Description
Arvind Mills, the flagship company of the Lalbhai Group, is a producer of composite manufacturer of textiles. Its headquarters is in Ahmedabad, Gujarat, India. It manufactures a range of cotton shirting, denim, knits and bottomweights (Khakis) fabrics.
A SUMMER PROJECT ON
SUBMITTED BY: MEGHA JAIN PROJECT GUIDE: Mr. HIREN RAO
SUBMITTED TO: ARVIND LIMITED
CERTIFICATE
THE ARVIND LIMITED
Naroda Road, Ahmedabad-380 025 India. Phone
079) 22203030
A MEMBER OF LALBHAI GROUP
TO WHOMSOEVER IT MAY CONCERN This is to certify that MEGHA JAIN ,a student of K.S. SCHOOL OF BUSINESS MANAGEMENT ,has successfully completed her training at the Finance & Accounting Department of THE ARVIND limited, under the guidance of MR.HIREN RAO. The project duration was from 10th may to 10th july, 2010. We wish her all the best for future career pursuits. THE ARVIND limited Mr. Shobit Tyagi Head – Corporate Human Resources
PREFACE For a long time, there is a wind of recession blowing all over the business world and wealth liberalization policy in the Indian Economy. So, nowadays market is becoming more and more competitive.Company demands more and more professional and accomplished employees. Students have to get practical training along with the theoretical knowledge of the business condition. There are many advantage of making these kinds of reports. Reading gives only the theoretical knowledge but training gives an apportunity to learn and apply the concepts in the real corporate world. It is true that technical studies can not be perfect without practical training and perfection is basic necessity of management student.
ACKNOWLEDGEMENT
Feelings of gratefulness to anyone‘s help directly arise from bottom of the heart. The small but an important act can prove to be a milestone in one‘s life. We have achieved an important milestone in our life by the completion of this project. The project is dedicated to all the people whom we met and took guidance from.I take this opportunity to thank the individuals who made this report a success. First of all,I am very fortunate that I got training in ARVIND limited.I sincerely thank MISS MILLI DAS (Head –HR Department). It is through her continuous guidance and support that the project has become reality. I would like to thank Mr. HIREN RAO (Head –Finance Department) our Project guide, not only for giving me the opportunity to work on this project, but also for providing me with sound guidance and the necessary facilities to carry out the project. He constantly insisted and helped me in learning new things. He provided me a lot of learning opportunities. Sincere appreciation is extended to Mr.VINEET SHAH for his immense help during the course of this work. I would like to thank Mr. DHARMESH PANDYA, for enabling me to learn and work on SAP for fixed assets module. Iwould like to thank MS. INGITA JAIN,our Project faculty guide, who continuously monitored my work and provided guidance as and when I needed.
MEGHA JAIN K.S.SCHOOL OF BUSINESS MANAGEMENT
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No. Name of content 1. Introduction to textile industries
1.1 Evolution & evaluation of the textile industries 1.2 Indian textile Industries 1.3 Gujrat textile Industries 1.4 Textile Industries Key Facts 1.5 Major Players in the textile Ind. In India
2. Introduction to Arvind Mills Limited
2.1 Company Profile 2.2 Fabric Production 2.3 Organization Structure 2.4 Subsidiaries 2.5 Board Of Directors 2.6 Group Overview 2.7 Company’s Vision 2.8 Company’s Mission 2.9 Company’s Philosophy 2.10 Functioning of the Organization 2.11 Denim Manufacturing Process 2.12 Market Network of Arvind 2.13 Portfolio of Arvind limited 2.14 Milestone Achieved 2.15 Financial Scenario
Pg no 1 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 21 24 29 30 32
2.16 Shareholding Pattern of Arvind Limited
3. Working Capital Management
3.1 Concept of Working Capital 3.2 Form of Working Capital 3.3 Sources of Working Capital 3.4 Objective of Working Capital 3.5 Determinates of Working Capital 3.6 Significance of adequate Working Capital 3.7 Effects of excessive Working Capital 3.8 Balance sheet of Arvind Limited 3.9 Profit & Loss Account of Arvind Limited 3.10 Working Capital on Arvind Limited 3.11 Operating and Cash Conversion Cycle 3.12 Period of Operating Cycle 3.13 Working Capital policy 3.14 S W O T Analysis 3.15 Future Requirements 3.16 Interpretation of Working Capital
4. Recommendations 5. Conclusion 6. Bibliography
33 36 37 38 42 45 46 48 49 50 51 52 63 69 70 72 73 74 76 77 78
INTRODUCTION
The Indian textile industry has a significant presence in the economy as well as in the international textile economy. Its contribution to the Indian economy is manifested in terms of its contribution to the industrial production, employment generation and foreign exchange earnings. It contributes 20 % of industrial production, 9 % of excise collections, 18 % of employment in the industrial sector, nearly 20 % to the country‘s total export earning and 4 % to th e GDP. CONTRIBUTIONS OF TEXTILE INDUSTRY IN ECONOMY
Series1, GDP, Chart Title 4%, 6% Series1, Country’s total Export Earning, 20%, 28% Series1, Industrial Production, 20%, 28%
Series1, Employment in the Industrial Sector, 18%, 25%
Series1, Excise Collections, 9%, 13%
In human history, past and present can never ignore the importance of textile in a civilization decisively affecting its destinies, effectively changing its social scenario.
Segments in textile industry:
? ? ? ? ? ? Readymade Garments- denims, made-ups, shirts, etc. Cotton Textiles including Handlooms (Mill made / Power loom/ Handloom) Man-made Textiles Silk Textiles Woolen Textiles Handicrafts including Carpets
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Coir Jute
? Evolution of Textile Industry
The ?RAG TRADE‘, as it is referred to in the UK and Australia is the manufacture, trade and distribution of textiles.There were various stages – from a historical perspective – where the textile industry evolved from being a domestic small-scale industry, to the status of supremacy it currently holds. The ?cottage stage‘ was the first stage in its history where textiles were produced on a domestic basis. During this period cloth was made from materials including wool, flax and cotton. The material depended on the area where the cloth was being produced, and the time they were being made.
In the later half of the medieval period in the northern parts of Europe, cotton came to be regarded as an imported fiber. During the later phases of the 16th century cotton was grown in the warmer climates of America and Asia.
A number of new innovations led to the industrialization of the textile industry. In the initial phases, textile mills were located in and around the rivers since they were powered by water wheels. After the steam engine was invented, the dependence on the rivers ceased to a great extent. In the later phases of the 20th century, shuttles that were used in the textile industry were developed and became faster and thus more efficient. Today, modern techniques, electronics and innovation have led to a competitive, low-priced textile industry offering almost any type of cloth or design a person could desire. With its low cost labor base, China has come to dominate the global textile industry.
? Indian Textile Industry
Until the economic liberalization of Indian economy, the India Textile Industry was predominantly unorganized industry. The opening up of Indian economy post 1990s led to a stupendous growth of this industry. Textile industry in India is the second largest employment generator after agriculture. It holds significant status in India as it provides one of the most fundamental necessities of the people. Textile industry was one of the earliest industries to come into existence in India and it accounts for more than 30% of the total exports. In fact Indian textile industry is the second largest in the world, second only to china. Till the year 1985, development of textile sector in India took place in terms of general policies. In 1985, for the first time the importance of textile sector was recognized and a separate policy statement was announced with regard to development of textile sector. In the year 2000, national textile policy was announced. its main objective was: to provide cloth of acceptable quality at reasonable prices for the vast majority of the population of the country, to increasingly contribute to the provision of sustainable employment and the economic growth of the nation; and to compete with confidence for an increasing share of the global market. The policy also aimed at achieving the target of textile and apparel exports of us $ 50 billion by 2010 of which the share of garments will be us $ 25 billion.
TEXTILE INDUSTRY KEY FACTS
? Indian Textile Industry is one of the largest and oldest industries in India. ? Indian Textile Industry is highly fragmented industry; at the same time it is an independent and self-reliant industry that has shown sustainable growth over the years. ? Indian Textile Industry is second largest industry in terms of providing vast employment opportunities and employs around 35 million people in country after agriculture sector...
? The Indian Textile Industry plays vital role in economic development and contributes 14% to industrial production in the country. ? Textile Industry contributes around 4% of GDP, 9% of excise collections, 18% of employment in industrial sector, and has 16 % share in country‘s export ? Industry has direct and strong linkage with rural and agriculture sector, therefore it is estimated that, one of every six households in country is directly or indirectly dependent on this industry. ? Industry contributes around 25% share in the world trade of cotton yarn. ? India is evolved as a major contributor in world‘s cotton sector. Indian is the world‘s third-largest producer of cotton and second-largest producer of cotton yarns and textiles. ? India is the largest exporter of yarn in the international market and has a share of 25% in world cotton yarn export market. ? India contributes for 12% of the world‘s production of textile fibers and yarn. ? Indian textile industry is second largest after China, in terms of spindle age, and has share of 23% of the world‘s spindle capacity. ? India has around 6% of global rotor capacity. ? The country has the highest loom capacity, including handlooms, and has share of 61% in world loom age. ? Including textiles and garments, 30% of India's export comes from this sector. ? Indian Textile Industry is one of the largest industries that provide high exports and foreign revenue. ? Large and potential domestic & international market, large pool of skilled and cheap labor, well-established industry, promising export potential etc. are few strengths of Indian Textile Industry. ? Highly Fragmented, High dependence on cotton sector, Lower productivity, Unfavorable Labor Laws is few drawbacks of the industry from which it has to overcome. ? After the elimination of quota restrictions and implementation of National Textile Policy 2000, it is estimated that the industry will grow with rapid rate and help to strengthen the Indian economy
STRENGHTS OF TEXTILE INDUSTRY
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India has rich resources of raw materials of textile industry. It is one of the largest producers of cotton in the world and is also rich in resources of fibers like polyester, silk, viscose etc. India is rich in highly trained manpower. The country has a huge advantage due to lower wage rates. Because of low labor rates the manufacturing cost in textile automatically comes down to very reasonable rates. India is highly competitive in spinning sector and has presence in almost all processes of the value chain.
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Indian garment industry is very diverse in size, manufacturing facility, type of apparel produced, quantity and quality of output, cost, requirement for fabric etc. It comprises suppliers of ready-made garments for both, domestic or export markets.
WEAKNESS OF TEXTILE INDUSTRY
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Indian textile industry is highly fragmented in industry structure, and is led by small scale companies. The reservation of production for very small companies that was imposed with the intention to help out small scale companies across the country, led substantial fragmentation that distorted the competitiveness of industry. Smaller companies do not have the fiscal resources to enhance technology or invest in the high-end engineering of processes. Hence they lose in productivity. Indian labor laws are relatively unfavorable to the trades and there is an urgent need for labor reforms in India. India seriously lacks in trade pact memberships, which leads to restricted access to the other major markets.
INDIAS MAJOR COMPETITIORS IN THE WORLD
? Gujarat Textile Industry
Gujarat is one the leading industrial states in India and textile industry in India in particular had contributed in big way to the industrialization of the state. In fact, development of the many industries like dyestuff, chemicals Engineering/foundry and cotton farming is solely dependent on these sectors. The
state is well known for development of hybrid cotton, ginning, power looms, composites mills, spinning units and independent processing houses.
In Gujarat, textile manufacturers use cotton based fabrics in mill sector, major reason being the availability of the basic raw materials in the state, i.e. cotton. Similarly many spinning units producing more conservative yarns were established in the state. The state happened to be more conservative with cotton textile products mainly in the organized sector, weaving and synthetic textile in decentralized sector. Surat art silk manufacturers are only exception. Similarly, independent processing units process synthetic blended and cotton fabrics. Clusters of processing units are located in Surat, Ahmedabad and Jetpur, though these production units have good capacity of processing wide range of fabric.
Ready-made Garment manufacturing and hosiery knitwear unit also exists in SSI categories. In early 1990‘s Gujarat saw dramatic change in its textile industry scenario where quite a few textile mills started manufacturing Denim. The Arvind mills, Ashima Textiles, Soma Textiles, Modern Denim, and Arvee denim started manufacturing denim. So many mills at a time fetched a new name for Ahmedabad ?Denim city of India? whereas city of Surat became ?Silk city of India?.
MAJOR PLAYERS IN THE TEXTILE INDUSTRY IN INDIA
Arvind limited. Arvind Mills is one of the major and fully vertically integrated composite mills players in India. It has large production in denim, shirting and knitted garments. It is now adding value by manufacturing denim apparel. Its sales are around US$ 300 million. Raymond?s Raymond‘s has the large, diversified integrated business model, which is spread across the value chain from yarn to retail. It is specialized in Diversified woolen textiles. It already supplies to some US retailers.
Reliance Textiles: Reliance Textiles is one of the major Textile Company that is in business of fully integrated manmade fiber. It has capacity of more than 6 million tones per year. It has joint venture partners like, DuPont, Stone & Webster, Since (Italy) etc. ? Vardhaman Spinning vardhman deals in spinning, weaving and processing segment of the industry. It is planning to double its fabric processing capacity to 50 million meters. It is an approved supplier to global retailers like Gap, Target and Tommy Hilfiger. Its sales are little over US$ 120 millions ? Welspun India (Manufactures terry towels) ? Century Textiles (Composite mill, cotton & Man-made) ? Morarjee Mills (Fully integrated Composite Mill) ? Indo Rama (Cotton and Man-made) ? GTN Textiles (Cotton Yarn and Knit Fabrics) ? Ginni Filamentslimited. (Yarn and Fabric) ? LNJ Bhilwara Group (Diversified and vertically integrated denim producer with spinning and weaving capacity) ? Mafatlal Textiles (Fully integrated Composite Mill) ? Modern Group (Diversified, producer of denim, syntax and thread) ? Ashima Syntax (Man-made Fiber) ? KG Denim (Fabrics) ? Sanghi Polyesterslimited. (Manmade Fiber) ? Nova Petrochemicals (Man-made Fiber) ? S. Kumar Synfabslimited. (Home furnishing and Suit Fabrics) ? Bombay Dyeinglimited. (Composite and fully integrated) ? Rajasthan Petro synthetics (Diversified) ? BSLlimited. (Textiles) ? Garware Polyester (Diversified) ? Banswara Syntex (Composite) ? National Rayon Corp. (Man-made fiber) ? GSL Indialimited. (Threads) ? Indian Rayon (Man-Made Fiber)
? Alok Textiles (Cotton and Man-made Fiber Textiles) ? Sharda Textile Mills (Man-made Fiber) ? Birla Group Dormeuil Birla VXLlimited. (Fully integrated woolen textiles) ? Gokuldas Images (Diversified) ? Hanil Era Textiles (Yarn, Cotton & Man-made Fiber) ? Oswal Knit India (Woolen Wear) ? Niryat Sam Apparels (Apparel)
MAP SHOWING LOCATION OF TEXTILES CENTRES IN INDIA
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Company Profile
The aim was to indigenously produce fine and superfine cotton fabric as well as traditional material for vast potential Indian market. At this juncture, Arvind Mills was set up with the pioneering effort of three brothers, Kasturbhai, Narrotambhai and Chimanbhai Lalbhai becoming World‘s largest exporter and Asia‘s largest producer of denims. During 1980s several mills in Ahmedabad closed down as a result of competition from cheaper cloth produced by small power loom enterprises. Militancy spurred by textile labour unions prevented the shutdown of several lossmaking mills, and in the mid 1980s Ahmedabad was a city of industrial strives. ARVIND MILLS has risen like a phoenix from the ashes of Ahmedabad textile mills. In just eight years it has successfully implemented a turnaround strategy. Established in 1930, Arvind Limited is the flagship company of $ 498 million. Lalbhai Group has now focused its attention on few selected core product groups. Arvind today is a one-stop shop for all cotton fabric requirements, where product range spans the entire gamut of cotton fabric. It is also a rapidly expanding manufacturer of garments such as jeans and shirts. With the best technology and business acumen Arvind Mills became the true multinational producing the finest fabric available in the country that rivaled imported fabric. Since then, there has been no looking back. Having established itself as India‘s largest denim manufacturer, Arvind Mills is confident that in the near future it will become the fifth largest denim producer in the world.
FABRIC PRODUCTION
In the 1980s the growing threat from small power loom operators forced Ahmedabad‘s composite mills to shift their focus to product areas in which they could compete. In order to better address newer and wider business opportunities, the company shifted perspective from domestic to international markets. At a time when the local textile industry was declining, Arvind‘s management devised a turnaround strategy called ?Reno vision?. It represented an open-minded approach that would seek out new opportunities. In 1987 Arvind Mills made a conscious strategic decision to change its production emphasis from a portfolio of traditional domestic textiles to high quality cotton fabrics. This required a level of technological expertise, which small power loom operators could not compete with. Arvind identified denim as a key fabric. International consultants McKinsey & Co. helped to frame company‘s business strategy, formulate its organizational restructuring and establishing international alliances. Today the company is engaged primarily in the manufacturing of indigo-dyed denim fabrics, fine and superfine cotton shirting and bottom weights, and conventional
domestic fabrics such as sarees and voiles. In 1995 Arvind Mills held an 80% share of India's domestic market for denim.
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Organizational structure
Arvind defines its operations in terms of Strategic Business Units (SBUs). Each product line – such as denim, shirting, knits, voiles, etc – is designated as an SBU. Each unit is headed by a president who is able to make independent decisions on finance and marketing. The president is assisted by vice-presidents who look after functional divisions.
SUBSIDIARIES
Arvind Mills has 11 subsidiaries, of which seven are in textile and related businesses. They are: ? Arvind Clothinglimited.
? Arvind Fashionlimited. ? Arvind Worldwide Inc, USA
Arvind Clothinglimited (ACL), situated in Bangalore, began commercial
production in April 1994. ACL is the exclusive licensee in India of CluettPeabody & Co of the USA, which owns the Arrow brand name. It has the capacity for making 1 million shirts per annum, and has received ISO 9002 certification.
Arvind Fashionlimited (AFL) is a licensed user of the brand names belonging
to the US Company VF Corporation, which owns the well-known international trade mark ?Lee?. The company has a letter of intent from the Indian government (pending the issue of a license) permitting it to manufacture up to 960,000 garments per annum, provided it exports 50% of the garments produced.
AFL has invested Rs.160 million in establishing a jeans manufacturing unit at Bangalore. The state-of-the-art factory, which has a production capacity, of 500,000 pairs of jeans per annum, is equipped with machines made in the USA, Japan and Europe.
Spring 1995 saw a launch of a wide range of products-including jeans, jackets, denim shirts, twill shirts, T-shirts and accessories such as belts and bags –under the ?Lee? trade mark. These are sold through exclusive showrooms located in major cities throughout India. Although its current turnover is small, AFL is in good position to capture a significant share of the growing domestic market.
? Board of Directors
The top management of the company consists of following members:
Name Mr. Sanjay S. Lalbhai S/O Mr. Shrenikbhai Lalbhai Mr. Jayesh k. Shah S/O Mr. Kantilal Shah Mr. G.M. Yadwadkar S/O Mr. M.A Yadwadkar Mr. S.R. Rao S/O Raghunatha Rao Mr. K.M. Jayarao
Designation Executive Chairman & Managing Director (Promoter)
Executive Director & Chief Financial Officer Non-Executive, Independent – Nominee Director IDBI Banklimited. Non-Executive, Independent – Nominee Director EXIM Bank of India Non-Executive, Independent – Nominee Director ICICI Banklimited. Non-Executive, Independent – Director Non-Executive, Independent – Director Non-Executive, Independent – Director
Mr. Sudhir Mehta S/O Uttamlal Nathalal Mehta Mr. Tarun Sheth S/O Natwarlal Gordhandas Sheth Mr. Munesh Khanna S/O Narindra Khanna
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Company?s Vision
"To achieve global dominance over various businesses built around our core competencies, through continuous product and technical innovation, customer orientation and a focus on cost effectiveness".
All along Lalbhai Group has maintained a responsive yet levelheaded attitude towards the society and its training individuals to create a corporate culture that fosters excellence. Working in this direction the company has created a learning environment that nurtures individual talent and intellect. It provides a platform that challenges the individual capabilities urging them to constantly strive forward towards greater heights using development as the fundamental tool.
It infuses in individuals a spirit of entrepreneurship which gives courage and conviction to pursue set goals towards logical achievement and a global mindset that transcends geographical and cultural boundaries evolving as a world leader. All this is manifest in an environment fostering innovation and leadership.
Drawing from the Team based structure to encourage individuals to mesh up into cross-cultural teams in all operational processes. This process provides opportunities for individuals to match their capabilities with organizational expectations creating a mechanism for updating the system. A strong sense of ownership and commitment towards the organization and the business as a whole is the basic premise of all the company actions.
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Company?s Mission
Arvindlimited. has laid down certain aims and objectives to be achieved while pursuing its corporate activities. These are:
? To provide a favorable work environment to the employees to direct their working towards achievement of corporate goals.
? To provide opportunities creating a mechanism for updating the system
? To manage the institution as a trust, as empowered leaders and do all that needs to be done ethically for the purpose of the institution.
? To create a vibrant institution for the future of this nation and the world at large
? To be a world leader in an environment fostering innovation and leadership.
? To reinforce connections, and catalyze the chemistry that allows connections to be translated into action which is beneficial for both the organization and the individual.
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Company?s Philosophy
"It is my responsibility as a leader to create an environment where excellent people would like to come and give their best, to create a vision, to give freedom for excellence." - Sanjay Lalbhai (Managing Dir.)
?We believe in potential of every human being. Our Human Resource Development policy reflects this belief.
We recruit the best talent wherever we do business, offer competitive compensation, provide a dynamic work environment, make people accountable for results, and chart their growth through systematic career planning. Our structures are well defined which allows us to be more flexible and respond to the customers promptly.
We encourage innovation and entrepreneurship and motivate our people to take on leadership roles through job re-assignments. This helps us create a learning organization with a workforce that has multi-dimensional experiences and skills.
Our campus recruitment program and on-going involvement with educational institution ensures access to highly trained managers, engineers and workers to support our aggressive global plans. And our training centers – FOUNTAINHEAD (the hub of all training activities at Arvind), INDRADHANUSH (for operatives), ORCHID (for behavioral training), and CALCULUS (for computer training) – ensures they continue to learn and grow.
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Functioning of the Organization
Each ?Strategic Business Unit‘ is headed by a Business Head. There are also small garment units at Asoka and Retail outlets at Naroda. The organization has adopted a Hybrid Structure to be more responsive to the changing markets in which the Functional and the Divisional structures are combined together. As the organization grew larger with several products and markets, it typically organized into selfcontained divisions. Functions like marketing, which is important to each product or market are decentralized to the self-contained units. However, some functions like Finance, MIS, Legal and Secretarial, Taxation and Services that are stable and require economies of scale and in-depth specialization are centralized at Naroda Corporate headquarters. Each of these departments provides services for the entire organization.
The main product divisions are Denim, Shirting, Knits and Central Utility that are created to serve a different market. Individually, they all require a different strategy and management style. Each product Line Head is in charge of all functions of that product such as marketing, planning, supply and distribution, and manufacturing. There is no Matrix reporting, which means that they follow one-to-one reporting. The Supervisors will report to the Functional Heads or Managers and the managers in turn will report to the Managing Director who is the apex of the organization.
EMPLOYEES
The company in all is operating on strength of nearly 3000 managerial cadder employees and approximately 15000 first line managers. Employees are all qualified and technically efficient to serve its clients. Employees are given training of all the products and services so that they can serve its clients better. Company has a healthy incentive structure for its employees.
TURNOVER The approximate turnover of the company was Rs. 2344.99 crores (as per current financial year 2008-2009).
GEOGRAPHICAL SPREAD Arvind‘s worldwide network facilitates Global account management for the leading brands and local customers. With offices in New York, London, Bangladesh, Delhi, Ahmedabad, Mumbai, and Bangalore, Arvind has made itself ready to attend to its customers anywhere on the Globe. Besides their global offices, they have independent and devoted sales force for all locations and dedicated resources for key accounts.
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Denim Manufacturing Process
The term "Denim" has originated from the city of Nimes in France where "serge de Nimes" was manufactured. Denim is made from a vat dye, the Indigo dye, which is applied to cotton fabric in loosely held form in layers. As far as manufacturing process of denim is concerned, it is similar to that of Grey fabric up to the process of weaving with the only difference that in case of Denim Fabric, it is dyed at the stage of sizing where as in case of Grey Fabric, the decision regarding dyeing stage depends upon the finished product.
SPINNING
The initial processes of denim manufacturing consist of the regular activities of opening and blending of cotton fibers. Carding is done to remove any foreign matter and the short fibers so that cotton takes the form of a web which is then converted into a ropelike form, the sliver. Then drawing process produces a single, uniform sliver from a number of carded slivers. Yarn is then spun through Open-End Spinning or Ring Spinning. Roving is also carried on, if the spinning has to be done through Ring Spinning. Generally, denim fabric are 3/1 warp-faced twill fabric made from a yarn dyed warp and an un-dyed weft yarn. Normally dyed and Grey ring or open- end yarns are used in warp and weft respectively. The warp yarn is indigo dyed.
WARP preparation – Dyeing and Sizing process
Warp yarns are indigo dyed and sized with the help of two methods: (i) Threads from several back beams are combined to form a warp sheet and dyed and sized on the same machine. (ii) Threads, about 350-400 in number are formed into ropes. 12-14 ropes run adjacent to each other through the continuous dyeing unit. After dyeing, the ropes are dried on drying cylinders and then collected in a can.
After that, a worker's beam is prepared. Sizing is then done in the conventional manner.
WEAVING
The weaving process interlaces the warp, which are the lengthwise indigo dyed yarn and the filling, which are the natural-colored cross-wise yarn. The warp thread is in the form of sheet. The weft thread is inserted between two layers of warp sheets by means of a suitable carrier, such as Shuttle, Projectile, Rapier, Air current, Water current, etc. The selection of carrier depends upon the type of weaving machinery used. The two different technologies available for weaving machines are Conventional Shuttle Weaving System which is done by Ordinary Looms or Automatic Looms; and the Shuttle less Weaving System which is done by Air jet, Water jet, Rapier, or a Projectile weaving machine. The Conventional Shuttle loom results in lesser production due to slow speed and excessive wear and tear of machinery. As such, now denim is generally woven through Shuttle less Weaving System namely, Airjetlooms, rapier looms, or projectile looms.
QUALITY ASSURANCE (Q.A)
In Q.A 10% of sample is tested through an important machine which is brought from Switzerland. There is a test for fabric strength, purification, diameter, thickness, weight, quality etc. Q.A got ISO-17025 certificate from NABL. There are 28 methods of testing.
FINISHING
The final woven fabric, wound on a cloth roll, is taken out from weaving machines at particular intervals and checked on inspection machines so that any possible weaving fault can be detected. In this quality control exercise, wherever any fault is seen, corrective measures are taken then and there only. The woven Denim Fabrics then goes through various finishing processes, such as brushing, singeing, washing, impregnation for dressing and drying. Brushing and
singeing eliminate impurities and help to even the surface of denim fabric. Dressing regulates the hand and rigidity of the fabric while compressive shrinking manages its dimensional stability. The standard width denim fabrics are then sent for making up. In this process, the fabric is cut into the desired width according to the size required. The made- up denim fabric is then thoroughly checked for defects such as weaving defects, uneven dyeing, bleaching and dyeing defects, oil stains, or patches. After inspection, the final product is categorized quality-wise. The faultless fabrics are sent to the packaging department while the defective ones are sent for further correction.
INSPECTION
There are four rating system. It inspects physical parameter like width, square & linkej. Complete material inspection is done as per the quality requirement of the customer & from their product is delivered in the market. There are 13 inspection machines and each machine has two operators.
? Market Network of Arvind
Only two ingredients go into the making of Arvind denim – world-class quality and complete customer orientation. A strong team of industry‘s best-qualified talents forms the founding dimensions.
Arvind Limited today is reinforcing its marketing efforts by focusing on brand development. They expect to strengthen its existing relationship with global brands such as Marks & Spencer, V.F. Corporation, Calvin Klein, GAP, Benetton, Polo, Espirit, Tommy Hilfiger, Hugo Boss and Liz Clairborne to list a few by developing value added products and providing superior level of service. The complexity has enhanced Arvind's product range and made it more responsive to the changing requirements of some of the leading garment brands.
Arvind has single handily developed a multi-billion denim market in India. The BRANDS fostered by Arvind include:
Lee & Arrow for the super premium segment
Flying Machine & Excalibur for the premium segment
Newport for the economy and
Innovative „Ruf & Tuf? for the mass market
The company has recently made a foray into children segment by introducing Lee Youth, Ruggers Kids & Newport Kids. Similarly in tie-up with Cluett Peabody, USA, to manufacture and market their world famous Arrow shirts, it launched what is today‘s India‘s most inspirational brand of dress shirts. In a world without boundaries, Arvind FABRICS are equally universal in their appeal. Arvind aims to enrich lifestyles globally, inspiring diverse customers with the beauty of their fabric.
Arvind was already making shirting for the Indian market. In 1990, it decided to focus on high value shirting, so as to expand their markets beyond India's borders. As a part of their commitment to being a value-adding partner to each of the customers, Arvind Shirting‘s have invested US $ 100 million in Santej. This plant has an annual capacity of 34 million meters of 100% cotton woven. Arvind's philosophy in manufacturing is 'Excellence in Quality and Flexibility in Production'. In the entire process of operations, eco-friendliness is critically monitored and ensured. The plant is also configured to handle small order sizes as well as very long order lengths with consistent quality.
Arvind has recently set up a dedicated bottom weights plant as part of Arvind Polycot Limited. This new addition to the Arvind Textile Complex brings the total investment in the complex up to Rs.12000 million. The plant is an integrated facility that sources yarn from Arvind at Ahmedabad. It has both weaving and processing infrastructure, captive power supply, steam generation and a wastewater treatment plant. The latter makes it a zero discharge complex i.e. one that recycles all its wastewater.
In 1986, we looked for textiles that had global demand, high margins, and high entry level barriers (either of technology, expertise or set-up costs), and very importantly, low "fashion volatility". We wanted to focus on fabric that would never go out of style. Our analysis of potential products threw up denim as the answer. With a production capacity of 120 million meter per annum, Arvind is currently India‘s largest and world‘s third largest denim manufacturer. It sells under the brand names ?ARVIND DENIM? and ?BIG MILL DENIM? (in Europe). In India Arvind commands a market share of approximately 64% which is five times that of the next largest player. Our denim is used to make India‘s leading jeans brands – Flying Machine, Killer, Levi‘s, Numero Uno, Pepe, Texas jeans, UFO and Wrangler. All the leading local denim manufacturers use ?Made from original Arvind denim? as an indicator of high quality and consistency. Arvind also exports denim to over sixty-six countries worldwide. Denim exports constitute of approximately 50% of the turnover.
Today Arvind is making yet another foray in the manufacture of the finest quality Cotton Knits in the world. This new venture features a technical collaboration with Alamac Knits Inc, USA to manufacture high value and high-fashion knits. With an investment of US $50 million, the plant will produce fabric in both tubular and open widths. The product range aims to offer widest choice in both tubular and open widths in single (Jersey, Pique, Textures, Pointless, Fleece, French Terry, Jacquards in solids, feeds and automatics) and double (Interlocks, Needle-outs, ottomans, Pointless, Textures, Reversible, jacquards, Ribs in solids, feeds and automatics, Collars: Plains and Jacquards) knits. It will manufacture a knits range from casuals to formal, active wear to sleepwear, for diverse use in men's, women's and children's clothing. Arvind‘s large color and fabric library, stocking samples and a well equipped fabric resource centre facilitates customers to access fabric that will enhance their lifestyles.
• Arvind’s Own Brands
• Licensed Brands
Arvind Customers
22
? Portfolio of Arvindlimited.
Portfolio Denim Shirting Garment Brand/Retail Others Percentage% 26% 11% 16% 21% 26%
Percentage% Others 26% 26%
Arvind Portfolio
Percentage% Denim 26% 26%
Percentage% Shirting 11% 11% Percentage% Brand/Retail 21% 21% Percentage% Garment 16% 16%
Milestones Achieved
1931 Arvind Limited was set up by Lalbhai Brothers in the “Manchester of East”.
1934
With sales reaching Rs. 45.76 lakhs and a profit of almost Rs. 3 lakhs, Arvind establishes itself amongst the foremost textile units in the country.
1985
First Meter of Denim churned out.
1986
An uninterrupted record of not missing out on paying dividend to its shareholders. An established leader in fine & superfine cotton fabrics for Indian market. Renovation: First company to bring globally accepted fabrics Denim, yarn dyed shirting fabrics & wrinkle free gabardines to India.
1987
The largest zero discharge green effluent treatment plant in India. Commitment to greener world. First company to bring International shirt brand ?Arrow? to India First company to start dedicated ?retail? outlets for Arrow brand Awarded various awards for Highest exports and ISO.
1989
Largest denim & shirting in South Asia. 3rd Largest denim capacity in the world. Introduction of Premium Shirting‘s Division.
1990
1993
Office set up in New York, London & Hong Kong.
1994
Arvind ventures into Brands—Flying Machine acquired….. BEGINNING OF AN ERA
1995
LEE commenced production. Introduction of Ruf & Tuf, ready to stitch denim.
1997
Commission of State-of-the-art manufacturing unit at Santej (Ahmadabad). First Indian company to detribalize the cotton textile business from cotton fields to apparel retailing.
19971998
First company to introduce ERP SAP business solutions.
2002
Arvind` does a unique financial restructuring.
2004
Relocation of Mauritius Plant at the end of quota regime.
2008
Company launches 'Mega mart', now India's largest value apparel-retail chain Largest portfolio of International brands: Lee, Wrangler, Nautical, Jan sport, Kipling, Tommy, Arrow, US Polo, Izard, Pierre Cardin, Palm Beach, Cherokee, hart Schaffer Marx.
?
Financial Scenario
Arvindlimited is acclaimed in the Indian corporate field for its financial skills. Being the phase of rapid growth or downturn the company has demonstrated swift, sharp and robust financial acumen to navigate the company through different phases of economic cycles. Arvind Mills was the first Textile Company from India to issue GDRS in the year 1992-93. Highly complex financial restructuring exercise involving more than 80 domestic and international tenders, who the company implemented following the major downturn in the business cycle during year 2000-2002, is considered to be the benchmark for the Indian corporate. Arvindlimited has been making judicious choice of fund leasing avenues in the domestic as well as international markets so as to utilis very efficient capital structure, which is in the tune with operating risks and enhances the shareholder‘s value.
The company has laid down the risk management policy to manage the financial risks emerging out of currency and interest rate. It runs an active treasury desk so as to make use of modern hedging tools available to manage financial risks.
Arvind Mills was the first Textile Company in India to implement ERP, SAP as back as in the year 1997-98. The company follows best accounting practices to prepare its financial statements as envisaged in the Indian and international accounting standards.
SHAREHODING PATTERN OF ARVINDlimited.
Particulars NO.OF SHARES % OF TOTAL
Promoters
76908767
35.24%
Institution
42340700
19.40%
General public
98980382
45.36%
Grand total
218229849
100%
Graph
From old
to New
Arvindlimited is the flagship company of the Lalbhai Group and one of India‘s largest integrated textile manufacturers and branded apparel retailers. The re-branding exercise comes in the wake of Arvindlimited transforming itself from a pure fabric company to a diversified business group focusing on branded apparel and retail.
Initially, when the company was set up as Arvind Millslimited, it was simply about fabric. But gradually, it has spread its tentacles into retail and branded apparel, which today contributes the maximum to the company‘s growth. Seven years ago, with everything else constant, the logo was changed. In all, since Arvind Mills was set up in 1931, this is the first extensive re-branding exercise it has taken up.
Sharp, but well rounded, the forms of the logotype represent an organization that is integrated and works across the value chain from stylish fabrics to iconic brands. Arvind Mills - old logo With an element of classicism, the logo symbolizes an organization that has a rich heritage, while remaining contemporary through changing times. The burgundy red Arvindlimited - new logo denotes maturity, its rich tones carrying a sense of depth and more than a hint of passion.
No particular font has been used for the logo – it is hand drawn and, therefore, an exclusively crafted logo.
Highlighting the significance of the change in identity, Sanjay Lalbhai, chairman and managing director, Arvindlimited, says, ?Over eight decades, we have changed the face of fashion by evolving constantly. As we get ready to address wider opportunities to create wealth for our stakeholders, we have evolved new ways of thinking and a new direction. The new identity reflects the shift in the corporate identity from a large integrated textile player to a lifestyle solutions company and the name of the company reflects the same trust but new opportunities.?
Arvindlimited has licensing relationships with international brands such as Arrow, Gant, Cherokee, USPA, Hart Schaffner Marx, Sansabelt, Pierre Cardin and a joint venture with VF Corporation, which covers Lee, Wrangler, Jansport, Nautica, Kipling and Tommy Hilfiger. In addition, Arvind owns a number of successful Indian brands such as Flying Machine, Newport, Excalibur and Ruf and Tuf. It also owns the retail chain, Mega mart, which has 83 outlets in 30 towns. Recently, Arvindlimited opened a 40,000 square foot Mega mart outlet in Chennai.
Arvind Mills changes name, focus, strategy
Textile major Arvind Mills which has been recently going through a bad patch owing to rising rupee, reducing exports and falling margins is undertaking a business transformation in a bid to become a billion dollar company. The company has firstly changed its name from ?Arvind Millslimited‘ to ?Arvindlimited‘ with a new logo and identity to reflect a company which is diversified with focus on branded apparel and retail. The promoters will increase their stake from 34% to 47% and infuse Rs.188 crore capital into the company. Also, half of the Rs.1400 crore debts which Arvindlimited has would be repaid by selling off land at Ahmedabad and Bangalore thus positively affecting the company‘s profitability. Arvind is now giving more focus to brands and retail which until now contributes 19% of total revenue. It will also move to become an integrated textile player by producing fabric as well as retailing it. With a combination of its own as well as licensed brands, Arvind aims to become the largest apparel brand in India with focus on Tier II and III cities. Major emphasis would be on the value store format ?Megamart‘ which is targeted to achieve Rs.1000 crore sales in 3 years. Other than that Arvind plans to setup 250 small format and 30 large format stores by 2012.The strategy may work out to be rewarding for the company as it has a good portfolio of domestic and international, and has been an established national player. The move would also help it to ward off any risk it faces from the recession in export markets.
?
Concept of Working Capital
A company invests its funds for long term purposes and short term operations. That portion of a company‘s capital, which is required for minimum stock of raw material to maintain continuity in production, minimum stock of finished goods to fulfill future demand, payment of wages and salaries of labourers and employees is called Working Capital. In other words, working capital is that part of the firm‘s capital which is required for financing short term or current assets such as debtors, inventories, marketable securities and cash.
The word working capital comprises of two words ?working‘ and ?capital‘. In trade and industry, the word ?working‘ with reference to capital means circulation of capital from one form to another during day-to-day operations of the business whereas the word ?capital‘ refers to the monetary values of all the assets (tangible and intangible) of the business.
There are numerous concepts of working capital as given by various accountants, financial experts, entrepreneurs and economists. Important among them are –
?
Balance Sheet or Traditional Concept
?
Operating Cycle Concept
? Forms of Working Capital
Working capital is the amount of funds required to cover the cost of operating the enterprise. In other words, working capital may be defined as excess of current assets over current liabilities. It may be classified in two ways i.e. (i) on the basis of balance sheet concept and (ii) on the basis of time. These are illustrated by the following chart.
Types of working capital
On the basis of B/S concept
On the basis of time Permanent or Regular Working Capital Variable or Temporary Working Capital Specific Working Capital
Gross Working Capital
Net Working Capital
Seasonal Working Capital
? On the basis of B/S concept
According to this concept, working capital is calculated on the basis of the balance sheet prepared at a specific date. It is further classified it two forms- gross and net working capital.
o Gross Working Capital – The gross working capital refers to the firm‘s investment in current assets. The sum of current assets is a quantitative aspect of working capital which emphasizes more on quantity than its qualities.
o Net Working Capital - Net working capital is the difference between the current assets and the current liabilities or the excess of total current assets over total current liabilities. Net working capital may also be defined as, that part of a firm’s current assets which is financed with long term funds. The net working capital may either be positive or negative. When current assets exceed current liabilities, working capital is positive and negative when current liabilities exceed current assets.
? On the basis of Time
Working capital is the amount required in different forms at successive stages of operation during the net operating cycle period of an enterprise. The duration or time required to complete the sequence of events right from purchase of raw materials/goods for cash to the realization of sales in cash is called the operating cycle or working capital cycle. On the basis of time working capital may be classified as (i) Permanent or regular working capital; and (ii) Variable or temporary working capital.
o Permanent or regular working capital – It represents the irreducible minimum amount that is permanently blocked in the business and cannot be converted into cash in the normal course of business. It has following characteristics :
a. It keeps on changing its form from one current asset to another
b. The size of working capital grows with the growth of the business
c. As long as the firm is a going concern, this part of working capital cannot substantially be reduced.
o Variable or temporary working capital – Any amount over and above the permanent working capital is variable or temporary working capital. It fluctuates as per the change in the production and sale activities. It can further be classified in following two forms:
a. Seasonal working capital – The capital required to meet the seasonal demands of the enterprise is called seasonal working capital. It is of short-term nature and thus has to be financed from short-term sources like bank loan etc.
b.Specific working capital – Specific working capital is that part of the working capital which is required to meet unforeseen contingencies like slump, strike, flood, war etc.
?
Components of Working Capital
Working capital refers to the metric valuation of the current assets and the current liabilities. These two are the basic components of working capital. ?
CURRENT ASSETS ARE: (1) (2) (3) (4) (5) (6) Inventories Sundry Debtors Bills Receivables Cash & Bank Balances Short term investment Advances such as advances for purchase of raw materials, component and consumable stores, prepaid expenses etc.
?
CURRENT LIABILITIES ARE: (1) (2) (3) (4) (5) Sundry Creditors Bills Payable Creditors for outstanding expenses Provision for tax Other provision against the liabilities payable within a period of 12 months
?
Sources of Working Capital
Funds available for a period of one year or less are called short-term finance. In India short-term funds are used to finance working capital. Two most significant forms of working capital are: trade credit, bank borrowing. The use of trade credit has been increasing over the years in India. Trade credit as a ratio of current assets is about 40 percent. It is indicated by the Reserve Bank of India that trade credit has grown faster than the growth in sales. Bank borrowing is the next important source of working capital finance. Before seventies, bank credit was liberally available to firms. It became a resource after eighties because of the change in the government policy. Another form of short-term working capital finance which has recently developed in India is Commercial Paper.
? Trade credit
Trade credit refers to the credit that a customer gets from supplier of goods in the normal course of business. In practice, the buying firms do not have to pay cash immediately for the purchase made. It is a major source of financing for firms. In India, it contributes to about one-third of the short-term financing. Trade credit is mostly an informal arrangement, and is granted on an open account basis. Once the trade links have been established between the buyer and seller, they have each other‘s mutual confidence and trade credit becomes a routine activity. Open account trade credit appears as sundry creditors on the buyer‘s balance sheet. Trade credit may also take the form of bills payable. A bill is formal acknowledgement of an obligation to repay the outstanding amount. It also involves some credit terms. These credit terms refer t the conditions under which the supplier sells on credit to the buyer, and the buyer is required to repay the credit. These conditions include the due date and the cash discount (if any) given for prompt payment.
? Bank Finance
Banks are the main institutional sources of working capital finance in India. A bank considers a firm‘s sales and production plans and the desirable levels of current assets in determining its working capital requirements. The amount approved by the bank for the firm‘s working capital is called credit limit. Credit limit is the maximum funds which a firm can obtain from the banking system. In the case of firms with seasonal businesses, banks may fix separate limits for the peak level credit requirement and normal non-peak level credit requirement indicating the periods during which the separate limits will be utilized by the borrower. A firm can draw funds from its bank within the maximum credit limit sanctioned. It can draw funds in the following forms: (a) overdraft, (b) cash credit, (c) bills discounting, and (d) working capital loan.
Overdraft Under the overdraft facility the borrower is allowed to withdraw funds in
excess of the balance in his current account upto a certain specified limit during a stipulated period. Interest is charged on daily balances on the amount actually withdrawn subject to some minimum charges. Cash Credit Under the cash credit facility, a borrower is allowed to withdraw funds from the bank upto the sanctioned credit limit against the security of current assets. He is not required to borrow the entire sanctioned credit at once, rather, he can draw periodically to the extent of his requirements and repay by depositing surplus funds in his cash credit account. Interest is payable on the amount actually utilized. It is more flexible from borrower‘s point of view. Bills Discounting Under the purchase or discounting of bills, a borrower can obtain credit from the bank against its bills. The bank purchases or discounts the bill and provides the amount within the overdraft limit. Before purchasing or discounting, bank satisfies itself as to the creditworthiness of the borrower. When a bill is discounted, the borrower is paid the discounted amount of bill viz. full amount of bill minus discount charged by the bank. The bank collects the full amount on maturity.
Letter of Credit Suppliers, particularly foreign suppliers, insist that the buyer should ensure that his bank will make the payment if he fails to meet its obligation. This is ensured through a letter of credit (L/C) arrangement. A bank opens an L/C in favour of a customer to facilitate his purchase of goods. This arrangement passes the risk of the supplier to the bank. Bank will make payment to the supplier on behalf of the customer only when he fails to meet the obligation.
Working Capital Loan a borrower may sometimes require ad hoc or temporary accommodation in excess of sanctioned credit limit to meet unforeseen contingencies. Banks provide such accommodation through a demand loan account or a separate nonoperable cash credit account. The borrower is required to pay a higher rate of interest on such additional credit.
? Commercial paper
Commercial paper (CP) is an important money market instrument in advanced countries like USA to raise short-term funds. In India, the Reserve Bank of India (RBI) introduced the commercial paper scheme in the Indian money market in 1989. Commercial paper is a form of unsecured promissory note issued by firms to raise short-term funds. The buyers of commercial paper include banks, insurance companies, unit trusts and firms with surplus funds to invest or a short period with minimum of risk. Given this investment objective of the investors in the commercial paper market, there would exist demand for commercial papers of highly creditworthy companies. In India, the issue of commercial paper is being regulated by RBI. Those companies are allowed to issue commercial papers which have a net worth of Rs.10 crore, maximum permissible bank finance of not less than Rs.25 crore, and are listed on the stock exchange. A company can issue CPs amounting to 75percent of the permitted bank credit.In addition to the above mentioned sources, accrued expenses and deferred income are other spontaneous sources of short-term financing. Accrued Expenses represent a liability that a firm has to pay for the services which it has already received.
Deferred Income represents funds received by the firm for goods and services which it has agreed to supply in future.
? Objective of Working Capital Management
a. To minimize the amount of capital employed in financing the current assets. This will also lead to improvement in the ?Return on Capital Employed?.
b. To manage the current assets in such a way that the marginal return on investment in these assets is not less then the cost of capital acquired to finance them. This will ensures the maximization of the value of the business units.
c. To maintain the proper balance between the amount current assets and liabilities in such a way that the firm is always able to meet its financial obligation whenever due.
d. To ensure the smooth working of the units without any production held-ups due to paucity of funds.
e. To ensure easy and cheapest availability of resources at the time of growth and expansion activities.
? Determinants of Working Capital
The following factors should be considered carefully while determining the amount of working capital required:
1. Nature of business – The amount of working capital is basically related to the nature and the volume of the business. Firms engaged in public utility services require moderate amount of working capital whereas firms producing luxury goods require large amount of working capital.
2. Size of business – Size is also a determining factor in estimating working capital requirements. The size may be measured either in terms of scale of operations or in terms of assets or sales.
3. Changes in technology – Changes in technology may lead to improvement in processing of raw material, saving in wastage, higher productivity and more speedy production. All these improvements enable the firm to reduce the working capital requirements.
4. Length of operating cycle – The amount of working capital depends upon the length or duration of operating cycle. The speed with which the operating cycle is completed, determines the amount of working capital. The larger is the period, the more is the investment in inventories and wage bills.
5.
Terms of purchase and sale – A firm buying raw materials and other services on
credit and selling on cash basis will require less investment in current assets as compared to a firm which purchases on cash basis and sells on credit. The period of credit and the efficiency in collection of debts also influence the amount of working capital required. The terms and conditions of purchase and sale are generally governed by the prevailing trade practices and by changing economic condition. 6. Inventory - Some concerns are force to hold large inventories in terms of raw materials or finished goods due to the reason of seasonal nature of availability, long distances, scarcity etc, in such case the working capital requires is more. 7. Business cycles – Business cycle refers to the alternate expansion and contraction in general business activities. In a period of boom when the business is prosperous, there is need for larger amount of working capital due to increase in sales and rise in prices of raw materials. The contrary happens in the period of depression. 8. Profit margin – A high rate of profit margin due to quality products or good marketing management or monopoly power in the market, reduces the working capital requirements of the firm, as profit earned in cash is a source of working capital. On the contrary, firms earning low margin of profits due to competition or mismanagement need larger amount of working capital. 9. Credit policy – A firm following liberal credit policy and thus granting credit facilities to all customers without evaluating the credit worthiness will require more working capital to carry book debts. On the contrary, a firm that adopts strict credit policy and grants facilities to customers with high credit standing will require less amount of working capital as funds tied-up in receivables will be released promptly for further uses.
? Significance of adequate Working Capital
Adequate working capital is a source of energy to any business organization. It provides the following advantages to a business enterprise:
1. Adequate working capital enables a firm to make prompt payments to the suppliers and thus it can also avail the advantage of cash discount by paying cash for the purchase of raw material.
2.
If a firm has adequate working capital, it can declare and distribute enough dividends when there are sufficient profits. This creates satisfaction among the shareholders.
3. In business, promptness to third parties creates goodwill and increases the debt capacity of the concerned firm. This in turn ensures uninterrupted flow of production.
4. A firm having adequate working capital and liquid assets can arrange loans from the banks on easy and favourable terms, as it provides a good security for the unsecured loans.
5. Adequate working capital has psychological effect on the directors and executives of the firm as it motivates them to work vigorously. It creates an environment of security, confidence, high morale and increases overall efficiency in the business.
6. Adequate working capital increases the productivity or efficiency of fixed assets in the business.
? Effects of excessive Working Capital
Excess or redundant working capital refers to the idle funds which do not earn any profits for the firm. ?Inadequate working capital is disastrous; whereas redundant working capital is a criminal waste?. A firm may suffer following disadvantages from excess working capital:
1. It may lead to unnecessary purchasing and accumulation of inventories causing more chances of mishandling of inventories, theft, waste, losses, etc.
2.Excessive working capital implies excessive debtors and defective credit policies causing higher incidence of bad debts that ultimately affects profits of the firm.
3.It indicates inefficient management of the firm. It shows that the management is not interested in effectively utilizing the resources and encouraging economy.
4.Excessive working capital remains idle and earns no profits for the firm, even though interest has to be paid on it. This reduces the amount of profits.
5.It is an indicator of inefficient management. Hence, shareholders believe that they are not getting proper return on their investments. This results in lowering the value of shares causing discontentment among shareholders.
6.It promotes profits of speculative nature by stock-piling. It results in liberal dividend policy, but the management has to face difficulties in future when there are no speculative profits.
( Rs. in Crore ) Particulers SOURCES OF FUND Share holder fund Share capital Reserves & surplus Total Secured Loans Unsecured Loans Deferred Tax Liability TOTAL APPLICATION OF FUND Fixed Assets Gross Block Less- Depreciation Net Block Capital Work in Progress Investment
FOREIGN CURRENCY MONETARY ITEM TRANSLATION DIFFERENCE ACCOUNT
As at 31.03.09
As at 31.03.08
As at 31.03.07
As at 31.03.06
260.10 940.47 1200.57 1920.90 103.04 12.82 3237.33
273.30 1197.05 1470.35 1774.94 97.52 12.82 3355.63
255.58 1113.45 1369.03 1772.74 161.57 12.82 3334.16
265.48 1266.47 1531.95 1688.38 152.99 12.82 3386.14
3056.80 (1014.51) 2042.29 81.58 100.06 6.77
2942.99 (906.78) 2036.21 116.14 104.99 0.00
2817.21 (772.32) 2044.89 71.45 48.05 0.00
2192.24 (882.64) 1309.60 79.59 348.10 0.00
Current assets, Loan & Advance Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Loan & Advance Total Less-Current Liability & Provision
581.47 350.84 26.83 54.90 578.47 1592.51
575.34 261.77 16.32 73.26 544.45 1471.14
645.01 204.85 22.31 54.95 663.79 1590.91
479.26 368.28 9.59 38.68 1041.44 1937.25
Liabilities Provisions Total Net Working Capital Miscellaneous Expenditure (to the extent not written off) TOTAL
463.29 132.66 595.95 996.56 10.07 3237.33
360.54 21.81 382.35 1088.80 9.50 3355.63
408.99 12.15 421.14 1169.77 0.0 3334.16
243.31 45.09 288.40 1648.85 0.00 3386.14
( Rs. in Crore )
Particular
INCOME Sales & Operating Income Other Income Total EXPENSES Raw Materials Consumed Purchase of Finished Goods Employee Emoluments Others Interest & finance cost Depreciation Exceptional items (net) Decrease/(Increase) in Stocks Total Profit before tax for the year Less- Current tax Less-Deferred Tax Less –Fringe benefit tax Add: MAT Credit Entitlement Profit For the year Less- Prior Period Income/(Expense) Profit before Extra ordinary items (net) Profit after Extra ordinary items Balance as per last year?s balance sheet Interim Dividend on Preference Shares Tax on Interim Dividend Proposed dividend on Equity Shares
2008-09 2344.99 51.91 2396.90 695.83 257.90 244.80 924.47 222.13 122.05 11.53 (34.86) 2443.86 (46.96) 0.00 0.00 1.86 0.00 (48.82) 0.95 (47.87) 0.00 (47.87) 434.92 (1.68) (0.29) 0.00
2007-08 2006-07 2005-06 2290.33 15.91 2306.24 611.26 305.54 230.39 861.04 131.40 136.64 9.31 (9.49) 2276.09 30.15 3.10 0.00 2.25 (3.10) 27.90 (0.54) 27.36 0.00 27.36 425.00 (2.48) (0.42) 0.00 1847.99 1592.00 13.17 22.52 1861.16 1614.52 571.93 500.24 36.97 4.45 204.33 135.74 780.24 534.14 150.26 138.64 143.36 155.10 0.00 0.00 (53.64) 9.82 1833.45 1478.14 27.71 0.00 0.00 11.62 (11.61) 0.00 0.00 25.27 94.29 119.56 321.17 (3.14) (0.44) 0.00 136.38 11.40 8.27 0.95 (11.40) 127.16 0.00 0.00 0.00 0.00 232.74 (3.80) (0.53) (20.94)
2004-05 1654.91 4.99 1659.90 612.24 7.63 123.09 542.92 108.92 149.07 0.00 (12.76) 1530.60 129.30 1.95 0.00 0.00 0.00 127.35 0.00 0.00 0.00 0.00 127.77 (4.09) (0.53) (19.54)
Tax proposed dividend Additional dividend on equity share Tax on additional dividend Provision for leave encashment Transferred to capital redemption reserves Transferred to debenture redemption reserve Balance Carried to Balance Sheet
0.00 0.00 (80.10) (9.58) (13.20) 0.15 282.34
0.00 0.00 0.00 (1.34) (13.20) 0.00 434.92
0.00 0.00 0.00 0.00 (9.90) (2.25) 425.00
(2.94) (1.40) (0.20) 0.00 (9.92) 1.00 321.17
(2.74) 0.00 0.00 0.00 (3.48) 8.00 232.74
( Rs. in Crore ) (Actual working capital)
CURRENT ASSETS
PARTICULAR Raw Materials Work in progress Finished goods Sundry Debtors Cash &Bank Balance Total 1646.54 881.71 885.14 858.49 843.53 2009 930.17 202.19 136.51 350.84 26.83 2008 139.77 147.36 243.23 261.77 89.58 2007 264.27 140.34 198.42 204.85 77.26 2006 257.12 112.91 71.91 368.28 48.27 2005 282.05 87.73 103.54 319.11 51.10
CURRENT LIABILITIES
PARTICULAR Sundry Creditors Wages Overheads Total 2009 344.46 212.64 925.15 1482.25 2008 360.54 207.12 877.19 1444.85 2007 408.99 174.50 780.24 1363.73 2006 243.31 112.54 534.14 898.99 2005 238.76 101.83 542.92 883.51
Net WC
164.29
(563.14)
(478.59)
(40.50)
(39.98)
Time period of working capital
Raw Materials Work in process Finish goods Debtors Creditors Wages Overheads
= 100% = 1 month =1 month = 2 month = 1.5 month = 1 month = 1 month
? NET WORKING CAPITAL:? Net Working Capital =Total Current Assets – Total Current Liabilities ? 2009 = 1646.54-1482.25
= ? 2008 =
164.29
881.71-1444.85
= ? 2007 =
(563.14)
885.14 - 1363.73
= ? 2006 =
(478.59)
858.49 – 898.99
=
(40.50)
? 2005 = = 843.53 – 883.51 (39.98)
? WORKING CAPITAL OF THE ARVIND LTD.
(Actual working capital) (Rs.in crore) WORKING CAPITAL 2008-09 20007-08 2006-07 2005-06 2004-05
CURRENT ASSETS
1. Raw Materials 2. Work in process 3. Finished
goods 4. Debtors 5. Cash & Bank Balance
930.17
139.77
264.27
257.12
282.05
16.84
12.28
11.695
9.409167
7.310833
11.38
20.26916
16.535
5.9325
8.628333
58.47 26.83 1043.69
43.62833 89.58 305.5275
34.141167 77.26 403.9017
61.38 48.27 382.1117
53.185 51.19 4023642
TOTAL - (A)
CURRENT LIABILITIES
1. Time – lag 43.05 for Creditors 2. Time – lag for Wages 45.0675 51.12375 30.41375 29.845
17.72
17.26
14.54167
9.378333
8.485833
3. Time – lag for Overheads TOTAL - (B) NET WORKING CAPITAL (A - B)
77.09
73.09917
65.02
43.62417
45.24333
137.86 905.83
135.4267 170.1008
130.6854 273.2163
83.41625 298.6954
83.57417 318.79
? Computation of Working Capital :? CURRENT ASSETS
1. Raw Materials :-
Raw Materials = 100%
Cost of raw material * RM holding period Raw Material = -----------------------------------------------------365 Days 2008-09 = 930.17
2007-08 = 139.77
2006-07 = 264.27
2005-06 = 257.12
2004-05 = 282.05
2. Work in process :-
(Work in process
= 1 month )
WIP
WIP cost * WIP holding period = -------------------------------------------365 days/ 12 months 202.19 * 1 months = ----------------------------12 months = 16.84
2008-09
2008-09
147.36 * 1 months 2007-08 = ----------------------------12 months 007-08 = 12.28
140.34 * 1 months 2006-07 = ----------------------------12 months 2006-07 = 11.69
112.91 * 1 months 2005-06 = ----------------------------12 months
2005-06 = 9.41
87.73 * 1 months 2004-05 = ----------------------------12 months
2004-05 = 7.31
3. Finished goods :-
Finish goods
=1 month
Cost of finished goods * holding period Finished goods = ---------------------------------------------------12 months 136.51 * 1 months 2008-09 = ----------------------------12 months
2008-09 = 11.38
243.23 * 1 months 2007-08 = ----------------------------12 months
2007-08 = 20.27
198.42 * 1 months 2006-07 = ----------------------------12 months
2006-07 = 16.54
71.91 * 1 months 2005-06 = -----------------------------
12 months 2005-06 = 5.93
103.54 * 1 months 2004-05 = ----------------------------12 months 2004-05 = 8.63
4. Sundry Debtors :-
Debtors = 2 month
Credit sales * debtors collection period Sundry Debtors = ----------------------------------------------------12 months 350.84 * 2 months 2008-09 = ----------------------------12 months
2008-09 = 58.47
261.77 * 2 months 2007-08 = ----------------------------12 months
2007-08 = 43.63
204.85 * 2 months 2006-07 = ----------------------------12 months
2006-07 = 34.14
368.28 * 2 months 2005-06 = -----------------------------
12 months 2005-06 = 61.38
319.11 * 2 months 2004-05 = ----------------------------12 months 2004-05 = 53.19
? Current Liability :-
1. Sundry Creditors :-
(Creditors = 1.5 month)
Credit purchase * credit period allowed by creditors Sundry Creditors = -----------------------------------------------------------------12 Months
344.46 * 1.5 months 2008-09 = ----------------------------12 months
2008-09 = 43.05
360.54 * 1.5 months 2007-08 = ----------------------------12 months
2007-08 = 45.07
408.99 * 1.5 months 2006-07 = ----------------------------12 months
2006-07 = 51.12
243.31 * 1.5 months 2005-06 = ----------------------------12 months 2005-06 = 30.41
238.76 * 1.5 months 2004-05 = ----------------------------12 months 2004-05 = 29.85 2. Direct Wages :Wages = 1 month
Cost of direct wages * payment period DW = ---------------------------------------------------12 months 212.64 * 1 months 2008-09 = ----------------------------12 months
2008-09 = 17.72
207.12 * 1 months 2007-08 = ----------------------------12 months
2007-08 = 17.26
174.50 * 1 months 2006-07 = ----------------------------12 months
2006-07 = 14.54
112.54 * 1 months 2005-06 = ----------------------------12 months
2005-06 = 9.38
101.83 * 1 months 2004-05 = ----------------------------12 months 2004-05 = 8.49
3. Overheads :-
Overheads = 1 month
Total cost of overheads * avg. time-lag in payment of overheads Overheads = --------------------------------------------------------------12 Months
925.15 * 1 months 2008-09 = ----------------------------12 months
2008-09 = 77.09
877.19 * 1 months 2007-08 = ----------------------------12 months
2007-08 = 73.10
780.24 * 1 months 2006-07 = ----------------------------12 months
2006-07 = 65.02
534.14 * 1 months
2005-06 = ----------------------------12 months 2005-06 = 43.62
542.92 * 1 months 2004-05 = ----------------------------12 months 2004-05 = 45.24
? FORMULAS:Stock of raw material 1. Inventory period = ---------------------------------------- * 365 daysCost of raw material consumed
2. WIP holding period
Stock of WIP = ------------------------------------- * 365 days Cost goods manufacturing
3. Finished goods
Stock of finished goods = ------------------------------------ * 365 days Cost of goods sold
4. Debtors collection period
=
debtors ------------------------- * 365 days Credit sale
5. Accounts payable period
=
Creditors ------------------- * 365 days Purchases
6. Operating Cycle
=
Inventory Period + Debtors collection period + WIP holding period + Finished goods Accounts payable period
7. Cash Cycle
= Operating cycle
- Accounts Payable Period
? Operating
and cash Conversion Cycle
Operating cycle method is the best technique for estimating future cash working capital of a firm. Under this method, total operating expenses for a period are divided by the number of operating cycles in the relevant period to find out the cash cost of working capital. Thus, the computation of total operating expenses, operating cycle and number of operating cycles in the year is essential for estimating the amount of working capital, as discussed below:
Operating expenses include purchase of raw material, direct labour cost, fuel and power, administrative and selling and distribution expenses for a specific period for which estimates can be obtained from cost records.
Operating cycle period means the total number of days involved in the different stages of operation commencing from the purchase of raw materials and ending with collection of sale proceeds from debtors after adjusting the number of day‘s credit allowed by suppliers. It is calculated by using the following formula:
I. PERIOD OF OPERATING CYCLE =
Material storage period (M)+ Work-in-progress period (W) + Finished goods period (F)+ Debtors collection period (D) Creditors payment period (C)
1. Inventory period
Stock of raw material ---------------------------------------- * 365 daysCost of raw material consumed
Inventory period
=
Raw material consumed = opening stock of raw material + purchase – closing stock
930.17
2008-09
= ----------------- * 365 days 695.83 = 487.92 days
139.77
2007-08
= ----------------- * 365 days
611.26
= 2006-07
83.46 days
264.27
= ----------------- * 365 days
571.93
= 2005-06
168.65 days
257.12
= ----------------- * 365 days
500.24
= 2004-05
187.61 days
282.05
= ----------------- * 365 days
612.24
=
168.15 days
2. WIP holding period :Stock of WIP WIP holding period = ------------------------------------- * 365 days Cost goods manufacturing
202.19 2008-09 = ----------------- * 365 days 1515.94
=
48.68 days
147.36 2007-08 = ----------------- * 365 days 1468.11 = 36.63 days
3. Finished goods :Stock of finished goods Finished goods = ------------------------------------ * 365 days Cost of goods sold
2008-09
136.51 = ----------------- * 365 days 2443.86 = 20.38 days
2007-08
243.23 = ----------------- * 365 days 2276.09 = 39.00 days
2006-07
198.42 = ----------------- * 365 days 1833.45 = 39.50 days
2005-06
71.91 = ----------------- * 365 days 1478.14 = 17.76 days
2004-05
103.54 = ----------------- * 365 days 1530.60 = 24.69 days
4. Debtors collection period :debtors ------------------------- * 365 days Credit sale
Debtors collection period
=
Here no specification for cash or credit sales . so, all the sales taken a credit sales. 350.84 = ----------------- * 365 days 2344.99 = 54.61 days
2008-09
2007-08
261.77 = ----------------- * 365 days 2290.33 = 41.71 days
2006-07
204.85 = ----------------- * 365 days 1847.99 = 40.46 days
2005-06
368.28 = ----------------- * 365 days 1592.00 = 84.43 days
2004-05
3190.11 = ----------------- * 365 days 1654.91 = 70.38 Days
5. Accounts payable period :Creditors Accounts payable period = ------------------------ * 365 days Credit Purchases
Particular Raw Materials Purchase Purchase of Finished Goods Total Sundry Creditors
2009 649.23
2008 487.03
257.90
305.54
907.13 344.46
792.57 360.54
344.46 2008-09 = ----------------- * 365 days 907.13
=
138.60 days
360.54 2007-08 = ----------------- * 365 days 792.57
=
166.03 days
? PERIOD OF OPERATING CYCLE :Operating Cycle Inventory Period + Debtors collection period + WIP holding period + Finished goods - Accounts payable period OPERATING CYCLE 2009 2008 1. Inventory Period 487.92 83.46 2. WIP holding period 48.68 36.63 3. Finished goods 20.38 39.00 4. Debtors collection 54.61 41.71 period Less – 5. Accounts 138.60 166.03 payable period Duration of operating 472.99 34.77 cycle =
II. NUMBER OF OPERATING CYCLES IN A YEAR = 365 days OPERATING CYCLES = ------------------------Operating cycle period 365 days =-----------------------472.99 = 0.77 times
2009
2008
365 days = -------------------34.77 = 10.50 times
? WORKING CAPITAL POLICY :The basic objective of working capital management is that there should be an optimum investment in working capital. There should not be either excessive working capital or shortage of working capital. In order to decide the optimum investment working capital, there is a need to consider different policies of working capital. The different policies are discussed.
(A) Ratio of current assets to sales:The current assets change as a result of changes in the sales. A firm has to decide about the proportion of current assets to be maintained in relation to sales. There can be aggressive, moderate or conservative current assets policies. ? AN AGGRESSIVE CURRENT assets policy is followed, a firms will maintain a very low level of current assets in relation to sales. ? ? A CONSERVATIVE POLICY implies carrying of a very high level of current assets in relation to sales. A MODERATE POLICY is a via media between the two extreme policies mentioned above and results into a moderate proportion of current assets to sales. A MODERATE CURRENT assets policy tries to balances risk and profitability by keeping moderate level of current assets in relation to sales Conservative
Moderate
Current Aggressive Assets
0
Sales
(B) Financing of current assets:In conservative current asset financing policy, a firm relies more on long term financing such as shares, debentures, preference shares, long term debt and retained earnings. In this method, as the emphasis is on long term financing, the firm has less risk of facing problems of shortage of funds. An aggressive policy is said to be followed by a firm, when it relies heavily on short-term bank financing and other short-term sources. Even some part of fixed assets is financed by short-term funds. The policy exposes the firms to a higher degree of but reduces the average cost of financing.
? Problems with Excessive Working Capital: ? ? It‘s Results in unnecessary accumulation of inventories. Thus, chances of inventory mishandling, waste, theft and losses increase. It‘s an indication of defective credit policy and slack collection period. Consequently, higher incidence of bad debts results, which adversely affects profits. ? ? Excessive working capital makes management complacent which degenerates into managerial inefficiency. Tendencies of accumulating inventories tend to make speculative profit grows. This may tend to dividend policy liberal and difficult to cope with in future when the firms are unable to make speculative profits.
? Inadequate Working Capital is bad and has the following Problems:
? ? Its Stagnates growth. It becomes Difficult for the firms to undertaken profitable for non-availability of working capital funds. It becomes difficult to implement operating plans and achieve the firm‘s profit target. Operating inefficiencies creep in when it becomes difficult even to meet day –to-day commitments. ? ? Fixed assets are not efficiently utilized for the lack o f working capital funds. Thus then firms‘ profitability would deteriorate. Paucity of working capital funds renders the firms unable to avail attractive credit opportunities etc. ? The firms, loses its reputation when it is not in a position to cover its shortterm obligations. As a result, the firm faces tight credit terms.
S.W.O.T Analysis
Strength:
? A company from prestigious Lalbhai group ? One of the oldest played in Indian fabric market
Weakness:
? Situated very fat from city ? Low advertisement budget ? Unable to handle small orders
? Can supply both fabric as well as garment ? Higher cost of production due to ? Production monthly wise ? Provide quality with consistence capacity of 7million tons heavy investment
Opportunities:
? Able to handle more franchisee of international brands ? Retails are going to be a major sector in India. Therefore demand for fabric is also increasing.
Threats:
? Competition from various domestic players, especially from Raymond‘s and LNJ. ? Fluctuation in price of yarn. ? Regularly innovation in technology
? Having potential to increase their capacity, so that they can satisfy more and more customer needs. ? By providing ?consistency in quality? they can attract more customers. ? Change in government policy ? Existing players coming up with more variety and innovation esp. catering small order.
? FUTURE REQUIRMENT OF WORKING CAPITAL“ARVIND LTD”.
? Profit of the Arvind Limited was increased during last three year, shows that their
requirements of working capital will also increasing in future.
? As the sales
grow, the working capital needs also grow up. Actually it is very
difficult to find out an exact proportion of increase in current assets, as a result of increase in sales. Advance planning of working capital becomes essential because current assets will have to be employed even before growth in sales takes place. Ones sales start increasing, they must be sustained. For this Arvind Limited will have to expand its production facilities which will require more investments in fixed assets. This will in turn result in more requirements of turn results of current assets which will increase working capital needs.
? The working capital needs of the Arvind Limited increase as it grows in terms of
sales or fixed assets. A growing Arvind Limited may need to invest funds in fixed assets in order to sustain its growth in production and sales. This will lead to increase investment in current assets which will result in increase in working capital needs.
? The operating efficiency of the Arvind Limited relates to the Optimum utilization
of resources at minimum cost. Arvind Limited will contribute to its working capital, if it is efficient in operating costs. The working capital is better utilized and cash cycle is reduced which reduces working capital needs.
? The working capital requirement of a firm depends to a great extend on the credit
policy followed by a firm for its debtors. A liberal credit policy followed by a firm will result in huge funds blocked in debtors which will enhance the need for working capital. The need for working capital is also affected by the credit policy allowed by the Arvind Limited?s creditors. If the creditors are ready to supply material and goods on liberal credit, working capital requirement are substantially reduced. If purchases are mainly for cash, working capital needs go up. While planning the working capital due attention should be given toward the credit policies followed by the firm and its creditors.
? INTERPRETATION OF WORKING CAPITAL :? STOCK OF RAW MATERIAL:Stock of raw material has increased at a rate of 665.50 % during the year 2008 to 2009.
Raw Materials 1000 800 600 Raw Materials 400 200 0 2009 2008 2007 2006 2005
In the year 2006-07 stock of raw material was Rs 264.27 crore. It was decreased by 47.11 % in the year 2007-08. During the year 2005-06 to 2007-08 stock of material decreased by about staggering 45.64%. ? CASH AND BANK:Cash and bank of Arvind Ltd have been progressively increasing since 2005-06 financial year.
Cash &Bank Balance 100 80 60 40 20 0 2009 2008 2007 2006 2005 Cash &Bank Balance
In year ended 2006 it was 48.27 crore and since then it had started to increase, and at the end of financial year 2008 it has increased by 85.58% and as a result of this in
2007-08 cash and bank is 89.58 crore. But 2009 cash & bank balance 26.83 decrease by 70 % compare to 2008 cash & bank balance 89.58.
Arvind Ltd. Has to reduce cash and bank level in next financial year. Around 40 crore. High level of cash and bank will affect the cost and financial burden of the company.
? DEBTORS:? In year 2005 debtors were319.11 crore, but in 2006 it increased by 15.41%, ? In year 2007 debtor was 204.85 crore but it has increased by 27.79%. in 2008. ? In year 2008 debtor was 261.77 crore but it has increased by 34.02%. in 2009. ? There is no significant fluctuation seemed therefore nothing is bother about debtors. In addition to this debtor policy is constant that is 60 days. ? STOCK OF FINISHED GOODS
articular Finished goods 2008-09 136.51 20007-08 243.23 2006-07 2005-06 2004-05 198.42 71.91 103.54
Finished goods 300 200 100 0
2009
2008
2007
2006
2005
Finished goods 136.51 243.23 198.42 71.91 103.54
?
Finished goods
Stock of finished goods was decreased by 43.87 % in year 2008-09 from 2007-08. Stock of finished goods was increased by 178.72% in year 2006-07 from 2005-06. But in 2007-08 it was increased by 22.58% from previous year, it shows significant fluctuation in ?stock of finished Goods?. ? Company should dilute this fluctuation as higher inventory cost is attributed to stock of goods. Accurate demand forecast could help reduction in stock of finished Goods.
RECOMMENDATION
Having done a detailed study of the financial performance and financial standing of Arvind Limited, under this project work I would like to make the following suggestion for the improvement in the financial management of the company, with special reference to its Working Capital Management. ?
Arvind Limited is facing increased competition in the market so it will have to adopt more aggressive working capital management policy in order to increase its share and sales turnover.
?
It is observed that the credit period for Debtors is ranging for 30 days to 120 days. I would like to suggest that the maximum credit period should not exceed 90 days.
?
Many debtors had not made the payment even after one year period. Due to this there is reduction in the collection from the debtors year to year.
?
Company has to maintain sales turnover for that purpose company has to maintain and increase their working capital.
?
Gross profit has increasing but net profit has decreasing so that purpose effectively utilizes and maintain working capital.
CONCLUSION
Working capital is simply current assets minus current liabilities. It's the best way to judge how much a company has in liquid assets to build its business, fund its growth, and produce shareholder value. ?
As Arvind is a cloth manufacturing company the procedure of goods to be ready for sale takes too much time. Thus, working capital is blocked in high amount. But with the comparison to other mills Arvind is leader of the Cloth manufacturing. And its Working Capital is blocked for lesser time then another mills as its inventory ?Cotton‘ plays a major role and it‘s available cheaply in the season. Also Arvind buys it in higher volumes, so it takes more time to stuff up and the complete readymade stock takes appx 1.25 month for wholesaling.
?
Arvind makes payment to his creditors within a month and collect from debtors takes appx 1.25 month. So, its overall short-term liquidity position is very good.
?
The mean percentage of current assets to total assets for the last four years is 40% which shows decrease in investment of current assets.
?
Overheads have increased as compare to the last two years thereby reducing the profit.
If a company has ample positive working capital, it's is in good shape, with plenty of cash on hand to pay for everything it might need to buy. But negative working capital means that the company's current liabilities exceed its current assets, removing its ability to spend as aggressively as a working-capital-positive peer. All other things being equal, a company with positive working capital will always outperform a company without it.
BIBLIOGRAPHY
1. Financial Management - I. M. PANDEY
2. Financial Management CHANDRA
-
PRASANNA
3. Financial Management
- KHAN & JAIN
4. Annual Report of Arvind Limited
WEB-LINKS:
? www.arvindmills.com ? www.google.com
? www.wikipedia.org
OTHER BOOKS:
? Agrawal M.R, Financial Mnagement, Garima Publications
? Pandey I.M, Financial Management, Mc-Graw Hill Publications Annual reports of the company for the year 2007-08, 2006-07.
doc_897776335.pdf
Arvind Mills, the flagship company of the Lalbhai Group, is a producer of composite manufacturer of textiles. Its headquarters is in Ahmedabad, Gujarat, India. It manufactures a range of cotton shirting, denim, knits and bottomweights (Khakis) fabrics.
A SUMMER PROJECT ON
SUBMITTED BY: MEGHA JAIN PROJECT GUIDE: Mr. HIREN RAO
SUBMITTED TO: ARVIND LIMITED
CERTIFICATE
THE ARVIND LIMITED
Naroda Road, Ahmedabad-380 025 India. Phone
079) 22203030A MEMBER OF LALBHAI GROUP
TO WHOMSOEVER IT MAY CONCERN This is to certify that MEGHA JAIN ,a student of K.S. SCHOOL OF BUSINESS MANAGEMENT ,has successfully completed her training at the Finance & Accounting Department of THE ARVIND limited, under the guidance of MR.HIREN RAO. The project duration was from 10th may to 10th july, 2010. We wish her all the best for future career pursuits. THE ARVIND limited Mr. Shobit Tyagi Head – Corporate Human Resources
PREFACE For a long time, there is a wind of recession blowing all over the business world and wealth liberalization policy in the Indian Economy. So, nowadays market is becoming more and more competitive.Company demands more and more professional and accomplished employees. Students have to get practical training along with the theoretical knowledge of the business condition. There are many advantage of making these kinds of reports. Reading gives only the theoretical knowledge but training gives an apportunity to learn and apply the concepts in the real corporate world. It is true that technical studies can not be perfect without practical training and perfection is basic necessity of management student.
ACKNOWLEDGEMENT
Feelings of gratefulness to anyone‘s help directly arise from bottom of the heart. The small but an important act can prove to be a milestone in one‘s life. We have achieved an important milestone in our life by the completion of this project. The project is dedicated to all the people whom we met and took guidance from.I take this opportunity to thank the individuals who made this report a success. First of all,I am very fortunate that I got training in ARVIND limited.I sincerely thank MISS MILLI DAS (Head –HR Department). It is through her continuous guidance and support that the project has become reality. I would like to thank Mr. HIREN RAO (Head –Finance Department) our Project guide, not only for giving me the opportunity to work on this project, but also for providing me with sound guidance and the necessary facilities to carry out the project. He constantly insisted and helped me in learning new things. He provided me a lot of learning opportunities. Sincere appreciation is extended to Mr.VINEET SHAH for his immense help during the course of this work. I would like to thank Mr. DHARMESH PANDYA, for enabling me to learn and work on SAP for fixed assets module. Iwould like to thank MS. INGITA JAIN,our Project faculty guide, who continuously monitored my work and provided guidance as and when I needed.
MEGHA JAIN K.S.SCHOOL OF BUSINESS MANAGEMENT
.
No. Name of content 1. Introduction to textile industries
1.1 Evolution & evaluation of the textile industries 1.2 Indian textile Industries 1.3 Gujrat textile Industries 1.4 Textile Industries Key Facts 1.5 Major Players in the textile Ind. In India
2. Introduction to Arvind Mills Limited
2.1 Company Profile 2.2 Fabric Production 2.3 Organization Structure 2.4 Subsidiaries 2.5 Board Of Directors 2.6 Group Overview 2.7 Company’s Vision 2.8 Company’s Mission 2.9 Company’s Philosophy 2.10 Functioning of the Organization 2.11 Denim Manufacturing Process 2.12 Market Network of Arvind 2.13 Portfolio of Arvind limited 2.14 Milestone Achieved 2.15 Financial Scenario
Pg no 1 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 21 24 29 30 32
2.16 Shareholding Pattern of Arvind Limited
3. Working Capital Management
3.1 Concept of Working Capital 3.2 Form of Working Capital 3.3 Sources of Working Capital 3.4 Objective of Working Capital 3.5 Determinates of Working Capital 3.6 Significance of adequate Working Capital 3.7 Effects of excessive Working Capital 3.8 Balance sheet of Arvind Limited 3.9 Profit & Loss Account of Arvind Limited 3.10 Working Capital on Arvind Limited 3.11 Operating and Cash Conversion Cycle 3.12 Period of Operating Cycle 3.13 Working Capital policy 3.14 S W O T Analysis 3.15 Future Requirements 3.16 Interpretation of Working Capital
4. Recommendations 5. Conclusion 6. Bibliography
33 36 37 38 42 45 46 48 49 50 51 52 63 69 70 72 73 74 76 77 78
INTRODUCTION
The Indian textile industry has a significant presence in the economy as well as in the international textile economy. Its contribution to the Indian economy is manifested in terms of its contribution to the industrial production, employment generation and foreign exchange earnings. It contributes 20 % of industrial production, 9 % of excise collections, 18 % of employment in the industrial sector, nearly 20 % to the country‘s total export earning and 4 % to th e GDP. CONTRIBUTIONS OF TEXTILE INDUSTRY IN ECONOMY
Series1, GDP, Chart Title 4%, 6% Series1, Country’s total Export Earning, 20%, 28% Series1, Industrial Production, 20%, 28%
Series1, Employment in the Industrial Sector, 18%, 25%
Series1, Excise Collections, 9%, 13%
In human history, past and present can never ignore the importance of textile in a civilization decisively affecting its destinies, effectively changing its social scenario.
Segments in textile industry:
? ? ? ? ? ? Readymade Garments- denims, made-ups, shirts, etc. Cotton Textiles including Handlooms (Mill made / Power loom/ Handloom) Man-made Textiles Silk Textiles Woolen Textiles Handicrafts including Carpets
? ?
Coir Jute
? Evolution of Textile Industry
The ?RAG TRADE‘, as it is referred to in the UK and Australia is the manufacture, trade and distribution of textiles.There were various stages – from a historical perspective – where the textile industry evolved from being a domestic small-scale industry, to the status of supremacy it currently holds. The ?cottage stage‘ was the first stage in its history where textiles were produced on a domestic basis. During this period cloth was made from materials including wool, flax and cotton. The material depended on the area where the cloth was being produced, and the time they were being made.
In the later half of the medieval period in the northern parts of Europe, cotton came to be regarded as an imported fiber. During the later phases of the 16th century cotton was grown in the warmer climates of America and Asia.
A number of new innovations led to the industrialization of the textile industry. In the initial phases, textile mills were located in and around the rivers since they were powered by water wheels. After the steam engine was invented, the dependence on the rivers ceased to a great extent. In the later phases of the 20th century, shuttles that were used in the textile industry were developed and became faster and thus more efficient. Today, modern techniques, electronics and innovation have led to a competitive, low-priced textile industry offering almost any type of cloth or design a person could desire. With its low cost labor base, China has come to dominate the global textile industry.
? Indian Textile Industry
Until the economic liberalization of Indian economy, the India Textile Industry was predominantly unorganized industry. The opening up of Indian economy post 1990s led to a stupendous growth of this industry. Textile industry in India is the second largest employment generator after agriculture. It holds significant status in India as it provides one of the most fundamental necessities of the people. Textile industry was one of the earliest industries to come into existence in India and it accounts for more than 30% of the total exports. In fact Indian textile industry is the second largest in the world, second only to china. Till the year 1985, development of textile sector in India took place in terms of general policies. In 1985, for the first time the importance of textile sector was recognized and a separate policy statement was announced with regard to development of textile sector. In the year 2000, national textile policy was announced. its main objective was: to provide cloth of acceptable quality at reasonable prices for the vast majority of the population of the country, to increasingly contribute to the provision of sustainable employment and the economic growth of the nation; and to compete with confidence for an increasing share of the global market. The policy also aimed at achieving the target of textile and apparel exports of us $ 50 billion by 2010 of which the share of garments will be us $ 25 billion.
TEXTILE INDUSTRY KEY FACTS
? Indian Textile Industry is one of the largest and oldest industries in India. ? Indian Textile Industry is highly fragmented industry; at the same time it is an independent and self-reliant industry that has shown sustainable growth over the years. ? Indian Textile Industry is second largest industry in terms of providing vast employment opportunities and employs around 35 million people in country after agriculture sector...
? The Indian Textile Industry plays vital role in economic development and contributes 14% to industrial production in the country. ? Textile Industry contributes around 4% of GDP, 9% of excise collections, 18% of employment in industrial sector, and has 16 % share in country‘s export ? Industry has direct and strong linkage with rural and agriculture sector, therefore it is estimated that, one of every six households in country is directly or indirectly dependent on this industry. ? Industry contributes around 25% share in the world trade of cotton yarn. ? India is evolved as a major contributor in world‘s cotton sector. Indian is the world‘s third-largest producer of cotton and second-largest producer of cotton yarns and textiles. ? India is the largest exporter of yarn in the international market and has a share of 25% in world cotton yarn export market. ? India contributes for 12% of the world‘s production of textile fibers and yarn. ? Indian textile industry is second largest after China, in terms of spindle age, and has share of 23% of the world‘s spindle capacity. ? India has around 6% of global rotor capacity. ? The country has the highest loom capacity, including handlooms, and has share of 61% in world loom age. ? Including textiles and garments, 30% of India's export comes from this sector. ? Indian Textile Industry is one of the largest industries that provide high exports and foreign revenue. ? Large and potential domestic & international market, large pool of skilled and cheap labor, well-established industry, promising export potential etc. are few strengths of Indian Textile Industry. ? Highly Fragmented, High dependence on cotton sector, Lower productivity, Unfavorable Labor Laws is few drawbacks of the industry from which it has to overcome. ? After the elimination of quota restrictions and implementation of National Textile Policy 2000, it is estimated that the industry will grow with rapid rate and help to strengthen the Indian economy
STRENGHTS OF TEXTILE INDUSTRY
?
?
?
India has rich resources of raw materials of textile industry. It is one of the largest producers of cotton in the world and is also rich in resources of fibers like polyester, silk, viscose etc. India is rich in highly trained manpower. The country has a huge advantage due to lower wage rates. Because of low labor rates the manufacturing cost in textile automatically comes down to very reasonable rates. India is highly competitive in spinning sector and has presence in almost all processes of the value chain.
?
Indian garment industry is very diverse in size, manufacturing facility, type of apparel produced, quantity and quality of output, cost, requirement for fabric etc. It comprises suppliers of ready-made garments for both, domestic or export markets.
WEAKNESS OF TEXTILE INDUSTRY
?
? ?
Indian textile industry is highly fragmented in industry structure, and is led by small scale companies. The reservation of production for very small companies that was imposed with the intention to help out small scale companies across the country, led substantial fragmentation that distorted the competitiveness of industry. Smaller companies do not have the fiscal resources to enhance technology or invest in the high-end engineering of processes. Hence they lose in productivity. Indian labor laws are relatively unfavorable to the trades and there is an urgent need for labor reforms in India. India seriously lacks in trade pact memberships, which leads to restricted access to the other major markets.
INDIAS MAJOR COMPETITIORS IN THE WORLD
? Gujarat Textile Industry
Gujarat is one the leading industrial states in India and textile industry in India in particular had contributed in big way to the industrialization of the state. In fact, development of the many industries like dyestuff, chemicals Engineering/foundry and cotton farming is solely dependent on these sectors. The
state is well known for development of hybrid cotton, ginning, power looms, composites mills, spinning units and independent processing houses.
In Gujarat, textile manufacturers use cotton based fabrics in mill sector, major reason being the availability of the basic raw materials in the state, i.e. cotton. Similarly many spinning units producing more conservative yarns were established in the state. The state happened to be more conservative with cotton textile products mainly in the organized sector, weaving and synthetic textile in decentralized sector. Surat art silk manufacturers are only exception. Similarly, independent processing units process synthetic blended and cotton fabrics. Clusters of processing units are located in Surat, Ahmedabad and Jetpur, though these production units have good capacity of processing wide range of fabric.
Ready-made Garment manufacturing and hosiery knitwear unit also exists in SSI categories. In early 1990‘s Gujarat saw dramatic change in its textile industry scenario where quite a few textile mills started manufacturing Denim. The Arvind mills, Ashima Textiles, Soma Textiles, Modern Denim, and Arvee denim started manufacturing denim. So many mills at a time fetched a new name for Ahmedabad ?Denim city of India? whereas city of Surat became ?Silk city of India?.
MAJOR PLAYERS IN THE TEXTILE INDUSTRY IN INDIA
Arvind limited. Arvind Mills is one of the major and fully vertically integrated composite mills players in India. It has large production in denim, shirting and knitted garments. It is now adding value by manufacturing denim apparel. Its sales are around US$ 300 million. Raymond?s Raymond‘s has the large, diversified integrated business model, which is spread across the value chain from yarn to retail. It is specialized in Diversified woolen textiles. It already supplies to some US retailers.
Reliance Textiles: Reliance Textiles is one of the major Textile Company that is in business of fully integrated manmade fiber. It has capacity of more than 6 million tones per year. It has joint venture partners like, DuPont, Stone & Webster, Since (Italy) etc. ? Vardhaman Spinning vardhman deals in spinning, weaving and processing segment of the industry. It is planning to double its fabric processing capacity to 50 million meters. It is an approved supplier to global retailers like Gap, Target and Tommy Hilfiger. Its sales are little over US$ 120 millions ? Welspun India (Manufactures terry towels) ? Century Textiles (Composite mill, cotton & Man-made) ? Morarjee Mills (Fully integrated Composite Mill) ? Indo Rama (Cotton and Man-made) ? GTN Textiles (Cotton Yarn and Knit Fabrics) ? Ginni Filamentslimited. (Yarn and Fabric) ? LNJ Bhilwara Group (Diversified and vertically integrated denim producer with spinning and weaving capacity) ? Mafatlal Textiles (Fully integrated Composite Mill) ? Modern Group (Diversified, producer of denim, syntax and thread) ? Ashima Syntax (Man-made Fiber) ? KG Denim (Fabrics) ? Sanghi Polyesterslimited. (Manmade Fiber) ? Nova Petrochemicals (Man-made Fiber) ? S. Kumar Synfabslimited. (Home furnishing and Suit Fabrics) ? Bombay Dyeinglimited. (Composite and fully integrated) ? Rajasthan Petro synthetics (Diversified) ? BSLlimited. (Textiles) ? Garware Polyester (Diversified) ? Banswara Syntex (Composite) ? National Rayon Corp. (Man-made fiber) ? GSL Indialimited. (Threads) ? Indian Rayon (Man-Made Fiber)
? Alok Textiles (Cotton and Man-made Fiber Textiles) ? Sharda Textile Mills (Man-made Fiber) ? Birla Group Dormeuil Birla VXLlimited. (Fully integrated woolen textiles) ? Gokuldas Images (Diversified) ? Hanil Era Textiles (Yarn, Cotton & Man-made Fiber) ? Oswal Knit India (Woolen Wear) ? Niryat Sam Apparels (Apparel)
MAP SHOWING LOCATION OF TEXTILES CENTRES IN INDIA
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Company Profile
The aim was to indigenously produce fine and superfine cotton fabric as well as traditional material for vast potential Indian market. At this juncture, Arvind Mills was set up with the pioneering effort of three brothers, Kasturbhai, Narrotambhai and Chimanbhai Lalbhai becoming World‘s largest exporter and Asia‘s largest producer of denims. During 1980s several mills in Ahmedabad closed down as a result of competition from cheaper cloth produced by small power loom enterprises. Militancy spurred by textile labour unions prevented the shutdown of several lossmaking mills, and in the mid 1980s Ahmedabad was a city of industrial strives. ARVIND MILLS has risen like a phoenix from the ashes of Ahmedabad textile mills. In just eight years it has successfully implemented a turnaround strategy. Established in 1930, Arvind Limited is the flagship company of $ 498 million. Lalbhai Group has now focused its attention on few selected core product groups. Arvind today is a one-stop shop for all cotton fabric requirements, where product range spans the entire gamut of cotton fabric. It is also a rapidly expanding manufacturer of garments such as jeans and shirts. With the best technology and business acumen Arvind Mills became the true multinational producing the finest fabric available in the country that rivaled imported fabric. Since then, there has been no looking back. Having established itself as India‘s largest denim manufacturer, Arvind Mills is confident that in the near future it will become the fifth largest denim producer in the world.
FABRIC PRODUCTION
In the 1980s the growing threat from small power loom operators forced Ahmedabad‘s composite mills to shift their focus to product areas in which they could compete. In order to better address newer and wider business opportunities, the company shifted perspective from domestic to international markets. At a time when the local textile industry was declining, Arvind‘s management devised a turnaround strategy called ?Reno vision?. It represented an open-minded approach that would seek out new opportunities. In 1987 Arvind Mills made a conscious strategic decision to change its production emphasis from a portfolio of traditional domestic textiles to high quality cotton fabrics. This required a level of technological expertise, which small power loom operators could not compete with. Arvind identified denim as a key fabric. International consultants McKinsey & Co. helped to frame company‘s business strategy, formulate its organizational restructuring and establishing international alliances. Today the company is engaged primarily in the manufacturing of indigo-dyed denim fabrics, fine and superfine cotton shirting and bottom weights, and conventional
domestic fabrics such as sarees and voiles. In 1995 Arvind Mills held an 80% share of India's domestic market for denim.
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Organizational structure
Arvind defines its operations in terms of Strategic Business Units (SBUs). Each product line – such as denim, shirting, knits, voiles, etc – is designated as an SBU. Each unit is headed by a president who is able to make independent decisions on finance and marketing. The president is assisted by vice-presidents who look after functional divisions.
SUBSIDIARIES
Arvind Mills has 11 subsidiaries, of which seven are in textile and related businesses. They are: ? Arvind Clothinglimited.
? Arvind Fashionlimited. ? Arvind Worldwide Inc, USA
Arvind Clothinglimited (ACL), situated in Bangalore, began commercial
production in April 1994. ACL is the exclusive licensee in India of CluettPeabody & Co of the USA, which owns the Arrow brand name. It has the capacity for making 1 million shirts per annum, and has received ISO 9002 certification.
Arvind Fashionlimited (AFL) is a licensed user of the brand names belonging
to the US Company VF Corporation, which owns the well-known international trade mark ?Lee?. The company has a letter of intent from the Indian government (pending the issue of a license) permitting it to manufacture up to 960,000 garments per annum, provided it exports 50% of the garments produced.
AFL has invested Rs.160 million in establishing a jeans manufacturing unit at Bangalore. The state-of-the-art factory, which has a production capacity, of 500,000 pairs of jeans per annum, is equipped with machines made in the USA, Japan and Europe.
Spring 1995 saw a launch of a wide range of products-including jeans, jackets, denim shirts, twill shirts, T-shirts and accessories such as belts and bags –under the ?Lee? trade mark. These are sold through exclusive showrooms located in major cities throughout India. Although its current turnover is small, AFL is in good position to capture a significant share of the growing domestic market.
? Board of Directors
The top management of the company consists of following members:
Name Mr. Sanjay S. Lalbhai S/O Mr. Shrenikbhai Lalbhai Mr. Jayesh k. Shah S/O Mr. Kantilal Shah Mr. G.M. Yadwadkar S/O Mr. M.A Yadwadkar Mr. S.R. Rao S/O Raghunatha Rao Mr. K.M. Jayarao
Designation Executive Chairman & Managing Director (Promoter)
Executive Director & Chief Financial Officer Non-Executive, Independent – Nominee Director IDBI Banklimited. Non-Executive, Independent – Nominee Director EXIM Bank of India Non-Executive, Independent – Nominee Director ICICI Banklimited. Non-Executive, Independent – Director Non-Executive, Independent – Director Non-Executive, Independent – Director
Mr. Sudhir Mehta S/O Uttamlal Nathalal Mehta Mr. Tarun Sheth S/O Natwarlal Gordhandas Sheth Mr. Munesh Khanna S/O Narindra Khanna
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Company?s Vision
"To achieve global dominance over various businesses built around our core competencies, through continuous product and technical innovation, customer orientation and a focus on cost effectiveness".
All along Lalbhai Group has maintained a responsive yet levelheaded attitude towards the society and its training individuals to create a corporate culture that fosters excellence. Working in this direction the company has created a learning environment that nurtures individual talent and intellect. It provides a platform that challenges the individual capabilities urging them to constantly strive forward towards greater heights using development as the fundamental tool.
It infuses in individuals a spirit of entrepreneurship which gives courage and conviction to pursue set goals towards logical achievement and a global mindset that transcends geographical and cultural boundaries evolving as a world leader. All this is manifest in an environment fostering innovation and leadership.
Drawing from the Team based structure to encourage individuals to mesh up into cross-cultural teams in all operational processes. This process provides opportunities for individuals to match their capabilities with organizational expectations creating a mechanism for updating the system. A strong sense of ownership and commitment towards the organization and the business as a whole is the basic premise of all the company actions.
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Company?s Mission
Arvindlimited. has laid down certain aims and objectives to be achieved while pursuing its corporate activities. These are:
? To provide a favorable work environment to the employees to direct their working towards achievement of corporate goals.
? To provide opportunities creating a mechanism for updating the system
? To manage the institution as a trust, as empowered leaders and do all that needs to be done ethically for the purpose of the institution.
? To create a vibrant institution for the future of this nation and the world at large
? To be a world leader in an environment fostering innovation and leadership.
? To reinforce connections, and catalyze the chemistry that allows connections to be translated into action which is beneficial for both the organization and the individual.
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Company?s Philosophy
"It is my responsibility as a leader to create an environment where excellent people would like to come and give their best, to create a vision, to give freedom for excellence." - Sanjay Lalbhai (Managing Dir.)
?We believe in potential of every human being. Our Human Resource Development policy reflects this belief.
We recruit the best talent wherever we do business, offer competitive compensation, provide a dynamic work environment, make people accountable for results, and chart their growth through systematic career planning. Our structures are well defined which allows us to be more flexible and respond to the customers promptly.
We encourage innovation and entrepreneurship and motivate our people to take on leadership roles through job re-assignments. This helps us create a learning organization with a workforce that has multi-dimensional experiences and skills.
Our campus recruitment program and on-going involvement with educational institution ensures access to highly trained managers, engineers and workers to support our aggressive global plans. And our training centers – FOUNTAINHEAD (the hub of all training activities at Arvind), INDRADHANUSH (for operatives), ORCHID (for behavioral training), and CALCULUS (for computer training) – ensures they continue to learn and grow.
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Functioning of the Organization
Each ?Strategic Business Unit‘ is headed by a Business Head. There are also small garment units at Asoka and Retail outlets at Naroda. The organization has adopted a Hybrid Structure to be more responsive to the changing markets in which the Functional and the Divisional structures are combined together. As the organization grew larger with several products and markets, it typically organized into selfcontained divisions. Functions like marketing, which is important to each product or market are decentralized to the self-contained units. However, some functions like Finance, MIS, Legal and Secretarial, Taxation and Services that are stable and require economies of scale and in-depth specialization are centralized at Naroda Corporate headquarters. Each of these departments provides services for the entire organization.
The main product divisions are Denim, Shirting, Knits and Central Utility that are created to serve a different market. Individually, they all require a different strategy and management style. Each product Line Head is in charge of all functions of that product such as marketing, planning, supply and distribution, and manufacturing. There is no Matrix reporting, which means that they follow one-to-one reporting. The Supervisors will report to the Functional Heads or Managers and the managers in turn will report to the Managing Director who is the apex of the organization.
EMPLOYEES
The company in all is operating on strength of nearly 3000 managerial cadder employees and approximately 15000 first line managers. Employees are all qualified and technically efficient to serve its clients. Employees are given training of all the products and services so that they can serve its clients better. Company has a healthy incentive structure for its employees.
TURNOVER The approximate turnover of the company was Rs. 2344.99 crores (as per current financial year 2008-2009).
GEOGRAPHICAL SPREAD Arvind‘s worldwide network facilitates Global account management for the leading brands and local customers. With offices in New York, London, Bangladesh, Delhi, Ahmedabad, Mumbai, and Bangalore, Arvind has made itself ready to attend to its customers anywhere on the Globe. Besides their global offices, they have independent and devoted sales force for all locations and dedicated resources for key accounts.
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Denim Manufacturing Process
The term "Denim" has originated from the city of Nimes in France where "serge de Nimes" was manufactured. Denim is made from a vat dye, the Indigo dye, which is applied to cotton fabric in loosely held form in layers. As far as manufacturing process of denim is concerned, it is similar to that of Grey fabric up to the process of weaving with the only difference that in case of Denim Fabric, it is dyed at the stage of sizing where as in case of Grey Fabric, the decision regarding dyeing stage depends upon the finished product.
SPINNING
The initial processes of denim manufacturing consist of the regular activities of opening and blending of cotton fibers. Carding is done to remove any foreign matter and the short fibers so that cotton takes the form of a web which is then converted into a ropelike form, the sliver. Then drawing process produces a single, uniform sliver from a number of carded slivers. Yarn is then spun through Open-End Spinning or Ring Spinning. Roving is also carried on, if the spinning has to be done through Ring Spinning. Generally, denim fabric are 3/1 warp-faced twill fabric made from a yarn dyed warp and an un-dyed weft yarn. Normally dyed and Grey ring or open- end yarns are used in warp and weft respectively. The warp yarn is indigo dyed.
WARP preparation – Dyeing and Sizing process
Warp yarns are indigo dyed and sized with the help of two methods: (i) Threads from several back beams are combined to form a warp sheet and dyed and sized on the same machine. (ii) Threads, about 350-400 in number are formed into ropes. 12-14 ropes run adjacent to each other through the continuous dyeing unit. After dyeing, the ropes are dried on drying cylinders and then collected in a can.
After that, a worker's beam is prepared. Sizing is then done in the conventional manner.
WEAVING
The weaving process interlaces the warp, which are the lengthwise indigo dyed yarn and the filling, which are the natural-colored cross-wise yarn. The warp thread is in the form of sheet. The weft thread is inserted between two layers of warp sheets by means of a suitable carrier, such as Shuttle, Projectile, Rapier, Air current, Water current, etc. The selection of carrier depends upon the type of weaving machinery used. The two different technologies available for weaving machines are Conventional Shuttle Weaving System which is done by Ordinary Looms or Automatic Looms; and the Shuttle less Weaving System which is done by Air jet, Water jet, Rapier, or a Projectile weaving machine. The Conventional Shuttle loom results in lesser production due to slow speed and excessive wear and tear of machinery. As such, now denim is generally woven through Shuttle less Weaving System namely, Airjetlooms, rapier looms, or projectile looms.
QUALITY ASSURANCE (Q.A)
In Q.A 10% of sample is tested through an important machine which is brought from Switzerland. There is a test for fabric strength, purification, diameter, thickness, weight, quality etc. Q.A got ISO-17025 certificate from NABL. There are 28 methods of testing.
FINISHING
The final woven fabric, wound on a cloth roll, is taken out from weaving machines at particular intervals and checked on inspection machines so that any possible weaving fault can be detected. In this quality control exercise, wherever any fault is seen, corrective measures are taken then and there only. The woven Denim Fabrics then goes through various finishing processes, such as brushing, singeing, washing, impregnation for dressing and drying. Brushing and
singeing eliminate impurities and help to even the surface of denim fabric. Dressing regulates the hand and rigidity of the fabric while compressive shrinking manages its dimensional stability. The standard width denim fabrics are then sent for making up. In this process, the fabric is cut into the desired width according to the size required. The made- up denim fabric is then thoroughly checked for defects such as weaving defects, uneven dyeing, bleaching and dyeing defects, oil stains, or patches. After inspection, the final product is categorized quality-wise. The faultless fabrics are sent to the packaging department while the defective ones are sent for further correction.
INSPECTION
There are four rating system. It inspects physical parameter like width, square & linkej. Complete material inspection is done as per the quality requirement of the customer & from their product is delivered in the market. There are 13 inspection machines and each machine has two operators.
? Market Network of Arvind
Only two ingredients go into the making of Arvind denim – world-class quality and complete customer orientation. A strong team of industry‘s best-qualified talents forms the founding dimensions.
Arvind Limited today is reinforcing its marketing efforts by focusing on brand development. They expect to strengthen its existing relationship with global brands such as Marks & Spencer, V.F. Corporation, Calvin Klein, GAP, Benetton, Polo, Espirit, Tommy Hilfiger, Hugo Boss and Liz Clairborne to list a few by developing value added products and providing superior level of service. The complexity has enhanced Arvind's product range and made it more responsive to the changing requirements of some of the leading garment brands.
Arvind has single handily developed a multi-billion denim market in India. The BRANDS fostered by Arvind include:
Lee & Arrow for the super premium segment
Flying Machine & Excalibur for the premium segment
Newport for the economy and
Innovative „Ruf & Tuf? for the mass market
The company has recently made a foray into children segment by introducing Lee Youth, Ruggers Kids & Newport Kids. Similarly in tie-up with Cluett Peabody, USA, to manufacture and market their world famous Arrow shirts, it launched what is today‘s India‘s most inspirational brand of dress shirts. In a world without boundaries, Arvind FABRICS are equally universal in their appeal. Arvind aims to enrich lifestyles globally, inspiring diverse customers with the beauty of their fabric.
Arvind was already making shirting for the Indian market. In 1990, it decided to focus on high value shirting, so as to expand their markets beyond India's borders. As a part of their commitment to being a value-adding partner to each of the customers, Arvind Shirting‘s have invested US $ 100 million in Santej. This plant has an annual capacity of 34 million meters of 100% cotton woven. Arvind's philosophy in manufacturing is 'Excellence in Quality and Flexibility in Production'. In the entire process of operations, eco-friendliness is critically monitored and ensured. The plant is also configured to handle small order sizes as well as very long order lengths with consistent quality.
Arvind has recently set up a dedicated bottom weights plant as part of Arvind Polycot Limited. This new addition to the Arvind Textile Complex brings the total investment in the complex up to Rs.12000 million. The plant is an integrated facility that sources yarn from Arvind at Ahmedabad. It has both weaving and processing infrastructure, captive power supply, steam generation and a wastewater treatment plant. The latter makes it a zero discharge complex i.e. one that recycles all its wastewater.
In 1986, we looked for textiles that had global demand, high margins, and high entry level barriers (either of technology, expertise or set-up costs), and very importantly, low "fashion volatility". We wanted to focus on fabric that would never go out of style. Our analysis of potential products threw up denim as the answer. With a production capacity of 120 million meter per annum, Arvind is currently India‘s largest and world‘s third largest denim manufacturer. It sells under the brand names ?ARVIND DENIM? and ?BIG MILL DENIM? (in Europe). In India Arvind commands a market share of approximately 64% which is five times that of the next largest player. Our denim is used to make India‘s leading jeans brands – Flying Machine, Killer, Levi‘s, Numero Uno, Pepe, Texas jeans, UFO and Wrangler. All the leading local denim manufacturers use ?Made from original Arvind denim? as an indicator of high quality and consistency. Arvind also exports denim to over sixty-six countries worldwide. Denim exports constitute of approximately 50% of the turnover.
Today Arvind is making yet another foray in the manufacture of the finest quality Cotton Knits in the world. This new venture features a technical collaboration with Alamac Knits Inc, USA to manufacture high value and high-fashion knits. With an investment of US $50 million, the plant will produce fabric in both tubular and open widths. The product range aims to offer widest choice in both tubular and open widths in single (Jersey, Pique, Textures, Pointless, Fleece, French Terry, Jacquards in solids, feeds and automatics) and double (Interlocks, Needle-outs, ottomans, Pointless, Textures, Reversible, jacquards, Ribs in solids, feeds and automatics, Collars: Plains and Jacquards) knits. It will manufacture a knits range from casuals to formal, active wear to sleepwear, for diverse use in men's, women's and children's clothing. Arvind‘s large color and fabric library, stocking samples and a well equipped fabric resource centre facilitates customers to access fabric that will enhance their lifestyles.
• Arvind’s Own Brands
• Licensed Brands
Arvind Customers
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? Portfolio of Arvindlimited.
Portfolio Denim Shirting Garment Brand/Retail Others Percentage% 26% 11% 16% 21% 26%
Percentage% Others 26% 26%
Arvind Portfolio
Percentage% Denim 26% 26%
Percentage% Shirting 11% 11% Percentage% Brand/Retail 21% 21% Percentage% Garment 16% 16%
Milestones Achieved
1931 Arvind Limited was set up by Lalbhai Brothers in the “Manchester of East”.
1934
With sales reaching Rs. 45.76 lakhs and a profit of almost Rs. 3 lakhs, Arvind establishes itself amongst the foremost textile units in the country.
1985
First Meter of Denim churned out.
1986
An uninterrupted record of not missing out on paying dividend to its shareholders. An established leader in fine & superfine cotton fabrics for Indian market. Renovation: First company to bring globally accepted fabrics Denim, yarn dyed shirting fabrics & wrinkle free gabardines to India.
1987
The largest zero discharge green effluent treatment plant in India. Commitment to greener world. First company to bring International shirt brand ?Arrow? to India First company to start dedicated ?retail? outlets for Arrow brand Awarded various awards for Highest exports and ISO.
1989
Largest denim & shirting in South Asia. 3rd Largest denim capacity in the world. Introduction of Premium Shirting‘s Division.
1990
1993
Office set up in New York, London & Hong Kong.
1994
Arvind ventures into Brands—Flying Machine acquired….. BEGINNING OF AN ERA
1995
LEE commenced production. Introduction of Ruf & Tuf, ready to stitch denim.
1997
Commission of State-of-the-art manufacturing unit at Santej (Ahmadabad). First Indian company to detribalize the cotton textile business from cotton fields to apparel retailing.
19971998
First company to introduce ERP SAP business solutions.
2002
Arvind` does a unique financial restructuring.
2004
Relocation of Mauritius Plant at the end of quota regime.
2008
Company launches 'Mega mart', now India's largest value apparel-retail chain Largest portfolio of International brands: Lee, Wrangler, Nautical, Jan sport, Kipling, Tommy, Arrow, US Polo, Izard, Pierre Cardin, Palm Beach, Cherokee, hart Schaffer Marx.
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Financial Scenario
Arvindlimited is acclaimed in the Indian corporate field for its financial skills. Being the phase of rapid growth or downturn the company has demonstrated swift, sharp and robust financial acumen to navigate the company through different phases of economic cycles. Arvind Mills was the first Textile Company from India to issue GDRS in the year 1992-93. Highly complex financial restructuring exercise involving more than 80 domestic and international tenders, who the company implemented following the major downturn in the business cycle during year 2000-2002, is considered to be the benchmark for the Indian corporate. Arvindlimited has been making judicious choice of fund leasing avenues in the domestic as well as international markets so as to utilis very efficient capital structure, which is in the tune with operating risks and enhances the shareholder‘s value.
The company has laid down the risk management policy to manage the financial risks emerging out of currency and interest rate. It runs an active treasury desk so as to make use of modern hedging tools available to manage financial risks.
Arvind Mills was the first Textile Company in India to implement ERP, SAP as back as in the year 1997-98. The company follows best accounting practices to prepare its financial statements as envisaged in the Indian and international accounting standards.
SHAREHODING PATTERN OF ARVINDlimited.
Particulars NO.OF SHARES % OF TOTAL
Promoters
76908767
35.24%
Institution
42340700
19.40%
General public
98980382
45.36%
Grand total
218229849
100%
Graph
From old
to New
Arvindlimited is the flagship company of the Lalbhai Group and one of India‘s largest integrated textile manufacturers and branded apparel retailers. The re-branding exercise comes in the wake of Arvindlimited transforming itself from a pure fabric company to a diversified business group focusing on branded apparel and retail.
Initially, when the company was set up as Arvind Millslimited, it was simply about fabric. But gradually, it has spread its tentacles into retail and branded apparel, which today contributes the maximum to the company‘s growth. Seven years ago, with everything else constant, the logo was changed. In all, since Arvind Mills was set up in 1931, this is the first extensive re-branding exercise it has taken up.
Sharp, but well rounded, the forms of the logotype represent an organization that is integrated and works across the value chain from stylish fabrics to iconic brands. Arvind Mills - old logo With an element of classicism, the logo symbolizes an organization that has a rich heritage, while remaining contemporary through changing times. The burgundy red Arvindlimited - new logo denotes maturity, its rich tones carrying a sense of depth and more than a hint of passion.
No particular font has been used for the logo – it is hand drawn and, therefore, an exclusively crafted logo.
Highlighting the significance of the change in identity, Sanjay Lalbhai, chairman and managing director, Arvindlimited, says, ?Over eight decades, we have changed the face of fashion by evolving constantly. As we get ready to address wider opportunities to create wealth for our stakeholders, we have evolved new ways of thinking and a new direction. The new identity reflects the shift in the corporate identity from a large integrated textile player to a lifestyle solutions company and the name of the company reflects the same trust but new opportunities.?
Arvindlimited has licensing relationships with international brands such as Arrow, Gant, Cherokee, USPA, Hart Schaffner Marx, Sansabelt, Pierre Cardin and a joint venture with VF Corporation, which covers Lee, Wrangler, Jansport, Nautica, Kipling and Tommy Hilfiger. In addition, Arvind owns a number of successful Indian brands such as Flying Machine, Newport, Excalibur and Ruf and Tuf. It also owns the retail chain, Mega mart, which has 83 outlets in 30 towns. Recently, Arvindlimited opened a 40,000 square foot Mega mart outlet in Chennai.
Arvind Mills changes name, focus, strategy
Textile major Arvind Mills which has been recently going through a bad patch owing to rising rupee, reducing exports and falling margins is undertaking a business transformation in a bid to become a billion dollar company. The company has firstly changed its name from ?Arvind Millslimited‘ to ?Arvindlimited‘ with a new logo and identity to reflect a company which is diversified with focus on branded apparel and retail. The promoters will increase their stake from 34% to 47% and infuse Rs.188 crore capital into the company. Also, half of the Rs.1400 crore debts which Arvindlimited has would be repaid by selling off land at Ahmedabad and Bangalore thus positively affecting the company‘s profitability. Arvind is now giving more focus to brands and retail which until now contributes 19% of total revenue. It will also move to become an integrated textile player by producing fabric as well as retailing it. With a combination of its own as well as licensed brands, Arvind aims to become the largest apparel brand in India with focus on Tier II and III cities. Major emphasis would be on the value store format ?Megamart‘ which is targeted to achieve Rs.1000 crore sales in 3 years. Other than that Arvind plans to setup 250 small format and 30 large format stores by 2012.The strategy may work out to be rewarding for the company as it has a good portfolio of domestic and international, and has been an established national player. The move would also help it to ward off any risk it faces from the recession in export markets.
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Concept of Working Capital
A company invests its funds for long term purposes and short term operations. That portion of a company‘s capital, which is required for minimum stock of raw material to maintain continuity in production, minimum stock of finished goods to fulfill future demand, payment of wages and salaries of labourers and employees is called Working Capital. In other words, working capital is that part of the firm‘s capital which is required for financing short term or current assets such as debtors, inventories, marketable securities and cash.
The word working capital comprises of two words ?working‘ and ?capital‘. In trade and industry, the word ?working‘ with reference to capital means circulation of capital from one form to another during day-to-day operations of the business whereas the word ?capital‘ refers to the monetary values of all the assets (tangible and intangible) of the business.
There are numerous concepts of working capital as given by various accountants, financial experts, entrepreneurs and economists. Important among them are –
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Balance Sheet or Traditional Concept
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Operating Cycle Concept
? Forms of Working Capital
Working capital is the amount of funds required to cover the cost of operating the enterprise. In other words, working capital may be defined as excess of current assets over current liabilities. It may be classified in two ways i.e. (i) on the basis of balance sheet concept and (ii) on the basis of time. These are illustrated by the following chart.
Types of working capital
On the basis of B/S concept
On the basis of time Permanent or Regular Working Capital Variable or Temporary Working Capital Specific Working Capital
Gross Working Capital
Net Working Capital
Seasonal Working Capital
? On the basis of B/S concept
According to this concept, working capital is calculated on the basis of the balance sheet prepared at a specific date. It is further classified it two forms- gross and net working capital.
o Gross Working Capital – The gross working capital refers to the firm‘s investment in current assets. The sum of current assets is a quantitative aspect of working capital which emphasizes more on quantity than its qualities.
o Net Working Capital - Net working capital is the difference between the current assets and the current liabilities or the excess of total current assets over total current liabilities. Net working capital may also be defined as, that part of a firm’s current assets which is financed with long term funds. The net working capital may either be positive or negative. When current assets exceed current liabilities, working capital is positive and negative when current liabilities exceed current assets.
? On the basis of Time
Working capital is the amount required in different forms at successive stages of operation during the net operating cycle period of an enterprise. The duration or time required to complete the sequence of events right from purchase of raw materials/goods for cash to the realization of sales in cash is called the operating cycle or working capital cycle. On the basis of time working capital may be classified as (i) Permanent or regular working capital; and (ii) Variable or temporary working capital.
o Permanent or regular working capital – It represents the irreducible minimum amount that is permanently blocked in the business and cannot be converted into cash in the normal course of business. It has following characteristics :
a. It keeps on changing its form from one current asset to another
b. The size of working capital grows with the growth of the business
c. As long as the firm is a going concern, this part of working capital cannot substantially be reduced.
o Variable or temporary working capital – Any amount over and above the permanent working capital is variable or temporary working capital. It fluctuates as per the change in the production and sale activities. It can further be classified in following two forms:
a. Seasonal working capital – The capital required to meet the seasonal demands of the enterprise is called seasonal working capital. It is of short-term nature and thus has to be financed from short-term sources like bank loan etc.
b.Specific working capital – Specific working capital is that part of the working capital which is required to meet unforeseen contingencies like slump, strike, flood, war etc.
?
Components of Working Capital
Working capital refers to the metric valuation of the current assets and the current liabilities. These two are the basic components of working capital. ?
CURRENT ASSETS ARE: (1) (2) (3) (4) (5) (6) Inventories Sundry Debtors Bills Receivables Cash & Bank Balances Short term investment Advances such as advances for purchase of raw materials, component and consumable stores, prepaid expenses etc.
?
CURRENT LIABILITIES ARE: (1) (2) (3) (4) (5) Sundry Creditors Bills Payable Creditors for outstanding expenses Provision for tax Other provision against the liabilities payable within a period of 12 months
?
Sources of Working Capital
Funds available for a period of one year or less are called short-term finance. In India short-term funds are used to finance working capital. Two most significant forms of working capital are: trade credit, bank borrowing. The use of trade credit has been increasing over the years in India. Trade credit as a ratio of current assets is about 40 percent. It is indicated by the Reserve Bank of India that trade credit has grown faster than the growth in sales. Bank borrowing is the next important source of working capital finance. Before seventies, bank credit was liberally available to firms. It became a resource after eighties because of the change in the government policy. Another form of short-term working capital finance which has recently developed in India is Commercial Paper.
? Trade credit
Trade credit refers to the credit that a customer gets from supplier of goods in the normal course of business. In practice, the buying firms do not have to pay cash immediately for the purchase made. It is a major source of financing for firms. In India, it contributes to about one-third of the short-term financing. Trade credit is mostly an informal arrangement, and is granted on an open account basis. Once the trade links have been established between the buyer and seller, they have each other‘s mutual confidence and trade credit becomes a routine activity. Open account trade credit appears as sundry creditors on the buyer‘s balance sheet. Trade credit may also take the form of bills payable. A bill is formal acknowledgement of an obligation to repay the outstanding amount. It also involves some credit terms. These credit terms refer t the conditions under which the supplier sells on credit to the buyer, and the buyer is required to repay the credit. These conditions include the due date and the cash discount (if any) given for prompt payment.
? Bank Finance
Banks are the main institutional sources of working capital finance in India. A bank considers a firm‘s sales and production plans and the desirable levels of current assets in determining its working capital requirements. The amount approved by the bank for the firm‘s working capital is called credit limit. Credit limit is the maximum funds which a firm can obtain from the banking system. In the case of firms with seasonal businesses, banks may fix separate limits for the peak level credit requirement and normal non-peak level credit requirement indicating the periods during which the separate limits will be utilized by the borrower. A firm can draw funds from its bank within the maximum credit limit sanctioned. It can draw funds in the following forms: (a) overdraft, (b) cash credit, (c) bills discounting, and (d) working capital loan.
Overdraft Under the overdraft facility the borrower is allowed to withdraw funds in
excess of the balance in his current account upto a certain specified limit during a stipulated period. Interest is charged on daily balances on the amount actually withdrawn subject to some minimum charges. Cash Credit Under the cash credit facility, a borrower is allowed to withdraw funds from the bank upto the sanctioned credit limit against the security of current assets. He is not required to borrow the entire sanctioned credit at once, rather, he can draw periodically to the extent of his requirements and repay by depositing surplus funds in his cash credit account. Interest is payable on the amount actually utilized. It is more flexible from borrower‘s point of view. Bills Discounting Under the purchase or discounting of bills, a borrower can obtain credit from the bank against its bills. The bank purchases or discounts the bill and provides the amount within the overdraft limit. Before purchasing or discounting, bank satisfies itself as to the creditworthiness of the borrower. When a bill is discounted, the borrower is paid the discounted amount of bill viz. full amount of bill minus discount charged by the bank. The bank collects the full amount on maturity.
Letter of Credit Suppliers, particularly foreign suppliers, insist that the buyer should ensure that his bank will make the payment if he fails to meet its obligation. This is ensured through a letter of credit (L/C) arrangement. A bank opens an L/C in favour of a customer to facilitate his purchase of goods. This arrangement passes the risk of the supplier to the bank. Bank will make payment to the supplier on behalf of the customer only when he fails to meet the obligation.
Working Capital Loan a borrower may sometimes require ad hoc or temporary accommodation in excess of sanctioned credit limit to meet unforeseen contingencies. Banks provide such accommodation through a demand loan account or a separate nonoperable cash credit account. The borrower is required to pay a higher rate of interest on such additional credit.
? Commercial paper
Commercial paper (CP) is an important money market instrument in advanced countries like USA to raise short-term funds. In India, the Reserve Bank of India (RBI) introduced the commercial paper scheme in the Indian money market in 1989. Commercial paper is a form of unsecured promissory note issued by firms to raise short-term funds. The buyers of commercial paper include banks, insurance companies, unit trusts and firms with surplus funds to invest or a short period with minimum of risk. Given this investment objective of the investors in the commercial paper market, there would exist demand for commercial papers of highly creditworthy companies. In India, the issue of commercial paper is being regulated by RBI. Those companies are allowed to issue commercial papers which have a net worth of Rs.10 crore, maximum permissible bank finance of not less than Rs.25 crore, and are listed on the stock exchange. A company can issue CPs amounting to 75percent of the permitted bank credit.In addition to the above mentioned sources, accrued expenses and deferred income are other spontaneous sources of short-term financing. Accrued Expenses represent a liability that a firm has to pay for the services which it has already received.
Deferred Income represents funds received by the firm for goods and services which it has agreed to supply in future.
? Objective of Working Capital Management
a. To minimize the amount of capital employed in financing the current assets. This will also lead to improvement in the ?Return on Capital Employed?.
b. To manage the current assets in such a way that the marginal return on investment in these assets is not less then the cost of capital acquired to finance them. This will ensures the maximization of the value of the business units.
c. To maintain the proper balance between the amount current assets and liabilities in such a way that the firm is always able to meet its financial obligation whenever due.
d. To ensure the smooth working of the units without any production held-ups due to paucity of funds.
e. To ensure easy and cheapest availability of resources at the time of growth and expansion activities.
? Determinants of Working Capital
The following factors should be considered carefully while determining the amount of working capital required:
1. Nature of business – The amount of working capital is basically related to the nature and the volume of the business. Firms engaged in public utility services require moderate amount of working capital whereas firms producing luxury goods require large amount of working capital.
2. Size of business – Size is also a determining factor in estimating working capital requirements. The size may be measured either in terms of scale of operations or in terms of assets or sales.
3. Changes in technology – Changes in technology may lead to improvement in processing of raw material, saving in wastage, higher productivity and more speedy production. All these improvements enable the firm to reduce the working capital requirements.
4. Length of operating cycle – The amount of working capital depends upon the length or duration of operating cycle. The speed with which the operating cycle is completed, determines the amount of working capital. The larger is the period, the more is the investment in inventories and wage bills.
5.
Terms of purchase and sale – A firm buying raw materials and other services on
credit and selling on cash basis will require less investment in current assets as compared to a firm which purchases on cash basis and sells on credit. The period of credit and the efficiency in collection of debts also influence the amount of working capital required. The terms and conditions of purchase and sale are generally governed by the prevailing trade practices and by changing economic condition. 6. Inventory - Some concerns are force to hold large inventories in terms of raw materials or finished goods due to the reason of seasonal nature of availability, long distances, scarcity etc, in such case the working capital requires is more. 7. Business cycles – Business cycle refers to the alternate expansion and contraction in general business activities. In a period of boom when the business is prosperous, there is need for larger amount of working capital due to increase in sales and rise in prices of raw materials. The contrary happens in the period of depression. 8. Profit margin – A high rate of profit margin due to quality products or good marketing management or monopoly power in the market, reduces the working capital requirements of the firm, as profit earned in cash is a source of working capital. On the contrary, firms earning low margin of profits due to competition or mismanagement need larger amount of working capital. 9. Credit policy – A firm following liberal credit policy and thus granting credit facilities to all customers without evaluating the credit worthiness will require more working capital to carry book debts. On the contrary, a firm that adopts strict credit policy and grants facilities to customers with high credit standing will require less amount of working capital as funds tied-up in receivables will be released promptly for further uses.
? Significance of adequate Working Capital
Adequate working capital is a source of energy to any business organization. It provides the following advantages to a business enterprise:
1. Adequate working capital enables a firm to make prompt payments to the suppliers and thus it can also avail the advantage of cash discount by paying cash for the purchase of raw material.
2.
If a firm has adequate working capital, it can declare and distribute enough dividends when there are sufficient profits. This creates satisfaction among the shareholders.
3. In business, promptness to third parties creates goodwill and increases the debt capacity of the concerned firm. This in turn ensures uninterrupted flow of production.
4. A firm having adequate working capital and liquid assets can arrange loans from the banks on easy and favourable terms, as it provides a good security for the unsecured loans.
5. Adequate working capital has psychological effect on the directors and executives of the firm as it motivates them to work vigorously. It creates an environment of security, confidence, high morale and increases overall efficiency in the business.
6. Adequate working capital increases the productivity or efficiency of fixed assets in the business.
? Effects of excessive Working Capital
Excess or redundant working capital refers to the idle funds which do not earn any profits for the firm. ?Inadequate working capital is disastrous; whereas redundant working capital is a criminal waste?. A firm may suffer following disadvantages from excess working capital:
1. It may lead to unnecessary purchasing and accumulation of inventories causing more chances of mishandling of inventories, theft, waste, losses, etc.
2.Excessive working capital implies excessive debtors and defective credit policies causing higher incidence of bad debts that ultimately affects profits of the firm.
3.It indicates inefficient management of the firm. It shows that the management is not interested in effectively utilizing the resources and encouraging economy.
4.Excessive working capital remains idle and earns no profits for the firm, even though interest has to be paid on it. This reduces the amount of profits.
5.It is an indicator of inefficient management. Hence, shareholders believe that they are not getting proper return on their investments. This results in lowering the value of shares causing discontentment among shareholders.
6.It promotes profits of speculative nature by stock-piling. It results in liberal dividend policy, but the management has to face difficulties in future when there are no speculative profits.
( Rs. in Crore ) Particulers SOURCES OF FUND Share holder fund Share capital Reserves & surplus Total Secured Loans Unsecured Loans Deferred Tax Liability TOTAL APPLICATION OF FUND Fixed Assets Gross Block Less- Depreciation Net Block Capital Work in Progress Investment
FOREIGN CURRENCY MONETARY ITEM TRANSLATION DIFFERENCE ACCOUNT
As at 31.03.09
As at 31.03.08
As at 31.03.07
As at 31.03.06
260.10 940.47 1200.57 1920.90 103.04 12.82 3237.33
273.30 1197.05 1470.35 1774.94 97.52 12.82 3355.63
255.58 1113.45 1369.03 1772.74 161.57 12.82 3334.16
265.48 1266.47 1531.95 1688.38 152.99 12.82 3386.14
3056.80 (1014.51) 2042.29 81.58 100.06 6.77
2942.99 (906.78) 2036.21 116.14 104.99 0.00
2817.21 (772.32) 2044.89 71.45 48.05 0.00
2192.24 (882.64) 1309.60 79.59 348.10 0.00
Current assets, Loan & Advance Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Loan & Advance Total Less-Current Liability & Provision
581.47 350.84 26.83 54.90 578.47 1592.51
575.34 261.77 16.32 73.26 544.45 1471.14
645.01 204.85 22.31 54.95 663.79 1590.91
479.26 368.28 9.59 38.68 1041.44 1937.25
Liabilities Provisions Total Net Working Capital Miscellaneous Expenditure (to the extent not written off) TOTAL
463.29 132.66 595.95 996.56 10.07 3237.33
360.54 21.81 382.35 1088.80 9.50 3355.63
408.99 12.15 421.14 1169.77 0.0 3334.16
243.31 45.09 288.40 1648.85 0.00 3386.14
( Rs. in Crore )
Particular
INCOME Sales & Operating Income Other Income Total EXPENSES Raw Materials Consumed Purchase of Finished Goods Employee Emoluments Others Interest & finance cost Depreciation Exceptional items (net) Decrease/(Increase) in Stocks Total Profit before tax for the year Less- Current tax Less-Deferred Tax Less –Fringe benefit tax Add: MAT Credit Entitlement Profit For the year Less- Prior Period Income/(Expense) Profit before Extra ordinary items (net) Profit after Extra ordinary items Balance as per last year?s balance sheet Interim Dividend on Preference Shares Tax on Interim Dividend Proposed dividend on Equity Shares
2008-09 2344.99 51.91 2396.90 695.83 257.90 244.80 924.47 222.13 122.05 11.53 (34.86) 2443.86 (46.96) 0.00 0.00 1.86 0.00 (48.82) 0.95 (47.87) 0.00 (47.87) 434.92 (1.68) (0.29) 0.00
2007-08 2006-07 2005-06 2290.33 15.91 2306.24 611.26 305.54 230.39 861.04 131.40 136.64 9.31 (9.49) 2276.09 30.15 3.10 0.00 2.25 (3.10) 27.90 (0.54) 27.36 0.00 27.36 425.00 (2.48) (0.42) 0.00 1847.99 1592.00 13.17 22.52 1861.16 1614.52 571.93 500.24 36.97 4.45 204.33 135.74 780.24 534.14 150.26 138.64 143.36 155.10 0.00 0.00 (53.64) 9.82 1833.45 1478.14 27.71 0.00 0.00 11.62 (11.61) 0.00 0.00 25.27 94.29 119.56 321.17 (3.14) (0.44) 0.00 136.38 11.40 8.27 0.95 (11.40) 127.16 0.00 0.00 0.00 0.00 232.74 (3.80) (0.53) (20.94)
2004-05 1654.91 4.99 1659.90 612.24 7.63 123.09 542.92 108.92 149.07 0.00 (12.76) 1530.60 129.30 1.95 0.00 0.00 0.00 127.35 0.00 0.00 0.00 0.00 127.77 (4.09) (0.53) (19.54)
Tax proposed dividend Additional dividend on equity share Tax on additional dividend Provision for leave encashment Transferred to capital redemption reserves Transferred to debenture redemption reserve Balance Carried to Balance Sheet
0.00 0.00 (80.10) (9.58) (13.20) 0.15 282.34
0.00 0.00 0.00 (1.34) (13.20) 0.00 434.92
0.00 0.00 0.00 0.00 (9.90) (2.25) 425.00
(2.94) (1.40) (0.20) 0.00 (9.92) 1.00 321.17
(2.74) 0.00 0.00 0.00 (3.48) 8.00 232.74
( Rs. in Crore ) (Actual working capital)
CURRENT ASSETS
PARTICULAR Raw Materials Work in progress Finished goods Sundry Debtors Cash &Bank Balance Total 1646.54 881.71 885.14 858.49 843.53 2009 930.17 202.19 136.51 350.84 26.83 2008 139.77 147.36 243.23 261.77 89.58 2007 264.27 140.34 198.42 204.85 77.26 2006 257.12 112.91 71.91 368.28 48.27 2005 282.05 87.73 103.54 319.11 51.10
CURRENT LIABILITIES
PARTICULAR Sundry Creditors Wages Overheads Total 2009 344.46 212.64 925.15 1482.25 2008 360.54 207.12 877.19 1444.85 2007 408.99 174.50 780.24 1363.73 2006 243.31 112.54 534.14 898.99 2005 238.76 101.83 542.92 883.51
Net WC
164.29
(563.14)
(478.59)
(40.50)
(39.98)
Time period of working capital
Raw Materials Work in process Finish goods Debtors Creditors Wages Overheads
= 100% = 1 month =1 month = 2 month = 1.5 month = 1 month = 1 month
? NET WORKING CAPITAL:? Net Working Capital =Total Current Assets – Total Current Liabilities ? 2009 = 1646.54-1482.25
= ? 2008 =
164.29
881.71-1444.85
= ? 2007 =
(563.14)
885.14 - 1363.73
= ? 2006 =
(478.59)
858.49 – 898.99
=
(40.50)
? 2005 = = 843.53 – 883.51 (39.98)
? WORKING CAPITAL OF THE ARVIND LTD.
(Actual working capital) (Rs.in crore) WORKING CAPITAL 2008-09 20007-08 2006-07 2005-06 2004-05
CURRENT ASSETS
1. Raw Materials 2. Work in process 3. Finished
goods 4. Debtors 5. Cash & Bank Balance
930.17
139.77
264.27
257.12
282.05
16.84
12.28
11.695
9.409167
7.310833
11.38
20.26916
16.535
5.9325
8.628333
58.47 26.83 1043.69
43.62833 89.58 305.5275
34.141167 77.26 403.9017
61.38 48.27 382.1117
53.185 51.19 4023642
TOTAL - (A)
CURRENT LIABILITIES
1. Time – lag 43.05 for Creditors 2. Time – lag for Wages 45.0675 51.12375 30.41375 29.845
17.72
17.26
14.54167
9.378333
8.485833
3. Time – lag for Overheads TOTAL - (B) NET WORKING CAPITAL (A - B)
77.09
73.09917
65.02
43.62417
45.24333
137.86 905.83
135.4267 170.1008
130.6854 273.2163
83.41625 298.6954
83.57417 318.79
? Computation of Working Capital :? CURRENT ASSETS
1. Raw Materials :-
Raw Materials = 100%
Cost of raw material * RM holding period Raw Material = -----------------------------------------------------365 Days 2008-09 = 930.17
2007-08 = 139.77
2006-07 = 264.27
2005-06 = 257.12
2004-05 = 282.05
2. Work in process :-
(Work in process
= 1 month )
WIP
WIP cost * WIP holding period = -------------------------------------------365 days/ 12 months 202.19 * 1 months = ----------------------------12 months = 16.84
2008-09
2008-09
147.36 * 1 months 2007-08 = ----------------------------12 months 007-08 = 12.28
140.34 * 1 months 2006-07 = ----------------------------12 months 2006-07 = 11.69
112.91 * 1 months 2005-06 = ----------------------------12 months
2005-06 = 9.41
87.73 * 1 months 2004-05 = ----------------------------12 months
2004-05 = 7.31
3. Finished goods :-
Finish goods
=1 month
Cost of finished goods * holding period Finished goods = ---------------------------------------------------12 months 136.51 * 1 months 2008-09 = ----------------------------12 months
2008-09 = 11.38
243.23 * 1 months 2007-08 = ----------------------------12 months
2007-08 = 20.27
198.42 * 1 months 2006-07 = ----------------------------12 months
2006-07 = 16.54
71.91 * 1 months 2005-06 = -----------------------------
12 months 2005-06 = 5.93
103.54 * 1 months 2004-05 = ----------------------------12 months 2004-05 = 8.63
4. Sundry Debtors :-
Debtors = 2 month
Credit sales * debtors collection period Sundry Debtors = ----------------------------------------------------12 months 350.84 * 2 months 2008-09 = ----------------------------12 months
2008-09 = 58.47
261.77 * 2 months 2007-08 = ----------------------------12 months
2007-08 = 43.63
204.85 * 2 months 2006-07 = ----------------------------12 months
2006-07 = 34.14
368.28 * 2 months 2005-06 = -----------------------------
12 months 2005-06 = 61.38
319.11 * 2 months 2004-05 = ----------------------------12 months 2004-05 = 53.19
? Current Liability :-
1. Sundry Creditors :-
(Creditors = 1.5 month)
Credit purchase * credit period allowed by creditors Sundry Creditors = -----------------------------------------------------------------12 Months
344.46 * 1.5 months 2008-09 = ----------------------------12 months
2008-09 = 43.05
360.54 * 1.5 months 2007-08 = ----------------------------12 months
2007-08 = 45.07
408.99 * 1.5 months 2006-07 = ----------------------------12 months
2006-07 = 51.12
243.31 * 1.5 months 2005-06 = ----------------------------12 months 2005-06 = 30.41
238.76 * 1.5 months 2004-05 = ----------------------------12 months 2004-05 = 29.85 2. Direct Wages :Wages = 1 month
Cost of direct wages * payment period DW = ---------------------------------------------------12 months 212.64 * 1 months 2008-09 = ----------------------------12 months
2008-09 = 17.72
207.12 * 1 months 2007-08 = ----------------------------12 months
2007-08 = 17.26
174.50 * 1 months 2006-07 = ----------------------------12 months
2006-07 = 14.54
112.54 * 1 months 2005-06 = ----------------------------12 months
2005-06 = 9.38
101.83 * 1 months 2004-05 = ----------------------------12 months 2004-05 = 8.49
3. Overheads :-
Overheads = 1 month
Total cost of overheads * avg. time-lag in payment of overheads Overheads = --------------------------------------------------------------12 Months
925.15 * 1 months 2008-09 = ----------------------------12 months
2008-09 = 77.09
877.19 * 1 months 2007-08 = ----------------------------12 months
2007-08 = 73.10
780.24 * 1 months 2006-07 = ----------------------------12 months
2006-07 = 65.02
534.14 * 1 months
2005-06 = ----------------------------12 months 2005-06 = 43.62
542.92 * 1 months 2004-05 = ----------------------------12 months 2004-05 = 45.24
? FORMULAS:Stock of raw material 1. Inventory period = ---------------------------------------- * 365 daysCost of raw material consumed
2. WIP holding period
Stock of WIP = ------------------------------------- * 365 days Cost goods manufacturing
3. Finished goods
Stock of finished goods = ------------------------------------ * 365 days Cost of goods sold
4. Debtors collection period
=
debtors ------------------------- * 365 days Credit sale
5. Accounts payable period
=
Creditors ------------------- * 365 days Purchases
6. Operating Cycle
=
Inventory Period + Debtors collection period + WIP holding period + Finished goods Accounts payable period
7. Cash Cycle
= Operating cycle
- Accounts Payable Period
? Operating
and cash Conversion Cycle
Operating cycle method is the best technique for estimating future cash working capital of a firm. Under this method, total operating expenses for a period are divided by the number of operating cycles in the relevant period to find out the cash cost of working capital. Thus, the computation of total operating expenses, operating cycle and number of operating cycles in the year is essential for estimating the amount of working capital, as discussed below:
Operating expenses include purchase of raw material, direct labour cost, fuel and power, administrative and selling and distribution expenses for a specific period for which estimates can be obtained from cost records.
Operating cycle period means the total number of days involved in the different stages of operation commencing from the purchase of raw materials and ending with collection of sale proceeds from debtors after adjusting the number of day‘s credit allowed by suppliers. It is calculated by using the following formula:
I. PERIOD OF OPERATING CYCLE =
Material storage period (M)+ Work-in-progress period (W) + Finished goods period (F)+ Debtors collection period (D) Creditors payment period (C)
1. Inventory period
Stock of raw material ---------------------------------------- * 365 daysCost of raw material consumed
Inventory period
=
Raw material consumed = opening stock of raw material + purchase – closing stock
930.17
2008-09
= ----------------- * 365 days 695.83 = 487.92 days
139.77
2007-08
= ----------------- * 365 days
611.26
= 2006-07
83.46 days
264.27
= ----------------- * 365 days
571.93
= 2005-06
168.65 days
257.12
= ----------------- * 365 days
500.24
= 2004-05
187.61 days
282.05
= ----------------- * 365 days
612.24
=
168.15 days
2. WIP holding period :Stock of WIP WIP holding period = ------------------------------------- * 365 days Cost goods manufacturing
202.19 2008-09 = ----------------- * 365 days 1515.94
=
48.68 days
147.36 2007-08 = ----------------- * 365 days 1468.11 = 36.63 days
3. Finished goods :Stock of finished goods Finished goods = ------------------------------------ * 365 days Cost of goods sold
2008-09
136.51 = ----------------- * 365 days 2443.86 = 20.38 days
2007-08
243.23 = ----------------- * 365 days 2276.09 = 39.00 days
2006-07
198.42 = ----------------- * 365 days 1833.45 = 39.50 days
2005-06
71.91 = ----------------- * 365 days 1478.14 = 17.76 days
2004-05
103.54 = ----------------- * 365 days 1530.60 = 24.69 days
4. Debtors collection period :debtors ------------------------- * 365 days Credit sale
Debtors collection period
=
Here no specification for cash or credit sales . so, all the sales taken a credit sales. 350.84 = ----------------- * 365 days 2344.99 = 54.61 days
2008-09
2007-08
261.77 = ----------------- * 365 days 2290.33 = 41.71 days
2006-07
204.85 = ----------------- * 365 days 1847.99 = 40.46 days
2005-06
368.28 = ----------------- * 365 days 1592.00 = 84.43 days
2004-05
3190.11 = ----------------- * 365 days 1654.91 = 70.38 Days
5. Accounts payable period :Creditors Accounts payable period = ------------------------ * 365 days Credit Purchases
Particular Raw Materials Purchase Purchase of Finished Goods Total Sundry Creditors
2009 649.23
2008 487.03
257.90
305.54
907.13 344.46
792.57 360.54
344.46 2008-09 = ----------------- * 365 days 907.13
=
138.60 days
360.54 2007-08 = ----------------- * 365 days 792.57
=
166.03 days
? PERIOD OF OPERATING CYCLE :Operating Cycle Inventory Period + Debtors collection period + WIP holding period + Finished goods - Accounts payable period OPERATING CYCLE 2009 2008 1. Inventory Period 487.92 83.46 2. WIP holding period 48.68 36.63 3. Finished goods 20.38 39.00 4. Debtors collection 54.61 41.71 period Less – 5. Accounts 138.60 166.03 payable period Duration of operating 472.99 34.77 cycle =
II. NUMBER OF OPERATING CYCLES IN A YEAR = 365 days OPERATING CYCLES = ------------------------Operating cycle period 365 days =-----------------------472.99 = 0.77 times
2009
2008
365 days = -------------------34.77 = 10.50 times
? WORKING CAPITAL POLICY :The basic objective of working capital management is that there should be an optimum investment in working capital. There should not be either excessive working capital or shortage of working capital. In order to decide the optimum investment working capital, there is a need to consider different policies of working capital. The different policies are discussed.
(A) Ratio of current assets to sales:The current assets change as a result of changes in the sales. A firm has to decide about the proportion of current assets to be maintained in relation to sales. There can be aggressive, moderate or conservative current assets policies. ? AN AGGRESSIVE CURRENT assets policy is followed, a firms will maintain a very low level of current assets in relation to sales. ? ? A CONSERVATIVE POLICY implies carrying of a very high level of current assets in relation to sales. A MODERATE POLICY is a via media between the two extreme policies mentioned above and results into a moderate proportion of current assets to sales. A MODERATE CURRENT assets policy tries to balances risk and profitability by keeping moderate level of current assets in relation to sales Conservative
Moderate
Current Aggressive Assets
0
Sales
(B) Financing of current assets:In conservative current asset financing policy, a firm relies more on long term financing such as shares, debentures, preference shares, long term debt and retained earnings. In this method, as the emphasis is on long term financing, the firm has less risk of facing problems of shortage of funds. An aggressive policy is said to be followed by a firm, when it relies heavily on short-term bank financing and other short-term sources. Even some part of fixed assets is financed by short-term funds. The policy exposes the firms to a higher degree of but reduces the average cost of financing.
? Problems with Excessive Working Capital: ? ? It‘s Results in unnecessary accumulation of inventories. Thus, chances of inventory mishandling, waste, theft and losses increase. It‘s an indication of defective credit policy and slack collection period. Consequently, higher incidence of bad debts results, which adversely affects profits. ? ? Excessive working capital makes management complacent which degenerates into managerial inefficiency. Tendencies of accumulating inventories tend to make speculative profit grows. This may tend to dividend policy liberal and difficult to cope with in future when the firms are unable to make speculative profits.
? Inadequate Working Capital is bad and has the following Problems:
? ? Its Stagnates growth. It becomes Difficult for the firms to undertaken profitable for non-availability of working capital funds. It becomes difficult to implement operating plans and achieve the firm‘s profit target. Operating inefficiencies creep in when it becomes difficult even to meet day –to-day commitments. ? ? Fixed assets are not efficiently utilized for the lack o f working capital funds. Thus then firms‘ profitability would deteriorate. Paucity of working capital funds renders the firms unable to avail attractive credit opportunities etc. ? The firms, loses its reputation when it is not in a position to cover its shortterm obligations. As a result, the firm faces tight credit terms.
S.W.O.T Analysis
Strength:
? A company from prestigious Lalbhai group ? One of the oldest played in Indian fabric market
Weakness:
? Situated very fat from city ? Low advertisement budget ? Unable to handle small orders
? Can supply both fabric as well as garment ? Higher cost of production due to ? Production monthly wise ? Provide quality with consistence capacity of 7million tons heavy investment
Opportunities:
? Able to handle more franchisee of international brands ? Retails are going to be a major sector in India. Therefore demand for fabric is also increasing.
Threats:
? Competition from various domestic players, especially from Raymond‘s and LNJ. ? Fluctuation in price of yarn. ? Regularly innovation in technology
? Having potential to increase their capacity, so that they can satisfy more and more customer needs. ? By providing ?consistency in quality? they can attract more customers. ? Change in government policy ? Existing players coming up with more variety and innovation esp. catering small order.
? FUTURE REQUIRMENT OF WORKING CAPITAL“ARVIND LTD”.
? Profit of the Arvind Limited was increased during last three year, shows that their
requirements of working capital will also increasing in future.
? As the sales
grow, the working capital needs also grow up. Actually it is very
difficult to find out an exact proportion of increase in current assets, as a result of increase in sales. Advance planning of working capital becomes essential because current assets will have to be employed even before growth in sales takes place. Ones sales start increasing, they must be sustained. For this Arvind Limited will have to expand its production facilities which will require more investments in fixed assets. This will in turn result in more requirements of turn results of current assets which will increase working capital needs.
? The working capital needs of the Arvind Limited increase as it grows in terms of
sales or fixed assets. A growing Arvind Limited may need to invest funds in fixed assets in order to sustain its growth in production and sales. This will lead to increase investment in current assets which will result in increase in working capital needs.
? The operating efficiency of the Arvind Limited relates to the Optimum utilization
of resources at minimum cost. Arvind Limited will contribute to its working capital, if it is efficient in operating costs. The working capital is better utilized and cash cycle is reduced which reduces working capital needs.
? The working capital requirement of a firm depends to a great extend on the credit
policy followed by a firm for its debtors. A liberal credit policy followed by a firm will result in huge funds blocked in debtors which will enhance the need for working capital. The need for working capital is also affected by the credit policy allowed by the Arvind Limited?s creditors. If the creditors are ready to supply material and goods on liberal credit, working capital requirement are substantially reduced. If purchases are mainly for cash, working capital needs go up. While planning the working capital due attention should be given toward the credit policies followed by the firm and its creditors.
? INTERPRETATION OF WORKING CAPITAL :? STOCK OF RAW MATERIAL:Stock of raw material has increased at a rate of 665.50 % during the year 2008 to 2009.
Raw Materials 1000 800 600 Raw Materials 400 200 0 2009 2008 2007 2006 2005
In the year 2006-07 stock of raw material was Rs 264.27 crore. It was decreased by 47.11 % in the year 2007-08. During the year 2005-06 to 2007-08 stock of material decreased by about staggering 45.64%. ? CASH AND BANK:Cash and bank of Arvind Ltd have been progressively increasing since 2005-06 financial year.
Cash &Bank Balance 100 80 60 40 20 0 2009 2008 2007 2006 2005 Cash &Bank Balance
In year ended 2006 it was 48.27 crore and since then it had started to increase, and at the end of financial year 2008 it has increased by 85.58% and as a result of this in
2007-08 cash and bank is 89.58 crore. But 2009 cash & bank balance 26.83 decrease by 70 % compare to 2008 cash & bank balance 89.58.
Arvind Ltd. Has to reduce cash and bank level in next financial year. Around 40 crore. High level of cash and bank will affect the cost and financial burden of the company.
? DEBTORS:? In year 2005 debtors were319.11 crore, but in 2006 it increased by 15.41%, ? In year 2007 debtor was 204.85 crore but it has increased by 27.79%. in 2008. ? In year 2008 debtor was 261.77 crore but it has increased by 34.02%. in 2009. ? There is no significant fluctuation seemed therefore nothing is bother about debtors. In addition to this debtor policy is constant that is 60 days. ? STOCK OF FINISHED GOODS
articular Finished goods 2008-09 136.51 20007-08 243.23 2006-07 2005-06 2004-05 198.42 71.91 103.54Finished goods 300 200 100 0
2009
2008
2007
2006
2005
Finished goods 136.51 243.23 198.42 71.91 103.54
?
Finished goods
Stock of finished goods was decreased by 43.87 % in year 2008-09 from 2007-08. Stock of finished goods was increased by 178.72% in year 2006-07 from 2005-06. But in 2007-08 it was increased by 22.58% from previous year, it shows significant fluctuation in ?stock of finished Goods?. ? Company should dilute this fluctuation as higher inventory cost is attributed to stock of goods. Accurate demand forecast could help reduction in stock of finished Goods.
RECOMMENDATION
Having done a detailed study of the financial performance and financial standing of Arvind Limited, under this project work I would like to make the following suggestion for the improvement in the financial management of the company, with special reference to its Working Capital Management. ?
Arvind Limited is facing increased competition in the market so it will have to adopt more aggressive working capital management policy in order to increase its share and sales turnover.
?
It is observed that the credit period for Debtors is ranging for 30 days to 120 days. I would like to suggest that the maximum credit period should not exceed 90 days.
?
Many debtors had not made the payment even after one year period. Due to this there is reduction in the collection from the debtors year to year.
?
Company has to maintain sales turnover for that purpose company has to maintain and increase their working capital.
?
Gross profit has increasing but net profit has decreasing so that purpose effectively utilizes and maintain working capital.
CONCLUSION
Working capital is simply current assets minus current liabilities. It's the best way to judge how much a company has in liquid assets to build its business, fund its growth, and produce shareholder value. ?
As Arvind is a cloth manufacturing company the procedure of goods to be ready for sale takes too much time. Thus, working capital is blocked in high amount. But with the comparison to other mills Arvind is leader of the Cloth manufacturing. And its Working Capital is blocked for lesser time then another mills as its inventory ?Cotton‘ plays a major role and it‘s available cheaply in the season. Also Arvind buys it in higher volumes, so it takes more time to stuff up and the complete readymade stock takes appx 1.25 month for wholesaling.
?
Arvind makes payment to his creditors within a month and collect from debtors takes appx 1.25 month. So, its overall short-term liquidity position is very good.
?
The mean percentage of current assets to total assets for the last four years is 40% which shows decrease in investment of current assets.
?
Overheads have increased as compare to the last two years thereby reducing the profit.
If a company has ample positive working capital, it's is in good shape, with plenty of cash on hand to pay for everything it might need to buy. But negative working capital means that the company's current liabilities exceed its current assets, removing its ability to spend as aggressively as a working-capital-positive peer. All other things being equal, a company with positive working capital will always outperform a company without it.
BIBLIOGRAPHY
1. Financial Management - I. M. PANDEY
2. Financial Management CHANDRA
-
PRASANNA
3. Financial Management
- KHAN & JAIN
4. Annual Report of Arvind Limited
WEB-LINKS:
? www.arvindmills.com ? www.google.com
? www.wikipedia.org
OTHER BOOKS:
? Agrawal M.R, Financial Mnagement, Garima Publications
? Pandey I.M, Financial Management, Mc-Graw Hill Publications Annual reports of the company for the year 2007-08, 2006-07.
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