



the cash is not paid immediately for purchases but after an agreed period of time. Thus,

deferral of payment (trade credit) represents a source of finance for credit purchase.

Bank credit

The firm gets working capital finance from bank by five ways.

1) cash credit

2) loans

3) purchase /discount bills

4) letter of credit

5) Working capital term loans.

Disadvantages of Insufficient Working Capital

The disadvantages suffered by a company with insufficient working capital are as

follows:

The company is unable to take advantage of new opportunities or adapt to

changes.



Trade discounts are lost. A company with ample working capital is able to

finance large stocks and can therefore place large orders.

Cash discounts are lost. Some companies will try to customers are foregone.

The advantages of being able to offer a credit line to customers are foregone.

Financial reputation is lost result in non-cooperation from trade creditors in

times of difficulty.

There may be concerted action by creditors and will apply to court for winding

up.

Operating cycle Concept

A new concept which is gaining more and more importance in recent years is the

‘operating Cycle concept’ of working capital. The operating cycle refers to the average

time elapses between the acquisition of raw materials and the final cash realization.



- The finished goods inventory stage

- The receivable stage

Operating cycle

How to reduce Operating Cycle?

The aim of every management should be to reduce the length of operating cycle or

the number of operating cycles in a year. Only then the need for working capital decreases.



The following a few remedies may become handy in contrasting the length of operation

cycle period.

Purchase Management : The purchase manager ows a responsibility in insuring

availability of right type of materials in right quantity of right quality at right price on right

time and at right place. These six R’s contribute greatly in the improvement of length of

operating cycle. Further, streamlining of credit from supplier and inventory polity also help

the management.

Production Management : The Production Manager affects the length of

operating cycle by managing and controlling manufacturing cycle, which is a part of

operating cycle and influences directly. Longer the manufacturing cycle, longer will be the

operating cycle and higher will be the firm’s working capital requirements.

The following measures may be taken:

- Proper maintenance of plant, machinery and other infrastructural facilities.

- Proper planning and coordination at all levels of activity.

- Up – gradation of manufacturing system, technology.

- Selection of the shortest manufacturing cycle out of various alternatives etc.

Marketing Management : The sale and production policies should be

synchronized as far as possible. Lack of matching increases the operating cycle period.

Production of Qualitative products at lower costs enhances sales of the firm and reduces

finished goods storage period. Effective advertisement, sales promotion activities, efficient

salesmanship, used of appropriate distribution channel etc. reduce the storage period of the

finished products.

Sound Credit and Collection Policies : Sound credit and collection policies

enable the Finance Manager in minimizing investment in working capital in the form of



book debts. The firm should be discretionary in granting credit terms to its customers. In

order to see that the receivable conversion period is not increased, the firm should follow a

rationalized credit policy based on the credit standing of customers and other relevant facts.

The firm should be prompt in making collections. Slack collection policies will tie up funds

for long period, increasing length of operating cycle.

Proper Monitoring of External Environment: The length of operating cycle

is equally influenced by external environment. Abrupt changes in basic conditions would

affect the length of operating cycle. Fluctuations is demand, competitors, production and

sales policies, Government fiscal and monetary policies, changes on import and export

front, price fluctuations, etc., should be evaluated carefully by the management to minimize

their impact their adverse impact on the length of operating cycle.

Other Suggestions : The personnel manager by framing sound recruitment,

section, training placement, promotion, transfer, wages incentives and appraisal policies

can contrast the length of operating cycle. Use of Human Resources Development

technique in the organization, enhance the morale and zeal of employees thereby reduces

the length of operating cycle. Proper maintenance of plant, machinery infrastructural

facilities, timely replacement, renewals, overhauling etc. will contribute towards the control

of operating cycle.

These measures, if adhered properly, would go a long way in minimizing not only

the length of operating cycle period but also the firm’s working capital requirements.



Factor’s determining Working Capital Requirement

There is no set of universally applicable rules to ascertain working capital needs of

business organization. The factors which influence the need level are discussed below:

1) Nature of Business: If we look at the balance sheet of any trading organization,

we find major parts of the resources are deployed on current assets, particularly stock-in-

trade. Whereas in case of a transport organization major part of funds would be locked up

fixed assets like motor vehicles, spares and work shed etc. and the working capital

component would be negligible. The service organizations or public utilities need lesser

working capital than trading and financial organizations. Therefore, the requirement of

working capital depends upon the nature of business carried by the organization.

2) Manufacturing Cycle: Time span required for conversion of raw materials into

finished goods is a block period. The period in reality extends a little before and after the

work-in progress. This cycle determines the need of working capital.

3) Business Cycle Fluctuations: This is another factor which factor which

determines the need level. Barring exceptional cases, there are the variations in the demand

for goods/services handled by any organization. Economic boom or recession etc., have

their influence on the transactions and consequently on the quantum of working capital

required.

4) Scale of operation: Operational level determines working capital demand during

a given period. Higher the scale, higher will be the need for working capital. However,

pace of sales turnover (Quick or slow) is another factor. Quick turnover calls for lesser

investment in inventory while low turnover rate necessitates larger investment.



5) Credit Policy: Credit Policy of the business organization includes to whom,

when and to what extent credit may be allowed. Amount of money locked up in account

receivable has its impact on working capital. In good many cases, account receivables are

sterile and sticky and thereby they have forfeited the right to be classified as current assets.

In view of such situation in ascertaining quick ratio instead of deducting stock-in-trade we

find it worthwhile to deduct sundry debtors. The other component is credit policy of the

suppliers, their terms and conditions of credit. Trade credit has its historical presence in the

trading world. Availability of normal credit suppliers as well as trade credit facility

working capital supply and reduce the need for bank finance.

6) Accessibility to Credit: Credit worthiness is the precondition for assured

accessibility to credit. Accessibility in banks depends on the flow of credit i.e. the level of

working capital.

7) Growth and Diversifications of business: Growth and diversification of

business call for larger volume of working fund. The need for increased working capital

does not follow the growth of business operations but precedes it. Working capital need is

in fact assessed in advance in reference to the business plan.

8) Supply Situation: In easy stable supply situation, no contingency plan is

necessary and precautionary steps in inventory investment can be avoided. But in case of

supply uncertainties, lead-time may be longer necessitating larger basic inventory, higher

carrying cost and working capital need for the purpose. No aggressive approach can gain

foothold in such situation.

9) Environment Factors: Political stability in its wake brings in money market and

trading world. Things mostly go smooth. Risk ventures are possible with enhanced need for

working capital finance, similarly, availability of local infrastructural facilities, road,

transport, storage and market etc., influence business and working capital need as well.



Working Capital Ratios

Working capital ratios indicate the ability of a business concern in meeting its

current obligations as well as its efficiency in managing the current assets for generation of

sales. These rations are applied to evaluate the efficiency with which the firm manages and

utilizes its current assets. The following three categories of ratios are used for efficient

management of working capital: (I) Efficiency ratios (2) Liquidity ratios (3) Structural

health ratios

Efficiency ratio

a) Net Working Capital turnover ratio =

This ratio is computed by dividing sales by working capital. This ratio helps to

measure the efficiency of the utilization of net working capital. It signifies that for an

amount of sales, a relative amount of working capital is needed. If any increase in sales is

contemplated, working capital should be adequate and thus, this ratio helps management to

maintain the adequate level of working capital.

b) Inventory Turnover Ratio =

This ratio indicates the effectiveness and efficiency of the inventory management.

The ration shows how speedily the inventory is turned into accounts receivable through

sales. The higher the ratio, the more efficiently the inventory is said to be managed vice

versa.



c) Current Assets Turnover Ratio =

This ratio indicates the efficiency with which current assets turn over into sales. A

higher ratio implies by and large a more efficient use of fund. Thus, a high turnover rate

indicates reduced lock-up of funds in current assets. An analysis of this ratio over a period

of life time reflects working capital management of a firm.

Liquidity Ratios

i) Current Ratio=

This ratio indicates the extent of the soundness of the current financial position of

an undertaking and the degree of safety provided to the creditors. The higher the current

ratio the larger amount of rupee available per rupee of current liability, the more the firm’s

ability to meet current obligations and the greater safety of funds of short-term creditors.

Current assets are those assets, which can be converted into cash within a year. Current

liabilities and provisions are those liabilities that are payable within a year. Current

liabilities and provisions are those liabilities that are payable within a year. A current ratio

of 2:1 indicates a highly solvent position. A current ratio of 1.33: 1 is considered by banks

as minimum acceptable level for providing working capital finance. The constituents of

the current assets are as important as the current assets themselves for evaluation of

company’s solvency position.



ii) Quick ratio =

Quick ratio is a more refined tool to measure the liquidity of an organization. It is a

better test of financial strength than the current ratio, because it excludes very slow –

moving inventories and the items of current assets which cannot be converted into cash

easily. This ratio shows the extent of cushion of protection provided from the quick assets

to the current creditors. A quick ratio of 1:1 is usually considered satisfactory though it is

again a rule of thumb only.

Structural Health Ratios

i) Current Assets to Total Net Assets =

This ratio explains the relationship between current and total investment in assets. A

business enterprise should use its current assets effectively and economically because it is

out of the management of these assets that profits accrue. A business will end – up in losses

if there is any lacuna in managing the assets to the advantage of business. Investment in

fixed assets being inelastic in nature, there is no elbowroom to make amends in this sphere

and its impact on profitability remains minimal.

ii) Composition of Current Assets

An analysis of current assets component enable one to examine in which

component the working capital funds are locked up. A large tie-up of funds in inventories

effects profitability of the business adversely owning to carry over costs. In addition losses

are likely to occur by way of depreciation decay, obsolescence, evaporation and so on.

Receivables constitute another component of current assets. If the major portions of current

assets are made up of cash alone, the profitability will be decreased because cash is a non –

earning asset. If the portion of cash balance is excessive, then it can be said that

management is not efficient to employ the surplus cash



iii) Debtors Turnover Ratio =

This ratio shows the extent of trade credit granted and the efficiency in the

collection of debts. Thus, it is an indicative of efficiency of trade credit management. The

lower the debtors to sales ratio, the better the trade credit management and better the

quality (liquidity) of debtors. The lower debtors mean prompt payment by customers. An

excessively long collection period, on the other hand, indicates a very liberal, ineffective

and inefficient credit and collection policy.

iv) Debtor collection Period (in days) =

Debtor collection period, which measures how long it takes to collect amounts from

Debtors. The actual collection period can be compared with the stated credit terms of the

company. If it longer than those terms, then this indicates some insufficiency in the

procedures for collecting debts.

v) Bad debts to Sales =

This ration indicates the efficiency in the collection procedures of the company. The

actual ratio is compared with the target or norm to decide whether or not it is acceptable.

vi) Creditor payment Period (in days) =

The measurement of the creditor payment period shows the average time taken to

pay for goods and services purchased by the company. In general the longer the credit

period achieved the better, because delays in payment mean that the operations of the

company are being financed interest free by supplier’s funds. But there will be a point

beyond which, if they are operating in a seller’s market, may harm the company. If too

long a period is taken to pay creditors, the credit rating of the company may suffer, thereby

making it more difficult to obtain suppliers in the future.



CALCULATION OF WORKING CAPITALStatement showing working capital for the year 2003-04




Particulars Amount(Rs) Amount(Rs) Current AssetsCashBankDebtorsReceivablesClosing stocksLoans and advancesOther Assets

70,9411,01,29,88

027,19,80330,68,347

6,96,73,288

1,23,57722,66,506

Total current assets(a) 8,80,52,342

Current liabilities Creditors Tax Provision

1,77,75,103

2,94,85212,00,000

Total current liabilities(b)

1,92,69,955

Working capital (a-b) 6,87,82,387




68,9032,41,75,97

21,24,56,15

228,53,527

4,83,08,375

11,29,21614,94,158



92,88,6242,97,927

12,00,000


1,07,86,551





34,24451,74,12461,04,54028,57,527

4,11,43,901

6,05,38515,50,828



1,53,53,299

18210,00,000


1,63,53,481





44,7331,15,85,03

365,78,00028,57,527

3,72,97,944

34,84,00014,60,000



2,13,72,930

136610.00,000


2,23,74,296



Statement showing Changes in working capitalParticulars Amount(Rs)

(03-04)Amount(Rs)

(04-05)Current AssetsCashBankDebtorsReceivablesClosing stocksLoans and advancesOther Assets

70,9411,01,29,880

27,19,80330,68,347

6,96,73,288 1,23,57722,66,506

68,9032,41,75,9721,24,56,152

28,53,5274,83,08,375

11,29,21614,94,158

Total current assets 8,80,52,342 9,04,86,303


1,77,75,1032,94,852

12,00,000

92,88,6242,97,927

12,00,000

Total current liabilities 1,92,69,955 1,07,86,551Working capital 6,87,82,387 7,96,99,752

Increase in working capital

1,09,17,365



Statement showing Changes in working capital


Particulars Amount(Rs)(04-05)

Amount(Rs)(05-06)

Current AssetsCashBankDebtorsReceivablesClosing stocksLoans and advancesOther Assets

68,9032,41,75,9721,24,56,152

28,53,5274,83,08,375

11,29,21614,94,158

34,24451,74,12461,04,54028,57,527

4,11,43,9016,05,385

15,50,828



92,88,6242,97,927

12,00,000

1,53,53,299182

10,00,000

Total current liabilities 1,07,86,551 1,63,53,481Working capital 7,96,99,752 4,11,17,068

Decrease in working capital

3,85,82,684


Statement showing Changes in working capitalParticulars Amount(Rs)

(05-06)Amount(Rs)

(06-07)



Current AssetsCashBankDebtorsReceivablesClosing stocksLoans and advancesOther Assets

34,24451,74,12461,04,54028,57,527

4,11,43,9016,05,385

15,50,828

44,7331,15,85,033

65,78,00028,57,527

3,72,97,94434,84,00014,60,000



1,53,53,299182

10,00,000

2,13,72,9301366

10.00,000

Total current liabilities 1,63,53,481 2,23,74,296

Working capital 4,11,17,068 4,09,32,941

Decrease in working capital

1,84,127

Working capital ratio



Ratio Analysis and Interpretation

I. Net Working Capital turnover ratio =

(2003-04) = =3.45

(2004-05) = =3.17

(2005-06)= =4.60

(2006-07) = =4.31

Particular 2003-04 2004-5 2005-06 2006-07

Sales 23,79,61,388 25,31,62,924 18,94,13,902 19,30,70,239

Net working capital 6,87,82,382 7,96,99,752 4,11,17,068 4,47,78,898

Ratio 3.45 3.17 4.60 4.31



Net working capital turnover ratio

This ratio is computed by dividing sales by working capital. This ratio helps to

measure the efficiency of the utilization of net working capital. It signifies that for an

amount of sales, a relative amount of working capital is needed. If any increase in sales is

contemplated, working capital should be adequate and thus, this ratio helps management to

maintain the adequate level of working capital.

From the financial year 2003-04 to financial year 2005-06 the ratio is showing

increase in trend which means that they utilized their working capital for making sales

In the financial year 2006-07 the ratio is showing a slight decrease from the

financial year 2005-06. The ratio of 0.29 has been decreased. So the efficiency of

utilization of working capital is coming down.



Inventory Turnover Ratio =

(2003-04) = =3.41

(2004-05) = =5.24

(2005-06)= =4.60

(2006-07) = =5.17

Particular 2003-04 2004-5 2005-06 2006-07

Sales 23,79,61,388 25,31,62,924 18,94,13,902 19,30,70,239

Inventory 6,96,73,288 4,83,08,375 4,11,43,901 3,72,97,944

Ratio 3.41 5.24 4.60 5.17



Inventory Turnover ratio

In case of the inventory turnover ratio the higher the ratio the more efficiently the

inventory is said to be managed and vice versa.

By looking at inventory turnover ratio it is increasing yearly that is in year 2003-

04 it was 3.41 and the next three years ratio are 5.24 , 4.60 and 5.17 that are obtained for

the financial year 2004-05, 2005-06 and 2006-07 respectively. A substantial increase is

observed and goes on to show a healthy ratio.



Current Assets Turnover Ratio =

(2003-04) = =2-70

(2004-05) = =2.79

(2005-06)= =3.30

(2006-07) = =3.05

Particular 2003-04 2004-5 2005-06 2006-07

Sales 23,79,61,388 25,31,62,924 18,94,13,902 19,30,70,239

Current assts 8,80,52,342 9,04,86,303 5,74,70,549 6,33,07,237

Ratio 2.70 2.79 3.30 3.05



Current Assets Turnover Ratio

By and large this ratio indicates the efficiency and effectiveness with which current

assets are turned into sales. The higher turnover rate gives the picture of an efficient ratio

indicating reduced blockage of funds in current assets.

In case, financial year 2003-04, 2004-05, 2005-06 and 2006-07 the ratios were

found to be 2.70, 2.79, 3.30 and 3.05 respectively. A slight decrease has been found in the

ratio of the comparative years. In previous year it was found that a slight decrease in ratio

compared to 2005-06. Hence the current assets are utilized efficiently and effectively by

the mill.



Current Ratio=

(2003-04) = =4.57

(2004-05) = =8.40

(2005-06)= =3.51

(2006-07) = =2.83

Particular 2003-04 2004-5 2005-06 2006-07

Current assts 8,80,52,342 9,04,86,303 5,74,70,549 6,33,07,237

Current liability 1,92,69,955 1,07,86,551 1,63,53,481 2,23,74,296

Ratio 4.57 8.40 3.51 2.83



Current Ratio

In case of current ratio, a ratio of 2:1 is considered as an ideal one. In this case the

current ratio for the financial year 2003-04, 2004-05, 2005-06 and 2006-07 are 4.57, 8.40,

3.51 and 2.30 respectively.

It implies that in 2003-04 for every one rupee of current liabilities, current asset of

Rs 4.57 is available. And for year 2004-05, for every one rupee of current liabilities,

current assets worth Rs 8.40 are available and so on. The standard of 2:1 is met for the four

year in consideration. So it can meet its current liabilities through its current assets



ii) Quick ratio =

(2003-04) = =0.95

(2004-05) = =3.91

(2005-06)= =1.

(2006-07) = =1.

Particular 2003-04 2004-05 2005-06 2006-07

Quick asset 1,83,79,054 4,21,77,928 1,63,26,648 2,21,63,336


Ratio 0.5 3.91 1 1



Quick Ratio .

A quick ratio of 1:1 is usually considered as a standard, and represents a

satisfactory position. A low quick ratio may be an index of bed liquid position, but not

always and vice versa.

The ratio in the financial year 2003-04, 2004-05, 2005-06 and 2006-07 are 0.95,

3.91, 1 and 1 respectively.

Hence in this case it is found that the company meets the above the sets standards

with reference to quick ratio. But in the financial year 2003-04 the ratio was 0.95 which is

almost nearer to “1” so it doesn’t make much difference to the mill.



Debtors Turnover Ratio =

(2003-04) = =87.5

(2004-05) = =20.32

(2005-06)= =31.03

(2006-07) = =29.35

Particular 2003-04 2004-5 2005-06 2006-07

Sales 23,79,61,388 25,31,62,924 18,94,13,902 19,30,70,239

Debtor 27,19,803 1,24,56,152 6,10,4540 65,78,000

Ratio 87.5 20.32 31.03 29.35



Debtor Turnover Ratio

Generally, the debtor turnover ratio is an indication of the performance of the

company in terms of recovery of the debt and hence in this purview a higher the ratio or

increase goes on to show a positive development.

Here, in the financial year 2003-04, 2004-05, 2005-06 and 2006-07 the ratio are

87.5, 20.32, 31.03 and 29.35 respectively.

In the financial year 2003-04 the ratio was 87.5, and slowly coming down by this

we can say that company is not doing well over the year. So company has to take some

serious action to increase this ratio



Debtors collection Period (in days) =

(2003-04) = = 4 days

(2004-05) = =18 days

(2005-06)= =12 days

(2006-07) = =12days

Particular 2003-04 2004-5 2005-06 2006-07

Debtor 27,19,803 1,24,56,152 6,10,4540 65,78,000

Sales 23,79,61,388 25,31,62,924 18,94,13,902 19,30,70,239

Days 4 18 12 12



Debtor Collection Period

The debtor collection period goes on to show how long it takes for a company to

recover the debt. And hence a decrease or lesser debtor collection period shows a better

performance on the part of company.

In the financial year2003-04, 2004-05, 2005-06 and 2006-07 the debtor collection

period is 4, 18, 12, and 12 days respectively.

It shows that the company needs to re-look and revamp in this area.



Creditors payment Period (in days) =

(2003-04) = = 16 days

(2004-05) = =21 days

(2005-06)= = 24 days

(2006-07) = =71 days

Particular 2003-04 2004-5 2005-06 2006-07

Debtor 84,14,684 92,88,624 76,85,069 2,13,72,930

Sales 19,34,29,524 16,33,13,613 11,49,61,812 11,01,57,194

Days 16 21 24 71



Creditor Payment Period

The creditor payment period indicates how long the company or the firm has taken

to repay the creditor; a shorter creditor s payment period indicates better paying power and

performance on the part of the company.

In the financial year2003-04, 2004-05, 2005-06 and 2006-07 the creditor payment

period is 16, 21, 24 days and 71 days. So by looking at this the payment policy of mill is

not good, so mill has to pay to its creditors on time.



Cash Ratio

Cash Ratio=

2003-04) = =0.529

(2004-05) = =2.24

(2005-06)= =0.31

(2006-07) = =0.519

Particular 2003-04 2004-5 2005-06 2006-07

Current assts 1,02,00,821 2,42,44,875 52,08,368 1,16,29,766


Ratio 0.529 2.24 0.31 0.519



Cash Ratio:

The standard of 0.5:1 is considered as norms for calculating the cash ratio. This

ratio also indicates liquidity position and company and firms commitment to meet its short

-term liabilities.

The mill is having absolute current asset are sufficient to meet is day to day

requirement. The mill has good cash ratio i.e. in the financial year 2003-04 and financial

year 2004-05 the ratio were 0.529 and 2.24 respectively which satisfies the set norms. In

the financial year 2005-06 the ratio came down to 0.31 which is not good for mill. And in

the year 2006-07 the ratio again increased to 0.519 which shows that mill has made

improvement



Findings:

1) The cash of the mill is near to 0.5, so it has to look after this so that it won’t come below the set norms.

2) Working capital turnover ratio of the mill is coming down. This means that mill’s efficiency of utilising its working capital is coming down.

3) It was found that the current ratio of mill is more than the set norms, which is more than “2”. It means that mill has utilised its current assets efficiently and effectively.

4) Mills debtor turnover ratio is decreasing which signifies that mill is not collecting its debt properly

5) The inventory turnover ratio is increasing. It means that the inventory is moving quicker and faster.



SUGGESTIONS:-

1) Try to gain more orders from the outside countries by exporting required quality of

product.

2) The current ratio of BCSM is quite healthy and we can say that it is a sound

concern as its liquidity or short term solvency is satisfactory.

3) Generally a quick ratio of 1:1 is considered ideal and represents a satisfactory

position. Here it shows that BCSM has maintained 1:1 ratio. It can easily handle or

meet its liabilities without any delay.

4) Inventory turnover ratio of BCSM is quite satisfactory because in the financial year

2005-06 and 2006-07 the inventory turnover is 4. 60 and 5.17

5) If too long period is taken to pay creditors, the credit rating of the company suffers,

thereby making it more difficult to obtain suppliers in the future. But the company’s

creditor payment period is more. In the financial year 2005-06 it is24 days and in

year 2006-07 its 71 days. So it has to pay its creditor in time to maintain its good

will

6) Company has to pay to their suppliers on time.

7) Sales of the mill are coming down, so it has to increase its sales by using

promotional activities and can invest more in working capital.



Conclusion Lastly I conclude that this mill has good opportunity to expand its business

because there are no competitors. BCSM is the only player in Bagalkot district. Initially

there were three mills in Bagalkot district and both of the mills have closed down, so it has

great opportunity to develop.

1) The company should recruit well trained persons.

2) Reduced blockage of fund

3) Companies’ inventory turnover ratio is increasing; it means that company has

managed its inventory properly.

4) For growth & expansion of the market promotional scheme must be adopted.

5) Staff & Employee is to be trained in technical course / refresher course more as

the industry is technical oriented.

6) Modern technology should be adopted.

7) The company can try to gain more and more orders to improve financial

position.

8) Training program should be organised more in numbers.



BIBLIOGRAPHYANNUAL GENERAL REPORT OF BCSM LTD BANHATTI

FINANCIAL MANAGEMENT BY: RAVI. M. KISHORE

JOURNAL & MAGAZINES OF SPNNING MILL


A Project Report on WORKING CAPITAL AT BANHATTI CO-OPERATIVE SPINNING MILL LTD, BANHATTI

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