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INTRODUCTION OF THE STUDY

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A PROJECT REORT
On
Submitted in partial fulfillment
of the requirements for the
award of the degree
of
Master of Business Admiistration in Finance
From
Punjab Technical University, Jalandhar

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Meaning Of Working Capital Management :-

Working capital means the part of the

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

Working capital may be regarded as the life

blood of business. Working capital is
of major importance to internal and

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external analysis because of its close

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

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Businesses use capital for construction,

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

Concept of Working Capital

Gross Working Capital

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= Total of Current Asset

Net Working Capital
= Excess of Current Asset over Current
Liability

Working capital in terms of five

components:

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1. Cash and equivalents: This most liquid form of working

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

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rapidly are receivables

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

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purchase? What is your firm's

payment policy doing to enhance or
detractfrom your credit rating?
5. Accrued expenses and taxes
payable: These are obligations of your company at
any giventime and represent a future
outflow of cash

KINDS OF WORKING CAPITAL

Gross Working Capital
Gross working capital refers to the amount of funds
invested in current assets that are employedin the
business process. This is a going concern concept,
since it is these aspects that financial

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OperatingCycle

managers are concerned with if they are to

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

Nature Of Business:
The requirements of working is very limited in
public utility undertakingss u c h a s e l e c t r i c i ty,
w a t e r s u p p ly a n d r a i l w ay s b e c a u s e t he y

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o ffe r c a s h s a l e o n ly a n d s u p p ly services not

products, and no funds are tied up in inventories and
receivables. On the other handthe trading and
financial firms requires less investment in
fixed assets but have to invest largeamt. of
working capital along with fixed investments.
Size of the Business:
Greater the size of the business, greater is the
requirement of workingcapital.

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

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In period of boom, when the business is

prosperous, there is need for larger amt. of
working capital due to rise in sales, rise in prices,
optimistic expansion of business, etc.On the
contrary
in time of depression, the business contracts, sales
decline, difficulties arefaced in collection from
debtor and the firm may have a large amt. of
working capital.
Rate of Growth of Business:
In faster growing concern, we shall require large
amt. of workingcapit

OSWAL WOOLEN MILLS LIMITED (OWM)

At owm, even the word Impossible SaysIm possible.
Oswal Woolen Mills
NAHAR GROUP

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established in 1949 surges ahead to establish it self as

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

Today OWM is the flagship company of the

glorious Nahar Empire and a proud owner of
widelyloved Super Brand in Knitwear,

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Monte Carlo and Recognized

Super Brand Canterbury. Thecompany
boasts of a product portfolio that is truly
large and varied. They include diverse
typesof Woollen, Acrylic and Synthetic
Blended Yarns, Lambs Wool Yarn,
Woollen Viscose &Acrylic Tops, Textile
Fabric, Woollen Knitwear, Hosiery & Cotton
Garments.The markets of
NAHAR GROUP
are cries crossed allover the globe with
major clientele inAustralia, New Zealand,
Europe, Middle East, Africa, Russia and
Asia

. The objective is
meeting the buyers expectations with
consistent quality backed by R & D

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divisions equippedwith latest

equipment, Cream of highly qualified
technocrats and adhering to timely
schedules

FEATURES OF NAHAR GROUP

1.Total no of units 9.
2 .G ro up t ur no ve r i s R s 53 81 4. 35 i n a c ur re nt y e a r.
3.Export market: U.S.A, United Kingdom, Germany,
Russia, Japan, Australia, NewZealand, Holland ,Thailand,

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Hong Kong Singapore Taiwan, South Africa, Canada,Egypt,

Israel and Bangladesh
4.No Strike/accident situation and near
zero staff turnover.
5.Important brand names areMONTE CARLO and
CANTERBURRY OWM were the proud recipient of the
BEST exhibited Productsaward from the international
woolSecretariat for these two glamours brands.
6.Product Protfolio: Spinning,
knitting,fabricsprocessing,hosierygarments.knitware,sugar,i
nfrastructure development and information technology
7.COTTON COUNTY is there emerging ready to wear
a Bran

Nahar competitiors of owm

WOOLEN PRODUCTS
The textile and the apparel industry is highly competitive. No single company
dominates theindustry.OWM seek to compete in the domestic and export markets
on the basis of the price ,range, quality of their products, delivery times
and customer services capacities.In the woolen hosiery garments range ,which is
sold under brand MONTE CARLO they donot have any significant competition
and enjoy brand loyalty from their customers.
MAJOR COMPETITORS IN PULLOVERS AND CARDIGANS

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CASABLANCA

PRINGE(SCOTLAND)COMPETITORS OF WOOLEN/BIENDED WORSTED

YARN BUISNESS

VARDHMAN TEXTILES LIMITED

JAYSHREE TEXTILES LIMITED

MALWA COTTON MILLS LIMITED COTTON GARMENT:

As regards their branded woven garments primarily cotton shirts and trousers, they
are newentrant in already high competitive market, and they face competition from
many establisheddomestic as well as international brands. However, the woven
cotton textile industry ishighly competitive and no single company dominates the
industry. They seek to compete inthe domestic market on the basis of price, range,
and quality of our products, brand name andour delivery times
COMPETITORS OF THEIR DENIM FABRIC

ARVIND MILLS LIMITED

AARVEE DENIMS LIMITED

RAYMOND LIMITED

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

ICICI BANK LIMITED

STATE BANK OF PATIALA

CENTRAL BANK OF INDIA

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ALLAHABAD BANK

PUNJAB AND SIND BAN

trengths of the company

(Farsightedness of the chairman MR. JAWAHAR

Lal Oswal)

Extensive Experience of our Promoters

Many persons are working here for more than 50 yrs. This
show commitment of employees towards their org.

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Strong dealer network, mutual relations with them.

Good training programs by OWM for their employees.

Member of wool mark and ISO 9002

Automated machines of latest technology

Exclusive designs, good texture and fabrics.

Premium range of pullovers manufactured by them which

no other co. produces.

Laboratories for testing the quality of the product.

Exports rising every year.

Imported tarn from ITALY for premium range.

The landed Properties in Gurgaon and Chennai.

Quality Standards.

Cost control

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Weakness of the company

Faulty departmentation

Risks relating to the price volatility in the import of wool.

We face risk in relation to outsourcing of cotton segments

of Monte Carlo.

We are dependent upon foreign producers for greasy

wool.

Greasy wool have a material adverse effect on our

operations.

Depend on third parties for significant elements of our

sales and distribution efforts.

Operations are subject to a variety of environmental laws

and regulations including thosecovering hazardous
materials.

The success of our business is substantially dependent

on retaining the services of our Key management.

Personnel and attracting talented professionals .The loss

of the services of any these persons may adversely affect
our business and results of operations

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We have high working capital requirements.

If the number of multi brand outlets and national chain

stores continue to increase or consolidate , our business
could be negatively affected
OPPURTUNITES
With booming retail sector and big players like
WALMART, BHARTI entering into that field,OWM is
also stepping ahead with a mission of opening up of
150 retail outlets all over Indiaunder the brand name
MONTE CARLO.

Fabrication for various companies likes NIKE,MARKS

AND SPENCER.etc

Manufacturing of Kids garments

THREATS

Mushrooming and upcoming of small hosieries in

LudhianaSeasonal demand for their major
products i.e. pullovers

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OBJECTIVES OF THE STUDY

Wor k i n g C a p i t a l i s s y n o n y m o u s w i t h c u r r e n t
assets. There is no denial about the fact
t h a t working capital is one of the main important tools in
the hands of the company for the successfuloperations of
the business. It is imperative for the finance manager to
properly assess the futurerequirements of working
capital in the company. Keeping in view this
objective in mind, thecompany assigned
this challenging project of estimating the future
needs of working capital of the company. The project
itself speaks for the importance of the study.Following of
the main objectives of the study:-

To analyze the various components of working capital.

To study the working capital structure of the company.

To analyze the operating cycle of the companyTo f u l f i l l

these entire objectives in my research it is
e s s e n t i a l t o l o o k a f t e r t h e s t a t e m e n t presenting
the view of working capital

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RESEARCH METHODOLOGY
RESEARCH
Research in common parlance refers to a search for
knowledge. One can also define research as ascientific
and systematic search for pertinent information on a
specific topic. Research is anacademic activity as such the
term should be used in a technical sense. Research refers
to:

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Defining and redefining problem

Formulating hypothesis or suggested solutions

Collecting, organizing and evaluating data

Making deductions and reaching conclusions

At last carefully testing the conclusions to

determine whether they fit the
formulatinghypothesis.

Scope of Study
Scope of research is only restricted to th
e population of
OSWAL WOOLLEN MILLS lehalI .RESEARCH
PROCESS
Research process consists of series of action or steps
necessary to effectively carry out research.These steps are
to be followed in the same sequence. These steps are as
follows:

Specifying research objective

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Preparing a list of needed information

Designing the data collection project

Select a sample size

Organizing and carrying data and reporting the findings.

Research Design
The research design is a pattern or an outline of the
research projects working, it is a statementof only the
essential elements study, those that provide the basic
guidelines for the details of the project. Further a research
design is an arrangement of conditions for collection and
analysis of d a t a i n t h a t a i m t o c o m b i n e
relevance to research purpose with economy
i n p r o c e d u r e . I t constitutes the blueprint for
collection, measurement and analysis of data. Research
design standsf o r a d v a n c e p l a n n i n g o f t h e
methods to be opted for collecting the
r e l e v a n t d a t a a n d t h e techniques to be used
in their analysis, keeping in view of the objectives of their
research.The present study, being conducted,
followed a
Descriptive Design
. It produces a picture of phenomenon in
w h i c h d e c i s i o n m a k e r i s i n t r u s t e d . As t h e
data would be responses from

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a sample containing a large number of sources.

Design of descriptive studies includes the
natureand source of the data, the nature of expected
results and the analytical method.The conceptual structure
within which this research is conducted descriptive and
exploratory innature as it brings forward the results
concerning the set objectives, though facts,
findings andenquiries, moreover it describes the state of
affairs that exists at present

Sources of data

PRIMARY DATA:
Depending upon the nature of the problem, primary
data can be collected through variousmethods. In
this study, personal interviews with senior officials
of different departments of corporate office, with
OSWAL WOOLLEN MILLS LIMITED and various
members of financeand accounts department of the
company.
SECONDARY DATA:
The secondary data are those data which have
already been collected by someone else and

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whichhave already been passed through statistics

process. I got published data as maintained
bycompany like company manuals, annual reports
balance sheets etc.Data collected through websites
also

LIMITATIONOFTHESTU DY
1.The limitation of the study was that the data
given was not correct, due to some
technical problems in their E.R.P. system. So it
needed to be checked twice or thrice. Also due totime
constraint financial constraints was not able to study some
more aspects of it
.2.Analysis is only a means and not ends in itself.
The analyst has to make interpretationand draw his
own calculation.
3.Calculations are difficult to do.

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4.The finance department doesnt the proper and

required information

ESULTS AND FINDINGS

There is lack of educated workers working in

s t o r e s . Tec h n i q u e s u s e d f o r
i n v e n t o r y management are not so good.

The stock turnover ratio of the company is decreasing

For managing cash, cash budget is prepared periodically

by accounts department.

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The working capital of the company increased in the past

years periodically.

Stock conversion period of the company is

increasing which shows the inefficiency of stock
management.

Gross period of the operating cycle of the company has

increased

Sales, Net profit and EPS of the company are showing an

upward trend.

Gross Profit of the company has decreased in 2008

due to increase in manufacturingexpenses.

Net profit ratio is decreasing during the

p e r i o d 2 0 1 0 t o 2 0 11 w h i c h m a y b e d u e
t o increase in cost of goods sold.

Debt equity ratio is almost satisfactory during all

the years from the year 2007 to theyear 2011.

Working capital turnover ratio is increasing year

by year which shows improvement inthe efficient
utilization of working capital by the managemen

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SUGGESTIONS

OWM should finance a major portion of its requirement

of working capital short termsources of finance as they
are cheaper than the long term sources .It is financing a
part of its working capital from long term sources of
finance as it is cleared from the fixed assetsto total long
term fund ratio.

The Company is not adopting proper inventory systems

like A.B.C analysis, V.E.Danalysis etc. This inventory
system can make the inventory management more
resultoriented .Since ,inventory covers the major portion
of OWMS current assets; it should be given prime
attention.

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The company should do proper Cost-to-Benefit analysis

before purchasing the rawmaterial i.e. wool for following
months in the light of its storage cost, current
prices,estimated future prices, further demand etc. along
with the opportunity cost of holdingsuch inventory.

The short term liquidity of the firm is not satisfactory as it

is clear from the quick ratio.The company should
immediate steps towards its improvements.

The surplus funds of the unit should be invested in some

short marketable securities ,rather than providing it to its
subsidiary free of cost, to improve profitability along
withthe liquidity.

The company should reduce its production cycle to

decrease its working capitalrequirements. As OWM does
its production on the job basis , it should not be difficult
for the company to reduce this

cONCLUSION

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oWM has opted for a moderate overall

w o r k i n g c a p i t a l p o l i c y. T h i s s u g g e s t s t h a t i t
is risk averse. It wants a reasonable profit
with a reasonable amount of risk. If it goes
i n f o r a n aggressive policy the profits generates
could be high but accompanies with the high level
of profits will come high level of risks, which they feel is
not appropriate. Since with this policy the profit is
being generated are substantially high a change in
the working capital policy is notcalled for.

On analyzing the operating cycle it has been

found that operating cycle has increased
b y approximately 48% as that of previous year. The
operating cycle can be reduced to a greater degree
by trying to get a reduction in the raw material conversion
period.Since OWM produces only therefore the inventory
requirement for the following months can beaccurately
forecasted. Since, the raw material i.e. cotton and wool
are a seasonal crop, it should be stored for following
months by analyzing the benefit of storing it, the storage
cost associatedwith, wool prices, its availability and also
further requirements of the company as per its
order.Every month if forecast is made accordingly and

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order is placed, it would help in bringing downthe time

required in the raw material storage period

BIBLIOGRAPHYBooks:

K h a n M . Y. a n d J a i n P.K . , F i n a n c i a l m a n a g e
m e n t , T a t a M c - G r a w H i l l ( P ) Limited, New Delhi

Sharma Gupta, Management Accounting, Kalyani Publishers

REFERANCES

MR R.M SOOD (FINANCE CONTROLLER)

MR R.C KAUSHAL(ACCOUNT MANAGER)

Website

www.google.com

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www.ask.com

www.wikipedia.com

www.owmnahar.com

www.owmnahar.in