Final Project1

Modern Collections Pvt.
Ltd
1.1 GENERAL INTRODUCTION
It would be worthwhile to recall what Henry ford once remarked “Money is an arm or
a leg; you either can use it or lose it”. This statement throws light on the significance
of money or finance. A budding concern may need a small amount of money and yet
it may be difficult for it to commence business simply because it is not in the position
to get required funds. A firm’s success and survival mainly depends upon its ability to
generate sufficient funds when need arises. Finance holds the key to all the activities.
The role of financial manager, that is, the one who is incharge of the finance function,
is difficult because he has to play that role and relate it to the role of other managers.
Financial management is mainly concerned with maximizing the company’s net

worth. Financial management helps in monitoring the effective development of funds
in fixed assets and in the day-to-day cash management.
The project studying Working Capital Management procedures of Modern Collection

Pvt Ltd is of major importance to the external and internal analysis due to its close
relationship with the day-to-day operations of the business.
Alliance Business Academy 1

Modern Collections Pvt. Ltd
1.2 THEORETICAL BACKGROUND
INTRODUCTION TO WORKING CAPITAL
Empirical observations show that the financial managers have to spend much of their
time to the daily internal operations relating to current assets and current liabilities of
the firms. As the largest portion of the manager’s time is devoted to working
problems, it is necessary to manage working in the best possible way to get maximum
benefit. The effective management of the business, among other things primarily
depends upon the manner in which the short-term assets and short run sources of
financing are managed. The management or current assets management consists of
inventories, accounts receivable and cash & bank balances as the major components.
There is a difference between current assets and fixed assets in terms of their
liquidity. A firm requires many years to recover the initial investments in fixed assets
such as plant and machinery and land and buildings. On the contrary, investments in
current assets are turned over many times a year. Investments in current assets such as
inventories and book debts are realized during the firm’s working capital cycle, which
is usually less than a year. Working capital is that proportion of a company’s total
capital, which is employed in short-term operations.
Even though, it is one segment of the capital structure of a business, it constitutes an

inter-woven part of the total integrated business system. Therefore, neither it can be
regarded as an independent entity, nor, can the working capital decisions be taken in
isolation. Thus, a study in this field is of major importance to both internal and
external analysis, for its close relationship with the day-to-day operations of a
business.
There are many aspects of working capital management, which form an important
function of a financial manager:-
• Working management represents a large portion of the firm’s investment in
assets.
• Working management has greater significance not only for small firms but
also for large firms.
• The need for working capital is directly related to sales growth.

Most of the work dealing with working capital management in confined to the balance
sheet, which is directed towards optimizing the levels of cash and marketable
securities, receivable and inventories. For the most part, optimization of these current
assets is isolated from the optimization of the other current assets and the overall
valuation of the firm.
The decision concerning cash and resources, receivable, investments and current
liabilities is with an objective of maximizing the overall value of the firm. Once
decisions are reached these areas, the levels of working capital are also reduced.
An appropriate level of working capital is to be maintained as the excessive working

capital interrupts the smooth flow of the business activity and curbs profitability.
Also, there are a lot of circumstances where shortage of working capital has proved to
be the major factor for business failure. Operating plans are out of control and the
corporate objectives get blurred. The suppliers and the creditors give the firm an
adverse credit rating and tighten up credit terms.
The problem of managing working capital has got a separate entity as against
different decision-making issues concerning current assets individually. Working
capital has to be regarded as one of the conditioning factors in the long run operations
of a firm, which is often inclined to treat it as an issue of short-run analysis and
decision-making.
The management of working capital hence involves constant vigilance to ensure that
the right quantum is available on a continuing basis to support and promote the
activities. Sound financial and statistical techniques, supported by judgment, should
be used to predict the quantum of working capital needed at different time periods.

DEFINITIONS OF WORKING CAPITAL
Working capital has been in several ways as given below.
Operating capital: - As the working capital is the capital required to operate

the business and is the capital invested in the current assets, it is called as
operating capital.
Circulating capital: - Interchangingly used word for working is circulating

capital. Gerestenberg gas suggested this item ‘circulating capital’ as all the assets of
business change from one form to another.
CONCEPTS OF WORKING CAPITAL
Conceptually, working capital is either explained as: - Net Working Capital or Gross
Working Capital. These concepts are not exclusive; rather they have equal
significance from management viewpoint. Gross working capital refers to the firm’s
investment in current assets. Net working capital refers to the difference between
current assets and current liabilities.
GROSS WORKING CAPITAL CONCEPT

It is called as ‘qualitative’ aspect of working capital and focuses attention on two
aspects of current assets management: -
1. Optimum investment in current asset

It is conventional rule to maintain the level of current assets twice the
level of current liabilities to constitute a margin or buffer for maturing
obligation of a business.
2. Financing of current asset

Another aspect of gross working capital points to the need of
arranging funds to finance current assets.

NET WORKING CAPITAL CONCEPT

Net working capital can be positive or negative. A positive net working capital will
arise when current assets exceed current liabilities. A negative net working capital
mean excess current liabilities over current assets.net working capital being the
difference between current assets and current liabilities, is ‘qualitative’ concept and
hence it: -
1. Indicates the liquidity position of the firm: - A weak liquidity position poses a
threat to solvency of the company and makes it unsafe and unsound.
2. Suggests the extent to which working capital needs may be financed by

permanent sources of funds:- i.e., it covers the question of judicious mix of
long term and short term funds for financing current assets. Thus, it may be
emphasized that both gross and net concepts of working capital are equally
important for the efficient management of working capital.
NEED FOR WORKING CAPITAL FINANCE

The need for working capital finance is over-emphasized. Every business needs some
amount of working capital. The need for working capital arises due to the time gap
between production and realization of cash from sales. There is an operating cycle
involved in the sales and realization of cash. There are time gaps between purchase of
raw materials & production, production & sales and realization of cash. Thus,
working capital is needed for the following purposes.
• For the purpose of raw materials, components and spares.
• To pay wages and salaries.
• To incur day-to-day expenses and overhead costs such as fuel, power
and office expenses, etc.
• To meet the selling costs as packing, advertising etc.
• To provide credit facilities to the customers.
• To maintain the inventories of raw materials, work in progress, stores
• And spares and finished stock.

OPERATING CYCLE
Operating cycle indicates the length of time between firm’s paying for materials
entering into stock and receiving the cash from sale of finished goods. In other words,
the duration of the required time to complete the sequence of events is called
operating cycle. The operating cycle may take the following sequence:
1. In a manufacturing concern
• Conversion of cash into raw materials.
• Conversion of raw materials into work in progress.
• Conversion of work in progress into finished goods.
• Conversion of finished goods into debtors.
The following figure shows the operating cycle of a manufacturing concern.
Cash Raw materials
Accounts receivable Work in progress

(or) Work in process
Finished goods
2. In a trading concern
a) Cash into inventories
b) Inventories into debtors and bills receivables
c) Debtors and bills receivables into cash

The following figure shows the operating cycle of a trading concern
Account receivables
Cash
Inventories
TYPES OF WORKING CAPITAL

The working capital is classified in to two types. They are
I. Permanent working capital
II. Temporary working capital
• Permanent working capital:
Permanent or fixed working capital is the minimum amount, which is required
to ensure effective utilization of fixed facilities and for maintaining the
circulation of current assets. This investment if of a permanent type and as the
size of the firm expands the requirement of working capital also increases.
• Temporary working capital:

Temporary working capital is also called as the fluctuating or variable
working capital, which varies according to the problem and sales. It is the
capital required in addition to the working capital.
• Net working capital:

It is the difference between current assets and liabilities. It is the excess of
current assets over current liabilities. This concept enables a firm to determine
the exact amount available at its disposal for operational requirements.
• Gross working capital:
It refers to the total current assets of the business. It is also known as
circulating capital, because the current assets are rotating in their nature.

• Negative working capital:

When a current liability exceeds current assets, it is called as negative working
capital.
NEED FOR MAINTENANCE OF ADEQUATE WORKING CAPITAL

An adequate or optimum working capital balance refers to the desired working capital
where a firm will not have excess or shortage of working capital and indicates both
profitability and liquidity for the firm. It is necessary to maintain an optimum cash
balance, an optimum level of inventory and an optimum level of debtors and
receivable.
DANGERS OF EXCESS WORKING CAPITAL

• It results in unnecessary accumulation of inventory in the form of raw material
or work in progress or finished goods, leading to a high cost of storage, space,
Insurance, increased theft, deterioration in the quality of goods, etc.
• Also, it is an indication of defective credit policy and slack collection period.
• Excess cash in hand indicates idle cash and even though the liquidity position
of the company is good, it lacks profitability.
• Excessive working capital makes the management complacent, which
degenerates into managerial inefficiency.
DANGERS OF INADEQUATE WORKING CAPITAL

• The production process will be obstructed if there is shortage of working capital.
• Fixed assets are not efficiently utilized if there is lot of working capital funds,
which leads to deterioration in profits.
• The firm loses its reputation when it is not in a position to honor its short-term
obligations.
• Ultimately it leads to the reduction in sale, as the firm cannot meet the demand of
the customers.

EFFECT OF INADEQUATE WORKING CAPITAL ON DECISION

MAKING:-
1) Stagnates the growth of the firm,
2) Threatens the solvency of the firm,
3) Creates difficulties in implementing the operating plans,
4) Renders the firm unable to avail the attractive credit opportunities
EFFECTS OF EXCESS WORKING CAPITAL ON DECISION MAKING

 Impairs firm’s profitability through idle cash and
 Makes dividend policy liberal,
 Creates difficulties to cope with the future, on the failure of the estimated
speculative profits.
IMPORTANCE OF WORKING CAPITAL

Even though the skills for maintaining the working capital are somewhat unique, the
goals are the same-viz. to make an efficient use of funds for minimizing the risk of
loss to attain profit objectives.
Firstly, the adequate of working capital contributes a lot in raising the credit-standing
of a corporation in terms of favorable rates of interest on bank loan, better terms on
goods purchased, reduced cost of production on account of the receipt of cash
discounts, etc.
Secondly, a company with sufficient working capital is always in a position to take

the advantage of any favorable opportunity either to purchase raw materials or to
execute a special order or to wait for better market position.
In the third place, the ability to meet all reasonable demands for cash without
inordinate delay is a great psychological factor to improve the all rounds efficiency of
the business.

Lastly, during slump the demand for working capital, instead of coming down, shoots
up. A good amount of working capital is locked up in the inventories and book debts.
Concerns having ample resources can tide over that period of depression.
Thus, working capital is regarded as one of the conditioning factors in the long run
operations of the firm, which is often inclined to treat it as an issue of short run
analysis and decision making.
FACTORS INFLUENCING WORKING CAPITAL

 Nature of business
The working capital requirement of a firm basically depends upon the nature
of it’s business public utility undertakings like electricity, water supply and
railways need very little working capital because they offer cash sales only
and supply services, not products and such no funds are tied up in inventories
and receivables. The manufacturing undertakings also require sizable working
capital along with fixed investments because they have also to build up
inventories.
 Size of business
The working capital requirements of a concern are directly influenced by the
size of its business, which may be measured in terms of scale of operations.
Greater the size of business unit, generally, larger will be the requirements of
working capital.
However in some cases, even a smaller concern may need more working due to
high overhead charges, inefficient use of available resources and other
economic disadvantages of small size.
 Production capacity
In certain industries the demand is subject to wide fluctuations due to seasonal
variations. The requirements of working capital in such cases depend on the
production policy.
 Manufacturing process
In manufacturing business the requirements of working capital increase in
direct proportion to length of manufacturing process. Longer the process period
of manufacture, larger is the amount of working capital required.

 Seasonal variations
In certain industries, raw material is not available through out the year. They
have to buy raw materials in bulk during the season to ensure an uninterrupted
flow and process them during the entire year. A huge amount is, thus, blocked
in the form of material inventories during such season, which gives rise to
more working capital requirements.
 Working capital cycle
In a manufacture concern, the working capital starts with the purchase of raw
materials and ends with the realization of cash from the sale of finished
products. The speed with which the working capital completes one cycle
determines the requirements of working capital. Longer the period of cycle,
larger is the requirement of working capital.
 Rate of stock turn over
There is a high degree of inverse correlation ship between the quantum of
working capital and the velocity or speed with which the sales are affected. A
firm having as high rate of stock turnover will need lower amount of working
capital as compared to a firm having a low rate of turnover.
 Credit policy
The credit policy of a concern in its dealings with debtors and creditors
influences considerably the requirements of working capital. A concern that
purchases its requirements on credit sells its products/services on cash requires
lesser amount of working capital.
 Business cycle
Business cycle refers to alternate expansion and contraction in general
business actively. In a period of boom i.e., when the business is prosperous,
there is a need for larger amount of working capital due to increase in sales,
rise in prices, optimistic expansion of business, etc. on the contrary, in the
times of depression i.e., when there is a down swing of the cycle, the business
contracts, sales decline, difficulties are faced in collections from debtors and
firms may have a large amount of working capital lying idle.
 Rate of growth of business
The working capital requirements of a concern increase with the growth and
expansion of its business activities.

 Earning capacity and dividend policy

Some firms have more earning capacity than others due to quality of their
products, monopoly conditions, etc. such firms with high earning capacity
may generate high cash profits from operations and contribute to their working
capital. The dividend policy of a concern also influences the requirement of its
working capital.
 Price level changes
Changes in the price level also affect the working capital requirements.
Generally, the rising prices will require the firm to maintain larger amount of
working capital, as more funds will be required to maintain the same current
assets. The effect of rising prices will be different for different firms. Some
firms may be affected much while some may not be affected at all by the rise
in prices.
 Other factors
Certain other factors such as operating efficiency, management ability,
irregularities of supply, import policy, asset structure, importance of labour,
banking facilities, etc., also influence the requirements of working capital.
SOURCES OF WORKING CAPITAL

The various of working capital for the financing of working capital are as follows:
Sources of working capital
Permanent or fixed Temporary or variable
1) Shares 1) Commercial banks

2) Public deposits 2) Indigenous bank
3) Ploughing back of profits 3) Trade credits
4) Loans from financial institutions 4) Installment credit
5) Accounts receivables

2.1 STATEMENT OF PROBLEM
Working capital is an important requirement for any business, without which no

business can survive. Every activity of the business is related to the availability of the
working capital. That is, arranging short-term financing, negotiating favorable credit
terms, controlling the movement of cash, administering the account receivable and
monitoring the investment in inventories. All this consumes a great deal of time of
finance managers. Also the obstacles inhabiting the effective working capital
management throws open challenges to the finance managers in managing working
capital.
Initially American companies were the core customers through which the garment
business of Modern Collections Pvt. Ltd.was carried on, but in the year 2000,
economy of America came down, and a recession in the garment industry there,
reduced the buying power of American customers, thereby reducing the demand for
garments. Due to which the sales of Modern Collections Pvt. Ltd.came down which
affected the profitability of the company directly.
As profitability effects the working capital management of a firm, it created an

opportunity to prepare a case study at Modern Collections Pvt. Ltd.
2.2 OBJECTIVES OF THE STUDY
 The study was conducted mainly to understand and analyze the issue of
working capital management, being practically employed in Modern
Collections Pvt. Ltd.
 To understand the practical difficulties faced by managing the working capital.
 To analyze the various external and internal factors effecting working capital
management in Modern Collections Pvt. Ltd.
 To understand and learn the various policies framed by Modern Collections
Pvt. Ltd.for effective management of working capital.

2.3 SCOPE OF THE STUDY

The study of working capital management is limited to the specific company, Modern
Collections Pvt. Ltd.
The study period covered in this case study is for 4 financial years i.e., from 2000-
2001, 2001-2002, 2002-2003, 2003-2004.
2.4 REVIEW OF LITERATURE
BOOKS
Financial management By. S.K.R. Paul
Principles of corporate finance By. Brealy & Myers

Mc Graw Hill, New York
JOURNALS & MAGAZINES
Annual reports of Modern Collections Pvt. Ltd..
Business Standard,
WEB SITE
www.moderncollectionsindia.com

2.5 OPERATIONAL DEFINITIONS OF CONCEPTS
Some of the concepts used in different senses from time to time in the literature of
financial management are discussed below in order to make the study clear and
meaningful.
WORKING CAPITAL
It is the fund, which is used to finance its day to day activities of business, and it has
to be employed in short term operations. There are two concepts of working capital-
gross concept and net concept.
WORKING CAPITAL MANAGEMENT

It means administration of current assets and current liabilities.
Objects in managing working capital –profitability and liquidity
PROFITABILITY
It is the ability of the firm to meet the claims of suppliers of short-term capital for
building up of current assets and also means short-term debt repaying capacity of
enterprise, in a limited sense.
OPERATING CYCLE
It is a period involved from the time cash is invested in inventory till the time cash is
recovered from sales of goods.

2.6 RESEARCH METHODOLOGY

Research is organization’s inquiry designed and carried out to provide information to
solve the problem. In fact is the scientific investigation of a certain problem.
“Research is the process of systematically obtaining accurate answer to significant
and pertinent question by the use of scientific method in gathering and interpreting
information”.
Research design refer to the system consisting of enunciating two problems.

 Collecting the fact or Data, analyzing the fact and reaching certain conclusion.
There are various type of studies in diagnostic and analytical method
The different step in the Research design following here are:

 Collection of information to understand the competition in this line of activity
 Interaction with the finance department to understand the means of cash
management
 Collection of company‘s details.
 Identification means enhancing of cash management for the company
 Finally, forwarding certain recommendation and conclusion to the company.

2.7 DATA COLLECTION TOOLS

Data is collection of necessary detail to gain further information. These type of data
can be classified into :
Primary Data:
Primary Data can be called as collection of the first time and which may not have
been collected from others
 Questioning the executives of the company.
 Detail discussions were also held with officials of the company to understand
the problems and requirements.
Secondary Data:
Secondary data was collected mainly from various sources which includes
financial journals, other published textbooks and various web sites. And comparative
balance sheets and Ratio analysis. Interpretations of the result as been done on
graphical representation through bar graphs.

2.8 OVERVIEW OF THE REPORT
This project is divided into 5 chapters’ scheme and consists of the following.
Chapter 1. Introduction
This in turn is divided into general introduction and theoretical background of
the study.
Chapter 2. Design of the study

This chapter deals with the research method used in the study. It also throws
light on the objectives, scope and limitations of the study. It includes review of
literatures also.
Chapter 3. Profile
This chapter includes profile of the company, its origin, growth and the
present status of the organization.
Chapter 4. Analysis
This is mainly analytical in nature and here; primary data are analyzed as per
the stated objectives. Results are shown both narration and graphical form for each
parameter separately.
Chapter 5. Conclusions / Suggestions
This chapter contains executive summary of the dissertations, valid findings of

the study, conclusions and suggestions made for the dissertation.
At the end of the report, Bibliography and all annexure is attached.

2.9 LIMITATIONS OF STUDY
 This report is based on the annual reports, which are provided by the company
that cannot be relied upon.
 The collection of data for analysis is restricted to Modern Collections Pvt. Ltd.
only and
 Time was major limiting factor to the study.

3.1 PROFILE OF MODERN COLLECTIONS PVT. LTD.ORIGIN

AND DEVELOPMENT
In the achievement of the strategic objectives of a self-reliant and dynamic economy,
the government considers a substantial expansion in export earnings to be of great
importance. In order to achieve national objectives, the government has adopted new
and scientific approach to its export policy. Depending upon the tax paid by the
company government calculates and provides certain incentives to all the Indian
exporters. Modern Collections Pvt. Ltd. is one among such exporters. Modern
Collections is a private limited company, which is involved in manufacturing and
exporting of finished garments.
Mr. Ramesh Kothari established this company on 12th February 1996. At the initial
stages his father Mr.Rupesh Kothari and uncle Mr. Vikram Ranka were the promoters
of liberty brand of garments in Mumbai, but there business did not reach a higher
level due to which they had to start a separate export business in Mumbai. By 1990
Ramesh Kothari took over the export business. He was then forced to shift the
business to Bangalore due to labour unrest. After this Ramesh strived hard and has
gained success in bringing his export business to a top most level which was
commenced in most critical circumstances. Modern Collections Pvt. Ltd. has its office
in Jayanagar and its manufacturing unit, located in BTM Layout& Peenya. Modern
Collections Pvt. Ltd. was first started with a rental premises but today it has its own
premises where in a capacity of 100 machines have increased to 450 machines. Earlier
there was no washing plant and today there is a washing plant along with the latest
technology production plant.
In the factory there are about 1100 laborers working with subject to a regular bonus
and other benefits. It is very tough to start a company from the scratch in spite of
facing hurdles, but still Ramesh Kothari managed to do so with a success and as a
result Modern Collections Pvt. Ltd. is one of the major exporters to companies such
as:
GAP in US
DECABHLON in FRANCE
MATALON in UK etc.

The organization also supplies and designs materials for various Indian brands such
as:
Allen Solly
Van Heusen
Peter England
Scullers
Lee
Pepe
Proline
Levis
The above materials are received from major suppliers like:
Arvind Mills Pvt Ltd. – Ahmedabad
Krishna Mills Pvt Ltd – Bangalore
Premier Mills Pvt Ltd – Bangalore
COMPETITION
As there are various exporters of garments in Bangalore, Modern Collections Pvt. Ltd.
has to go through a cutthroat competition and make sure that it overcomes this
competition with ease. Some of the major competitors of Modern Collections Pvt.
Ltd. are:
ZENITH EXPORTS
MNS EXPORT ORIVATE LIMIITED
LT KARLE EXPORTS LIMITED
SAI LAKSHMI INDUSTRIES etc.

In order to overcome this competition the company has adopted the following
techniques:
 Charging reasonable price as per the range of the product.

 Maintaining the quality of the product and making sure that it is as
per the demand of the customers.
 Timely delivery of the product to the overseas buyer without any
delay.
 Providing discounts to the customers.
 Retaining the customers
RANGE OF PRODUCTS
 SHIRTS
 TROUSERS
 T-shirts

3.2 ORGANISATION STRUCTURE
Organization structure is basic framework with in which the manager’s decision-

making behaviour takes place. The structure gives an established pattern of
relationship among the various components of an organization. It is a vital tool for
providing information about organizational relationships.
Modern Collections Pvt. Ltd. follows top to bottom chart, which is as follows
ORGANIZATION CHART
Mr. Ramesh Kothari
(Managing Director)
Mr. Chandrashekhar Mr. Mahesh Kothari

(Production Mgr) (Chief Executive Officer)
Cutting Department
Batch Department Mr. Rajesh Kothari Gabrial Mr. L Rughuraj
(Finance Mgr) (General Mgr) (Marktg Mgr)
Washing Department
Finishing Department
Q C Department Accounts Dept Marketing Dept
Personnel Dept. Maintenance Dept Shipping Dept

3.3 FUNCTIONAL DEPARTMENTS OF THE ORGANISATION
1. MARKETING
The marketing department takes care of the market development activities, network
expansions, sales and collections, and marketing accounts.
2. FINANCE AND ACCOUNTS

Finance and accounts department deals with corporate finance, account matters
related to employees, company infrastructure, investments and assets.
3. MATERIALS
The materials department arranges materials related to the product from various
suppliers by negotiating prices and ensuring quality.
4. PRODUCTION
This department takes care of the production and related activities to meet the target.
5. QUALITY
Quality department ensure material quality to deliver a finished goods for supply.
6. R & D
R & D will carry out research on new designs and carry out appropriate developments
on the product before certifying satisfactory performance to the management.

4.1 ANALYSIS OF WORKING CAPITAL MANAGEMENT AND

RATIOS OF MODERN COLLECTIONS PVT. LTD.
Working capital is looked as a driving seat of finance manager in Modern Collections
Pvt. Ltd. As it involves manufacturing activity it requires efficient amount of working
capital to meet its day-to-day needs. The long-term working capital needs are for
building, plant, furniture, etc., and the short-term needs are cash, inventories,
securities, etc. The balances sheet shows the financial position of a company at a
given point of time. It provides a snapshot and is regarded as a static picture. The
income statement or the profit and loss statement reflects the performance of a
company over a period of time. The significant accounting policies followed by
Modern Collections Pvt. Ltd. are as follows;
SIGNIFICANT ACCOUNTING POLICIES

 Basis of preparing financial statements
The financial statements of Modern Collections Pvt. Ltd. are prepared under the
historical cost convention on an accrual basis.
 Fixed assets
Fixed assets are stated at their original cost of acquisition and subsequent
improvement thereto, including taxes, duties, freight and other incidental expenses
related to acquisition, construction and installation of asset(s) concerned.
 Depreciation
Depreciation on fixed assets is provided at rates prescribed on written down value
basis in schedule XIV of the companies’ act of 1956 on a prorata basis from the date
of acquisition of the asset.
 Inventories
Inventories are valued at lower of cost or net realizable value. Cost is determined on
first in first out basis and includes an appropriate portion of production and factory
related overheads

 Long-term investments
Long-term investments are accounted at cost, and no provision has been made for
dimunition in the value of the same.
 Foreign exchange transactions

Foreign exchange transactions are dealt with in accordance with the accounting
standards on accounting for effects of changes in foreign exchange rates (AS11)
issued by institute of chartered accountant of India.
 Gratuity
Provision of gratuity is made on an estimated basis as per the provision of the
payment of gratuity act 1972.
 Research and development

Research and development expenditure is charged to profit and loss account in the
year of incurrence. Fixed assets acquired for the purpose of research and
developments are capitalized.
Share capital
Out of the equity shares issued, 15000 shares of Rs.100 each were allotted as fully
paid up.
The current assets and current liabilities of Modern Collections Pvt. Ltd. are given
below.
CURRENT ASSETS
 INVENTORIES
Raw materials and packing materials.
Work in progress.
Finished goods.
Finished goods in transit.
Packing material.
Scrap.

 SUNDRY DEBTORS (unsecured considered good)

Debts outstanding for a period exceeding 6 months
Others
 CASH AND BALANCES

Current account with scheduled banks.
Current account with deutsche bank.
Margin deposit account.
Cash in hand.
 LOANS AND ADVANCES (unsecured considered good)

Advances receivable in cash or kind.
Deposits.
CURRENT LIABILITIES AND PROVISIONS
 CURRENT LIABILITIES
Sundry creditors.
Advance from customers.
Liability for expenses.
 PROVISIONS
For taxation (net of Advance income tax).
For gratuity.
For leave encashment.
By studying the working capital in Modern Collections Pvt. Ltd., one can know the
factors influencing the growth prospects of the company.
Let us understand gross and net working capital changes of Modern Collections Pvt.
Ltd.over the years.

SOURCES OF WORKING CAPITAL TO MODERN COLLECTIONS PVT.

LTD.
Shares: Issues of shares is the most important source for raising the permanent or
long-term capital. Modern Collections Pvt. Ltd. has 15000 equity shares of RS 100,
each which are fully paid up.
Loans: Financial institutions such as commercial banks, life insurance Corporation,

industrial finance corporation of India, state financial corporation etc provides long
term, short term, and medium term loans to the companies.
1. Secured loans: Modern Collections Pvt. Ltd. gets secured loans by borrowing
money from banks. Borrowings from banks are generally secured by the
following;
Hypothecation of stocks, sundry debtors and machineries.
Personal guarantee of all the directors.
Mortgage of title deeds in respect of land and building belonging to an
associate firm.
2. Unsecured loans: Modern Collections Pvt. Ltd. gets unsecured loans from the
directors of the company, from shareholders and from Bangalore fashion
apparels private limited. Directors who grant unsecured loans are as follows:
Sushil Kothari
Dilip Kothari
Niraj Kothari
Manoj Kothari
Suraj Ranka is the shareholder who grants unsecured
Loans to Modern Collections Pvt. Ltd.
Companies that grant loans are: Bangalore fashion apparels private limited and
Karnataka financial service limited.

TABLE - 01
TABLE SHOWING GROSS WORKING CAPITAL CHANGE OF
MODERN COLLECTIONS PVT. LTD.
Particulars 2000-2001 2001-2002 2002-2003 2003-2004
Current Assets
Inventories 18450170 22444998 17500270 29520878
Sundry Debtors 5239150 11818945 4174430 5947413
Cash &Balance 2863563 1034108 1952882 2011974
Loans advances 9264595 10509307 9301065 8741638

Gross Working Capital 35817478 45807358 32928647 46221903
INFERENCE
The gross working capital has fluctuated with the growth of the business over a series
of years. There is an increase in the current assets of the company.

TABLE – 02
TABLE SHOWING NET WORKING CAPITAL CHANGE OF MODERN
COLLECTIONS PVT. LTD.
Particulars 2000-2001 2001-2002 2002-2003 2003-2004
Gross Working Capital 35817478 45807358 32928647 46221903
Current Liabilities 10004325 21128392 11339964 25537988
Net Working Capital 25813153 24678966 21588683 20683915
INFERENCE
The net working capital table indicates that excess current asset is available at the
disposal of the company for the operational requirements.
OPERATING CYCLE OF MODERN COLLECTIONS PVT. LTD.

Operating cycle is one of the important determinants of working capital requirements.
In most of the companies, cash inflows and cash outflows are not synchronized.
Therefore, Modern Collections Pvt. Ltd. holds the stock of finished goods, to meet the
demand of the customers and also make an adequate investment in inventories and
cash balance for a smooth and uninterrupted production and sales, while book debts
are created since the goods are sold on credit basis for marketing sand competitive
reasons.
The operating cycle of Modern Collections Pvt. Ltd , can be divided into two broad
phases, which are as follows:
 Inventory conversion period: - It is requirement of time to produce and sell the
product and includes conversion period of raw material, work-in-progress and
finished goods.
 Book debts conversion period: - It is the time required to collect sales
receipt from customers.

TABLE - 03
TABLE SHOWING STATEMENT OF COST OF
MODERN COLLECTIONS PVT. LTD.
Sl no Particulars 2000-2001 2001-2002 2002-2003 2003-2004
01 Opening stock 8175307 7481660 8907507 33832308
02 Purchase of raw materials 43303740 24383562 30274949 65882129

Closing
03 raw material inventory 7481660 8907507 5350148 10373012
04 Raw material consumed 43997387 22957715 33832308 60859265
(1+2-3)
05 Exgratia 139625 49369 5658 -------------
06 Freight inwards 239433 309140 387719 731840
07 PRIME COST 44376445 23316224 34225686 61591105
(4+5+6)
08 Factory Overheads 12453261 7553167 8941795 8451148
09 Depreciation on Buildings 69952.17 91593.97 112154 131686
10 Depreciation on Machinery 3153437.82 3707471.55 4280630 5034385
11 Depreciation on Electrical 439861.53 474952.98 510224 538760
12 (7+8+9+10+11) 60492958 35143410 48070489 75747084
13 Opening work in progress 63599110 5577575 5054229 6535267
14 Closing work in progress 5577575 5054229 6535267 7057849
15 WORKS COST 61275294 35666756 46589451 75224502
(12+13+14)
16 Office Overheads 9714821 6683649 7154488 7926537
17 Depreciation on Computer 690939.81 888069.77 1006348 1077315
18 Depreciation on Office 127467.44 163329.35 184063 203059
equipments
19 Depreciation on 36553.61 49102.85 58403 65295
motorcycle
20 Depreciation on Motorcar 35639.83 540532.51 676995 778128
21 Depreciation on Furniture 500193.94 584159.53 643786 700437
& Fittings
COST OF PRODUCTION 72701667 44575599 56313534 85975273
22 (15+16+17+18+19+20+21)
23 Opening stock of finished 4694511 5057710 8205812 5047149
goods
24 Closing stock of finished 5057710 8205812 5047149 11137287
goods
25 COST OF GOODS SOLD 72338468 41427497 59472197 79885135
(22+23-24)
26 Selling Overheads 4414936 4038567 5771556 3566365

27 Labour Charges 11718355 8094779 2160423 1621333

28 COST OF SALES 88471759 53560843 67404176 85072833
(25+26+27)
Notes;
Factory overheads include; wages, production incentives, EL encashment, repairs and
maintenance of machinery and electrical, power and electricity, repairs and
maintenance of dg set, fabric and processing charges, repairs and maintenance
building.
Office overheads include; audit fees, bonus, conveyance, council charges,

entertainment, ESI contribution, gratuity, PF contribution, insurance, membership and
subscription, printing and stationery, professional fees, rates and taxes, rent, salaries,
staff welfare, water charges, courier charges.
Selling overheads include; claims on export sales, commission, traveling expenses,

vehicle maintenance, freight outwards, sales promotion, service charges, donations,
bad debts written off.

TABLE - 04
TABLE SHOWING SALES AND DEBTORS OF MODERN COLLECTIONS
PVT. LTD.
Particulars 2000-2001 2001-2002 2002-2003 2003-2004
Sales 82298796 48397521 62649553 90124131
Opening 16929055 5239150 11818945 4174430

debtors
Closing 5239150 11818945 4174430 5947413
debtors
Opening 11912242 4776658 1287919 7452623
creditors
Closing 4776658 12827919 7452623 20032834
creditors
INFERENCE
From the above table, it is evident that the sales of the Modern Collections have
increased over a period of time and this increases the size and components of working
capital. There is also an increase in the debtors, which is apparent from the table,
which implies that the company is running short of cash or there is inadequate cash in
the hands of the company.
To understand the operating cycle concept better and to analyze how exactly it affects
working capital, let us study the table showing the operating cycle calculations.

TABLE - 05
TABLE SHOWING OPERATING CYCLE CALCULATION OF MODERN
COLLECTIONS PVT. LTD.
SL NO PARTICULARS 2000-2001 2001-2002 2002-2003 2003-2004
01 Raw material
consumption period
A Raw material consumption 43997387 22957715 33832308 60859265
B Raw material consumption 120540.78 62897.84 92691.25 166737.71
per day
C Raw material inventory 7481660 8907507 5350148 10373012
D 62 Days 142 Days 58 Days 62 Days
02 Work-in-progress
conversion period
A Cost of production 72701667 44575599 55845068 85149868
B Cost of production per day 199182.64 122124.92 153000.18 233287.30
C Work-in-progress 5577575 5054229 6535267 7057849
inventory
D Work-in-progress holding 28 Days 41 Days 43 Days 30 Days
days
03 Finished goods
conversion period
A Cost of goods sold 72338468 41427497 59003731 79059730
B Cost of goods sold per day 198187.58 113499.99 161654.05 216602
C Finished goods inventory 5057710 8205812 5047149 11137287
D Finished goods inventory 26 Days 72 Days 31 Days 51 Days
holding days
04 Collection period
A Credit sales 82298796 48397521 62649553 90124131
B Sales per day 225476.15 132595.94 171642.61 246915.42
C Book debts 5239150 11818945 4174430 5947413
D Book debts outstanding 23 Days 89 Days 24 Days 24 Days
days
05 Payment deferral period
A Credit purchases 44491045 25501189 32984848 69718267
B Purchases per day 121893.27 69866.27 90369.44 191008.95
C Creditors 4776658 12827919 7452623 20032834
D Credit holding days 39 Days 184 Days 82 Days 105 Days

Formulae used to get the proper data in the above table are as follows:
1. Raw material Raw material
Inventory = ------------------------------------- * 365 Holding days
Raw material consumption
2. Work-in-progress work-in-progress
Inventory = -------------------------------------- * 365 Holding days
Cost of production
3. Finished Goods Finished Goods

Inventory = -------------------------------------- * 365 Holding days
Cost of goods sold
4. Book debts Book Debts

Outstanding = -------------------------------------- * 365 Days
Credit Sales
5. Creditors Creditors
Holding = --------------------------------------- * 365 Days
Credit Purchases

ANALYSIS OF OPERATING CYCLE CALCULATIONS

From the table number 30 the raw material inventory level in the year 2000-2002 to
8907507 when compared to 2000-2001 which stood as 7481660, indicating that the
company has good production and does not have any uncertainty in supply of raw
materials, but in the year 2003-2004 raw material inventory has increased to
10373012 when compared to year 2002-2003 which fallen down to 5350148 when
compared to it’s previous year which is satisfactory.
There has been an increase in the level of work in progress inventory and hence it is a
satisfactory level, also Modern Collections has maintained an increasing level of
finished goods inventory to meet the demand of the customers.
In the case of collection period the book debts have increased by 2.25 times more than
in the year 2000-2001, and by 1.42 times in the year 2002-2003. This indicates that
Modern Collection has been extending its credit facilities to the customers in order to
avoid competition.
The company’s creditors are increased to 20032834 in 2003-2004 and payment

deferral period as accordingly increased in order to decelerate the cash outflows. In
the view of the company’s financial position in paying more interest Modern
Collections has to reduce its creditors, and it has done the same in the year 2003-2004

TABLE – 06
TABLE SHOWING SUMMARY OF OPERATING CYCLE
CALCULATION OF MODERN COLLECTIONS PVT. LTD.
NO PARTICULARS 2000-2001 2001-2002 2002-2003 2003-2004
01 Inventory conversion period
A Raw material 62 Days 142 Days 58 Days 62 Days
B Work-in-progress 28 Days 41 Days 43 Days 30 Days
C Finished goods 26 Days 72 Days 31 Days 51 Days
02 Receivable conversion 23 Days 89 Days 24 Days 24 Days
period
03 Gross Operating Cycle 139 Days 344 Days 156 Days 167 Days
(1+2)
04 Payment Deferral period 39 Days 184 Days 82 Days 105 Days
05 Net Operating Cycle 100 Days 160 Days 74 Days 62 Days
(3-4)
INFERENCE
According to the above table the operating cycle takes 62 days to convert raw
materials into cash. The net operating cycle has increased from 100-160 days in the
year 2001-2002 and has decreased to 72 days in the year 2002-2003. The following
reasons can be highlighted about these fluctuations.
In the year 2002-2003 raw material holding days have increased by 4 days this is
because raw material consumption has increased to 60859265 and at the same time
the level of raw material inventory has increased to 10373012.
One reason would be the policy of company, to reduce the inventory holding to bring
the cost down, but there is an increase in the work in
progress holding days when compared to that of the year 2000-2001, due to
fluctuations of demand for the company’s product in the market.

Collection period is reduced so as to increase the cash inflows, where as the payment
deferral period is increased to 105 days in the year 2003-2004 when compared to 39
days in the year 2000-2001, and 82 days in 2002-2003. This indicates that the
company has to take necessary steps to control disbursements for maximum
availability of cash.

RATIO ANALYSIS
INTRODUCTION
The ratio analysis is one of the most important and powerful tools of financial
analysis. It is the process of establishing and interpreting various ratios. It is with the
help of ratios that the ratios that the financial statement can be analyzed more clearly
and decisions made from such analysis.
CONCEPT OF RATIO
A ratio is a simple arithmetical expression of the relationship of one number to

another. It may be defined as the indicated quotient of two mathematical expressions.
According to Accountant’s handbook by Wixonkell and Bedford, a ratio “is an
expression of the quantitative relationship between two numbers”.
RATIO ANALYSIS
Ratio analysis is the technique of calculation of number of accounting ratios from the
data found in the financial statements, the comparison of the accounting ratios with
those of the previous years or with those of other concerns engaged in similar line of
activities or with those of standard ratios and the interpretation of the comparison.
CLASSIFICATION OF ACCOUNTING RATIOS
The use of ratio analysis is not confined to financial manager only. There are different
parties interested in the ratio analysis for knowing the financial position of a firm for
different purposes. In view of various users of ratio which can be calculated from the
information given in the financial statement.

Ratios
Traditional classification Functional classification Significance ratios
1. Balance sheet ratios 1. Primary ratios

1. Liquidity ratios
2. Revenue statement ratios 2. Secondary ratios
2. Leverage ratios
3. Mixed ratios
3. Activity ratios
4. Probability ratios
CLASSIFICATION ACCORDING TO TESTS
Liquidity ratios Long-term solvency ratios Activity ratios Probability ratios
1. Debt equity ratio 1. Stock turn over ratio 1. Gross profit ratio
1. Current 2. Debtors turnover ratio
2. Proprietory ratio 2. Net profit ratio
ratio 3. Debt-collection
3. Capital gearing 3. Operating profit
2. Acid test period
ratio ratio
ratio 4. Creditors turnover
4. Fixed assets to net 4. Return on capital
3. Absolute ratio
worth employed
5. Current assets to net 5. Debt-payment period 5. Return on total
worth 6. Fixed assets turnover resources
ratio 6. Return on equity
7. Total assets turnover
ratio
8. Working capital
turnover ratio
9. proprietory fund
turnover ratio

LIQUIDITY RATIOS
CURRENT RATIO
Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio is also known as working capital ratio. It is calculated by
dividing the total current assets by total current liabilities.
Current Assets
Current ratio = -------------------------
Current Liabilities
Current assets include cash in hand, cash at bank, bills receivable, sundry
debtors, inventory, prepaid expenses, outstanding incomes temporary
investments and advances. Current liabilities include bills payable, sundry
creditors, bank overdraft, unclaimed dividend, outstanding expenses, provision
for taxation and proposed dividend etc.
TABLE – 01
TABLE SHOWING CURRENT RATIO
Year Current Assets Current Liabilities Current Ratio
2000-2001 25813153 10004325 2.58
2001-2002 24678965 21128392 1.16
2002-2003 21588683 11339964 1.90
2003-2004 20683915 25537988 0.80
Source: Secondary Data
INFERENCE
The current ratio decreased to 1.16 in the year 2001-2002 , when compared to
the year 2000-2001, and again it is increased to 1.90 in 2002-2003, later it is
again fallen down to 0.80. This shows that there is no improvement in the short-
term solvency of the company for the year 2003-2004.

GRAPH – 01
GRAPH SHOWING CURRENT RATIO
3 2.58
2.5
1.9
Current Ratio
1.5 1.16
0.8
1
0.5
0
1 2 3 4
Year

ACID TEST RATIO

Acid test ratio may be defined as the relationship between liquid assets and liquid
liabilities. It is also known as liquid ratio or quick ratio. Liquid assets include all
current assets except inventory and prepaid expenses. Liquid liabilities include all
current liabilities except bank overdraft.
Liquid Assets
Acid test ratio = ----------------------------
Liquid liabilities
TABLE – 02
SHOWING THE LIQUID RATIO
Year Liquid assets Liquid liabilities Liquid ratio

2000-2001 17367308 10004325 1.73
2001-2002 23362359 21128392 1.10
2002-2003 15428377 11339964 1.36
2003-2004 16701025 25537988 0.65
INFERENCE
The liquid ratio is decreased to 1.10 in the year 2001-2002 when compared to the
previous year 2000-2001, and again it is increased to 1.36 in the year 2002-2003. This
further confirms that there are fluctuations in the short-term liquidity of the company.

GRAPH – 02
GRAPH SHOWING LIQUID RATIO
1.73
1.8
1.6 1.36
1.4
1.1
1.2
Liquid ratio
1
0.65
0.8
0.6
0.4
0.2
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

ABSOLUTE LIQUID RATI0
Absolute liquid ratio may be defined as the relationship between Absolute liquid
assets and liquid liabilities. Absolute liquid assets include cash in hand, cash at bank
and marketable securities.
The absolute liquid ratio can be calculated by dividing absolute liquid assets by liquid
liabilities. Thus,
Absolute liquid assets
Absolute Liquid Ratio = ---------------------------------
Liquid liabilities
TABLE – 03
SHOWING ABSOLUTE LIQUID RATIO
Year Liquid Assets Liquid Liabilities Absolute Liquid Ratio

2000-2001 22720507 10004325 2.27
2001-2002 23493785 21128392 1.11
2002-2003 18659035 11339964 1.64
2003-2004 18302726 25537988 0.71
INFERENCE

The absolute liquid ratio is increased to 1.64 when compared to 1.11 in the year 2001-
2002, but again it shows a fall in the year 2003-2004 which stands at 0.71
GRAPH – 03
GRAPH SHOWING ABSOLUTE LIQUID RATIO
2.5 2.27
Absolute Liquid Ratio
2 1.64
1.5 1.11
1 0.71
0.5
0
2000-2001 2001-2002 2002-2003 2003-2004
Year


LONG TERM SOLVENCY RATIO
DEBT-EQUITY RATIO
Debt-Equity Ratio, also known as External-Internal Equity ratio is calculated to

measure the relative claims of outsiders and owners against the firm’s assets. The
Debt-Equity ratio can be calculated by dividing the total Debts by equity. Thus,
Total debts
Debt-Equity ratio = ----------------------
Equity
A total debt equals all long term debts plus current liabilities and provisions and
equity includes share capital, reserves and surplus minus capital losses
TABLE – 04
TABLE SHOWING DEBT-EQUITY RATIO
Year Total debt Equity Debt-Equity Ratio
2000-2001 62072358 28620421 2.16

2001-2002 74357442 28416205 2.61
2002-2003 55024148 28057713 1.96
2003-2004 70288556 30391887 2.31
INFERENCE
Debt equity ratio has increased to 2.61 in 2002-2003 when compared to 2000-2001
and again it is increased to 2.31 in the year 2002-2003 though it was decreased to 1.96
in the year 2001-2002. 7This shows that there is improvement in the long-term
solvency position of the company.

GRAPH- 04
GRAPH SHOWING DEBT-EQUITY RATIO
3 2.61
2.31
Debt Equity Ratio
2.5 2.16
1.96
2
1.5
1
0.5
0
2000- 2001- 2002- 2003-
2001 2002 2003 2004
Year

PROPRIETORY RATIO
The ratio that expresses the relationship between proprietor’s fund and total assets is
called Proprietory ratio. This ratio can be calculated as under.
Equity
Proprietory Ratio = ----------------------
Total Asset
TABLE – 05
TABLE SHOWING PROPRIETORY RATIO
Year Equity Total Assets Proprietory Ratio
2000-2001 28620421 52068033 0.54

2001-2002 28416205 53229050 0.53
2002-2003 28057713 43684184 0.64
2003-2004 30391887 44750568 0.67
INFERENCE
This ratio is decreased in the year 2001-2002 to 0.53 when compared to 2000-2001
and further increased to 0.67 in the year 2003-2004 when compared to 2000-2001.
this shows that there is an increase in the long-term solvency of the business.

GRAPH - 05
TABLE SHOWING PROPRIETORY RATIO
0.7 0.64 0.67

0.6 0.54 0.53
Propritetory Ratio
0.5
0.4
0.3
0.2
0.1
0
2000- 2001- 2002- 2003-
2001 2002 2003 2004
Year

FIXED ASSETS TO NETWORTH RATIO
The ratio, which establishes the relationship between fixed assets and shareholder’s
funds, is called fixed assets to Net worth ratio. This ratio can be calculated as follows
Fixed Assets (After depreciation)
Fixed assets to Net worth Ratio = -------------------------------------
Shareholder’s funds
TABLE – 06
TABLE SHOWING FIXED ASSETS TO NETWORTH RATIO
Year Fixed Asset Net worth Fixed assets to

Net worth Ratio
2000-2001 6335879 28620421 0.22
2001-2002 6079307 28416205 0.21
2002-2003 5378748 28057713 0.19

2003-2004 7775901 30391887 0.25
INFERENCE
The ratio of fixed assets to net worth ratio is found to be fluctuating in the year 2001-
2002 and 2002-2003. But it is slightly increased in the year 2003-2004 to 0.25.

GRAPH – 06
GRAPH SHOWING FIXED ASSETS TO NETWORTH RATIO
0.25 0.22 0.25

0.21
Fixed Assets to Net Worth
0.19
0.2
0.15
Ratio
0.1
0.05
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

RATIO OF CURRENT ASSETS TO SHARREHOLDER’S FUND
The ratio which establishes the relationship between current assets and shareholder’s
funds is called ratio of current assets to shareholder’s fund ratio. The ratio can be
calculated as follows.
Current Assets
Current assets to Net worth ratio = --------------------------
Shareholder’s funds
TABLE – 07
TABLE SHOWING RATIO OF CURRENT ASSETS TO SHAREHOLDER’S

FUND RATIO
Year Current Assets Net worth Current Assets

to Net worth Ratio
2000-2001 25813153 28620421 0.90
2001-2002 24678965 28416205 0.86
2002-2003 21588683 28057713 0.76
2003-2004 20683915 30391887 0.68
INFERENCE
The above table shows that the current assets to net worth ratio in the year 2001-2002
has come down to 0.86 when compared to the year 2000-2001 and the current asset
ratio is on a declining trend in subsequent years.

GRAPH – 07
GRAPH SHOWING RATIO OF CURRENT ASSETS TO SHAREHOLDER’S

FUND RATIO
1 0.9 0.86
0.76
0.68
Current Assets to Net
0.8
Worth Ratio
0.6
0.4
0.2
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

CAPITAL GEARING RATIO

Capital gearing ratio is a ratio, which expresses relationship between fixed interest
and dividend bearing securities and equity share capital. This ratio is calculated as
follows.
Fixed interest and dividend bearing

Securities
Capital Gearing Ratio = --------------------------------------------
Equity share capital
TABLE – 08
TABLE SHOWING CAPITAL GEARING RATIO
Fixed interest and

Year dividend bearing Equity share capital Capital gearing
securities ratio
2000-2001 1627673 1500000 1.08
2001-2002 1528950 1500000 1.01
2002-2003 1548490 1500000 1.03
2003-2004 1621805 1500000 1.08
INFERENCE
Capital gearing ratio is constant in the year 2000-2001 and 2003-2004 but it has
decreased in 2001-2002 and , to 1.01 and 1.03 respectively.

GRAPH - 08
GRAPH SHOWING CAPITAL GEARING RATIO
1.08 1.08
1.08
1.06
Capital Gearing Ratio
1.03
1.04
1.01
1.02
0.98
0.96
2000-2001 2001-2002 2002-2003 2003-2004
Year

ACTIVITY RATIOS
INVENTORY TURNOVER RATIO
Inventory turnover ratio is the ratio, which indicates the number of times the stock is
turned over i.e., sold during the year. In other words, it is the ratio between the cost of
goods sold and closing stock. This ratio can be calculated as follows.
Sales
Stock Turnover Ratio = ----------------
Inventory
TABLE – 09
TABLE SHOWING INVENTORY TURNOVER RATIO
Year Sales Inventory Stock turnover

Ratio
2000-2001 82298796 18450170 4.46
2001-2002 483975 21 22444998 2.15
2002-2003 62649553 17500270 3.57
2003-2004 90124231 29520878 3.05
INFERENCE
Inventory turn over ratio has decreased to 2.15 in the year 2001-2002 when compared
to 2000-2001 and again increased in the year 2002-2003 to 3.57 but in the year 2003-
2004 it shows a fall that is 3.05.

GRAPH – 09
GRAPH SHOWING INVENTORY TURNOVER RATIO
4.46
4.5
4 3.57
3.05
Stock Turnover Ratio
3.5
3
2.15
2.5
2
1.5
1
0.5
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

DEBTORS TURNOVER RATIO
Debtors turnover rate is in between credit sales and debtors. In other words, it
indicates the number of times the debts are collected in a year. This ratio is calculated
as follows.
Credit Sales
Debtors Turnover Ratio = -----------------------
Debtors
TABLE - 10
TABLE SHOWING DEBTORS TURNOVER RATIO
Year Credit Sales Debtors Debtors

Turnover Ratio
2000-2001 82298796 5239150 15.70
2001-2002 48397521 11818945 4.09

2002-2003 62649553 4174430 15.0
2003-2004 90124131 5947413 15.15
INFERENCE
The debtors turn over ratio has decreased to 4.09 in the year 2001-2002 and again has
increased to 15.15 in the year 2003-2004

GRAPH – 10
GRAPH SHOWING DEBTORS TURNOVER RATIO
15.7 15 15.15
16
14
Debtors Turnover Ratio
12
10
8
4.09
6
4
2
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

DEBT COLLECTION PERIOD RATIO
Debt collection period ratio is the ratio, which shows the average time taken by the
firm to collect the debts. This is calculated as follows.
Debtors
Debt collection period ratio = ----------------------- * 365 days
Credit Sales
TABLE – 11
TABLE SHOWING DEBT COLLECTION PERIOD RATIO
Year Debtors Credit Sales Debt collection Ratio
2000-2001 5239150 82298796 23 Days
2001-2002 11818945 48397521 89 Days
2002-2003 4174430 62649553 24 Days
2003-2004 5947413 90124131 24 Days
INFERENCE
The debt collection period ratio remains constant in the 2002-2003 and 2003-2004 but
has increased in the year 2001-2002 to 89 days when compared to that of 23 days in
the year 2000-2001

GRAPH – 11
GRAPH SHOWING DEBT COLLECTION PERIOD RATIO
90 89 Days
80
Fixed Assets TurnOver
70
60
50
Ratio
40
23 Days 24 Days 24 Days
30
20
10
0
2000-2001 2001-2002 2002-2003 2003-2004
Year
CREDITORS TURNOVER RATIO

Creditors turnover ratio is the ratio, which indicates the number of times the debts are
paid in the year. This ratio is calculated as follows.
Credit purchase
Credit Turnover Ratio = ---------------------
Average creditors
TABLE -12
TABLE SHOWING CREDITORS TURNOVER RATIO
Year Credit purchase Creditors Creditors turn over

Ratio
2000-2001 44491045 4776658 9.31
2001-2002 25501189 12827919 1.98
2002-2003 32984848 7452623 4.42
2003-2004 69718267 20032834 3.48
INFERENCE
The creditors turnover ratio has decreased to 1.98 in 2001-2002 when compared to
2000-2001 and again it is increased to 4.42 in 2002-2003 but again there is slight fall
in the year 2003-2004 to 3.48.

GRAPH – 12
GRAPH SHOWING CREDITORS TURNOVER RATIO
9.31
10
9
Creditors TurnOver Ratio
8
7
6 4.42
5 3.48
4
1.98
3
2
1
0
2000-2001 2001-2002 2002-2003 2003-2004
Year
DEBT PAYMENT PERIOD RATIOS

Debt payment ratio is a ratio, which shows the average time taken by the firm to repay
the debt. This ratio is calculated as follows.
Creditors
Debt payment period ratio = ------------------ * 365 Days
Credit purchase
TABLE – 13
TABLE SHOWING DEBT PAYMENT PERIOD RATIO
Year Creditors Credit purchases Debt payment

period Ratio
2000-2001 4776658 44491045 39 Days
2001-2002 12827919 25501189 184 Days
2002-2003 7452623 32984848 82 Days
2003-2004 20032834 69718267 105 Days
INFERENCE
The debt payment period increased to 184 days in 2001-2002 and also in the year
2003-2004 to 105 days when compared to 39 days in the year 2000-2001, 2002-2003.

GRAPH – 13
GRAPH SHOWING DEBT PAYMENT PERIOD RATIO
184 Days
200
180
160
140
105 Days
120
82 Days
Ratio
100
80
60 39 Days
40
20
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

FIXED ASSETS TURNOVER RATIO
The ratio, which expresses the relationship between the sales and total assets, is
known as Fixed assets turnover ratio.
Sales
Fixed assets turnover ratio = ------------------
Fixed Asset
TABLE – 14
TABLE SHOWING FIXED ASSETS TURNOVER RATIO
Year Sales Fixed Assets Fixed assets turn

over Ratio
2000-2001 82298796 6335879 12.98
2001-2002 48397521 6079307 7.96
2002-2003 62649553 5378248 11.64
2003-2004 90124131 7775901 11.59
INFERENCE
Fixed assets turnover ratio has decreased to 7.96 in the year 2001-2002 when
compared to 2000-2001 and more or less remains constant in the years 2002-2003 and
2003-2004 with slight variations standing at 11.64 and 11.59.

GRAPH – 14
GRAPH SHOWING FIXED ASSETS TURNOVER RATIO
12.98
14 11.64 11.59
12
10 7.96
8
Ratio
6
4
2
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

CURRENT ASSETS TURNOVER RATIO
The ratio, which expresses the relationship between the current assets to sales, is
called as Current assets turnover ratio. It is calculated as follows.
Sales
Current Assets Turnover Ratio = -------------------
Current Assets
TABLE – 15
TABLE SHOWING CURRENT ASSETS TURNOVER RATIO
Year Sales Current Assets Current assets turn

over Ratio
2000-2001 82298796 25813158 3.18
2001-2002 48397521 24678965 1.96
2002-2003 62649553 21588683 2.90
2003-2004 90124131 20683915 4.35
INFERENCE
The current assets turnover ratio has increased to 1.96 in 2001-2002 and also in the
year 2002-2003 to 2.90 when compared to the previous year 2000-2001 and
subsequent year 2003-2004.

GRAPH – 15
GRAPH SHOWING CURRENT ASSETS TURNOVER RATIO
4.35
4.5
4
Current Assets TurnOver
3.18
3.5 2.9
3
2.5 1.96
Ratio
2
1.5
1
0.5
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

WORKING CAPITAL TURNOVER RATIO
The ratio, which expresses the relationship between the working capital and sales, is
called as Working capital turnover ratio. It is calculated as follows
Sales
Working capital turnover ratio = --------------------
Working capital
TABLE – 16
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
Year Sales Working capital Working capital turn

over ratio
2000-2001 82298796 25813153 3.18
2001-2002 48397521 24678966 1.96
2002-2003 62649553 21588683 2.90
2003-2004 90124131 20683915 4.35
INFERENCE
Working capital turnover ratio has decreased to 1.96 in 2001-2002 when compared to
2000-2001 and again it is further decreased to 2.90 when compared to that of the year
2003-2004 which stands at 4.35.

GRAPH – 16
GRAPH SHOWING WORKING CAPITAL TURNOVER RATIO
4.35
4.5
4
Working capital turnOver
3.18
3.5 2.9
3
2.5 1.96
Ratio
2
1.5
1
0.5
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

PROPRIETORY FUND TURNOVER RATIO
This is a ratio, which expresses the relationship between the proprietory fund and
sales, is called as Proprietory fund turnover ratio. It is calculated as follows.
Sales
Proprietory fund turnover ratio = ---------------------
Proprietory fund
TABLE –17
TABLE SHOWING PROPRIETORY FUND TURNOVER RATIO
Year Sales Equity Proprietory fund

turn over Ratio
2000-2001 82298796 28620421 2.87
2001-2002 48397521 28416205 1.70
2002-2003 62649553 28057713 2.23
2003-2004 90124131 30391887 2.96
INFERENCE
This ratio has increased to 2.96 when compared to that of all the previous ratios in the
year 2003-2004.

GRAPH – 17
SHOWING PROPRIETORY FUND TURNOVER RATIO
2.87 2.96
3
Proprietoty Fund Turn Over
2.23
2.5
2 1.7
Ratio
1.5
0.5
0
2000-2001 2001-2002 2002-2003 2003-2004
Year

PROFITABILITY RATIOS
Profitability ratios are calculated to determine the operating efficiency of the

company. Profit is the difference between total revenues and expenses over a period
of time. It is the ultimate output of the company without which the company has no
future. Therefore, the financial manager should continuously evaluate efficiency of
the company on terms of profits. Profitability ratios can be determined on the basis of
sales or in relation to investments. Generally, two major types of profitability ratios
are calculated.
 Profitability in relation to sales.

 Profitability in relation to investment.
PROFITABILITY IN RELATION TO SALES
Generally, the following profitability ratios are calculated in relation to sales
GROSS PROFIT RATIO
Gross profit ratio, is the ratio which expresses the relationship between gross profit
and sales expressed in percentage. It is calculated as follows.
Gross profit
Gross profit ratio = ----------------------- * 100
Sales

TABLE – 18
TABLE SHOWING GROSS PROFIT RATIO
Year Gross profit Sales Gross profit Ratio
2000-2001 1434421 82298796 1.74%
2001-2002 ------------- 48397521 --------
2002-2003 3711530 62649553 5.92%
2003-2004 2736963 90124131 3.03%
INFERENCE
Gross profit ratio has increased in the year 2002-2003 to 5.92% having no profits in
the year 2001-2002 and shows a fall in 2003-2004 to 3.03%.

GRAPH – 18
GRAPH SHOWING GROSS PROFIT RATIO
6.00%
5.92
5.00%
Gross Profit Ratio
4.00%
3.03
3.00%
1.74
2.00%
1.00%
0
0.00%
2000-2001 2001-2002 2002-2003 2003-2004
Year

NET PROFIT RATIO

It is the ratio, which expresses the relationship between net profit and sales expressed
in percentage. It is calculated as follows.
Net profit
Net profit ratio = ------------------- * 100
Sales
TABLE – 19
TABLE SHOWING NET PROFIT RATIO
Year Net profit Sales Net profit Ratio
2000-2001 1359421 82298796 0.61%
2001-2002 ----------- 48397521 -------
2002-2003 ----------- 62649553 -------
2003-2004 2334174 90124131 0.02%
INFERENCE
The net profit ratio has decreased in the year 2001-2002 to 0.02% having no profit in
the immediate previous years when compared to that of profits of 2001-2002 to
0.61%. This shows there is decline in the profitability of the company.

GRAPH – 19
GRAPH SHOWING NET PROFIT RATIO
0.70% 0.61
0.60%
0.50%
Net Profit Ratio
0.40%
0.30%
0.20%
0.10% 0 0 0.02
0.00%
2000-2001 2001-2002 2002-2003 2003-2004
Year

OPERATING RATIO
The ratio, which expresses the relationship between operating cost and sales expresses
in percentage, is called as Operating ratio. This ratio is calculated as follows.
Operating cost
Operating ratio = ------------------------ * 100
Sales
TABLE – 20
TABLE SHOWING OPERATING RATIO
Year Operating cost Sales Operating Ratio
2000-2001 24171616 82298796 29.37%
2001-2002 15647946 48397521 32.33%
2002-2003 11102218 62649553 17.72%
2003-2004 21072481 90124131 23.38%
INFERENCE
The operating ratio in the year 2001-2002 increased to 32.33% when compared to
2000-2001. But it is increased in the year 2003-2004 to 23.38% when compared to
that of 17.72% in the year 2002-2003. So this is the reason for decline in the net profit
of the company.

GRAPH – 20
GRAPH SHOWING OPERATING RATIO
32.33
35.00% 29.37
30.00%
23.38
Operating Ratio
25.00%
17.72
20.00%
15.00%
10.00%
5.00%
0.00%
2000-2001 2001-2002 2002-2003 2003-2004
Year

OPERATING PROFIT RATIO
The ratio, which expresses the relationship between operating profit and sales
expressed in percentage, is called as Operating profit ratio. It is calculated as follows.
Operating profit cost
Operating profit ratio = ---------------------------- * 100
Sales
TABLE – 21
TABLE SHOWING OPERATING PROFIT RATIO
Year Operating profit Sales Operating profit

Ratio
2000-2001 1400467 82298796 1.70%
2001-2002 39457 48397521 0.08%
2002-2003 3463897 62649553 5.52%
2003-2004 2661924 90124131 2.95%
INFERENCE
The operating profit ratio has increased to 5.52% in the year 2002-2003 when
compared to both the previous years, 2000-2001 and 2001-2002. But it is decreased to
2.95% in the year 2003-2004. This is further confirmed that the increase in operating
cost is the main reason for decrease in operating profit.

GRAPH – 21
GRAPH SHOWING OPERATING PROFIT RATIO
5.52
6.00%
5.00%
Operating Profit
4.00% 2.95
Ratio
3.00%
1.70
2.00%
1.00% 0.08
0.00%
2000- 2001- 2002- 2003-
2001 2002 2003 2004
Year
PROBABILITY IN RELATION TO INVESTMENT

RETURN ON PROPRIETOR’S FUND
The ratio between net profit after tax and proprietor’s fund is called return on
proprietor’s fund. It is calculated as follows.
Net profit after tax
Return on proprietor’s fund = ------------------------ *100
Equity
TABLE – 22
TABLE SHOWING RETURN ON PROPRIETOR’S FUND
Year Equity Profit after tax Return on

proprietor’s fund
2000-2001 28620421 1359421 4.74%
2001-2002 28416205 ---------- -------
2002-2003 28057713 ---------- -------
2003-2004 30391887 2334174 7.68%
INFERENCE
The ratio of return on proprietor’s fund has increased to 7.68% when compared to
2000-2001 having no return on proprietor’s fund because of no profits in the year
2002 and 2003 when compared to 2000-2001 having 4.74%. This is because of
decline in the profitability due to more operating cost.

GRAPH – 22
GRAPH SHOWING RETURN ON PROPRIETOR’S FUND
7.68
8.00%
7.00%
Return on Proprietor's fund
6.00%
4.74
5.00%
4.00%
3.00%
2.00%
1.00% 0 0
0.00%
2000-2001 2001-2002 2002-2003 2003-2004
Year
RETURN ON TOTAL RESOURCES

The ratio between net profit after tax and total assets is called as Return on total
resources. It is calculated as follows.
Return on total resources = ------------------------- * 100
Total assets
TABLE – 23
TABLE SHOWING RETURN ON TOTAL RESOURCES
Year Net profit after tax Total assets Return on total

resources
2000-2001 1359421 52068033 2.61%
2001-2002 ----------- 53229050 --------
2002-2003 ----------- 43684184 --------
2003-2004 2334174 44750568 5.21%
INFERENCE
The return on total resources increased to 5.21% in the year 2003-2004 nothing in the
year 2001-2002 and 2002-2003 when compared to that of 2000-2001.

GRAPH – 23
SHOWING RETURN ON TOTAL RESOURCES
6.00% 5.21
Return on Total Resources
5.00%
4.00%
2.61
3.00%
2.00%
1.00% 0 0
0.00%
2000-2001 2001-2002 2002-2003 2003-2004
Year

RETURN ON CAPITAL EMPLOYED
The ratio between net profit before interest and tax and capital employed is called as
return on capital employed. It calculated as followed
Net profit before tax
Return on capital employed = ---------------------------- * 100
Capital employed
TABLE – 24
TABLE SHOWING RETURN ON CAPITAL EMPLOYED
Year Profit before tax Capital employed Return on capital

employed
2000-2001 1434421 19918044 7.20%
2001-2002 -107398 22470777 -------
2002-2003 3711530 16717253 22.20%
2003-2004 2736963 16290752 16.80%
INFERENCE
The return on capital employed ratio shows nil return on capital employed in the year
2001-2002 because of losses incurred by the company in that year. In the next year it
reaches to 22.20% which is 5.40% more when compared to the one in the year 2003-
2004.

GRAPH - 24
GRAPH SHOWING RETURN ON CAPITAL EMPLOYED
25.00% 22.20
20.00% 16.80
Return on Capital
Employed
15.00%
10.00% 7.20
5.00%
0
0.00%
2000-2001 2001-2002 2002-2003 2003-2004
Year

EARNING PER SHARE (EPS)
The ratio between net profit after tax and number of equity shares is called as Earning
per share.
Earning per share = ------------------------------- * 100
Number of equity shares
TABLE – 25
TABLE SHOWING EARNING PER SHARE (EPS)
Year Number of equity Profit after tax Earnings per share

shares
2000-2001 15000 1359421 0.60%
2001-2002 15000 ----------- --------
2002-2003 15000 ----------- --------
2003-2004 15000 2334174 1.03%
INFERENCE
The earnings per share have increased to 1.03% in the year 2003-2004 when
compared to all the remaining previous year’s earnings per share.

GRAPH – 25
GRAPH SHOWING EARNING PER SHARE (EPS)
1.20% 1.03
1.00%
Earnings Per Share
0.80% 0.60
0.60%
0.40%
0.20% 0 0
0.00%
2000-2001 2001-2002 2002-2003 2003-2004
Year

5.1 FINDINGS
The analysis and interpretation of the data gathered, has revealed the following facts:
 Operating cycle of Modern Collections has increased from 100 days in the
year 2000-2001 to 160 days in the year 2001-2002 but decreased to 74 days 2002-
2003, and is again decreased to 62 days in the year 2003-2004.this is due to the
holding of finished goods inventory and work in progress inventory for more days and
also due to increased raw material consumption. The finished goods inventory
conversion period has increased from 26 days in the year 2000-2001 to 72 days in
2001-2002, again in the year 2002-2003 it has been decreased to 31 days and in the
year 2003-2004 it has increased to 51 days. Also the work in progress inventory
conversion period has increased from 28 days in the year 1998-1999 to 41 days; again
it is increased to 43 days in 2002-2003 with a decrease of 30 days in 2003-2004.
 The receivable conversion period has increased from 23 days to 89 days in

2001-2002; it is decreased to 24 days in 2002-2003 and again in the year 2003-2004 it
remains stable.
 At the same time the company is increased its payment deferral from 39 days
to 184 days in the year 2001-2002, it is decreased to 82 days in the year 2002-2003
and again increased by 105 days in the year 2003-2004. This shows that the company
has to control the cash disbursements to enhance the availability of cash.
 The current ratio of the company has come down from 2.58 to 1.16 in the year
2001-2002.In the next year it has increased to 1.90 but again it is decreased to 0.80 in
the year 2003-2004. This indicates that the company is not able to meet the standard
of 2:1 the downfall represents that the company’s short-term liquidity position is not
satisfactory.
 The debt equity ratio is increased to 2.61 in 2001-2002 when compared to

2000-2001, and gain in the year 2003-2004 it is increased to 2.31 when compared to

the year 2002-2003. This shows that there is an improvement in the long-term
solvency position of the company.
 Current assets to net worth ratio show a declining trend in all the years.
 The debt collection period ratio has increased to 81 days in the year 2001-
2002. But has remained constant in the future i.e., 24 days.
 The working capital turn over ratio has decreased to 1.96 in the year, but from
there on it has kept on increasing in the future.
 Gross profit ratio has increased in the year 2002-2003 to 5.92% having no
profits in the year 2001-2002 and shows a fall in 2003-2004 to 3.03%.
 The net profit ratio has decreased in the year 2003-2004 to 0.02% having no
profit in the immediate previous years when compared to that of profits of 2002-2003
to 0.61%. This shows there is decline in the profitability of the company.
 The operating ratio in the year 2001-2002 increased to 32.33% when

compared to 1998-1999. But it is increased in the year 2003-2004 to 23.38% when
compared to that of 17.72% in the year 2002-2003. So this is the reason for decline in
the net profit of the company.
 The operating profit ratio has increased to 5.52% in the year 2002-2003 when
compared to both the previous years, 2000-2001 and 2001-2002. But it is decreased to
2.95% in the year 2003-2004. This further confirms that the increase in operating cost
is the main reason for decrease in operating profit.
 The ratio of return on proprietor’s fund has increased to 7.68% when

compared to 2001-2002 having no return on proprietor’s fund because of no profits in

the year 2002 and 2003 when compared to 2003-2004 having 4.74%. This is because
of decline in the profitability due to more operating cost.
 The return on total resources increased to 5.21% in the year 2003-2004

nothing in the year 2001-2002 and 2002-2003 when compared to that of 2000-2001.
 The return on capital employed ratio shows nil return on capital employed in
the year 2001-2002 because of losses incurred by the company in that year. In the
next year it reaches to 22.20%, which is 5.40% more when compared to the one in the
year 2003-2004.
 The earnings per share have increased to 1.03% in the year 2003-2004 when
compared to all the remaining previous year’s earnings per share.

5.2 CONTRIBUTION OF THE STUDY
The study has helped the company to understand its strengths and weaknesses.
The company has understood the criteria of proper investments of funds. The
study also revealed that the operating and other expenses of the company has to
be cut down to make it more profitable. The study urges the company to reduce
the time in its operating cycle.

5.3 CONCLUSION / SUGGESTIONS

CONCLUSION
 In spite of incurring losses in the year 2001-2002, it has successfully managed

to overcome this by making profits in future, which is a good sign of
prosperity to the company.
 The long-term solvency position of the company has shown a recurrent

increase.
 The sales of the company has increased in the year 2000-2001 which indicates
that the foreign companies are well satisfied with the company’s product,
which is a good sign to company’s prosperity.

SUGGESTIONS
 Modern Collections should make proper financial planning so that the

available funds are utilized in more efficient and effective manner.
 The company must try to maintain its short-term liquidity position, by

investing only in those investments, which are easily convertable into cash.
 Modern Collections must cut down the operating and other expenses with out
reducing the quality of its products.
 The company should reduce the idle capacity in order to increase the
efficiency in the operations.
 Modern Collections must take immediate measures to reduce the length of the
Operating cycle

BALANCE SHEET AS ON 31ST MARCH 2001
2000-2001
1) SOURCES OF FUNDS
SHAREHOLDER’S FUNDS
Share Capital 1500000
Reserves and surplus 27120421 28620421
LOAN FUND
Secured loans 18074612
Unsecured loans 5373000 23447612
TOTAL 52068033
2) APPLICATION OF FUNDS
FIXED ASSETS
Gross Block 11710682
Less: Depreciation 5374803
Net Block 6335879
INVESTMENTS 19918044
CURRENT ASSETS LOANS 5817478
AND ADVANCES
Less: CURRENT LIABILITIES 10004325

AND PROVISIONS
Net Current Assets 25813153
MISCELLANEOUS EXPENDITURE
Preliminary expenses 965
TOTAL 52068033


2001-2002
1. SOURCES OF FUNDS
Reserves & surplus 26916205 28416205
LOAN FUND
TOTAL 53229050
2. APPLICATION OF FUNDS
FIXED ASSETS
Net Block 6079307

& ADVANCES

AND PROVISIONS
TOTAL 53229050


2002-2003
1. SOURCES OF FUNDS
Reserves & surplus 26557713 28057713
Loan fund
TOTAL 43684184
FIXED ASSETS
Net Block 5378248

AND ADVANCES

AND PROVISIONS
TOTAL 43684184

2003-2004
1. SOURCES OF FUNDS
Reserves and surplus 288918887 303918887
LOAN FUND
TOTAL 44750568
FIXED ASSETS
Net Block 7775901
INVESTMENTS 1629075

AND ADVANCES

AND PROVISIONS
TOTAL 4475056

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED

31ST MARCH 2001
2000-2001
INCOME
Sales 82298796
Other income 11032002

Accretion in stock of
Finished goods & WIP Goods -419137
TOTAL (A) 92611661
EXPENDITURE
Consumption of raw materials 48391470
Operating and other expenses 24171616
Administration, Selling
& Distribution Expenses 14129757
Interest & Financial Charges 3651289
Depreciation 1167061
TOTAL (B) 91511194
Profit from operations (A-B) 14004687

Share of profit/loss (-) as partner in a firm 39954
Prior year adjustment (-) -------
Provision for taxation (75000)
Profit/loss (-) after tax 1359421
Add: surplus of previous year 25761000
Profit transferred to balance sheet 27120421


31ST MARCH 2002
2001-2002
INCOME
Sales 48397521
Finished& WIP Goods 2635556
TOTAL (A) 56979102
EXPNEDITURE
Consumption of raw materials 26034954
Administration, Selling 10722216

& Distribution Expenses
Interest & Financial charges 3410119
TOTAL (B) 56939644

ZShare of profit/loss (-) as partner in a firm (145855)
Prior year adjustment (-) --------
Provision for taxation (97818)
Profit/loss (-) after tax (204216)
Add: surplus of previous year 27120421


31ST MARCH 2003
2002-2003
INCOME
Sales 62649553
Finished & WIP Goods -1685375
TOTAL (A) 71612567
EXPENDITURE
Consumption of materials 39735344
Operating & other expenses 11102218
Administration, Selling 12926044

& Distribution Expenses
Depreciation 973391
TOTAL (B) 68148670

Add: share of profit/loss (-) as partner in a firm 247633
Less: loss on sale of shares 3285750
Less: prior year adjustment (-) 109272
Provision for taxation 675000
Profit/loss (-) after tax -358492
Add: profit of previous year 26916205


31ST MARCH 2004
2003-2004
INCOME
Sales 90124131
Accretion/decretion in stock of
Finished & WIP Goods 6721344
TOTAL (A) 107653411
EXPENDITURE
Consumption of materials 68333964
Administration, Selling
& Distribution expenses 11492902
TOTAL 104991487

Add: share of profit/loss (-) as partner in a firm 75039
Less: loss on sale of shares ------
Less: prior year adjustment (-) ------
Provision for taxation 402789
Profit/loss (-) after tax 2334174
Add: profit of previous year 26557713

BIBLIOGRAPHY
BOOKS
 Financial management By. S.K.R. Paul
 Principles of corporate finance By. Brealy & Myers

Mc Graw Hill, New York
 Financial Management Theory & By. Prasanna Chandra

Practice Tata Mc Graw Hill
Publishing Company Limited
JOURNALS & MAGAZINES
 Annual reports of Modern Collections Pvt. Ltd..
 Business Standard,
WEB SITE
 www.moderncollectionsindia.com

Final Project1

Uploaded by

Final Project1

Uploaded by

Modern Collections Pvt.

1.1 GENERAL INTRODUCTION

Financial management is mainly concerned with maximizing the company’s net

The project studying Working Capital Management procedures of Modern Collection

Alliance Business Academy 1

1.2 THEORETICAL BACKGROUND

INTRODUCTION TO WORKING CAPITAL

Even though, it is one segment of the capital structure of a business, it constitutes an

Alliance Business Academy 2

An appropriate level of working capital is to be maintained as the excessive working

Alliance Business Academy 3

DEFINITIONS OF WORKING CAPITAL

Working capital has been in several ways as given below.

Operating capital: - As the working capital is the capital required to operate

Circulating capital: - Interchangingly used word for working is circulating

CONCEPTS OF WORKING CAPITAL

GROSS WORKING CAPITAL CONCEPT

1. Optimum investment in current asset

2. Financing of current asset

Alliance Business Academy 4

NET WORKING CAPITAL CONCEPT

2. Suggests the extent to which working capital needs may be financed by

NEED FOR WORKING CAPITAL FINANCE

Alliance Business Academy 5

Cash Raw materials

Accounts receivable Work in progress

Alliance Business Academy 6

The following figure shows the operating cycle of a trading concern

TYPES OF WORKING CAPITAL

• Temporary working capital:

• Net working capital:

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• Negative working capital:

NEED FOR MAINTENANCE OF ADEQUATE WORKING CAPITAL

DANGERS OF EXCESS WORKING CAPITAL

DANGERS OF INADEQUATE WORKING CAPITAL

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EFFECT OF INADEQUATE WORKING CAPITAL ON DECISION

EFFECTS OF EXCESS WORKING CAPITAL ON DECISION MAKING

IMPORTANCE OF WORKING CAPITAL

Secondly, a company with sufficient working capital is always in a position to take

Alliance Business Academy 9

FACTORS INFLUENCING WORKING CAPITAL

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 Earning capacity and dividend policy

SOURCES OF WORKING CAPITAL

Permanent or fixed Temporary or variable

1) Shares 1) Commercial banks

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2.1 STATEMENT OF PROBLEM

Working capital is an important requirement for any business, without which no

As profitability effects the working capital management of a firm, it created an

2.2 OBJECTIVES OF THE STUDY

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2.3 SCOPE OF THE STUDY

2.4 REVIEW OF LITERATURE

Financial management By. S.K.R. Paul

Principles of corporate finance By. Brealy & Myers

JOURNALS & MAGAZINES

Annual reports of Modern Collections Pvt. Ltd..

Alliance Business Academy 14

2.5 OPERATIONAL DEFINITIONS OF CONCEPTS

WORKING CAPITAL MANAGEMENT

Alliance Business Academy 15

2.6 RESEARCH METHODOLOGY

Research design refer to the system consisting of enunciating two problems.

The different step in the Research design following here are:

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2.7 DATA COLLECTION TOOLS

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2.8 OVERVIEW OF THE REPORT

Chapter 2. Design of the study

Chapter 5. Conclusions / Suggestions

This chapter contains executive summary of the dissertations, valid findings of

At the end of the report, Bibliography and all annexure is attached.